<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, 1995
or
_ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
Commission File Number 0-20252
CONTROL DATA SYSTEMS, INC.
(Exact name of Registrant as Specified in its Charter)
Delaware 41-1718075
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
____________________
4201 Lexington Avenue North
Arden Hills, Minnesota 55126-6198
(Address of principal executive offices 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 12, 1996 on the Nasdaq National Market as reported in
The Wall Street Journal, was approximately $321,000,000. 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
determination of affiliate status is not necessarily a conclusive
determination for other purposes.
As of March 12, 1996, the registrant had outstanding 13,246,255 shares
of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for the
registrant's 1996 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, 1995 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" or the "Company")
is a global software and services company dedicated to helping large
organizations develop the enterprise-wide communications systems required
to create, transmit, access, and control business information. The Company
focuses on the architecture, implementation, and lifetime support of
electronic commerce, product design, and product information solutions.
The Company provides productivity enhancing solutions for customers in
government, financial services, telecommunications, and manufacturing.
The Company's software and services solutions include network design,
installation, and maintenance; application design and deployment,
particularly for electronic commerce projects; remote and on-site systems
management and outsourcing; electronic mail integration; and for the
discrete manufacturing industry, product data management ("PDM") systems,
and computer-aided design ("CAD") products or systems. To provide its
customers with leading-edge solutions the Company invests in four major
areas:
o Development of software products associated with electronic
commerce integration, PDM, and CAD.
o Training and development of its technical workforce.
o Sales and marketing of its products and services.
o Capital and operational expenditures for the fulfillment of
managed services contracts (outsourcing contracts).
The Company also has a number of suppliers and partners providing a
range of hardware and software platforms, complementary products and
services, and sales and marketing activities.
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 of 1992, of the Company's stock as a
dividend to Ceridian's stockholders.
The Company's principal offices are located at 4201 Lexington Avenue
North, Arden Hills, Minnesota 55126-6198.
Industry Background and Business Transition
The excitement over the information superhighway and other
manifestations of Internet activity obscure the more significant forces at
work below the surface of the emerging electronic marketplace. The
introduction of inexpensive, easy-to-use browser technology is helping to
popularize the medium, but this technology alone is not driving this trend.
Global competitive forces, combined with continued technology breakthroughs
in hardware, software, and telecommunications, are stimulating
entrepreneurial interest in conducting business electronically - across
both private and public networks - without the traditional limitations of
time and space. While the individual technologies are important, equally
crucial are the skills to align process and practices through enterprise
networking and applications integration.
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From its history in the pioneering computer environments of the 1950's,
the Company has applied its network integration skills across heterogeneous
computing environments. In the early 1990's, the Company completed its
transition away from the manufacture of proprietary mainframe computers to
that of an open systems integration company. 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, consolidating operations in selected
locations, and revaluing certain intangible assets associated with prior
acquisitions. In 1995, Control Data took further steps to focus its
business for growth in the markets for our enterprise network integration
software and services with the sale of certain of its international product
fulfillment operations to AmeriData Technologies, Inc. ("AmeriData"). For
additional information regarding the divestiture to AmeriData and the
restructuring charges, see notes 3 and 18 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, 1995
and the Company's Current Report on Form 8-K, dated September 13, 1995, as
amended November 10, 1995.
Products and Services
The following table sets forth revenues for the Company's major product
and service offerings for the periods indicated:
<TABLE>
Years Ended
December 31, December 31, January 1,
1995 1994 1994
(Dollars in thousands)
<S> <C> <C> <C>
Software and services........ 174,080 154,275 140,287
Maintenance and support...... 75,452 92,785 113,857
Hardware products............ 205,283 277,167 197,691
Total revenues............. 454,815 524,227 451,835
</TABLE>
Software and Services
The dramatic shift to networked computing environments has created a
growing demand for technology infrastructures that provide a foundation for
electronic commerce. 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:
o Network Infrastructures. The most basic infrastructures are transport
mechanisms that enable institutions to connect desktop users with
sharable computing resources. These infrastructures reflect 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.
o 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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o 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 as companies in increasing numbers begin to execute
more of their basic business processes electronically.
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 messaging and X.500 directory
protocols. The X.500 directory gives customers a database for address,
configuration, and routing information within their organization and to
similar directories worldwide.
As a state of the art implementation of X.500 directory technology,
Mail*Hub is the Company's leading network integration software product. It
is packaged with services that include network analysis, configuration,
installation, 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.
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, making the Company 100% owner of ICEM Systems.
Product Data Management 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 PDM software.
The Company's PDM software product is called Metaphase 2.1. Metaphase
2.1 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 2.1
emphasizes reducing the customer's development cycle by enabling different
types of users, from designers to manufacturing experts, to share
information and data.
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The development activities for the Company's PDM product are conducted
by Metaphase Technology, Inc. ("Metaphase"), an unconsolidated joint
venture formed in August 1992 between the Company and Structural Dynamics
Research Corporation ("SDRC"), in which each party holds a 50% ownership
position. 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 networked 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:
o Program management, design/development of user interfaces, database
design, solution connectivity, system administration, and the
implementation of application functionality.
o 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.
o 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"), and Silicon Graphics, Inc. ("SGI").
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Networking Solutions. As computer users take advantage of downsized
computer platforms, decentralized organizational processes, and open
systems technology, their computing environment's basic networking
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:
o E-Mail Integration. The Company's Mail*Hub product allows disparate E-
Mail systems from mainframes, PC's and workstation/servers to
communicate in a transparent manner.
o Directory Synchronization. The Company's X.500 technology enables the
consolidation of e-mail directories and other basic organizational
information in a central, updatable corporate repository.
o Security Services. The Company provides network analysis, penetration
testing, security system design, and implementation.
o EDI Solutions. Standards based electronic data interchange (EDI)
capabilities, enabling organizations to expedite their daily business
processes.
o Network Integration Services. Requirements analysis, configuration
design, installation, performance assessment, and ongoing maintenance.
o Enterprise Management Center. Remote management, monitoring, and
troubleshooting support for computer networks and systems, worldwide,
24 hours a day, 7 days a week.
o 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.
Managed Services. In 1995, the Company introduced a full range of
managed network services, including a messaging and information exchange
service it offered in conjunction with Sprint Corporation.
o Enterprise Networking. Remote monitoring and management of wide-area
network hardware and software solutions that integrate local-area
resources into enterprise networks.
o Sprint InfoXchange Enterprise/Intercompany Messaging. Commercial
service that offers business-ready features to clients that require
enterprise and intercompany messaging, global directory services, and
electronic commerce capabilities. Sprint markets the service, and
provides the network connections required by clients. The Company
provides the mail integration technology, integration expertise, and
operations support.
o Enterprise Information Management. Administration, daily operation,
maintenance, and support of client/server solutions required to
integrate locally managed data bases and other information resources
into enterprise solutions.
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The Company's integration services are carried out primarily by its
professional services staff, which includes over 500 systems analysts
serving customers worldwide from regional centers in the United States,
Europe, and Asia. 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 $174.1 million in 1995, $154.3
million in 1994, $140.3 million in 1993, representing 38.3%, 29.4%, and
31.1%, respectively of the Company's total revenues.
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 $75.4 million in 1995, $92.8
million in 1994, and $113.8 million in 1993, representing 16.6%, 17.7%, and
25.2%, respectively of the Company's total revenues.
Hardware Products
The Company is differentiated from other integrators 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 and Hewlett-
Packard. 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.
Revenues from the sale and lease of hardware products were $205.3
million in 1995, $277.1 million in 1994, and $197.7 million in 1993,
representing 45.1%, 52.9%, and 43.8%, respectively, of the Company's total
revenues.
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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 12 other countries.
The Company's major international operations are in France, Germany, Korea,
China, Taiwan, and the United Kingdom. In 1995, the Company sold seven of
its international product distribution operations in Austria, Canada,
Greece, Mexico, Norway, Portugal, and the United Kingdom to AmeriData.
The 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
69.2%, 71.5%, and 65.2%, of the Company's total revenues in 1995, 1994, and
1993, respectively. For further information regarding the Company's U.S.
and international operations, see note 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, 1995.
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 headquarters in Arden Hills, Minnesota.
These resources are available to assist field organizations in
understanding technology trends, formulate technology strategies, and
provide 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 for customers in government, financial services,
telecommunications, and manufacturing. 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 1995, 1994, or 1993. The
Company estimates that contracts with the U.S. government represented
approximately 13.6%, 12.0%, and 13.7% of total revenue in fiscal years
1995, 1994, and 1993, 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.
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Research and Development
The Company's research and development efforts are primarily oriented
toward electronic commerce, CAD/CAM/CAE products, PDM, 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.
Company-sponsored research and development expenses related to new products
or services and the improvement of existing products totaled $9.7 million,
$10.1 million, and $23.8 million, for 1995, 1994, and 1993, 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. 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 $23 million as of December 31, 1995, most of which
is expected to be reflected in revenues during 1996. At December 31, 1994,
the backlog was approximately $76 million. These backlog amounts include
the minimum noncancelable future lease revenue expected from contracts
existing at those dates, which amounted to $3.0 million for 1995 and $14.7
million for 1994. The decrease in the 1995 backlog from 1994 is primarily
due to the operations sold to AmeriData.
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 1995 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, 1995, the Company had approximately 1,800 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 Anaheim,
California; Rockville, Maryland; Frankfurt, Germany; Copenhagen, Denmark;
London, England; Paris, France; Delft, Netherlands; and Taipei, Taiwan.
The following table summarizes the usage and location of the Company's
facilities as of January 1, 1996.
<TABLE>
Facilities
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............................ 623.8 399.9 1,023.7
Total square feet.............. 998.6 579.1 1,577.7
Utilization
Warehousing....................... 74.7 36.0 110.7
Office, computer center and other. 556.6 236.0 792.6
Vacant............................ 46.3 97.0 143.3
Leased or subleased to others..... 321.0 210.1 531.1
Total square feet.............. 998.6 579.1 1,577.7
</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 meet their intended purposes
and are adequately maintained. As a result of the Company's continuing
business transition, leased property decreased during fiscal 1995 by
approximately 500,000 square feet, a reduction of 31.5%. The number of
facilities also decreased from 140 at the end of 1994 to 90 at year end
1995, a net decrease of 50 locations. This substantial reduction was
primarily attributable to the consolidation of locations in the U.S. field
operations and the sale of certain international operations to AmeriData.
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.
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, 1995.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
James E. Ousley 50 President and Chief Executive Officer
Joseph F. Killoran 55 Vice President and Chief Financial
Officer
Ruth A. Rich 52 Vice President, Human Resources and
Administration
Dieter Porzel 59 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 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 since February 1994. Mr. Killoran was Vice President and
Controller of Control Data 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 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 since February 1993. Mr. Porzel was Vice President,
Central Europe Region for Control Data from August 1992 to January 1993;
and Vice President, Central Europe Region of Ceridian's Computer Products
business from 1987 to 1992.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
"Price Range of Common Stock," appearing on page 31 of the Company's
1995 Annual Report to Stockholders, is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
"Selected Consolidated Financial Data," appearing on inside cover page
of the Company's 1995 Annual Report to Stockholders, is incorporated herein
by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
"Management's Discussion and Analysis of Financial Condition and
Results of Operations," appearing on pages 9 through 13 of the Company's
1995 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, 1995 and 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, 1995, and the notes to
consolidated financial statements, together with report therein of KPMG
Peat Marwick LLP dated January 25, 1996, appearing on pages 8 through 31 of
the Company's 1995 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 1996
Annual Meeting of Stockholders to be held on May 15, 1996 (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
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
1995 Annual
Report to
Stockholders
<S> <C>
Independent Auditors' Report................................... 8
Consolidated Statements of Operations - Years Ended
December 31, 1995, December 31, 1994, and January 1, 1994..... 14
Consolidated Balance Sheets - December 31, 1995 and
December 31, 1994............................................. 15
Consolidated Statements of Stockholders' Equity -
Years Ended December 31, 1995, December 31, 1994, and
and January 1, 1994........................................... 16
Consolidated Statements of Cash Flows - Years Ended
December 31, 1995, December 31, 1994, and January 1, 1994...... 17
Notes to Consolidated Financial Statements..................... 18
</TABLE>
Financial Statement Schedules
<TABLE>
<CAPTION>
Page in this
Form 10-K
<S> <C>
Independent Auditors' Report on Financial Statement Schedule... 18
Schedule VIII - Valuation and Qualifying Accounts.............. 19
</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 Form 8-K/A No. 1 dated November 10, 1995, amending Form 8-K "Date of
Report: August 31, 1995" was filed in the Registrant's fiscal quarter ended
December 31, 1995 to (i) amend Item 2, Acquisition or Disposition of
Assets, relating to the disposition of certain operations of the Registrant
and (ii) file the following pro forma financial information under Item
7(b):
1. Pro Forma Combined Statement of Operations for the 6 months ended June
30, 1995
2. Pro Forma Combined Statement of Operations for the year ended December
31, 1994
3. Pro Forma Combined Balance Sheet at June 30, 1995
15
<PAGE>
Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Description
<C> <S>
2.1* Amended and Restated Purchase Agreement, dated August 31, 1995,
between the Registrant and AmeriData Technologies, Inc. --
incorporated by reference to Exhibit 2.1 to the Registrant's
Current Report on Form 8-K dated September 13, 1995.
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* 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.
10.3* 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.
10.4* 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.
10.5* 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.
10.6* 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.
10.7* Master Purchase Option Agreement between Ceridian and the
Registrant --incorporated by reference to Exhibit 10.12, filed
under cover of Form SE dated July 9, 1992, to the Form 8.
10.8* (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.
10.9* (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.
10.10*(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.
</TABLE>
(Schedules to the foregoing exhibits have not been included but will be
submitted supplementary to the Commission upon request)
* - Incorporated by reference to other 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.
16
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
<C> <S>
10.11*(2) February 1995 Amendments to 1992 Equity Incentive Plan -
incorporated by reference to Exhibit 10.17 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1994.
10.12*(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 1996 Annual Meeting of Stockholders.
10.13*(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.
10.14* 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.
10.15*(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.
10.16*(2) Consulting Agreement, dated November 14, 1994, between the
Registrant and W. Douglas Hajjar - incorporated by reference to
Exhibit 10.25 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994.
10.17*(2) Severance Agreement, dated January 4, 1994, between the
Registrant and James E. Ousley - incorporated by reference to
Exhibit 10.26 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994.
10.18*(2) Severance Agreement, dated January 4, 1994, between the
Registrant and Joseph F. Killoran - incorporated by reference to
Exhibit 10.27 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994.
10.19*(2) Compensation arrangement between the Registrant and its Chairman
-- incorporated by reference to the description of such
arrangement under "Director Compensation" in the Registrant's
definitive Proxy Statement for its 1996 Annual Meeting of
Stockholders.
11.0 Computation of Earnings (Loss) per Common Share.
13.0 The portions of the Registrant's 1995 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)
* - Incorporated by reference to other filing.
(1) - Form 8 and Form 10 refer, respectively, to the
Registrant's Form 8 Amendment No. 1 dated July 10, 1992 (the
"Form 8") to its Registration Statement on Form 10 dated May 27,
1992 and declared effective July 16, 1992 (the "Form 10").
(2) - Indicates a management contract or compensatory plan or
arrangement required to be filed as an exhibit to Form 10-K.
17
<PAGE>
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE
The Board of Directors and Stockholders
of Control Data Systems, Inc.:
Under date of January 25, 1996, we reported on the consolidated balance
sheets of Control Data Systems, Inc. and subsidiaries as of December 31,
1995 and 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, 1995, as contained in the 1995 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 1995. 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,
presents fairly, in all material respects, the information set forth
therein.
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 25, 1996
18
<PAGE>
Schedule VIII
CONTROL DATA SYSTEMS, INC.
Valuation and Qualifying Accounts
Allowance for Doubtful Accounts Receivable:
<TABLE>
<CAPTION>
Years Ended
December 31, December 31, January 1,
1995 1994 1994
(Dollars in thousands)
<S> <C> <C> <C>
Balance at beginning of year.......$ 6,844 $ 10,063 $ 14,305
Additions charged to costs
and expenses................... 1,384 1,906 3,162
Write-offs and other adjustments. (3,434) (5,125) (7,404)
Balance at end of year.............$ 4,794 $ 6,844 $ 10,063
</TABLE>
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
CONTROL DATA SYSTEMS, INC.
By: /s/ JAMES E. OUSLEY
James E. Ousley
President and Chief Executive Officer
Dated: March 22, 1996
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 22, 1996
James E. Ousley Chief Executive Officer
(principal executive officer)
/s/ JOSEPH F. KILLORAN Vice President and Chief March 22, 1996
Joseph F. Killoran Financial Officer
(principal accounting officer)
/s/ W. DONALD BELL Director March 22, 1996
W. Donald Bell
/s/ GRANT A. DOVE Director March 22, 1996
Grant A. Dove
/s/ MARCELO A. GUMUCIO Director March 22, 1996
Marcelo A. Gumucio
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
<C> <S> <C>
/s/ DOUGLAS HAJJAR Director March 22, 1996
Douglas Hajjar
/s/ KEITH A. LIBBEY Director March 22, 1996
Keith A. Libbey
</TABLE>
21
<PAGE>
CONTROL DATA SYSTEMS, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
<C> <S>
2.1* Amended and Restated Purchase Agreement, dated August 31, 1995,
between the Registrant and AmeriData Technologies
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* Intercompany Services Agreement between Ceridian and the
Registrant
10.3* Environmental Matters Agreement between Ceridian and the
Registrant
10.4* Intellectual Property Agreement between Ceridian and the
Registrant
10.5* Tax Matters Agreement between Ceridian and the Registrant
10.6* Value-Added Remarketing Agreement between Ceridian and the
Registrant regarding Ceridian's Government Systems division
10.7* Master Purchase Option Agreement between Ceridian and the
Registrant
10.8* (2) Form of Indemnification Agreement between the Registrant and
its directors and executive officers
10.9* (2) The Registrant's 1992 Equity Incentive
10.10*(2) February 1994 Amendments to 1992 Equity Incentive Plan
10.11*(2) February 1995 Amendments to 1992 Equity Incentive Plan
10.12*(2) The Registrant's Executive Incentive Plan
10.13*(2) The Registrant's 1993 Employee Stock Purchase Plan
10.14* Software Distribution License Agreement between Intergraph and
the Registrant
10.15*(2) Contract for the "Vorsitzender der Geschaeftsfuehrung" of
Control Data GmbH
10.16*(2) Consulting Agreement, dated November 14, 1994, between the
Registrant and W. Douglas Hajjar
10.17*(2) Severance Agreement, dated January 4, 1994, between the
Registrant and James E. Ousley
10.18*(2) Severance Agreement, dated January 4, 1994, between the
Registrant and Joseph F. Killoran
10.19*(2) Compensation arrangement between the Registrant and its
Chairman
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
</TABLE>
(Schedules to the foregoing exhibits have not been included but will be
submitted supplementary to the Commission upon request)
* - Incorporated by reference to other 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.
22
<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, December 31, January 1,
1995 1994 1994
<S> <C> <C> <C>
Net earnings (loss) applicable to
common shares:
Net earnings (loss).................... $ 8,868 $ (94,403) $ 9,120
Primary:
Shares for common and common share
equivalent earnings (loss) per share (1):
Weighted average number of
common shares outstanding............ 12,947,890 13,739,725 13,115,319
Dilutive effect of outstanding
stock options and warrants........... 345,689 - 648,305
13,293,579 13,739,725 13,763,624
Net earnings (loss) per common share
and common share equivalents............. $ 0.67 $ (6.87) $ 0.66
Fully Diluted:
Shares for common and common share
equivalent earnings (loss) per share (2):
Weighted average number of
common shares outstanding............ 12,947,890 13,739,725 13,115,319
Dilutive effect of outstanding
stock options and warrants........... 1,350,511 - 648,305
14,298,401 13,739,725 13,763,624
Net earnings (loss) per common share
and common share equivalents............. $ 0.62 $ (6.87) $ 0.66
<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>
23
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except employee and per share data)
<TABLE>
<CAPTION>
Years Ended
December 31, December 31, January 1, January 2, December 31,
OPERATING DATA 1995 1994 1994 1993 1991
<S> <C> <C> <C> <C> <C>
REVENUES $ 454,815 $ 524,227 $ 451,835 $ 516,979 $ 573,643
COST OF REVENUES 330,380 382,528 285,448 320,728* 388,027*
Gross profit 124,435 141,699 166,387 196,251 185,616
OPERATING EXPENSES:
Selling, general and
administrative 113,047 129,491 139,467 164,312 161,510
Technical 9,673 14,241 23,782 39,953* 42,352*
Restructuring - 70,100 - 114,900 23,894
Goodwill write-off - 24,900 - - -
Change in the valuation of spare
parts inventory - - - 14,900 -
Total operating expenses 122,720 238,732 163,249 334,065 227,756
Earnings (loss) from operations 1,715 (97,033) 3,138 (137,814) (42,140)
OTHER INCOME, NET 8,353 3,630 7,832 5,338 2,669
Earnings (loss) before
income taxes 10,068 (93,403) 10,970 (132,476) (39,471)
PROVISION FOR INCOME TAXES 1,200 1,000 1,850 1,558 4,523
Net earnings (loss) $ 8,868 $ (94,403) $ 9,120 $ (134,034) $ (43,994)
Primary earnings (loss) per common share
and common share equivalents $ 0.67 $ (6.87) $ 0.66 $ (12.03) $ (4.14)
Fully diluted earnings (loss) per common
share and common share equivalents $ 0.62 $ (6.87) $ 0.66 $ (12.03) $ (4.14)
Weighted average common shares
outstanding (in thousands):
Primary 13,294 13,740 13,764 11,138 10,632
Fully diluted 14,298 13,740 13,764 11,138 10,632
</TABLE>
<TABLE>
<CAPTION> December 31, December 31, January 1, January 2, December 31,
BALANCE SHEET DATA 1995 1994 1994 1993 1991
<S> <C> <C> <C> <C> <C>
Cash and short-term investments $ 84,034 $ 85,415 $ 81,635 $ 134,423 $ 13,504
Total assets 227,485 300,568 352,923 373,522 373,485
Working capital 98,715 93,341 133,868 160,816 126,782
Debt obligations 686 2,933 1,891 9,768 16,529
Stockholders' equity 83,498 82,306 175,176 159,207 192,030
STATISTICAL DATA
Current ratio 2.03 1.59 1.97 2.13 1.84
Capital expenditures $ 11,971 $ 9,047 $ 11,355 $ 16,983 $ 25,532
Number of employees 1,829 2,890 3,142 3,285 3,918
Revenue/employee (average; in
thousands) $ 187 $ 165 $ 142 $ 144 $ 136
<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.
<PAGE>
MANAGEMENT'S REPORT
The accompanying consolidated financial statements, including the notes
thereto, and other financial information presented in this report were
prepared by management, which is responsible for their integrity and
objectivity. The financial statements have been prepared in accordance
with generally accepted accounting principles and include amounts that are
based upon our best estimates and judgments.
Control Data Systems, Inc. maintains an effective system of internal
accounting control. We believe this system provides reasonable assurance
that transactions are executed in accordance with management authorization
and are appropriately recorded in order to permit preparation of financial
statements in conformity with generally accepted accounting principles and
to adequately safeguard, verify, and maintain accountability of assets.
The concept of reasonable assurance is based on the recognition that the
cost of a system of internal control should not exceed the benefits
derived.
KPMG Peat Marwick LLP, independent certified public accountants, are
retained to audit the Company's financial statements. Their accompanying
report is based on an audit conducted in accordance with generally accepted
auditing standards. The audit includes a review of the internal accounting
control structure to gain a basic understanding of the accounting system in
order to design an effective and efficient audit approach and not for the
purpose of providing assurance on the system of internal control.
The Audit Committee of the Board of Directors is composed of two outside
directors and is responsible for recommending the independent accounting
firm to be retained for the coming year, subject to stockholder approval.
The Audit Committee meets periodically and privately with the independent
accountants, as well as with management, to review accounting, auditing,
internal accounting controls, and financial reporting matters.
/S/ JAMES E. OUSLEY /S/ JOSEPH F. KILLORAN
James E. Ousley Joseph F. Killoran
President and Vice President and
Chief Executive Officer Chief Financial Officer
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, 1995 and 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, 1995. 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, 1995 and 1994, and
the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1995 in conformity with
generally accepted accounting principles.
/S/ KPMG PEAT MARWICK LLP
Minneapolis, Minnesota
January 25, 1996
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (IN MILLIONS)
Overview
Control Data Systems, Inc. ("Control Data" or the "Company") is a global
software and services company dedicated to helping large organizations
develop the enterprise-wide information systems required to create,
transmit, access, and control business information. The Company focuses on
the architecture, implementation, and lifetime support of electronic
commerce, product design, and product information solutions. The Company
provides productivity enhancing solutions for customers in government,
financial services, telecommunications, and manufacturing.
The Company's software and services solutions include network design,
installation, and maintenance; application design and deployment,
particularly for electronic commerce projects; remote and on-site systems
management and outsourcing; electronic mail integration; and for the
discrete manufacturing industry, product data management ("PDM") systems,
and computer-aided design ("CAD") products or systems. To provide its
customers with leading-edge solutions the Company invests in four major
areas:
o Development of software products associated
with electronic commerce integration, PDM, and CAD.
o Training and development of its technical
workforce.
o Sales and marketing of its products and
services.
o Capital and operational expenditures for the
fulfillment of managed services contracts (outsourcing contracts).
The Company also has a number of suppliers and partners providing a range
of hardware and software platforms, complementary products and services,
and sales and marketing activities.
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
<TABLE>
<CAPTION>
Revenues by Category
1995 Change 1994 Change 1993
<S> <C> <C> <C> <C> <C>
Software and services $174.1 12.8% $154.3 10.0% $140.3
Maintenance and support 75.4 (18.8%) 92.8 (18.5%) 113.8
Hardware products 205.3 (25.9%) 277.1 40.2% 197.7
Total revenues $454.8 (13.2%) $524.2 16.0% $451.8
<CAPTION>
Revenues by Geography
1995 Change 1994 Change 1993
<S> <C> <C> <C> <C> <C>
Americas $173.4 (26.2%) $235.1 14.0% $206.3
Europe 227.5 (1.1%) 230.1 34.0% 171.7
Asia 53.9 (8.6%) 59.0 (20.1%) 73.8
Total revenues $454.8 (13.2%) $524.2 16.0% $451.8
</TABLE>
The Company entered into a transaction with AmeriData Technologies, Inc.
("AmeriData") during 1995 to divest seven of its international subsidiary
operations. The effect of this transaction on the Company's reported
results of operations is reflected in the exclusion of the last four months
of results for the five international operations sold to AmeriData on
August 31, 1995 and the exclusion of the last two months of results for the
two international operations sold on October 31, 1995 (collectively the
"AmeriData Divestitures"). See note 3 of the Notes to Consolidated
Financial Statements for additional information regarding the AmeriData
Divestitures. The pro forma results discussed below reflect the exclusion
of the operating results of the divested operations for the fiscal years
1995 and 1994.
Revenues for 1995 of $454.8 million decreased 13.2% from 1994 revenues of
$524.2 million. The revenue decline was due to a 25.9% decrease in
hardware product sales and an 18.8% decrease in maintenance support, offset
in part by a 12.8% increase in software and services revenues. The
majority of the decrease in hardware products sales and hardware
maintenance support was attributable to lower revenues in the Americas and
Asia. In addition, a portion of the revenue decline for 1995 can be
attributed to the AmeriData Divestitures. The maintenance and support
revenues decline is also due to the decrease in the number of proprietary
systems under maintenance contracts. The growth in software and services
sales is primarily associated with the Company's focus areas of electronic
commerce and PDM/CAD projects.
On a pro forma basis, excluding the results of operations of the AmeriData
Divestitures for the years 1995 and 1994, 1995 revenues of $325.5 million
decreased 3.2% from 1994 revenues of $336.4 million. The revenue decline
was due to a decrease in hardware product sales of 23.6% and an 11.6%
decline in maintenance and support, offset in part by a 24.0% increase in
software and services revenues. The increase in software and services and
the decrease in hardware product sales reflects the Company's continuing
emphasis on software and services sales related to its target markets of
electronic commerce and PDM/CAD.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CON'T (IN MILLIONS)
Revenues from European operations represented 50% of the Company's total
revenues in 1995; the Americas operations represented 38%, and Asia
operations represented 12%. Increases in software and services revenues in
Asia, the Americas, and Europe of 37.5%, 11.3%, and 8.8%, respectively,
were offset in part by decreases in hardware product sales of 28.9%, 51.5%,
and 2.7%, respectively. The decrease in hardware product sales in the
Americas was due primarily to lower sales in Canada and Mexico in addition
to the AmeriData Divestitures. On a pro forma basis, European operations
represented 40% of the Company's total revenues in 1995; the Americas
operations represented 43% and Asia operations represented 17%.
Revenues of $524.2 million in 1994 represented a 16% increase over 1993
revenues of $451.8 million. This revenue growth was due primarily to an
increase of 40.2% in hardware products sales 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,
respectively. Maintenance and support revenues declined 18.5% due
primarily to the decrease in proprietary systems under maintenance
contracts. Software and services revenues increased by 10% in 1994 over
1993 as a result of increased software and services integration projects in
Asia and the Americas.
Certain revenues have been reclassified in selected categories to conform
with the Company's standard presentation.
<TABLE>
<CAPTION>
Cost of Revenues and Gross Profit
1995 Change 1994 Change 1993
<S> <C> <C> <C> <C> <C>
Cost of revenues $330.4 (13.6%) $382.5 34.0% $285.4
Percentage of revenues 72.6% 73.0% 63.2%
Gross profit $124.4 (12.2%) $141.7 (14.8%) $166.4
Percentage of revenues 27.4% 27.0% 36.8%
</TABLE>
Cost of revenues decreased by 13.6% and gross profit decreased by 12.2% in
1995. The primary factor contributing to the cost of revenues and gross
profit decreases was the decline in total revenues, primarily in hardware
product sales, offset in part by an increase in software and services
sales. Gross profit margins increased slightly to 27.4% in 1995 from 27.0%
in 1994, primarily reflecting the exclusion of lower profit margin hardware
product sales associated with the AmeriData Divestitures. On a pro forma
basis, gross profit margins increased to 32.0% in 1995 from 30.9% in 1994,
primarily as the result of increased margins on maintenance and support
sales.
The increase in cost of revenues and the decrease in gross profit margins
in 1994 from 1993 were primarily due to the increased sales of lower profit
margin hardware products associated with acquisitions in Canada and the
United Kingdom, decreased sales of higher profit margin proprietary
hardware products and maintenance services, and decreased profit margins on
software and services sales.
<TABLE>
<CAPTION>
Operating Expenses
1995 Change 1994 Change 1993
<S> <C> <C> <C> <C> <C>
Selling, general
and administrative $113.0 (12.7%) $129.5 (7.2%) $139.5
Percentage of revenues 24.8% 24.7% 30.9%
Technical $ 9.7 (31.7%) $ 14.2 (40.3%) $ 23.8
Percentage of revenues 2.1% 2.7% 5.3%
Restructuring - (100.0%) $ 70.1 - -
Percentage of revenues - 13.4% -
Goodwill write-off - (100.0%) $ 24.9 - -
Percentage of revenues - 4.8% -
</TABLE>
Selling, general and administrative (SG&A). The decrease in SG&A expense
is a result of downsizing actions taken by the Company over the past two
years and the exclusion of operating expenses associated with the
operations sold in the AmeriData Divestitures. On a pro forma basis, the
divested operations had lower SG&A expense to revenue levels and the
exclusion of these operations would raise the Company's SG&A expense to
revenue percentage.
Technical. The decrease in technical expense reflects the Company's
reduced spending levels associated with proprietary hardware and software
development and continuation of its transition to a software and services
company. The Company received payments from Silicon
10
<PAGE>
Graphics, Inc. of $1.95 million in 1993 to offset costs of certain research
and development projects. The AmeriData Divestitures had no effect on
technical expenses.
Restructuring charges. Over the past several years, the Company has
focused its core business through a series of initiatives as it
transitioned from a manufacturer of proprietary mainframe computer systems
to a software and services provider focused on electronic commerce, PDM,
and CAD.
During the fourth quarter of 1994, the Company completed a thorough review
of its worldwide business operations and market opportunities. The results
of this review indicated that certain actions were needed to further reduce
the geographic scope of operations, downsize employment levels worldwide,
and revalue selected assets in order to remain competitive in the future.
Based on this review, the Company adopted a formal restructuring plan
resulting in a pre-tax restructuring charge of $70.1 million.
Under the 1994 restructuring plan, the Company planned to reduce its pre-
restructure workforce by approximately 600 individuals, thereby reducing
annualized payroll, labor, and benefit costs by approximately $38 million
per year and reduce annual rent expense by approximately $3 million, offset
in part by workforce additions and other expenditures associated with
expansion of its core business.
In 1995, the Company entered into an agreement with AmeriData to sell
certain of its international operations to AmeriData. The restructuring
effect of the AmeriData Divestitures has been to replace certain employee
severance and lease related cash charges with noncash asset revaluations
and write-downs. As a result of this transaction, the reduction in
workforce related to the Company's restructuring charge will total
approximately 475 individuals versus the original estimate of 600
individuals.
See note 18 of the Notes to Consolidated Financial Statements which sets
forth the Company's restructuring activities and the reserve balances as of
December 31, 1995, December 31, 1994, and January 1, 1994.
Future cash outlays under the restructuring plan are anticipated to be
$16.7 million and $6.4 million in 1996 and 1997, respectively.
Goodwill write-off. 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 remaining
unamortized balances of $24.9 million 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 19 of Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
Nonoperating Income
1995 Change 1994 Change 1993
<S> <C> <C> <C> <C> <C>
Nonoperating income $ 8.4 133.3% $ 3.6 (53.8%) $ 7.8
Percentage of revenues 1.8% 0.7% 1.7%
</TABLE>
Interest expense. Interest expense decreased in 1995 primarily as a result
of lower average daily short-term borrowings due in part to the AmeriData
Divestitures.
Interest income. Interest income increased in 1995 due to higher average
daily cash and short-term investment balances.
Other income. Other income increased in 1995 primarily due to a gain of
$0.8 million for the increase in the market value of certain short-term
marketable securities versus a $1.2 million loss in 1994, a gain in
affiliates of $0.9 million primarily related to the Company's fifty percent
interest in Metaphase Technology, Inc. versus a $0.4 million loss in 1994,
and a gain of $0.4 million from the sale of land.
The decrease in other income in 1994 was primarily attributable to a $1.2
million expense for the reduction in the market value of certain short-term
investments, a $0.4 million loss in affiliates primarily related to the
Company's 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.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CON'T (IN MILLIONS)
<TABLE>
<CAPTION>
Provision for Income Taxes
1995 Change 1994 Change 1993
<S> <C> <C> <C> <C> <C>
Provision for income taxes $ 1.2 20.0% $ 1.0 (47.4%) $ 1.9
Percentage of revenues 0.3% 0.2% 0.4%
</TABLE>
The provisions for income taxes in 1995, 1994, and 1993 relate primarily to
foreign income taxes on the earnings of the Company's foreign subsidiaries
and foreign withholding taxes on certain United States income. See note 9
of Notes to Consolidated Financial Statements which describes the
differences between the U.S. statutory and effective income tax rates.
<TABLE>
<CAPTION>
Net Earnings (Loss) and Earnings (Loss) Per Share
1995 Change 1994 Change 1993
<S> <C> <C> <C> <C> <C>
Net earnings (loss) $ 8.9 109.4% $(94.4) (1,137.4%) $ 9.1
Percentage of revenues 2.0% (18.0%) 2.0%
Earnings (loss) per share
Primary $ 0.67 $(6.87) $ 0.66
Fully diluted $ 0.62 $(6.87) $ 0.66
</TABLE>
Net earnings (loss). The net earnings for 1995 were $8.9 million compared
to a net loss for 1994 of $94.4 million and net earnings for 1993 of $9.1
million.
The 1995 net earnings are primarily attributable to lower operating
expenses and higher nonoperating income. Also contributing to higher
earnings in 1995 is the exclusion of operating expenses and interest
expenses associated with the operations sold in the AmeriData Divestitures.
The 1994 net loss was 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 hardware products
sales.
The net earnings for 1993 were primarily the result of the reduction in
operating expenses, mainly technical expense, consistent with the Company's
transition to a software and services company.
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. 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. As the Company is just
beginning to build a base of these types of arrangements as part of its
electronic commerce offerings, revenue predictability is currently
difficult, and continuing quarterly volatility of earnings can be expected.
Revenues. The Company expects total revenues to decrease in 1996 from 1995
due in part to the divestitures of certain international operations sold to
AmeriData. However, 1996 revenues should increase from 1995 revenues on a
pro forma basis. Continued growth in software and services sales and
increased outsourcing revenues associated with its managed services
activities are expected to provide the basis for this growth. Revenue
levels in 1996 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 and gross margins as
percentages of total revenues remained relatively unchanged in 1995 from
1994. Cost of revenues as a percentage of revenues is expected to decline
in 1996 and gross margins as a percentage of revenues are expected to
increase in 1996 due in part to the divestitures of certain international
operations, whose revenue mix primarily consisted of lower profit margin
hardware products. Due to varying gross profit margins of different types
of product sales and varying gross profit margins of specific large
projects quarter to quarter, total gross profit margins in 1996 could be
volatile.
Selling, general and administrative expenses. SG&A expenses declined in
1995 from 1994 due primarily to restructuring actions taken over the past
two years and the divestitures of certain international operations. SG&A
expenses are expected to decrease in 1996 from 1995. However, on a pro
forma basis, SG&A expenses will likely increase in 1996 as the Company
expands its sales activities related to its PDM/CAD and electronic commerce
business.
12
<PAGE>
Technical expenses. Technical spending declined in 1995 from 1994 due
primarily to the completion in 1994 of a majority of the technical spending
for proprietary products. Some of this decline will be offset by higher
spending in 1996 on electronic commerce products and services, one of the
Company's targeted markets.
Income tax rate. In total, the Company has $106.3 million of gross
deferred tax assets at December 31, 1995, which can be used to offset taxes
on future earnings. While the Company maintains significant operations
outside the United States, a number of these operations also have deferred
tax assets as of December 31, 1995 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. The AmeriData
Divestitures did not have a material impact on deferred tax assets.
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 totaled $84.0 million at
December 31, 1995 representing 36.9% of total assets. The Company has no
long-term debt. Total cash and short-term investment balances decreased by
$1.4 million in 1995. The primary factors in the decrease were the
purchase of treasury stock of $7.1 million, restructuring payments of $22.8
million, capital expenditures of $12.0 million, partially offset by a
positive net cash flow of $9.0 million from the AmeriData Divestitures,
$9.2 million from working capital items, net earnings of $8.9 million which
includes depreciation and amortization of $12.0 million, and an increase in
short-term borrowings of $3.2 million. The AmeriData Divestitures, through
the elimination of certain hardware distribution activities, significantly
reduced the Company's investment in inventory and the associated risk of
obsolescence associated with that inventory.
Stockholders' equity increased by $1.2 million in 1995. The increase is
primarily due to net earnings of $8.9 million, the issuance of Common Stock
of $3.1 million, and a foreign currency translation adjustment of $1.4
million, offset in part by the purchase of treasury stock of $7.1 million
and a minimum pension liability adjustment of $4.9 million.
As of December 31, 1995, the Company has available up to $17.8 million in
credit facilities, primarily short-term notes and overdraft facilities
under bank lines of credit in certain international subsidiaries, as well
as a domestic credit arrangement which provides up to $10.0 million in
unsecured short-term credit.
The Company has $23.1 million of restructure obligations as of December 31,
1995, $16.7 million of which are expected to be cash outlays in 1996,
primarily for severance costs, lease and other obligations related to
excess facilities, and litigation costs. Restructuring payments will
extend into 1997 to satisfy various long-term real estate obligations and
severance issues. The Company believes that it can finance this cash
requirement through a combination of existing cash reserves, cash flow from
operations, asset sales, and its borrowing capacity. To the extent it may
be necessary to supplement these sources of cash, the Company could seek
financing from strategic investors and through future debt or equity
financing in the public or private markets. The ability of the Company to
borrow money or to sell debt or equity securities will depend on its
results of operations, financial condition, and business prospects, as well
as conditions then prevailing in the computer industry and the relevant
capital markets.
Except for the historical information contained within the Management's
Discussion and Analysis of Financial Condition and Results of Operations,
the accompanying consolidated financial statements, and the Notes to
Consolidated Financial Statements, the matters discussed within this annual
report are forward looking statements that involve risks and uncertainties
including: business conditions and growth in the general economy and
electronic messaging; volatility in gross margins as the Company's revenues
and product mix change; additional restructuring actions or charges as the
Company continues to evolve in its rapidly changing industry; competitive
factors, such as alternative messaging, PDM and CAD products and price
pressures; availability of skilled personnel in various geographic areas;
acceptance of the outsourcing of corporate messaging infrastructures; the
success of the Company's business partners in sales and marketing
activities; and other factors discussed herein.
13
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended
December 31, December 31, January 1,
<S> 1995 1994 1994
REVENUES: <C> <C> <C>
Net sales and rentals $ 253,921 $ 319,302 $ 233,972
Services 200,894 204,925 217,863
Total revenues 454,815 524,227 451,835
COST OF REVENUES:
Net sales and rentals 175,471 232,650 141,085
Services 154,909 149,878 144,363
Total cost of revenues 330,380 382,528 285,448
Gross profit 124,435 141,699 166,387
OPERATING EXPENSES:
Selling, general and administrative 113,047 129,491 139,467
Technical 9,673 14,241 23,782
Restructuring - 70,100 -
Goodwill write-off - 24,900 -
Total operating expenses 122,720 238,732 163,249
Earnings (loss) from operations 1,715 (97,033) 3,138
OTHER INCOME (EXPENSES):
Interest expense (1,033) (1,282) (1,953)
Interest income 5,719 4,786 6,235
Other income, net 3,667 126 3,550
Total other income, net 8,353 3,630 7,832
Earnings (loss) before income taxes 10,068 (93,403) 10,970
PROVISION FOR INCOME TAXES 1,200 1,000 1,850
Net earnings (loss) $ 8,868 $ (94,403) $ 9,120
Primary earnings (loss) per common share
and common share equivalents $ 0.67 $ (6.87) $ 0.66
Fully diluted earnings (loss) per common
share and common share equivalents $ 0.62 $ (6.87) $ 0.66
Weighted average common shares
outstanding (in thousands):
Primary 13,294 13,740 13,764
Fully diluted 14,298 13,740 13,764
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
14
<PAGE>
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
December 31, December 31,
ASSETS 1995 1994
<S> <C> <C>
Current assets:
Cash and short-term investments $ 84,034 $ 85,415
Trade and other receivables 85,235 121,829
Inventories 19,381 38,241
Prepaid expenses and other current assets 5,893 6,756
Total current assets 194,543 252,241
Investments and advances 138 133
Property and equipment, net 16,788 20,727
Leased and data center equipment, net 693 1,901
Noncurrent trade receivables 5,187 7,330
Goodwill, net - 10,187
Other noncurrent assets 10,136 8,049
Total assets $ 227,485 $ 300,568
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Notes payable $ 686 $ 2,933
Accounts payable 19,934 41,004
Customer advances and deferred income 7,707 24,254
Accrued taxes 5,883 4,515
Accrued salaries and wages 12,700 14,320
Restructure reserves, current portion 16,704 36,698
Other accrued expenses 32,214 35,176
Total current liabilities 95,828 158,900
Deferred income taxes 452 616
Restructure reserves, less current portion 6,412 18,240
Pension liabilities 38,944 34,019
Other noncurrent liabilities 2,351 6,487
Total liabilities 143,987 218,262
Stockholders' equity:
Preferred stock, par value $.01 per share, authorized
5,000,000 shares; none issued and outstanding - -
Common stock, par value $.01 per share, authorized
50,000,000 shares; issued 14,249,986 and
13,803,492 shares as of December 31, 1995
and December 31, 1994, respectively 143 138
Additional paid-in capital 164,247 161,105
Retained earnings (62,373) (71,241)
Minimum pension liability adjustment (11,854) (6,957)
Foreign currency translation adjustment 659 (739)
Unearned compensation - restricted stock (213) -
Treasury stock, at cost (1,185,224 shares as of
December 31, 1995) (7,111) -
Total stockholders' equity 83,498 82,306
Total liabilities and stockholders' equity $ 227,485 $ 300,568
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
15
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars and shares in thousands)
<TABLE>
<CAPTION>
Shares Additional
Outstand- Treasury Common Paid-In Retained
ing Stock Issued Stock Capital Earnings Other* Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 2, 1993 12,482 - 12,482 $ 125 $ 145,965 $ 14,042 $ (925) $ 159,207
Issuance of common stock under the
Employee Stock Purchase Plan 30 - 30 - 311 - - 311
Issuance of common stock to
acquire Evernet Systems, Inc. 816 - 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 - 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 - 13,599 136 159,683 23,162 (7,805) 175,176
Issuance of common stock under the
Employee Stock Purchase Plan 84 - 84 - 595 - - 595
Exercises of stock options 120 - 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 - 13,803 138 161,105 (71,241) (7,696) 82,306
Issuance of common stock under the
Employee Stock Purchase Plan 57 - 57 - 344 - - 344
Exercises of stock options 340 - 340 4 2,480 - - 2,484
Minimum pension liability adjustment - - - - - - (4,897) (4,897)
Foreign currency translation
adjustment - - - - - - 1,398 1,398
Restricted stock award 50 - 50 1 318 - (213) 106
Purchase of treasury stock,
at cost (1,185) 1,185 - - - - (7,111) (7,111)
Net earnings - - - - - 8,868 - 8,868
Balance at December 31, 1995 13,065 1,185 14,250 $ 143 $ 164,247 $ (62,373) $(18,519) $ 83,498
</TABLE>
<TABLE>
<CAPTION>
Minimum Foreign Unearned
Pension Currency Compensation-
Liability Translation Restricted Treasury
*Other Stockholders' Equity Items Adjustment Adjustment Stock Stock Total
<S> <C> <C> <C> <C> <C>
Balance at January 2, 1993 $ - $ (925) $ - $ - $ (925)
Minimum pension liability adjustment (4,722) - - - (4,722)
Foreign currency translation
adjustment - (2,158) - - (2,158)
Balance at January 1, 1994 (4,722) (3,083) - - (7,805)
Minimum pension liability adjustment (2,235) - - - (2,235)
Foreign currency translation
adjustment - 2,344 - - 2,344
Balance at December 31, 1994 (6,957) (739) - - (7,696)
Minimum pension liability adjustment (4,897) - - - (4,897)
Foreign currency translation
adjustment - 1,398 - - 1,398
Restricted stock award - - (213) - (213)
Purchase of treasury stock,
at cost - - - (7,111) (7,111)
Balance at December 31, 1995 $ (11,854) $ 659 $ (213) $ (7,111) $(18,519)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
16
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Years Ended
December 31, December 31, January 1,
1995 1994 1994
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net earnings (loss) $ 8,868 $ (94,403) $ 9,120
Adjustments to reconcile net earnings (loss)
to net cash provided by (used in)
operating activities:
Depreciation 10,955 14,349 17,822
Amortization 1,090 3,624 2,041
Foreign currency transaction (gain) loss (190) (563) 163
Equity in (gains) losses of affiliates (922) 429 37
Restructuring - 70,100 -
Goodwill write-off - 24,900 -
Restructure reserves utilized (22,833) (22,854) (25,018)
Loss (gain) on sale of marketable
securities and other assets 431 (1,140) (1,288)
Net change in working capital items 9,191 21,983 (24,907)
Net change in noncurrent trade receivables 2,297 3,787 890
Net change in other noncurrent assets (2,681) (2,343) (2,841)
Other (4,379) (2,419) (225)
Net cash provided by (used in) operating
activities 1,827 15,450 (24,206)
Cash Flows from Investing Activities:
Expended for property and equipment (10,353) (7,679) (8,567)
Expended for leased and data center equipment (1,618) (1,368) (2,788)
Investment in affiliates - (8) (80)
Proceeds from sale of property and equipment 706 1,919 3,727
Proceeds from sale of Silicon Graphics, Inc.
common stock - - 3,244
Acquisitions of businesses, net of cash
provided (546) (3,844) (15,584)
Divestitures of businesses, net of cash
given 9,036 - -
Change in short-term investments (708) (5,667) 66,810
Net cash (used in) provided by investing
activities (3,483) (16,647) 46,762
Cash Flows from Financing Activities:
Borrowings (repayments) under short-term
financing arrangements, net 3,221 (1,604) (5,360)
Repayments of long-term obligations - - (7,125)
Proceeds from issuance of common stock,
net of issuance costs 2,828 1,424 1,853
Purchase of treasury stock (7,111) - -
Proceeds from issuance of nonrefundable
equity option in ICEM Systems GmbH - - 2,813
Net cash used in financing
activities (1,062) (180) (7,819)
Effect of Exchange Rate Changes on Cash 629 (510) (715)
Net change in cash and equivalents (2,089) (1,887) 14,022
Cash and cash equivalents, beginning of year 17,277 19,164 5,142
Cash and cash equivalents, end of year 15,188 17,277 19,164
Short-term investments 68,846 68,138 62,471
Cash and short-term investments, end of year $ 84,034 $ 85,415 $ 81,635
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
17
<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 the
Company has an ownership of 50% or less are included in the financial
statements on the basis of the equity method of accounting.
On August 31, 1995, the Company completed the sale of five international
product distribution operations to AmeriData. The Company sold to
AmeriData all of the issued and outstanding capital stock of Control Data
operations in Austria, Norway, and United Kingdom (Plc). Additionally,
the Company sold to AmeriData certain assets and AmeriData assumed certain
liabilities of Control Data operations in Canada, Mexico, and United
Kingdom (Ltd). Effective October 31, 1995, the Company completed the sale
to AmeriData all of the issued and outstanding capital stock of the Control
Data operations in Greece and Portugal. Results of operations, assets, and
liabilities for the operations sold are included in the Company's
consolidated financial statements through the effective date of the
divestitures.
In July 1993, the Company reduced its equity ownership interest in
Metaphase Technology, Inc. ("Metaphase") from 65% to 50%. Structural
Dynamics Research Corporation ("SDRC"), Metaphase's other equity owner,
purchased the 15% equity interest. The Company stopped consolidating
Metaphase, effective July 4, 1993. Prior periods were not restated due to
immateriality of Metaphase'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, making the Company 100% owner of ICEM Systems.
(b) Revenue Recognition
Revenues from sales of hardware and software products are recognized upon
shipment, installation, or acceptance, based on the particular product and
contract terms. Revenues from rental and maintenance contracts are
recognized over the period of the agreement. Services revenues consist of
consulting and maintenance services and 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 classified in the balance sheet as cash equivalents.
Marketable equity and debt securities are classified in the balance sheet
as short-term investments. In accordance with the provisions of Statement
of Financial Accounting Standards No. 115, "Accounting for Certain
Instruments in Debt and Equity Securities", marketable equity and debt
securities have been categorized as available for sale and are stated at
fair value. Prior to December 1995, marketable equity and debt securities
were classified as trading securities. The aggregate fair value of the
Company's marketable equity and debt securities at December 31, 1995 and
1994 totaled $41.6 million and $49.2 million, respectively.
(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 on a straight-line basis 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.
18
<PAGE>
(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, and 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
Other noncurrent assets consist principally of prepaid pension costs.
(h) Foreign Currency Translation
The assets and liabilities for 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 translated
at average exchange rates prevailing during the period. 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) 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 which are 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.
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, 1995.
(k) Net Earnings (Loss) Per Share
The net earnings (loss) per common share 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.
(l) 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 in 1993. All
financial information has been restated to conform to these methods of
presentation.
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONT'D
(m) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
(n) Fiscal Year End
In 1995, the Company changed its fiscal year end to a calendar year end.
Prior to this change the Company had adopted a 52/53 week fiscal year,
which ended on the Saturday closest to December 31. Fiscal years 1994 and
1993 comprised 52 weeks and ended on December 31, 1994 and January 1, 1994,
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 through the date of divestiture. The
total consideration paid for this acquisition was $3.8 million in cash,
plus a contingent payment of $1.2 million, payable over two years. Net
identifiable liabilities acquired of $4.9 million consisted of $12.3
million of assets acquired and $17.2 million of liabilities assumed.
Goodwill from this acquisition of $9.9 million was amortized on a straight-
line basis over a period of ten years. In the third quarter of 1995, this
operation was sold as part of the AmeriData Divestitures (see note 3)..
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 through the date of impairment (see note
19) or divestiture (see note 3).
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 consisted 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
19).
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 consisted 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 19).
In October 1993, the Company acquired certain assets of Antares
Electronics, Inc., a privately-held Canadian systems integration company
providing specialized microcomputer-based solutions in the areas of
enterprise-wide networking and integration. The total consideration paid
for this acquisition was $5.2 million in cash. Net identifiable assets
acquired of $4.4 million consisted of $6.7 million of assets acquired and
$2.3 million of liabilities assumed. Goodwill from this acquisition of
$0.8 million was amortized on a straight-line basis over a period of ten
years. In the third quarter of 1995, this operation was sold as part of
the AmeriData Divestitures (see note 3).
20
<PAGE>
3. DIVESTITURES
On August 31, 1995, the Company completed the sale of five international
product distribution operations to AmeriData. The Company sold to AmeriData
all of the issued and outstanding capital stock of Control Data operations
in Austria, Norway, and United Kingdom (Plc). Additionally, the Company
sold to AmeriData certain assets, and AmeriData assumed certain
liabilities, of Control Data operations in Canada, Mexico, and United
Kingdom (Ltd). Effective October 31, 1995, the Company completed the sale
to AmeriData of all of the issued and outstanding capital stock of the
Control Data operations in Greece and Portugal. The total consideration
received for these divestitures was $13.4 million in cash. Net identifiable
assets and liabilities transferred to AmeriData were $56.2 million and
$46.1 million, respectively. Results of operations, assets, and liabilities
for the operations sold are included in the Company's consolidated
financial statements through the effective date of the divestitures.
The following pro forma information represents the results of operations
assuming that the August 31, 1995 and October 31, 1995 divestitures
described above occurred as of the beginning of the respective periods. The
pro forma financial statements are for informational purposes only to
illustrate the estimated effects of the divestitures of these seven
operations on Control Data on a stand-alone basis and may not be indicative
of the results of operations that would have occurred had these
divestitures taken place at the beginning of the periods presented or of
future results of operations.
Pro Forma Condensed Statements of Income (Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands, Year Ended Year Ended
except per share data) December 31, December 31,
1995 1994
Historical Adjustments Pro Forma Historical Adjustments Pro Forma
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 454,815 $ (129,336) $ 325,479 $ 524,227 $ (187,825) $ 336,402
Earnings (loss) from
operations 1,715 1,857 3,572 (97,033) 1,848 (95,185)
Net Earnings (loss) 8,868 2,695 11,563 (94,403) 2,925 (91,478)
Primary earnings per common share
and common share equivalents 0.67 0.87 (6.87) (6.66)
Fully diluted earnings per common
share and common share equivalents 0.62 0.81 (6.87) (6.66)
</TABLE>
Pro Forma Revenues by Category and Gross Profit (Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands) Year Ended Year Ended
December 31, December 31,
1995 1994
Revenues Historical Adjustments Pro Forma Historical Adjustments Pro Forma
<S> <C> <C> <C> <C> <C> <C>
Software and services $ 174,080 $ (18,580) $ 155,500 $ 154,275 $ (28,834) $ 125,441
Maintenance and support 75,452 (11,183) 64,269 92,785 (20,111) 72,674
Hardware and products 205,283 (99,573) 105,710 277,167 (138,880) 138,287
Total revenues $ 454,815 $ (129,336) $ 325,479 $ 524,227 $ (187,825) $ 336,402
Gross profit $ 124,435 $ (20,264) $ 104,171 $ 141,699 $ (37,800) $ 103,899
Gross profit % 27.4% 32.0% 27.0% 30.9%
</TABLE>
Pro Forma Revenues by Geography (Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands) Year Ended Year Ended
December 31, December 31,
1995 1994
Revenues Historical Adjustments Pro Forma Historical Adjustments Pro Forma
<S> <C> <C> <C> <C> <C> <C>
Americas $ 173,401 $ (33,410) $ 139,991 $ 235,132 $ (85,538) $ 149,594
Europe 227,538 (95,926) 131,612 230,131 (102,287) 127,844
Asia 53,876 - 53,876 58,964 - 58,964
Total revenues $ 454,815 $ (129,336) $ 325,479 $ 524,227 $ (187,825) $ 336,402
</TABLE>
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONT'D
4. TRADE AND OTHER RECEIVABLES
<TABLE>
<CAPTION>
December 31, December 31,
(Dollars in thousands) 1995 1994
<S> <C> <C>
Trade receivables $ 80,675 $ 108,132
Other 9,354 20,541
Allowance for doubtful accounts (4,794) (6,844)
Total $ 85,235 $ 121,829
</TABLE>
5. OTHER ACCRUED EXPENSES
<TABLE>
<CAPTION>
December 31, December 31,
(Dollars in thousands) 1995 1994
<S> <C> <C>
Accrued warranty, support
and maintenance costs $ 10,130 $ 12,745
Bonuses and commissions 1,866 2,875
Royalties 1,051 1,173
Insurances 1,360 2,329
Other 17,807 16,054
Total $ 32,214 $ 35,176
</TABLE>
6. STOCKHOLDERS' EQUITY
Capitalization
Under the Company's Restated Certificate of Incorporation 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 "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 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, 1995, the Company has reserved 2.9 million shares of the
Company's Common Stock for issuance pursuant to awards under the Plan. This
includes shares of replacement options provided to optionees pursuant to
the provisions of the spin-off of the Company from Ceridian to replace and
preserve the value of Ceridian stock options held by such optionees at the
time of the spin-off. If an award under the Plan expires or terminates
without being exercised in full or is forfeited, the shares subject thereto
are generally available for new awards.
The exercise price for stock options granted under the Plan (other than the
replacement options) may not be less than the fair market value of a share
of the underlying Common Stock on the date the option is granted and must
be paid in cash unless the Compensation Committee permits payment in shares
of the Company's stock. An option will generally expire ten years after the
date it is granted and will ordinarily become exercisable as to one third
of the shares subject to the option on each of the three succeeding
anniversaries of the grant. The Compensation Committee may modify the
exercisability of an option at its discretion.
The Plan also provides for shares of the Company's Common Stock to be
issued to employees in the form of restricted stock grants. Plan
participants are entitled to cash dividends and to vote their respective
shares from the date of grant. The value of such stock is established by
the market price on the date of the grant. In 1995, 50,000 shares of
restricted stock were issued under the Plan. Prior to 1995 no restricted
stock had been granted. Unearned compensation is charged for the market
value of the restricted shares as these shares are issued in accordance
with the Plan. The unearned compensation is amortized ratably over the
restricted period. The unamortized unearned compensation value is shown as
a reduction of stockholders' equity in the accompanying consolidated
balance sheets.
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 cost of these
awards is charged to expense. 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, 1995.
22
<PAGE>
<TABLE>
<CAPTION>
Shares Shares
Stock Options Available Under Outstanding Options
for Grant Exercisable Shares Price
<S> <C> <C> <C> <C>
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
Canceled 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
Canceled 506,499 (171,258) (506,499) $4.73-$13.00
Balance at December 31, 1994 311,043 1,220,162 2,191,149 $4.53-$13.00
Granted (480,500) - 480,500 $6.44-$14.88
Became exercisable - 378,446 - $6.38-$13.00
Exercised - (389,861) (389,861) $4.73-$10.25
Canceled 326,257 (61,256) (326,257) $4.73-$13.00
Balance at December 31, 1995 156,800 1,147,491 1,955,531 $4.73-$14.88
</TABLE>
Stock Warrants
In connection with the acquisition of Evernet Systems, Inc., the Company
issued 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 during the period between June 4,
1994 and June 4, 1996. No warrants had been exercised as of December 31,
1995.
Employee Stock Purchase Plan
Under the 1993 Employee Stock Purchase Plan (the "Purchase Plan") the
Company has reserved 400,000 shares of Common Stock for issuance pursuant
to the Purchase Plan. The primary purpose of the Purchase 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 Purchase 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 Purchase 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, 1995, shares
purchased under the Purchase Plan totaled 169,994.
7. INVESTMENT IN METAPHASE TECHNOLOGY, INC.
In 1992, the Company and SDRC established a joint venture company,
Metaphase, to develop and market product data management software
worldwide. The Company owns 50% of Metaphase and accounts for this
investment on the equity basis. Following are condensed financial data for
Metaphase for the periods indicated:
Years Ended
(Unaudited)
December 31, December 31,
(Dollars in thousands) 1995 1994
Net sales $ 13,027 $ 7,845
Earnings (loss) before
income taxes 1,076 (560)
Net earnings (loss) 1,064 (565)
(Unaudited)
December 31, December 31,
1995 1994
Current assets $ 3,304 $ 3,177
Noncurrent assets 825 551
Current liabilities 4,811 2,244
Noncurrent liabilities 3,530 6,760
8. FINANCING ARRANGEMENTS
As of December 31, 1995, the Company's international subsidiaries have
arranged with local banks up to $17.8 million for financing, primarily
short-term notes and foreign overdraft facilities. Debt outstanding under
these arrangements amounted to $0.7 million and $2.9 million at December
31, 1995 and December 31, 1994, respectively. Outstanding letters of
credit totalled $0.8 million at December 31, 1995. The average amount of
short-term debt outstanding for 1995 was $4.6 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, 1995.
The line of credit bears interest at prime plus two percent and expires on
April 13, 1996.
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONT'D
9. INCOME TAXES
As discussed in note 1(j), 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, December 31, January 1,
(Dollars in thousands) 1995 1994 1994
<S> <C> <C> <C>
Earnings (loss) before income taxes:
Domestic $ 8,280 $ (75,093) $ (15,289)
Foreign 1,788 (18,310) 26,259
Total $ 10,068 $ (93,403) $ 10,970
Income Tax Provision (Benefit)
Current:
Domestic $ 134 $ 325 $ 661
Foreign 1,231 1,059 1,224
Deferred:
Domestic - - 238
Foreign (165) (384) (273)
Total $ 1,200 $ 1,000 $ 1,850
</TABLE>
Reconciliation of estimated income taxes at United States statutory tax
rate to the income taxes provision is reported as follows:
<TABLE>
<CAPTION>
Effective Rate Reconciliation Years Ended
December 31, December 31, January 1,
(Dollars in thousands) 1995 1994 1994
<S> <C> <C> <C>
U.S. federal statutory rate 35% 35% 35%
Income tax provision (benefit)
at U.S. statutory rate $ 3,524 $ (32,691) $ 3,840
International rate differences,
credits, translation, dividends,
and other offsets 10,840 1,650 (1,969)
Non-deductible goodwill 1,562 10,121 -
Change in valuation reserve (24,821) 20,717 -
Valuation reserve attributable to
sold subsidiaries 5,417 - -
Losses for which no tax
benefit was provided - 903 4,928
Utilization of unbooked deferred assets - - (5,474)
U.S. state income and franchise taxes - 300 525
Other 4,678 - -
Provision for income taxes $ 1,200 $ 1,000 $ 1,850
</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, 1995 and December 31, 1994 are presented below:
<TABLE>
<CAPTION>
December 31, December 31,
(Dollars in thousands) 1995 1994
<S> <C> <C>
Deferred Tax Assets
Depreciation and amortization $ 5,878 $ 8,530
Inventory valuation 16,372 16,846
Pension plans 936 2,387
Deferred revenues 1,455 2,792
Allowance for doubtful accounts 2,898 3,016
Restructuring and other accruals 13,688 26,021
Net operating loss carryforwards 55,508 61,655
Tax credit carryforwards 4,000 4,229
Other 5,527 5,676
Total gross deferred tax assets 106,262 131,152
Less valuation allowance (100,888) (125,709)
Net deferred tax assets 5,374 5,443
Deferred Tax Liabilities
Depreciation and amortization (323) (633)
Inventory valuation (220) (417)
Pension plans (5,165) (4,794)
Other (118) (215)
Total deferred tax liabilities (5,826) (6,059)
Net deferred income taxes $ (452) $ (616)
</TABLE>
Although the Company has available gross deferred tax assets in the amount
of $106.3 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 $6.0
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.
24
<PAGE>
U.S. and Foreign Income Tax Carryforwards at December 31, 1995
<TABLE>
<CAPTION>
Expiration
Dollars in thousands) Amount Dates
<S> <C> <C>
U.S. Federal net operating loss carryforwards $ 75,240 2000-2009
Foreign net operating loss carryforwards: 32,915 1996-2005
39,196 None
Tax credit carryforwards of foreign operations: 1,402 1996-2001
2,477 None
</TABLE>
Earnings of foreign subsidiaries considered to be reinvested for an
indefinite period at December 31, 1995 total approximately $26.2 million.
If those earnings were remitted, estimated withholding taxes of $3.6
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.
10. 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 downsizing actions per se, 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.
11. RELATED PARTY TRANSACTIONS
Silicon Graphics, Inc.
In August 1992, Silicon Graphics, Inc. ("SGI") purchased 1,185,224 shares
of the Company's Common Stock from the Company 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, SGI and the Company entered into a technology
development agreement. The Company recognized revenue under this agreement
of none in 1995 and 1994, and $1.65 million in 1993. In addition, the
Company received $1.95 million in 1993 from SGI to offset the costs of
certain research and development projects. The Company purchased a total
of $33.0 million of SGI products in 1995, $39.7 million in 1994, and $29.3
million in 1993.
Ceridian Corporation
The Company has contracted with Computing Devices International ("CDI"), a
subsidiary of Ceridian, to manufacture certain proprietary products for the
Company. The Company purchased a total of approximately $2.3 million of
CDI products in 1995, $6.5 million in 1994, and $36.6 million in 1993.
12. 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 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, December 31,
(Dollars in thousands) 1995 1994
<S> <C> <C>
Equipment $ 29,160 $ 44,173
Less accumulated amortization 28,481 42,305
Net investment $ 679 $ 1,868
</TABLE>
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONT'D
The minimum future rentals on noncancelable leases with lease terms of one
to five years existing as of December 31, 1995 are $1.5 million in 1996,
$0.4 million in 1997, $0.4 million in 1998, $0.4 million in 1999, and $0.4
million in 2000.
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
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 and sublease income for each of
the years in the three year period ended December 31, 1995 appear in the
following table.
<TABLE>
<CAPTION>
Years Ended
December 31, December 31, January 1,
(Dollars in thousands) 1995 1994 1994
<S> <C> <C> <C>
Rental expense $ 16,785 $ 23,693 $ 23,865
Sublease rental income (3,072) (4,296) (5,789)
Net rental expense $ 13,713 $ 19,397 $ 18,076
</TABLE>
Future minimum payments under noncancelable operating leases and related
sublease income, on operating leases with initial or remaining lease terms
in excess of one year, as of December 31, 1995 are described in the table
below. 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.
<TABLE>
<CAPTION>
Sublease
Lease Rental
(Dollars in thousands) Payments Income Net
<S> <C> <C> <C>
1996 $ 9,446 $ 4,636 $ 4,810
1997 5,541 2,643 2,898
1998 3,082 2,332 750
1999 1,958 2,177 (219)
2000 1,840 97 1,743
Thereafter 876 128 748
</TABLE>
13. SUPPLEMENTARY DATA TO CONSOLIDATED STATEMENTS OF OPERATIONS
Other Income (Expense)
<TABLE>
<CAPTION>
Years Ended
December 31, December 31, January 1,
(Dollars in thousands) 1995 1994 1994
<S> <C> <C> <C>
Foreign currency transaction
gain (loss) $ 190 $ 351 $ (254)
Asset sales 1,197 345 2,236
Equity in earnings (losses)
of affiliates 922 (429) (37)
Other income (expense) 1,358 (141) 1,605
Total $ 3,667 $ 126 $ 3,550
Other Data
Provisions for doubtful
accounts $ 1,384 $ 1,906 $ 3,162
Research and development* 9,657 10,127 23,765
Maintenance and repairs 6,473 7,245 7,111
Royalties 5,293 2,245 2,697
Advertising 1,937 2,656 4,716
</TABLE>
* Included in technical expenses in the consolidated financial statements.
14. RETIREMENT BENEFITS AND OTHER POST-RETIREMENT BENEFITS
Prior to January 1, 1992, substantially all the U.S. employees of the
Company were eligible to participate in the Retirement Plan, a defined-
benefit, salary-reduction plan available to most Ceridian and Company U.S.
employees.
Effective January 1, 1992, Ceridian established a separate pension plan for
the Company's U.S. employees (the "Retirement Plan"). Effective December
20, 1992, the Company froze the benefits under the Retirement Plan, meaning
such benefits are computed only on the basis of compensation and service up
to that date.
Certain major international subsidiaries of the Company also offer defined
benefit pension plans to their employees. Benefits under these plans are
calculated on maximum or career-average earnings and years of participation
in the plans. Funding amounts are based on determinations by independent
consulting actuaries of requirements of the Employee Retirement Income
Security Act of 1974 (ERISA) in the U.S. and local statutory requirements
in other countries.
26
<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, December 31, January 1,
(Dollars in thousands) 1995 1994 1994
<S> <C> <C> <C>
Service cost $ 882 $ 967 $ 1,079
Interest cost on projected benefit
obligation 8,942 9,079 8,710
Actual return on plan assets (12,841) (5,197) (9,476)
Net amortization and deferral 5,270 (4,341) (511)
Total $ 2,253 $ 508 $ (198)
Rate Assumptions
Discount rate 7.3% 8.3% 7.4%
Rate of salary progression 4.4% 5.1% 6.8%
Long-term rate of return on assets 7.7% 8.1% 6.3%
</TABLE>
In addition, 1995 pension expense was reduced by a curtailment gain of $0.3
million related to a non-U.S. plan. Retirement expense for all other plans
amounted to $0.3 million in 1995, $0.5 million in 1994, and $0.6 million in
1993.
Funded Status of Defined Benefit Retirement Plans at Measurement Date
<TABLE>
<CAPTION>
Plans in Which Asset Value Exceeds
Accumulated Benefit Obligation
December 31, December 31,
(Dollars in thousands) 1995 1994
<S> <C> <C>
Actuarial present value of obligation:
Vested benefit obligation $ 23,933 $ 21,176
Accumulated benefit obligation $ 24,546 $ 21,662
Projected benefit obligation $ 25,570 $ 23,526
Plan assets at fair value 46,857 39,328
Plan assets in excess of
projected benefit obligation 21,287 15,802
Unrecognized net gain (4,332) (1,339)
Unrecognized prior service cost - 369
Unrecognized net asset (7,804) (7,976)
Net pension asset recognized
in the consolidated balance sheet $ 9,151 $ 6,856
</TABLE>
<TABLE>
<CAPTION>
Plans in Which Accumulated Benefit
Obligation Exceeds Asset Value
December 31, December 31,
(Dollars in thousands) 1995 1994
<S> <C> <C>
Actuarial present value of obligation:
Vested benefit obligation $ 104,382 $ 83,854
Accumulated benefit obligation $ 104,768 $ 84,107
Projected benefit obligation $ 105,869 $ 85,882
Plan assets at fair value 65,522 55,294
Projected benefit obligation in excess of
plan assets 40,347 30,588
Unrecognized net gain (15,053) (7,689)
Unrecognized prior service cost (1,498) (1,634)
Unrecognized liability for defined
benefit plans 66 174
Fiscal 1996-1997 settlement reserve 1,639 2,597
Adjustment to recognize minimum
pension liability 11,854 6,957
Net pension liability for defined
benefit parts 37,355 30,993
Other non-defined benefit plans'
obligations 1,589 3,026
Net pension liability recognized in
the consolidated balance sheet $ 38,944 $ 34,019
</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. 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.
15. CAPITAL ASSETS
<TABLE>
<CAPTION>
December 31, December 31,
(Dollars in thousands) 1995 1994
<S> <C> <C>
Property and equipment, at cost
Land $ 1,254 $ 1,427
Buildings and improvements 32,996 33,735
Machinery and equipment 52,999 63,193
Total 87,249 98,355
Accumulated depreciation 70,461 77,628
Property and equipment, net $ 16,788 $ 20,727
Leased and data center equipment,
at cost $ 30,809 $ 46,137
Accumulated depreciation 30,116 44,236
Leased and data center equipment, net $ 693 $ 1,901
</TABLE>
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONT'D
16. STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Net Change in Working Capital Items
Years Ended
December 31, December 31, January 1,
(Dollars in thousands) 1995 1994 1994
<S> <C> <C> <C>
Trade and other receivables $ 7,599 $ 13,917 $ (14,509)
Inventories 5,323 12,721 (5,949)
Prepaid expenses and other
current assets (28) 1,130 900
Accounts payable 6,645 (3,743) 3,764
Customer advances and
deferred income (11,883) 3,164 6,567
Accrued taxes 3,919 1,016 (2,336)
Accrued salaries and wages (1,207) (2,700) (6,123)
Other accrued expenses (1,177) (3,522) (7,221)
Net change in working capital items $ 9,191 $ 21,983 $ (24,907)
</TABLE>
<TABLE>
<CAPTION>
Noncash Operating, Investing, and Financing Activities
Years Ended
December 31, December 31, January 1,
(Dollars in thousands) 1995 1994 1994
<S> <C> <C> <C>
Noncash utilization of
restructure reserves $ (22,390) $ (24,584) $ (15,283)
Restructure reserve reclassifi-
cations and transfers, net - - 12,179
Goodwill write-off - (24,900) -
Shares issued in connection
with acquisitions - - 9,063
</TABLE>
<TABLE>
<CAPTION>
Supplemental Disclosures of Cash Flow Information
Years Ended
December 31, December 31, January 1,
(Dollars in thousands) 1995 1994 1994
<S> <C> <C> <C>
Cash paid (received) during
year for:
Interest paid $ 1,038 $ 1,426 $ 1,953
Income taxes paid 1,856 6,325 6,659
Income taxes refunded (8,063) (6,866) (2,161)
</TABLE>
17. 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 $382.9 million and $368.4
million at December 31, 1995 and December 31, 1994, respectively.
<TABLE>
<CAPTION>
International (2)
United(1) Pan
(Dollars in thousands) States American Europe Asia Total Consolidated
<S> <C> <C> <C> <C> <C> <C>
1995 Revenues $ 139,863 $ 33,538 $ 227,538 $ 53,876 $ 314,952 $ 454,815
Earnings (loss) from operations 1,125 1,415 (925) 100 590 1,715
Identifiable assets 116,615 9,165 62,686 39,019 110,870 227,485
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
<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 (only eight months of revenues and
earnings [loss for each] in 1995). Europe includes primarily the
operations in the following countries: Denmark, France, Germany, and
United Kingdom (only eight months of revenues and earnings [loss] for
the United Kingdom in 1995). Asia includes primarily the operations
in the following countries: Korea and Taiwan.
</TABLE>
28
<PAGE>
Major Customers
The Company's customers are located throughout the world. No single
customer accounted for more than 10% of the Company's revenues in 1995,
1994, or 1993, except for revenue from sales to various U.S. government
agencies which amounted to approximately 13.6% in 1995, 12.0% in 1994, and
13.7% in 1993.
18. RESTRUCTURING RESERVES, CURRENT AND NONCURRENT
Over the past several years, the Company has been transitioning from a
developer and manufacturer of proprietary mainframe computer systems to a
software and services provider focused on electronic commerce, product data
management, and computer-aided design solutions.
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.
Under the 1994 restructuring plan, the Company took a $34.0 million charge
to reduce the worldwide workforce. During 1995, severance cost activity
included cash payments of $11.5 million related to the reduction of the
worldwide workforce by approximately 230 individuals and a reclassification
of $7.6 million of severance accrual which was no longer required primarily
as a direct result of the divestiture activities discussed in note 3. This
accrual was reclassified to other restructuring accruals to offset the cash
and noncash activity associated with the AmeriData Divestitures. As a
result of these divestitures, the reduction in workforce related to the
Company's restructuring charge will total approximately 475 individuals
versus the original estimate of 600 individuals. Cash outlays for 1995
were below Company expectations due in part to lower than planned severance
activity in its international operations because of delays in legally
required procedures for such activities.
Asset revaluations and write-offs accounted for $14.3 million of the 1994
restructuring charge. This charge reduced certain assets to their net
realizable value and was a direct result of the Company refocusing its
business strategy including discontinuance of marketing efforts related to
proprietary systems. During 1995, activity included the write down of
assets directly related to the AmeriData Divestitures discussed in note 3.
Lease and other facility obligations accounted for $9.7 million of the 1994
restructuring charge. This charge was comprised of lease buyouts for
facilities and other commitments under leases resulting from the Company's
plan to reduce its geographic dispersion by consolidating sales and
services offices into more central operations. During 1995, lease and
other facility obligations activity included cash payments of $8.5 million
related to commitments under leases throughout the United States, Canada,
and Europe and a reclassification of a $2.5 million lease and other
facility obligations accrual which was no longer required primarily as a
direct result of the divestiture activity discussed in note 3. This
accrual was classified to other restructuring accruals to offset the cash
and noncash activity associated with the AmeriData Divestitures. The
remaining lease obligations of $3.1 million relate primarily to lease
commitments in the United States and Europe.
Other charges accounted for $6.5 million of the 1994 restructuring charge
and consisted of $3.5 million for pension accruals resulting from lump sum
payments, $1.1 million for litigation matters, and several less significant
items. During 1995, other activity included cash payments of $2.8 million
for litigation and other less significant items and noncash activity
primarily associated with the AmeriData Divestitures including the write-
off of goodwill of $9.3 million and net book value of operations sold of
$10.1 million. The remaining accrual primarily relates to litigation
matters and several smaller items.
Future cash outlays for the remaining restructuring reserve of $23.1
million at December 31, 1995 are anticipated to be $16.7 million and $6.4
million in 1996 and 1997, respectively.
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONT'D
The following represents the Company's restructuring activities for the
periods indicated:
<TABLE>
<CAPTION>
Lease Foreign
Asset and Other Currency
Severance Revaluations Facility Translation
(Dollars in thousands) Costs and Write-offs Obligations Adjustment Other Total
<S> <C> <C> <C> <C> <C> <C>
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
Restructuring charge 33,963 14,330 9,686 5,630 6,491 70,100
Noncash items - (14,330) (337) (5,630) (4,287) (24,584)
Cash payments/refunds, net (17,863) - (6,389) - 1,398 (22,854)
Balance at December 31, 1994 33,329 - 13,840 - 7,769 54,938
Noncash items - (836) - (1,515) (20,039) (22,390)
Reclassifications and transfers, net (7,619) 812 (2,534) 3,208 19,534 13,401
Translation 1,186 24 340 (1,693) 143 -
Cash payments (11,496) - (8,515) - (2,822) (22,833)
Balance at December 31, 1995 $ 15,400 $ - $ 3,131 $ - $ 4,585 $ 23,116
</TABLE>
19. GOODWILL
Over the three year period 1995, 1994 and 1993, the Company acquired five
companies which were engaged in computer systems and network integration
business (see note 2). The Company has classified as goodwill the excess
of the purchase price over the fair value of net assets acquired.
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
Foreign currency
translation adjustment - - (129) (129)
Amortization of goodwill - (770) - (770)
Sale of operations
to AmeriData (10,817) 1,906 (377) (9,288)
Balance at December 31, 1995 $ - $ - $ - $ -
</TABLE>
In the third quarter of 1995, unamortized goodwill of $9.3 million was
charged against the restructuring reserve. The unamortized goodwill
balance was primarily related to MICHAEL Business Systems Plc and Antares
Electronics, Inc. which were part of the AmeriData Divestitures (see note
3).
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 remaining unamortized balances of $24.9 million
were 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 business strategy. At the time the write-off was
taken there were no other noncurrent assets remaining from these
acquisitions.
30
<PAGE>
SUPPLEMENTARY QUARTERLY DATA (Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
1995 1994
FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES $ 90,423 $105,240 $129,088 $130,064 $133,677 $113,646 $131,274 $145,630
COST OF REVENUES* 61,352 76,078 96,483 96,467 95,901 85,673 93,929 107,025
Gross profit 29,071 29,162 32,605 33,597 37,776 27,973 37,345 38,605
OPERATING EXPENSES:
Selling, general and
administrative* 24,228 28,261 30,386 30,172 32,059 30,741 32,931 33,760
Technical 2,753 2,445 2,137 2,338 3,821 3,190 3,649 3,581
Restructuring - - - - 70,100 - - -
Goodwill write-off - - - - 24,900 - - -
Total operating expenses 26,981 30,706 32,523 32,510 130,880 33,931 36,580 37,341
Earnings (loss) from
operations 2,090 (1,544) 82 1,087 (93,104) (5,958) 765 1,264
OTHER INCOME (EXPENSES):
Interest expense (70) (236) (453) (274) (303) (316) (386) (277)
Interest income 1,478 1,263 1,592 1,386 1,435 1,058 1,088 1,205
Other income (expenses), net 278 1,449 1,240 700 22 790 (283) (403)
Total other income, net 1,686 2,476 2,379 1,812 1,154 1,532 419 525
Earnings (loss) before
income taxes 3,776 932 2,461 2,899 (91,950) (4,426) 1,184 1,789
PROVISION (BENEFIT) FOR
INCOME TAXES - 300 200 700 (480) 549 501 430
Net earnings (loss) $ 3,776 $ 632 $ 2,261 $ 2,199 $(91,470) $(4,975) $ 683 $ 1,359
<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 on the Nasdaq National Market 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 1995 1994
ranges (1) Fourth Third Second First Fourth Third Second First
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High $21.38 $12.13 $10.75 $ 7.25 $ 7.13 $ 8.88 $11.38 $10.25
Low $10.13 $ 8.63 $ 6.63 $ 5.88 $ 5.38 $ 6.38 $ 7.75 $ 7.75
<FN>
(1) Source: Nasdaq National Market under the symbol CDAT.
</TABLE>
As of December 31, 1995, the Company's Common Stock was held by
approximately 18,720 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.
31
<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 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 Greece Incorporated Delaware 100%
Control Data Holding AG Switzerland 100%
Control Data (Schweiz) AG Switzerland 100%
Control Data GmbH Germany 100%
CDCbit - business information technology
GmbH Germany 100%
ICEM Systems GmbH Germany 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%
Binary Systems Limited United Kingdom 100%
Binary Systems Consultants Limited United Kingdom 100%
Binary Systems Development Limited 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%
</TABLE>
24
<PAGE>
EXHIBIT 21.0
CONTROL DATA SYSTEMS, INC.
Subsidiaries of the Registrant
(CONTINUED)
<TABLE>
<CAPTION>
STATE/COUNTRY OF % OF
SUBSIDIARIES INCORPORATION OWNERSHIP
<S> <C> <C>
Control Data Pan American Corporation Delaware 100%
Control Data de Mexico S.A. de C.V. Mexico 100%
Control Data Real Estate, Inc. Delaware 100%
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%
Inter-American Control Data Corporation Delaware 100%
Meridian Environmental Technologies, Inc. Delaware 100%
Investments in Unconsolidated Affiliates
</TABLE>
<TABLE>
<CAPTION>
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%
ROM Control Data SRL Romania 51%
Societe de Creation D'Activities
Nouvelles (SOCRAN) Belgium 16.6%
</TABLE>
25
<PAGE>
EXHIBIT 23.0
[Letterhead]
Board of Directors
Control Data Systems, Inc.
We consent to incorporation by reference in the registration
statements (No. 33-49027, No. 33-49029, No. 33-49379, No. 33-54461, and No.
333-773) on Form S-8 of Control Data Systems, Inc. of our report dated
January 25, 1996, relating to the consolidated balance sheets of Control
Data Systems, Inc. and subsidiaries as of December 31, 1995 and 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, 1995, and all related schedules, which report appears in the
December 31, 1995 annual report on Form 10-K of Control Data Systems, Inc.
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
March 22, 1996
26
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This Schedule Contains Summary Financial
Information Extracted from the Registrant's
Financial Statements for its 1995 Fiscal Year
and is Qualified in its Entirety by Reference
to Such Financial Statements
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 84,034
<SECURITIES> 0
<RECEIVABLES> 85,235
<ALLOWANCES> 0
<INVENTORY> 19,381
<CURRENT-ASSETS> 194,543
<PP&E> 17,481
<DEPRECIATION> 0
<TOTAL-ASSETS> 227,485
<CURRENT-LIABILITIES> 95,828
<BONDS> 0
<COMMON> 143
0
0
<OTHER-SE> 83,355
<TOTAL-LIABILITY-AND-EQUITY> 227,485
<SALES> 253,921
<TOTAL-REVENUES> 454,815
<CGS> 175,471
<TOTAL-COSTS> 453,100
<OTHER-EXPENSES> (9,386)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,033
<INCOME-PRETAX> 10,068
<INCOME-TAX> 1,200
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,868
<EPS-PRIMARY> 0.67
<EPS-DILUTED> 0.62
</TABLE>
