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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C., 20549
(MARK ONE)
_X_ Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE FISCAL YEAR ENDED JANUARY 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 its Charter)
DELAWARE 41-1718075
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
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4201 LEXINGTON AVENUE NORTH
ARDEN HILLS, MINNESOTA 55126-6198
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (612) 482-2401
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.01 PAR VALUE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. _X_
The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant, based upon the closing sale price of the
Common Stock on March 22, 1994 on the Nasdaq National Market as reported in The
Wall Street Journal, was approximately $84,900,000. Shares of voting stock held
by each executive officer and director and by each person who owns more than 5%
of any class of the registrant's voting stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
AS OF MARCH 22, 1994, THE REGISTRANT HAD OUTSTANDING 13,669,205 SHARES OF COMMON
STOCK.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for the registrant's
1994 Annual Meeting of Stockholders are incorporated by reference into Part III,
and portions of the registrant's Annual Report to Stockholders for the fiscal
year ended January 1, 1994 are incorporated by reference into Parts II and IV.
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PART I
ITEM 1. BUSINESS
BACKGROUND. The Company is a systems integrator, developing and
implementing open systems solutions for the operational problems of customers
worldwide. It 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.
The Company was established through Ceridian Corporation's transfer of its
Computer Products business to the Company and Ceridian's subsequent
distribution, in July 1992, of the Company's stock as a dividend to Ceridian's
stockholders. Since August, 1992 the Common Stock of the Company has been traded
on the Nasdaq National Market.
For the first 32 years of its history, the Company developed and
manufactured 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 RISC and/or Intel-based computer systems which,
coupled with networking and distributed applications, form what is often
referred to as the client/server computing environment. Today its integration
services include network design, installation and maintenance; application
design and deployment; remote and on-site systems management; electronic
messaging; and manufacturing design, information engineering, engineering and
production.
The Company's principal offices are located at 4201 Lexington Avenue North,
Arden Hills, Minnesota 55126.
ACQUISITIONS
Since July 1992, the Company acquired four regionally-based systems
integration businesses to bolster its integration capabilities in North America
and Europe. Evernet Systems, Inc. based in Los Angeles, California, specialized
in the design, integration, and support of multi-vendor network-based systems.
The company served clients in a wide variety of commercial market segments,
including financial services, health care, pharmaceuticals, manufacturing, legal
and other services firms. DataSelskapet A/S, a Norwegian, privately-held company
provides PC hardware and software to commercial and government markets. Antares
Electronics, Inc., based in Ottawa, Canada, provided specialized
microcomputer-based solutions in the areas of enterprise-wide networking and
integration. Antares' primary markets were in the government and commercial
sectors, including companies in the financial, pharmaceutical, and insurance
industries. MICHAEL Business Systems Plc., based near Gatwick, London, United
Kingdom, provides PC LAN enterprise-wide networking and integration services to
the manufacturing, commercial, and government markets. These acquisitions
collectively have provided the Company with significant incremental technical
skills and market presence at the "client" (user) level where PCs and local area
networks predominate.
INDUSTRY BACKGROUND AND BUSINESS TRANSITION
The worldwide computer industry has changed dramatically over the last
decade and it will continue to do so. In response to rapid innovations in
technology and price/performance improvements in hardware, software and
networking, customers have been developing most of their new applications on
open systems platforms rather than proprietary architecture. With this comes the
distribution of these applications away from a central environment (relying on
large mainframes) into a distributed environment where the application resides
on the computer platform best suited for that function (client/servers).
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In response to this shift in the market, the Company in 1989 began to
transition its business from proprietary mainframe design and manufacturing to
open systems integration. Over the past five years the Company has stopped the
development of new proprietary hardware products, refocused its technical
development employees on billable customer projects, signed hardware and
software remarketing agreements with major open systems suppliers, restructured
its field sales and service organizations, and acquired several small systems
integration companies. This shift in business model has required a reduction in
the number of centrally deployed employees and in the size and scope of the
Company's support infrastructure. The Company must continue to align its
infrastructure and associated operating expenses, as well as redeploy certain
personnel. During this transition period, revenues from the sale, lease, and
maintenance of proprietary systems have declined. In fiscal 1993 open systems
hardware, software, and consulting revenues represented 64 percent of the
Company's revenues.
PRODUCTS AND SERVICES
The following table sets forth revenues for the Company's major product and
service offerings for the periods indicated:
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YEARS ENDED
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JANUARY 1, JANUARY 2, DECEMBER 31,
1994 1993 1991
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(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Open systems hardware sales and rentals.................................. $ 144,956 $ 131,157 $ 120,611
Consulting and other services and software............................... 144,107 144,957 136,218
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Subtotal: integration services......................................... 289,063 276,114 256,829
Proprietary systems hardware sales and rentals........................... 52,735 108,344 170,993
Hardware maintenance..................................................... 110,037 132,521 145,821
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Total revenues......................................................... $ 451,835 $ 516,979 $ 573,643
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OPEN SYSTEMS HARDWARE SALES AND RENTALS
The UNIX operating system, originally developed by AT&T, has grown in
popularity and has become an industry standard. The primary strengths of UNIX
relate to its multi-user and multi-tasking capabilities for systems ranging in
size from personal computers to supercomputers, its advanced networking and
communications features, and the fact that it is largely hardware and software
vendor-independent ("open systems"). Architectures based on reduced instruction
set computing ("RISC") microprocessors can dramatically reduce the cost of a
computer and increase its speed by reducing instruction execution time by
streamlining the processor to include only simpler, more frequently used
instructions. Systems based on UNIX/RISC and Intel/Microsoft technologies can
support the industry's migration from centralized computing, dependent on
mainframes, to a networked and distributed client/server environment, in which
application processing and data are spread across many networked computing
resources. Many microprocessor-based computers are "scalable" in that their
performance can be increased through the low-cost addition or swapping of
processor boards, and this "scalability" can thereby prolong a purchaser's
computer system investment.
CONTROL DATA 9000 AND 9XX PLATFORMS. The Company has entered into original
equipment manufacturer (OEM) and technology sharing agreements with Silicon
Graphics, Inc., which provide the Company with its Control Data 9000 line of
workstations and servers, its open systems Control Data 900 series of graphics
workstations and servers and its Control Data 4000 line of servers discussed
below. These workstations and servers run versions of industry standard
UNIX-based operating systems and are based upon MIPS' RISC architecture. The
Control Data 9000 line of workstations and servers provides real-time high
resolution 3D color graphic display for applications such as mechanical design,
visual simulation, animation, industrial and product design, molecular
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modeling, computational fluid dynamics and manufacturing simulation. The Control
Data 9000 line of single and multiprocessor servers provides compute serving and
file serving capabilities for distributed work groups in multivendor
environments.
The majority of the Company's Control Data 9000 platform customers use these
systems to run the Company's CAD/CAM applications software and its engineering
data management software applications discussed below, as well as a number of
other third-party applications that the Company has integrated with these
environments.
CONTROL DATA 4000 PLATFORMS. The Company continues to market two models in
the Control Data 4000 series of binary-compatible servers, namely the mid-range
model 4460 and the high-end, multi-processor model 4680.
OTHER SUPPLIER ARRANGEMENTS. To expand the range of platform options
available to its customers, in 1993 the Company signed remarketing agreements
with Sun Microsystems, Hewlett-Packard, Acer America, Tricord and others.
As a Sun integrator, the Company remarkets Sun's complete line of
workstations, servers, and software worldwide as part of the Company's systems
integration solutions for the commercial marketplace, particularly in the
financial services, healthcare, telecommunications, and manufacturing markets.
As a Hewlett-Packard integrator, the Company remarkets HP Apollo 9000 Series 700
workstations and HP 9000 Series 800 business server hardware and software,
integrating the equipment and applications into solutions for customers in the
aerospace, automotive, manufacturing, government, and commercial markets. As an
Acer America integrator, the Company offers a wide range of Acer solutions, from
Intel-based PCs, including notebooks and desktops, to MIPS R4000-based
workstations tuned for the Windows NT operating system.
The Company also has an agreement with NEC Corporation to remarket NEC
workstations and servers in selected Asian markets.
One key factor which differentiates the Company from most other integrators
is the fact that it is not captive to a particular product set or technology.
This objectivity allows working in a multivendor environment without bias. As a
consequence, a host of other supplier agreements are in place as well as
agreements with various product distributors.
Revenues from the sale and rentals of open systems hardware products were
$145.0 million in 1993, $131.2 million in 1992, and $120.6 million in 1991,
representing 32.1%, 25.4%, and 20.9 %, respectively, of the Company's total
revenues.
PROPRIETARY SYSTEMS HARDWARE SALES AND RENTALS
A large portion of the Company's revenues has historically been generated
from the sale and rentals of its proprietary, general purpose CYBER mainframe
computers. Historically, the Company has targeted its proprietary CYBER systems
for customers who maintain centralized computing environments and who have
computation-intensive information and data processing needs, such as those in
the worldwide automotive, aerospace, government, higher education, petroleum and
weather and forecasting markets.
The Company's current strategy with respect to CYBER systems is twofold.
First, given the Company's business transition, it does not plan further
development of new proprietary CYBER computers beyond current models, the most
recent of which was first announced in 1988, but will seek to protect and extend
existing customers' investments with performance, networking, software and
peripheral enhancements as well as service and support. Second, the Company
plans to continue providing its CYBER customers with migration paths to open
systems platforms.
The Company currently provides its CYBER customers with software and
communications products to integrate and manage information in multiple vendor
environments, emphasizing the use of industry standards. Included among these
products are two developed by the Company, CDCNET and
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ExpressLink. CDCNET is a distributed communications network that not only links
the Company's proprietary computer products but also facilitates connectivity
between those products and computers from other vendors. ExpressLink is a
processor board that produces a high-speed connection between the Company's
Control Data 4000 line of open system servers and its CYBER computers.
In 1992, Ceridian Corporation consolidated the printed circuit board
assembly and the final assembly, component integration and testing capabilities
of its Computing Devices International ("CDI") and Computer Products businesses
under the management direction of CDI. CDI now provides the Company with its
proprietary CYBER hardware products. The Company purchased a total of
approximately $36.6 million of CDI products during 1993.
Revenues from the sale and lease of proprietary hardware products were $52.7
million in 1993, $108.3 million in 1992, and $171.0 million in 1991,
representing 11.7%, 20.9%, and 29.8%, respectively, of the Company's total
revenues.
CONSULTING AND OTHER SERVICES
The Company has a heritage of managing large programs requiring complex
systems integration. Previously the projects centered on use of the Company's
proprietary products. In the open systems environment, the Company is
increasingly involved in systems integration activities that require a diverse
set of products and services procured from many suppliers. Integral to this
business are the many professional services analysts whose knowledge and skills
are required to assist in information architecture, systems design and
implementation.
The Company's service offerings consist of a broad range of integration and
consulting services. These services are provided to both CYBER and open systems
customers. The Company is focusing on Fortune 1000 and similarly sized companies
in North America, Europe and Asia.
The Company's integration services are designed to assist customers in the
selection and creation of computer systems tailored to solve business-specific
information management and networking problems or to automate system activities.
In creating these customized systems, the Company incorporates selected
hardware, networking and software products it has developed or obtained from its
suppliers.
The Company places substantial emphasis on developing customized systems
solutions using off-the-shelf open systems products. Focus is given on assisting
customers with the information management problems caused by the proliferation
of personal computers, workstations, servers, and other computers throughout an
organization.
CLIENT/SERVER SERVICES. For customers that are downsizing or reengineering
their computing systems through the application of client/server technology, the
Company offers the following specialized assistance:
- Program management, design and development of user interfaces,
database design, solution connectivity, system administration,
and the implementation of application functionality.
- Evaluation and implementation of operating environments
required by the customer's application software. The Company
offers experience in both enhanced and conventional versions of
UNIX, desktop systems (MS-DOS, Microsoft Windows, and Windows
NT) and high performance I/O extensions. This also includes
LANs and network operating systems such as Novell and Banyan.
- Evaluation and implementation of the most appropriate,
cost-effective computer hardware and software for a customer's
client/server environment. The Company offers a range of open
systems platforms based on its marketing relationships with
leading industry platform and peripheral suppliers, including
Sun, Hewlett-Packard, SGI, NEC, and Acer.
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NETWORKING SOLUTIONS. As computer users take advantage of downsized
computer platforms, decentralized organizational processes, and open systems
technology, their computing environment's basic networking also must be
evaluated in terms of its capabilities, performance, and cost. When these
changes take place, users often need to find new solutions for interconnecting
dissimilar computer systems, finding cost-effective ways to manage complex
networks on a daily basis, and improving the productivity of their business
processes. The Company's networking experts provide the following services:
- Electronic Messaging. Services that allow disparate E-Mail
systems from mainframes, PCs and workstation/servers to
communicate in a transparent manner.
- EDI Solutions. Services to enhance electronic data interchange
(EDI) capabilities, enabling organizations to expedite their
daily business processes.
- SNA Rightsizing. Enhancements to improve Systems Network
Architecture (SNA) network performance, reduce operating costs
and provide connectivity to standards-based networks.
- Network Integration. Requirements analysis, configuration
design, installation, performance assessment, and ongoing
maintenance of local (LAN) and wide area (WAN) networks.
- PC Integration. Full LAN and WAN implementation services,
including the use of such integration tools as Vista-TM- Suite
and TotalNet.
- Enterprise Management Center. Remote management, monitoring,
and troubleshooting support for computer networks and systems,
worldwide, 24 hours a day, 7 days a week.
- Help Desk Hotline. Answers to questions on operating systems,
networks, applications, and general computing problems.
Engineers trained to solve problems by phone or dispatch
on-site support.
The Company's integration services are carried out primarily by its
professional services staff, which includes over 1,200 systems analysts in over
20 countries serving customers. The Company believes that Control Data
Brainware-TM- -- the technical skills, knowledge, and abilities of its
professional services staff -- are an important determinant of its ability to
compete as it continues its business transition.
To meet the unique needs or preferences of customers in specific geographic
markets, the Company selects the most suitable and cost-effective hardware
platforms currently available from marketing partners, and adds third-party
networking products, industry standard applications, and other local products
such as microcomputers, terminals, electronic messaging services and solutions.
In today's heterogeneous computing environments, productivity suffers when, for
example, DEC and IBM mainframe users are unable to communicate with people using
UNIX-based systems or PCs.
SOFTWARE
GENERAL. The Company provides software for various facets of information
processing as part of its product offerings. The software is primarily marketed
on a paid-up license basis, and in selected circumstances on a monthly
right-to-use arrangement. Various levels of software support are available to
the customer. The Company has developed and continues to maintain certain
systems-level and application software. In addition, software developed and
owned by other parties is marketed by the Company. In both cases the Company
offers customization and customer support for the software product.
Operating system software is offered for the Company's proprietary product
lines, under the product names of NOS and NOS/VE. An enhanced version of UNIX is
offered for the Company's
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Control Data 4000 platforms, under the product name of EP/IX. The Company offers
expertise and support for a variety of other manufacturers' operating system
software including MS/DOS, Solaris, NT, and other UNIX derivatives.
The Company has developed expertise in and supports a variety of network
solution software environments including, Novell, Banyan, 3 COM, Cisco,
Wellfleet and, for the Company's proprietary product line, CDCNET.
The Company also offers framework and application software for selected
environments and industry segments. A description of selected products in this
category follows.
MAIL*HUB. As its backbone messaging product, the Company offers
Mail*Hub-TM-, an E-Mail integrator that links different mail systems on the same
network using industry standard X.400 and X.500 directory protocols. The X.500
directory gives customers a database for address, configuration, and routing
information within their organization and to similar directories worldwide.
As a state-of-the-art implementation of X.500 directory technology, Mail*Hub
is the Company's leading network integration software product. It is packaged
with services that include network analysis, configuration, installation,
monitoring and maintenance, as well as customer training and hotline support.
CAD/CAM/CAE APPLICATION SOFTWARE PRODUCTS. The Company offers
computer-aided design, manufacturing and engineering (CAD/CAM/CAE) software
applications packages that provide simultaneous engineering, or automated
merging of engineering analysis, design, drafting and manufacturing functions.
This eliminates separate data entry operations, reducing the chance of errors
and shortening the time to produce a product.
The Company's most important CAD/CAM/CAE offering is its Integrated
Computer-aided Engineering and Manufacturing (ICEM) series of CAD/CAM/CAE
software modules for the manufacturing industry, specifically for automotive
companies and their suppliers, airplane and aerospace companies and their
suppliers, and machinery companies. ICEM software packages include surface
modeling, computational fluid dynamics, surface milling, and solid modeling
packages, and can be run on the Company's 9000 and 9XX series of open systems
platforms, other open systems platforms, as well as on its line of proprietary
CYBER mainframes.
Effective January 1, 1993, a new joint venture among ICEM Systems GmbH,
Volkswagen AG (VW), Intergraph Corporation (Intergraph), and the Company was
created for the development of CAD/CAM/CAE systems. The purpose of the new ICEM
Systems venture is to develop a next-generation CAD/CAM/CAE software product
based upon Intergraph's EMS product and Control Data's ICEM product. In February
1994, the Company formed ICEM Technologies (IT), a new division focused on
marketing and distributing the ICEM suite of CAD/CAM/CAE systems.
PRODUCT DATA MANAGEMENT APPLICATION SOFTWARE PRODUCTS. The growing volume
of complex and hard-to-manage information generated by CAD/CAM/CAE systems in
manufacturing and engineering organizations has given rise to increasing demand
for product data management (PDM) software and related consulting services.
The Company's PDM software product is called Engineering Data Library (EDL).
EDL is a collection of software tools and modules for managing the creation,
manipulation and transmission of information throughout a manufacturing or
engineering organization to enable users to identify, locate and manipulate
information residing on personal computers, workstations, servers, minicomputers
and mainframes in a complex, heterogeneous system. As with the CAD/CAM product
line, EDL emphasizes reducing the customer's development cycle by enabling
different types of users, from designers to manufacturing experts, to share
information and data. First developed in 1979, the Company's EDL software runs
on the Company's proprietary and open systems platforms. Recently,
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the Company expanded the platform scope of its EDL software, which can now run
on platforms of other vendors such as Sun Microsystems, Inc., Hewlett-Packard
Company, and Digital Equipment Corporation.
To develop and market advanced PDM software the Company established in
August 1992, Metaphase Technology, Inc., a joint venture with Structural
Dynamics Research Corporation (SDRC). Metaphase will work to develop a new
generation of PDM products combining and enhancing the strongest features of the
Company's EDL product and SDRC's Data Management and Control System (DMCS)
product. The resulting products are to be fully compatible with the Company's
existing EDL product.
Revenues from consulting, other services and software were $144.1 million in
1993, $145.0 million in 1992, and $136.2 million in 1991, representing 31.9%,
28.0%, and 23.7%, respectively of the Company's total revenues.
HARDWARE MAINTENANCE
The Company provides hardware and software maintenance services for both
CYBER and open systems products through engineers located throughout the United
States and in many foreign countries. A central support organization provides
technical planning and support, including a worldwide logistics operation
providing spare parts, a 24-hour hotline and an on-line diagnostic system
accessible through CYBER mainframes.
Maintenance revenues were $110.0 million in 1993, $132.5 million in 1992,
and $145.8 million in 1991, representing 24.3%, 25.6%, and 25.4%, respectively
of the Company's total revenues.
SALES
WORLDWIDE BUSINESS
The Company markets its products and services principally through its direct
sales force located in the United States and over 20 other countries. The
Company's major international operations are in Canada, France, Germany, Korea,
Mexico, Taiwan, and the United Kingdom. The Company also markets its products
and services through distributors located in countries representing smaller
markets. The Company believes that one of its strengths is its long-standing
presence and name recognition in various foreign countries.
Revenues from the Company's international operations were approximately
65.2%, 70.8%, and 68.0%, of the Company's total revenues in 1993, 1992, and
1991, respectively. For further information regarding the Company's U.S. and
international operations, see Note 16 of the Notes to Consolidated Financial
Statements incorporated herein by reference to the Company's Annual Report to
Stockholders for the fiscal year ended January 1, 1994.
The Company's sales and support operations are organized into three regions,
each with its own marketing, sales and sales support professionals, including
those providing professional and engineering services. Certain centralized
technology support services are provided to the sales regions from the Company
headquarters in Arden Hills, Minnesota. These resources are available to assist
field organizations in understanding technology trends, formulating technology
strategies, and providing pre-sales consulting and post sales implementation
expertise. The Company also provides essential system integration services
including customer hot-line support, program/project management, customized
training systems, engineering analysis and custom software development.
CUSTOMERS
The Company believes that its worldwide sales, consulting and support
organization enables it to better understand the markets, to focus its sales
efforts effectively, and to develop long-term relationships with its customers.
The Company's products and services are used in a wide variety of applications.
While scientific and engineering applications have historically represented a
majority of the Company's customer base, sales to customers in commercial
fields, such as information management, have been expanding.
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The U.S. Government was the only customer of the Company accounting for more
than 10% of total revenues in fiscal year 1993, 1992, or 1991. The Company
estimates that contracts with the U.S. government represented approximately
13.7%, 13.4%, and 15.0% of total revenue in fiscal years 1993, 1992, and 1991,
respectively. Generally, the Company's contracts with the U.S. government
contain provisions to the effect that they may be terminated at the convenience
of the customer, and that in the event of such termination, the Company would be
entitled to receive payment based on the cost incurred and the anticipated
profit on the work completed prior to termination.
SALES AGREEMENTS WITH CERIDIAN
The Company has entered into value-added remarketing (VAR) agreements with
the Computing Devices International (CDI), a subsidiary of Ceridian Corporation,
to permit CDI to continue to sell and support the Company's products. In
addition, the Company entered into a VAR agreement with Ceridian concerning
Ceridian's former Automated Wagering division (AWD) which allows AWD to purchase
hardware, software and support services from the Company. On June 23, 1992, AWD
was sold to Video Lottery Technologies, Inc. (VLT) and the VAR agreement with
regard to AWD was assigned to VLT.
RESEARCH AND DEVELOPMENT
The Company's research and development efforts are increasingly oriented
toward open systems and include advancements in electronic mail integration,
development of applications software, enhancement of the Company's engineering
data management applications software, and networking and integration
development efforts. The Company's strategic relationship with SGI included a
Technology Development Agreement to merge SGI's and MIPS' UNIX-based operating
systems software with the Company's EP/IX operating system. For further
information regarding the Company's relationship with SGI see Note 10 of the
Notes to Consolidated Financial Statements incorporated herein by reference to
the Company's Annual Report to Stockholders for the fiscal year ended January 1,
1994. Research and development efforts directed toward enhancing the Company's
ICEM application software product line occur through the Company's joint venture
with Intergraph and VW. Similarly, research and development activities for the
Company's EDL software product have been transferred to Metaphase Technology,
Inc., the joint venture with SDRC. Company-sponsored research and development
expenses related to new products or services and the improvement of existing
products totaled $23.8 million, $37.8 million, and $43.5 million, for 1993,
1992, and 1991, respectively.
The decrease in research and development expenses relates primarily to the
Company's continuing business transition. This transition has enabled the
Company to significantly reduce its research and development spending by
acquiring and integrating products provided by other vendors and by obtaining
customer funding for custom developed solutions.
COMPETITION
The market for the Company's products and services is highly competitive and
is characterized by rapid technological advances in both hardware and software
development. These advances result in shorter product life cycles and enhanced
product capabilities, typically at significantly better price and performance
levels, but they have also created increased demand for the skills of a
knowledgeable systems integrator who can help customers make the best use of the
available technology.
Competition in the systems integration market is intense and is based on a
variety of factors including customer satisfaction, reputation, price,
performance, product quality, software availability, connectivity, networking,
compatibility with industry standards, marketing and distribution capability,
customer support, name recognition and financial strength. Further, given the
Company's reliance on its suppliers, their relative competitive positions will
have an impact on the Company's own position in the marketplace. The Company
competes throughout the world with numerous local, regional, national, and
international systems integrators. Several of the Company's competitors have
significantly greater financial and operational resources than the Company.
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BACKLOG
The backlog of the Company's orders believed to be firm is estimated to have
been approximately $72.2 million as of January 1, 1994, of which approximately
90% is expected to be reflected in revenues during 1994. At January 2, 1993, the
backlog was approximately $77.0 million. These backlog amounts include the
minimum noncancellable future lease revenue expected from contracts existing at
those dates, which amounted to $22.0 million for 1993 and $35.0 million for
1992.
No backlog amount is determinable for a large portion of the Company's
revenues, particularly for maintenance and other services, and the average time
from order to installation of hardware products is shortening. In addition,
customers may elect to accelerate or delay the delivery of products, and
delivery of large orders may be spread over a period of time and may be subject
to modification from time to time. Consequently, the Company believes that
backlog information does not necessarily provide a meaningful indication of its
future business volume.
ENVIRONMENTAL MATTERS
In connection with the Company's spin-off from Ceridian, Ceridian agreed to
retain responsibility for and indemnify the Company against environmental
liabilities relating to (i) facilities formerly operated by the Computer
Products business, (ii) third-party disposal or treatment sites as to which
Ceridian has been or is in the future identified as a potentially responsible
party because of past operations of the Computer Products business at its former
facilities and (iii) certain other known environmental matters related to past
operations of the Computer Products business. These facilities and sites
constitute all matters which, at the present time, are known to present
potential environmental liabilities related to the operation of the Computer
Products business. The Company has generally agreed to indemnify Ceridian
against future environmental claims that relate to current and future facilities
and operations of the Company.
Compliance by the Company with Federal, state and local environmental
protection laws during 1993 had no material effect upon capital expenditures,
earnings or competitive position and is expected to have none in the foreseeable
future.
PATENTS
The Company owns or is licensed under a large number of patents which relate
to many of its products and are of importance to its business. The Company
believes that its business as a whole is not materially dependent upon any
particular patent or license, or any particular group of patents or licenses.
Instead, the Company believes that its success and growth are more dependent,
among other things, on the quality of its services and products and its
reputation with its customers.
EMPLOYEES
As of January 1, 1994, the Company had approximately 3,140 full-time
employees.
10
<PAGE>
ITEM 2. PROPERTIES
The Company's corporate headquarters and U.S. field operations headquarters
are located in Arden Hills, Minnesota. Facilities located elsewhere are
primarily sales and service locations, and include significant office facilities
in Atlanta, Georgia; Santa Clara, California; Rockville, Maryland; Washington,
D.C.; Frankfurt, Germany; Copenhagen, Denmark; Mexico City, Mexico; London,
England; Paris, France; Oslo, Norway; Ottawa, Canada; and Taipei, Taiwan.
The following table summarizes the usage and location of the Company's
facilities as of March 1, 1994.
FACILITIES
<TABLE>
<CAPTION>
TYPE OF PROPERTY INTEREST U.S. NON-U.S. WORLDWIDE
- ------------------------------------------------------------ --------- ----------- -----------
(IN THOUSANDS OF SQUARE FEET)
<S> <C> <C> <C>
Owned....................................................... 374.8 179.2 554.0
Leased...................................................... 885.9 740.2 1,626.1
--------- ----- -----------
Total square feet......................................... 1,260.7 919.4 2,180.1
--------- ----- -----------
--------- ----- -----------
UTILIZATION
- ------------------------------------------------------------
Warehousing................................................. 81.2 168.6 249.8
Office, computer center and other........................... 765.5 439.9 1,205.4
Vacant...................................................... 109.9 184.0 293.9
Leased or subleased to others............................... 304.1 126.9 431.0
--------- ----- -----------
Total square feet......................................... 1,260.7 919.4 2,180.1
--------- ----- -----------
--------- ----- -----------
</TABLE>
No facilities owned by the Company are subject to any major encumbrances.
The Company believes that all of the facilities it currently utilizes in its
ongoing business operations are adequate for their intended purposes and are
adequately maintained. As a result of the Company's continuing business
transition, further consolidation of facilities is planned. Restructuring
charges recorded in fiscal year ended January 2, 1993 included provisions of
approximately $18.5 million for lease and other obligations related to excess
facilities.
ITEM 3. LEGAL PROCEEDINGS
There are no legal proceedings pending against or involving the Company,
which in the opinion of management, will have a material adverse effect upon its
consolidated financial position or results of operations.
In connection with the Company's spin-off from Ceridian, it has agreed to
assume responsibility for, and indemnify Ceridian Corporation against, liability
in connection with judicial and administrative claims and proceedings relating
to the Computer Products business prior to August 1, 1992. It is anticipated
that final disposition of some of these claims and proceedings may not occur for
several years. Although occasional adverse decisions (or settlements) may occur,
management believes that the final disposition of such matters will not, in the
aggregate, have a material adverse effect on the Company's financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders during the
quarter ended January 1, 1994.
11
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company as of March 1, 1994, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------- --- --------------------------------------------
<S> <C> <C>
James E. Ousley 48 President and Chief Executive Officer
Joseph F. Killoran 53 Vice President and Chief Financial Officer
Ruth A. Rich 50 Vice President, Human Resources and
Administration
Michael Caglarcan 45 Vice President, Americas Region
Dieter Porzel 57 Vice President, Europe/Middle East/Africa
Region
</TABLE>
Executive officers of the Company are elected by the Board of Directors and
serve at the Board's discretion. There are no family relationships among any
directors or executive officers of the Company.
James E. Ousley has been President and Chief Executive Officer of Control
Data Systems since August 1992. Mr. Ousley was President of Ceridian's Computer
Products business from April 1989 to July 1992; Executive Vice President of
Ceridian from February 1990 to July 1992; Vice President, Marketing and Sales
for Computer Products business from January 1989 to April 1989.
Joseph F. Killoran has been Vice President and Chief Financial Officer of
Control Data Systems since February 1994. Mr. Killoran was Vice President and
Controller of Control Data Systems from August 1992 to January 1994; Vice
President and Controller for Ceridian's Computer Products business from 1989 to
July 31, 1992.
Ruth A. Rich has been Vice President, Human Resources and Administration of
Control Data Systems since August 1992. Ms. Rich was Vice President, Human
Resources and Administration for Ceridian's Computer Products business from
November 1990 to July 1992; and Vice President, Human Resources and
Administration for Ceridian's Information Services Group from May 1986 to
November 1990.
Michael Caglarcan has been Vice President, Americas Region of Control Data
Systems since September 1993. Mr. Caglarcan was Vice President, Systems
Integration Services for Control Data Systems from June 1993 to August 1993;
Chairman, President and Chief Executive Officer of Evernet Systems, Inc., a
company acquired by Control Data Systems, Inc. in June 1993, from September,
1992 to June 1993; Senior Vice President, Marketing and Sales of Evernet
Systems, Inc. from September 1990 to August 1992; and Vice President, Marketing
and Sales, Commercial Group of Electronic Data Systems (EDS) Corporation from
1988 to August 1990.
Dieter Porzel has been Vice President, Europe/Middle East/Africa Region of
Control Data Systems since December 1992. Mr. Porzel was Vice President, Central
Europe Region for Control Data Systems from August 1992 to December 1992; and
Vice President, Central Europe Region of Ceridian's Computer Products business
from April 1987 to August 1992.
12
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
"Price Range of Common Stock," appearing on page 28 of the Company's 1993
Annual Report to Stockholders is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
"Selected Consolidated Financial Data," appearing on page 16 of the
Company's 1993 Annual Report to Stockholders, is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," appearing on pages 13 through 15 of the Company's 1993 Annual
Report to Stockholders, is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated balance sheets of the Company and its subsidiaries as of
January 1, 1994 and January 2, 1993, the related consolidated statements of
operations, stockholders' equity and cash flows for each of the years in the
three-year period ended January 1, 1994, and the notes to consolidated financial
statements, together with report therein of KPMG Peat Marwick dated January 28,
1994, appearing on pages 12 through 27 of the Company's 1993 Annual Report to
Stockholders, are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
13
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
IDENTIFICATION OF DIRECTORS
"Election of Directors" in the Company's Proxy Statement for the 1994 Annual
Meeting of Stockholders to be held on May 18, 1994 (hereinafter the "Proxy
Statement") is incorporated herein by reference.
IDENTIFICATION OF EXECUTIVE OFFICERS
Information regarding executive officers of the Company is contained in Part
I of this Report on page 11 and 12 and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
"Executive Compensation" in the Proxy Statement is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
"Stockholdings of Certain Owners and Management" in the Proxy Statement is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
"Election of Directors -- Certain Business Relationships" in the Proxy
Statement is incorporated herein by reference.
14
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS
Incorporated by reference into Part II, Item 8 of this report.
<TABLE>
<CAPTION>
PAGE IN
1993 ANNUAL
REPORT TO
STOCKHOLDERS
-----------------
<S> <C>
Independent Auditors' Report........................................................................ 12
Consolidated Statements of Operations -- Years Ended January 1, 1994, January 2, 1993 and December
31, 1991........................................................................................... 17
Consolidated Balance Sheets -- January 1, 1994 and January 2, 1993.................................. 18
Consolidated Statements of Stockholders' Equity -- Years Ended January 1, 1994, January 2, 1993 and
December 31, 1991.................................................................................. 19
Consolidated Statements of Cash Flows -- Years Ended January 1, 1994, January 2, 1993 and December
31, 1991........................................................................................... 20
Notes to Consolidated Financial Statements.......................................................... 21
</TABLE>
FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE IN THIS
FORM 10-K
-----------------
<S> <C>
Independent Auditors' Report on Financial Statement Schedules....................................... 18
Schedule VIII -- Valuation and Qualifying Accounts.................................................. 19
Schedule IX -- Short-term Borrowings................................................................ 20
</TABLE>
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the consolidated
financial statements or notes thereto.
REPORTS ON FORM 8-K
The Company was not required to and did not file any reports on Form 8-K
during the three months ended January 1, 1994.
15
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------
<C> <S>
3.1* Restated Certificate of Incorporation of the Registrant -- incorporated by reference to Exhibit
3.1, filed under cover of Form SE dated July 9, 1992, to the Form 8.(1)
3.2* Restated Bylaws of the Registrant, as amended -- incorporated by reference to Exhibit 99 to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended July 3, 1993.
10.1* Transfer Agreement between Ceridian and the Registrant -- incorporated by reference to Exhibit
10.1, filed under cover of Form SE dated July 9, 1992, to the Form 8.
10.2* Distribution Agreement between Ceridian and the Registrant -- incorporated by reference to Exhibit
10.2, filed under cover of Form SE dated July 9, 1992, to the Form 8.
10.3* Intercompany Services Agreement between Ceridian and the Registrant -- incorporated by reference
to Exhibit 10.3, filed under cover of Form SE dated July 9, 1992, to the Form 8.
10.4* Personnel Agreement between Ceridian and the Registrant -- incorporated by reference to Exhibit
10.4, filed under cover of Form SE dated July 9, 1992, to the Form 8.
10.5* Environmental Matters Agreement between Ceridian and the Registrant -- incorporated by reference
to Exhibit 10.5, filed under cover of Form SE dated July 9, 1992, to the Form 8.
10.6* Intellectual Property Agreement between Ceridian and the Registrant -- incorporated by reference
to Exhibit 10.6, filed under cover of Form SE dated July 9, 1992, to the Form 8.
10.7* Tax Matters Agreement between Ceridian and the Registrant -- incorporated by reference to Exhibit
10.7, filed under cover of Form SE dated July 9, 1992, to the Form 8.
10.8* Real Estate Facilities Agreement between Ceridian and the Registrant -- incorporated by reference
to Exhibit 10.8, filed under cover of Form SE dated July 9, 1992, to the Form 8.
10.9* Value-Added Remarketing Agreement between Ceridian and the Registrant regarding Ceridian's
Government Systems division -- incorporated by reference to Exhibit 10.9, filed under cover of
Form SE dated July 9, 1992, to the Form 8.
10.10* Value-Added Remarketing Agreement between Ceridian and the Registrant regarding Ceridian's Empros
Systems division -- incorporated by reference to Exhibit 10.10, filed under cover of Form SE
dated July 9, 1992, to the Form 8.
10.11* Value-Added Remarketing Agreement between Ceridian and the Registrant regarding Ceridian's
Automated Wagering division -- incorporated by reference to Exhibit 10.11, filed under cover of
Form SE dated July 9, 1992, to the Form 8.
</TABLE>
- ------------------------
(Schedules to the foregoing exhibits have not been included but will be
submitted supplementary to the Commission upon request)
* -- Incorporated by reference to previous filing.
(1) -- Form 8 and Form 10 refer, respectively, to the Registrant's Form 8
Amendment No. 1 dated July 10, 1992 (the "Form 8") to its Registration
Statement on Form 10 dated May 27, 1992 and declared effective July 16,
1992 (the "Form 10").
16
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------
<C> <S>
10.12* Master Purchase Option Agreement between Ceridian and the Registrant -- incorporated by reference
to Exhibit 10.12, filed under cover of Form SE dated July 9, 1992, to the Form 8.
10.13*(2) Form of Executive Employment Agreement between the Registrant and executive officers --
incorporated by reference to Exhibit 10.13, filed under cover of Form SE dated May 26, 1992, to
the Form 10.(1)
10.14*(2) Form of Indemnification Agreement between the Registrant and its directors and executive officers
-- incorporated by reference to Exhibit 10.14, filed under cover of Form SE dated July 9, 1992,
to the Form 8.
10.15*(2) The Registrant's 1992 Equity Incentive Plan -- incorporated by reference to Exhibit 10.15, filed
under cover of Form SE dated July 9, 1992, to the Form 8.
10.16(2) February 1994 Amendments to 1992 Equity Incentive Plan.
10.17(2) The Registrant's Executive Incentive Plan -- incorporated by reference to the description of such
plan under "Executive Compensation" in the Registrant's definitive Proxy Statement for its 1994
Annual Meeting of Stockholders.
10.18*(2) The Registrant's 1993 Employee Stock Purchase Plan -- incorporated by reference to Exhibit 10.17
to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 2, 1993.
10.19* Technology Development Agreement between Silicon Graphics, Inc. and the Registrant -- incorporated
by reference to Exhibit 10.18 to the Registrant's Annual Report on Form 10-K for the fiscal year
ended January 2, 1993.
10.20* Sixth Amendment to OEM Agreement between the Registrant and Silicon Graphics, Inc. -- incorporated
by reference to Exhibit 10.19 to the Registrant's Annual Report on Form 10-K for the fiscal year
ended January 2, 1993.
10.21* Stock Purchase Agreement dated July 31, 1992 between the Registrant and Silicon Graphics, Inc. --
incorporated by reference to Exhibit 19.1 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1992.
10.22* Software Distribution License Agreement between Intergraph and the Registrant -- incorporated by
reference to Exhibit 10.21 to the Registrant's Annual Report on Form 10-K for the fiscal year
ended January 2, 1993.
10.23(2) Contract for the "Vorsitzender der Geschaeftsfuehrung" of Control Data GmbH.
11.0 Computation of Earnings (Loss) per Common Share
13.0 The portions of the Registrant's 1993 Annual Report to Stockholders that are incorporated in this
Form 10-K by reference.
22.0 Subsidiaries of the Registrant.
24.0 Consent of Independent Auditors.
25.0 Power of Attorney -- included on Signatures page hereto.
</TABLE>
- ------------------------
(Schedules to the foregoing exhibits have not been included but will be
submitted supplementary to the Commission upon request)
* -- Incorporated by reference to previous filing.
(1) -- Form 8 and Form 10 refer, respectively, to the Registrant's Form 8
Amendment No. 1 dated July 10, 1992 (the "Form 8") to its Registration
Statement on Form 10 dated May 27, 1992 and declared effective July 16,
1992 (the "Form 10").
(2) -- Indicates a management contract or compensatory plan or arrangement
required to be filed as an exhibit to Form 10-K.
17
<PAGE>
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES
The Board of Directors and Stockholders
of Control Data Systems, Inc.:
Under date of January 28, 1994, we reported on the consolidated balance
sheets of Control Data Systems, Inc. and subsidiaries as of January 1, 1994 and
January 2, 1993, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the years in the three-year
period ended January 1, 1994, as contained in the 1993 annual report to
stockholders. These consolidated financial statements and our report thereon are
incorporated by reference in the annual report on Form 10-K for the year 1993.
In connection with our audits of the aforementioned consolidated financial
statements, we also have audited the related financial statement schedules as
listed in the accompanying index. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick
Minneapolis, Minnesota
January 28, 1994
18
<PAGE>
SCHEDULE VIII
CONTROL DATA SYSTEMS, INC.
VALUATION AND QUALIFYING ACCOUNTS
Allowance for Doubtful Accounts Receivable:
<TABLE>
<CAPTION>
YEARS ENDED
---------------------------------------
JANUARY 1, JANUARY 2, DECEMBER 31,
1994 1993 1991
----------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year............................................. $ 14,305 $ 14,543 $ 11,608
Additions charged to costs and expenses................................ 3,162 3,692 3,402
Write-offs and other adjustments....................................... (7,404) (3,930) (467)
----------- ------------ ------------
Balance at end of year................................................... $ 10,063 $ 14,305 $ 14,543
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
19
<PAGE>
SCHEDULE IX
CONTROL DATA SYSTEMS, INC.
SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
AS OF AS OF AS OF
JANUARY 1, JANUARY 2, DECEMBER 31,
1994 1993 1991
---------- ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Notes payable and current portion of
long-term obligations
Balance at end of year................ $ 1,891 $ 2,643 $ 16,016
Weighted average interest rate at end
of year.............................. 9.01% 9.45% 13.2%*
Maximum amount outstanding during the
year**............................... $ 13,167 $ 20,060 $ 21,122
Average amount outstanding during the
year**............................... $ 6,126 $ 14,254 $ 15,830
Weighted average interest rate during
the year**........................... 7.37% 15.5%* 15.3%*
<FN>
- ------------------------
(*) These rates are affected by high interest rates on certain borrowings in
highly inflationary countries.
(**) Based on month-end balances.
</TABLE>
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CONTROL DATA SYSTEMS, INC.
By: /s/ JAMES E. OUSLEY
--------------------------------------
James E. Ousley
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Dated: March 23, 1994
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
above or below constitutes and appoints James E. Ousley and Joseph F. Killoran,
or either of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this Report,
and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------------------------------- ------------------------------ --------------
<C> <S> <C>
/s/ JAMES E. OUSLEY President and Chief Executive
------------------------------------------- Officer (principal executive March 23, 1994
James E. Ousley officer)
/s/ JOSEPH F. KILLORAN Vice President and Chief
------------------------------------------- Financial Officer (principal March 23, 1994
Joseph F. Killoran accounting officer)
/s/ W. DONALD BELL
------------------------------------------- Director March 23, 1994
W. Donald Bell
/s/ GRANT A. DOVE
------------------------------------------- Director March 23, 1994
Grant A. Dove
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------------------------------- ------------------------------ --------------
<C> <S> <C>
/s/ MARCELO A. GUMUCIO
------------------------------------------- Director March 23, 1994
Marcelo A. Gumucio
/s/ W. DOUGLAS HAJJAR
------------------------------------------- Director March 23, 1994
W. Douglas Hajjar
------------------------------------------- Director March , 1994
Keith A. Libbey
/s/ MARK W. PERRY
------------------------------------------- Director March 23, 1994
Mark W. Perry
</TABLE>
22
<PAGE>
CONTROL DATA SYSTEMS, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- ------------------------------------------------------------------------------------------------------
<C> <S>
3.1 Restated Certificate of Incorporation of the Registrant
3.2 Restated Bylaws of the Registrant as amended
10.1 Transfer Agreement between Ceridian and the Registrant
10.2 Distribution Agreement between Ceridian and the Registrant
10.3 Intercompany Services Agreement between Ceridian and the
Registrant
10.4 Personnel Agreement between Ceridian and the Registrant
10.5 Environmental Matters Agreement between Ceridian and the Registrant
10.6 Intellectual Property Agreement between Ceridian and the Registrant
10.7 Tax Matters Agreement between Ceridian and the Registrant
10.8 Real Estate Facilities Agreement between Ceridian and the Registrant
10.9 Value-Added Remarketing Agreement between Ceridian and the Registrant regarding Ceridian's Government
Services division
10.10 Value-Added Remarketing Agreement between Ceridian and the Registrant regarding Ceridian's Engineering
Systems Division
10.11 Value-Added Remarketing Agreement between Ceridian and the Registrant regarding Ceridian's Automated
Wagering division
10.12 Master Purchase Option Agreement between Ceridian and the Registrant
10.13 Form of Executive Employment Agreement between the Registrant and executive officers
10.14 Form of Indemnification Agreement between the Registrant and executive officers
10.15 The Registrant's 1992 Equity Incentive Plan
10.16 February 1994 Amendments to 1992 Equity Incentive Plan
10.17 The Registrant's Executive Incentive Plan
10.18 The Registrant's 1993 Employee Stock Purchase Plan
10.19 Technology Development Agreement between Silicon Graphics, Inc. and the Registrant
10.20 Sixth Amendment to OEM Agreement between the Registrant and Silicon Graphics, Inc.
10.21 Stock Purchase Agreement dated July 31, 1992 between the Registrant and Silicon Graphics, Inc.
10.22 Software Distribution License Agreement between Intergraph and the Registrant
10.23 Contract for the "Vorsitzender der Geschaeftsfuehrung" of Control Data GmbH
11.0 Computation of Earnings (Loss) per Common Share
13.0 The portions of the Registrant's 1993 Annual Report to Stockholders that are incorporated in this Form
10-K by reference
22.0 Subsidiaries of the Registrant
24.0 Consent of Independent Auditors
25.0 Power of Attorney
<FN>
- ------------------------
* Incorporated by reference to previous filing.
</TABLE>
23
<PAGE>
EXHIBIT 10.16
- -------------
FEBRUARY 1994 AMENDMENTS TO 1992 EQUITY INCENTIVE PLAN
The following resolutions were adopted by the Company's Board of Directors at a
meeting held on February 1, 1994:
AMENDMENTS TO 1992 EQUITY INCENTIVE PLAN
RESOLVED, that in order to continue this Corporation in a position to
attract and retain a strong management and employee base through the
granting of options to present and prospective directors, officers, and key
employees to purchase common stock of the Corporation by the award of
Nonqualified Stock Options under the 1992 Equity Incentive Plan of the
Corporation originally approved by the stockholders on July 9, 1992
(the"Plan"), the Board of Directors hereby recommends to the
stockholders of the Corporation that they authorize and approve an
amendment of the Plan to Section 4.01 by increasing the total number of
shares available for grant under the plan from 2,400,000 shares to
2,900,000;
AND FURTHER RESOLVED, that the Board of Directors hereby
recommends to the stockholders of the Corporation that they authorize an
amendment to Section 8.01 of the Plan to provide for the grant each year,
beginning with the day of the Annual Meeting of Stockholders in 1994
and on the day of the Annual Meeting of Stockholders each year
thereafter, upon election to the Board of Directors for each subsequent
year under the Plan, to each of the directors of the Corporation who are
not employees of the Corporation, of options to purchase 5,000 shares of
the Common Stock of the Corporation, at a price equal to the price of the
Common Stock at the close of business on such date;
AND FURTHER RESOLVED, that in order to take advantage of the
exclusion of certain stock option income from the limitations on the
deductibility of certain executive compensation contained in the Omnibus
Budget Reconciliation Act of 1993, the Board of Directors deems it
advisable to establish a "per-employee" limit on the number of options
granted to any employee during a specified period of time, and hereby
recommends to the stockholders of the Corporation that they authorize an
amendment to Section 4.01 of the Plan to provide that no single employee
of the Corporation shall be granted options to purchase more than 300,000
shares of the Corporation's Common Stock, or any other securities of the
Corporation, during any one-year period under the Plan;
AND FURTHER RESOLVED, that the remaining provisions of the Plan
shall remain substantially in the form originally approved;
AND FURTHER RESOLVED, that these recommendations be submitted
to the stockholders for consideration and adoption at the Annual Meeting
to be held on May 18, 1994.
<PAGE>
EXHIBIT 10.23
CONTRACT FOR THE
"VORSITZENDER DER GESCHAEFTSFUEHRUNG"
OF
CONTROL DATA GMBH
<PAGE>
Mr. Dieter Porzel of Wiesbaden and Control Data GmbH, Stresemannalle 30, in
Frankfurt (the "Company") conclude a contract according to subsequent terms and
conditions:
I. Subject to the Contract
This contract regulates the employment of Mr. Porzel by the company.
II. Responsibilities and Duties
1. Mr. Porzel has been appointed "Vorsitzender der Geschaeftsfuehrung"
of the Company.
2. Mr. Porzel will perform his assignments with the degree of care
required from an orderly businessman in accordance with other
provisions of this contract, with general and special instructions
from the shareholders of the Company and in accordance with the
applicable law.
III. Other Activities
1. Mr. Porzel will devote his entire capacity for work to the Company.
2. During the term of this contract, Mr. Porzel may not exercise
activities for which he is paid or for which payment is usually
requested, including part-time work, unless the Shareholders have
given their prior approval.
3. Scientific research and publishing is permitted, as far as such
activity neither limits Mr. Porzel's devotion of work effort to the
Company nor discloses confidential information to the detriment of
the Company.
IV. Acts Requiring Prior Approval
1. Mr. Porzel shall obtain an approval from the Shareholders before the
following acts are performed:
a. Divestiture of part or sale of the entire Company;
b. Acquisition, sale, or mortgage of real estate;
c. Conclusion, modification and termination of contracts between
the Company and a "Geschaeftsfuehrer;"
d. Transactions covered by the Law on Corporations.
2
<PAGE>
2. The Shareholders retain the right to modify the above list at any
time (e.g., to expand or restrict) or to give special instructions
with regard to this or other transactions of the Company.
V. Remuneration
1. The annual remuneration, on the commencement date of this agreement,
and which is payable to Mr. Porzel, comprises:
a. Annual Salary DM 281,206.00
b. Targeted bonus (dependent
on the achievement of
certain goals) DM 66,000.00
c. Vacation and Christmas
bonuses DM 5,350.00
The annual salary is payable in twelve equal installments at the end of
each calendar month, after statutory taxes and dues have been deducted.
Payment of the bonuses will depend on the provisions in the bonus plan or
the respective guidelines on vacation or christmas bonuses.
2. In case Mr. Porzel is prevented by illness from performing his
duties, the Company will continue to pay the remuneration agreed
upon for six months beginning with the first day of absence.
3. Travel expenses and other necessary expenses incurred in the
objective interest of the Company will be paid in accordance with
the Company's guidelines on travel expenses.
4. The Company provides Mr. Porzel with a Company car for business and
private use. In this regard, the Company's applicable guidelines
apply. In case Mr. Porzel is relieved from his functions according
to Section VIII, No. 3, the Company has the right to require the
immediate redelivery of the car.
Mr. Porzel's rights in case of retirement or disability are
regulated by the Company's pension plan.
VI. Vacation
Mr. Porzel has a right to paid vacation of 35 workdays (Saturdays not
included) per calendar year. If Mr. Porzel cannot exercise such right
because of inevitable business events by December 31, this right shall be
extended until March 31. Those vacation days not utilized by March 31
shall be forfeited.
3
<PAGE>
VII. Inventions
In case of inventions by Mr. Porzel, the statute of May 27, 1957, and
the guidelines with respect thereto issued on May 20, 1959, shall apply.
VIII. Term of the Agreement
1. This contract is concluded for an indefinite period of time. The
Company may terminate the contract, however, upon thirty-six (36)
months' notice from the end of any calendar month. The applicable
notice period for termination by Mr. Porzel is six months.
2. The statutory rules for termination without notice apply.
3. In case of a termination, the Company may relieve Mr. Porzel of his
functions, while his remuneration will continue to be paid; the
provisions of Section IX, No. 3, will apply when the termination is
declared.
4. Terminations shall be made in written form.
5. This contract expires on Mr. Porzel's sixty-fifth birthday.
IX. Confidentiality
1. Mr. Porzel will not disclose to third parties or use for own
purposes any confidential information he obtained in his functions
for the Company including business, plant, or technical data of the
Company of its affiliated companies. This applies especially to
details of the organization, relations with customers and their
trade secrets and technical know-how. This obligation applies as
well during the term of his contract as thereafter.
2. Documentation of any kind (including personal notes), which is
business related, shall be kept carefully and can only be used for
business purposes. The preparation of copies, excerpts, the copying
of drawings, cost calculations, statistics and similar documents is
permitted exclusively for business purposes.
3. When Mr. Porzel's employment is terminated, he shall deliver upon
his own initiative any documents in his possession which relate to
the business of the Company, including any copies and excerpts. Mr.
Porzel does not have any right of retention. The same applies to
any other items which Mr. Porzel obtains in the course of the
performance of his duties.
4
<PAGE>
X. General Rules
1. Modification and amendments must be made in writing. This contract
constitutes the entire agreement for the employment of Mr. Porzel.
Further oral and written agreements do not exist.
2. The law of the Federal Republic of Germany applies.
The Company:
Control Data GmbH represented
by its sole shareholder, the
Control Data Holding AG in Zug, /s/ Dieter Porzel
Switzerland, represented by the -----------------------------
President of its Board of 8-10-84
Directors, Mr. David G. Familiant
/s/ David G. Familiant /s/ James E. Ring
- ----------------------------- -----------------------------
9-6-84 9-6-84
/s/ Frank R. Dawe
-----------------------------
9-6-84
5
<PAGE>
EXHIBIT 11.0
CONTROL DATA SYSTEMS, INC.
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------------------------
JANUARY 1, JANUARY 2, DECEMBER 31,
1994 1993 1991
-------------- -------------- --------------
<S> <C> <C> <C>
Net earnings (loss) applicable to common shares:
Net earnings (loss)............................................ $ 9,120 (134,034) $ (43,994)
-------------- -------------- --------------
-------------- -------------- --------------
Primary:
Shares for common and common share equivalent earnings per
share(1):
Weighted average number of common shares outstanding......... 13,115,319 11,138,358 10,632,188
Dilutive effect of outstanding stock options and warrants.... 648,305 -- --
-------------- -------------- --------------
13,763,624 11,138,358 10,632,188
-------------- -------------- --------------
-------------- -------------- --------------
Net earnings (loss) per common share and common share
equivalent...................................................... $ 0.66 $ (12.03) $ (4.14)
-------------- -------------- --------------
-------------- -------------- --------------
Fully Diluted:
Shares for common and common share equivalent earnings per
share(2):
Weighted average number of common shares outstanding......... 13,115,319 11,138,358 10,632,188
Dilutive effect of outstanding stock options and warrants.... 648,305 -- --
-------------- -------------- --------------
13,763,624 11,138,358 10,632,188
-------------- -------------- --------------
-------------- -------------- --------------
Net earnings (loss) per common share and common share
equivalent...................................................... 0.66 $ (12.03) $ (4.14)
-------------- -------------- --------------
-------------- -------------- --------------
<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>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Control Data Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Control Data
Systems, Inc. and subsidiaries as of January 1, 1994 and January 2, 1993, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended January 1, 1994.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Control Data
Systems, Inc. and subsidiaries as of January 1, 1994 and January 2, 1993, and
the results of their operations and their cash flows for each of the years in
the three-year period ended January 1, 1994 in conformity with generally
accepted accounting principles.
KPMG Peat Marwick
Minneapolis, Minnesota
January 28, 1994
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (In Millions)
OVERVIEW. 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.
The Company was established through Ceridian Corporation's ("Ceridian") transfer
of its Computer Products business to the Company and Ceridian's subsequent
distribution, in July 1992, of the Company's stock as a dividend to Ceridian's
stockholders.
REVENUES BY CATEGORY
<TABLE>
<CAPTION>
1993 Change 1992 Change 1991
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Open systems hardware
sales and rentals $ 145.0 10.5% $ 131.2 8.8% $ 120.6
Consulting and other
services and software 144.1 (0.6%) 145.0 6.5% 136.2
- -----------------------------------------------------------------------------
Integration services 289.1 4.7% 276.2 7.6% 256.8
Proprietary systems
hardware sales and
rentals 52.7 (51.3%) 108.3 (36.7%) 171.0
Hardware maintenance 110.0 (17.0%) 132.5 (9.1%) 145.8
- -----------------------------------------------------------------------------
Total revenues $ 451.8 (12.6%) $ 517.0 (9.9%) $ 573.6
- -----------------------------------------------------------------------------
<CAPTION>
REVENUES BY GEOGRAPHY
1993 Change 1992 Change 1991
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Americas $ 206.3 6.3% $ 194.1 (21.4%) $ 246.9
Europe 171.7 (33.2%) 257.0 0.2% 256.6
Asia 73.8 12.0% 65.9 (6.0%) 70.1
- -----------------------------------------------------------------------------
Total revenues $ 451.8 (12.6%) $ 517.0 (9.9%) $ 573.6
- -----------------------------------------------------------------------------
</TABLE>
Revenues for 1993 of $451.8 million decreased 12.6% from 1992 revenues of $517.0
million. This decrease occurred primarily in the sales, rentals and maintenance
of proprietary products, which is the continuation of the revenue trend
associated with the Company's transition from a provider of proprietary products
to a systems integration company.
Increases in integration services revenues in the Americas and Asia of 36.9% and
44.7%, respectively, were offset by a decline in Europe of 21.8%, resulting in
an overall increase of 4.7%. Business activity in Europe in the second half of
1993 was significantly impacted by the continued economic downturn in the
majority of the countries in which the Company has operations. Revenues from
European operations represented 38.0% of the Company's total revenues in 1993,
down from 49.7% a year ago.
Revenues for 1992 of $517.0 million decreased 9.9% from 1991 revenues of $573.6
million. This decrease is also attributed to the Company's transition to a
systems integration company as more fully described above.
COST OF REVENUES AND GROSS PROFIT
<TABLE>
<CAPTION>
1993 Change 1992 Change 1991
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cost of revenues $ 285.4 (11.0%) $ 320.7 (17.3%) $ 388.0
Percentage of revenues 63.2% 62.0% 67.6%
- -----------------------------------------------------------------------------
Gross profit $ 166.4 (15.2%) $ 196.3 5.8% $ 185.6
Percentage of revenues 36.8% 38.0% 32.4%
- -----------------------------------------------------------------------------
</TABLE>
The decrease in gross profit margins in 1993 was largely due to an increase in
integration services revenues as a percentage of total revenues in 1993 (64.0%)
compared with last year (53.4%) and reduced gross margins on open systems
hardware products obtained from Original Equipment Manufacturers due to
continued pricing pressures. Included in gross profit in 1993 is $4.0 million
relating to a contract with Russia's Research Development Institute of Power
Engineering for six mainframe computer systems which were installed in 1990.
The increase in gross profit margins in 1992 is principally due to improved
margins on all revenue categories, resulting partly from increased productivity
and cost reductions from restructuring actions.
OPERATING EXPENSES
<TABLE>
<CAPTION>
1993 Change 1992 Change 1991
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selling, general
and administrative $ 139.5 (15.1%) $ 164.3 1.7% $ 161.5
Percentage of revenues 30.9% 31.8% 28.2%
Technical $ 23.8 (40.5%) $ 40.0 (5.7%) $ 42.4
Percentage of revenues 5.3% 7.7% 7.4%
Restructuring and
other charges - (100.0%) $ 129.8 443.1% $ 23.9
Percentage of revenues - 25.1% 4.2%
- -----------------------------------------------------------------------------
</TABLE>
SELLING, GENERAL AND ADMINISTRATIVE (SG&A). The decrease in SG&A results from
the downsizing actions taken over the past 18 months, offset to some extent by
SG&A expenses assumed in acquisitions completed in June and October of 1993.
Also contributing to the decrease were reduced provisions for doubtful accounts
and the absence of Ceridian administrative cost allocations which were included
in the first seven months of 1992.
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. The Company received proceeds from Silicon Graphics, Inc.
of $1.95 million in 1993 and $0.5 million in 1992 to offset costs of certain
research and development projects.
RESTRUCTURING AND OTHER CHARGES. The 1992 restructuring charge was $114.9
million and was taken in connection with the Company's spin-off from Ceridian.
For additional information regarding this charge, see note 5 of Notes to
Consolidated Financial Statements.
Cash expenditures for restructuring actions totalled $25.0 million in 1993 and
$31.4 million in 1992.
In June 1992, the Company also recorded a pre-tax charge of $14.9 million
related to a change in valuation of spare parts inventory. For additional
information regarding this charge, see note 1(j) of Notes to Consolidated
Financial Statements.
13
<PAGE>
NONOPERATING INCOME
<TABLE>
<CAPTION>
1993 Change 1992 Change 1991
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonoperating income $ 7.8 47.2% $ 5.3 96.3% $ 2.7
Percentage of revenues 1.7% 1.0% 0.5%
- -----------------------------------------------------------------------------
</TABLE>
INTEREST EXPENSE. Interest expense decreased in 1993 due to decreased short-term
borrowings in certain international subsidiaries.
INTEREST INCOME. Interest income increased in 1993 due to higher average daily
cash and short-term investments balances versus 1992.
OTHER INCOME. Other income decreased in 1993 due to foreign currency transaction
losses of $0.3 million in 1993 versus $1.6 million of foreign currency
transaction gains in 1992 and $0.7 million of losses in affiliates, offset in
part by a $1.5 million gain from the sale of an investment in common stock of
Silicon Graphics, Inc.
The increase in 1992 from 1991 is due primarily to foreign currency transaction
gains of $1.6 million in 1992 versus foreign currency transaction losses of $2.1
million in 1991.
PROVISION FOR INCOME TAXES
<TABLE>
<CAPTION>
1993 Change 1992 Change 1991
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Provision for income taxes $ 1.9 18.8% $ 1.6 (64.4%) $ 4.5
Percentage of revenues 0.4% 0.3% 0.8%
- -----------------------------------------------------------------------------
</TABLE>
The provisions for income taxes in 1993, 1992 and 1991 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.
The 1993 effective tax rate of 16.9% was favorably impacted by the utilization
of net operating loss carryforwards in certain international subsidiaries. See
note 8 of Notes to Consolidated Financial Statements, which describes the
differences between the U.S. statutory and effective income tax rates.
NET EARNINGS (LOSS) AND EARNINGS (LOSS) PER SHARE
<TABLE>
<CAPTION>
1993 Change 1992 Change 1991
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net earnings (loss) $ 9.1 106.8% $(134.0) (204.5%) $ (44.0)
Percentage of revenues 2.0% (25.9%) (7.7%)
Earnings (loss) per
share $ 0.66 $(12.03) $ (4.14)
- -----------------------------------------------------------------------------
</TABLE>
NET EARNINGS (LOSS). Net earnings for 1993 were $9.1 million compared with a net
loss for 1992 of $134.0 million and a net loss for 1991 of $44.0 million.
The 1992 net loss is primarily attributable to the $129.8 million restructuring
and other charges recognized in the second quarter of 1992 associated with the
spin-off from Ceridian. The improvement in net earnings for 1993 from 1992,
exclusive of the restructuring and other charges, is a result of the reduction
in operating expenses necessary to complete the Company's transition to a
systems integration company. The 1991 net loss included restructuring charges of
$23.9 million.
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. As the Company has been transitioning from a proprietary products
company to a systems integrator, revenue has been declining on a year-to-year
basis, due to decreases in proprietary product and maintenance service volumes,
offset in part by increasing integration services activity. The decline in
proprietary product sales and maintenance services is expected to continue in
1994. Integration services revenues are expected to increase in 1994 over 1993
levels, due in part to the Company's recently completed acquisitions of Evernet,
DataSelskapet, Antares and MICHAEL Business Systems.
COST OF REVENUES. The Company's cost of revenues as a percentage of total
revenues increased in 1993 from 1992, resulting in lower gross profit margins.
Gross profit margins are expected to decline further in 1994, due to lower
proprietary product sales volume and an increasing percentage of open systems
hardware sales and rentals (due in part to the recent acquisitions).
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses declined in 1993
from 1992, resulting primarily from the downsizing actions taken over the past
18 months. 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 1993, and is expected to
decline further in 1994 as the Company continues to transition from a provider
of proprietary products to a systems integrator.
INCOME TAX RATE. In total, the Company has $110.0 million of deferred tax assets
at January 1, 1994. 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 tax rate will be highly
dependent on its geographic distribution of earnings, and therefore volatile.
14
<PAGE>
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.
OTHER. See Notes to Consolidated Financial Statements regarding other factors
concerning the Company.
FINANCIAL CONDITION
The Company's cash and short-term investments totaled $81.6 million at January
1, 1994 and represented 23.1% of total assets.
The Company has no long-term debt. Stockholders' equity at January 1, 1994 was
$175.2 million.
Total cash and short-term investment balances decreased by $52.8 million in 1993
primarily due to the acquisitions of Evernet, DataSelskapet and Antares which
totaled $15.6 million for purchase of equity and $4.0 million for repayment of
debt associated with the acquired companies, and restructure payments of $25.0
million.
Cash used in operations was $22.7 million in 1993 due to restructuring payments
of $25.0 million and a net change in working capital items of $24.9 million
(primarily an increase in trade and other receivables and inventories of $20.5
million) partially offset by depreciation and amortization of $19.9 million and
net earnings of $9.1 million.
Stockholders' equity increased by $16.0 million in 1993. This increase resulted
primarily from the $9.1 million of net earnings for 1993 and the common stock
and warrants issued in connection with the acquisition of Evernet of $9.1
million.
Capital expenditures in 1993 declined from 1992 due to the decline of the
proprietary lease business.
As of January 1, 1994, the Company has available up to $26.7 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 $32.3 million of restructure obligations, $21.7 million of
which are expected to be paid in 1994. 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 to take advantage of business opportunities
as they present themselves, 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.
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except employee and per share data)
<TABLE>
<CAPTION>
OPERATING DATA Years Ended
- --------------------------------------------------------------------------------------------------------------------------
January 1, January 2, December 31, December 31, December 31,
1994 1993 1991 1990 1989
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TOTAL REVENUES $ 451,835 $ 516,979 $ 573,643 $ 578,010 $ 833,590*
TOTAL COST OF REVENUES 285,448 320,728** 388,027** 336,390 513,931
- --------------------------------------------------------------------------------------------------------------------------
Gross Profit 166,387 196,251 185,616 241,620 319,659
OPERATING EXPENSES:
Selling, general and administrative 139,467 164,312 161,510 157,727 211,778
Technical 23,782 39,953** 42,352** 74,898 122,469
Change in the valuation of spare parts inventory - 14,900 - - -
Restructuring - 114,900 23,894 4,123 132,868
- --------------------------------------------------------------------------------------------------------------------------
Total operating expenses 163,249 334,065 227,756 236,748 467,115
- --------------------------------------------------------------------------------------------------------------------------
Earnings (loss) from operations 3,138 (137,814) (42,140) 4,872 (147,456)
OTHER INCOME (EXPENSES), NET 7,832 5,338 2,669 24,972 (11,849)
- --------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes 10,970 (132,476) (39,471) 29,844 (159,305)
PROVISION FOR INCOME TAXES 1,850 1,558 4,523 11,117 424
- --------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 9,120 $ (134,034) $ (43,994) $ 18,727 $ (159,729)
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) per common share and
common share equivalents $ 0.66 $ (12.03) $ (4.14) $ 1.76 $ (15.12)
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding
(in thousands) 13,764 11,138 10,632 10,629 10,564
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
BALANCE SHEET DATA As of
- --------------------------------------------------------------------------------------------------------------------------
January 1, January 2, December 31, December 31, December 31,
1994 1993 1991 1990 1989
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash and short-term investments $ 81,635 $ 134,423 $ 13,504 $ 25,408 $ 41,488
Total assets 352,923 373,522 373,485 423,705 535,706
Working capital 133,868 160,816 126,782 145,055 172,633
Debt obligations 1,891 9,768 16,529 4,320 41,832
Stockholders' equity 175,176 159,207 192,030 236,568 308,382
STATISTICAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Number of employees 3,142 3,285 3,918 4,498 5,488
Revenue/employee (average; in thousands) $ 142 $ 144 $ 136 $ 116 $ 105
<FN>
* Revenues in 1989 include $180.3 million from operations sold or
discontinued during the year.
** Technical expenses of $10.5 million and $12.7 million were reclassified to
cost of revenues in 1992 and 1991, respectively.
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
16
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended
- ----------------------------------------------------------------------------------------------------------
January 1, January 2, December 31,
1994 1993 1991
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Net sales $ 204,069 $ 243,652 $ 278,076
Net rentals 29,903 39,142 49,678
Services 217,863 234,185 245,889
- ----------------------------------------------------------------------------------------------------------
Total revenues 451,835 516,979 573,643
COST OF REVENUES:
Net sales 129,085 140,399 188,761
Net rentals 12,000 18,890 29,083
Services 144,363 161,439 170,183
- ----------------------------------------------------------------------------------------------------------
Total cost of revenues 285,448 320,728 388,027
- ----------------------------------------------------------------------------------------------------------
Gross profit 166,387 196,251 185,616
OPERATING EXPENSES:
Selling, general and administrative 139,467 164,312 161,510
Technical 23,782 39,953 42,352
Change in the valuation of spare parts inventory - 14,900 -
Restructuring - 114,900 23,894
- ----------------------------------------------------------------------------------------------------------
Total operating expenses 163,249 334,065 227,756
- ----------------------------------------------------------------------------------------------------------
Earnings (loss) from operations 3,138 (137,814) (42,140)
OTHER INCOME (EXPENSES):
Interest expense (1,953) (2,212) (4,158)
Interest income 6,235 2,391 2,570
Other income, net 3,550 5,159 4,257
- ----------------------------------------------------------------------------------------------------------
Total other income, net 7,832 5,338 2,669
- ----------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes 10,970 (132,476) (39,471)
PROVISION FOR INCOME TAXES 1,850 1,558 4,523
- ----------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 9,120 $ (134,034) $ (43,994)
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Net earnings (loss) per common share and common
share equivalents $ 0.66 $ (12.03) $ (4.14)
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding (in thousands) 13,764 11,138 10,632
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
17
<PAGE>
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
January 1, January 2,
ASSETS 1994 1993
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and short-term investments $ 81,635 $ 134,423
Trade and other receivables 125,470 110,059
Inventories 56,222 50,059
Prepaid expenses and other current assets 7,898 8,720
- -------------------------------------------------------------------------------------------
Total current assets 271,225 303,261
Investments and advances 615 2,495
Property and equipment, net 28,058 33,490
Leased and data center equipment, net 4,779 9,958
Noncurrent trade receivables 11,638 16,270
Goodwill, net 27,842 -
Other noncurrent assets 8,766 8,048
- -------------------------------------------------------------------------------------------
Total assets $ 352,923 $ 373,522
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
January 1, January 2,
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1993
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Current liabilities:
Notes payable and current portion
of long-term obligations $ 1,891 $ 2,643
Accounts payable 35,212 26,601
Customer advances and deferred income 19,665 12,461
Accrued taxes 4,104 8,675
Accrued salaries and wages 16,620 22,673
Restructure reserves, current portion 21,722 29,000
Other accrued expenses 38,143 40,392
- -------------------------------------------------------------------------------------------
Total current liabilities 137,357 142,445
Long-term obligations, less current portion - 7,125
Deferred income taxes 1,123 379
Restructure reserves, less current portion 10,554 31,398
Pension liabilities 27,870 30,325
Other noncurrent liabilities 843 2,643
- -------------------------------------------------------------------------------------------
Total liabilities 177,747 214,315
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
13,598,668 and 12,481,660 shares as of
January 1, 1994 and January 2, 1993, respectively 136 125
Additional paid-in capital 159,683 145,965
Retained earnings 23,162 14,042
Minimum pension liability adjustment (4,722) -
Foreign currency translation adjustment (3,083) (925)
- -------------------------------------------------------------------------------------------
Total stockholders' equity 175,176 159,207
- -------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 352,923 $ 373,522
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
18
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars and shares in thousands)
<TABLE>
<CAPTION>
Common Stock Minimum Foreign Investment
----------------- Additional Pension Currency By/Advances
Number of Paid-In Retained Liability Translation from
Shares Amount Capital Earnings Adjustment Adjustment Ceridian Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1990 - $ - $ - $ - $ - $ 3,719 $ 232,849 $ 236,568
Foreign currency translation adjustment - - - - - (3,744) - (3,744)
Net loss - - - - - - (43,994) (43,994)
Net transactions with Ceridian - - - - - - 3,200 3,200
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1991 - - - - - (25) 192,055 192,030
Issuance of common stock 10,667 107 - - - - - 107
Ceridian contribution - - 102,000 - - - - 102,000
Issuance of common stock to
Silicon Graphics, Inc.,
net of issuance costs 1,185 12 13,665 - - - - 13,677
Issuance of common stock to
NEC Corporation 624 6 5,265 - - - - 5,271
Exercises of stock options 6 - 27 - - - - 27
Forgiveness of intercompany
amount due to Ceridian - - 25,008 - - - (25,008) -
Foreign currency translation adjustment - - - - - (900) - (900)
Net loss for the year - - - (134,034) - - - (134,034)
Net loss, prior to spin-off - - - 148,076 - - (148,076) --
Net transactions with Ceridian - - - - - - (18,971) (18,971)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at January 2, 1993 12,482 125 145,965 14,042 - (925) - 159,207
Issuance of common stock under the
Employee Stock Purchase Plan 30 - 311 - - - - 311
Issuance of common stock to acquire
Evernet Systems, Inc. 816 8 8,155 - - - - 8,163
Issuance of warrants to purchase
common stock to acquire
Evernet Systems, Inc. - - 900 - - - - 900
Exercises of stock options 271 3 1,539 - - - - 1,542
Issuance of nonrefundable equity option
in ICEM Systems GmbH - - 2,813 - - - - 2,813
Minimum pension liability adjustment - - - - (4,722) - - (4,722)
Foreign currency translation adjustment - - - - - (2,158) - (2,158)
Net earnings - - - 9,120 - - - 9,120
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 1994 13,599 $ 136 $ 159,683 $23,162 $(4,722) $(3,083) $ - $ 175,176
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
19
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Years Ended
- ------------------------------------------------------------------------------------------------------------------------------
January 1, January 2, December 31,
1994 1993 1991
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 9,120 $ (134,034) $ (43,994)
Adjustments to reconcile net earnings (loss) to net cash (used in) provided
by operating activities:
Depreciation 17,822 31,616 37,014
Amortization 2,041 1,742 2,004
Foreign currency transaction loss (gain) 163 (955) 2,110
Equity (loss) in operations of affiliates 592 76 (1,600)
Change in the valuation of spare parts inventory - 14,900 -
Restructuring - 114,900 23,894
Restructure reserves utilized (25,018) (31,351) (20,904)
Gain on sale of marketable securities and other assets (1,246) (1,438) (412)
Net change in working capital items (24,877) 25,487 4,640
Net change in noncurrent trade receivables (1,283) 457 (714)
Other - 196 3,173
- ------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (22,686) 21,596 5,211
CASH FLOWS FROM INVESTING ACTIVITIES:
Expended for property and equipment (8,567) (11,329) (9,710)
Expended for leased and data center equipment (2,788) (5,654) (15,822)
Investment in affiliates - (161) -
Proceeds from sales of property and equipment 3,727 2,402 344
Proceeds from sales of marketable securities and other assets - - 9,600
Proceeds from sale of Silicon Graphics, Inc. common stock 3,244 - -
Acquisitions of businesses, net of cash provided (15,584) - -
Change in short-term investments 66,810 (129,281) -
Other - 1,897 -
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 46,842 (142,126) (15,588)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments under short-term financing arrangements, net (6,960) (12,869) (3,954)
Repayments of long-term obligations (7,125) (511) (514)
Proceeds from issuance of common stock, net of issuance costs 1,853 19,082 -
Proceeds from issuance of nonrefundable equity option
in ICEM Systems GmbH 2,813 - -
Ceridian contribution - 102,000 -
Net transactions with Ceridian - 5,062 2,382
Net cash (used in) provided by financing activities (9,419) 112,764 (2,086)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (715) (596) 559
- ------------------------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents 14,022 (8,362) (11,904)
Cash and cash equivalents, beginning of year 5,142 13,504 25,408
- ------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year 19,164 5,142 13,504
Short-term investments 62,471 129,281 -
- ------------------------------------------------------------------------------------------------------------------------------
Cash and short-term investments, end of year $ 81,635 $ 134,423 $ 13,504
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of all majority-owned
subsidiaries of the Company. All significant intercompany investments, accounts
and transactions have been eliminated.
The investments in and the operating results of companies in which Control Data
Systems has an ownership position of 50% or less are included in the financial
statements on the basis of the equity method of accounting.
In July 1993, the Company reduced its equity ownership interest in Metaphase
Technology, Inc. (the "joint venture") from 65% to 50%. Structural Dynamics
Research Corporation ("SDRC"), Metaphase's other equity owner, purchased the 15%
equity interest. The Company stopped consolidating this joint venture, effective
July 4, 1993. Prior periods have not been restated due to immateriality of the
joint venture's operations to the consolidated group operations taken as a
whole.
On January 1, 1993, the Company purchased 45% of the equity interest in ICEM
Systems GmbH ("ICEM Systems") owned by Volkswagen AG ("VW"), which gave the
Company a 95% equity interest in ICEM Systems. VW has retained a 5% equity
interest in ICEM Systems. ICEM Systems was consolidated into the Company's 1992
financial statements. This had no impact on the 1992 consolidated revenues or
net loss. Periods prior to 1992 have not been restated due to immateriality of
ICEM Systems' operations to the consolidated group operations taken as a whole.
(B) REVENUE RECOGNITION
Revenues from sales of computer systems and equipment are recognized upon
shipment, installation or acceptance, depending on the particular product and
contract terms. Revenues from rental and maintenance contracts are recognized
over the period of the agreement. Services revenues are recognized when the
services are performed and billable.
(C) CASH AND SHORT-TERM INVESTMENTS
Highly liquid investments with a maturity of three months or less when purchased
are generally considered to be cash equivalents. Short-term investments consist
principally of short-term fixed income securities and are stated at the lower of
cost or market. Cost approximates market value for all classifications of cash
and short-term investments.
(D) INVENTORIES
Inventories are stated at cost not in excess of realizable values. Costs are
based on actual or average methods. Inventories include engineering service
parts, purchased UNIX-based servers, workstations and peripherals and
proprietary mainframe computers and peripheral equipment.
(E) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation on property and
equipment is calculated using straight-line and accelerated methods at rates
based on the estimated lives of the assets, which are generally as follows:
Buildings and improvements 10-40 years
Machinery and equipment 3-8 years
Leased and data center equipment 3-6 years
Leasehold improvements are amortized straight-line over the shorter of the lease
term or estimated useful life of the asset. Repairs and maintenance are expensed
as incurred. Gains or losses on dispositions are included in results of
operations.
(F) GOODWILL
Goodwill represents the excess of the purchase price over the fair value of net
assets acquired and is amortized on a straight-line basis over 10 years.
Accumulated amortization at January 1, 1994 totaled $1.7 million.
(G) OTHER NONCURRENT ASSETS
Other noncurrent assets consist principally of prepaid pension costs.
(H) FOREIGN CURRENCY TRANSLATION
The assets and liabilities for most of the Company's international subsidiaries
are translated into U.S. dollars using current exchange rates. The resulting
translation adjustments are recorded in the foreign currency translation
adjustment account in equity. Statement of operations items are generally
translated at average exchange rates prevailing during the period. Other foreign
currency transaction gains or losses are included in net earnings (loss).
(I) RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
(J) CHANGE IN ACCOUNTING ESTIMATE
In June 1992, the Company changed the estimating process used for determining
the valuation of spare parts inventory, which resulted in a pre-tax charge of
$14.9 million or $1.34 per share. The valuation change resulted from a review of
current industry practice by an independent consultant and the Company's
continuing transition to open systems' workstation and server hardware. The
carrying value of spare parts inventory is the lower of cost or market. Market
value is determined by the earning potential of the inventory from contractual
maintenance and per call activity.
(K) INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS No.
109"). Under the asset and liability method of FAS No. 109, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under FAS No. 109, the
21
<PAGE>
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Effective January 3, 1993, the Company adopted FAS No. 109. The effect of the
adoption of this statement had no material impact on the Company's financial
position or results of operations.
Except for selective dividends, the Company intends to reinvest the unremitted
earnings of its non-U.S. subsidiaries and postpone their remittance
indefinitely. Accordingly, no provision for U.S. income taxes or foreign
withholding taxes was required on such earnings during the three years ended
January 1, 1994.
(L) NET EARNINGS (LOSS) PER SHARE
The net earnings (loss) per common and common share equivalents is computed by
dividing net earnings (loss) 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.
(M) PRESENTATIONS
Beginning in the fourth quarter of 1993, certain operating expenses, which
previously were treated as technical expenses, have been reclassified to cost of
revenues. Such operating expenses amounted to $6.2 million, $10.5 million and
$12.7 million in 1993, 1992, and 1991, respectively. All financial information
has been restated to conform to this method of presentation.
(N) FISCAL YEAR-END
Effective in 1992, the Company adopted a 52/53 week fiscal year, which ends on
the Saturday closest to December 31. Fiscal years 1993 and 1992 comprised 52
weeks and ended on January 1, 1994 and January 2, 1993, respectively.
2. ACQUISITIONS
During fiscal 1993, the Company acquired three companies which were engaged in
computer systems and network integration. The acquisitions have been accounted
for as purchases and the net assets and results of operations have been included
in the Company's consolidated financial statements from the effective date of
acquisition. The total consideration paid for these acquisitions was $25.9
million, of which $16.8 million was paid in cash, $8.2 million was paid through
the issuance of 816,283 shares of common stock and the issuance of warrants to
purchase 300,000 shares of common stock, valued at $0.9 million. Net
identifiable liabilities acquired of $3.4 million consist of $16.0 million of
assets acquired and $19.4 million of liabilities assumed.
Goodwill from these acquisitions of $29.3 million is amortized on a
straight-line basis over a period of ten years.
The following represents the unaudited pro forma results of operations and
assumes that the acquisitions described above occurred as of the beginning of
the respective periods presented after giving effect to certain adjustments,
including amortization of goodwill, decreased interest income from cash utilized
and the elimination of interest expense on the pay-off of certain acquisition
liabilities.
<TABLE>
<CAPTION>
Years Ended
- -------------------------------------------------------------------------------
(Dollars in thousands, January 1, January 2,
except per share data) 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C>
Revenues $ 509,560 $ 639,736
Net loss $ (1,677) $ (149,767)
Net loss per share $ (0.13) $ (12.53)
Weighted average common shares outstanding 13,115 11,954
</TABLE>
The pro forma financial information does not purport to be indicative of the
results of operations that would have occurred had these transactions taken
place at the beginning of the periods presented or of future results of
operations.
3. TRADE AND OTHER RECEIVABLES
<TABLE>
<CAPTION>
January 1, January 2,
(Dollars in thousands) 1994 1993
- -----------------------------------------------------------------
<S> <C> <C>
Trade receivables $ 120,176 $ 103,709
Other 15,357 20,655
Allowance for doubtful accounts (10,063) (14,305)
- -----------------------------------------------------------------
Total $ 125,470 $ 110,059
- -----------------------------------------------------------------
- -----------------------------------------------------------------
</TABLE>
4. OTHER ACCRUED EXPENSES
<TABLE>
<CAPTION>
January 1, January 2,
(Dollars in thousands) 1994 1993
- -----------------------------------------------------------------
<S> <C> <C>
Accrued warranty, support
and maintenance costs $ 16,271 $ 23,944
Bonuses and commissions 2,368 2,145
Royalties 1,074 292
Insurance 2,941 1,400
Minority interest in joint venture 1,389 -
Other 14,100 12,611
- -----------------------------------------------------------------
Total $ 38,143 $ 40,392
- -----------------------------------------------------------------
- -----------------------------------------------------------------
</TABLE>
5. RESTRUCTURING EXPENSE
<TABLE>
<CAPTION>
Years Ended
- ------------------------------------------------------------------------------
January 1, January 2, December 31,
(Dollars in thousands) 1994 1993 1991
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Severance costs $ - $ 50,800 $ 14,400
Asset revaluations and write-offs - 25,800 -
Lease and other obligations related
to excess facilities, net of gain on
sale of business and facilities - 18,500 5,900
Foreign currency translation
adjustments - 10,300 -
Other - 9,500 3,594
- ------------------------------------------------------------------------------
Total $ - $ 114,900 $ 23,894
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
6. STOCKHOLDERS' EQUITY
CAPITALIZATION
Under the Company's Restated Certificate of Incorporation (the "Restated
Certificate"), the total number of shares that the Company has authority to
issue is 55,000,000, of which 5,000,000 are designated as shares of Preferred
Stock, par value $0.01 per share, and 50,000,000 are designated as shares of
Common Stock, par value $0.01 per share.
STOCK OPTIONS
Under the 1992 Equity Incentive Plan, the Compensation Committee may award stock
options, restricted stock and performance units ("Units") to those officers and
employees of the Company whose performance, in the judgment of the Compensation
Committee, can have a significant effect on the success of the Company. In
addition, provisions of the Equity Incentive Plan (the "Plan") provide for the
award of stock options, as specified in such provisions, to the directors of the
Company who are not employees.
The Company has reserved 2.4 million shares of the Company's Common Stock for
issuance pursuant to awards issued under the Plan, which includes shares upon
exercise of replacement options provided to optionees pursuant to the provisions
of the spin-off of the Company from Ceridian to replace and preserve the value
of Ceridian stock options held by such optionees at the time of the spin-off. If
an award under the Plan expires or terminates without being exercised in full or
is forfeited, the shares subject thereto are generally available for new awards.
The exercise price for stock options granted under the Plan (other than the
replacement options) may not be less than the fair market value of a share of
the underlying common stock on the date the option is granted and must be paid
in cash unless the Compensation Committee permits payment in shares of the
Company's stock. An option will generally expire ten years after the date it is
granted and will ordinarily become exercisable as to one-third of the shares
subject to the option on each of the three succeeding anniversaries of the
grant. The Compensation Committee may modify the exercisability of an option at
its discretion.
The Plan also provides for shares of the Company's Common Stock to be issued to
employees in the form of restricted stock grants; however, no restricted stock
grants have been issued at January 1, 1994.
Following a "change of control termination," all options granted under the Plan
will become immediately exercisable, and all restrictions on restricted stock
awarded under the Plan will immediately lapse.
The Plan also provides recipients with the opportunity to receive cash or stock
awards if the Company's financial goals or other business objectives are
achieved over a longer-term performance period. The Compensation Committee will
determine the performance goals, the performance period, the vesting of Units
and how Units will be valued. No Units have been issued as of January 1, 1994.
<TABLE>
<CAPTION>
Shares
Shares Under Outstanding Options
STOCK OPTIONS Available -----------------------------
for Grant Exercisable Shares Price
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance of August 1, 1992 - - - -
Authorized for issuance 2,400,000 - - -
Replacement options (581,080) 203,190 581,080 $4.53-$10.16
Granted (1,620,000) - 1,620,000 $8.25-$10.00
Exercised - - (5,620) $ 4.86
Cancelled 10,639 - (10,639) $4.73-$ 4.86
- -----------------------------------------------------------------------------------------
Balance at January 2, 1993 208,559 203,190 2,184,821 $4.53-$10.16
Granted (425,000) - 425,000 $9.25-$13.00
Became exercisable - 661,053 - $4.73-$10.00
Exercised - (271,138) (271,138) $4.73-$ 9.62
Cancelled 274,884 (29,898) (274,884) $4.73-$10.25
- -----------------------------------------------------------------------------------------
Balance at January 1, 1994 59,443 563,207 2,063,799 $4.53-$13.00
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
</TABLE>
STOCK WARRANTS
In connection with the acquisition of Evernet Systems, Inc., the Company issued
stock warrants granting the holders the right and option to purchase 300,000
shares of the Company's common stock at an exercise price of $12.86 per share.
The warrants are exercisable in three equal annual installments beginning in
June 1994.
EMPLOYEE STOCK PURCHASE PLAN
Under the 1993 Employee Stock Purchase Plan ("the Plan") the Company has
reserved 400,000 shares of Common Stock for issuance pursuant to the Plan. The
primary purpose of the Plan is to provide an opportunity for eligible employees
to become stockholders of the Company. Eligible employees may contribute up to
10% of their compensation toward the purchase of the Company's Common Stock. The
Plan operates in phases of three months each, generally beginning on January 1,
April 1, July 1 and October 1 of each year. At the end of each phase, an
employee who elects to participate in the Plan can purchase up to 500 shares of
Common Stock with his or her accumulated payroll deductions. The purchase price
for those shares of Common Stock will be either 85% of the market price at the
beginning of the phase or 85% of the market price at the end of the phase,
whichever is less.
7. FINANCING ARRANGEMENTS
Certain of the Company's international subsidiaries have arranged for financing,
primarily with local banks. Debt outstanding under these arrangements, primarily
short-term notes and foreign overdraft facilities, amounted to $1.9 million and
$2.6 million at January 1, 1994 and January 2, 1993, respectively. Arrangements
which did not require a guarantee by the parent Company, totaled $6.6 million,
of which $0.3 million was utilized at January 1, 1994. Outstanding letters of
credit totaled $0.6 million at January 1, 1994. The average amount of short-term
debt outstanding for 1993 was $6.1 million.
The Company has a U.S. bank line of credit which provides for borrowings of up
to $10.0 million, none of which was outstanding at January 1, 1994. The line of
credit bears interest at prime plus two percent and expires on April 29, 1994.
23
<PAGE>
8. INCOME TAXES
As discussed in note 1(k), the Company adopted FAS
No. 109, as of January 3, 1993. This change in accounting for income taxes had
no impact on the consolidated financial statements of the Company.
The components of earnings (loss) before income taxes and the provision for
income taxes (benefit) are included in the following table:
<TABLE>
<CAPTION>
COMPONENTS OF EARNINGS AND TAXES Years Ended
- -------------------------------------------------------------------------------------------
January 1, January 2, December 31,
(Dollars in thousands) 1994 1993 1991
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings (loss) before income taxes:
Domestic $ (15,289) $ (93,785) $ (71,110)
Foreign 26,259 (38,691) 31,639
- -------------------------------------------------------------------------------------------
Total $ 10,970 $ (132,476) $ (39,471)
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
INCOME TAX PROVISION (BENEFIT)
Current:
Domestic $ 661 $ 92 $ -
Foreign 1,224 4,862 5,195
Deferred:
Domestic 238 - -
Foreign (273) (3,396) (672)
- -------------------------------------------------------------------------------------------
Total $ 1,850 $ 1,558 $ 4,523
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
</TABLE>
Reconciliation of estimated income taxes at United States statutory tax rate to
the income taxes provision is reported as follows:
<TABLE>
<CAPTION>
EFFECTIVE RATE RECONCILIATION Years Ended
- -------------------------------------------------------------------------------------------
January 1, January 2, December 31,
(Dollars in thousands) 1994 1993 1991
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. federal statutory rate 35% 34% 34%
Income tax provision (benefit)
at U.S. statutory rate $ 3,840 $ (45,042) $ (13,420)
International rate differences,
credits translation,dividends
and other offsets (1,969) 148 (6,602)
Losses for which no tax benefit
was provided 4,928 46,452 25,037
Utilization of unbooked deferred assets (5,474) - (492)
U.S. state income and franchise taxes 525 - -
- -------------------------------------------------------------------------------------------
Provision for income taxes $ 1,850 $ 1,558 $ 4,523
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at January 1, 1994 are
presented below:
DEFERRED TAX ASSETS
<TABLE>
<CAPTION>
January 1, January 2,
(Dollars in thousands) 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C>
Depreciation and amortization $ 11,000 $ 12,100
Inventory valuation 21,800 24,000
Pension plans 2,400 2,200
Deferred revenues 4,600 4,900
Allowance for doubtful accounts 4,500 4,700
Non-deductible contingent accruals 19,200 22,800
Net operating loss carryforwards 37,900 24,500
Tax credit carryforwards 4,500 4,000
Other 4,100 1,400
- -----------------------------------------------------------------------------
Total gross deferred tax assets 110,000 100,600
Less valuation allowance (103,300) (95,200)
- -----------------------------------------------------------------------------
Net deferred tax assets 6,700 5,400
- -----------------------------------------------------------------------------
DEFERRED TAX LIABILITIES
Depreciation and amortization (600) (1,100)
Inventory valuation (1,000) (800)
Pension plans (5,800) (3,600)
Other (423) (279)
- -----------------------------------------------------------------------------
Total deferred tax liabilities (7,823) (5,779)
- -----------------------------------------------------------------------------
Net deferred income taxes $ (1,123) $ (379)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
Although the Company has available gross deferred tax assets in the amount of
$110.0 million which can be used to offset taxes on future earnings, the Company
currently maintains sizable operations in several foreign countries whose tax on
future earnings cannot be offset by these deferred tax assets.
Included in the gross deferred tax assets and the valuation reserve is $5.6
million for net operating losses acquired in the Evernet Systems, Inc.
acquisition. Under Statement of FAS No. 109, "Accounting for Income Taxes," as
the Company utilizes Evernet's net operating losses, it will reduce the goodwill
related to the acquisition. These net operating losses are subject to U.S.
limitations.
U.S. AND FOREIGN INCOME TAX CARRYFORWARDS AT JANUARY 1, 1994
<TABLE>
<CAPTION>
Expiration
(Dollars in thousands) Amount Dates
- ---------------------------------------------------------------------------
<S> <C> <C>
U.S. Federal net operating loss carryforwards $ 56,700 2000-2007
Foreign net operating loss carryforwards:
34,000 1994-2004
9,200 None
Foreign tax credit carryforwards 2,000 1994-1999
</TABLE>
Deferred tax expense for 1993 includes $0.4 million of benefit from the
utilization of operating loss carryforwards.
Additionally, some of the Company's future tax benefits may become subject to
limitation or permanent loss in the U.S. under current tax laws and regulations.
Earnings of foreign subsidiaries considered to be reinvested for an indefinite
period at January 1, 1994 total approximately $37.7 million. If those earnings
were remitted, estimated withholding taxes of $5.8 million would be currently
payable.
It is impracticable to compute the deferred tax asset or liability on the
Company's investments in its foreign subsidiaries.
9. COMMITMENTS AND CONTINGENCIES
Largely as a result of divestitures and other downsizing actions and the
formation of certain cooperative ventures in recent years, the Company has
agreed to incur or retain a variety of contingent liabilities. Generally, these
liabilities include requirements for performance of various obligations assumed
in some manner by the acquirer, such as customer contracts and leases of
facilities and equipment; commitments to purchase products or services;
commitments to invest or advance funds; and potential liabilities relating to
the divestiture transaction itself, such as litigation arising from workforce
reductions, purchase price adjustments or representation and warranty
obligations.
The Company monitors such contingent liabilities and has established restructure
or other reserves for those which it believes are probable of payment.
Management believes that in the aggregate the contingent liabilities will not
have a materially adverse impact on the financial position of the Company.
24
<PAGE>
10. RELATED PARTY TRANSACTIONS
SILICON GRAPHICS, INC.
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.
In September 1992, a technology development agreement was reached between SGI
and the Company. The Company recognized revenue under this agreement of $1.65
million in 1993 and $1.45 million in 1992. In addition, the Company received
$1.95 million in 1993 and $0.5 million in 1992 from SGI to offset the costs of
certain research and development projects. The Company purchased a total of
$29.3 million of SGI products in 1993 and $33.3 million of SGI products in 1992.
CERIDIAN
The Company, on an interim basis, is providing minimal services to Ceridian,
including data processing and distribution services. Computing Devices
International ("CDI"), a subsidiary of Ceridian, has been contracted to
manufacture certain proprietary products for the Company. The Company purchased
a total of approximately $36.6 million of CDI products in 1993 and $16.6 million
of CDI products during the period from August 1, 1992 through January 2, 1993.
Allocated charges from Ceridian included in operating expenses were none in
1993, $6.0 million in 1992 and $11.5 million in 1991.
11. LEASES
AS LESSOR: The Company leases equipment to others through operating leases with
lease terms of one to seven years. The Company pays taxes, licenses and
insurance associated with the equipment under lease, as well as general
maintenance. The minimum future rentals on noncancelable leases are $14.2
million in 1994, $4.4 million in 1995, $1.7 million in 1996, $0.8 million in
1997, $0.4 million in 1998 and $0.4 million thereafter. The Company's net
investment in equipment needed to support leasing operations, included in lease
and data center equipment, was as follows:
<TABLE>
<CAPTION>
January 1, January 2,
(Dollars in thousands) 1994 1993
- -----------------------------------------------------------------
<S> <C> <C>
Equipment $ 76,540 $ 90,266
Less accumulated depreciation 71,890 81,395
- -----------------------------------------------------------------
Net investment $ 4,650 $ 8,871
- -----------------------------------------------------------------
- -----------------------------------------------------------------
</TABLE>
AS LESSEE: The Company leases certain property and equipment under operating
leases that expire over the next six years. Most of these operating leases
contain renewal options and require payments for taxes, insurance and
maintenance. Although in most cases management expects that leases will be
renewed or replaced by other leases in the normal course of business, downsizing
activities in recent years have diminished the need for such renewals and
replacements and increased subletting of leased facilities.
The rental payments under these leases are charged to operations as incurred.
The amounts of rental expense, net of sublease income of $5.8 million in 1993,
$6.5 million in 1992 and $7.7 million in 1991, was $18.1 million in 1993, $20.5
million in 1992 and $23.7 million in 1991.
Future minimum payments under noncancelable operating leases, net of sublease
income, with initial or remaining lease terms in excess of one year as of
January 1, 1994 are: $13.6 million in 1994, $10.0 million in 1995, $8.6 million
in 1996, $5.8 million in 1997, $4.8 million in 1998 and $4.2 million thereafter.
These amounts do not include obligations which have been recorded as liabilities
in the consolidated balance sheet as the result of restructuring and other
actions.
12. SUPPLEMENTARY DATA TO CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
OTHER INCOME (EXPENSE) Years Ended
- ----------------------------------------------------------------------------
January 1, January 2, December 31,
(Dollars in thousands) 1994 1993 1991
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Foreign currency transaction
(loss) gain $ (254) $ 1,551 $ (2,115)
Asset/business sales 2,236 308 478
Other income 1,605 2,708 4,337
Minority interest (loss)/equity in
operations of affiliates (37) 592 1,557
- ----------------------------------------------------------------------------
Total $ 3,550 $ 5,159 $ 4,257
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
OTHER DATA
Provisions for doubtful accounts $ 3,162 $ 3,692 $ 3,402
Research and development* 23,765 37,776 42,352
Maintenance and repairs 7,111 10,758 12,910
Royalties 2,697 3,659 8,684
<FN>
* Included in technical expenses in the consolidated financial statements.
</TABLE>
13. RETIREMENT BENEFITS AND OTHER POST RETIREMENT BENEFITS
Prior to January 1, 1992, substantially all the U.S. employees of the Company
were eligible to participate in the Retirement Plan, a defined-benefit,
salary-reduction plan available to most Ceridian and Company U.S. employees.
Effective January 1, 1992, Ceridian established a separate pension plan for the
Company's U.S. employees (the "Retirement Plan"). Effective December 20, 1992,
the Company froze the benefits under the Retirement Plan, meaning such benefits
are computed only on the basis of compensation and service up to that date.
Certain major international subsidiaries of the Company also offer defined
benefit pension plans to their employees. Benefits under these plans are
calculated on maximum or career-average earnings and years of participation in
the plans. Funding amounts are based on determinations by independent consulting
actuaries of requirements of the Employee Retirement Income Security Act of 1974
(ERISA) in the U.S. and local statutory requirements in other countries.
25
<PAGE>
The net periodic pension costs (credit) and related assumptions for all defined
benefit plans appear in an accompanying table, as does a description of the
funded status of those plans.
<TABLE>
<CAPTION>
NET PERIODIC PENSION COST (CREDIT) Years Ended
- ----------------------------------------------------------------------------
January 1, January 2, December 31,
(Dollars in thousands) 1994 1993 1991
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 1,079 $ 1,235 $ 1,194
Interest cost on projected benefit
obligation 8,710 4,534 3,685
Actual return on plan assets (9,476) (3,628) (3,210)
Net amortization and deferral (511) (355) (768)
- ----------------------------------------------------------------------------
Total $ (198) $ 1,786 $ 901
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
RATE ASSUMPTIONS
Discount rate 7.4% 8.0% 8.5%
Rate of salary progression 6.8% 5.4% 5.5%
Long-term rate of return on assets 6.3% 8.4% 8.7%
</TABLE>
In addition, 1991 pension expense was reduced by a curtailment/settlement gain
of $1.6 million related to a non-U.S. plan. Retirement expense for all other
plans amounted to $0.6 million in 1993, $1.9 million in 1992, and $2.0 million
in 1991.
FUNDED STATUS OF DEFINED BENEFIT RETIREMENT PLANS AT MEASUREMENT DATE
PLANS IN WHICH ASSET VALUE EXCEEDS ACCUMULATED BENEFIT OBLIGATION
<TABLE>
<CAPTION>
January 1, January 2,
(Dollars in thousands) 1994 1993
- -------------------------------------------------------------
<S> <C> <C>
Actuarial present value of
obligation:
Vested benefit obligation $ 18,824 $ 69,693
- -------------------------------------------------------------
- -------------------------------------------------------------
Accumulated benefit obligation $ 20,130 $ 71,030
- -------------------------------------------------------------
- -------------------------------------------------------------
Projected benefit obligation $ 22,035 $ 72,951
Plan assets at fair value 38,807 87,884
- -------------------------------------------------------------
Plan assets in excess of
projected benefit obligation 16,772 14,933
Unrecognized net (gain) loss (968) 1,488
Unrecognized prior service cost 421 462
Unrecognized net asset (8,545) (9,755)
- -------------------------------------------------------------
Net pension asset recognized in
the consolidated balance sheet $ 7,680 $ 7,128
- -------------------------------------------------------------
- -------------------------------------------------------------
</TABLE>
PLANS IN WHICH ACCUMULATED BENEFIT OBLIGATION EXCEEDS ASSET VALUE
<TABLE>
<CAPTION>
January 1, January 2,
(Dollars in thousands) 1994 1993
- -------------------------------------------------------------
<S> <C> <C>
Actuarial present value of
obligation:
Vested benefit obligation $ 95,263 $ 28,606
- -------------------------------------------------------------
- -------------------------------------------------------------
Accumulated benefit obligation $ 95,507 $ 28,884
- -------------------------------------------------------------
- -------------------------------------------------------------
Projected benefit obligation $ 98,353 $ 33,418
Plan assets at fair value 70,971 7,389
- -------------------------------------------------------------
Projected benefit obligation
in excess of plan assets 27,382 26,029
Unrecognized net (gain) loss (9,664) 2,557
Unrecognized prior service cost (1,644) (1,803)
Unrecognized liability (asset) for
defined benefit plans 143 (353)
Fiscal 1994-1996 settlement
reserve 3,654 -
Adjustment to recognize minimum
pension liability 4,722 -
- -------------------------------------------------------------
Net pension liability for defined
benefit plans 24,593 26,430
Other non-defined benefit plans'
obligations 3,277 3,895
- -------------------------------------------------------------
Net pension liability recognized in
the consolidated balance sheet $ 27,870 $ 30,325
- -------------------------------------------------------------
- -------------------------------------------------------------
</TABLE>
OTHER POST-RETIREMENT BENEFITS
Substantially all retired U.S. employees of the Company prior to July 31, 1992,
participate in post-retirement health insurance benefits provided by Ceridian.
Non-U.S. plans are not significant. Those costs in excess of retirees'
contributions, which were allocated to the Company by Ceridian were none in
1993, $2.3 million in 1992, and $3.7 million in 1991. Ceridian assumed all
future obligations related to all of the Company's retired employees as of July
31, 1992. The Company has no post-retirement benefits committed to retirees
since July 31, 1992.
14. CAPITAL ASSETS
CAPITAL ASSETS
<TABLE>
<CAPTION>
January 1, January 2,
(Dollars in thousands) 1994 1993
- -------------------------------------------------------------
<S> <C> <C>
Property and equipment, at cost
Land $ 1,687 $ 1,707
Buildings and improvements 38,320 38,045
Machinery and equipment 75,785 85,286
- -------------------------------------------------------------
Total 115,792 125,038
Accumulated depreciation 87,734 91,548
- -------------------------------------------------------------
Property and equipment, net $ 28,058 $ 33,490
- -------------------------------------------------------------
- -------------------------------------------------------------
Leased and data center equipment,
at cost $ 79,200 $ 96,214
Accumulated depreciation 74,421 86,256
- -------------------------------------------------------------
Leased and data center
equipment, net $ 4,779 $ 9,958
- -------------------------------------------------------------
- -------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CHANGES IN CAPITAL ASSETS
Years Ended
- ----------------------------------------------------------------------------
January 1, January 2, December 31,
(Dollars in thousands) 1994 1993 1991
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Property and equipment
Additions $ 8,567 $ 11,329 $ 9,710
Retirements, net of accumulated
depreciation (1) (2,307) (5,070) (8,313)
- ----------------------------------------------------------------------------
Net additions $ 6,260 $ 6,259 $ 1,397
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Leased and data center equipment
Additions $ 2,788 $ 5,654 $ 15,822
Retirements, net of accumulated
depreciation (1) (1,837) (1,833) (7,697)
- ----------------------------------------------------------------------------
Net additions $ 951 $ 3,821 $ 8,125
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Depreciation
Property and equipment $ 11,692 $ 15,508 $ 16,690
Leased and data center equipment 6,130 16,108 20,324
- ----------------------------------------------------------------------------
Total $ 17,822 $ 31,616 $ 37,014
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
<FN>
(1) Retirements include reductions in carrying values due to transfer of assets,
the disposition of businesses and other restructuring actions.
</TABLE>
26
<PAGE>
15. STATEMENTS OF CASH FLOWS
NET CHANGE IN WORKING CAPITAL ITEMS
<TABLE>
<CAPTION>
Years Ended
- ----------------------------------------------------------------------------
January 1, January 2, December 31,
(Dollars in thousands) 1994 1993 1991
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Trade and other receivables $ (14,509) $ 30,985 $ (25,367)
Inventories (5,949) 14,011 27,742
Prepaid expenses and other
current assets 900 132 2,239
Accounts payable 3,794 (12,598) 4,927
Customer advances and
deferred income 6,567 (6,844) 1,443
Accrued taxes (2,336) 1,435 2,500
Accrued salaries and wages (6,123) (2,572) (6,019)
Other accrued expenses (7,221) 938 (2,825)
- ----------------------------------------------------------------------------
Net change in working
capital items $ (24,877) $ 25,487 $ 4,640
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NONCASH EFFECTS ON THE CARRYING VALUE OF THE BALANCE SHEET ITEMS RESULTED FROM
Years Ended
- ----------------------------------------------------------------------------
January 1, January 2, December 31,
(Dollars in thousands) 1994 1993 1991
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Transfer to Ceridian of certain net
inventories of the Company $ - $ 19,372 $ -
Noncash utilization of restructure
reserves (3,104) (46,312) -
Transfer to the Company of
Ceridian's investment in the
common stock of SGI - (1,713) -
Shares and warrants issued in
connection with acquisitions 9,063 - -
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Years Ended
- ----------------------------------------------------------------------------
January 1, January 2, December 31,
(Dollars in thousands) 1994 1993 1991
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Cash paid (received) during
year for:
Interest paid $ 1,953 $ 2,212 $ 4,629
Income taxes paid 6,659 4,619 6,414
Income taxes refunded (2,161) (1,092) (8,509)
</TABLE>
16. GEOGRAPHIC SEGMENT DATA
Information concerning United States and international operations appears in the
accompanying Geographic Segment Data table. Inter-geographic sales of products
and services between United States and international operations are made at
inter-company transfer prices, which reflect both an equitable profit
distribution and prevailing market conditions. Segment earnings (loss) from
operations include profit or loss on inter-geographic sales. Certain
international identifiable assets are stated at inter-company transfer prices.
The amounts of the parent company's equity in net assets of and advances to
international subsidiaries and branches were $308.2 million and $238.3 million
at January 1, 1994 and January 2, 1993, respectively.
<TABLE>
<CAPTION>
International(2)
-----------------------------------------------------
United Pan
Geographic Segment Data States (1) American Europe Asia Total Consolidated
- -------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
1993 Revenues $ 157,378 $ 48,936 $ 171,743 $ 73,778 $ 294,457 $ 451,835
Earnings (loss) from operations (22,828) 4,862 15,584 5,520 25,966 3,138
Identifiable assets 169,862 47,291 78,398 57,372 183,061 352,923
1992 Revenues 150,866 43,272 256,969 65,872 366,113 516,979
Earnings (loss) from operations (96,527) (12,624) (35,196) 6,533 (41,287) (137,814)
Identifiable assets 196,703 32,225 101,351 43,243 176,819 373,522
1991 Revenues 183,700 63,251 256,590 70,102 389,943 573,643
Earnings (loss) from operations (73,900) (511) 23,062 9,209 31,760 (42,140)
Identifiable assets 118,980 45,831 157,280 51,394 254,505 373,485
<FN>
(1) United States earnings (loss) from operations include substantially all
technical expenses, marketing expenses and other corporate support and
administration costs.
(2) Pan American includes primarily the operations in the following countries:
Canada and Mexico. Europe includes primarily the operations in the
following countries: Denmark, France, Germany, Norway and United Kingdom.
Asia includes primarily the operations in the following countries: Korea
and Taiwan.
</TABLE>
BUSINESS AND CREDIT CONCENTRATIONS
The Company's customers are located throughout the world. No single customer
accounted for more than ten percent of the Company's revenues in 1993, 1992, or
1991, except for revenue from sales to various U.S. government agencies which
amounted to approximately 13.7% in 1993, 13.4% in 1992, and 15.0% in 1991. No
account receivable from any customer exceeded ten percent of the Company's total
stockholders' equity as of January 1, 1994.
17. SUBSEQUENT EVENT
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 $8.3 million and
will be amortized on a straight-line basis over ten years.
27
<PAGE>
SUPPLEMENTARY QUARTERLY DATA (Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
1993 1992
- ------------------------------------------------------------------------------------- --------------------------------------
FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES $ 137,098 $ 97,091 $ 114,901 $ 102,745 $ 151,592 $ 114,961 $ 132,287 $ 118,139
COST OF REVENUES* 92,505 60,246 71,095 61,602 92,645 67,996 85,547 74,540
- ------------------------------------------------------------------------------------- --------------------------------------
Gross Profit 44,593 36,845 43,806 41,143 58,947 46,965 46,740 43,599
OPERATING EXPENSES:
Selling, general and administrative 37,923 33,604 34,394 33,546 41,665 36,139 44,379 42,129
Technical* 4,435 4,632 7,296 7,419 8,673 8,726 11,264 11,290
Change in the valuation of spare
parts inventory - - - - - - 14,900 -
Restructuring - - - - - - 114,900 -
- ------------------------------------------------------------------------------------- --------------------------------------
Total operating expenses 42,358 38,236 41,690 40,965 50,338 44,865 185,443 53,419
- ------------------------------------------------------------------------------------- --------------------------------------
Earnings (loss) from operations 2,235 (1,391) 2,116 178 8,609 2,100 (138,703) (9,820)
- ------------------------------------------------------------------------------------- --------------------------------------
OTHER INCOME (expenses):
Interest expense (313) (507) (445) (688) (435) (563) (694) (520)
Interest income 1,442 1,404 1,595 1,794 1,254 466 441 230
Other income (expenses), net (112) 78 2,280 1,304 1,568 (327) (1,219) 5,137
- ------------------------------------------------------------------------------------- --------------------------------------
Total other income (expenses), net 1,017 975 3,430 2,410 2,387 (424) (1,472) 4,847
- ------------------------------------------------------------------------------------- --------------------------------------
Earnings (loss) before income taxes 3,252 (416) 5,546 2,588 10,996 1,676 (140,175) (4,973)
PROVISION (BENEFIT) FOR INCOME TAXES 769 (1,398) 1,229 1,250 1,000 1,470 (2,669) 1,757
- ------------------------------------------------------------------------------------- --------------------------------------
Net earnings (loss) $ 2,483 $ 982 $ 4,317 $ 1,338 $ 9,996 $ 206 $(137,506)$ (6,730)
- ------------------------------------------------------------------------------------- --------------------------------------
- ------------------------------------------------------------------------------------- --------------------------------------
<FN>
* All periods have been restated as a result of reclassifying certain
technical expenses to cost of revenues.
</TABLE>
PRICE RANGE OF COMMON STOCK
The Company's stock is traded on the Nasdaq National Market under the symbol
CDAT. The following table sets forth, for the periods indicated, the high and
low prices for the common stock.
<TABLE>
<CAPTION>
1993 1992
Market price --------------------------------------- --------------------------------------
ranges (1)(2) FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------- --------------------------------------
High $ 12.25 $ 13.50 $ 13.88 $ 14.13 $ 10.50 $ 10.13 - -
Low $ 8.75 $ 10.88 $ 10.25 $ 8.75 $ 7.63 $ 7.00 - -
<FN>
(1) Source: Nasdaq National Market under the symbol CDAT.
(2) The stock has traded since August 3, 1992, the first trading day after the
effective date of the Company's spin-off from Ceridian.
</TABLE>
The Company had approximately 30,500 stockholders of record as of March 1, 1994.
The Company has not paid any dividends on its common stock. The Company
currently intends to retain earnings for use in its business and does not
anticipate paying cash dividends in the foreseeable future to common
stockholders.
28
<PAGE>
EXHIBIT 22.0
CONTROL DATA SYSTEMS, INC.
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
STATE/COUNTRY OF % OF
SUBSIDIARIES INCORPORATION OWNERSHIP
- ------------------------------------------------------------------------ ------------------------ -------------
<S> <C> <C>
CD lberica, S.A. Spain 100%
Control Data A/S Denmark 100%
Softline A/S Denmark 100%
Control Data AB Sweden 100%
Control Data A/S Norway 100%
DataSelskapet A/S Norway 100%
Control Data Asia, Inc. Delaware 100%
Control Data Systems (Malaysia) SDN BHD Malaysia 100%
Control Data BV Netherlands 100%
Control Data IM BV Netherlands 100%
Control Data Belgium, Inc. Delaware 100%
Control Data China, Inc. Delaware 100%
Control Data do Brasil Computadores, LTDA. Brazil 100%
Control Data Far East, Inc. Delaware 100%
Control Data Korea Inc. Korea 100%
Control Data Taiwan Inc. Taiwan 100%
Open Applications, Inc. Taiwan 100%
Control Data France S.A. France 100%
Control Data France Holding S.A. France 100%
Control Data Services BV Netherlands 100%
Control Data GesmbH Austria 100%
Control Data Greece Incorporated Delaware 100%
Control Data Holding AG Switzerland 100%
Control Data (Schweiz) AG Switzerland 100%
Control Data GmbH Germany 100%
CDCbit -- business information technology GmbH Germany 100%
ICEM Systems GmbH Germany 95%
ICEM Systems, Inc. Delaware 100%
Control Data India, Inc. Delaware 100%
Control Data Indo-Asia Company Delaware 100%
Control Data Indo-Asia Pte Limited Singapore 100%
Control Data International Employment, Inc. Delaware 100%
Control Data International Trading, Inc. Delaware 100%
Control Data (Ireland) Limited (inactive) Ireland 100%
Control Data Italia S.p.A. Italy 100%
Control Data Japan, Ltd. Japan 100%
Control Data Limited United Kingdom 100%
Control Data Optical Limited (inactive) United Kingdom 100%
Michael Business Systems Plc United Kingdom 100%
Systime Holdings Ltd. United Kingdom 98.6%
Systime Nederland B.V. (shell) Netherlands 100%
Systime Computers Limited United Kingdom 100%
Systime (Gulf) Ltd. (inactive) Channel Islands 100%
Systime (Ireland) Ltd. (shell) Ireland 100%
Control Data Middle East, Inc. Minnesota 100%
Control Data Overseas Finance Corporation N.V. (inactive) Netherlands Antilles 100%
Control Data Pan American Corporation Delaware 100%
Control Data de Mexico S.A. de C.V. Mexico 100%
Control Data Portuguesa S.A.R.L. Portugal 100%
</TABLE>
<PAGE>
EXHIBIT 22.0 (CONTINUED)
CONTROL DATA SYSTEMS, INC.
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
STATE/COUNTRY OF % OF
SUBSIDIARIES INCORPORATION OWNERSHIP
- ------------------------------------------------------------------------ ------------------------ -------------
Control Data Real Estate, Inc. Delaware 100%
<S> <C> <C>
Control Data Systems Canada, Ltd. Canada 100%
Control Data Systems (Singapore) Pte Ltd. Singapore 100%
Control Data Systems (Thailand) Limited Thailand 100%
Inter-American Control Data Corporation Delaware 100%
Meridian Environmental Technologies, Inc. Delaware 100%
<CAPTION>
INVESTMENTS IN UNCONSOLIDATED AFFILIATES
STATE/COUNTRY OF % OF
INVESTMENTS INCORPORATION OWNERSHIP
- ------------------------------------------------------------------------ ------------------------ -------------
<S> <C> <C>
BTC Nederland B.V. Holland 28%
Circuitos Impresos de Alta Technologia S.A. de C.V. Mexico 30%
DIODORE Systeme Company France 5%
Metaphase Technology, Inc. Delaware 50%
ROM Control Data SRL Romania 51%
Societe de Creation D'Activities Nouvelles (SOCRAN) Belgium 16.6%
</TABLE>
<PAGE>
EXHIBIT 24.0
[Letterhead]
March 23, 1994
Board of Directors
Control Data Systems, Inc.
We consent to incorporation by reference in the registration statements
(No. 33-49027, No. 33-49029 and No. 33-49379) on Form S-8 of Control Data
Systems, Inc. of our report dated January 28, 1994, relating to the consolidated
balance sheets of Control Data Systems, Inc. and subsidiaries as of January 1,
1994 and January 2, 1993, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the years in the three-year
period ended January 1, 1994, which report appears in the 1993 annual report on
Form 10-K of Control Data Systems, Inc.
KPMG PEAT MARWICK
Minneapolis, Minnesota
March 23, 1994
