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, 1996
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) 415-3001
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 17, 1997 on the Nasdaq National Market as reported in
The Wall Street Journal, was approximately $160,000,000. 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 17, 1997, the registrant had outstanding 12,919,468 shares
of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for the
registrant's 1997 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, 1996 are incorporated
by reference into Parts II and IV.
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 organizations
develop the enterprise-wide systems required to create, transmit, access
and control business information. With its Rialto brand of directory-
enabled software tools and services, the Company is focused on the
architecture, implementation and lifetime support of digital commerce and
enterprise-wide client-server solutions for business and government.
The Company provides Enterprise Integration software and service
solutions that include network design, installation and maintenance;
application re-hosting to client-server architectures; the integration of
disparate electronic messaging systems; and corporate directory design and
implementation. Its Technical Services offerings include hardware and
software maintenance services; rapid technology deployment in distributed
environments; and customer service hotline support. The Company's Product
Design software provides computer-aided design (CAD) software and services,
primarily to the discrete manufacturing industry.
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 invests in four major areas:
o Development of software products and tools associated with digital
commerce and CAD.
o Training and development of its technical workforce.
o Marketing and sales of its products and services.
o Marketing and sales support for its service provider partners.
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 processes and practices through enterprise
networking and applications integration.
2
Electronic messaging has become the basic transport mechanism for
today's leading business and government institutions. Although there are
already more than 100 million e-mail users worldwide, this electronic
messaging transport mechanism means much more than just e-mail.
Organizations are quickly leveraging this transport infrastructure to
convert traditional paper processes to digital ones or do away with some
processes altogether.
This is the beginning of a new digital commerce era characterized by the
integration of Internet technologies with existing back office
applications. Critical to this integration, both inside a company
(intranet) and outside (Internet), are two areas in which Control Data
excels: messaging and directory services. Messaging expertise is important
because many of the workflow and collaboration applications used by this
new Internet technology are based on messaging protocols. Directories are
important because Internet technologies don't offer the security and
control that used to exist in mainframe environments. Directories bring
about this security and control, while maintaining the advantages of
distributed computing. By focusing on the needs of Global 1000
organizations, Control Data is extending its leadership in messaging and
directory services to this emerging market.
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 and early 1996, 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). In late 1996, the Company signed a definitive agreement
to sell its 50-percent interest in Metaphase Technology, Inc. to its
partner in the joint venture, Structural Dynamics Research Corporation. The
sale was completed in January 1997, thus ending Control Data's
participation in the product data management integration market and
providing greater focus on the digital commerce integration business.
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, 1996.
Products and Services
The following table sets forth revenues for the Company's major product
and service offerings for the periods indicated:
Years Ended
December 31, December 31, December 31,
1996 1995 1994
(Dollars in thousands)
Software and services........ 170,332 174,080 154,275
Maintenance and support...... 56,046 75,452 92,785
Hardware products............ 79,318 205,283 277,167
Total revenues............. 305,696 454,815 524,227
Excluding the international operations sold to AmeriData, pro forma
total revenues were $313,964 and $336,402 for 1995 and 1994, respectively.
3
Software and Services
In 1996, the Company took an aggressive step to meet the growing demand
for digital commerce technologies with the launch of the Rialto suite of
products. Rialto brings together four of the most fundamental building
blocks of a digital commerce infrastructure: messaging, security,
information access, and directories.
Rialto includes a series of solutions designed to help large
organizations build and manage enterprise-wide communications networks, or
intranets. The objective is to provide three key benefits:
o Enable desktop users to more easily locate information within their
enterprise, including the ad hoc materials now being proliferated by
intranet and messaging technology, as well as highly structured data that
currently resides in legacy information systems.
o Enable institutions to secure their communications infrastructures and
protect their resources so they can pursue new business objectives and
initiate new processes outside their organizational borders.
o Enable institutions to cost effectively manage their infrastructure so
that economies of scale can be leveraged across an entire enterprise.
Software
Rialto Directories. This solution set includes a more powerful
version of Control Data's Global Directory Server, one of the industry's
leading implementations of the international X.500 standard for directory
services, and a new Global Naming Administration offering. This offering
enables organizations with distributed and disparate Information Technology
(IT) infrastructures to have one management environment for user
attributes. The major benefit is the scalability and dramatically reduced
cost of administering multiple networks from a central point, as well as
more timely updates of changes to user attributes.
Rialto Security. This solution set includes a set of services and
products that links security enforcement policies and technologies into an
integrated program driven from an enterprise directory. Security policies
are entered as rules into the directory. Designated enforcement
technologies use the directory information to enforce the security policy.
The primary benefit is the universal deployment, monitoring, and
enforcement of an organizational security policy from a central point,
which improves security effectiveness and reduces security costs.
Rialto Information Access. This solution set includes new solutions
that dramatically improve access, communication, and control of information
across enterprise intranets. Any user, with appropriate access privileges
obtained through the enterprise directory, can access information using an
easy-to-use web browser regardless of system type or location. One
solution, called I*Hub, creates an enterprise-level digital library for
transitory data such as electronic mail messages and their attachments.
Rialto Messaging. This solution set includes a new client-server
messaging solution, IntraStore Server, designed to support corporate
intranets and the Internet. IntraStore Server allows individual users to
integrate Internet messaging clients while preserving centralized
administration and management. Rialto Messaging also includes Mail*Hub,
Control Data's existing message integration solution for connecting complex
heterogeneous messaging environments.
4
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.
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 digital commerce integration activities
that require a diverse set of products and services selected from the
Rialto suite of solutions as well as other sources. 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 digital commerce 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.
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).
5
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
services designed for customers who want to outsource the management and
control of their messaging and directory network operations.
o Enterprise Networking. Remote monitoring and management of wide-area
network hardware and software solutions that integrate local-area
resources into enterprise networks.
o Intercompany Messaging. Commercial service that offers business-ready
features to clients that require enterprise and intercompany messaging,
global directory services, and electronic commerce capabilities.
Working with a variety of regional telecommunications providers around
the world, who market the service and provide the network connections
required by clients, the Company provides the message and directory
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.
The Company's integration services are carried out primarily by its
professional services staff, which includes approximately 750 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.
6
Revenues from software and services were $170.3 million in 1996, $174.1
million in 1995, and $154.3 million in 1994, representing 55.7%, 38.3%, and
29.4%, respectively, of the Company's total revenues. Excluding the
international operations sold to AmeriData, total pro forma revenues from
software and services were $148.0 million in 1995 and $125.4 million in
1994, representing 47.1% and 37.3%, respectively, of the Company's total
pro forma revenues.
Maintenance and Support
The Company provides hardware and software maintenance services for both
its 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 $56.1 million in 1996, $75.4
million in 1995, and $92.8 million in 1994, representing 18.3%, 16.6%, and
17.7%, respectively, of the Company's total revenues. Excluding the
international operations sold to AmeriData, total pro forma revenues from
maintenance and support were $62.5 million in 1995 and $72.7 million in
1994, representing 19.9% and 21.6%, respectively, of the Company's total
pro forma revenues.
Hardware Products
The Company is differentiated from many other integrators because it is
not captive to a particular product set or technology. This independence
allows it to work in a multivendor environment without bias. Beginning in
1989 with its relationship with SGI, 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, the
Company signed remarketing agreements with Sun and Hewlett-Packard in 1993.
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 $79.3 million
in 1996, $205.3 million in 1995, and $277.1 million in 1994, representing
26.0%, 45.1%, and 52.9%, respectively, of the Company's total revenues.
Excluding the international operations sold to AmeriData, total pro forma
revenues from hardware products were $103.5 million in 1995 and $138.3
million in 1994, representing 33.0% and 41.1%, respectively, of the
Company's total pro forma revenues.
7
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. In
1996, the Company sold its product distribution operations in Denmark 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
52.3%, 69.2%, and 71.5%, of the Company's total revenues in 1996, 1995, and
1994, 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, 1996.
The Company's sales and support operations are organized into three
regions (Americas, Europe, and Asia), each with its own marketing, sales
and sales support professionals providing consulting and engineering
services. Centralized technology support services are provided to the
sales regions from the Company's headquarters in Arden Hills, Minnesota.
These resources are available to assist field organizations in
understanding technology trends, 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 years 1996, 1995, or 1994.
Contracts with the U.S. government represented approximately 19.5%, 13.6%,
and 12.0% of the Company's total revenue in fiscal years 1996, 1995, and
1994, 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.
8
Research and Development
The Company's research and development efforts are primarily oriented
toward digital commerce, CAD/CAM/CAE products, and client/server solutions.
In 1994, the Company formed a new business unit dedicated to the
development of products and services related to messaging and information
infrastructures. Research and development efforts directed toward
enhancing the Company's ICEM application software product line occur
through the Company's ICEM Technologies division.
Company-sponsored research and development expenses related to new
products or services and the improvement of existing products totaled $12.5
million, $9.7 million, and $10.1 million, for 1996, 1995, and 1994,
respectively. The increase in research and development expenses primarily
relates to the Company's continuing investment in digital commerce products
and services.
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 digital commerce 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 $19 million as of December 31, 1996, most of which
is expected to be reflected in revenues during 1997. At December 31, 1995,
the backlog was approximately $23 million. The decrease in the 1996
backlog from 1995 is primarily due to the operations sold to AmeriData.
No backlog amount is determinable for a large portion of the Company's
revenues. 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.
9
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 1996 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, 1996, the Company had approximately 1,750 full-time
employees.
10
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; Paris, France; Delft,
Netherlands; and Taipei, Taiwan. The Company owns a significant office
facility in Mexico, which is leased to AmeriData.
The following table summarizes the usage and location of the Company's
facilities as of January 1, 1997.
Facilities
Type of Property Interest U.S. Non-U.S. Worldwide
(In Thousands of Square Feet)
Owned............................. 325.5 179.2 504.7
Leased............................ 588.6 231.9 820.5
Total square feet.............. 914.1 411.1 1,325.2
Utilization
Warehousing....................... 74.7 35.6 110.3
Office, computer center and other. 551.9 196.5 748.4
Vacant............................ 21.1 69.5 90.6
Leased or subleased to others..... 266.4 109.5 375.9
Total square feet.............. 914.1 411.1 1,325.2
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 1996 by
approximately 200,000 square feet, a reduction of 19.8%. The number of
facilities also decreased from 90 at the end of 1995 to 78 at year end
1996, a net decrease of 12 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. 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. Pending
age discrimination actions against Ceridian and the Company were settled in
March 1997. The Company's aggregate liability for such actions was
approximately $4.5 million. The Company has adequate reserves to cover
this amount.
11
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, 1996.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
Name Age Position
James E. Ousley 51 President and Chief Executive
Officer
Joseph F. Killoran 56 Vice President and Chief Financial
Officer
Ruth A. Rich 53 Vice President, Human Resources/
Administration and Secretary
Dieter Porzel 60 Vice President, Europe/Middle
East/Africa Region
Michael G. Eleftheriou 51 Vice President, Technical Services
David B. Folsom 49 Vice President, Electronic Commerce
Solutions and Chief Technology Officer
Arnold (Nol) Rutgers 55 Vice President, Sales and
Operations, U.S. and Asia
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; and Executive Vice
President of Ceridian from February 1990 to July 1992.
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; and Vice
President and Controller for Ceridian's Computer Products business from
1989 to July 1992.
Ruth A. Rich has been Vice President, Human Resources/Administration of
Control Data since August 1992 and Secretary since March 1997. Ms. Rich
was Vice President, Human Resources/Administration for Ceridian's Computer
Products business from November 1990 to July 1992; and Vice President,
Human Resources/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.
Michael G. Eleftheriou has been Vice President, Technical Services of
Control Data since January 1996. Mr. Eleftheriou was Vice President of
Assessment and Planning for Control Data from October 1994 to December
1995; General Manager of United States Systems Integration Operations from
May 1994 to September 1994; General Manager of Control Data Mexico from
October 1992 to April 1994; General Manager of Worldwide Sales and Services
from August 1992 to September 1992; General Manager, Worldwide Sales and
Services of Ceridian's Computer Products business from December 1991 to
July 1992; and General Manager of Ceridian's Cyber Marketing business from
April 1990 to November 1991.
12
David B. Folsom has been Vice President, Electronic Commerce Solutions
of Control Data since October 1994. In addition, in March 1997, Mr. Folsom
assumed the role of Chief Technology Officer. Mr. Folsom was General
Manager of Networking Competency Centers of Control Data from August 1992
to September 1994; and Director of Software Development for Ceridian's
Computer Products business from 1990 to July 1992.
Arnold (Nol) Rutgers has been Vice President, Sales and Operations, U.S.
and Asia of Control Data since October 1996. Mr. Rutgers was Vice
President, Asia/Pacific Region from June 1995 to September 1996; Vice
President, Marketing from October 1994 to May 1995; General Manager of
Strategic Planning for Control Data from August 1992 to September 1994; and
General Manager of Strategic Planning for Ceridian's Computer Products
business from September 1989 to July 1992.
13
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
1996 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 1996 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 8 through 12 of the Company's
1996 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, 1996 and 1995, the related consolidated statements of
operations, stockholders' equity and cash flows for each of the years in
the three-year period ended December 31, 1996, and the notes to
consolidated financial statements, together with report therein of KPMG
Peat Marwick LLP dated January 22, 1997, appearing on pages 13 through 30
of the Company's 1996 Annual Report to Stockholders, are incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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 1997
Annual Meeting of Stockholders to be held on May 14, 1997 (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 Relationships" in the Proxy
Statement is incorporated herein by reference.
14
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.
Page in
1996 Annual
Report to
Stockholders
Independent Auditors' Report.................................. 13
Consolidated Statements of Operations - Years Ended
December 31, 1996, December 31, 1995, and December 31, 1994.. 14
Consolidated Balance Sheets - December 31, 1995 and
December 31, 1994............................................ 15
Consolidated Statements of Stockholders' Equity -
Years Ended December 31, 1996, December 31, 1995, and
and December 31, 1994........................................ 16
Consolidated Statements of Cash Flows - Years Ended
December 31, 1996, December 31, 1995, and December 31, 1994.. 17
Notes to Consolidated Financial Statements.................... 18
Financial Statement Schedules
Page in this
Form 10-K
Independent Auditors' Report on Financial Statement Schedule... 18
Schedule II - Valuation and Qualifying Accounts................ 19
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
None.
15
Exhibits
Exhibit
No. Description
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.
(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
Exhibit
No. Description
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) May 1996 Amendments to 1992 Equity Incentive Plan - incorporated
by reference to Exhibit 10.1 to the Registrant's Quarterly Report
on Form 10-Q for the fiscal quarter ended June 30, 1996.
10.13*(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 1997 Annual Meeting of Stockholders.
10.14*(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.
10.15* 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.
10.16*(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.
10.17*(2) Severance Agreement, dated January 4, 1995, 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, 1995, 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 1997 Annual Meeting of
Stockholders.
11.0 Computation of Earnings (Loss) per Common Share.
13.0 The portions of the Registrant's 1996 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.
(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
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE
The Board of Directors and Stockholders
of Control Data Systems, Inc.:
Under date of January 22, 1997, we reported on the consolidated balance
sheets of Control Data Systems, Inc. and subsidiaries as of December 31,
1996 and 1995, 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, 1996, as contained in the 1996 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 1996. 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 22, 1997
18
Schedule II
CONTROL DATA SYSTEMS, INC.
Valuation and Qualifying Accounts
Allowance for Doubtful Accounts Receivable:
Years Ended
December 31, December 31, December 31,
1996 1995 1994
(Dollars in thousands)
Balance at beginning of year....... $ 4,794 $ 6,844 $10,063
Additions charged to costs
and expenses................... 1,127 1,384 1,906
Write-offs and other adjustments. (2,182) (3,434) (5,125)
Balance at end of year............. $ 3,739 $ 4,794 $ 6,844
19
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 24, 1997
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.
Signature Title Date
/s/ JAMES E. OUSLEY President and March 24, 1997
James E. Ousley Chief Executive Officer
(principal executive officer)
/s/ JOSEPH F. KILLORAN Vice President and Chief March 24, 1997
Joseph F. Killoran Financial Officer
(principal financial and
accounting officer)
/s/ W. DONALD BELL Director March 24, 1997
W. Donald Bell
/s/ GRANT A. DOVE Director March 24, 1997
Grant A. Dove
/s/ MARCELO A. GUMUCIO Director March 24, 1997
Marcelo A. Gumucio
20
Signature Title Date
/s/ W. DOUGLAS HAJJAR Director March 24, 1997
W. Douglas Hajjar
/s/ KEITH A. LIBBEY Director March 24, 1997
Keith A. Libbey
21
CONTROL DATA SYSTEMS, INC.
EXHIBIT INDEX
Exhibit
No. Description
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) May 1996 Amendments to 1992 Equity Incentive Plan
10.13*(2) The Registrant's Executive Incentive Plan
10.14*(2) The Registrant's 1993 Employee Stock Purchase Plan
10.15* Software Distribution License Agreement between Intergraph and
the Registrant
10.16*(2) Contract for the "Vorsitzender der Geschaeftsfuehrung" of
Control Data GmbH
10.17*(2) Severance Agreement, dated January 4, 1995, between the
Registrant and James E. Ousley
10.18*(2) Severance Agreement, dated January 4, 1995, 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 1996 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
(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.