<PAGE> 1
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ---- to ----
Commission file number 1-5677
WANG LABORATORIES, INC.
-----------------------
(Exact name of registrant as specified in its charter)
DELAWARE 04-2192707
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
One Industrial Avenue
Lowell, Massachusetts 01851
--------------------- -----
(Address of principal executive offices) (Zip Code)
(508) 459-5000
--------------
(Registrant's telephone number, including area code)
Not Applicable
--------------
(Former name, former address and former fiscal year,
if changed since last report)
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
l934 during the preceding twelve months, and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
-----
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
-----
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practical date (March 31, 1995):
Common stock, par value $.01 per share 33,775,207 shares
<PAGE> 2
2
<TABLE>
WANG LABORATORIES, INC. AND SUBSIDIARIES
INDEX
<CAPTION>
Part I. FINANCIAL INFORMATION PAGE NO.
<S> <C> <C>
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet - 3
March 31, 1995 and June 30, 1994
Condensed Consolidated Statement of Operations - 5
Three months ended March 31, 1995,
Nine months ended March 31, 1995,
Three months ended March 31, 1994,
Six months ended March 31, 1994 and
Three months ended September 30, 1993
Condensed Consolidated Statement of Cash Flows - 6
Nine months ended March 31, 1995,
Six months ended March 31, 1994 and
Three months ended September 30, 1993
Notes to Condensed Consolidated Financial Statements - 7
March 31, 1995
Item 2. Management's Discussion and Analysis of Financial 15
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 27
Item 6. Exhibits and Reports on Form 8-K 28
SIGNATURE 31
</TABLE>
<PAGE> 3
3
WANG LABORATORIES, INC. AND SUBSIDIARIES
<TABLE>
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<CAPTION>
Reorganized Company
----------------------
March 31, June 30,
1995 1994
--------- --------
ASSETS (Dollars in millions)
- ------
<S> <C> <C>
CURRENT ASSETS
Cash and equivalents $ 93.0 $189.4
Accounts receivable, net 196.9 128.5
Inventories 30.5 27.6
Other current assets 39.0 37.3
------ ------
Total current assets 359.4 382.8
Depreciable assets, net 164.4 79.6
Intangible assets, net 272.1 197.6
Other 21.0 26.0
------ ------
Total assets $816.9 $686.0
====== ======
</TABLE>
See notes to the condensed consolidated financial statements.
<PAGE> 4
4
WANG LABORATORIES, INC. AND SUBSIDIARIES
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEET - (Continued)
(UNAUDITED)
<CAPTION>
Reorganized Company
-------------------------
March 31, June 30,
1995 1994
--------- --------
(Dollars in millions)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Borrowings due within one year $ 2.9 $ 3.6
Accounts payable, accrued expenses and other 321.1 213.6
Income taxes 11.1 12.7
Deferred service revenue 97.1 58.2
------ ------
Total current liabilities 432.2 288.1
LONG-TERM LIABILITIES
Debt 24.8 2.0
Integration and restructuring 10.5 19.6
Other liabilities 74.4 58.9
------ ------
Total long-term liabilities 109.7 80.5
Redeemable Preferred Stock,
$.01 par value, 5,000,000 shares
authorized, 690,104 shares issued at
March 31, 1995 and 636,164 at
June 30, 1994; redemption and liquidation
preference of $60 million 59.4 53.2
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 100,000,000
shares authorized; outstanding shares:
33,775,207 at March 31, 1995 and
31,979,766 at June 30, 1994 0.3 0.3
Capital in excess of par value 279.7 255.6
Cumulative translation adjustment 0.8 3.0
Retained earnings (deficit) (65.2) 5.3
------ ------
Total stockholders' equity 215.6 264.2
------ ------
Total liabilities and stockholders' equity $816.9 $686.0
====== ======
See notes to the condensed consolidated financial statements.
</TABLE>
<PAGE> 5
5
<TABLE>
WANG LABORATORIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<CAPTION>
| Predecessor
Reorganized Company | Company
-------------------------------------------------- | -------------
Three Months Nine Months Three Months Six Months | Three Months
Ended Ended Ended Ended | Ended
March 31, March 31, March 31, March 31, | September 30,
1995 1995 1994 1994 | 1993
---------- --------- --------- ---------- | -------------
(Dollars in millions, except per share data) |
<S> <C> <C> <C> <C> | <C>
REVENUES |
Product sales $ 92.3 $ 269.9 $ 73.5 $ 162.0 | $ 64.1
Service and other 160.8 391.5 131.5 274.8 | 146.8
------- ------- ------- ------- | --------
253.1 661.4 205.0 436.8 | 210.9
|
COSTS AND EXPENSES |
Cost of product sales 65.5 190.7 47.0 102.7 | 40.1
Cost of service and other 119.6 267.1 84.4 174.1 | 86.9
Research and development 8.3 23.1 9.6 20.2 | 10.0
Selling, general, and |
administrative 63.7 161.2 55.5 116.7 | 61.5
Amortization of intangibles - |
fresh-start and Bull 8.9 22.1 6.9 13.8 | --
Integration-related costs |
and other charges 64.2 64.2 -- -- | --
------- ------- ------- ------- | --------
Total costs and expenses 330.2 728.4 203.4 427.5 | 198.5
------- ------- ------- ------- | --------
|
OPERATING INCOME (LOSS) (77.1) (67.0) 1.6 9.3 | 12.4
|
OTHER (INCOME) EXPENSE |
Interest expense 1.1 2.7 0.8 1.5 | 1.2
Other income - net (2.4) (9.0) (4.6) (8.0) | (1.1)
------- ------- ------- ------- | --------
Total other (income) expense (1.3) (6.3) (3.8) (6.5) | 0.1
------- ------- ------- ------- | --------
|
INCOME (LOSS) BEFORE REORGANIZATION |
EXPENSES, INCOME TAXES, FRESH- |
START REPORTING ADJUSTMENT, AND |
EXTRAORDINARY ITEM (75.8) (60.7) 5.4 15.8 | 12.3
Reorganization expenses -- -- -- -- | 34.9
------- ------- ------- ------- | --------
INCOME (LOSS) BEFORE INCOME TAXES, |
FRESH-START REPORTING ADJUSTMENT, |
AND EXTRAORDINARY ITEM (75.8) (60.7) 5.4 15.8 | (22.6)
Provision for income taxes (benefit) (3.6) 3.6 2.3 7.8 | 0.4
------- ------- ------- ------- | --------
NET INCOME (LOSS) BEFORE FRESH-START |
REPORTING ADJUSTMENT AND |
EXTRAORDINARY ITEM (72.2) (64.3) 3.1 8.0 | (23.0)
Fresh-start reporting adjustment -- -- -- -- | 193.6
Gain on debt discharge -- -- -- -- | 329.3
------- ------- ------- ------- | --------
NET INCOME (LOSS) (72.2) (64.3) 3.1 8.0 | 499.9
|
Dividends and accretion on |
redeemable preferred stock (2.1) (6.2) (1.9) (2.2) | --
------- ------- ------- ------- | --------
NET INCOME (LOSS) APPLICABLE TO |
COMMON STOCKHOLDERS $ (74.3) $ (70.5) $ 1.2 $ 5.8 | $ 499.9
======= ======= ======= ======= | ========
Weighted average shares and common |
share equivalents outstanding |
(in millions) 33.2 32.4 33.2 32.6 | *
|
NET INCOME (LOSS) PER SHARE $ (2.24) $ (2.17) $ 0.04 $ 0.18 | *
======= ======= ======= ======= | ========
<FN>
*Per share and share data are not presented for periods prior to September 30, 1993, the Effective Date
of the Company's Plan of Reorganization, due to the general lack of comparability as a result of the
revised capital structure of the Company.
</TABLE>
See notes to the condensed consolidated financial statements.
<PAGE> 6
6
<TABLE>
WANG LABORATORIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<CAPTION>
| Predecessor
Reorganized Company | Company
---------------------- | -------------
Nine Months Six Months | Three Months
Ended Ended | Ended
March 31, March 31, | September 30,
1995 1994 | 1993
----------- ---------- | -------------
(Dollars in millions) |
<S> <C> <C> | <C>
OPERATING ACTIVITIES |
Net income (loss) $ (64.3) $ 8.0 | $ 499.9
Depreciation 26.4 19.1 | 11.6
Amortization 25.7 15.1 | 0.8
Non-cash provision for income taxes 3.4 7.0 | --
Provision for integration-related costs and |
other charges 64.2 -- | --
Payments of integration-related costs and |
other charges (4.9) -- | --
Fresh-start reporting adjustment -- -- | (193.6)
Extraordinary gain on debt discharge -- -- | (329.3)
Reorganization provisions -- -- | 30.1
Foreign exchange adjustment -- -- | (7.4)
CHANGES IN OTHER ACCOUNTS AFFECTING OPERATIONS |
Accounts receivable 32.5 (5.7) | 13.5
Inventories 5.1 9.9 | 8.3
Other current assets 2.1 8.9 | 4.8
Accounts payable and other current liabilities (22.2) 7.8 | (4.4)
Other (2.1) 3.8 | 0.5
------- ------ | -------
Net cash provided by operations before |
reorganization-related items 65.9 73.9 | 34.8
Payments of reorganization-related items (46.0) (59.4) | (25.7)
------- ------ | -------
Net cash provided by operations 19.9 14.5 | 9.1
------- ------ | -------
|
INVESTING ACTIVITIES |
Investment in depreciable assets (18.9) (10.3) | (4.6)
Investment in capitalized software (4.1) (1.7) | (1.3)
Proceeds from assets sold in connection |
with reorganization -- 11.2 | 4.7
Proceeds from the sale of assets 14.4 -- | --
Business acquisition - Bull (106.2) -- | --
Other business acquisitions (1.5) -- | --
Other (4.1) (0.9) | 0.3
------- ------ | -------
Net cash used in investing activities (120.4) (1.7) | (0.9)
------- ------ | -------
|
FINANCING ACTIVITIES |
Proceeds from long-term debt -- -- | 2.0
Payments of long-term debt (0.6) (2.6) | (1.6)
Increase (decrease) in short-term borrowings (0.4) 1.4 | (30.7)
Proceeds from sale of 600,000 shares of |
redeemable preferred stock -- 49.0 | --
Proceeds from sale of 1.5 million shares of |
common stock -- 11.0 | --
Other 1.2 -- | --
------- ------ | -------
Net cash provided by (used in) |
financing activities 0.2 58.8 | (30.3)
------- ------ | -------
|
Effect of changes in foreign exchange rates 3.9 1.0 | (3.7)
------- ------ | -------
|
INCREASE (DECREASE) IN CASH AND EQUIVALENTS (96.4) 72.6 | (25.8)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 189.4 109.3 | 135.1
------- ------ | -------
|
CASH AND EQUIVALENTS AT END OF PERIOD $ 93.0 $181.9 | $ 109.3
======= ====== | =======
|
NON-CASH FINANCING ACTIVITIES: |
Note payable issued for Bull acquisition $ 21.6 -- | --
Issuance of 1,650,000 shares of |
common stock for Bull acquisition $ 22.9 -- | --
</TABLE> |
See notes to the condensed consolidated financial statements.
<PAGE> 7
7
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1995
NOTE A - BUSINESS ACQUISITION AND INTEGRATION-RELATED COSTS AND OTHER CHARGES
- -----------------------------------------------------------------------------
On January 31, 1995, the Company completed a transaction with Compagnie des
Machines Bull and certain of its affiliates (collectively "Bull") in which the
Company purchased from Bull S.A., its worldwide workflow and imaging business
("W/I Business") , and from Bull HN Information Systems Inc., its U.S. federal
systems subsidiary, its U.S. customer services business, and its sales and
service subsidiaries in Canada, Mexico, Australia and New Zealand. In
consideration for these businesses, the Company paid Bull $110.0 million in
cash, delivered a promissory note in the principal amount of $27.2 million,
subject to post-closing adjustments (which note is being held in escrow pending
the closing audit) and issued to Bull 1,650,000 shares of Wang Common Stock with
a fair market value at the time of issuance of $22.9 million. The promissory
note matures on January 31, 1997, and bears interest at 8.75% through January
31, 1996, and at Banker's Trust Company prime plus 1% thereafter. For financial
statement purposes, the promissory note has been reduced by $5.6 million to
reflect a reduced net asset value based upon the financial statements submitted
by Bull management and a certain agreed-upon adjustment. In addition, the
Company is obligated to pay Bull a percentage of sales revenues attributable
to the W/I Business above certain thresholds through December 31, 1996. For
the most recently completed year ended December 31, 1994, the businesses
acquired had total revenues of $447 million.
In connection with the acquisition, the Company entered into a revolving
credit facility with BT Commercial Corporation ("BTCC") and certain other
financial institutions. The three-year reducing facility provided for
borrowings of up to $125 million, including up to $40 million of letters of
credit, limited to the lesser of the facility maximum or a formula based on the
Company's accounts receivable and inventories and a supplemental amount. The
current facility maximum is $119 million, and is reduced to $115 million from
January 30, 1996 to March 31, 1996, and $100 million thereafter. Interest on
any borrowings is based on the BTCC's prime rate plus 1.25% to 2.50% or the
LIBOR rate plus 2.25% to 3.50%, depending on the amount of borrowings
outstanding. The BTCC agreement contains various financial covenants,
including covenants relating to the Company's operating results, working
capital, net worth, and indebtedness. Besides providing financing for the
acquisition, the BTCC facility replaced the Company's financing facility with
Congress Financial Corporation and will be used for general corporate purposes,
including payments to be made pursuant to integration-related initiatives
implemented as a result of the Bull acquisition. In connection with the
acquisition, the Company initially borrowed $72.8 million on the BTCC facility
and, as of March 31, 1995, had repaid all of this borrowing. Additionally, as
of March 31, 1995, letters of credit aggregating $12.8 million were outstanding
under the agreement.
The acquisition was accounted for using the purchase method of accounting in
accordance with Accounting Principles Board No. 16, "Business Combinations"
("APB 16"). Under APB 16, purchase price allocations were made to the assets
acquired and the liabilities assumed based on their respective fair values. The
excess of the purchase price over the fair value of the net assets acquired of
$99.1 million has been recorded based on these preliminary purchase price
allocations.
<PAGE> 8
8
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)
MARCH 31, 1995
NOTE A (Continued)
- ------
<TABLE>
A summary of the acquisition follows (in millions):
<S> <C>
Cash $110.0
Note to Bull HN 21.6
Company common stock (1,650,000 shares) 22.9
------
Total Consideration 154.5
Estimated fair value of net tangible assets acquired 55.4
------
Excess of Purchase Price over Net Tangible
Assets Acquired $ 99.1
======
</TABLE>
The value attributable to the acquired assets was allocated in conformity with
the procedures specified by APB 16. Current assets and liabilities have been
recorded at book value, which approximates fair value. Total consideration is
based upon financial statements submitted to the Company by Bull management.
The amount of the total consideration is subject to a contractually agreed-upon
objection procedure through which the Company may challenge the net asset value
of the acquired assets. In addition, all long-term liabilities, including
liabilities established for over-market and excess space leases totaling
approximately $28 million, are stated at the present value of amounts to be
paid, determined at appropriate current interest rates. Discount rates of
approximately 8.0% to 12.0%, to the extent appropriate, were used to determine
present value. Software licenses and the installed base were valued using an
income approach, whereby an estimate of the total monetary benefits, adjusted
for a 46% tax rate, expected to accrue is discounted to present worth at a
discount rate of 20% that considers degree of risk associated with the
realization of the projected monetary benefits. The value of the assembled
workforce was established based on replacement cost. The excess of purchase
price over the fair value of the assets acquired not attributable to specific
tangible or identifiable intangible assets of the Company has been reported as
Goodwill.
<TABLE>
Excess of purchase price over net assets acquired of $99.1 million has been
allocated to specific intangible asset categories as follows (in millions):
<CAPTION>
Asset Useful Life
----- -----------
<S> <C> <C>
Software licenses $24.9 5
Installed base-service 56.5 8
Assembled workforce 11.7 10
Goodwill 6.0 15
-----
$99.1
=====
</TABLE>
<TABLE>
On March 29, 1995, the Company's Board of Directors approved a plan to proceed
with integration and consolidation initiatives principally related to the Bull
acquisition. Integration-related costs and other charges have been recorded as
of March 31, 1995, and consist of the following (in millions):
<S> <C>
Facilities $ 3.1
Depreciable assets 12.4
Workforce-related 43.4
Other 5.3
-----
Total $64.2
=====
</TABLE>
<PAGE> 9
9
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)
MARCH 31, 1995
NOTE A (Continued)
- ------
The formal plan was recorded as of March 31, 1995 based upon the best
information available at the time. The facilities-related reserves for the
Company's excess sales and service and other support facilities were
established to recognize the lower of the amount of the remaining lease
obligations, net of any sublease rentals, or the expected lease settlement
costs. These reserves will be utilized only when the excess space has been
vacated and there are no plans to utilize the facility in the future.
Depreciable assets-related reserves were established to recognize, at net
realizable value, the write-down and disposal value of existing assets
including information systems, leasehold improvements and other productive
assets no longer required. As a result of the acquisition, certain technical
support, customer service, distribution, research and development, and
administrative functions are being combined and reduced. During the initial
integration process, the Company plans to release approximately 1,200 employees
during the fourth quarter of fiscal 1995 and the first quarter of fiscal 1996.
Workforce-related reserves, consisting principally of severance costs, were
established based on specific identification of employees to be terminated,
along with their job classifications or functions and their locations.
Cash outlays to complete the integration-related initiatives are estimated to
approximate $16 million for the remainder of fiscal 1995, and $35 million in
fiscal 1996. The cash outlays related to the facilities reserve are not
expected to extend beyond June 30, 1996, although they may be accelerated in the
event of any lease termination settlements. Substantially all workforce-related
actions are expected to be complete by March 31, 1996, although under certain
circumstances, the actual payment of termination costs may extend beyond that
date.
NOTE B - BASIS OF PRESENTATION
- ------------------------------
On August 18, 1992, Wang Laboratories, Inc., the Company's predecessor
Massachusetts corporation ("Predecessor Company"), filed a petition for
reorganization under Chapter 11 of the U.S. Bankruptcy Code. On September 30,
1993 (the "Confirmation Date"), a formal confirmation order by the U.S.
Bankruptcy Court for the District of Massachusetts with respect to the Company's
plan of reorganization (the "Reorganization Plan") became effective. At that
time, the Company effectively emerged from bankruptcy and its
debtor-in-possession status, subject only to compliance with the terms of the
Reorganization Plan.
In connection with the emergence from Chapter 11 as of September 30, 1993, the
Company implemented fresh-start reporting in accordance with the American
Institute of Certified Public Accountants Statement of Position No. 90-7 ("SOP
90-7"), "Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code". The Company's basis of accounting for financial reporting purposes
changed as of September 30, 1993, as a result of adopting SOP 90-7.
<PAGE> 10
10
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)
MARCH 31, 1995
NOTE B (Continued)
- ------
Specifically, SOP 90-7 required: (i) the adjustment of the Company's assets and
liabilities to reflect a reorganization value generally approximating the fair
value of the Company; (ii) the elimination of its accumulated deficit, and (iii)
adjustment to its pre-petition liabilities and capital structure to reflect
consummation of the Reorganization Plan. As a result of these adjustments, the
Company became a new reporting entity ("Reorganized Company") at September 30,
1993. The Statement of Operations for the current period and for the three and
six months ended March 31, 1994 and the Statement of Cash Flows for the current
period and for the six months ended March 31, 1994, incorporate the effects of
fresh-start reporting. However, the Statement of Operations and the Statement
of Cash Flows for the period ended September 30, 1993, are based upon historical
costs. Accordingly, the Company has presented a Statement of Operations and
Statement of Cash Flows for the six months ended March 31, 1994 (Reorganized
Company), and the three months ended September 30, 1993 (Predecessor Company),
and has not presented a Statement of Operations and Statement of Cash Flows for
the nine months ended March 31, 1994. A vertical black line has been drawn on
the Statement of Operations and Statement of Cash Flows to distinguish between
the Reorganized Company and Predecessor Company.
As a result of the Bull acquisition on January 31, 1995, the Company's Statement
of Operations and Statement of Cash Flows for the current period include the
results of the entities acquired for the two months ended March 31, 1995 (See
Note C, Pro Forma Financial Information).
During interim periods, the Company follows the accounting policies set forth in
its most recent Annual Report on Form 10-K, as amended, filed with the
Securities and Exchange Commission. Users of financial information produced for
interim periods are encouraged to refer to the footnotes contained in the most
recent Annual Report on Form 10-K when reviewing interim financial results.
The results of operations for the periods reported are not necessarily
indicative of those that may be expected for the full year. However, in the
opinion of management, the accompanying interim financial statements contain all
material adjustments, consisting only of normal recurring adjustments, with the
exception of fresh-start reporting, necessary to present fairly the financial
condition, the results of operations, and cash flows of Wang Laboratories, Inc.
and its consolidated subsidiaries for interim periods. Because of the adoption
of fresh-start reporting on September 30, 1993, the Statement of Operations for
the three and nine months ended March 31, 1995 and the three and six months
ended March 31, 1994, and the Statement of Cash Flows for the nine months ended
March 31, 1995 and the six months ended March 31, 1994, have not been prepared
on the same basis of accounting and are not comparable to the Statement of
Operations and the Statement of Cash Flows for the period ended September 30,
1993. Additionally, due to the Bull acquisition on January 31, 1995, the
financial statements for the current period are not comparable to the prior
periods.
<PAGE> 11
11
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)
MARCH 31, 1995
NOTE B (Continued)
- ------
Earnings per share is based on the weighted average number of common shares
outstanding, including those yet to be distributed in connection with the
Company's Reorganization Plan, and the effect, when dilutive, of stock options
and warrants. Net income for purposes of calculating earnings per share has
been reduced by cumulative dividends and accretion related to the Company's
redeemable preferred stock.
<TABLE>
NOTE C - PRO FORMA FINANCIAL INFORMATION
- ----------------------------------------
The following pro forma results of operations have been prepared as though the
Bull acquisition had occurred as of the beginning of the periods presented. The
pro forma information does not purport to be indicative of the results of
operations that would have been attained had the combination been in effect on
the dates indicated nor of future results of operations of the Company (in
millions, except per share data).
<CAPTION>
| Predecessor
Reorganized Company | Company
-------------------------- | -------------
Nine Months Six Months | Three Months
Ended Ended | Ended
March 31, March 31, | September 30,
1995 1994 | 1993
----------- ---------- | -------------
<S> <C> <C> | <C>
Revenues $924.8 $657.3 | $327.8
|
Income (loss) before |
extraordinary items $(55.8) $ 0.5 | $(28.2)
Net income (loss) applicable |
to common shareholders $(62.0) $ (1.7) | $494.7
|
Per share amounts: |
Income (loss) before |
extraordinary items $(1.64) $ 0.01 | *
Net loss applicable |
to common shareholders $(1.82) $(0.05) | *
|
<FN>
* Per share data is not presented for the three months ended September 30, 1993,
the Effective Date of the Company's Plan of Reorganization, due to the general
lack of comparability as a result of the revised capital structure of the
Company.
</TABLE>
<PAGE> 12
12
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)
MARCH 31, 1995
<TABLE>
NOTE D - OTHER BALANCE SHEET INFORMATION
- ----------------------------------------
Components of selected captions in the Condensed Consolidated Balance Sheet
follow (in millions):
<CAPTION>
March 31, June 30,
1995 1994
--------- --------
<S> <C> <C>
Allowance for doubtful accounts
receivable $ 6.5 $ 4.4
====== ======
Inventories
Finished products $ 19.6 $ 17.5
Work in process and subassemblies 0.2 0.2
Raw materials 8.5 6.3
Service parts and supplies 2.2 3.6
------ ------
$ 30.5 $ 27.6
====== ======
Accumulated depreciation on
depreciable assets $ 53.2 $ 25.7
====== ======
Intangible assets
Trademarks and patents $ 20.6 $ 18.9
Computer software and software licenses 65.1 37.8
Installed base - service 123.5 67.0
SIMMs license agreements 5.0 5.0
Assembled workforce 11.7 ---
Goodwill 10.4 2.9
Reorganization value in excess of amounts
allocated to identifiable assets 80.5 83.9
Other 3.3 4.5
------ ------
320.1 220.0
Less accumulated amortization 48.0 22.4
------ ------
$272.1 $197.6
====== ======
Accounts payable, accrued expenses and other
Accounts payable $ 65.4 $ 48.9
Accrued expenses 96.2 57.4
Compensation and benefits 58.3 36.1
Integration and restructuring 76.2 50.4
Accrued reorganization expenses 3.6 5.7
Chapter 11 claims to be settled
in cash 4.5 4.7
Other 16.9 10.4
------ ------
$321.1 $213.6
====== ======
</TABLE>
<PAGE> 13
13
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)
March 31, 1995
NOTE E - MICROSOFT ALLIANCE
- ---------------------------
On April 12, 1995, the Company announced a broad multi-year technical, service
and marketing alliance with Microsoft Corporation designed to bring improved
imaging and workflow management capabilities to all Windows users. Under the
alliance, the Company's desktop imaging and object controls will be
incorporated as standard features in future releases of Windows 95 and Windows
NT, and image controls will be included in the Visual Basic development tool.
Additionally, the Company will work with Microsoft to accelerate the deployment
of workflow automation software as a mainstream application for client-server
computing. The alliance is subject to a Hart-Scott-Rodino Act review. Upon
successful completion of that review, the action against Microsoft alleging the
infringement of two patents owned by Wang will be dismissed with prejudice.
As part of the agreement, Microsoft will invest $84 million in the Company
through the purchase of $90 million face amount of 4.5% convertible preferred
stock redeemable in 2003. This preferred stock is convertible into common stock
of the Company at $23 per share and represents approximately 10% of the
outstanding shares on a fully diluted basis.
NOTE F - CONTINGENCIES
- ----------------------
A lawsuit filed by a shareholder in December 1992 in the United States District
Court for the District of New Jersey and subsequently transferred to the
District of Massachusetts names fifteen former directors as defendants. The
complaint alleges certain violations of federal securities laws and other laws
in that the defendants allegedly made false statements or omitted material facts
about the Company's financial condition, thereby artificially inflating stock
prices. The complaint also alleges that the defendants fraudulently induced the
plaintiff to purchase stock in the Company. The plaintiff sought damages in an
unspecified amount for his losses on his holdings of Company stock, as well as
attorneys' fees and trebled damages based on Mass. G.L. Ch. 93A and based on
allegations that the defendants' actions constituted a "pattern" of illegal
conduct prohibited by the Racketeer Influenced and Corrupt Organizations Act
(RICO). The Court has recently issued an order dismissing (1) the RICO claim as
to all defendants; (2) the Chapter 93A claim as to all but one defendant; and
(3) all other claims as to all but three defendants. Although the Company is
not a defendant, the terms of its corporate charter provide that it will
indemnify each individual defendant unless it is determined that the particular
defendant did not act in good faith and in the reasonable belief he or she was
acting in the best interests of the Company. The Company would be called upon
to satisfy a judgment against the individuals, if and to the extent available
liability insurance coverage is exceeded.
The Company is a defendant in several so-called "repetitive stress injury"
("RSI") cases. Such cases, which have been filed against a large number of
computer manufacturers, allege that the various defendants' keyboards caused the
plaintiffs' RSI. The Company believes that all RSI claims brought against the
Company arising before the confirmation of the Reorganization Plan will be
discharged. In addition, the Company has maintained comprehensive general
liability insurance policies with several insurers. These policies indemnify
the Company for bodily injury damages arising out of its operations and
products. Nevertheless, high deductibles, retrospective premium adjustments,
and other issues relating to insurance coverage of RSI claims may
<PAGE> 14
14
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)
March 31, 1995
NOTE F (Continued)
- ------
significantly limit the amount of insurance coverage available to the Company
for such claims. Given the lack of legal precedent with respect to RSI claims,
the Company can predict neither the number of cases nor the associated claims
for damages that may be filed against the Company. Prior to August 18, 1992, 18
civil actions were commenced against the Company, alleging damages for RSI
injuries. Claims for all of these actions, as well as 38 additional claims and
two class actions, have been filed as part of the Predecessor Company's Chapter
11 procedure. In addition, two civil actions were commenced after the
completion of the Chapter 11 proceeding. The Company believes that all of these
actions will be resolved under the Company's Reorganization Plan. The Company
intends to defend itself vigorously against any liability asserted.
Prior to its filing for Chapter 11 protection, the Company was also a defendant
in a number of other lawsuits arising from the conduct of its business.
Substantially all such suits were stayed while the Company operated under
Chapter 11, and claims in such suits relating to periods prior to the Company's
filing under Chapter 11 are being extinguished and, to the extent allowed, have
been provided for under the Reorganization Plan. Although it is impossible to
predict the results of specific matters, the Company has no reason to believe at
the current time that its liability, if any, for all litigation will be material
to the Company's consolidated financial position or its results of operations.
The Company is the plaintiff in several lawsuits in which the Company alleges
that the defendants are infringing one or more patents held by the Company. If
successful, one or more of these actions could result in a significant recovery
for the Company. (See Note E - Microsoft Alliance)
NOTE G - PREFERRED STOCK SPLIT
- ------------------------------
On March 29, 1995, the Board of Directors declared a split effected in the form
of a dividend of three (3) shares of 11% Exchangeable Preferred Stock for each
share thereof held on March 31, 1995. The shares were distributed in April
1995. Each share of 11% Preferred Stock now has a liquidation preference of
$25.00 per share and the holder is entitled to one-half vote per share on
matters addressed at shareholder meetings.
<PAGE> 15
15
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Business Acquisition and Integration-Related Costs and Other Charges
- --------------------------------------------------------------------
On January 31, 1995, the Company completed a transaction with Compagnie des
Machines Bull and certain of its affiliates (collectively "Bull") in which the
Company purchased from Bull S.A., its worldwide workflow and imaging business
("W/I Business"), and from Bull HN Information Systems Inc., its U.S. federal
systems subsidiary, its U.S. customer services business, and its sales and
service subsidiaries in Canada, Mexico, Australia and New Zealand. In
consideration for these businesses, the Company paid Bull $110.0 million in
cash, delivered a promissory note in the principal amount of $27.2 million,
subject to post-closing adjustments (which note is being held in escrow pending
the closing audit) and issued to Bull 1,650,000 shares of Wang Common Stock
with a fair market value at the time of issuance of $22.9 million. The
promissory note matures on January 31, 1997, and bears interest at 8.75%
through January 31, 1996, and Banker's Trust Company prime plus 1% thereafter.
For financial statement purposes, the promissory note has been reduced by $5.6
million to reflect a reduced net asset value based upon the financial
statements submitted by Bull management and a certain agreed-upon adjustment.
In addition, the Company is obligated to pay Bull a percentage of sales
revenues attributable to the W/I Business above certain thresholds through
December 31, 1996. For the most recently completed year ended December 31,
1994, the businesses acquired had total revenues of $447 million.
In connection with the acquisition, the Company entered into a revolving credit
facility with BT Commercial Corporation ("BTCC") and certain other financial
institutions. The three-year reducing facility provided for borrowings of up
to $125 million, including up to $40 million of letters of credit, limited to
the lesser of the facility maximum or a formula based on the Company's accounts
receivable and inventories and a supplemental amount. The current facility
maximum is $119 million, and is reduced to $115 million from January 30, 1996
to March 31, 1996, and $100 million thereafter. Besides providing financing
for the acquisition, the BTCC facility replaced the Company's financing
facility with Congress Financial Corporation and will be used for general
corporate purposes, including payments to be made pursuant to
integration-related initiatives implemented as a result of the Bull
acquisition. In connection with the acquisition, the Company borrowed $72.8
million on the BTCC facility and, through March 31, 1995, had repaid all of
this borrowing. Additionally, as of March 31, 1995, letters of credit
aggregating $12.8 million were outstanding under the agreement.
The Company is in the process of integrating the acquired businesses with its
existing businesses. Integration-related costs and other charges of $64.2
million, primarily associated with the acquisition, were recorded effective
March 31, 1995 after actions had been identified and quantified and the formal
plan approved by the Company's Board of Directors. See Note A, Business
Acquisition and Integration-Related Costs and Other Charges. Cash requirements
of the parent company for these integration-related costs and other charges over
the next twelve months are expected to total approximately $12 million.
Non-parent company cash requirements for these costs over the next twelve months
are expected to total approximately $33 million. As a result of these charges,
the Company expects to reduce its costs and expenses by approximately $85
million on an annualized basis.
<PAGE> 16
16
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (Continued)
Emergence from Chapter 11
- -------------------------
On August 18, 1992, Wang Laboratories, Inc., the Company's predecessor
Massachusetts corporation, filed a petition for reorganization under Chapter 11
of the U.S. Bankruptcy Code. On September 30, 1993 (the "Confirmation Date"), a
formal confirmation order by the U.S. Bankruptcy Court for the District of
Massachusetts with respect to the Company's plan of reorganization (the
"Reorganization Plan") became effective. At that time, the Company effectively
emerged from bankruptcy and terminated its debtor-in-possession status, subject
only to compliance with the terms of the Reorganization Plan.
As part of its Chapter 11 proceeding, the Company discharged all of its
pre-petition indebtedness and liabilities, which transformed a negative net
worth of $504 million as of September 30, 1993, prior to giving effect to the
Chapter 11 reorganization, into a net worth of $244 million as of September 30,
1993, after giving effect to the reorganization and the implementation of
fresh-start reporting. In addition, the Chapter 11 proceeding enabled the
Company to reduce its operating expenses, through rejections of leases and other
executory contracts, personnel reductions and significant decreases in interest
expense. The Company further strengthened its balance sheet by means of an
equity financing and debt facility that were negotiated as part of the Chapter
11 proceeding.
In December 1993, the Company issued 30 million shares of common stock to
satisfy the claims of its unsecured creditors, of which approximately 20.5
million shares were distributed through December 31, 1994, and the remainder was
held in a disputed claims reserve pursuant to the Reorganization Plan. On
February 1, 1995, the U.S. Bankruptcy Court approved the Company's request to
distribute 6.1 million shares of the 9.5 million shares of common stock
remaining in the disputed claims reserve. This distribution will not result in
an increase in the number of shares outstanding. As of March 31, 1995, 3.0
million shares were held in the disputed claims reserve.
On February 15, 1995, the U.S. District Court approved a stipulation that
permits the distribution of warrants to former shareholders and certain
specified claimants to purchase 7.5 million shares of new Wang common stock, as
provided in the Company's Reorganization Plan. These specified claimants
include class members included in a pre-petition class action lawsuit alleging
certain securities laws violations, who will receive warrants for 360,000
shares, and other holders of stock securities claims and other stock claims, who
will receive warrants for approximately 8,000 shares. Warrants to purchase
approximately 7.1 million shares are being distributed to holders of old Wang
Class B and Class C common stock.
In connection with the emergence from Chapter 11, the Company was required to
adopt fresh-start reporting in accordance with the American Institute of
Certified Public Accountants Statement of Position No. 90-7 ("SOP 90-7"),
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code".
The Company's basis of accounting for financial reporting purposes changed as of
the Confirmation Date as a result of adopting SOP 90-7. Specifically, SOP 90-7
required: (i) the adjustment of the Company's assets and liabilities to reflect
a reorganization value generally approximating the fair value of the Company;
(ii) the elimination of its accumulated deficit and (iii) adjustment to its
pre-petition liabilities and capital structure to reflect consummation
<PAGE> 17
17
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (Continued)
Emergence from Chapter 11 (Continued)
- -------------------------
of the Reorganization Plan. As a result of these adjustments, the consolidated
financial statements of the Company as of March 31, 1995 and June 30, 1994, and
for the three and nine months ended March 31, 1995, and the three and six months
ended March 31, 1994, represent that of the Reorganized Company, a new entity
for financial reporting purposes.
Because the consolidated financial statements for periods after September 30,
1993 are not comparable to prior periods, the Company has presented the
Statement of Operations and Statement of Cash Flows for the six months ended
March 31, 1994, and the three months ended September 30, 1993, and has not
presented a Statement of Operations and Statement of Cash Flows for the nine
months ended March 31, 1994. The management's discussion and analysis will: (i)
explain the liquidity and sources of capital and the results of operations of
the Reorganized Company for the nine months ended March 31, 1995; (ii) compare
the results of operations of the Reorganized Company for the three months ended
March 31, 1995 to the comparable period of the prior year; (iii) discuss the
results of operations of the Reorganized Company for the nine months ended March
31, 1995; (iv) discuss the results of operations of the Reorganized Company for
the six months ended March 31, 1994; and (v) discuss the results of operations
of the Predecessor Company for the three months ended September 30, 1993.
Liquidity and Sources of Capital
- --------------------------------
Nine months ended March 31, 1995
- --------------------------------
Cash and cash equivalents decreased $96.4 million to $93.0 million, primarily
due to $106.2 million of cash used for the Bull acquisition.
Cash provided by ongoing operations of $65.9 million was offset by cash used for
reorganization-related items of $46.0 million, resulting in net cash provided by
operations of $19.9 million. Lower levels of receivables and inventories
generated $37.6 million of cash. Lower accounts payable and other current
liabilities resulted in reductions of $22.2 million. Receivables days sales
outstanding increased to 48 days at March 31, 1995, compared to 44 days at June
30, 1994. Inventory turnover rate improved to 8.4 times at March 31, 1995,
compared to 6.2 times at June 30, 1994.
Net cash used in investing activities totaled $120.4 million for the period and
relates primarily to $106.2 million of cash paid for the Bull acquisition,
consisting of $110.0 million purchase price and $4.1 million of transaction
costs, net of $7.9 million of cash acquired (see "Business Acquisition and
Integration-Related Costs and Other Charges"). Investments in depreciable
assets totaled $18.9 million. Proceeds from the sale of assets include $13.4
million received from the sale of the Company's remaining 49% interest in WICL,
Inc., the Company's Taiwan sales and marketing subsidiary.
Net cash provided by financing activities of $0.2 million for the period is
comprised of payments of $1.0 million of short and long-term borrowings, offset
by $1.2 million of proceeds from issuance of stock. Through January 30, 1995,
the Company had a financing facility with Congress Financial Corporation
("Congress") that provided for borrowings and letters of credit limited to $30
million in the aggregate, with letters of credit outstanding being limited to a
maximum of $25 million. As of January 30, 1995, the Congress facility was
replaced by the BTCC facility. See "Business Acquisition and
Integration-Related Costs and Other Charges" for further discussion. As of
March 31, 1995, letters of credit aggregating $12.8 million were outstanding
under the BTCC facility. No borrowings were outstanding under the facility as
of March 31, 1995.
<PAGE> 18
18
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (Continued)
Liquidity and Sources of Capital (Continued)
- --------------------------------
Cash balances of the parent company decreased from $100.6 million to $11.7
million during the period primarily due to $106.2 million paid in connection
with the Bull acquisition. At March 31, 1995, in addition to the cash balance
on-hand, the parent company had available to it the unused portions of the BTCC
financing arrangement, providing for borrowings and/or the issuance of
additional letters of credit of up to $105.6 million. Subsidiaries of the
Company had cash balances as of March 31, 1995, totaling approximately $81.3
million. Excess funds in certain subsidiaries could be available to the parent
company, either in the form of dividends or loans. The parent company cash
balances will be increased during the fourth quarter by approximately $84
million as a result of the issuance to Microsoft Corporation of convertible
preferred stock (see Note E, Microsoft Alliance).
In addition to normal operating activities, expected cash requirements of the
parent company over the next twelve months include approximately $0.3 million
for repayment of mortgages and borrowings, and approximately $25 million for
integration-related costs and other charges (see Business Acquisition and
Integration-Related Costs and Other Charges) and previously recorded
restructuring and reorganization-related items. Non-parent requirements for
these items over the next twelve months are expected to total approximately $59
million. Through September 30, 1996, the Company has the option to issue
preferred stock in lieu of cash to satisfy the dividend requirements of the 11%
exchangeable preferred stock. Dividends after September 30, 1996 must be paid
in cash.
The Company believes that existing cash balances, cash generated from
operations, and borrowing availability under the BTCC facility will be
sufficient to meet the parent company's and subsidiaries' cash requirements from
operations for at least the next twelve months and to complete the planned
integration-related and restructuring efforts. As part of furthering its
business strategy, the Company explores the acquisition of or the opportunity
for strategic relationships with other businesses. One or more of these
opportunities could have an impact on the Company's liquidity through the use of
cash or the issuance of debt, or result in the issuance of additional equity
securities of the Company.
Results of Operations
- ---------------------
Three months ended March 31, 1995 compared to March 31, 1994
- ------------------------------------------------------------
The Company reported an operating loss of $77.1 million for the three months
ended March 31, 1995, compared to operating income of $1.6 million for the same
period of the prior year. The operating loss includes a $64.2 million charge
for integration-related costs and other charges principally related to the
Company's acquisition of certain businesses of Bull and amortization of $2.3
million for intangible assets established in connection with the acquisition.
Operating income(loss) includes $6.6 million and $6.9 million for the three
months ended March 31, 1995 and 1994, respectively, for the amortization of
intangible assets established in connection with fresh-start reporting. Net
loss for the period was $72.2 million, compared to net income of $3.1 million
in the comparable period of the prior year.
<PAGE> 19
19
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (Continued)
RESULTS OF OPERATIONS (Continued)
- ---------------------
Revenues for the three months ended March 31, 1995 increased $48.1 million, or
23.5%, compared to the same period of the prior year. Revenues for the current
period include $69.5 million due to the previously mentioned Bull acquisition.
Excluding the effect of the Bull acquisition, net product sales increased 8.3%.
Increases in non-VS product categories totaled $15.0 million and more than
offset the decrease in sales of the Company's proprietary VS products. Service
and other revenues decreased 20.9%, excluding the effect of the business
acquisition, compared to the same period of the prior year, primarily due to a
22.3% decrease in proprietary VS maintenance. The rate of decline in the
Company's proprietary VS maintenance revenues is consistent with management's
expectations.
In the United States, revenues increased 30.0% to $122.4 million, while
international revenues increased by 17.9% to $130.8 million, compared to the
same period of the prior year. Excluding the effect of the Bull acquisition,
net product sales in the United States decreased by 14.6%, primarily due to
reduced proprietary VS product and service and personal computer sales.
Internationally, product revenues increased by 29.7%, compared to the same
period of the prior year, primarily due to a 74.2% increase in the sale of
personal computers in the Company's European operations, partially offset by
reduced sales of the Company's proprietary VS products and services.
Service and other revenues in the United States declined 23.1%, excluding the
effect of the Bull acquisition, while internationally there was a decline of
19.1% compared to the same period of the prior year. This decline was due to
the previously mentioned decline in maintenance revenue from the Company's
proprietary VS products, offset partially by an increase in multi-vendor product
support. Reduced service and other revenues occurred primarily due to reduced
product sales, changes in product mix, competition from third party service
providers, and decreased renewals of maintenance contracts on older installed
equipment.
For the three months ended March 31, 1995, product gross margin decreased to
29.0% from 36.1% in the comparable period of the prior year. The decrease is
due to changes in product mix, particularly the negative impact due to the
increased volume of personal computers in the current quarter.
Gross margin for service and other revenues was 25.6% and 35.8% for the three
months ended March 31, 1995 and 1994, respectively. Margins in the current
quarter were negatively affected by the continuing decline in the Company's
maintenance revenues on proprietary VS products, as well as the increase in
maintenance on lower-margin MVS products. Additionally, the Bull acquisition
has reduced gross margin due to the historically lower margins produced on their
traditional maintenance contracts. Delays in signing a binding Purchase and
Sale Agreement for the Bull acquisition and the delayed closing of the
transaction resulted in the Company not reducing the cost structure of the
acquired businesses during the three months ended March 31, 1995. Margins
also continue to be adversely affected by revenue decreases and competition
from third party service providers. Cost reductions resulting from the $64.2
million charge for integration costs and other charges will partially offset
these adverse effects.
Research and development costs decreased by $1.3 million or 13.5%, representing
3.3% and 4.7% of revenues for the three months ending March 31, 1995 and 1994,
respectively. The decrease was expected as the Company's development efforts
are now focused on developing software for open systems platforms and to
continuing support of its proprietary VS products.
<PAGE> 20
20
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (Continued)
RESULTS OF OPERATIONS (Continued)
- ---------------------
Selling, general, and administrative expenses increased $8.2 million or 14.8%
for the period due entirely to the Bull acquisition. Integration-related
initiatives and restructuring programs continue to contribute significantly to
the elimination of unnecessary or redundant programs, personnel, support costs,
and other related expenses.
Amortization of intangible assets totaled $8.9 million and $6.9 million for the
three months ended March 31, 1995 and 1994, respectively. Amortization of $2.3
million was recorded for the three months ended March 31, 1995 for intangible
assets of $99.1 million established in connection with the Bull acquisition.
Amortization of $6.6 million and $6.9 million for the three months ended March
31, 1995 and 1994, respectively, relates to the implementation of fresh-start
reporting as of September 30, 1993. Intangible assets of $193.6 million were
recorded to adjust the Company's balance sheet to fair market value under
fresh-start reporting.
Interest expense increased to $1.1 million and related principally to interest
on the note payable to Bull HN Information Systems, Inc. as a result of the
acquisition and fees and interest incurred on the Company's financing
arrangements with BTCC. Other income included primarily interest income
totaling $1.5 million and $1.7 million for the three months ended March 31, 1995
and 1994, respectively, and resulted primarily from investments in time
deposits.
The income tax benefit of $3.6 million for the three months ended March 31, 1995
reflects the effect of the current period loss. The prior year tax provision of
$2.3 million is a non-cash expense relating to the utilization of the Company's
net operating loss carryforwards. Under fresh-start reporting, realization of
these net operating loss carryforwards is recognized as a reduction of
Reorganization value in excess of amounts allocated to identifiable intangible
assets.
At March 31, 1995, the Company employed approximately 4,900 people in continuing
operations, which excludes approximately 2,900 people due to the Bull
acquisition, as compared to 5,700 at March 31, 1994. Restructuring actions have
resulted in significant personnel reductions.
<PAGE> 21
21
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (Continued)
Nine months ended March 31, 1995
- --------------------------------
The Bull acquisition was consummated on January 31, 1995, and accordingly the
results of operations for the nine months ended March 31, 1995 include two
months of results of the acquired businesses.
The Company reported revenues of $661.4 million and an operating loss of $67.0
million for the nine months ended March 31, 1995. The operating loss includes a
$64.2 million charge for integration, consolidation and other initiatives
principally related to the Company's acquisition of certain businesses of Bull.
Additionally, the operating loss includes $19.8 million for the amortization of
intangible assets established in connection with fresh-start reporting and $2.3
million for Bull acquisition-related intangibles. Net loss for the period was
$64.3 million.
The Company expects the decline in revenues from traditional sources (i.e.,
sales and service of proprietary VS products) to continue. The acquired Bull
proprietary product and service revenue streams are also expected to decrease,
but at a slower rate than the proprietary VS products and services. The
addition of the Bull service business adds a significant portion of multi-vendor
service ("MVS") contracts to the Company's existing MVS revenues. The Company
intends to direct resources to the marketing of the MVS business with the goal
of increasing this revenue stream in the future. Besides increasing service
revenue by the Bull acquisition, the Company's plan is to increase its revenue,
over time, by increasing sales of workflow and imaging software and related
products and services, along with other newer service offerings. The Company is
now focusing on providing software and services to the office productivity
segment of the information processing industry, a market where the Company has
name recognition and established technological, professional and marketing
expertise.
The Company believes that the recently announced alliance with Microsoft will
further its business strategy. In the short-term, the Company believes
indirect benefit to software revenues should result from this alliance. After
Wang Workflow and Imaging products are generally available on Microsoft NT
Servers, the Company expects direct benefit to software revenues from the sale
of NT Server-based Workflow and Imaging software. The Company anticipates that
such products will become available in calendar year 1996. In fiscal year
1996, the Company expects, as a result of this alliance, to also generate
revenues as an authorized provider of end-user support services for Microsoft
products in the form of on-site network design and installation consulting,
network integration, migration support, workflow and imaging services and
end-user help desk services.
Wang will also continue to sell products and services to its significant base of
existing proprietary VS customers, either to maintain and enhance their systems
or help them move to the open client/server model of computing. The Company's
business initiatives of client/server software, solutions integration and
network integration and support services all relate to the definition,
automation and management of critical office processes.
Product revenues for the nine months ended March 31, 1995 totaled $123.0 million
in the United States and $146.9 million internationally. Included in product
revenues is $12.7 million related to the acquired businesses. Strong sales of
personal computer products in the Company's European and Australian subsidiaries
were partially offset by the seasonal decline of personal computer sales in the
Company's governmental business. Reductions in sales of the Company's
proprietary VS products continued as expected. Certain segments of the computer
industry (particularly hardware sales) continue to experience intense
competitive and technological pressures resulting in over-capacity and
aggressive pricing. Product revenues for the period include $12.8 million for
sales of the Company's open software products and services.
<PAGE> 22
22
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (Continued)
Results of Operations (Continued)
- ---------------------
Service and other revenues for the nine months ended March 31, 1995 totaled
$184.7 million in the United States, while internationally they totaled $206.8
million. Included in service and other revenues is $56.7 million for February
and March related to the acquired business. Reductions in service and other
revenues continued, primarily due to reduced maintenance revenues for
proprietary VS products, resulting from reduced product sales, changes in
product mix, competition from third-party service providers, and decreased
renewals of maintenance contracts on older installed equipment. The Company
expects the decline in proprietary VS maintenance to continue. The reduction in
traditional service revenues has been offset by new service offerings, including
MVS revenues.
Product gross margin was 29.3% for the period. Product margins continue to be
negatively impacted by the high volume of personal computer revenues.
Gross margin for service and other revenues was 31.8% for the period. Service
gross margin continues to be adversely affected by the revenue decreases and
competitive conditions previously noted; however, margin decreases have been
partially offset by personnel and facilities cost reductions. In the near term,
the Company expects margins to be negatively affected by the Bull acquisition,
due to historically lower margins on Bull traditional maintenance than the
Company's, and by the migration to MVS maintenance from traditional maintenance
services.
Research and development costs totaled $23.1 million, or 3.5% of revenues, for
the period. The Company has refocused and streamlined its development program
to support its business strategy of developing its workflow and imaging software
products for open systems platforms, including IBM, Hewlett-Packard, Sun
Microsystems, Microsoft, and Novell. In addition, the Company is continuing to
support its proprietary VS products.
Selling, general and administrative expenses totaled $161.2 million, or 24.4%,
of revenues, for the period. Selling, general and administrative expenses
continue to decline as a result of restructuring programs, including depreciable
asset write-downs and workforce reductions. Selling, general and administrative
expenses were reduced by $3.2 million as a result of a refund received relating
to prior period value-added tax payments.
Amortization of intangible assets of $22.1 million is comprised of two
components. Amortization of $19.8 million relates to the implementation of
fresh-start reporting as of September 30, 1993. Intangible assets of $193.6
million were recorded to adjust the Company's balance sheet to fair market
value. Additionally, amortization of $2.3 million was recorded relating to
intangible assets of $99.1 million established in connection with the
acquisition of the Bull businesses.
<PAGE> 23
23
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (Continued)
Results of Operations (Continued)
- ---------------------
Interest expense totaled $2.7 million for the nine months ended March 31, 1995,
and is primarily due to fees incurred for the Company's previous financing
arrangement with Congress Financial Corporation, debt incurred as a result of
the Bull acquisition and short-term debt at international locations. Other
income includes interest income totaling $5.5 million, resulting primarily from
investments in time deposits.
The provision for income taxes of $3.6 million for the period includes $3.4
million of non-cash expense relating to the utilization of the Company's net
operating loss carryforwards. Under fresh-start reporting, realization of these
net operating loss carryforwards is recognized as a reduction of Reorganization
value in excess of amounts allocated to identifiable intangible assets.
Six months ended March 31, 1994
- -------------------------------
The Company reported revenues of $436.8 million and operating income of $9.3
million for the six months ended March 31, 1994. Operating income was reduced
by $13.8 million for the amortization of intangible assets established in
connection with fresh-start reporting. Net income for the period was $8.0
million.
Product revenues for the six months ended March 31, 1994 totaled $92.1 million
in the United States and $69.9 million internationally. Personal computer sales
accounted for 36.6% of product sales due to strong sales in the Company's
European subsidiaries. Sales of the Company's proprietary VS products,
representing 29.2% of product revenues for the period, continued to decline.
Product revenues for the period include $4.0 million for sales of the Company's
Open software products.
Service and other revenues for the six months ended March 31, 1994 totaled
$124.5 million in the United States, while internationally they totaled $150.3
million. Reductions in service and other revenues continued, primarily due to
declining maintenance revenues on proprietary VS products, resulting from
reduced product sales, changes in product mix, competition from third-party
service providers, and decreased renewals of maintenance contracts on older
installed equipment. The reduction in traditional service revenues has been
partially offset by new service offerings, primarily MVS maintenance.
Product gross margin was 36.6% for the period. Product margins were negatively
impacted by the high volume of personal computer revenues.
<PAGE> 24
24
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (Continued)
RESULTS OF OPERATIONS (Continued)
- ---------------------
Gross margin for service and other revenues was 36.6% for the period. Service
gross margin continues to be adversely affected by the revenue decreases and
competitive conditions previously noted, but these margin decreases have been
partially offset by personnel and facilities cost reductions.
Research and development costs totaled $20.2 million, or 4.6% of revenues, for
the period. The Company has refocused and streamlined its development program
to support its business strategy of developing its workflow and imaging software
for open systems platforms including IBM, Hewlett-Packard, Sun Microsystems,
Microsoft, and Novell. In addition, the Company is continuing to support its
proprietary VS products.
Selling, general and administrative expenses totaled $116.7 million, or 26.7% of
revenues, for the period. Selling, general and administrative expenses continue
to decline as a result of restructuring programs implemented in connection with
the Company's Reorganization Plan, including depreciable asset write-downs and
workforce reductions.
Amortization of intangible assets of $13.8 million relates to the implementation
of fresh-start reporting as of September 30, 1993. Intangible assets of $193.6
million were recorded to adjust the Company's balance sheet to fair market
value.
Interest expense totaled $1.5 million for the six months ended March 31, 1994
and is primarily due to fees incurred on the Company's financing arrangement
with Congress and short-term debt at international locations. Other income
includes primarily interest income totaling $3.0 million and resulted primarily
from investments in time deposits.
The provision for income taxes of $7.8 million for the period includes $7.1
million of non-cash expense relating to the utilization of the Company's net
operating loss carryforwards. Under fresh-start reporting, realization of these
net operating loss carryforwards is recognized as a reduction of Reorganization
value in excess of amounts allocated to identifiable intangible assets.
Three months ended September 30, 1993
- -------------------------------------
The Company reported operating income of $12.4 million for the three months
ended September 30, 1993. After recognition of a $329.3 million gain on debt
discharge and a $193.6 million adjustment to increase historical cost of the
assets and liabilities of the Company to fair value, in connection with the
adoption of fresh-start reporting, the Company reported net income of $499.9
million for the period.
Revenues totaled $210.9 million for the period. Total revenues for the period
were as expected. These revenues reflected fundamental changes in the Company's
business and operational structure as contemplated by its new business plan.
<PAGE> 25
25
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (Continued)
Results of Operations (Continued)
- ---------------------
Net product sales totaled $64.1 million. Revenues were negatively affected by
intense competitive and technological pressures in the computer industry
(particularly hardware sales), resulting in over-capacity and aggressive
pricing. In addition, rapid technological change significantly broadened the
range of competing products and resulted in the introduction and acceptance of
lower priced products (such as personal computers) and a decrease in sales of
traditionally higher-margin products based on proprietary technology. The
decline in revenues was generally consistent throughout all geographic segments
in which the Company operates.
Service and other revenues totaled $146.8 million. Maintenance revenues
continued to decline, primarily due to reduced product sales, changes in product
mix, competition from third party service providers, increased product
reliability, and decreased renewals of maintenance contracts on older installed
equipment. The reduction in traditional service revenues was partially offset
by new service offerings, primarily multi-vendor product support.
Product gross margin was 37.4% for the period. Product gross margin was
favorably affected by reduced manufacturing costs, resulting from actions taken
later in fiscal 1993 to reduce manufacturing capacity.
Gross margin for service and other revenues was 40.8% for the period. Service
gross margins were adversely affected by revenue decreases and competitive
conditions previously noted. Margin decreases were partially offset by
non-recurring income of $5.0 million from settlements under single in-line
memory modules ("SIMMs") licensing agreements and restructuring-related actions
to reduce personnel and facilities costs.
Research and development costs totaled $10.0 million for the period. The
Company focused development efforts primarily on software for open systems
platforms including IBM, Hewlett-Packard, Sun Microsystems, Microsoft, and
Novell.
Selling, general, and administrative expenses totaled $61.5 million. Selling,
general and administrative expenses declined due to implementation of
restructuring programs that eliminated unnecessary or redundant programs,
personnel, facilities costs, and other related expenses.
Interest expense totaled $1.2 million. As a result of filing for Chapter 11, no
interest was accrued on pre-petition, unsecured debt obligations. Interest
expense would have been $5.7 million higher for the three months ended September
30, 1993, if the Company had continued to accrue interest on pre-petition,
unsecured debt obligations. Other income included interest and other income and
foreign currency gains (losses). Interest income totaled $0.9 million for the
three months ended September 30, 1993, and results primarily from investments in
marketable securities and time deposits. Foreign currency exchange resulted in
a $0.3 million gain. Foreign currency translation was minimal for the period.
<PAGE> 26
26
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (Continued)
Results of Operations (Continued)
- ---------------------
The provision for income taxes principally related to income from non-U.S.
operations. Taxes arose from earnings in certain countries that could not be
offset by tax benefits in countries with losses, and certain other taxes that
applied regardless of earnings levels.
Reorganization expenses of $34.9 million consisted primarily of $10.9 million of
incurred professional fees, a fresh-start adjustment of $18.8 million to accrue
for amounts expected to be paid through the completion of all Chapter 11-related
matters and $8.2 million of restructuring charges to increase accruals to the
amounts necessary to complete additional restructuring measures, primarily at
international locations.
The gain on debt discharge of $329.3 million and the fresh-start reporting
adjustment of $193.6 million were the result of recording the effects of the
Reorganization Plan.
<PAGE> 27
27
PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on January 25,
1995. The following three Class I directors were re-elected to serve for a
three year term: Joseph M. Tucci, Frederick A. Wang and Raymond C. Kurzweil.
The term of office of the following Class II and Class III directors
continued after the meeting: David A. Boucher, Paul E. Tsongas, Stephen G.
Jerritts, John P. White, and Karl G. Wassmann III.
<TABLE>
The stockholders approved the following matters at the meeting:
VOTES VOTES BROKER
FOR AGAINST ABSTENTIONS NON-VOTES
---------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Joseph M. Tucci,
nominee as Class I
director 20,673,282 63,991
Frederick A. Wang,
nominee as Class I
director 20,620,707 116,566
Raymond C. Kurzweil,
nominee as Class I
director 20,659,403 77,870
An amendment to the
Company's Certificate
of Incorporation
increasing the number
of authorized shares
of Preferred Stock 14,120,500 3,253,299 48,514 3,314,960
Employees' Stock
Incentive Plan 14,920,922 2,304,938 312,612 3,198,801
1995 Employees'
Stock Purchase Plan 14,154,965 3,095,484 316,270 3,170,554
1995 Director Stock
Option Plan 15,620,970 1,614,758 331,001 3,170,544
Ratification of Ernst &
Young as independent
auditors for the
current fiscal year 20,667,445 37,915 31,913
</TABLE>
<PAGE> 28
28
ITEM 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
Exhibit No. Description
- ----------- ---------------------------------------------------------------
2.1(1) The Amended and Restated Reorganization Plan of Wang
Laboratories, Inc. and the Official Committee of
Unsecured Creditors dated September 20, 1993
3.1(9) Certificate of Incorporation, as amended
10.1(3) Stock Incentive Plan
10.2(3) 1993 Directors' Stock Option Plan
10.3(4) Form of Contingent Severance Compensation Agreements with Donald
P. Casey, J.J. Van Vuuren, Albert A. Notini, William P. Ferry,
David I. Goulden, Bruce A. Ryan, James J. Hogan, Franklyn A.
Caine and Ronald A. Cuneo, each an executive officer of the
Company
10.4(5) Contingent Severance Compensation Agreement with Joseph M. Tucci
10.5(7) Employment Agreement with Joseph M. Tucci, as amended
10.6(6) Employment Agreement with Donald P. Casey
10.7(7) Employment Agreement with William P. Ferry
10.8(7) Employment Agreement with James J. Hogan
10.9(3) Loan and Security Agreement with Congress Financial Corporation,
dated December 15, 1993
10.10(5) Termination Agreement between the Registrant and Michael F. Mee
10.11(5) Form of Stock and Warrant Subscription Agreement, dated
September 20, 1993
10.12(3) Form of Registration Rights Agreement for Securities, dated
December 17, 1993
10.13(5) Consulting Employment Agreement of Stephen G. Jerritts
10.14(3) Consulting Agreement of Raymond C. Kurzweil
10.15(5) Employee Retention Agreement with William P. Ferry
10.17(5) Employment Agreement with Bruce A. Ryan
<PAGE> 29
29
Exhibit No. Description
- ----------- ---------------------------------------------------------------
10.18(7) Form of Non-Negotiable Secured Promissory Note from Joseph M.
Tucci to the Registrant
10.19(7) Form of Pledge Agreement with Joseph M. Tucci
10.20(7) Form on Non-Negotiable Secured Promissory Note with Donald P.
Casey to the Registrant
10.21(7) Form of Pledge Agreement with Donald P. Casey
10.22(10) Stock Incentive Plan as Amended
10.23(9) Contingent Severance Compensation Agreement as amended with
Franklyn A. Caine
10.24(9) Employees' Stock Incentive Plan
10.25(9) 1995 Director Stock Option Plan
10.26(8) The Asset and Stock Purchase Agreement among Wang Laboratories,
Inc., Bull HN Information Systems Inc., Bull S.A. and for
certain purposes, Compagnie de Machines Bull dated as of
December 30, 1994 and a Credit Agreement among Wang
Laboratories, Inc., HFS Inc. and certain lenders and agents
named therein and Bankers Trust Company dated January 30, 1995
are incorporated by reference for the Company's current report
on Form 8-K dated January 31, 1995.
10.27 Employment Agreement with Ronald A. Cuneo
11 Statement of Computation of Earnings Per Share
12.1 Statement of Computation of Earnings to Fixed Charges
(b) During the quarter ending March 31, 1995, the Company filed (1)
a current report on Form 8-K dated December 30, 1994 relating to the Asset
and Stock Purchase Agreement among the Company, Bull HN Information
Systems Inc., Bull S.A. and Compagnie de Machines Bull and (2) a current
report on Form 8-K and Amendment No. 1 thereto on Form 8-K/A dated January
31, 1995 containing the Asset and Stock Purchase Agreement dated as of
December 30, 1994 among the Company, Bull HN Information Systems and Bull
S.A. and Compagnie de Machines Bull and the related financial statements
and the Credit Agreement dated January 30, 1995 among Wang Laboratories,
Inc., HFS, Inc. and certain lenders and Agents named therein and Bankers
Trust Company.
_______________
(1) Filed as an Exhibit to the Registrant's Registration Statement on Form 8-A
(File No. 0-22470), as filed on September 27, 1993
<PAGE> 30
30
(2) Filed as an Exhibit to the Registrant's Registration Statement on Form S-8
(File No. 33-73210), filed on December 21, 1993.
(3) Filed as an Exhibit to the Registrant's quarterly report on Form 10-Q for
the quarter ended December 31, 1993.
(4) Filed as an Exhibit to the Registrant's quarterly report on Form 10-Q for
the quarter ended March 31, 1994.
(5) Filed as an Exhibit to the Registrant's Registration Statement on Form
S-1, as amended (File No. 33-81526).
(6) Filed as an Exhibit to the Registrant's annual report on Form 10-K for
the fiscal year ended June 30, 1993.
(7) Filed as an Exhibit to the Registrant's annual report on form 10-K for the
fiscal year ended June 30, 1994.
(8) Filed as an Exhibit to the Registrant's current report on Form 8-K dated
January 31, 1995.
(9) Filed as an Exhibit to the Registrant's quarterly report on Form
10-Q for the quarter ended December 30, 1994.
(10) Filed as an Exhibit to the Registrant's quarterly report on Form 10-Q for
the quarter ended September 30, 1994.
<PAGE> 31
31
SIGNATURE
Pursuant to the requirements 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.
DATE: May 15, 1995
WANG LABORATORIES, INC.
/s/ Franklyn A. Caine
____________________________
Franklyn A. Caine,
Executive Vice President and
Chief Financial Officer
<PAGE> 1
EXHIBIT 10.27
April 1, 1995
Mr. Ronald E. Cuneo
1157 Old Gate Court
McLean, Virginia 22102
Dear Mr. Cuneo:
This letter sets forth the details of your employment with Wang
Laboratories, Inc., ("Wang" or the "Company") and supersedes and cancels any
prior employment agreements and/or arrangements you may have entered into with
Wang and/or with HFS Inc. ("HFSI"), except for the Employment Termination,
Severance Payments and Mutual Release letter agreement signed by you, and HFSI
dated March 23, 1995, (the "Mutual Release"). The Company agrees to employ
you, and you agree to remain in the employ of the Company, upon the following
terms and conditions.
1. POSITION
--------
You are to be employed as a Senior Vice President of Wang and as
President of Wang's federal systems business, whether operated through HFSI,
Wang's FSD division or otherwise. You will be a member of the Senior
Operations Committee of the Company.
2. TERM
----
The terms and conditions of this letter will cover a three (3)-year
period beginning April 1, 1995, unless otherwise terminated as provided in
paragraph 4, below, and will provide you with eighteen (18) months of severance
benefits if your employment with the Company is terminated at any time during
such three (3)-year period as described in paragraph 4, below. At the end of
this three (3)-year period, your employment status will be at-will, meaning
that your employment at Wang will be for an indefinite period of time and will
be terminable at any time, with or without cause being shown, by either you or
the Company. Therefore, the terms and conditions contained in paragraph 4 of
this letter will expire at the end of this three (3)-year period and the
original, unmodified terms of paragraph 6 of the enclosed attached, presently
modified Employment Agreement, will be in full force and effect. All other
terms and conditions of this letter will remain in effect after the three
(3)-year period, subject to Wang's right to review them and make adjustments as
appropriate. All terms and conditions of this letter are contingent upon your
not rescinding any aspect of the Mutual Release.
<PAGE> 2
3. COMPENSATION AND BENEFITS
-------------------------
(a) YEARLY PAYMENTS
---------------
Your yearly base salary will be $370,000 (payable
semi-monthly) and you will be eligible to participate in a yearly bonus plan
targeted at 45% of your base salary for full performance measured against the
goals specified in the plan and up to 85% of your base salary for
overachievement of performance measured against the goals specified in the
plan, if and as approved by the Organization, Compensation and Nominating
Committee of the Board of Directors. Your salary and bonus will be reviewed
yearly for possible upward adjustments at the discretion of the Company.
(b) STOCK INCENTIVES
----------------
You will be eligible to participate in the new Company Stock
Incentive Program initially with a grant of 65,000 options at an exercise price
of $12.125 per share for Wang Common Stock, which options shall vest over a
three-year period 1/3, 1/3, 1/3, the first 1/3 vesting on October 1, 1995, the
remaining 1/3's vesting on October 1, 1996 and October 1, 1997, respectively.
On an ongoing basis you will participate in the Company's stock incentive plan
at a level consistent with your position, the program's terms and conditions
and your performance, subject to the approval of the Organization, Compensation
and Nominating Committee of the Board of Directors.
(c) OTHER PROVISIONS
----------------
(i) The Company will make available health and dental
coverage to you in accordance with existing Company plans available to all
employees. The Company will also provide term life insurance to you based on
your insurability in the amount of five times your base salary. You will also
receive the Company's standard vacation, sick time and personal holiday
benefits.
(ii) Your eligibility for on-going salary increases and
bonuses, and initial and future stock incentives and benefits shall be pursuant
to the same terms and conditions as those applicable to other similarly
situated officers of the Company. You will also be eligible for all other
perquisites that are or may be made available to other similarly situated
officers of the Company from time to time.
(iii) You will be eligible to participate in and
shall be a participant in such long-term incentive compensation program as the
Board of Directors of Wang shall approve.
(iv) During your employment, the Company will pay you a
monthly automobile allowance of $585 per month. Additionally, the Company will
pay the automobile insurance premium expense for one leased automobile. During
your
<PAGE> 3
employment, the Company will also reimburse you, at regular intervals and in
accordance with Company policy, for all business travel, telephone and
out-of-pocket expenses incurred by you in the performance of your duties as an
officer of the Company.
4. TERMINATION/SEVERANCE COMPENSATION AND BENEFITS
-----------------------------------------------
In the event that your employment with the Company is involuntarily
terminated other than "for cause" or because of your death or substantial
inability to work; or if you cease to be a Senior Vice President of the
Company, President of Wang's federal business, or a member of the Senior
Operations Committee of the Company, and you resign, Wang will pay you,
semi-monthly, an eighteen (18)-month salary continuance equal to your then base
salary plus the full-performance target contained in your bonus plan. During
this salary continuance period, Wang will also continue to make available
health and dental (but no other) benefits to you at no cost. If your work
location is moved more than thirty (30) miles from your initial work location,
the Company will reimburse your moving expenses in accordance with the Company
Relocation Policy - Domestic.
In the event you become employed at any time during the eighteen
(18)-month salary continuance period, all remaining salary continuance payments
shall terminate as of your date of hire by your new employer, except to the
extent that the total annual compensation for your new employment is less than
the total of your remaining salary continuance payments and, in such event, the
Company shall only pay that amount equal to the difference.
5. NO CONFLICTS OF INTEREST
------------------------
By signing this letter, you represent that you are not subject to any
restrictions, particularly, but without limitation, in connection with any
previous employment, which prevent you from entering into and performing your
obligations under this letter or which materially and adversely affect (or may
in the future, so far as you can reasonably foresee, materially and adversely
affect), your right to participate in the affairs of the Company.
6. NON-COMPETITION
---------------
You understand and agree that for the period of time during which you
are employed under the terms and conditions of this letter or otherwise
employed by the Company, and thereafter for the period that you are receiving
benefits under paragraph 4 of this agreement, you will not, without the
express prior written consent of the Company:
(a) Directly, indirectly or otherwise become affiliated in any manner
either as an employee, officer, agent, director, partner, independent
contractor, owner, consultant or in any other capacity with a "conflicting
organization"; or
(b) In any other manner provide any aid or assistance to a
"conflicting organization."
<PAGE> 4
For the purposes of this Paragraph 6, the term "conflicting
organization" means any person, company, corporation, partnership, agency or
other organization or entity engaged in, or about to become engaged in, the
production, marketing, selling, leasing, or servicing of, a "conflicting
product." The term "conflicting product" means any product, process or service
of any kind that directly competes with the Company in the leasing, selling or
providing maintenance or repair of computer equipment to or for the United
States Government, NATO or any contractor thereof where it can reasonably be
assumed that your contribution to said organization could injure the Company.
The term "aid or assistance" shall include, but not be limited to, the hiring
of Company employees and/or encouraging such employees to terminate their
employment with the Company.
7. STANDARDS OF ETHICS AND BUSINESS CONDUCT AND
--------------------------------------------
STANDARD EMPLOYMENT AGREEMENT
-----------------------------
You will be required to comply with Wang's Standards of Ethics and
Business Conduct and sign Wang's Standard Employment Agreement as presently
modified (copy enclosed).
8. CONFIDENTIALITY
---------------
By our signatures below, we agree to treat the details of this letter
with utmost confidentiality and that we will not disclose them to any third
parties except your immediate family, our respective financial and/or legal
advisors, and such Wang personnel and/or agents as have a need to know this
information for business purposes.
Sincerely,
/s/ Joseph M. Tucci
Joseph M. Tucci
Chairman and
Chief Executive Officer
Enclosure: Standard Employment Agreement (as presently modified)
ACCEPTED AND AGREED TO:
/s/ Ronald E. Cuneo
____________________________________________
Ronald E. Cuneo
4/1/95
____________________________________________
Date
<PAGE> 1
<TABLE>
WANG LABORATORIES, INC. AND SUBSIDIARIES
EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1995 March 31, 1994
------------------------- ------------------------
Primary Fully Diluted Primary Fully Diluted
------- ------------- ------- -------------
(In millions except per share data)
<S> <C> <C> <C> <C>
Average shares of Common
Stock outstanding 33.2(1) 33.2(1) 32.0(1) 32.0(1)
Common equivalent shares for
stock options -- -- 1.2 1.2
------ ------ ----- ------
33.2 33.2 33.2 33.2
====== ====== ===== ======
Net income (loss) $(72.2) $(72.2) $ 3.1 $ 3.1
Accretion and dividends on
Redeemable Preferred Stock (2.1) (2.1) (1.9) (1.9)
------ ------ ----- ------
$(74.3) $(74.3) $ 1.2 $ 1.2
====== ====== ===== ======
Net income per share $(2.24) $(2.24) $0.04 $ 0.04
====== ====== ===== ======
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended Six Months Ended
March 31, 1995 March 31, 1994
------------------------- ------------------------
Primary Fully Diluted Primary Fully Diluted
------- ------------- ------- -------------
(In millions except per share data)
<S> <C> <C> <C> <C>
Average shares of Common
Stock outstanding 32.4(1) 32.4(1) 31.3(1) 31.3(1)
Common equivalent shares for
stock options -- -- 1.3 1.4
------ ------ ----- -----
32.4 32.4 32.6 32.7
====== ====== ===== =====
Net income (loss) $(64.3) $(64.3) $ 8.0 $ 8.0
Accretion and dividends on
Redeemable Preferred Stock (6.2) (6.2) (2.2) (2.2)
------ ------ ----- -----
$(70.5) $(70.5) $ 5.8 $ 5.8
====== ====== ===== =====
Net income per share $(2.17) $(2.17) $0.18 $0.18
====== ====== ===== =====
<FN>
NOTE: Historical per share data for the three months ended September 30, 1993
are not presented as such data relates to the Company before its
recapitalization and adoption of fresh-start reporting and, therefore, is
not meaningful or relative to the Company's operations after the Effective
Date.
(1) Includes shares distributed as well as those held in a disputed claim
reserve to be distributed when claims are resolved. (See Management's
Discussion and Analysis, "Emergence from Chapter 11".)
</TABLE>
<PAGE> 1
<TABLE>
WANG LABORATORIES INC.
EXHIBIT 12.1 - CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions except ratios)
<CAPTION>
Reorganized Company Predecessor Company
------------------------------- ------------------------------------------------------
Nine months Nine months Three months ended
ended March 31, ended June 30, September 30, For the year ended June 30,
--------------- -------------- ------------------------------------------------------
1995 1994 1993 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C> <C>
FIXED CHARGES
Interest Expense $ 2.7 $ 3.5 $1.2 $15.0 $44.6 $44.0 $79.9
Portion of rent expense
representative of interest 6.5 5.6 2.7 9.7 19.1 33.5 47.0
-------- -------- ----------------------------------------------------
9.2 9.1 3.9 24.7 63.7 77.5 126.9
Preferred dividend requirement 11.3 7.5 -- -- -- -- --
-------- -------- ----------------------------------------------------
Combined fixed charges and
preferred dividend $ 20.5 $16.6 $3.9 $24.7 $63.7 $77.5 $126.9
======== ======== ====================================================
EARNINGS
Income (loss) from continuing
operations before income
taxes, discontinued operations,
fresh-start reporting adjustment
and extraordinary item $(60.7) (1) $20.4 $(22.6) $(197.2) $(346.5) $(368.8) $(577.3)
Fixed charges per above 9.2 9.1 3.9 24.7 63.7 77.5 126.9
-------- -------- ----------------------------------------------------
$(51.5) $29.5 $(18.7) $(172.5) $(282.8) $(291.3) $(450.4)
======== ======== ====================================================
Ratio of earnings to combined
fixed charges and preferred dividends -- 1.8 -- -- -- -- --
======== ======== ====================================================
Coverage deficiency $(51.5) (1) -- $(18.7) $(172.5) $(282.8) $(291.3) $(450.4)
======== ======== ====================================================
<FN>
(1) Includes $64.2 million provision for integration-related costs and other charges
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET, CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS AND NOTE D-OTHER BALANCE SHEET INFORMATION AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10Q FOR THE QUARTERLY PERIOD ENDED MARCH 31,
1995.
</LEGEND>
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<CASH> 93.0
<SECURITIES> 0
<RECEIVABLES> 203.4
<ALLOWANCES> 6.5
<INVENTORY> 30.5
<CURRENT-ASSETS> 359.4
<PP&E> 217.6
<DEPRECIATION> 53.2
<TOTAL-ASSETS> 816.9
<CURRENT-LIABILITIES> 432.2
<BONDS> 27.7
<COMMON> 0.3
59.4
0
<OTHER-SE> 215.3
<TOTAL-LIABILITY-AND-EQUITY> 816.9
<SALES> 269.9
<TOTAL-REVENUES> 661.4
<CGS> 190.7
<TOTAL-COSTS> 457.8
<OTHER-EXPENSES> 270.6
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2.7
<INCOME-PRETAX> (60.7)
<INCOME-TAX> 3.6
<INCOME-CONTINUING> (64.3)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (64.3)
<EPS-PRIMARY> (2.17)
<EPS-DILUTED> (2.17)
<FN>
PP&E COST AND ACCUMULATED DEPRECIATION INCLUDE CAPITALIZED NON-CONSUMMABLE
SPARES INVENTORY. BONDS, MORTGAGES AND SIMILAR DEBT IS COMPRISED OF BORROWINGS
DUE WITHIN ONE YEAR AND LONG-TERM DEBT.
</TABLE>
