<PAGE>
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 December 31, 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.)
____________________
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 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 14, 1995 on the NASDAQ National Market as reported in
The Wall Street Journal, was approximately $59,000,000. 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
2<PAGE>
determination of affiliate status is not necessarily a conclusive
determination for other purposes.
As of March 14, 1995, the registrant had outstanding 12,653,502 shares
of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for the
registrant's 1995 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 December 31, 1994 are incorporated
by reference into Parts II and IV.
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PART I
ITEM 1. BUSINESS
Background. Control Data Systems, Inc. ("Control Data Systems" or the
"Company") is a global systems integrator, developing and implementing open
systems solutions for the operational problems of customers worldwide. It
focuses on the architecture, implementation, and lifetime support of
electronic commerce, product data management, and client-server solutions
for government, financial services, telecommunications, and manufacturing
organizations. The Company helps its customers implement business-related
solutions by providing a range of services that include:
- - Technology consulting
- - Program management
- - Software development
- - Infrastructure integration
- - Solution support
The Company relies upon its computer professionals to provide the
consulting services required to define, develop, install, and maintain
computer-based solutions. The Company has a growing family of open systems
technology partners and suppliers offering a range of hardware platforms
and software products which the Company then customizes for a particular
customer environment. These integration/consulting services are based upon
the Company's 38 years of experience in implementing leading-edge solutions
for complex computing environments.
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.
For the first 32 years of its history, the Company developed,
manufactured, and integrated its own proprietary brand of computers. In
1989 it began a transition from the development, manufacture and marketing
of its own computers to the remarketing of standard UNIX and/or Intel-based
computer systems. Coupled with networking and distributed applications,
these systems form what is often referred to as the client-server
computing environment. Today the Company's integration services include
network design, installation and maintenance; application design and
deployment, particularly for electronic commerce projects; remote and on-
site systems management; electronic mail integration; and for the discrete
3<PAGE>
manufacturing and engineering industry, computer-aided design and product
data management systems.
The Company's principal offices are located at 4201 Lexington Avenue
North, Arden Hills, Minnesota 55126-6198.
Industry Background and Business Transition
The worldwide computer industry has changed dramatically over the last
several years and is expected to 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 on proprietary
architectures. With this comes the distribution of these applications away
from a central environment (mainframe) to a distributed environment where
the application resides on the computer platform best suited for that
function (client-server).
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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 small systems integration companies.
This shift in the Company's business model has required a reduction in
the number of employees and in the size and scope of its support
organization. In 1994 the Company recorded a restructuring charge and
goodwill write-off of $95.0 million. The restructuring charge and goodwill
write-off included expenses for reducing the worldwide employee population
by approximately 600 people, consolidating operations in selected
locations, and revaluing certain intangible assets associated with prior
acquisitions. For additional information regarding these charges, see the
Management's Discussion and Analysis of Financial Condition and Results of
Operations and notes 16 and 17 of the Notes to Consolidated Financial
Statements incorporated herein by reference to the Company's Annual Report
to Stockholders for the fiscal year ended December 31, 1994. The Company
expects to continue to reduce its infrastructure and associated operating
expenses, as well as redeploy certain personnel.
Products and Services
The following table sets forth revenues for the Company's major product
and service offerings for the periods indicated:
<TABLE>
<CAPTION>
Years Ended
December 31, January 1, January 2,
1994 1994 1993
(Dollars in thousands)
<S> <C> <C> <C>
Software and services .................. $154,275 $140,287 $144,957
4<PAGE>
Maintenance and support................. 92,785 113,857 132,521
Hardware products....................... 277,167 197,691 239,501
Total revenues....................... $524,227 $451,835 $516,979
</TABLE>
Software and Services
The dramatic shift to distributed computing environments has created a
growing demand for expandable technology infrastructures. In response to
that demand, the Company has organized its delivery of services around the
design, implementation and support of three types of technology
infrastructures:
- - Network Infrastructures. The most basic infrastructures are transport
mechanisms that enable institutions to connect desktop users with
sharable computing resources. These infrastructures typically include
local area networks comprised of interconnected desktop computers and
task-specific servers. However, as organizations expand the scope and
complexity of their electronic processes beyond the confines of
localized groups, their computing environments grow more complex.
- - Messaging Infrastructures. At the next level, institutions require
infrastructures capable of delivering information (most often in the
form of electronic messages and their related attachments) to anyone who
needs it regardless of where they are located. In enterprise
environments, this often means the infrastructure has to enable users to
exchange messages across dissimilar electronic mail domains. Beyond
this, messaging infrastructures need to keep track of who's who within a
dispersed environment, as well as record the business-related attributes
associated with individual mail users.
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- - Information Infrastructures. As institutions perform more sophisticated
work tasks electronically, their underlying infrastructures will be
required to: 1) understand where given information resources reside
within dispersed environments, 2) help authorized users access the
information to which they are entitled, and 3) enable business
applications to exchange information so these resources can be leveraged
as reusable corporate assets.
The Company provides software solutions and services that support these
infrastructure needs.
Software
Mail*Hub. As its backbone messaging product, the Company offers
Mail*Hub, 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,
5<PAGE>
installation, training, network monitoring, maintenance, 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, that can be run on the Control Data 9000, SGI
INDY/INDIGO2, Sun SPARC, HP 9000 Series 700, and Windows NT series of open
systems platforms.
ICEM software is the property of what originally was a 50/50 joint
venture, ICEM Systems, GmbH ("ICEM Systems"), established in November 1990
between the Company and Volkswagen AG ("VW"). The joint venture was
dedicated to continuing research and development of ICEM software.
Effective December 31, 1992, the joint venture agreement between the
Company and VW was terminated. Effective January 1, 1993, a new ICEM
Systems joint venture between VW, Intergraph Corporation ("Intergraph"),
and the Company was created for the development of CAD/CAM/CAE systems. To
form the new joint venture, the Company purchased, for approximately $2.8
million, 45 percent of the equity interest in ICEM Systems owned by VW,
which gave the Company a 95 percent equity interest in ICEM Systems as of
January 1, 1993. Intergraph has waived all rights under a nonrefundable
option to purchase from the Company a 35 percent equity interest in ICEM
Systems. On January 2, 1995, the Company purchased VW's 5% equity interest
in ICEM Systems, making the Company 100% owner of ICEM 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.
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The Company's PDM software product is called Metaphase 2.0. Metaphase
2.0 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 ICEM product line, Metaphase 2.0
emphasizes reducing the customer's development cycle by enabling different
types of users, from designers to manufacturing experts, to share
information and data.
The development activities for the Company's PDM product are conducted
by Metaphase Technology, Inc. ("Metaphase"), a joint venture formed in
August 1992 between the Company and Structural Dynamics Research
Corporation ("SDRC"), in which each party holds a 50% ownership position.
6<PAGE>
The Company offers the Metaphase software product in conjunction with its
own professional services personnel to design, implement, and support PDM
solutions.
Additionally, the Company resells software products from a wide range
of third party standards-based suppliers, including Oracle, Informix,
Sybase, OpenVision, 3Com, Wellfleet, Banyan, Novell, and Wingra.
Services
The Company has a heritage of managing large programs requiring complex
systems integration. Previously, such 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 systems
design and implementation.
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 and software products it has developed or
obtained from its suppliers.
The Company emphasizes the development of 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 services:
- - Program management, design/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.
5
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- - 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 Microsystems, Inc. ("Sun"), Hewlett-
Packard Company ("Hewlett-Packard"), Silicon Graphics, Inc. ("SGI"), and
Acer America ("Acer").
Networking Solutions. As computer users take advantage of downsized
computer platforms, decentralized organizational processes, and open
systems technology, their computing environment's basic networking
7<PAGE>
structure must also 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 solutions in the following areas:
- - E-Mail Integration. The Company's Mail*Hub product allows disparate E-
Mail systems from mainframes, PC's and workstations/servers to
communicate in a transparent manner.
- - EDI Solutions. Standards based electronic data interchange (EDI)
capabilities, enabling organizations to expedite their daily business
processes.
- - Network Integration Services. Requirements analysis, configuration
design, installation, performance assessment, and ongoing maintenance.
- - PC Integration. Full LAN and WAN implementation services, including the
use of such integration tools as Vista 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. Provides answers to questions on operating systems,
networks, applications, and general computing problems. Engineers are
trained to solve problems by phone or via dispatched on-site support.
The Company's integration services are carried out primarily by its
professional services staff, which includes over 500 systems analysts
serving customers in 35 countries.
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 third-party networking products, industry standard applications, and
other local products such as microcomputers and terminals.
Revenues from software and services were $154.3 million in 1994, $140.3
million in 1993, $145.0 million in 1992, representing 29.4%, 31.1%, and
28.0%, respectively of the Company's total revenues.
6
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Maintenance and Support
The Company provides hardware and software maintenance service 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 for spare parts, a 24-hour hotline and an on-line
diagnostic system accessible through CYBER mainframes.
Maintenance and support revenues were $92.8 million in 1994, $113.8
million in 1993, and $132.5 million in 1992, representing 17.7%, 25.2%, and
25.6%, respectively of the Company's total revenues.
Hardware Products
8<PAGE>
Historically, a large portion of the Company's revenues has been
generated from the sale and lease of its proprietary, general purpose CYBER
mainframe computers. The Company's current strategy with respect to CYBER
systems is twofold. First, while not planning further development of new
proprietary CYBER computers, it 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 a migration path 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.
Future revenues from the sale or lease of CYBER proprietary products
are expected to be minimal as customers continue the rapid transition to
open systems solutions.
Today, the Company is differentiated from other int egrators because it
is not captive to a particular product set or technology. This objectivity
allows it to work in a multivendor environment without bias. Beginning
with its relationship with SGI in 1989, the Company began integrating UNIX
based open system products into its customer solutions. Systems based on
UNIX and Intel/Microsoft technologies can support the industry's migration
from centralized computing, which was dependent on mainframes, to a
networked and distributed client-server environment, in which application
processing and data are spread across many networked computing resources.
To expand the range of platform options available to its customers, in
1993 the Company signed remarketing agreements with Sun, Hewlett-Packard,
and Acer. As a Sun integrator, the Company remarkets Sun's complete line
of workstations, servers, and software worldwide as a 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 integrator,
the Company offers a wide range of Acer solutions, from Intel-based PC's,
including notebooks and desktop units, to MIPS R4000-based workstations
tuned for the Windows NT operating system.
Revenues from the sale and lease of hardware products were $277.1
million in 1994, $197.7 million in 1993, and $239.5 million in 1992,
representing 52.9%, 43.8%, and 46.3%, respectively, of the Company's total
revenues.
7
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Sales
Worldwide Business
The Company markets its products and services principally through its
direct sales force located in the United States and 19 other countries.
The Company's major international operations are in Canada, Denmark,
France, Germany, Korea, Mexico, Taiwan, and the United Kingdom. The
9<PAGE>
Company also markets its products and services through subsidiaries and
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 non-U.S. operations were approximately
71.5%, 65.2%, and 70.8%, of the Company's total revenues in 1994, 1993, and
1992, respectively. For further information regarding the Company's U.S.
and international operations, see note 15 of the Notes to Consolidated
Financial Statements incorporated herein by reference to the Company's
Annual Report to Stockholders for the fiscal year ended December 31, 1994.
The Company's sales and support operations are organized into three
regions (Americas, Europe, and Asia), each with its own marketing, sales
and sales support professionals providing consulting and engineering
services. Centralized technology support services are provided to the
sales regions from the Company's 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'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 have been expanding. The Company believes
that its worldwide sales and support organization enables it to better
understand the markets in which it competes, to focus its sales efforts
effectively, and to develop long-term relationships with its customers.
The U.S. Government was the only customer of the Company accounting for
more than 10% of total revenues in fiscal year 1994, 1993, or 1992. The
Company estimates that contracts with the U.S. government represented
approximately 12.0%, 13.7%, and 13.4% of total revenue in fiscal years
1994, 1993, and 1992, 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 Computing Devices International ("CDI"), a subsidiary of Ceridian
Corporation, to permit CDI to continue to sell and support the Company's
proprietary 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 CYBER 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. The Company does not expect significant revenues or
net earnings from the VAR agreements with Ceridian or VLT.
8
10<PAGE>
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Research and Development
The Company's research and development efforts are primarily oriented
toward electronic commerce, CAD/CAM/CAE products, product data management,
and client-server solutions. In 1994 the Company formed a new Electronic
Commerce business unit dedicated to the development of products and
services related to messaging and information infrastructures. Its
flagship product in this arena is Mail*Hub, a UNIX-based integration
toolkit that links disparate E-mail systems. Research and development
efforts directed toward enhancing the Company's ICEM application software
product line occur through the Company's ICEM Technologies division.
Research and development activities for the Company's PDM software product
have been transferred to Metaphase Technology, Inc., a joint venture
between the Company and Structural Dynamics Research Corporation. Company-
sponsored research and development expenses related to new products or
services and the improvement of existing products totalled $10.1 million,
$23.8 million, and $37.8 million, for 1994, 1993, and 1992, respectively.
The decrease in research and development expenses primarily relates 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
pursuing 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. At the same time, these
advances have also created increased demand for the skills of knowledgeable
systems integrators 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.
Backlog
The backlog of the Company's orders believed to be firm is estimated to
have been approximately $75.8 million as of December 31, 1994, of which
approximately 83.4% is expected to be reflected in revenues during 1995.
At January 1, 1994, the backlog was approximately $72.2 million. These
backlog amounts include the minimum noncancellable future lease revenue
expected from contracts existing at those dates, which amounted to $14.7
million for 1994 and $22.0 million for 1993.
11<PAGE>
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.
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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: 1) facilities formerly operated by
the Computer Products business, 2) 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 3) 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 1994 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 number of patents which relate
to some of its products. 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 December 31, 1994, the Company had approximately 2,890 full-time
employees.
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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; Sunnyvale and Irvine,
California; Rockville, Maryland; Frankfurt, Germany; Copenhagen, Denmark;
12<PAGE>
Mexico City, Mexico; West Sussex and London, England; Paris, France; Oslo,
Norway; Ottawa, Canada; Seoul, Korea; and Taipei, Taiwan.
The following table summarizes the usage and location of the Company's
facilities as of March 1, 1995.
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 . . . . . . . . . . . . . . . . . 762.0 733.2 1,495.2
Total square feet . . . . . . . . . . 1,136.8 912.4 2,049.2
Utilization
Warehousing . . . . . . . . . . . . . . . 80.0 166.0 246.0
Office, computer center and other . . . . 594.9 562.9 1,157.8
Vacant . . . . . . . . . . . . . . . . . 145.3 67.0 212.3
Leased or subleased to others . . . . . . 316.6 116.5 433.1
Total square feet . . . . . . . . . . 1,136.8 912.4 2,049.2
</TABLE>
No facilities owned by the Company are subject to any major
encumbrances. The Company believes that all of the facilities currently
utilized 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 December 31,
1994, included provisions of approximately $9.7 million for lease and other
obligations related to excess facilities. 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, the Company
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 have a material adverse effect
on the Company's financial position.
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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 December 31, 1994.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company as of March 1, 1995, are as
follows:
<TABLE>
<CAPTION>
Name Age Position<PAGE>
<S> <C> <C>
James E. Ousley 49 President and Chief Executive Officer
Joseph F. Killoran 54 Vice President and Chief Financial Officer
Ruth A. Rich 51 Vice President, Human Resources and
Administration
Dieter Porzel 58 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 31, 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.
Dieter Porzel has been Vice President, Europe/Middle East/Africa Region
of Control Data Systems since February 1993. Mr. Porzel was Vice
President, Central Europe Region for Control Data Systems from August 1992
to January 1993; and Vice President, Central Europe Region of Ceridian's
Computer Products business from 1987 to 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 27 of the Company's
1994 Annual Report to Stockholders, is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
"Selected Consolidated Financial Data," appearing on page 1 of the
Company's 1994 Annual Report to Stockholders, is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
2<PAGE>
"Management's Discussion and Analysis of Financial Condition and
Results of Operations," appearing on pages 12 through 14 of the Company's
1994 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 December 31, 1994 and January 1, 1994, the related consolidated
statements of operations, stockholders' equity and cash flows for each of
the years in the three-year period ended December 31, 1994, and the notes
to consolidated financial statements, together with report therein of KPMG
Peat Marwick LLP dated January 26, 1995, except as to note 9 which is as of
February 14, 1995, appearing on pages 11 through 26 of the Company's 1994
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 1995
Annual Meeting of Stockholders to be held on May 12, 1995 (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 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 Transactions" in the Proxy
Statement is incorporated herein by reference.
14
<PAGE>
PART IV
3<PAGE>
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
1994 Annual
Report to
Stockholders
<S> <C>
Independent Auditors' Report ................................ 11
Consolidated Statements of Operations - Years Ended
December 31, 1994, January 1, 1994, and January 2, 1993 .... 15
Consolidated Balance Sheets - December 31, 1994 and
January 1, 1994 ............................................ 16
Consolidated Statements of Stockholders' Equity -
Years Ended December 31, 1994, January 1, 1994, and
and January 2, 1993 ........................................ 17
Consolidated Statements of Cash Flows - Years Ended
December 31, 1994, January 1, 1994, and January 2, 1993 ..... 18
Notes to Consolidated Financial Statements .................. 19
</TABLE>
Financial Statement Schedules
<TABLE>
<CAPTION>
Page in this
Form 10-K
<S> <C>
Independent Auditors' Report on Financial Statement Schedule .. 19
Schedule VIII - Valuation and Qualifying Accounts ............. 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
A report on Form 8-K dated October 20, 1994 was filed during the
Company's fourth quarter of fiscal 1994 reporting under Item 5 - Other
Events the results of the Company's third quarter of fiscal 1994.
15
<PAGE>
Exhibits
4<PAGE>
<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.
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.
</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").
5<PAGE>
16
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
<C> <S>
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 --
incorporated by reference to Exhibit 10.16 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended January 1,
1994.
10.17(2) February 1995 Amendments to 1992 Equity Incentive Plan.
10.18*(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 1995 Annual Meeting of Stockholders.
10.19*(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.
10.20* 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.
10.21* 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.
10.22* 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
Form 10-Q for the quarter ended September 30, 1992.
10.23* 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.
10.24*(2)Contract for the "Vorsitzender der Geschaeftsfuehrung" of Control
Data GmbH -- incorporated by reference to Exhibit 10.23 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 1, 1994.
10.25(2) Consulting Agreement, dated November 14, 1994, between the
Registrant and W. Douglas Hajjar.
10.26(2) Severance Agreement, dated January 4, 1995, between the
Registrant and James E. Ousley.
10.27(2) Severance Agreement, dated January 4, 1995, between the
Registrant and Joseph F. Killoran.
</TABLE>
6<PAGE>
(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>
<TABLE>
<CAPTION>
Exhibit
No. Description
<C> <S>
11.0 Computation of Earnings (Loss) per Common Share.
13.0 The portions of the Registrant's 1994 Annual Report to
Stockholders that are incorporated in this Form 10-K by
reference.21.0 Subsidiaries of the Registrant.
23.0 Consent of Independent Auditors.
24.0 Power of Attorney -- included on Signatures page hereto.
27.0 Financial Data Schedule.
</TABLE>
(Schedules to the foregoing exhibits have not been included but will be
submitted supplementary to the Commission upon request)
18
<PAGE>
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE
The Board of Directors and Stockholders
of Control Data Systems, Inc.:
Under date of January 26, 1995, except as to note 9 which is as of
February 14, 1995, we reported on the consolidated balance sheets of
Control Data Systems, Inc. and subsidiaries as of December 31, 1994 and
January 1, 1994, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1994, as contained in the 1994 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 1994. In connection with our audits of the aforementioned
consolidated financial statements, we also have audited the related
financial statement schedule as listed in the accompanying index. This
financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
7<PAGE>
presents fairly, in all material respects, the information set forth
therein.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 26, 1995, except as to note 9 which is as of
February 14, 1995
19
<PAGE>
Schedule VIII
CONTROL DATA SYSTEMS, INC.
Valuation and Qualifying Accounts
Allowance for Doubtful Accounts Receivable:
<TABLE>
<CAPTION>
Years Ended
December 31, January 1, January 2,
1994 1993 1993
(Dollars in thousands)
<S> <C> <C> <C>
Balance at beginning of year ...... $10,063 $14,305 $14,543
Additions charged to costs
and expenses .................. 1,906 3,162 3,692
Write-offs and other adjustments.. (5,125) (7,404) (3,930)
Balance at end of year ............ $ 6,844 $10,063 $14,305
</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
8<PAGE>
President and Chief Executive Officer
Dated: March 24, 1995
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 March 24, 1995
James E. Ousley Chief Executive Officer
(principal executive officer)
/s/ JOSEPH F. KILLORAN Vice President and Chief March 24, 1995
Joseph F. Killoran Financial Officer
(principal accounting officer)
/s/ W. DONALD BELL Director March 24, 1995
W. Donald Bell
/s/ GRANT A. DOVE Director March 24, 1995
Grant A. Dove
/s/ MARCELO A. GUMUCIO Director March 24, 1995
Marcelo A. Gumucio
21
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Signature Title Date
<C> <S> <C>
/s/ DOUGLAS HAJJAR Director March 24, 1995
Douglas Hajjar
/s/ KEITH A. LIBBEY Director March 24, 1995
Keith A. Libbey
9<PAGE>
</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 Systems division
10.10* Value-Added Remarketing Agreement between Ceridian and the
Registrant regarding Ceridian's Empros 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*(2)Form of Executive Employment Agreement between the Registrant and
executive officers
10.14*(2)Form of Indemnification Agreement between the Registrant and its
directors and executive officers
10.15*(2)The Registrant's 1992 Equity Incentive
10.16*(2)February 1994 Amendments to 1992 Equity Incentive Plan
10.17(2) February 1995 Amendments to 1992 Equity Incentive Plan
10.18*(2)The Registrant's Executive Incentive Plan
10.19*(2)The Registrant's 1993 Employee Stock Purchase Plan
10.20* Technology Development Agreement between Silicon Graphics, Inc.
and the Registrant
10.21* Sixth Amendment to OEM Agreement between the Registrant and
Silicon Graphics, Inc.
10.22* Stock Purchase Agreement dated July 31, 1992 between the
Registrant and Silicon Graphics, Inc.
10.23* Software Distribution License Agreement between Intergraph and
the Registrant
10.24*(2)Contract for the "Vorsitzender der Geschaeftsfuehrung" of Control
Data GmbH
10.25(2) Consulting Agreement, dated November 14, 1994, between the
Registrant and W. Douglas Hajjar
10.26(2) Severance Agreement, dated January 4, 1995, between the
Registrant and James E. Ousley
10.27(2) Severance Agreement, dated January 4, 1995, between the
Registrant and Joseph F. Killoran
10<PAGE>
11.0 Computation of Earnings (Loss) per Common Share
13.0 The portions of the Registrant's 1994 Annual Report to
Stockholders that are incorporated in this Form 10-K by reference
21.0 Subsidiaries of the Registrant
23.0 Consent of Independent Auditors
24.0 Power of Attorney
27.0 Financial Data Schedule
<FN>
* - 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.
</TABLE>
23
12<PAGE>
<PAGE>
Exhibit 10.17
Amendments to 1992 Equity Incentive Plan
(As adopted February 1, 1995)
RESOLVED, that the following amendments to the 1992 Equity Incentive
Plan be, and they hereby are, adopted and approved:
1. Section 9.02(c) is hereby amended in its entirety to read as
follows:
"(c) Upon the grant of a Restricted Stock Award, the Corporation
shall cause to be issued stock certificates representing the shares subject
to such Restricted Stock Award in the Participant's name. The Corporation
shall hold such stock certificates until the restrictions set forth in
Sections 9.02(a) and 9.02(b) lapse in accordance with the Plan and the
Award Agreement. Once the restrictions have lapsed with respect to all or
part of the shares subject to the Restricted Stock Award, such stock
certificates shall be distributed to the Participant."
2. The final paragraph after clause (2) of Section 11.01(c) is
deleted in its entirety. Section 11.01(d) is hereby amended by adding the
following paragraph at the end thereof:
"'Good Reason' shall not include the Participant's death or a
termination for any reason other than the events specified in clauses (1)
through (7) above."
AND FURTHER RESOLVED, that all other provisions of the Plan shall
remain in full force and effect in accordance with their terms.
14<PAGE>
<PAGE>
Exhibit 10.25
CONSULTING AGREEMENT
Parties: Control Data Systems, Inc.
4201 Lexington Avenue North
Arden Hills, Minnesota 55126
("Company")
W. Douglas Hajjar ("Hajjar")
Date: November 14, 1994
Agreement dated November 14, 1994, between the Company and W. Douglas
Hajjar, 1512 Monument Street, Concord, Massachusetts 01742.
In consideration of the mutual promises and covenants contained here,
the parties hereto agree as follows:
Section 1. Employment
1.1 The Company hereby retains Hajjar as a consultant. In general
Hajjar's duties shall consist of advising the Company on various matters
relating to its business plans and restructuring plans. Such consulting
shall be mutually agreed upon times and places.
Section 2. Compensation
2.1 Fee: The Company shall pay Hajjar $2,000 per day for duties
performed.
2.2 Expenses: Hajjar shall be entitled to reimbursement by the Company
for all expenses reasonably incurred by him in the performance of his
consulting duties.
Section 3. Miscellaneous
3.1 Severability: The unenforceability of an provision of this agreement
shall not affect the validity or enforceability of any other provision of
this agreement.
3.2 Assignment: Since this is a personal services consulting agreement,
Hajjar's rights and obligations shall not be assignable by Hajjar. This
agreement may be assigned by the Company, and shall be binding upon any
successors and assigns the Company.
3.3 Governing Law: This agreement and the rights and obligation of the
parties, thereunder shall be interpreted in accordance with the laws of the
State of California.
3.4 Cancellation Provisions: This agreement may be canceled by either
party upon 30 days written notice to the other party.
In Witness Whereof, the parties have executed this Agreement as of the date
first indicated above, the Company by its officer duly authorized.
CONTROL DATA SYSTEMS, INC.
15<PAGE>
By: /s/ James E. Ousley Date: 11/14/94
James E. Ousley
President and CEO
/s/ W. Douglas Hajjar Date: 11/14/94
W. Douglas Hajjar
<PAGE>
Exhibit 10.26
SEVERANCE AGREEMENT
Parties: Control Data Systems, Inc.
4201 Lexington Avenue North
Arden Hills, Minnesota 55126
("Company")
James E. Ousley ("Executive")
Date: January 4, 1995
RECITALS:
1. Executive has been employed by the Company since August 1, 1992,
and currently serves as the President and Chief Executive Officer of the
Company, and Executive has extensive knowledge and experience relating to
the Company's business.
2. The parties recognize that a "Change of Control" may materially
change or diminish Executive's responsibilities and substantially frustrate
Executive's commitment to the Company.
3. The parties further recognize that it is in the best interests of
the Company and its stockholders to provide certain benefits payable upon a
"Change of Control Termination" to encourage Executive to continue in his
position in the event of a Change of Control, although no such Change of
Control is now contemplated or foreseen.
AGREEMENTS:
1. Term of Agreement. This Agreement shall commence on the date
executed by the parties and shall continue in effect until the third
anniversary of the date set forth above; provided, however, that if a
Change of Control of the Company shall occur during the term of this
Agreement, this Agreement shall continue in effect for a period of twelve
(12) months beyond the date of such Change of Control. Any rights and
obligations accruing before the termination or expiration of this Agreement
shall survive to the extent necessary to enforce such rights and
obligations.
2. "Change of Control." No benefits shall be payable under this
Agreement unless there has been a "Change of Control" of the Company. For
purposes of this Agreement, "Change of Control" shall mean any of the
following events:
(a) A merger or consolidation to which the Company is a party if
the individuals and entities who were shareholders of the
Company immediately prior to the effective date of such
merger or consolidation have, immediately following the
effective date of such merger or consolidation, beneficial
ownership (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934) of less than fifty percent (50%) of
the total combined voting power of all classes of securities
issued by the surviving corporation for the election of
directors of the surviving corporation;
18<PAGE>
(b) The direct or indirect beneficial ownership (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934) of
securities of the Company representing, in the aggregate,
twenty percent (20%) or more of the total combined voting
power of all classes of the Company's then issued and
outstanding securities by any person or entity or by a group
of associated persons or entities acting in concert;
(c) The sale of the properties and assets of the Company
substantially as an entirety, to any person or entity which
is not a wholly-owned subsidiary of the Company;
(d) The stockholders of the Company approve any plan or proposal
for the liquidation of the Company; or
(e) A change in the composition of the Board at any time during
any consecutive twenty-four (24) month period such that the
"Continuity Directors" cease for any reason to constitute at
least a seventy percent (70%) majority of the Board. For
purposes of this event, "Continuity Directors" means those
members of the Board who either:
(1) were directors at the beginning of such consecutive
twenty-four (24) month period; or
(2) were elected by, or on the nomination or recommendation
of, at least a two-thirds (2/3) majority of the then-
existing Board of Directors.
3. Change of Control Termination. For purposes of this Agreement, a
"Change of Control Termination" shall mean any of the following events
occurring within twelve (12) months after a Change of Control:
(a) The termination of Executive's employment by the Company or
its subsidiary for any reason, with or without cause, except
for conduct by Executive constituting (i) a felony involving
moral turpitude under either federal law or the law of the
state of the Company's incorporation, or (ii) Executive's
willful failure to fulfill his employment duties with the
Company or its subsidiary; provided, however, that for
purposes of this clause (ii), an act or failure to act by
Executive shall not be "willful" unless it is done, or
omitted to be done, in bad faith and without any reasonable
belief that Executive's action or omission was in the best
interests of the Company or its subsidiary; or
(b) The termination of employment with the Company or its
subsidiary by Executive for Good Reason. Such termination
shall be accomplished by, and effective upon, Executive
giving written notice to the Company of his decision to
terminate. "Good Reason" shall mean a good faith
determination by Executive, in Executive's sole and absolute
judgment, that any one or more of the following events has
occurred without the Executive's express written consent
after a Change of Control:
(1) A change in Executive's reporting responsibilities,
titles or offices as in effect immediately prior to the
Change of Control, or any removal of Executive from or
19<PAGE>
any failure to re-elect Executive to any of such
positions, which has the effect of diminishing
Executive's responsibility or authority;
(2) A reduction by the Company or its subsidiary in
Executive's base salary as in effect immediately prior
to the Change of Control or as the same may be
increased from time to time thereafter;
(3) A requirement imposed by the Company or its subsidiary
on Executive that results in Executive being based at a
location that is outside of a twenty-five (25) radius
mile of Executive's job location at the time of the
Change of Control;
(4) Without the adoption of a replacement plan, program or
arrangement that provides benefits to Executive that
are equal to or greater than those benefits that are
discontinued or adversely affected:
(A) The failure by the Company or subsidiary to
continue in effect, within its maximum stated
term, any pension, bonus, incentive, stock
ownership, purchase, option, life insurance,
health, accident, disability, or any other
employee compensation or benefit plan, program or
arrangement, in which Executive is participating
immediately prior to a Change of Control; or
(B) The taking of any action by the Company or its
subsidiary that would adversely affect Executive's
participation or materially reduce Executive's
benefits under any of such plans, programs or
arrangements; or
(5) Any action by the Company or its subsidiary that would
materially adversely affect the physical conditions
existing at the time of the Change of Control in or
under which Executive performs his or her employment
duties; or
(6) If Executive's primary employment duties are with a
subsidiary of the Company, the sale, merger,
contribution, transfer or any other transaction
relating to the Company's ownership interest in such
subsidiary and which decreases such ownership interest
below the level specified in Section 424(f) of the
Internal Revenue Code of 1986 (the "Code"), or any
successor provision; or
(7) Any material breach by the Company or its subsidiary of
any employment agreement between Executive and the
Company or its subsidiary.
Termination for "Good Reason" shall not include Executive's
death or a termination for any reason other than the events
specified in clauses (1) through (7) above.
20<PAGE>
4. Compensation and Benefits. Subject to the limitations contained
in Section 5 below, upon a Change of Control Termination, Executive shall
be entitled to the following compensation and benefits:
(a) The Company shall, within five days of such Change of
Control Termination, pay to Executive:
(1) All salary and other compensation earned by Executive
through the date of the Change of Control Termination
at the rate in effect immediately prior to such
Termination;
(2) All other amounts to which Executive may be entitled to
receive under any compensation plan maintained by the
Company, subject to any distribution requirements
contained in such compensation plans; and
(3) A severance payment equal to One Dollar ($1.00) less
than three (3) times Executive's "average annual
compensation" paid to Executive by the Company (or any
"predecessor entity" or "related entity") and
includible in Executive's gross income for federal
income tax purposes during the Executive's five most
recent taxable years ending immediately before the year
in which the Change of Control occurred. For purposes
of this clause (3), "average annual compensation,"
"predecessor entity" and "related entity" shall have
the same meaning as set forth in Code Section 280G and
the regulations thereunder.
In the event the Company does not make timely payment
in full of the severance payment provided for in clause
(3) herein, Executive shall be entitled to receive
interest on any unpaid amount at the prime interest
rate announced from time to time by Norwest Bank
Minneapolis, N.A., or the maximum rate permitted under
Code Section 280G(d)(4), or any successor provision,
whichever rate is lower.
(b) The Company shall continue to provide Executive with
coverage under life, health, dental or disability benefit
plans at a level comparable to the benefits which Executive
was receiving or entitled to receive immediately prior to
the Change of Control Termination. Such coverage shall
continue for thirty-six (36) months following such Change of
Control Termination or, if earlier, until Executive is
eligible to be covered for such benefits through his
employment with another employer. The Company may, in its
sole discretion, provide such coverage through the purchase
of individual insurance contracts for Executive.
(c) The Company shall provide Executive with out placement
services for twelve (12) months following the Change of
Control Termination or, if earlier, until Executive has
accepted employment with another employer.
5. Limitation on Change of Control Payments. Executive shall not be
entitled to receive any Change of Control Action, as defined below, which
would constitute a "parachute payment" for purposes of Code Section 280G,
or any successor provision, and the regulations thereunder. In the event
21<PAGE>
any Change of Control Action payable to Executive would constitute a
"parachute payment," Executive shall have the right to designate those
Change of Control Actions which would be reduced or eliminated so that
Executive will not receive a "parachute payment." For purposes of this
Section 4, a "Change of Control Action" shall mean any payment, benefit or
transfer of property in the nature of compensation paid to or for the
benefit of Executive under any arrangement which is considered contingent
on a Change of Control for purposes of Code Section 280G, including,
without limitation, any and all of the Company's salary, bonus, incentive,
restricted stock, stock option, compensation or benefit plans, programs or
other arrangements, and shall include benefits payable under this
Agreement.
6. Payment of Attorneys Fees and Other Costs. If, after a Change in
Control of the Company, a good faith dispute arises with respect to the
enforcement of Executive's rights under this Agreement or if any legal or
arbitration proceeding shall be brought in good faith to enforce or
interpret any provision contained herein or to recover damages for breach
hereof, Executive shall recover from the Company (a) reasonable attorneys'
fees and necessary costs and disbursements incurred by Executive as a
result of such dispute or such legal or arbitration proceeding, and (b)
prejudgment interest on any money judgment or arbitration award obtained by
Executive calculated at the prime rate announced from time to time by
Norwest Bank Minneapolis, N.A., or the maximum rate permitted under Code
Section 280G(d)(4), or any successor provision, whichever rate is lower,
such prejudgment interest to be paid from the date that payments to
Executive should have been made under this Agreement.
7. Withholding Taxes. The Company shall be entitled to deduct from
all payments or benefits provided for under this Agreement any federal,
state or local income and employment-related taxes required by law to be
withheld with respect to such payments or benefits.
8. Successors and Assigns. This Agreement shall inure to the
benefit of and shall be enforceable by Executive, his heirs and the
personal representative of his estate, and shall be binding upon and inure
to the benefit of the Company, its successors and assigns. The Company
will require the transferee of any sale of all or substantially all of the
business and assets of the Company or the survivor of any merger,
consolidation or other transaction expressly to agree to honor this
Agreement in the same manner and to the same extent that the Company would
be required to perform this Agreement if no such event had taken place.
Failure of the Company to obtain such agreement before the effective date
of such event shall be a breach of this Agreement and shall entitle
Executive to the benefits provided in Section 5 as if Executive had
terminated employment for Good Reason following a Change in Control.
9. Notices. For the purpose of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States certified or registered mail, return receipt requested, postage
prepaid, addressed to the respective addresses set forth on the first page
of this Agreement or to such other address as either party may have
furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon receipt. All
notices to the Company shall be directed to the attention of the Board of
Directors of the Company.
22<PAGE>
10. Captions. The headings or captions set forth in this Agreement
are for convenience only and shall not affect the meaning or interpretation
of this Agreement.
11. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Minnesota.
12. Construction. Wherever possible, each term and provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law. If any term or provision of this Agreement is
invalid or unenforceable under applicable law, (a) the remaining terms and
provisions shall be unimpaired, and (b) the invalid or unenforceable term
or provision shall be deemed replaced by a term or provision that is valid
and enforceable and that comes closest to expressing the intention of the
unenforceable term or provision.
13. Amendment; Waivers. This Agreement may not be modified, amended,
waived or discharged in any manner except by an instrument in writing
signed by both parties hereto. The waiver by either party of compliance
with any provision of this Agreement by the other party shall not operate
or be construed as a waiver of any other provision of this Agreement, or of
any subsequent breach by such party of a provision of this Agreement.
14. Entire Agreement. This Agreement supersedes all prior or
contemporaneous negotiations, commitments, agreements (written or oral) and
writings between the Company and Executive with respect to the subject
matter hereof and constitutes the entire agreement and understanding
between the parties hereto. All such other negotiations, commitments,
agreements and writings will have no further force or effect, and the
parties to any such other negotiation, commitment, agreement or writing
will have no further rights or obligations thereunder.
15. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of
which together shall constitute one and the same instrument.
16. Arbitration. Any dispute arising out of or relating to this
Agreement or the alleged breach of it, or the making of this Agreement,
including claims of fraud in the inducement, shall be discussed between the
disputing parties in a good faith effort to arrive at a mutual settlement
of any such controversy. If, notwithstanding, such dispute cannot be
resolved, such dispute shall be settled by binding arbitration. Judgment
upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. The arbitrator shall be a retired state or
federal judge or an attorney who has practiced securities or business
litigation for at least 10 years. If the parties cannot agree on an
arbitrator within 20 days, any party may request that the chief judge of
the District Court for Hennepin County, Minnesota, select an arbitrator.
Arbitration will be conducted pursuant to the provisions of this Agreement,
and the commercial arbitration rules of the American Arbitration
Association, unless such rules are inconsistent with the provisions of this
Agreement. Limited civil discovery shall be permitted for the production
of documents and taking of depositions. Unresolved discovery disputes may
be brought to the attention of the arbitrator who may dispose of such
dispute. The arbitrator shall have the authority to award any remedy or
relief that a court of this state could order or grant; provided, however,
that punitive or exemplary damages shall not be awarded. The arbitrator
may award to the prevailing party, if any, as determined by the arbitrator,
all of its costs and fees, including the arbitrator's fees, administrative
23<PAGE>
fees, travel expenses, out-of-pocket expenses and reasonable attorneys'
fees. Unless otherwise agreed by the parties, the place of any arbitration
proceedings shall be Hennepin County, Minnesota.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the day and year first above written.
CONTROL DATA SYSTEMS, INC.
By: /s/ Ruth A. Rich
Its Executive Officer and Vice President of
Human Resources and Admin.
/s/ James E. Ousley
James E. Ousley, Executive
25<PAGE>
<PAGE>
Exhibit 10.27
SEVERANCE AGREEMENT
Parties: Control Data Systems, Inc.
4201 Lexington Avenue North
Arden Hills, Minnesota 55126
("Company")
Joseph F. Killoran ("Executive")
Date: January 4, 1995
RECITALS:
1. Executive has been employed by the Company since August 1, 1992,
and currently serves as the Vice President and Chief Financial Officer of
the Company, and Executive has extensive knowledge and experience relating
to the Company's business.
2. The parties recognize that a "Change of Control" may materially
change or diminish Executive's responsibilities and substantially frustrate
Executive's commitment to the Company.
3. The parties further recognize that it is in the best interests of
the Company and its stockholders to provide certain benefits payable upon a
"Change of Control Termination" to encourage Executive to continue in his
position in the event of a Change of Control, although no such Change of
Control is now contemplated or foreseen.
AGREEMENTS:
1. Term of Agreement. This Agreement shall commence on the date
executed by the parties and shall continue in effect until the third
anniversary of the date set forth above; provided, however, that if a
Change of Control of the Company shall occur during the term of this
Agreement, this Agreement shall continue in effect for a period of twelve
(12) months beyond the date of such Change of Control. Any rights and
obligations accruing before the termination or expiration of this Agreement
shall survive to the extent necessary to enforce such rights and
obligations.
2. "Change of Control." No benefits shall be payable under this
Agreement unless there has been a "Change of Control" of the Company. For
purposes of this Agreement, "Change of Control" shall mean any of the
following events:
(a) A merger or consolidation to which the Company is a party if
the individuals and entities who were shareholders of the
Company immediately prior to the effective date of such
merger or consolidation have, immediately following the
effective date of such merger or consolidation, beneficial
ownership (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934) of less than fifty percent (50%) of
the total combined voting power of all classes of securities
issued by the surviving corporation for the election of
directors of the surviving corporation;
26<PAGE>
(b) The direct or indirect beneficial ownership (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934) of
securities of the Company representing, in the aggregate,
twenty percent (20%) or more of the total combined voting
power of all classes of the Company's then issued and
outstanding securities by any person or entity or by a group
of associated persons or entities acting in concert;
(c) The sale of the properties and assets of the Company
substantially as an entirety, to any person or entity which
is not a wholly-owned subsidiary of the Company;
(d) The stockholders of the Company approve any plan or proposal
for the liquidation of the Company; or
(e) A change in the composition of the Board at any time during
any consecutive twenty-four (24) month period such that the
"Continuity Directors" cease for any reason to constitute at
least a seventy percent (70%) majority of the Board. For
purposes of this event, "Continuity Directors" means those
members of the Board who either:
(1) were directors at the beginning of such consecutive
twenty-four (24) month period; or
(2) were elected by, or on the nomination or recommendation
of, at least a two-thirds (2/3) majority of the then-
existing Board of Directors.
3. Change of Control Termination. For purposes of this Agreement, a
"Change of Control Termination" shall mean any of the following events
occurring within twelve (12) months after a Change of Control:
(a) The termination of Executive's employment by the Company or
its subsidiary for any reason, with or without cause, except
for conduct by Executive constituting (i) a felony involving
moral turpitude under either federal law or the law of the
state of the Company's incorporation, or (ii) Executive's
willful failure to fulfill his employment duties with the
Company or its subsidiary; provided, however, that for
purposes of this clause (ii), an act or failure to act by
Executive shall not be "willful" unless it is done, or
omitted to be done, in bad faith and without any reasonable
belief that Executive's action or omission was in the best
interests of the Company or its subsidiary; or
(b) The termination of employment with the Company or its
subsidiary by Executive for Good Reason. Such termination
shall be accomplished by, and effective upon, Executive
giving written notice to the Company of his decision to
terminate. "Good Reason" shall mean a good faith
determination by Executive, in Executive's sole and absolute
judgment, that any one or more of the following events has
occurred without the Executive's express written consent
after a Change of Control:
(1) A change in Executive's reporting responsibilities,
titles or offices as in effect immediately prior to the
Change of Control, or any removal of Executive from or
27<PAGE>
any failure to re-elect Executive to any of such
positions, which has the effect of diminishing
Executive's responsibility or authority;
(2) A reduction by the Company or its subsidiary in
Executive's base salary as in effect immediately prior
to the Change of Control or as the same may be
increased from time to time thereafter;
(3) A requirement imposed by the Company or its subsidiary
on Executive that results in Executive being based at a
location that is outside of a twenty-five (25) radius
mile of Executive's job location at the time of the
Change of Control;
(4) Without the adoption of a replacement plan, program or
arrangement that provides benefits to Executive that
are equal to or greater than those benefits that are
discontinued or adversely affected:
(A) The failure by the Company or subsidiary to
continue in effect, within its maximum stated
term, any pension, bonus, incentive, stock
ownership, purchase, option, life insurance,
health, accident, disability, or any other
employee compensation or benefit plan, program or
arrangement, in which Executive is participating
immediately prior to a Change of Control; or
(B) The taking of any action by the Company or its
subsidiary that would adversely affect Executive's
participation or materially reduce Executive's
benefits under any of such plans, programs or
arrangements; or
(5) Any action by the Company or its subsidiary that would
materially adversely affect the physical conditions
existing at the time of the Change of Control in or
under which Executive performs his or her employment
duties; or
(6) If Executive's primary employment duties are with a
subsidiary of the Company, the sale, merger,
contribution, transfer or any other transaction
relating to the Company's ownership interest in such
subsidiary and which decreases such ownership interest
below the level specified in Section 424(f) of the
Internal Revenue Code of 1986 (the "Code"), or any
successor provision; or
(7) Any material breach by the Company or its subsidiary of
any employment agreement between Executive and the
Company or its subsidiary.
Termination for "Good Reason" shall not include Executive's
death or a termination for any reason other than the events
specified in clauses (1) through (7) above.
28<PAGE>
4. Compensation and Benefits. Subject to the limitations contained
in Section 5 below, upon a Change of Control Termination, Executive shall
be entitled to the following compensation and benefits:
(a) The Company shall, within five days of such Change of
Control Termination, pay to Executive:
(1) All salary and other compensation earned by Executive
through the date of the Change of Control Termination
at the rate in effect immediately prior to such
Termination;
(2) All other amounts to which Executive may be entitled to
receive under any compensation plan maintained by the
Company, subject to any distribution requirements
contained in such compensation plans; and
(3) A severance payment equal to one and one-half (1-1/2)
times Executive's "average annual compensation" paid to
Executive by the Company (or any "predecessor entity"
or "related entity") and includible in Executive's
gross income for federal income tax purposes during the
Executive's five most recent taxable years ending
immediately before the year in which the Change of
Control occurred. For purposes of this clause (3),
"average annual compensation," "predecessor entity" and
"related entity" shall have the same meaning as set
forth in Code Section 280G and the regulations
thereunder.
In the event the Company does not make timely payment
in full of the severance payment provided for in clause
(3) herein, Executive shall be entitled to receive
interest on any unpaid amount at the prime interest
rate announced from time to time by Norwest Bank
Minneapolis, N.A., or the maximum rate permitted under
Code Section 280G(d)(4), or any successor provision,
whichever rate is lower.
(b) The Company shall continue to provide Executive with
coverage under life, health, dental or disability benefit
plans at a level comparable to the benefits which Executive
was receiving or entitled to receive immediately prior to
the Change of Control Termination. Such coverage shall
continue for thirty-six (36) months following such Change of
Control Termination or, if earlier, until Executive is
eligible to be covered for such benefits through his
employment with another employer. The Company may, in its
sole discretion, provide such coverage through the purchase
of individual insurance contracts for Executive.
(c) The Company shall provide Executive with out placement
services for twelve (12) months following the Change of
Control Termination or, if earlier, until Executive has
accepted employment with another employer.
5. Limitation on Change of Control Payments. Executive shall not be
entitled to receive any Change of Control Action, as defined below, which
would constitute a "parachute payment" for purposes of Code Section 280G,
or any successor provision, and the regulations thereunder. In the event
29<PAGE>
any Change of Control Action payable to Executive would constitute a
"parachute payment," Executive shall have the right to designate those
Change of Control Actions which would be reduced or eliminated so that
Executive will not receive a "parachute payment." For purposes of this
Section 4, a "Change of Control Action" shall mean any payment, benefit or
transfer of property in the nature of compensation paid to or for the
benefit of Executive under any arrangement which is considered contingent
on a Change of Control for purposes of Code Section 280G, including,
without limitation, any and all of the Company's salary, bonus, incentive,
restricted stock, stock option, compensation or benefit plans, programs or
other arrangements, and shall include benefits payable under this
Agreement.
6. Payment of Attorneys Fees and Other Costs. If, after a Change in
Control of the Company, a good faith dispute arises with respect to the
enforcement of Executive's rights under this Agreement or if any legal or
arbitration proceeding shall be brought in good faith to enforce or
interpret any provision contained herein or to recover damages for breach
hereof, Executive shall recover from the Company (a) reasonable attorneys'
fees and necessary costs and disbursements incurred by Executive as a
result of such dispute or such legal or arbitration proceeding, and (b)
prejudgment interest on any money judgment or arbitration award obtained by
Executive calculated at the prime rate announced from time to time by
Norwest Bank Minneapolis, N.A., or the maximum rate permitted under Code
Section 280G(d)(4), or any successor provision, whichever rate is lower,
such prejudgment interest to be paid from the date that payments to
Executive should have been made under this Agreement.
7. Withholding Taxes. The Company shall be entitled to deduct from
all payments or benefits provided for under this Agreement any federal,
state or local income and employment-related taxes required by law to be
withheld with respect to such payments or benefits.
8. Successors and Assigns. This Agreement shall inure to the
benefit of and shall be enforceable by Executive, his heirs and the
personal representative of his estate, and shall be binding upon and inure
to the benefit of the Company, its successors and assigns. The Company
will require the transferee of any sale of all or substantially all of the
business and assets of the Company or the survivor of any merger,
consolidation or other transaction expressly to agree to honor this
Agreement in the same manner and to the same extent that the Company would
be required to perform this Agreement if no such event had taken place.
Failure of the Company to obtain such agreement before the effective date
of such event shall be a breach of this Agreement and shall entitle
Executive to the benefits provided in Section 5 as if Executive had
terminated employment for Good Reason following a Change in Control.
9. Notices. For the purpose of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States certified or registered mail, return receipt requested, postage
prepaid, addressed to the respective addresses set forth on the first page
of this Agreement or to such other address as either party may have
furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon receipt. All
notices to the Company shall be directed to the attention of the Board of
Directors of the Company.
30<PAGE>
10. Captions. The headings or captions set forth in this Agreement
are for convenience only and shall not affect the meaning or interpretation
of this Agreement.
11. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Minnesota.
12. Construction. Wherever possible, each term and provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law. If any term or provision of this Agreement is
invalid or unenforceable under applicable law, (a) the remaining terms and
provisions shall be unimpaired, and (b) the invalid or unenforceable term
or provision shall be deemed replaced by a term or provision that is valid
and enforceable and that comes closest to expressing the intention of the
unenforceable term or provision.
13. Amendment; Waivers. This Agreement may not be modified, amended,
waived or discharged in any manner except by an instrument in writing
signed by both parties hereto. The waiver by either party of compliance
with any provision of this Agreement by the other party shall not operate
or be construed as a waiver of any other provision of this Agreement, or of
any subsequent breach by such party of a provision of this Agreement.
14. Entire Agreement. This Agreement supersedes all prior or
contemporaneous negotiations, commitments, agreements (written or oral) and
writings between the Company and Executive with respect to the subject
matter hereof and constitutes the entire agreement and understanding
between the parties hereto. All such other negotiations, commitments,
agreements and writings will have no further force or effect, and the
parties to any such other negotiation, commitment, agreement or writing
will have no further rights or obligations thereunder.
15. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of
which together shall constitute one and the same instrument.
16. Arbitration. Any dispute arising out of or relating to this
Agreement or the alleged breach of it, or the making of this Agreement,
including claims of fraud in the inducement, shall be discussed between the
disputing parties in a good faith effort to arrive at a mutual settlement
of any such controversy. If, notwithstanding, such dispute cannot be
resolved, such dispute shall be settled by binding arbitration. Judgment
upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. The arbitrator shall be a retired state or
federal judge or an attorney who has practiced securities or business
litigation for at least 10 years. If the parties cannot agree on an
arbitrator within 20 days, any party may request that the chief judge of
the District Court for Hennepin County, Minnesota, select an arbitrator.
Arbitration will be conducted pursuant to the provisions of this Agreement,
and the commercial arbitration rules of the American Arbitration
Association, unless such rules are inconsistent with the provisions of this
Agreement. Limited civil discovery shall be permitted for the production
of documents and taking of depositions. Unresolved discovery disputes may
be brought to the attention of the arbitrator who may dispose of such
dispute. The arbitrator shall have the authority to award any remedy or
relief that a court of this state could order or grant; provided, however,
that punitive or exemplary damages shall not be awarded. The arbitrator
may award to the prevailing party, if any, as determined by the arbitrator,
all of its costs and fees, including the arbitrator's fees, administrative
31<PAGE>
fees, travel expenses, out-of-pocket expenses and reasonable attorneys'
fees. Unless otherwise agreed by the parties, the place of any arbitration
proceedings shall be Hennepin County, Minnesota.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the day and year first above written.
CONTROL DATA SYSTEMS, INC.
By: /s/ Ruth A. Rich
Its Vice President of Human Resources
and Admin. and Executive Officer
/s/ Joseph F. Killoran
Joseph F. Killoran, Executive
33<PAGE>
<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
December 31, January 1, January 2,
1994 1994 1993
<S> <C> <C> <C>
Net earnings (loss) applicable to
common shares:
Net earnings (loss) ..........$ (94,403) $ 9,120 $ (134,034)
Primary:
Shares for common and common share
equivalent earnings (loss)
per share (1):
Weighted average number of
common shares outstanding ..13,739,725 13,115,319 11,138,358
Dilutive effect of outstanding
stock options and warrants . - 648,305 -
13,739,725 13,763,624 11,138,358
Net earnings (loss) per common share
and common share equivalent ....$ (6.87) $ 0.66 $ (12.03)
Fully Diluted:
Shares for common and common share
equivalent earnings (loss)
per share (2):
Weighted average number of
common shares outstanding ..13,739,725 13,115,319 11,138,358
Dilutive effect of outstanding
stock options and warrants . - 648,305 -
13,739,725 13,763,624 11,138,358
Net earnings (loss) per common share
and common share equivalent ....$ (6.87) $ 0.66 $ (12.03)
<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>
35<PAGE>
<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 December 31, 1994 and January 1,
1994, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 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 December 31, 1994 and January 1,
1994, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 1994 in conformity
with generally accepted accounting principles.
Minneapolis, Minnesota
January 26, 1995, except as to note 9 which is as of
February 14, 1995
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview. Control Data Systems, Inc. (the "Company") is a global systems
integrator, developing and implementing open systems solutions for the
operational problems of customers worldwide. It focuses on the
architecture, implementation, and lifetime support of electronic commerce,
product data management, and client-server solutions for government,
financial services, telecommunications, and manufacturing organizations.
The Company helps its customers implement business-related solutions by
providing a range of services that include:
- Technology consulting - Infrastructure integration
- Program management - Solution support
- Software development
36<PAGE>
The Company relies upon its computer professionals to provide the
consulting services required to define, develop, install, and maintain
computer-based solutions. The Company has a growing family of open systems
technology partners and suppliers offering a range of hardware platforms
and software products which the Company then customizes for a particular
customer environment. These integration/consulting services are based upon
the Company's 38 years of experience in implementing leading-edge solutions
for complex computing environments.
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>
1994 Change 1993 Change 1992
<S> <C> <C> <C> <C> <C>
Software and services $154.3 10.0% $140.3 (3.2%) $145.0
Maintenance and support 92.8 (18.5%) 113.8 (14.1%) 132.5
Hardware products 277.1 40.2% 197.7 (17.5%) 239.5
Total revenues $524.2 16.0% $451.8 (12.6%) $517.0
<CAPTION>
Revenues by Geography
1994 Change 1993 Change 1992
<S> <C> <C> <C> <C> <C>
Americas $235.1 14.0% $206.3 6.3% $194.1
Europe 230.1 34.0% 171.7 (33.2%) 257.0
Asia 59.0 (20.1%) 73.8 12.0% 65.9
Total revenues $524.2 16.0% $451.8 (12.6%) $517.0
</TABLE>
Revenues for 1994 of $524.2 million increased 16% from 1993 revenues of
$451.8 million. The revenue growth was due primarily to 40.2% increase in
hardware product sales, reflecting a 71% increase in open systems solutions
sales offset by a 45% decrease in sales of proprietary hardware products.
The majority of the increase in hardware products is attributable to the
inclusion of revenue from acquisitions in Canada and the United Kingdom
that were completed in the fourth quarter of 1993 and the first quarter of
1994. Software and services revenues increased by 10%. This growth in
open systems solution sales and software and services is the continuation
of the revenue trend associated with the Company's transition from a
provider of proprietary products to a systems integration company.
Maintenance and support revenues declined 18.5% due primarily to the
decrease in proprietary systems under maintenance contracts.
Revenues in Europe showed a 34% increase in 1994 compared to a decrease of
33.2% in 1993. This increase was due primarily to the acquisition in the
United Kingdom. Revenues in the Americas showed an increase in 1994 of
14%. This increase was due primarily to the acquisition in Canada.
Revenues in Asia decreased by 20.1% in 1994 compared to an increase in 1993
of 12%. This decrease was primarily due to a 80.2% decrease in sales of
proprietary hardware products.
37<PAGE>
Revenues for 1993 of $451.8 million decreased 12.6% from 1992 revenues of
$517.0 million. This decrease is attributable to the Company's transition
from a provider of proprietary products to a systems integration company as
noted above.
Certain revenues have been reclassified in selected categories to conform
with the Company's standard presentation.
Cost of Revenues and Gross Profit
<TABLE>
<CAPTION>
1994 Change 1993 Change 1992
<S> <C> <C> <C> <C> <C>
Cost of revenues $382.5 34.0% $285.4 (11.0%) $320.7
Percentage of revenues 73.0% 63.2% 62.0%
Gross profit $141.7 (14.8%) $166.4 (15.2%) $196.3
Percentage of revenues 27.0% 36.8% 38.0%
</TABLE>
Cost of revenues increased by 34% and gross profit margins decreased by
14.8% in 1994. Factors contributing to these changes included; increased
sales of lower profit margin hardware products primarily associated with
the recent acquisitions, decreased sales of higher profit margin
proprietary maintenance services and hardware products, and decreased
profit margins on software and services sales. The software and services
profit margins were primarily impacted by the underutilization of technical
resources due to changing skill requirements associated with the Company's
direction into specific market focused programs.
The decrease in cost of revenues and gross profit margins in 1993 from 1992
was primarily a result of decreased sales of higher profit margin
proprietary maintenance services and hardware products.
Operating Expenses
<TABLE>
<CAPTION>
1994 Change 1993 Change 1992
<S> <C> <C> <C> <C> <C>
Selling, general
and administrative $129.5 (7.2%) $139.5 (15.1%) $164.3
Percentage of revenues 24.7% 30.9% 31.8%
Technical $ 14.2 (40.3%) $ 23.8 (40.5%) $ 40.0
Percentage of revenues 2.7% 5.3% 7.7%
Restructuring $ 70.1 - - (100.0%) $114.9
Percentage of revenues 13.4% 22.2%
Goodwill write-off $ 24.9 - - - -
Percentage of revenues 4.8% -
Change in valuation of
spare parts inventory - - - (100.0%) $ 14.9
Percentage of revenues - - 2.9%
</TABLE>
Selling, general and administrative (SG&A). The decrease in SG&A expense
is a result of the downsizing actions taken by the Company over the past
two years, offset in part by SG&A expenses associated with the acquisitions
made in the fourth quarter of 1993 and the first quarter of 1994.
38<PAGE>
Technical. The decrease in technical expense is an ongoing trend as the
Company continues its transition from a provider of proprietary products to
a systems integration company. The Company received proceeds from Silicon
Graphics, Inc. of none in 1994, $1.95 million in 1993, and $0.5 million in
1992 to offset costs of certain research and development projects.
12
<PAGE>
Restructuring charges. Over the past several years, the Company has
focused its core business through a series of initiatives. The Company
continues its transition from a developer and manufacturer of proprietary
mainframe computer systems to the marketing and integration of open systems
hardware, software, and consulting services.
Business activity in selected operations in 1994 fell below the Company's
business plan. Slower than planned revenue growth from certain operations
combined with lower than expected gross profit margins associated with
hardware sales and excess technical resources in the consulting sector have
been the primary issues of concern. While expenses were also below the
Company's plan, the reduction was not adequate to offset lower gross profit
levels.
During the fourth quarter of 1994, the Company completed a thorough review
of its worldwide business operations and market opportunities. In order to
remain competitive in the future, the Company concluded that the business
trends mentioned above would continue if certain actions were not taken to
further reduce the geographic scope of operations, downsize employment
levels worldwide, and revalue selected assets. Based on this review, the
Company adopted a formal restructuring plan resulting in a pre-tax
restructuring charge of $70.1 million.
Management believes its restructuring program is necessary to eliminate
non-essential functions and excess costs, and based on forecasts, such cost
reductions should enable the Company to compete effectively in the
marketplace. Under the restructuring plan, the Company will reduce its pre-
restructure workforce by approximately 600 individuals, thereby reducing
annualized payroll, labor, and benefit costs by approximately $38 million.
In addition, the exit from various leased properties will reduce annual
rent expense by approximately $3 million. These cost savings will be offset
in part by future workforce additions and other expenditures as the Company
continues to focus on its core business.
As part of the spin-off from Ceridian Corporation, the Company adopted an
earlier restructuring plan to better align its geographic dispersion and
employee population with its business. Accordingly, in June 1992, the
Company recognized a restructuring pre-tax charge of $114.9 million.
See note 16 of the Notes to Consolidated Financial Statements which sets
forth the Company's restructuring activities and the reserve balances as of
December 31, 1994, January 1, 1994, and January 2, 1993.
Future cash outlays under the restructuring plan are anticipated to be
$36.7 million and $18.2 million in 1995 and 1996, respectively.
Goodwill write-off. In 1994, the Company recorded a goodwill write-off
charge of $24.9 million. During the fourth quarter, the Company concluded
that the carrying values of the Evernet Systems, Inc. and Dataselskapet A/S
goodwill balances were fully impaired and the remaining unamortized
39<PAGE>
balances were charged to earnings. The primary reasons for these write-offs
included significant reductions in the employee and customer bases and a
refocusing of the Company's overall systems integration strategy. For
additional information regarding this charge, see notes 2 and 17 of Notes
to Consolidated Financial Statements.
Valuation of spare parts inventory charge. In June 1992, the Company also
recorded a pre-tax charge of $14.9 million related to a change in the
valuation of spare parts inventory. For additional information regarding
this charge, see note 1(j) of Notes to Consolidated Financial Statements.
Nonoperating Income
<TABLE>
<CAPTION>
1994 Change 1993 Change 1992
<S> <C> <C> <C> <C> <C>
Nonoperating income $3.6 (53.8%) $7.8 47.2% $5.3
Percentage of revenues 0.7% 1.7% 1.0%
</TABLE>
Interest expense. Interest expense decreased in 1994 due to lower interest
rates on outstanding borrowings.
Interest income. Interest income decreased in 1994 due to lower average
daily cash and short-term investment balances combined with lower yields on
these investments.
Other income. Other income decreased in 1994 primarily attributable to a
$1.2 million expense for the reduction in the market value of certain
short-term investments due to increases in interest rates, a $0.4 million
loss in affiliates primarily related to the Company's fifty percent
interest in Metaphase Technology, Inc., and the inclusion of a $1.5 million
gain on investments in 1993 arising out of the sale of Silicon Graphics,
Inc. common stock versus no similar gain on investments in 1994, offset in
part by a foreign currency transaction gain of $0.4 million.
The decrease in 1993 is due primarily to foreign currency transaction
losses of $0.3 million in 1993 versus $1.6 million of foreign currency
transaction gains in 1992.
Provision for Income Taxes
<TABLE>
<CAPTION>
1994 Change 1993 Change 1992
<S> <C> <C> <C> <C> <C>
Provision for income taxes $1.0 (47.4%) $1.9 18.8% $1.6
Percentage of revenues 0.2% 0.4% 0.3%
</TABLE>
The provisions for income taxes in 1994, 1993, and 1992 relate primarily to
foreign income taxes on the earnings of the Company's foreign subsidiaries
and foreign withholding taxes on certain United States income and state
franchise taxes. See note 7 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
40<PAGE>
<TABLE>
<CAPTION>
1994 Change 1993 Change 1992
<S> <C> <C> <C> <C> <C>
Net earnings (loss) $(94.4) (1,137.4%) $ 9.1 106.8% $(134.0)
Percentage of revenues (18.0%) 2.0% (25.9%)
Earnings (loss) per share $(6.87) $0.66 $(12.03)
</TABLE>
Net earnings (loss). The net loss for 1994 was $94.4 million compared with
net earnings for 1993 of $9.1 million and a net loss for 1992 of $134.0
million.
The 1994 net loss is primarily attributable to the $70.1 million
restructuring charge and $24.9 million goodwill write-off recorded in the
fourth quarter of 1994 and lower gross profit margins on open systems
hardware products. The improvement in net earnings for 1993 from 1992,
exclusive of the restructuring and other charges in 1992, is the result of
the reduction in operating expenses, primarily technical expense,
consistent with the Company's transition to a systems integration company.
The 1992 net loss is primarily attributable to the $114.9 million
restructuring charge and the $14.9 million change in valuation of the spare
parts inventory recognized in the second quarter of 1992 associated with
the spin-off from Ceridian.
13
<PAGE>
Outlook
The following factors, among others, should be considered in evaluating the
Company's outlook.
General. The Company participates in the systems integration segment of
the information systems and services market. This segment is projected to
grow by more than 15% per year over the next four years. Equipment
manufacturers, large consulting firms, and traditional systems integrators
also compete in this market segment. There are many smaller firms also
active in this market segment with no one firm having a dominant position.
Many of the companies in this market segment offer outsourcing and other
types of long term agreements with their customer base. The result of
these types of activities is to develop a backlog of business that creates
a certain predictable revenue base in future periods. The Company has a
limited number of these types of arrangements. Therefore, revenue
predictability is currently difficult, and continuing quarterly volatility
of earnings can be expected.
Revenues. Revenue levels in 1995 could be impacted by the Company's
business transition and narrowed focus, as well as by the acquisition of
additional businesses or divestiture of existing operations.
Cost of revenues. The Company's cost of revenues as a percentage of total
revenues increased in 1994 from 1993, resulting in lower gross profit
margins. Cost savings in 1995 expected from the restructuring actions
taken in 1994 could be partially offset by continuing declines in the
servicing of proprietary products and a change in revenue mix, resulting
from faster growth in lower margin hardware products. Due to varying gross
profit margins of different types of product sales and varying gross profit
41<PAGE>
margins of specific large projects quarter to quarter, total gross profit
margins in 1995 will be volatile.
Selling, general and administrative expenses. SG&A expenses declined in
1994 from 1993, due primarily to the downsizing actions taken over the past
two years. SG&A expenses are expected to decline slightly in 1995 from
1994. Excluding the expense associated with the acquired businesses, SG&A
expense declined approximately 15% during 1994 versus 1993 levels.
Technical expenses. Technical spending declined in 1994, and is expected
to decline further in 1995 as the majority of the technical spending for
proprietary products was completed in 1994. Some of this decline will be
offset by higher spending on Electronic Commerce products and services, one
of the Company's primary targeted markets.
Income tax rate. In total, the Company has $131.2 million of deferred tax
assets at December 31, 1994, which can be used to offset taxes on future
earnings. While the Company maintains significant operations outside the
United States, the majority of these operations also have deferred tax
assets as of December 31, 1994, resulting from lower than expected 1994
earnings, caused in part by the worldwide restructuring activity. In the
long-term this will significantly reduce the Company's tax expense.
However, given the wide geographical dispersion of the Company's operations
the overall effective tax rate will be volatile.
Foreign exchange. A large percentage of the Company's revenues, costs, and
expenses are transacted in currencies other than the U.S. dollar. As a
result, the Company's financial results are subject to foreign exchange
rate fluctuations.
Other. See Notes to Consolidated Financial Statements regarding other
factors concerning the Company.
Financial condition
The Company's cash and short-term investments totalled $85.4 million at
December 31, 1994 representing 28.4% of total assets. The Company has no
long term debt. Stockholders' equity at December 31, 1994 was $82.3
million. Total cash and short-term investment balances increased by $3.8
million in 1994. The primary factors in the increase were a positive cash
flow of $22.0 million from working capital items (primarily trade and other
receivables and inventories of $26.6 million) and depreciation and
amortization of $18.0 million, partially offset by restructuring payments
of $22.9 million, a payment of $3.8 million to acquire a business in the
United Kingdom, and capital expenditures of $9.0 million. Stockholders'
equity decreased by $92.9 million in 1994. The decrease is primarily the
result of the restructuring charge of $70.1 million and the goodwill write-
off of $24.9 million recorded in the fourth quarter of 1994.
As of December 31, 1994, the Company has available up to $33.4 million,
primarily short-term notes and overdraft facilities, under bank lines of
credit in certain international subsidiaries. The Company has a domestic
credit arrangement which provides up to $10.0 million in unsecured short-
term credit.
The Company still has $54.9 million of restructure obligations as of
December 31, 1994, $36.7 million which are expected to be cash outlays in
the next twelve months primarily for severance costs, lease and other
obligations related to excess facilities, and litigation costs. The
Company believes that it can finance this cash requirement through a
42<PAGE>
combination of existing cash reserves, cash flow from operations, asset
sales, and its borrowing capacity. To the extent it may be necessary to
supplement these sources of cash, the Company could seek financing from
strategic investors and through future debt or equity financing in the
public or private markets. The ability of the Company to borrow money or
to sell debt or equity securities will depend on its results of operations,
financial condition, and business prospects, as well as conditions then
prevailing in the system integration industry and the relevant capital
markets.
The Company will continue to explore ways to accomplish its downsizing and
focusing objectives by means other than the expenditure of cash, including
the possible sale of non-strategic operations, in order to minimize
employee impact and cash outflow. Depending on the magnitude and timing of
these potential dispositions, earnings and financial condition of the
Company could be materially impacted in 1995.
14
<PAGE>
CONTROL DATA SYSTEMS, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except employee and per share data)
<TABLE>
<CAPTION>
OPERATING DATA
Years Ended
December 31,January 1, January 2, December 31, December 31,
1994 1994 1993 1991 1990
<S> <C> <C> <C> <C> <C>
REVENUES $ 524,227 $ 451,835 $ 516,979 $ 573,643 $ 578,010
COST OF REVENUES 382,528 285,448 320,728* 388,027* 336,390
Gross Profit 141,699 166,387 196,251 185,616 241,620
OPERATING EXPENSES:
Selling, general and
administrative 129,491 139,467 164,312 161,510 157,727
Technical 14,241 23,782 39,953* 42,352* 74,898
Restructuring 70,100 - 114,900 23,894 4,123
Goodwill write-off 24,900 - - - -
Change in the
valuation of
spare parts
inventory - - 14,900 - -
Total operating
expenses 238,732 163,249 334,065 227,756 236,748
Earnings (loss)
from operations (97,033) 3,138 (137,814) (42,140) 4,872
OTHER INCOME, NET 3,630 7,832 5,338 2,669 24,972
Earnings (loss)
before income
taxes (93,403) 10,970 (132,476) (39,471) 29,844
PROVISION FOR INCOME
43<PAGE>
TAXES 1,000 1,850 1,558 4,523 11,117
Net earnings
(loss) $(94,403)$ 9,120 $(134,034) $ (43,994) $ 18,727
Net earnings (loss) per
common share and common
share equivalents $ (6.87)$ 0.66 $ (12.03) $ (4.14) $ 1.76
Weighted average common
shares outstanding
(in thousands) 13,740 13,764 11,138 10,632 10,629
<CAPTION>
BALANCE SHEET DATA (at end of period)
As of
December 31, January 1, January 2, December 31, December 31,
1994 1994 1993 1991 1990
<S> <C> <C> <C> <C> <C>
Cash and short-
term investments $ 85,415 $ 81,635 $ 134,423 $ 13,504 $ 25,408
Total assets 300,568 352,923 373,522 373,485 423,705
Working capital 93,341 133,868 160,816 126,782 145,055
Debt obligations 2,933 1,891 9,768 16,529 4,320
Stockholders'
equity 82,306 175,176 159,207 192,030 236,568
STATISTICAL DATA
Number of
employees 2,890 3,142 3,285 3,918 4,498
Revenue/employee
(average; in
thousands) $ 165 $ 142 $ 144 $ 136 $ 116
<FN>
* Technical expenses of $10.5 million and $12.7 million were reclassified
to cost of revenues in 1992 and 1991, respectively.
</TABLE>
See the accompanying notes to consolidated financial statements.
1
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended
December 31, January 1, January 2,
1994 1994 1993
<S> <C> <C> <C>
REVENUES:
Net sales and rentals $ 319,302 $ 233,972 $ 282,794
Services 204,925 217,863 234,185
Total revenues 524,227 451,835 516,979
44<PAGE>
COST OF REVENUES:
Net sales and rentals 232,650 141,085 159,289
Services 149,878 144,363 161,439
Total cost of revenues 382,528 285,448 320,728
Gross profit 141,699 166,387 196,251
OPERATING EXPENSES:
Selling, general and
administrative 129,491 139,467 164,312
Technical 14,241 23,782 39,953
Restructuring 70,100 - 114,900
Goodwill write-off 24,900 - -
Change in the valuation of spare
parts inventory - - 14,900
Total operating expenses 238,732 163,249 334,065
Earnings (loss) from operations (97,033) 3,138 (137,814)
OTHER INCOME (EXPENSES):
Interest expense (1,282) (1,953) (2,212)
Interest income 4,786 6,235 2,391
Other income, net 126 3,550 5,159
Total other income, net 3,630 7,832 5,338
Earnings (loss) before
income taxes (93,403) 10,970 (32,476)
PROVISION FOR INCOME TAXES 1,000 1,850 1,558
Net earnings (loss) $ (94,403) $ 9,120 $ (134,034)
Net earnings (loss) per common
share and common share
equivalents $ (6.87) $ 0.66 $ (12.03)
Weighted average common shares
outstanding (in thousands) 13,740 13,764 11,138
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
15
<PAGE>
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
December 31, January 1,
ASSETS 1994 1994
<S> <C> <C>
Current assets:
Cash and short-term investments $ 85,415 $ 81,635
Trade and other receivables 121,829 125,470
Inventories 38,241 56,222
45<PAGE>
Prepaid expenses and other current
assets 6,756 7,898
Total current assets 252,241 271,225
Investments and advances 133 615
Property and equipment, net 20,727 28,058
Leased and data center equipment, net 1,901 4,779
Noncurrent trade receivables 7,330 11,638
Goodwill, net 10,187 27,842
Other noncurrent assets 8,049 8,766
Total assets $ 300,568 $ 352,923
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Notes payable $ 2,933 $ 1,891
Accounts payable 41,004 35,212
Customer advances and deferred income 24,254 19,665
Accrued taxes 4,515 4,104
Accrued salaries and wages 14,320 16,620
Restructure reserves, current portion 36,698 21,722
Other accrued expenses 35,176 38,143
Total current liabilities 158,900 137,357
Deferred income taxes 616 1,123
Restructure reserves, less current
portion 18,240 10,554
Pension liabilities 34,019 27,870
Other noncurrent liabilities 6,487 843
Total liabilities 218,262 177,747
Stockholders' equity:
Preferred stock, par value $.01 per
share, authorized 5,000,000 shares;
none issued and outstanding - -
Common stock, par value $.01 per
share, authorized 50,000,000 shares;
issued and outstanding 13,803,492 and
13,598,668 shares as of December 31,
1994 and January 1, 1994, respectively 138 136
Additional paid-in capital 161,105 159,683
Retained earnings (71,241) 23,162
Minimum pension liability adjustment (6,957) (4,722)
Foreign currency translation adjustment (739) (3,083)
Total stockholders' equity 82,306 175,176
Total liabilities and stockholders'
equity $ 300,568 $ 352,923
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
16
<PAGE>
46<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Minimum Foreign Investment
Common Stock 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, 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)
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
Issuance of common stock under
the Employee Stock Purchase Plan 84 - 595 - - - - 595
Exercises of stock options 120 2 827 - - - - 829
Minimum pension liability
adjustment - - - - (2,235) - - (2,235)
Foreign currency translation
adjustment - - - - - 2,344 - 2,344
Net loss - - - (94,403) - - - (94,403)
Balance at December 31, 1994 13,803 $ 138 $161,105 $ (71,241) $ (6,957) $ (739) $ - $ 82,306
</TABLE>
47<PAGE>
The accompanying notes are an integral part of these consolidated financial
statements.
17
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Years Ended
December 31, January 1, January 2,
1994 1994 1993
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net earnings (loss) $(94,403) $ 9,120 $(134,034)
Adjustments to reconcile net earnings
(loss) to net cash provided by
(used in) operating activities:
Depreciation 14,349 17,822 31,616
Amortization 3,624 2,041 1,742
Foreign currency transaction
(gain) loss (563) 163 (955)
Equity in losses of affiliates 429 37 76
Restructuring 70,100 - 114,900
Goodwill write-off 24,900 - -
Change in the valuation of spare
parts inventory - - 14,900
Restructure reserves utilized (22,854) (25,018) (31,351)
Gain on sale of marketable
securities and other assets (1,140) (1,288) (1,438)
Net change in working capital items 21,983 (24,907) 25,487
Net change in noncurrent
trade receivables 3,787 890 457
Net change in other noncurrent
assets (2,343) (2,841) (547)
Other (2,419) (225) 743
Net cash provided by (used in)
operating activities 15,450 (24,206) 21,596
Cash Flows from Investing Activities:
Expended for property and equipment (7,679) (8,567) (11,329)
Expended for leased and data
center equipment (1,368) (2,788) (5,654)
Investment in affiliates (8) (80) (161)
Proceeds from sale of property
and equipment 1,919 3,727 2,402
Proceeds from sale of Silicon
Graphics, Inc. common stock - 3,244 -
Acquisitions of businesses, net
of cash provided (3,844) (15,584) -
Change in short-term investments (5,667) 66,810 (129,281)
Other - - 1,897
Net cash (used in) provided by
investing activities (16,647) 46,762 (142,126)
Cash Flows from Financing Activities:
Repayments under short-term
48<PAGE>
financing arrangements, net (1,604) (5,360) (12,869)
Repayments of long-term obligations - (7,125) (511)
Proceeds from issuance of common
stock, net of issuance costs 1,424 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
Net cash (used in) provided by
financing activities (180) (7,819) 112,764
Effect of Exchange Rate Changes on Cash (510) (715) (596)
Net change in cash and equivalents (1,887) 14,022 (8,362)
Cash and cash equivalents, beginning
of year 19,164 5,142 13,504
Cash and cash equivalents, end of year 17,277 19,164 5,142
Short-term investments 68,138 62,471 129,281
Cash and short-term investments, end
of year $ 85,415 $ 81,635 $ 134,423
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
18
<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 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 retained a 5%
equity interest in ICEM Systems. On January 2, 1995, the Company purchased
VW's 5% equity interest in ICEM Systems making the Company 100% owner of
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.
49<PAGE>
(b) Revenue Recognition
Revenues from sales of hardware and software products 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.
(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 maintenance
service parts, purchased hardware and software products, and costs incurred
for projects in process.
(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. Goodwill balances are reviewed quarterly to determine that the
unamortized balances are recoverable. In evaluating the recoverability, the
following factors, among others, are considered: a significant change in
the factors used to determine the amortization period, an adverse change in
legal factors or in the business climate, a transition to a new product or
service strategy, a significant change in the customer base, a realization
of failed marketing efforts. If the unamortized balance is believed to be
unrecoverable, the Company recognizes an impairment charge necessary to
reduce the unamortized balance to the amount of cash flows expected to be
generated over the remaining life. If the acquired entity has been
integrated into other operations and cash flows cannot be separately
measured, the Company recognizes an impairment charge necessary to reduce
the unamortized balance to its estimated fair value. The amount of
impairment is charged to earnings in the current period.
(g) Other Noncurrent Assets
50<PAGE>
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 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.
19
<PAGE>
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 December 31, 1994.
(l) Net Earnings (Loss) Per Share
51<PAGE>
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 first quarter of 1994, certain cash flow activities were
reclassified to conform to the current year's presentation 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 and $10.5
million in 1993 and 1992, respectively. All financial information has been
restated to conform to these methods of presentation.
(n) Fiscal Year-end
The Company has adopted a 52/53 week fiscal year, which ends on the
Saturday closest to December 31. Fiscal years 1994, 1993, and 1992
comprised 52 weeks and ended on December 31, 1994, January 1, 1994, and
January 2, 1993, respectively.
2. ACQUISITIONS
On January 4, 1994, the Company acquired all of the outstanding capital
stock of MICHAEL Business Systems Plc which was engaged in providing
microcomputer-based products and network integration services. The
acquisition was accounted for as a purchase and the net assets and results
of operations have been included in the Company's consolidated financial
statements from the acquisition date. The total consideration paid for
this acquisition was $3.8 million in cash, plus a contingent payment of
$1.2 million, payable over the next two years. Net identifiable
liabilities acquired of $4.9 million consist of $12.3 million of assets
acquired and $17.2 million of liabilities assumed. Goodwill from this
acquisition of $9.9 million is amortized on a straight-line basis over a
period of ten years. Results of operations from this acquisition have been
included in the current year statement of operations.
During fiscal 1993, the Company acquired three companies which were engaged
in computer systems and network integration. These 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.
In June 1993, the Company acquired all of the outstanding capital stock of
Evernet Systems, Inc., a privately-held U.S. network systems integrator.
The total consideration paid for this acquisition was $20.6 million, of
which $11.5 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 $7.1 million consist of $6.6 million
of assets acquired (principally consisting of accounts receivable and
inventory) and $13.7 million of liabilities assumed. Goodwill from this
acquisition of $27.7 million was amortized on a straight-line basis over a
period of ten years. In the fourth quarter of 1994, the remaining goodwill
of $24.0 million relating to this acquisition was written-off (see note
17).
52<PAGE>
Also, in June 1993, the Company acquired Dataselskapet A/S, a privately-
held Norwegian PC integration company. The total consideration paid for
this acquisition was $0.1 million in cash. Net identifiable liabilities
acquired of $0.9 million consist of $2.5 million of assets acquired and
$3.4 million of liabilities assumed. Goodwill from this acquisition of
$1.0 million was amortized on a straight-line basis over a period of ten
years. In the fourth quarter of 1994, the remaining goodwill of $0.9
million relating to this acquisition was written-off (see note 17).
In October 1993, the Company acquired Antares Electronics, Inc., a
privately-held Canadian systems integration company providing specialized
microcomputer-based solutions in the areas of enterprisewide networking and
integration. The total consideration paid for this acquisition was $5.2
million in cash. Net identifiable assets acquired of $4.4 million consist
of $6.7 million of assets acquired and $2.3 million of liabilities assumed.
Goodwill from this acquisition of $0.8 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 1993 acquisitions described above occurred as of the
beginning of the respective period 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,
except per share data) 1994
<S> <C>
Revenues $ 509,560
Net loss $ (1,677)
Net loss per share $ (0.13)
Weighted average common shares outstanding (in
thousands) 13,115
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 period presented or of future results
of operations.
3. TRADE AND OTHER RECEIVABLES
</TABLE>
<TABLE>
<CAPTION>
December 31, January 1,
1994 1994
(Dollars in thousands)
<S> <C> <C>
Trade receivables $ 108,132 $ 119,858
Other 20,541 15,675
Allowance for doubtful accounts (6,844) (10,063)
Total $ 121,829 $ 125,470
</TABLE>
20
<PAGE>
53<PAGE>
4. OTHER ACCRUED EXPENSES
<TABLE>
<CAPTION>
December 31, January 1,
1994 1994
(Dollars in thousands)
<S> <C> <C>
Accrued warranty, support and
maintenance costs $ 12,745 $ 16,271
Bonuses and commissions 2,875 2,368
Royalties 1,173 1,074
Insurances 2,329 2,941
Minority interest in joint venture 1,177 1,389
Other 14,877 14,100
Total $ 35,176 $ 38,143
</TABLE>
5. 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.
As of December 31, 1994, the Company has reserved 2.9 million shares of the
Company's Common Stock for issuance pursuant to awards 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. In 1994
the stockholders authorized an additional 0.5 million shares for issuance
under the Plan.
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.
54<PAGE>
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 had been issued as December 31, 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 had been issued
as of December 31, 1994.
<TABLE>
<CAPTION>
Stock Options Shares Shares
Available Under Outstanding Options
for Grant Exercisable Shares Price
<S> <C> <C> <C> <C>
Balance at 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 209,559 203,190 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
Authorized for issuance 500,000 - - -
Granted (754,899) - 754,899 $6.38-$10.25
Became exercisable - 949,263 - $4.53-$13.00
Exercised - (121,050) (121,050) $4.53-$ 8.25
Cancelled - (171,258) (506,499) $4.73-$13.00
Balance at December 31, 1994 311,043 1,220,162 2,191,149 $4.73-$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. No warrants have been exercised as of December 31,
1994.
Employee Stock Purchase Plan
55<PAGE>
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. As of December 31, 1994, shares purchased under the Plan totalled
113,361.
6. 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 $2.9 million and $1.9 million at December 31, 1994 and January
1, 1994, respectively. Outstanding letters of credit totalled $0.4 million
at December 31, 1994. The average amount of short-term debt outstanding
for 1994 was $6.2 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 December 31, 1994.
The line of credit bears interest at prime plus two percent and expires on
April 14, 1995.
21
<PAGE>
7. 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 significant
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
December 31, January 1, January 2,
(Dollars in thousands) 1994 1994 1993
<S> <C> <C> <C>
Earnings (loss) before income taxes:
Domestic $(75,093) $(15,289) $(93,785)
Foreign (18,310) 26,259 (38,691)
Total $(93,403) $ 10,970 $(132,476)
Income Tax Provision (Benefit):
Current:
Domestic $ 325 $ 661 $ 92
Foreign 1,059 1,224 4,862
56<PAGE>
Deferred:
Domestic - 238 -
Foreign (384) (273) (3,396)
Total $ 1,000 $ 1,850 $ 1,558
</TABLE>
Reconciliation of estimated income taxes at United States statutory tax
rate to the income taxes provision is reported as follows:
<TABLE>
<CAPTION>
Years Ended
Effective Rate Reconciliation
December 31, January 1, January 2,
(Dollars in thousands) 1994 1994 1993
<S> <C> <C> <C>
U.S. federal statutory rate 35% 35% 34%
Income tax provision (benefit)
at U.S. statutory rate $(32,691) $ 3,840 $(45,042)
International rate differences,
credits translation, dividends
and other offsets 1,650 (1,969) 148
Non-deductible goodwill 10,121 - -
Change in valuation reserve 20,717 - -
Losses for which no tax
benefit was provided 903 4,928 46,452
Utilization of unbooked deferred
assets - (5,474) -
U.S. state income and franchise
taxes 300 525 -
Provision for income taxes $ 1,000 $ 1,850 $ 1,558
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1994 and January 1, 1994 are presented below:
<TABLE>
<CAPTION>
December 31, January 1,
(Dollars in thousands) 1994 1994
Deferred Tax Assets
<S> <C> <C>
Depreciation and amortization $ 8,530 $ 11,039
Inventory valuation 16,846 21,778
Pension plans 2,387 2,432
Deferred revenues 2,792 4,606
Allowance for doubtful accounts 3,016 4,495
Restructuring and other accruals 26,021 19,158
Net operating loss carryforwards 61,655 37,940
Tax credit carryforwards 4,229 4,462
Other 5,676 4,062
Total gross deferred tax assets 131,152 109,972
Less valuation allowance (125,709) (103,289)
Net deferred tax assets 5,443 6,683
Deferred Tax Liabilities
57<PAGE>
Depreciation and amortization $ (633) (627)
Inventory valuation (417) (1,024)
Pension plans (4,794) (5,779)
Other (215) (376)
Total deferred tax liabilities (6,059) (7,806)
Total deferred income taxes $ (616) $ (1,123)
</TABLE>
Although the Company has available gross deferred tax assets in the amount
of $131.2 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 $7.1
million for U.S. net operating losses subject to limitation under Section
382 of the Internal Revenue Code. Additionally, the remainder of the
Company's U.S. deferred tax assets may become subject to limitation or
permanent loss if certain changes in ownership, as defined by U.S. tax
rules, occur in the future.
U.S. and Foreign Income Tax Carryforwards at December 31, 1994
<TABLE>
<CAPTION>
Expiration
(Dollars in thousands) Amount Dates
<S> <C> <C>
U.S. Federal net operating loss carryforwards $ 89,653 2000-2008
Foreign net operating loss carryforwards: 35,291 1995-2004
33,442 None
Foreign tax credit carryforwards: 1,713 1995-2000
2,516 None
</TABLE>
Earnings of foreign subsidiaries considered to be reinvested for an
indefinite period at December 31, 1994 total approximately $24.5 million.
If those earnings were remitted, estimated withholding taxes of $4.3
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.
8. 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
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.
58<PAGE>
22
<PAGE>
9. 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. On February 14,
1995, the Company repurchased 1,185,224 shares of its common stock from SGI
for an aggregate purchase price of $7.1 million.
In September 1992, a technology development agreement was reached between
SGI and the Company. The Company recognized revenue under this agreement
of none in 1994, $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 $39.7 million of SGI products
in 1994, $29.3 million in 1993, and $33.3 million in 1992.
Ceridian
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 $6.5 million of CDI products
in 1994, $36.6 million in 1993, and $16.6 million during the period from
August 1, 1992 through January 2, 1993.
Allocated charges from Ceridian included in operating expenses were none in
1994 and 1993, and $6.0 million in 1992.
10. LEASES
As Lessor: The Company leases equipment to others through operating leases
with lease terms of one to five years. The Company pays taxes, licenses,
and insurance associated with the equipment under lease. The minimum
future rentals on noncancelable leases are $6.5 million in 1995, $3.6
million in 1996, $3.8 million in 1997, $0.5 million in 1998, and $0.3
million in 1999. The Company's net investment in equipment needed to
support leasing operations, included in lease and data center equipment,
was as follows:
<TABLE>
<CAPTION>
December 31, January 1,
(Dollars in thousands) 1994 1994
<S> <C> <C>
Equipment $ 21,728 $ 76,540
Less accumulated depreciation 19,860 71,890
Net investment $ 1,868 $ 4,650
</TABLE>
As Lessee: The Company leases certain property and equipment under
operating leases. 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
59<PAGE>
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 $4.3
million in 1994, $5.8 million in 1993, and $6.5 million in 1992, was $19.4
million in 1994, $18.1 million in 1993, and $20.5 million in 1992.
Future minimum payments under noncancelable operating leases, net of
sublease income, with initial or remaining lease terms in excess of one
year as of December 31, 1994 are: $12.9 million in 1995, $9.5 million in
1996, $6.8 million in 1997, $6.5 million in 1998, $5.6 million in 1999, 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.
11. SUPPLEMENTARY DATA TO CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Other Income (Expense) Years Ended
December 31, January 1, January 2,
(Dollars in thousands) 1994 1994 1993
<S> <C> <C> <C>
Foreign currency transaction
gain (loss) $ 351 $ (254) $ 1,551
Asset/business sales 345 2,236 308
Other income (expense) (141) 1,605 2,708
Equity in earnings (losses)
of affiliates (429) (37) 592
Total $ 126 $ 3,550 $ 5,159
Other Data
Provisions for doubtful accounts $ 1,906 $ 3,162 $ 3,692
Research and development* 10,127 23,765 37,776
Maintenance and repairs 7,245 7,111 10,758
Royalties 2,245 2,697 3,659
Advertising 2,656 4,716 4,721
<FN>
* Included in technical expenses in the consolidated financial statements.
</TABLE>
12. 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
60<PAGE>
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.
23
<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
December 31, January 1, January 2,
(Dollars in thousands) 1994 1994 1993
<S> <C> <C> <C>
Service cost $ 967 $ 1,079 $ 1,235
Interest cost on projected benefit
obligation 9,079 8,710 4,534
Actual return on plan assets (5,197) (9,476) (3,628)
Net amortization and deferral (4,341) (511) (355)
Total $ 508 $ (198) $ 1,786
Rate Assumptions
Discount rate 8.3% 7.4% 8.0%
Rate of salary progression 5.1% 6.8% 5.4%
Long-term rate of return on assets 8.1% 6.3% 8.4%
</TABLE>
Retirement expense for all other plans amounted to $0.5 million in 1994,
$0.6 million in 1993, and $1.9 million in 1992.
Funded Status of Defined Benefit Retirement Plans at Measurement Date
<TABLE>
<CAPTION>
Plans in Which Asset Value Exceeds
Accumulated Benefit Obligation December 31, January 1,
(Dollars in thousands) 1994 1994
<S> <C> <C>
Actuarial present value of obligation:
Vested benefit obligation $21,176 $18,824
Accumulated benefit obligation $21,662 $20,130
Projected benefit obligation $23,526 $22,035
Plan assets at fair value 39,328 38,807
Plan assets in excess of
projected benefit obligation 15,802 16,772
Unrecognized net gain (1,339) (968)
Unrecognized prior service cost 369 421
Unrecognized net asset (7,976) (8,545)
Net pension asset recognized
in the consolidated balance sheet $ 6,856 $ 7,680
61<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Plans in Which Accumulated Benefit
Obligation Exceeds Asset Value
December 31, January 1,
(Dollars in thousands) 1994 1994
<S> <C> <C>
Actuarial present value of obligation:
Vested benefit obligation $83,854 $95,263
Accumulated benefit obligation $84,107 $95,507
Projected benefit obligation $85,882 $98,353
Plan assets at fair value 55,294 70,971
Projected benefit obligation in excess of
plan assets 30,588 27,382
Unrecognized net gain (7,689) (9,664)
Unrecognized prior service cost (1,634) (1,644)
Unrecognized liability for defined
benefit plans 174 143
Fiscal 1995-1997 settlement reserve 2,597 3,654
Adjustment to recognize minimum pension
liability 6,957 4,722
Net pension liability for defined
benefit parts 30,993 24,593
Other non-defined benefit plans' obligations 3,026 3,277
Net pension liability recognized in the
consolidated balance sheet $34,019 $27,870
</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 1994 and 1993, and $2.3 million in 1992. 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.
12. CAPITAL ASSETS
<TABLE>
<CAPTION>
Capital Assets
December 31, January 1,
(Dollars in thousands) 1994 1994
<S> <C> <C>
Property and equipment, at cost
Land $ 1,427 $ 1,687
Buildings and improvements 33,735 38,320
Machinery and equipment 63,193 75,785
Total 98,355 115,792
Accumulated depreciation 77,628 87,734
Property and equipment, net $ 20,727 $ 28,058
62<PAGE>
Leased and data center equipment,
at cost $ 22,889 $ 79,200
Accumulated depreciation 20,988 74,421
Leased and data center
equipment, net $ 1,901 $ 4,779
</TABLE>
<TABLE>
<CAPTION>
Changes in Capital Assets
Years Ended
December 31, January 1, January 2,
(Dollars in thousands) 1994 1994 1993
<S> <C> <C> <C>
Property and equipment
Additions $ 7,679 $ 8,567 $ 11,329
Retirements, net of accumulated
depreciation (1) (4,384) (2,307) (5,070)
Net additions $ 3,295 $ 6,260 $ 6,259
Leased and data center equipment
Additions $ 1,368 $ 2,788 $ 5,654
Retirements, net of accumulated
depreciation (1) (523) (1,837) (1,833)
Net additions $ 845 $ 951 $ 3,821
Depreciation
Property and equipment $ 10,626 $ 11,692 $ 15,508
Leased and data center equipment 3,723 6,130 16,108
Total $ 14,349 $ 17,822 $ 31,616
<FN>
(1) Retirements include reductions in carrying values due to transfer of
assets, the disposition of businesses, and other restructuring actions.
</TABLE>
24
<PAGE>
14. STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Net Change in Working Capital Items
Years Ended
December 31, January 1, January 2,
(Dollars in thousands) 1994 1994 1993
<S> <C> <C> <C>
Trade and other receivables $ 13,917 $ (14,509) $ 30,985
Inventories 12,721 (5,949) 14,011
Prepaid expenses and other
current assets 1,130 900 132
Accounts payable (3,743) 3,764 (12,598)
Customer advances and deferred income 3,164 6,567 (6,844)
63<PAGE>
Accrued taxes 1,016 (2,336) 1,435
Accrued salaries and wages (2,700) (6,123) (2,572)
Other accrued expenses (3,522) (7,221) 938
Net change in working capital items $ 21,983 $ (24,907) $ 25,487
</TABLE>
<TABLE>
<CAPTION>
Noncash Operating, Investing, and Financing
Activities
Years Ended
December 31, January 1, January 2,
(Dollars in thousands) 1994 1994 1993
<S> <C> <C> <C>
Transfer to Ceridian of certain net
inventories of the Company $ - $ - $ 19,372
Noncash utilization of restructure
reserves (24,584) (15,283) (33,708)
Restructure reserve reclassifications
and transfers, net - 12,179 2,296
Goodwill write-off (24,900) - -
Change in valuation of spare
parts inventory - - (14,900)
Transfer to the Company of Ceridian's
investment in the common stock of
Silicon Graphics, Inc. - - (1,713)
Shares issued in connection
with acquisitions - 9,063 -
</TABLE>
<TABLE>
<CAPTION>
Supplemental Disclosures of Cash Flow Information
Years Ended
December 31, January 1, January 2,
(Dollars in thousands) 1994 1994 1993
<S> <C> <C> <C>
Cash paid (received) during year for:
Interest paid $ 1,426 $ 1,953 $ 2,212
Income taxes paid 6,325 6,659 4,619
Income taxes refunded (6,866) (2,161) (1,092)
</TABLE>
15. GEOGRAPHIC SEGMENT DATA
Information concerning United States and international operations appears
in the accompanying Geographic Segment Data table. Information is presented
on the same basis as utilized by the Company to manage the business.
Export sales and certain income and expense items are reported in the
geographic segment where the final sale is made rather than where the
transaction originates. All inter-company profit has been eliminated. The
amounts of the parent company's equity in net assets of and advances to
international subsidiaries and branches were $368.4 million and $368.4
million at December 31, 1994 and January 1, 1994, respectively.
<TABLE>
<CAPTION>
64<PAGE>
Geographic Segment Data
(Dollars in thousands)
International(2)
United Pan Consol-
States(1) American Europe Asia Total idated
<S> <C> <C> <C> <C> <C> <C>
1994 Revenues $149,517 $85,615 $230,131 $58,964 $374,710 $524,227
Earnings (loss) from
operations (78,020) 5,658 (25,081) 410 (19,013) (97,033)
Identifiable assets 112,939 32,507 115,847 39,275 187,629 300,568
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
<FN>
(1) United States earnings (loss) from operations include substantially all
technical expenses, marketing expenses, and other corporate support and
administrative 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>
Major Customers
The Company's customers are located throughout the world. No single
customer accounted for more than ten percent of the Company's revenues in
1994, 1993, or 1992, except for revenue from sales to various U.S.
government agencies which amounted to approximately 12.0% in 1994, 13.7% in
1993, and 13.4% in 1992.
25
<PAGE>
16. RESTRUCTURING RESERVES, CURRENT AND NONCURRENT
Over the past several years, the Company has focused its core business
through a series of initiatives. The Company continues its transition from
a developer and manufacturer of proprietary mainframe computer systems to
the marketing and integration of open systems hardware, software, and
consulting services.
During the fourth quarter of 1994, the Company completed a thorough review
of its worldwide business operations and market opportunities. The Company
concluded it was necessary to further reduce the geographic scope of
operations, downsize employment levels worldwide, and revalue selected
assets. As a result, the Company adopted a formal restructuring plan
resulting in a pre-tax restructuring charge of $70.1 million.
65<PAGE>
Under the restructuring plan, the Company took a $34.0 million charge to
reduce the worldwide workforce by approximately 600 individuals. The plan
includes reductions of approximately 90 administrative positions, 95
customer engineering positions, 155 professional service positions, 80
sales and marketing positions, and various other positions. The employee
reductions will be primarily concentrated in the United States and Europe.
Asset revaluations and write-offs accounted for $14.3 million of the
restructuring charge. This charge reduces certain assets to their net
realizable value and primarily consists of $8.0 million related to the
remaining proprietary-based inventory and $5.9 million related to fixed
assets, including $3.0 million for an idle facility in Brazil. These asset
impairments were a direct result of the Company's refocusing its business
strategy including the discontinuation of marketing efforts related to its
proprietary systems.
Lease and other facility obligations accounted for $9.7 million of the
restructuring charge. This charge is comprised of lease buyouts for
approximately 20 facilities and other commitments under leases throughout
the United States, Canada, and Europe resulting from the Company's plan to
reduce its geographic dispersion by consolidating sales and services
offices into more central operations.
Other charges accounted for $6.5 million of the restructuring charge. This
charge consists of $3.5 million for pension accruals resulting from lump
sum settlement payments, $1.1 million for litigation matters, and several
other less significant items.
The following represents the Company's restructuring activities for the
periods indicated:
<TABLE>
<CAPTION>
Asset Lease Foreign
Revalu- and Other Currency
Severance ations and Facility Translation
Costs Write-offs Obligations Adjustment Other Total
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1991 $ 8,261 $ - $ - $ - $ - $ 8,261
Restructuring charge 50,800 25,800 18,500 10,300 9,500 114,900
Noncash items - (25,477) (328) (7,903) - (33,708)
Reclassifications
and transfers, net (10,302) 4,920 5,859 (2,397) 4,216 2,296
Cash payments (23,485) - (2,203) - (5,663) (31,351)
Balance at
January 2, 1993 25,274 5,243 21,828 - 8,053 60,398
Noncash items - (6,227) - (2,437) (6,619) (15,283)
Reclassifications
and transfers, net 4,812 984 (5,066) 2,437 9,012 12,179
Cash payments (12,857) - (5,882) - (6,279) (25,018)
Balance at
January 1, 1994 17,229 - 10,880 - 4,167 32,276
66<PAGE>
Restructuring charge 33,963 14,330 9,686 5,630 6,491 70,100
Noncash items - (14,330) (337) (5,630) (4,287) (24,854)
Cash payments/re-
funds, net (17,863) - (6,389) - 1,398 (22,854)
Balance at
December 31, 1994 $ 33,329 $ - $ 13,840 $ - $ 7,769 $ 54,938
<FN>
Future cash outlays for the remaining restructuring reserve of $54.9
million at December 31, 1994 are anticipated to be $36.7 million and $18.2
million in 1995 and 1996, respectively.
</TABLE>
17. GOODWILL
During 1994 and 1993, the Company acquired four companies which were
engaged in computer systems and network integration business (see note 2).
Changes in the goodwill balances are summarized as follows:
<TABLE>
<CAPTION>
Foreign
Currency
Accumulated Translation
(Dollars in thousands) Gross Amortization Adjustment Net
<S> <C> <C> <C> <C>
Balance at January 2, 1993 $ - $ - $ - $ -
Acquisition of businesses 29,589 - - 29,589
Foreign currency
translation adjustment - - (5) (5)
Amortization of goodwill - (1,742) - (1,742)
Balance at January 1, 1994 29,589 (1,742) (5) 27,842
Acquisition of businesses 9,911 - - 9,911
Foreign currency
translation adjustment - - 511 511
Amortization of goodwill - (3,177) - (3,177)
Goodwill write-off (28,683) 3,783 - (24,900)
Balance at December 31, 1994 $ 10,817 $ (1,136) $ 506 $ 10,187
</TABLE>
During the fourth quarter of 1994, the Company concluded that the carrying
values of the Evernet Systems, Inc. and Dataselskapet A/S goodwill balances
were fully impaired and the entire $24.9 million unamortized balance was
charged to earnings. The primary reasons for these write-offs included
significant reduction in the employee and customer bases and a refocusing
of the Company's overall systems integration strategy. At the time the
write-off was taken, there were no other noncurrent assets remaining from
these acquisitions.
26
<PAGE>
SUPPLEMENTARY QUARTERLY DATA (Unaudited)
67<PAGE>
(Dollars in thousands)
<TABLE>
<CAPTION>
1994 1993
FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES $133,677 $113,646 $131,274 $145,630 $137,098 $ 97,091 $114,901 $102,745
COST OF REVENUES* 95,901 85,673 93,929 107,025 92,505 60,246 71,095 61,602
Gross Profit 37,776 27,973 37,345 38,605 44,593 36,845 43,806 41,143
OPERATING EXPENSES:
Selling, general
and administrative* 32,059 30,741 32,931 33,760 37,923 33,604 34,394 33,546
Technical 3,821 3,190 3,649 3,581 4,435 4,632 7,296 7,419
Restructuring 70,100 - - - - - - -
Goodwill write-off 24,900 - - - - - - -
Total operating
expenses 130,880 33,931 36,580 37,341 42,358 38,236 41,690 40,965
Earnings (loss)
from operations (93,104) (5,958) 765 1,264 2,235 (1,391) 2,116 178
OTHER INCOME (EXPENSES):
Interest expense (303) (316) (386) (277) (313) (507) (445) (688)
Interest income 1,435 1,058 1,088 1,205 1,442 1,404 1,595 1,794
Other income
(expenses), net 22 790 (283) (403) (112) 78 2,280 1,304
Total other income,
net 1,154 1,532 419 525 1,017 975 3,430 2,410
Earnings (loss)
before income
taxes (91,950) (4,426) 1,184 1,789 3,252 (416) 5,546 2,588
PROVISION (BENEFIT) FOR
INCOME TAXES (480) 549 501 430 769 (1,398) 1,229 1,250
Net earnings (loss)$(91,470) $ (4,975) $ 683 $ 1,359 $ 2,483 $ 982 $ 4,317 $ 1,338
<FN>
* Certain cost of revenues and selling, general and administrative expenses
have been reclassified in selected acquired companies to conform with
the Company's standard presentation.
</TABLE>
PRICE RANGE OF COMMON STOCK
The Company's stock is traded in the NASDAQ National Market System under
the symbol CDAT. The following table sets forth, for the quarterly periods
indicated, the high and low prices for the common stock.
<TABLE>
<CAPTION>
Market price
ranges (1) 1994 1993
Fourth Third Second First Fourth Third Second First
<S> <C> <C> <C> <C> <C> <C> <C> <C>
68<PAGE>
High $ 7.13 $ 8.88 $11.38 $10.25 $12.25 $13.50 $13.88 $14.13
Low $ 5.38 $ 6.38 $ 7.75 $ 7.75 $ 8.75 $10.88 $10.25 $ 8.75
<FN>
(1) Source: NASDAQ National Market under the symbol CDAT.
</TABLE>
As of March 1, 1995, the Company's common stock was held by approximately
19,170 stockholders of record or through nominee or street name accounts
with brokers. 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.
27
70<PAGE>
<PAGE>
EXHIBIT 21.0
CONTROL DATA SYSTEMS, INC.
Subsidiaries of the Registrant
<TABLE>
<CAPTION>
STATE/COUNTRY OF % OF
SUBSIDIARIES INCORPORATION OWNERSHIP
<S> <C> <C>
CD Iberica, S.A. Spain 100%
Control Data A/S Denmark 100%
Control Data AB Sweden 100%
Control Data 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 Corporation 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% 1
Control Data (Schweiz) AG Switzerland 100%
Control Data GmbH Germany 100%
CDCbit - business information
technology GmbH Germany 100%
ICEM Systems GmbH Germany 100%
ICEM Systems, Inc. Delaware 100%
Control Data India, Inc. Delaware 100%
Control Data Indo-Asia Company Delaware 100%
Control Data International Employment, Inc. Delaware 100%
Control Data International Trading, Inc. Delaware 100%
Control Data (Ireland) Limited Ireland 100%
Control Data Italia S.p.A. Italy 100%
Control Data Japan, Ltd. Japan 100%
Control Data Limited United Kingdom 100%
Control Data 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. Channel Islands 100%
Systime (Ireland) Ltd. (shell) Ireland 100%
Control Data Overseas Finance Corporation N.V. 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%
Control Data Real Estate, Inc. Delaware 100%
71<PAGE>
Control Data Systems Canada, Ltd. Canada 100%
Control Data Systems (Beijing) Co., Ltd. China 100%
Control Data Systems (Singapore) Pte Ltd. Singapore 100%
Control Data Systems (Thailand) Limited Thailand 100%
</TABLE>
72<PAGE>
<PAGE>
EXHIBIT 21.0
CONTROL DATA SYSTEMS, INC.
Subsidiaries of the Registrant
<TABLE>
<CAPTION>
STATE/COUNTRY OF % OF
SUBSIDIARIES INCORPORATION OWNERSHIP
<S> <C> <C>
Inter-American Control Data Corporation Delaware 100%
Meridian Environmental Technologies, Inc. Delaware 100%
<CAPTION>
Investments in Affiliates
STATE/COUNTRY OF % OF
INVESTMENTS INCORPORATION OWNERSHIP
<S> <C> <C>
Beijing RIAMB Information Technology Co., Ltd. China 51%
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%
Societe de Creation D'Activities
Nouvelles (SOCRAN) Belgium 16.6%
</TABLE>
74<PAGE>
<PAGE>
EXHIBIT 23.0
[Letterhead]
March 24, 1995
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 26, 1995, except as
to note 9 which is as of February 14, 1995, relating to the consolidated
balance sheets of Control Data Systems, Inc. and subsidiaries as of
December 31, 1994 and January 1, 1994, and the related consolidated
statements of the operations, stockholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 1994, which report
appears in the 1994 annual report on Form 10-K of Control Data Systems,
Inc.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
March 24, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE REGISTRANT'S
FINANCIAL STATEMENTS FOR ITS 1994 FISCAL YEAR
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 85,415
<SECURITIES> 0
<RECEIVABLES> 121,829
<ALLOWANCES> 0
<INVENTORY> 38,241
<CURRENT-ASSETS> 252,241
<PP&E> 22,628
<DEPRECIATION> 0
<TOTAL-ASSETS> 300,568
<CURRENT-LIABILITIES> 158,900
<BONDS> 0
<COMMON> 138
0
0
<OTHER-SE> 82,168
<TOTAL-LIABILITY-AND-EQUITY> 300,568
<SALES> 319,302
<TOTAL-REVENUES> 524,227
<CGS> 232,650
<TOTAL-COSTS> 621,260
<OTHER-EXPENSES> (4,912)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,282
<INCOME-PRETAX> (93,403)
<INCOME-TAX> 1,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (94,403)
<EPS-PRIMARY> (6.87)
<EPS-DILUTED> (6.87)
</TABLE>
