<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
April 4, 1996
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Wang Laboratories, Inc.
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(Exact name of registrant as specified in its charter)
Delaware
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(State or other jurisdiction of incorporation)
1-5677 04-2192707
------------------------ ---------------------------------
(Commission File Number) (IRS Employer Identification No.)
600 Technology Park Drive, Billerica, Massachusetts 01821
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (508) 967-5000
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<PAGE> 2
ITEM 5. OTHER EVENTS
------------
Attached as an exhibit to this Current Report of Form 8-K are audited
financial statements of the Company as of and for the six months ended December
31, 1995, the year ended June 30, 1995, the nine months ended June 30, 1994, the
three months ended September 30, 1993 and the year ended June 30, 1993. The
audited financial statements for the six months ended December 31, 1995 include
an unaudited note containing summarized income statement data for the Company
for the eleven month period ended December 31, 1995. Included in the eleven
month period are the results of operations of the worldwide workflow and imaging
business, the U.S. federal systems business, the U.S. customer service business
and the sales and service subsidiaries in Canada, Mexico, Australia and New
Zealand, which were acquired on January 31, 1995 from Compagnie des Machines
Bull.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
(a) Financial Statements of the Company as of and for the six months
ended December 31, 1995, the year ended June 30, 1995, the nine
months ended June 30, 1994, the three months ended September 30,
1993 and the year ended June 30, 1993.
(c) Exhibit
Item No. Description Page No.
-------- ----------- --------
23.1 Consent of 50
Ernst & Young LLP,
Independent Auditors
2
<PAGE> 3
SIGNATURES
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 hereunto duly authorized.
WANG LABORATORIES, INC.
Dated: April 4, 1996 By: /s/ Franklyn A. Caine
------------------------------
Franklyn A. Caine
Executive Vice President
and Chief Financial Officer
3
<PAGE> 4
WANG LABORATORIES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Report of Ernst & Young, LLP, Independent Auditors 5
Consolidated Financial Statements
Consolidated Statements of Operations 6
Consolidated Balance Sheets 8
Consolidated Statements of Cash Flows 9
Consolidated Statements of Stockholders' Equity 11
Notes to Consolidated Financial Statements 13
4
<PAGE> 5
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Wang Laboratories, Inc.
We have audited the accompanying consolidated balance sheets of Wang
Laboratories, Inc. and subsidiaries ("the Company") as of December 31, 1995 and
June 30, 1995 and 1994, and the related consolidated statements of operations,
stockholders' equity and cash flows for the six months ended December 31, 1995,
the year ended June 30, 1995, the nine months ended June 30, 1994, the three
months ended September 30, 1993, and the year ended June 30, 1993. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note J to the consolidated financial statements, the Company's
reorganization plan was confirmed by the United States Bankruptcy Court on
September 21, 1993 and became effective on September 30, 1993. In accordance
with the American Institute of Certified Public Accountants Statement of
Position No. 90-7, "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code," the Company was required to account for the reorganization
using "Fresh-Start Reporting." Accordingly, all consolidated financial
statements prior to September 30, 1993, are not comparable to the consolidated
financial statements for periods after the implementation of fresh-start
reporting.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Wang
Laboratories, Inc. and subsidiaries at December 31, 1995, June 30, 1995 and
1994, and the consolidated results of their operations and their cash flows for
the six months ended December 31, 1995, the year ended June 30, 1995, the nine
months ended June 30, 1994, the three months ended September 30, 1993, and the
year ended June 30, 1993, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Boston, Massachusetts
March 6, 1996
5
<PAGE> 6
<TABLE>
Wang Laboratories, Inc. and Subsidiaries
Consolidated Statements of Operations
<CAPTION>
(Dollars in millions except per share data)
Reorganized Company Predecessor Company
------------------------------------- ------------------------
Six Months Year Nine Months Three Months Year
Ended Ended Ended Ended Ended
December 31, June 30, June 30, September 30, June 30,
1995 1995 1994 1993 1993
------------ -------- -------- ------------- --------
<S> <C> <C> <C> <C> <C>
Revenues
Product sales $192.6 $ 365.7 $239.1 $ 64.1 $ 439.6
Service and other 364.1 581.5 405.3 146.8 807.4
------ -------- ------ ------ --------
Total revenues 556.7 947.2 644.4 210.9 1,247.0
Costs and expenses
Cost of product sales 127.3 254.4 147.7 40.1 339.2
Cost of service and other 246.3 401.8 260.1 86.9 440.4
Research and development 18.3 31.5 29.7 10.0 72.2
Selling, general and administrative 126.5 230.0 174.6 61.5 452.3
Amortization of intangibles -
acquisition and fresh-start 21.4 32.0 20.7 -- --
Acquisition-related charges 27.2 64.2 -- -- --
------ -------- ------ ------ --------
Total costs and expenses 567.0 1,013.9 632.8 198.5 1,304.1
------ -------- ------ ------ --------
Operating income (loss) (10.3) (66.7) 11.6 12.4 (57.1)
Other (income) expense
Interest expense 2.2 3.7 3.5 1.2 15.0
Other income - net (5.9) (12.7) (12.3) (1.1) (2.2)
------ -------- ------ ------ --------
Total other (income) expense (3.7) (9.0) (8.8) 0.1 12.8
------ -------- ------ ------ --------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE REORGANIZATION
EXPENSES, INCOME TAXES, FRESH-
START REPORTING ADJUSTMENT
AND EXTRAORDINARY ITEM (6.6) (57.7) 20.4 12.3 (69.9)
Reorganization expenses, including
restructuring items -- -- -- 34.9 127.3
------ -------- ------ ------ --------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES,
FRESH-START REPORTING ADJUSTMENT
AND EXTRAORDINARY ITEM (6.6) (57.7) 20.4 (22.6) (197.2)
Provision for income taxes 7.2 3.6 9.8 0.4 --
------ -------- ------ ------ --------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE FRESH-START
REPORTING ADJUSTMENT AND
EXTRAORDINARY ITEM (13.8) (61.3) 10.6 (23.0) (197.2)
(CONTINUED ON NEXT PAGE)
</TABLE>
6
<PAGE> 7
<TABLE>
Wang Laboratories, Inc. and Subsidiaries
Consolidated Statements of Operations (Continued)
<CAPTION>
(Dollars in millions except per share data)
Reorganized Company Predecessor Company
------------------------------------- ------------------------
Six Months Year Nine Months Three Months Year
Ended Ended Ended Ended Ended
December 31, June 30, June 30, September 30, June 30,
1995 1995 1994 1993 1993
------------ -------- -------- ------------- --------
<S> <C> <C> <C> <C> <C>
Fresh-start reporting adjustment -- -- -- 193.6 --
Gain on debt discharge -- -- -- 329.3 --
NET INCOME (LOSS) (13.8) (61.3) 10.6 499.9 (197.2)
------ ------ ---- ------ -------
Dividends and accretion on
preferred stock (6.8) (8.7) (4.2) -- --
NET INCOME (LOSS) APPLICABLE TO
COMMON STOCKHOLDERS $(20.6) $(70.0) $ 6.4 $499.9 $(197.2)
====== ====== ===== ====== =======
NET INCOME (LOSS) PER SHARE $(0.58) $(2.04) $0.20 * *
====== ====== ===== ====== =======
<FN>
* Per share data are not presented for periods prior to September 30, 1993, the Confirmation Date of the
Company's Reorganization Plan, due to the general lack of comparability as a result of the revised
capital structure of the Company.
</TABLE>
See notes to the consolidated financial statements.
7
<PAGE> 8
<TABLE>
Wang Laboratories, Inc. and Subsidiaries
Consolidated Balance Sheets
<CAPTION>
Pro Forma
December 31, 1995 June 30,
(Unaudited) December 31, ---------------
(Dollars in millions) (See Note M) 1995 1995 1994
----------------- ------------ ----- -----
<S> <C> <C> <C> <C>
Assets
Current assets
Cash and equivalents $196.0 $130.0 $182.4 $189.4
Accounts receivable, net 230.4 230.4 182.5 128.5
Inventories 26.0 26.0 24.4 27.6
Other current assets 38.0 38.0 37.2 37.3
------ ------ ------ ------
Total current assets 490.4 424.4 426.5 382.8
Depreciable assets, net 122.2 122.2 134.4 79.6
Intangible assets, net 268.4 268.4 274.0 193.4
Other 26.8 26.8 25.8 30.2
------ ------ ------ ------
Total assets $907.8 $841.8 $860.7 $686.0
====== ====== ====== ======
Liabilities and stockholders' equity
Current liabilities
Borrowings due within one year $ 2.9 $ 2.9 $ 3.0 $ 3.6
Accounts payable, accrued expenses
and other 279.4 279.4 276.4 213.6
Income taxes 10.2 10.2 10.1 12.7
Deferred service revenue 82.2 82.2 93.3 58.2
------ ------ ------ ------
Total current liabilities 374.7 374.7 382.8 288.1
Long-term liabilities
Debt 24.1 24.1 23.0 2.0
Restructuring 7.9 7.9 9.0 19.6
Other liabilities 86.2 86.2 80.8 58.9
------ ------ ------ ------
Total long-term liabilities 118.2 118.2 112.8 80.5
Redeemable preferred stock 84.4 148.3 145.6 53.2
Stockholders' equity
Convertible preferred stock, 143,750 shares
authorized and outstanding; (Pro Forma)
liquidation preference of $143.8 million 138.9 -- -- --
Common stock, 100,000,000 shares
authorized; outstanding shares:
36,005,204 at December 31, 1995,
35,698,730 at June 30, 1995 and
31,979,766 at June 30, 1994 0.3 0.3 0.3 0.3
Capital in excess of par value 268.3 277.3 281.1 253.8
Cumulative translation adjustment (1.8) (1.8) (0.5) 3.0
Retained earnings (deficit) (75.2) (75.2) (61.4) 7.1
------ ------ ------ ------
Total stockholders' equity 330.5 200.6 219.5 264.2
------ ------ ------ ------
Total liabilities and stockholders'
equity $907.8 $841.8 $860.7 $686.0
====== ====== ====== ======
</TABLE>
See notes to the consolidated financial statements.
8
<PAGE> 9
<TABLE>
Wang Laboratories, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<CAPTION>
(Dollars in millions)
Reorganized Company Predecessor Company
------------------------------------- ------------------------
Six Months Year Nine Months Three Months Year
Ended Ended Ended Ended Ended
December 31, June 30, June 30, September 30, June 30,
1995 1995 1994 1993 1993
------------ -------- -------- ------------- --------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $(13.8) $ (61.3) $ 10.6 $ 499.9 $(197.2)
Depreciation 28.0 43.0 27.7 11.6 83.3
Amortization 24.2 37.5 22.4 0.8 6.0
Gain on asset sales -- (1.6) -- -- (25.2)
Non-cash provision for income taxes 6.8 3.4 7.2 -- --
Provision for acquisition-related charges 27.2 64.2 -- -- --
Payments of acquisition-related charges (17.6) (20.3) -- -- --
Fresh-start reporting adjustment -- -- -- (193.6) --
Extraordinary gain on debt discharge -- -- -- (329.3) --
Reorganization provisions -- -- -- 30.1 117.4
Foreign exchange adjustment -- -- -- (7.4) --
Write-off of other assets -- -- -- -- 4.0
Changes in other accounts affecting
operations
Accounts receivable (40.7) 49.5 15.8 13.5 144.1
Inventories 2.3 11.9 8.5 8.3 42.9
Other current assets (1.2) (0.5) 15.1 4.8 10.5
Accounts payable and other current
liabilities (13.5) (40.3) 0.6 (4.4) (30.8)
Other (0.6) (0.4) 9.2 0.5 6.3
------ ------- ------ ------- -------
Net changes in other accounts effecting
operations (53.7) 20.2 49.2 22.7 173.0
------ ------- ------ ------- -------
Net cash provided by operations
before restructuring payments and
reorganization-related items 1.1 85.1 117.1 34.8 161.3
Restructuring payments and reorganization-
related items (8.1) (57.8) (83.4) (25.7) (130.3)
------ ------- ------ ------- -------
Net cash provided by (used in) operations (7.0) 27.3 33.7 9.1 31.0
------ ------- ------ ------- -------
INVESTING ACTIVITIES
Investment in depreciable assets (23.8) (35.1) (15.1) (4.6) (22.6)
Investment in capitalized software (1.4) (5.9) (2.6) (1.3) (2.6)
Proceeds from asset sales -- 26.4 11.2 4.7 --
Business acquisitions, net of cash acquired (15.8) (109.6) (3.4) -- --
Other (3.6) (6.1) (5.4) 0.3 (1.1)
------ ------- ------ ------- -------
Net cash used in investing activities (44.6) (130.3) (15.3) (0.9) (26.3)
------ ------- ------ ------- -------
</TABLE>
(CONTINUED ON NEXT PAGE)
9
<PAGE> 10
<TABLE>
Wang Laboratories, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
<CAPTION>
(Dollars in millions)
Reorganized Company Predecessor Company
------------------------------------- ------------------------
Six Months Year Nine Months Three Months Year
Ended Ended Ended Ended Ended
December 31, June 30, June 30, September 30, June 30,
1995 1995 1994 1993 1993
------------ -------- -------- ------------- --------
<S> <C> <C> <C> <C> <C>
FINANCING ACTIVITIES
Proceeds from long-term debt -- 1.1 -- 2.0 --
Payments of long-term debt (0.4) (1.8) (2.8) (1.6) (7.3)
Net increase (decrease) in short-term
borrowings (0.7) 0.9 1.7 (30.7) (41.1)
Proceeds from sale of preferred stock -- 84.0 49.0 -- --
Proceeds from sale of 1.5 million shares
of common stock -- -- 11.0 -- --
Dividends paid (2.0) -- -- -- --
Other 2.2 6.1 -- -- (0.1)
------ ------ ------ ------ ------
Net cash provided by (used in)
financing activities (0.9) 90.3 58.9 (30.3) (48.5)
------ ------ ------ ------ ------
Effect of changes in foreign
exchange rates on cash 0.1 5.5 2.8 (3.7) (5.4)
------ ------ ------ ------ ------
INCREASE (DECREASE) IN CASH
AND EQUIVALENTS (52.4) (7.2) 80.1 (25.8) (49.2)
CASH AND EQUIVALENTS AT BEGINNING
OF PERIOD 182.4 189.6 109.3 135.1 184.3
------ ------ ------ ------ ------
CASH AND EQUIVALENTS AT END OF PERIOD $130.0 $182.4 $189.4 $109.3 $135.1
====== ====== ====== ====== ======
</TABLE>
See notes to the consolidated financial statements.
10
<PAGE> 11
<TABLE>
Wang Laboratories, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
<CAPTION>
Retained
New Class B Class C Capital in Cumulative Earnings
Common Common Common Excess of Transition (Accumulated
(Dollars in millions) Stock Stock Stock Par Value Adjustment (Deficit) Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance June 30, 1992 $ -- $ 81.5 $ 2.9 $ 977.5 $ (67.6) $(1,280.7) $(286.4)
Net loss (197.2) (197.2)
Repurchase of common stock
(210,552 Class B shares) (0.5) (0.5)
Currency translation (16.8) (16.8)
Other (0.5) (0.5)
---- ----- ----- ------- ------- --------- -------
Balance June 30, 1993 -- 81.0 2.9 977.5 (84.4) (1,478.4) (501.4)
Net income 499.9 499.9
Stock plans 0.2 0.2
Repurchase of common stock
(40,626 Class B shares) (0.2) (0.2)
Currency translation 1.4 1.4
Fresh-start reporting
adjustments (80.8) (2.9) (977.7) 83.0 978.4 --
Issuance of new common stock
(30,316,500 shares) 0.3 243.6 243.9
Other 0.1 0.1
---- ----- ----- ------- ------- --------- -------
Balance September 30, 1993 -
Reorganized Company 0.3 -- -- 243.6 -- -- 243.9
Net income 10.6 10.6
Stock issued in private
financing (1,500,000 shares) 10.8 10.8
Stock grants (163,266 shares) 1.2 1.2
Dividends and accretion on
preferred stock (1.8) (2.4) (4.2)
Currency translation 3.0 3.0
Other (1.1) (1.1)
---- ----- ----- ------- ------- --------- -------
Balance June 30, 1994 0.3 -- -- 253.8 3.0 7.1 264.2
</TABLE>
(CONTINUED ON NEXT PAGE)
11
<PAGE> 12
<TABLE>
Wang Laboratories, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity (Continued)
<CAPTION>
Retained
New Class B Class C Capital in Cumulative Earnings
Common Common Common Excess of Transition (Accumulated
(Dollars in millions) Stock Stock Stock Par Value Adjustment (Deficit) Total
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance June 30, 1994 0.3 -- -- 253.8 3.0 7.1 264.2
Effect of pooling of interests -
business combination (1,790,971 shares) 7.7 (4.1) 3.6
Net loss (61.3) (61.3)
Stock issued in business
acquisition (1,650,000
shares) 22.9 22.9
Stock plans (277,993 shares) 2.3 2.3
Dividends and accretion on
preferred stock (5.6) (3.1) (8.7)
Currency translation (3.5) (3.5)
---- --- --- ------ ----- ------ ------
Balance June 30, 1995 0.3 -- -- 281.1 (0.5) (61.4) 219.5
Net loss (13.8) (13.8)
Stock plans (306,474 shares) 3.0 3.0
Dividends and accretion on
preferred stock (6.8) (6.8)
Currency translation (1.3) (1.3)
---- --- --- ------ ----- ------ ------
Balance December 31, 1995 $0.3 $-- $-- $277.3 $(1.8) $(75.2) $200.6
==== === === ====== ===== ====== ======
</TABLE>
See notes to the consolidated financial statements.
12
<PAGE> 13
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: On August 18, 1992, Wang Laboratories, Inc. the Company's
predecessor Massachusetts corporation (the "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 (see Note J, Fresh-Start Reporting, Reorganization and
Restructuring Expenses).
The results of operations for the six month period ended December 31, 1995 are
not necessarily indicative of those that may be expected for the full year.
The financial statements for the six months ended December 31, 1995 and for the
twelve months ended June 30, 1995 have been restated to include the financial
statements of Avail Systems Corporation ("Avail"), which was acquired on
December 18, 1995, and accounted for using the pooling of interests method (see
Note B, Business Acquisitions and Acquisition-Related Charges).
Certain amounts in previously issued financial statements have been reclassified
to conform to current presentations.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of the Company and all subsidiaries. All significant intercompany
accounts and transactions are eliminated. Investments in affiliated companies,
owned more than 20% but not in excess of 50%, are recorded on the equity method.
CASH AND EQUIVALENTS: Cash and equivalents include time deposits, certificates
of deposit, and repurchase agreements with original maturities of three months
or less. Also included is restricted cash, totaling $12.6 million, $14.4 million
and $20.0 million at December 31, 1995, June 30, 1995 and June 30, 1994,
respectively. Restrictions relate primarily to financing arrangements and
statutory reserves for the Company's insurance subsidiaries. All of the
Company's investments are classified as available-for-sale and are carried at
fair value with realized gains and losses included in the determination of
income. Management determines the approximate classification of debt securities
at the time of purchase and reevaluates such designation as of each balance
sheet date.
CURRENCY TRANSLATION: For most non-U.S. subsidiaries, which operate in a local
currency environment, assets and liabilities are translated at period-end
exchange rates, and income statement items are translated at the average
exchange rates for the period. Translation adjustments are reported in a
separate component of stockholders' equity, which also includes exchange gains
and losses on certain intercompany balances of a long-term investment nature.
For those non-U.S. subsidiaries operating in U.S. dollars or in a highly
inflationary economy, net nonmonetary assets are translated at historical
exchange rates, and net monetary assets are translated at current exchange
rates. Translation adjustments are included in the determination of income.
13
<PAGE> 14
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A (Continued)
CONCENTRATION OF CREDIT RISK: Financial instruments that potentially subject the
Company to concentration of credit risk consist primarily of temporary cash
investments and trade receivables. The Company restricts investment of temporary
cash investments to financial institutions with investment grade credit ratings.
Credit risk on trade receivables is minimized as a result of the large and
diverse nature of the Company's worldwide customer base. In addition, trade
receivables included $79.3 million at December 31, 1995, and $53.5 million and
$23.5 million at June 30, 1995 and 1994, respectively, due from the U.S.
government and its agencies. The increase from June 30, 1995 to December 31,
1995 primarily relates to the inability to collect accounts receivable from the
U.S. government due to federal budgeting issues and shutdown constraints.
Management is currently directing collection efforts to reduce these
receivables to more desired levels over the near term and believes no material
loss will be incurred in the collection of these amounts.
FORWARD EXCHANGE CONTRACTS: The Company enters into forward exchange contracts
as a hedge against certain intercompany balances denominated in foreign
currency. These financial instruments are designed to minimize exposure and
reduce risk from exchange rate fluctuations in the regular course of business.
Market value gains and losses are included in income as incurred and offset
gains and losses on foreign currency assets or liabilities that are hedged.
INVENTORIES: Inventories are stated at the lower of first-in, first-out cost or
market.
CAPITALIZED SOFTWARE COSTS: Certain costs of internally developed software to be
sold, leased, or otherwise marketed are capitalized upon reaching technological
feasibility and amortized over the economic useful life of the software product,
which is generally three to seven years. Unamortized capitalized software costs
were $23.9 million at December 31, 1995, and $31.1 million and $33.2 million at
June 30, 1995 and 1994, respectively. The December 31, 1995 amount includes
$18.4 million of capitalized software recorded as part of fresh-start reporting;
the June 30, 1995 and 1994 fresh-start amounts are $24.7 million and $29.5
million, respectively. Amortization of capitalized software totaled $0.9 million
for the six months ended December 31, 1995, $2.2 million for the year ended June
30, 1995 and $1.6 million for the nine months ended June 30, 1994.
INTANGIBLE ASSETS: Intangible assets, including those identified as a result
of fresh-start reporting and purchase accounting, and the related depreciable
lives are as follows:
Trademarks and patents 15 years
Computer software 3-7 years
Installed base - service 5-8 years
License agreements 3-5 years
Assembled workforce 7-10 years
Goodwill 15 years
Reorganization value in excess of
amounts allocated to identifiable
intangible assets 15 years
14
<PAGE> 15
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A (Continued)
Trademarks and patents include legal costs related to successfully defending
certain patents, and expenditures to maintain licenses and register new patents.
The capitalized costs of patent defense are charged to expense in the period in
which the patent defense is determined to be unsuccessful or the capitalized
amount has no future value.
The Company evaluates the carrying value of intangible assets to determine if
impairment exists based upon estimated undiscounted future cash flows. The
impairment, if any, is measured by the difference between carrying value and
estimated fair value and is charged to expense in the period identified.
DEPRECIABLE ASSETS: Property, plant, and equipment, and spare parts and rental
equipment are stated at cost less accumulated depreciation. Depreciation is
computed principally by use of the straight-line method.
As a result of the confirmation of its Reorganization Plan, the Company adopted
fresh-start reporting and, consequently, all depreciable assets were restated to
fair value. Accordingly, as of September 30, 1993, all accumulated depreciation
balances were eliminated.
Depreciable lives are summarized as follows:
Buildings and improvements 5 - 40 years
Machinery and equipment 3 - 10 years
Spare parts and rental equipment 3 - 5 years
REVENUE RECOGNITION: Hardware revenues are recognized at time of shipment,
provided collection is probable and there are no significant post-contract
support obligations. Software revenues are generally recognized upon delivery,
provided that collection is probable and no significant post-contract support
obligations exist. If significant post-contract support obligations exist, then
revenue is recognized over the period of such support arrangements. Revenues
from services are recognized ratably over the contract period or as services are
performed. Revenues from royalty agreements are recognized as earned over the
contract term. Deferred revenue is recorded to the extent that billings exceed
revenue recognized under service contracts and contracts recorded under the
percentage-of-completion method.
INCOME TAXES: The Predecessor Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109")
during the three months ended September 30, 1993. SFAS No. 109 requires a
change to the liability method of computing deferred taxes. Under this method,
deferred taxes are computed based on the differences between the bases of
assets and liabilities for tax purposes, and their corresponding bases for
financial reporting purposes. The Predecessor Company elected to adopt SFAS
No. 109 prospectively in 1994, and, as a result, prior periods have not been
restated. The cumulative effect of this change in accounting was not material
to the reported results of operations.
15
<PAGE> 16
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A (Continued)
The tax benefits of net operating loss carryforwards, net deductible temporary
differences, and tax credit carryforwards that survive the reorganization will
be recognized when it is more likely than not that those tax benefits will be
realized in future years as a reduction of intangible assets until eliminated.
Thereafter, these benefits will be recorded as a direct credit to capital in
excess of par value.
The Company does not provide for U.S. federal income taxes on the undistributed
earnings of its foreign subsidiaries since it intends to permanently reinvest
these earnings in the growth of the business outside of the United States.
EARNINGS PER SHARE: Earnings per share is based on the weighted average number
of common shares, including those yet to be distributed by the Disbursing Agent
appointed under the Company's Reorganization Plan, shares issued and held in
escrow in connection with the Avail acquisition and the effect, when dilutive,
of stock options and warrants. Weighted average shares and common share
equivalents totaled 35,840,886 for the six months ended December 31, 1995,
34,556,890 for the year ended June 30, 1995 and 32,680,250 for the nine months
ended June 30, 1994. 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, which totaled $6.8 million for the six months ended
December 31, 1995, $8.7 million for the year ended June 30, 1995 and $4.2
million for the nine months ended June 30, 1994.
STOCK-BASED COMPENSATION: The Company has performed a preliminary review of SFAS
No. 123, "Accounting for Stock-Based Compensation" and at this point has elected
to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25") and related Interpretations in accounting for
its stock-based compensation plans, rather than alternative fair value
accounting provided for under SFAS No. 123. Under APB 25, because the exercise
price of options granted under these plans equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
POSTRETIREMENT BENEFITS: The Wang Retirement Savings Plan provides that the
Company will make a basic annual contribution equal to 2%, 3%, or 4% of an
employee's pay, based on length of service, with an additional transition
contribution of 1% or 2% for employees who were 55 or older as of June 30, 1992.
In addition, the Company will match employees' voluntary contributions to the
plan in an amount equal to 50% of the first 4% of an employee's pay contributed
to the plan. The Company may make an additional contribution based on its
operating income as a percentage of revenue each year. This additional
contribution is a percentage of the basic contribution that the Company makes,
and ranges from 15% of the basic contribution for operating income that is 4% of
revenue, to 100% of the basic contribution for operating income that is 9% or
more of revenue. No additional contribution was made by the Company for the six
months ended December 31, 1995, for the year ended June 30, 1995, or for the
nine months ended June 30, 1994.
16
<PAGE> 17
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A (Continued)
Non-U.S. employees are covered by defined contribution and/or defined benefit
pension plans in several countries, in accordance with applicable government
regulations and local practices.
Certain postretirement health care and life insurance benefits are provided for
current U.S. and non-U.S. retirees and employees (see Note G, Postretirement
Benefits).
RECENT ACCOUNTING PRONOUNCEMENTS: In March 1995, the Financial Accounting
Standards Board issued Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount.
Statement No. 121 also addresses the accounting for long-lived assets that are
expected to be disposed. The Company will adopt Statement No. 121 in the first
quarter of 1997 and, based on management's initial evaluation, the effect of
adoption is not expected to have a material impact on the Company's financial
position or results of operations.
NOTE B--BUSINESS ACQUISITIONS AND ACQUISITION-RELATED CHARGES
BUSINESS ACQUISITIONS: 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 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, 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 rate 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 an agreed-upon adjustment.
The acquisition was accounted for using the purchase method of accounting in
accordance with APB No. 16, "Business Combinations" ("APB 16"). Under APB 16,
purchase price allocations are made to the assets acquired and the liabilities
assumed based on their respective fair values.
<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 39.4
------
Excess of purchase price over net tangible
assets acquired $115.1
======
</TABLE>
17
<PAGE> 18
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B (Continued)
<TABLE>
The excess of purchase price over net assets acquired of $115.1 million has been
allocated to specific intangible asset categories as follows (in millions):
<S> <C>
Software licenses $ 24.9
Installed base - service 56.5
Assembled workforce 11.6
Goodwill 22.1
------
$115.1
======
</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 approximated fair value.
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% were used to determine
present value. Software licenses and the installed base were valued using an
income approach. This approach discounts an estimate of the total monetary
benefits expected to accrue, to its present worth, adjusted for the Company's
effective tax rate. The discount rate of 20.0% used in this determination
considers the 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. 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. The Company has challenged the net asset value of the acquired
assets and intends to employ the contractually agreed-upon objection procedure.
<TABLE>
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>
Twelve Months Nine Months
Ended Ended
June 30, June 30,
1995 1994
------------- -----------
<S> <C> <C>
Revenues $1,209.7 $975.8
Net loss $ (49.1) $ (0.3)
Net loss applicable
to common stockholders $ (57.8) $ (4.5)
Per share amounts:
Net loss $ (1.52) $(0.01)
Net loss applicable
to common stockholders $ (1.70) $(0.13)
</TABLE>
18
<PAGE> 19
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B (Continued)
Pro forma results of operations are not presented for the three months ended
September 30, 1993, the Confirmation Date of the Company's Reorganization Plan,
due to the general lack of comparability as a result of the implementation of
fresh-start reporting and the revised capital structure of the Company.
On July 21, 1995 ("Closing Date"), the Company acquired Sigma Imaging Systems,
Inc. ("Sigma"), a privately held company that designs and markets workflow and
imaging software for paper-intensive businesses, including insurance, banking,
finance, utilities and government. The purchase price of $20.0 million consists
of $15.0 million in cash and $5.0 million in common stock of the Company. A cash
payment of $9.0 million was made on July 21, 1995. The second cash payment of
$6.0 million is due on February 15, 1996. The common stock will be distributed
on January 3, 1997. The 299,176 shares of the Company's common stock to be
issued in connection with the acquisition of Sigma was determined by dividing
$5.0 million by $16.71, which was the average closing sale price per share of
the Company's common stock on the 20 consecutive trading days ending on the
trading day prior to the Closing Date.
The acquisition was accounted for using the purchase method of accounting in
accordance with APB 16. The excess of purchase price over the fair value of the
net assets acquired totaled $6.3 million and is included in intangible assets.
On October 18, 1995, the Company acquired BISS Limited ("BISS"), a privately
held company operating in the United Kingdom that designs, installs, integrates
and supports network and client/server computing solutions. Of the $16.1 million
cash purchase price, $12.6 million was paid at closing, with the remainder of
$3.5 million due in March 1997.
The acquisition was accounted for using the purchase method of accounting in
accordance with APB 16. The excess of purchase price over the fair value of the
net assets acquired totaled $11.9 million and is included in intangible assets.
Pro forma results of operations are not presented for the Sigma and BISS
acquisitions as the amounts do not differ significantly from the Company's
historical results.
On December 18, 1995, the Company acquired Avail, a privately held company that
develops software which automates the storage, relocation, archiving and
retrieval of information on a client/server PC network. The Company exchanged
approximately 1.8 million shares of its common stock, to which a value of $18.00
per share was ascribed, in exchange for all of the outstanding capital stock of
Avail for a total purchase price of $32.2 million.
The Avail acquisition was accounted for using the pooling of interests method of
accounting in accordance with APB 16. The effect of the Avail acquisition on the
Company's financial statements was immaterial prior to July 1, 1994.
Accordingly, prior period financial statements have only been restated from July
1, 1994 to reflect the combined results of the pooled businesses.
19
<PAGE> 20
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B (Continued)
<TABLE>
Summarized financial information of Avail and the resulting effect on the prior
period financial statements is as follows (in millions, except per share data):
<CAPTION>
Year
Six Months Ended Ended
December 31, June 30,
1995 1995
---------------- --------
<S> <C> <C>
Revenues $ 0.3 $ 0.9
Operating loss $ (1.6) $ (3.7)
Net loss $ (2.1) $ (3.7)
Net loss per share $(0.06) $(0.02)
</TABLE>
<TABLE>
ACQUISITION-RELATED CHARGES: 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. Acquisition-related charges were
recorded as of March 31, 1995, and consisted 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>
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.
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.
Acquisition-related charges of $27.2 million were recorded for the Sigma
acquisition effective September 30, 1995 after actions had been identified and
quantified and the formal plan approved by the Company's Board of Directors.
20
<PAGE> 21
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B (Continued)
<TABLE>
Acquisition-related charges for Sigma consist of the following:
<S> <C>
Sigma in-process research and
development $16.0
Capitalized software 6.6
Workforce-related and other 4.6
-----
Total $27.2
=====
</TABLE>
The in-process research and development charge consists of that portion of the
purchase price allocated to Sigma which was charged to operations because, in
management's opinion, technological feasibility for this purchased research and
development had not been established. Capitalized software write-offs pertain to
overlapping workflow software development efforts. Workforce-related charges,
consisting principally of Wang severance costs, were established based on
specific identification of employees to be terminated, along with their job
classifications or functions and their locations. Other charges relate to
customer transition commitments for discontinued Wang product offerings.
<TABLE>
The activity related to these charges during fiscal 1995 and through December
31, 1995 is summarized in the following table (in millions):
<CAPTION>
Bull Charges
Purchase Sigma Utilized
Charged to Accounting Charges Balance Integration- July 1 to Balance
Operations and Other Utilized June 30, Related Dec. 31, Dec. 31,
in 1995 Adjustments in 1995 1995 Charges 1995 1995
---------- ----------- -------- -------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Facilities $ 3.1 $ 5.5 $ (3.4) $ 5.2 $ -- $ (1.2) $ 4.0
Depreciable assets 12.4 7.5 (11.1) 8.8 22.6 (24.4) 7.0
Workforce-related 43.4 3.6 (9.6) 37.4 0.9 (14.9) 23.4
Other 5.3 4.0 (5.5) 3.8 3.7 (1.5) 6.0
----- ----- ------ ----- ----- ------ -----
$64.2 $20.6 $(29.6) $55.2 $27.2 $(42.0) $40.4
===== ===== ====== ===== ===== ====== =====
</TABLE>
<TABLE>
The December 31, 1995 and June 30, 1995 balances of acquisition-related reserves
are classified as follows (in millions):
<CAPTION>
December 31, June 30,
1995 1995
------------ --------
<S> <C> <C>
Depreciable assets $ 7.0 $ 8.8
Accounts payable, accrued
expenses and other 29.0 41.8
Non-current liabilities 4.4 4.6
----- -----
$40.4 $55.2
===== =====
</TABLE>
Cash outlays to complete the Company's acquisition-related initiatives are
estimated to approximate $27 million for the twelve months ending December 31,
1996 and $4 million thereafter. During fiscal 1995, the Company released
approximately 1,000 employees related to the Bull acquisition. During the first
half of fiscal 1996, the Company released approximately 400 employees related to
the Bull and Sigma acquisitions. Workforce-related actions are continuing as
planned although under certain circumstances, the actual payment of termination
costs may extend through fiscal 1997.
21
<PAGE> 22
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE C--OTHER BALANCE SHEET INFORMATION
<TABLE>
Components of other selected captions in the Consolidated Balance Sheet follow
(in millions):
<CAPTION>
December 31, June 30, June 30,
1995 1995 1994
------------ -------- --------
<S> <C> <C> <C>
Accounts receivable $243.9 $193.3 $132.9
Less allowances 13.5 10.8 4.4
------ ------ ------
$230.4 $182.5 $128.5
====== ====== ======
Inventories
Finished products $ 14.5 $ 14.5 $ 17.5
Raw materials and work-in-process 7.6 8.7 6.5
Service parts and supplies 3.9 1.2 3.6
------ ------ ------
$ 26.0 $ 24.4 $ 27.6
====== ====== ======
Other current assets
Prepaid expenses $ 19.3 $ 18.7 $ 17.6
Receivables related to called
letters of credit -- -- 1.2
Advances to suppliers 0.4 1.0 1.0
Lease receivables -- -- 2.2
Other receivables 9.4 9.5 6.2
Other 8.9 8.0 9.1
------ ------ ------
$ 38.0 $ 37.2 $ 37.3
====== ====== ======
Depreciable assets
Land $ 8.0 $ 7.1 $ 10.2
Buildings and improvements 24.6 22.6 18.9
Machinery and equipment 63.4 52.7 36.3
Spare parts and rental equipment 115.5 113.3 39.9
------ ------ ------
211.5 195.7 105.3
Less accumulated depreciation 89.3 61.3 25.7
------ ------ ------
$122.2 $134.4 $ 79.6
====== ====== ======
</TABLE>
22
<PAGE> 23
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
NOTE C (Continued)
<CAPTION>
December 31, June 30, June 30,
1995 1995 1994
------------ -------- --------
<S> <C> <C> <C>
Intangible assets
Trademarks and patents $ 23.0 $ 21.3 $ 18.9
Computer software 35.0 42.2 37.8
Installed base - service 126.2 123.5 67.0
License agreements 29.9 29.9 5.0
Assembled workforce 16.1 11.7 --
Goodwill 38.0 18.9 3.2
Reorganization value in excess
of amounts allocated to
identifiable intangible
assets 80.4 87.2 83.9
------ ------ ------
348.6 334.7 215.8
Less accumulated amortization 80.2 60.7 22.4
------ ------ ------
$268.4 $274.0 $193.4
====== ====== ======
Accounts payable, accrued
expenses and other
Accounts payable $ 60.4 $ 62.3 $ 48.9
Accrued expenses 109.9 93.1 57.4
Compensation and benefits 51.1 50.1 36.1
Restructuring and acquisition-
related accruals 37.9 56.6 50.4
Accrued reorganization expenses 2.9 3.2 5.7
Chapter 11 claims to be settled
in cash 1.6 1.6 4.7
Other 15.6 9.5 10.4
------ ------ ------
$279.4 $276.4 $213.6
====== ====== ======
Other long-term liabilities
Postretirement benefit accrual $ 17.9 $ 18.5 $ 11.0
Pension liability 7.2 8.2 5.3
Bull facilities accrual 15.4 16.5 --
Reorganization-related accruals 6.7 8.4 11.5
Insurance accruals 6.7 6.5 4.5
Acquisitions 8.5 -- --
Other 23.8 22.7 26.6
------ ------ ------
$ 86.2 $ 80.8 $ 58.9
====== ====== ======
</TABLE>
23
<PAGE> 24
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE D--FINANCING ARRANGEMENTS
BORROWING ARRANGEMENTS:
<TABLE>
Borrowings due within one year consisted of (in millions):
<CAPTION>
December 31, June 30, June 30,
1995 1995 1994
------------ -------- --------
<S> <C> <C> <C>
Notes payable to banks $1.8 $2.6 $2.6
Current portion of long-term debt 1.1 0.4 1.0
---- ---- ----
$2.9 $3.0 $3.6
==== ==== ====
</TABLE>
Notes payable to banks with weighted average interest rates of 10.7%, 12.1% and
12.5% were outstanding at December 31, 1995, June 30, 1995 and June 30, 1994,
respectively.
<TABLE>
Long-term debt consisted of (in millions):
<CAPTION>
December 31, June 30, June 30,
1995 1995 1994
------------ -------- --------
<S> <C> <C> <C>
Mortgage notes and other -- from
7.4% to 12.0% at December 31,
1995, from 7.4% to 12.0% at
June 30, 1995 and from 4.0% to
9.8% at June 30, 1994, payable
through 1999 $ 3.6 $ 1.8 $3.0
Note payable to Bull -- 8.75% at
both December 31, 1995 and
June 30, 1995, payable in 1997 21.6 21.6 --
----- ----- ----
25.2 23.4 3.0
Current portion of long-term debt 1.1 0.4 1.0
----- ----- ----
$24.1 $23.0 $2.0
===== ===== ====
</TABLE>
Maturities of long-term debt are $1.1 million, $22.7 million, $1.0 million and
$0.4 million for the twelve months ending December 31, 1996, 1997, 1998 and
1999, respectively. Interest paid amounted to $1.2 million for the six months
ended December 31, 1995, $3.7 million for the year ended June 30, 1995, $3.8
million for the nine months ended June 30, 1994, $2.3 million for the three
months ended September 30, 1993 and $9.3 million for the year ended June 30,
1993. Mortgage notes were collateralized by land and buildings with net book
values of $5.7 million and $5.9 million at December 31, 1995 and June 30, 1995,
respectively.
24
<PAGE> 25
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE D (Continued)
On January 31, 1995, 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 $125.0 million,
reduced to $115.0 million for the period from January 30, 1996 to March 31,
1996, and to $100.0 million thereafter. This facility also provides for up to
$40.0 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. Interest on any borrowings is based on the BTCC's
prime rate plus 1.25% to 2.50%, 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 as well as restrictions on the payment of cash dividends.
On January 26, 1996 the BTCC facility was amended to permit cash dividends. The
Company was in compliance with these covenants as of both December 31, 1995 and
June 30, 1995. As of December 31, 1995, letters of credit aggregating $10.4
million were outstanding under the agreement, and $88.3 million was available
for use by the Company for either additional letters of credit or borrowing.
REDEEMABLE PREFERRED STOCK:
<TABLE>
Redeemable Preferred Stock consisted of (in millions):
<CAPTION>
December 31, June 30, June 30,
1995 1995 1994
------------ -------- --------
<S> <C> <C> <C>
4 1/2% preferred stock, $0.01 par
value, 90,000 shares
authorized; 90,000 shares issued
and outstanding at December 31,
1995 and June 30, 1995;
redemption and liquidation
preference of $90.0 million $ 84.4 $ 84.1 $ --
11% preferred stock, $0.01 par
value, 3,660,000 shares
authorized; outstanding
shares: 2,914,325 at
December 31, 1995, 2,836,326
at June 30, 1995 and 2,544,656
at June 30, 1994; redemption
and liquidation preference of
$72.9 million, including
paid-in-kind dividends 63.9 61.5 53.2
------ ------ -----
$148.3 $145.6 $53.2
====== ====== =====
</TABLE>
25
<PAGE> 26
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE D (Continued)
4 1/2% PREFERRED STOCK: On May 30, 1995, the Company issued Microsoft
Corporation 90,000 shares ($90.0 million face amount) of 4 1/2% Series A
Cumulative Convertible Preferred Stock ("4 1/2% Preferred Stock"), redeemable on
October 1, 2003 or within 180 days of a written request of the holders thereof
at any time on or after the later of May 30, 2002 or the date on which no shares
of the 11% Exchangeable Preferred Stock are outstanding. The 4 1/2% Preferred
Stock is redeemable at a purchase price of $84.0 million, the estimated fair
value of the stock at the date of issuance. The excess of the redemption value
over the carrying value is being accreted by periodic charges to retained
earnings over the life of the issue, or in the absence of retained earnings, to
capital in excess of par value.
The 4 1/2% Preferred Stock is convertible into Common Stock of the Company at
$23.00 per share and represents approximately 10% of the outstanding shares of
Common Stock on a fully diluted basis. The stockholders of the 4 1/2% Preferred
Stock are entitled to one vote per share. Dividends are being accrued until such
time as cash dividends are allowed to be paid under the terms of the 11%
Preferred Stock and the BTCC credit facility agreement. Accrued and unpaid
dividends were $2.4 million and $0.2 million at December 31, 1995 and June 30,
1995, respectively. The Company may redeem the 4 1/2% Preferred Stock with cash
or with Common Stock.
11% PREFERRED STOCK: On December 17, 1993, the Company received $60.0 million
from a private placement issuance of 600,000 shares of 11% Exchangeable
Preferred Stock ("11% Preferred Stock") and 1.5 million shares of Common Stock
of the Company. The 11% Preferred Stock was recorded at $49.0 million, the
estimated fair value at the date of issuance. The excess of the redemption value
over the carrying value is being accreted by periodic charges to retained
earnings over the life of the issue, or in the absence of retained earnings, to
capital in excess of par value (see Note M, Subsequent Event relating to the
retirement, in February 1996, of the 11% Preferred Stock).
On March 29, 1995, the Board of Directors declared a split effected in the form
of a dividend of three shares of 11% Preferred Stock for each share thereof held
on March 31, 1995. The shares were distributed in April 1995.
Each share of 11% Preferred Stock 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. Until September 30, 1996, dividends are payable, at the
option of the Company, in cash, in additional shares of 11% Preferred Stock
valued at the liquidation preference of $25.00 per share, or in any combination
thereof. After September 30, 1996, dividends will be payable only in cash. The
Company paid a cash dividend of $2.0 million to satisfy the cumulative dividend
requirements for the three months ended December 31, 1995, and issued 77,999
shares, 291,670 shares and 144,652 shares of 11% Preferred Stock to satisfy the
cumulative dividend requirements for the three months ended September 30, 1995,
the year ended June 30, 1995 and the nine months ended June 30, 1994,
respectively.
26
<PAGE> 27
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE D (Continued)
At the Company's option, the 11% Preferred Stock may be redeemed at any time on
or after September 30, 1996, in whole or in part, at 102% of the liquidation
preference in 1996, reducing by 0.5% annually through September 30, 2000, at
which time the redemption price will equal the liquidation preference. The 11%
Preferred Stock must be redeemed on September 30, 2003, at a redemption price
equal to the liquidation preference, together with any accrued and unpaid
dividends. The 11% Preferred Stock is exchangeable, at the Company's option,
into exchangeable debentures with a principal amount equal to the liquidation
preference of the 11% Preferred Stock. The private placement agreement includes
restrictions on the payment of dividends, issuance of additional debt and
repurchase of the Common Stock of the Company, as well as restrictions on the
ability to issue equity securities which are equivalent or senior to the 11%
Preferred Stock.
27
<PAGE> 28
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E--INCOME TAXES
<TABLE>
The provision for income taxes consisted of (in millions):
<CAPTION>
Reorganized Company Predecessor Company
------------------------------------- ------------------------
Six Months Year Nine Months Three Months Year
Ended Ended Ended Ended Ended
December 31, June 30, June 30, September 30, June 30,
1995 1995 1994 1993 1993
------------ -------- -------- ------------- --------
<S> <C> <C> <C> <C> <C>
Current:
Federal $ -- $ -- $ -- $ -- $ 2.0
Non-U.S. 0.1 0.7 2.3 0.3 (2.0)
State 0.3 -- 0.3 0.1 --
Tax benefit applied
to reduce
reorganization
value in excess of
amounts allocated
to identifiable
intangible assets 6.8 2.9 7.2 -- --
---- ---- ---- ---- ----
$7.2 $3.6 $9.8 $0.4 $ --
==== ==== ==== ==== ====
</TABLE>
<TABLE>
The provision for income taxes differed from the amount computed by applying the
U.S. federal statutory rate as follows (in millions):
<CAPTION>
Reorganized Company Predecessor Company
------------------------------------- ------------------------
Six Months Year Nine Months Three Months Year
Ended Ended Ended Ended Ended
December 31, June 30, June 30, September 30, June 30,
1995 1995 1994 1993 1993
------------ -------- -------- ------------- --------
<S> <C> <C> <C> <C> <C>
Taxes at statutory
rate (35% in 1995
and 1994 and 34%
in 1993) $(2.3) $(18.9) $ 7.1 $(7.9) $(67.0)
Amortization of excess
reorganization
value 1.2 1.9 0.9 -- --
Non-deductible
expenses 0.6 1.3 1.4 3.4 --
Non-deductible charge
in connection with
acquisition 5.6 -- -- -- --
Effect of earnings
of Ireland
operation subject
to a lower tax
rate (0.6) (0.5) (1.6) (0.2) --
Repatriation of non-
U.S. earnings,
net -- -- 0.8 -- 1.3
Unused tax loss
carryforwards 3.1 22.7 1.9 6.9 68.1
Unused tax credit
carryforwards -- -- -- -- 0.3
Other, net (0.4) (2.9) (0.7) (1.8) (2.7)
----- ----- ----- ----- ------
$ 7.2 $ 3.6 $ 9.8 $ 0.4 $ --
===== ===== ===== ===== ======
</TABLE>
28
<PAGE> 29
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E (Continued)
<TABLE>
The net deferred tax balance consists of temporary differences and
carryforwards, which gave rise to significant deferred tax assets and
liabilities as follows (in millions):
<CAPTION>
December 31, June 30, June 30,
1995 1995 1994
------------ -------- --------
<S> <C> <C> <C>
Net operating loss and credit
carryforwards $ 612.8 $ 564.4 $ 465.2
Accrued restructuring expenses 18.0 26.3 73.7
Other 27.4 36.5 45.2
------- ------- -------
Gross deferred tax assets 658.2 627.2 584.1
------- ------- -------
Fresh-start intangibles (27.7) (31.4) (44.0)
Goodwill (14.4) (20.8) --
Other (22.4) (26.0) (23.2)
------- ------- -------
Gross deferred tax liabilities (64.5) (78.2) (67.2)
------- ------- -------
Valuation allowance (593.7) (549.0) (516.9)
------- ------- -------
$ -- $ -- $ --
======= ======= =======
</TABLE>
As a result of the reorganization of the Company, discussed in Note J, the
Company recorded a gain from debt forgiveness of $329.3 million during the three
months ended September 30, 1993. Because the forgiveness was pursuant to a
Chapter 11 reorganization, the Company did not record any income tax expense on
the gain from the forgiveness in the period ended September 30, 1993. The
consummation of the Reorganization Plan resulted in a change in ownership for
federal income tax purposes. As a result of the change in ownership, the Company
was required, under federal tax law, to reduce its accumulated U.S. operating
loss carryovers for one-half of the non-taxable gain related to the debt
forgiveness and certain prior years' interest expense related to the forgiven
interest-bearing debt.
If the Company experiences another change in ownership, an annual limitation
will be placed upon the Company's ability to realize the benefit of its U.S. net
operating loss carryforwards.
Due to the uncertainty surrounding the realization of the operating loss
carryforwards and other net deferred tax assets, the Company has provided a full
valuation reserve against the net deferred tax asset position at December 31,
1995, June 30, 1995 and June 30, 1994. Accordingly, any tax benefits realized
for tax purposes after September 30, 1993, for cumulative temporary differences
and tax basis net operating loss carryforwards existing at September 30, 1993,
are not reducing the provision for income taxes, but instead, are reducing
reorganization value in excess of amounts allocated to identifiable intangible
assets.
29
<PAGE> 30
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E (Continued)
Retained earnings of non-U.S. subsidiaries for which income taxes have not been
provided approximated $123.9 million and $113.4 million at December 31, 1995 and
June 30, 1995, respectively.
At December 31, 1995, the Company and its subsidiaries had tax basis net
operating loss carryforwards of approximately $1,416.9 million and tax credit
carryforwards of approximately $97.5 million that are available to offset future
taxable income.
<TABLE>
Tax basis loss carryforwards and tax credit carryforwards expire as follows (in
millions):
<CAPTION>
2001 &
1996 1997 1998 1999 2000 Beyond
----- ----- ----- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C>
U.S. tax loss carryforwards $ -- $ -- $ -- $ -- $ -- $790.8
Non-U.S. tax basis loss
carryforwards $8.4 $11.8 $33.1 $14.4 $19.8 $538.6
Investment tax credit and
research and development
tax credit carryforwards $1.0 $ 7.8 $17.5 $26.2 $20.7 $ 24.3
</TABLE>
Net taxes paid (refunded) amounted to $0.7 million for the six months ended
December 31, 1995, $0.7 million for the year ended June 30, 1995, $(1.6) million
for the year ended June 30, 1994, and $2.9 million for the year ended June 30,
1993.
30
<PAGE> 31
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F--STOCKHOLDERS' EQUITY
COMMON STOCK: The Company's authorized Common Stock consists of 100 million
shares, $0.01 par value per share. Holders of the Common Stock are entitled to
one vote for each share held on all matters submitted to a vote of stockholders
and do not have cumulative voting rights. The common stockholders are entitled
to receive ratably such dividends, if any, as may be declared by the Board of
Directors. No dividends have been paid to date. The rights, preferences and
privileges of holders of the Common Stock are subject to, and may be adversely
affected by, the rights of holders of shares of both the outstanding 11% and 4
1/2% Preferred Stock as well as any other series of Preferred Stock that the
Company may designate and issue in the future (see Note J, Fresh-Start
Reporting, Reorganization and Restructuring Expenses).
1993 EMPLOYEES' STOCK GRANT PLAN: Effective on the Consummation Date, the
Company made a one-time grant to each eligible employee of 50 shares of Common
Stock of the Company. Of the 350,000 shares available for this plan, 316,500
shares have been distributed to employees. The remaining shares authorized for
use in this plan were allocated to the Stock Incentive Plan, described below,
after all grants had been made under this plan.
STOCK WARRANTS: In satisfaction of the interests of the Class B and C common
stockholders of the Predecessor Company, 7.5 million warrants, less an amount
allocated for certain disputed claims, were made available for issuance to
stockholders of the Predecessor Company as of the September 29, 1993 record
date. The Company began issuance of these warrants on March 17, 1995. Each
warrant entitles its holder to purchase one share of Common Stock for an
exercise price of $21.45 per share, and expires on June 30, 2001. The exercise
price was set in such a manner as to allow the creditors who are issued Common
Stock in the reorganization to recover an estimated 95 percent of the value of
their allowed claims before the exercise price of the warrants equals the
trading price of the Common Stock. Holders of the Class B and C common stock
received one warrant for each 24 shares of stock of the Predecessor Company.
STOCK OPTIONS:
1993 STOCK INCENTIVE PLAN: At the Confirmation Date, the Company granted certain
employees non-qualified options to purchase Common Stock of the Company at $7.35
per share under the Stock Incentive Plan. The maximum number of shares issuable
under this plan was 2,283,650. The options granted at the Confirmation Date vest
over a three-year period, with approximately one-third vesting on October 1,
1994, 1995, and 1996, and are exercisable over a ten-year period from the date
of grant.
1993 DIRECTORS' STOCK OPTION PLAN: The Company provided for the issuance of up
to 80,000 shares of Common Stock under the 1993 Directors' Stock Option Plan.
Under this plan, each initial director of the Company (other than Mr. Tucci,
Chairman of the Board and Chief Executive Officer), received a one-time grant of
a non-qualified option to purchase 10,000 shares of the Common Stock of the
Company at an exercise price of $7.35 per share. The options vest over a
three-year period, with one-third vesting on December 16, 1994, 1995, and 1996,
and are exercisable over a ten-year period from the date of grant.
31
<PAGE> 32
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F (Continued)
1994 EMPLOYEES' STOCK INCENTIVE PLAN: On January 25, 1995 the Company's
stockholders approved the Employees' Stock Incentive Plan. The Employees' Stock
Incentive Plan provides for the issuance of up to 4,817,153 shares of Common
Stock of the Company as either Incentive Stock Options, Non-Qualified Stock
Options or Restricted Stock awards, on terms and vesting schedules as may be set
from time to time by the Organization, Compensation and Nominating Committee of
the Board of Directors. Both the Incentive Stock Options and Non-Qualified Stock
Options granted to date under the Employees' Stock Incentive Plan become
exercisable (or vest) as to 34%, 33% and 33% of the shares covered thereby on
the first, second and third anniversaries of the date of grant, provided the
employee continues to be employed by the Company, and expire ten years after the
date of the grant.
1995 DIRECTORS' STOCK OPTION PLAN: On January 25, 1995 the Company's
stockholders approved the 1995 Director Stock Option Plan ("1995 Director
Plan"). A total of up to 180,000 shares of Common Stock of the Company may be
issued upon the exercise of options granted under the 1995 Director Plan. All
options granted under the 1995 Director Plan will be non-qualified stock
options.
The 1995 Director Plan provides for the automatic grant of an option for 6,500
shares of Common Stock under the following circumstances: (i) an option was
granted to each outside Director on January 25, 1995, the date the 1995 Director
Plan was approved by the stockholders of the Company; (ii) an option will
automatically be granted to each additional outside Director who is initially
elected to the Board of Directors after the approval of the 1995 Director Plan
by the stockholders of the Company, upon his or her initial election to the
Board of Directors; and (iii) on September 30 of each year (beginning September
30, 1995), an option will automatically be granted to each outside Director who
attended in the fiscal year ending the preceding June 30 at least 75% of the
aggregate of the number of Board of Directors meetings held and the number of
meetings held by committees of the Board on which he or she then served. The
exercise price of each option granted under the 1995 Director Plan will be equal
to the current market value of the Common Stock on the date of grant (which,
assuming the Common Stock continues to be listed on the Nasdaq National Market
or on a National Securities Exchange, will be determined based upon the average
closing price of the Common Stock over the 30-business-day period beginning 45
business days before the grant of the option) and will become exercisable (or
vest), as to 34%, 33% and 33% of the shares covered thereby on the first, second
and third anniversaries of the date of grant, respectively, provided the
optionee continues to serve as a Director on such dates.
A summary of option activity from the Confirmation Date through December 31,
1995, is as follows:
32
<PAGE> 33
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F (Continued)
<TABLE>
<CAPTION>
Options Option Price
Outstanding Per Share
----------- --------------
<S> <C> <C> <C>
Granted 2,151,150 $7.35-$19.375
Exercised -- --
Cancelled 92,273 $7.35
---------
June 30, 1994 2,058,877 $7.35-$19.375
Granted 1,826,600 $9.875-$13.880
Exercised 218,364 $7.35-$12.063
Cancelled 214,112 $7.35-$16.875
---------
June 30, 1995 3,453,001 $7.35-$19.375
Granted 1,806,150 $15.00-$18.050
Exercised 290,271 $7.35-$13.125
Cancelled 166,240 $7.35-$15.00
---------
December 31, 1995 4,802,640 $7.35-$19.375
Options exercisable at:
June 30, 1994 --
June 30, 1995 526,060
December 31, 1995 1,362,757
</TABLE>
At December 31, 1995, 247,620 shares were available for future grants.
EMPLOYEES' STOCK PURCHASE PLAN: Following consummation of its Reorganization
Plan, the Company established an Employees' Stock Purchase Plan ("Stock Purchase
Plan") permitting purchases on a voluntary basis by eligible employees of up to
685,715 shares of Common Stock of the Company. Under this plan, a total of
76,108 shares were issued with the remainder of shares rolled-over to the 1995
Stock Purchase Plan described below. Employees of the U.S. parent company and
designated international subsidiaries, but excluding any officers with the rank
of vice president or above, were eligible to participate in the Stock Purchase
Plan. Shares of common stock were offered under the Stock Purchase Plan in
six-month payment periods commencing May 1, 1994. The purchase price was 85% of
the market price of the Common Stock on the first business day or the last
business day of that payment period, whichever was lower. Purchases were deemed
to be made on the last day of each payment period and could only be made by
participants who were employees on that day. The purchase price was paid with
payroll deductions in an amount specified by each employee (which could not
exceed a specified percentage of his or her salary), accumulated during the
payment period.
On January 25, 1995 the Company's stockholders approved the 1995 Employees'
Stock Purchase Plan ("1995 Stock Purchase Plan") permitting purchases on a
voluntary basis by eligible employees of up to 609,607 shares of Common Stock of
the Company. Employees of the U.S. parent company and designated subsidiaries,
but excluding any officers with the rank of vice president or above, are
eligible to participate in the 1995 Stock Purchase Plan. The six-month payment
periods of the 1995 Stock Purchase Plan run consecutively, commencing on each
November 1 and May 1. Purchases are deemed to be made on the last day of each
payment period and can only be made by payroll deductions in an amount specified
by each employee (which may not exceed a specified percentage of an employee's
salary), accumulated during the payment period.
33
<PAGE> 34
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F (Continued)
The purchase price is 85% of the market price of the Common Stock on the first
business day or the last business day of that payment period, whichever is
lower.
NOTE G--POSTRETIREMENT BENEFITS
In connection with the Bull acquisition on January 31, 1995, the Company assumed
the plan assets and obligations for plans covering employees at certain of the
acquired businesses.
<TABLE>
DEFINED BENEFIT PLANS: U.S. net pension cost consisted of (in millions):
<CAPTION>
Reorganized Company Predecessor Company
------------------------------------- ------------------------
Six Months Year Nine Months Three Months Year
Ended Ended Ended Ended Ended
December 31, June 30, June 30, September 30, June 30,
1995 1995 1994 1993 1993
------------ -------- -------- ------------- --------
<S> <C> <C> <C> <C> <C>
Service cost $ 0.6 $ 0.5 $ -- $ -- $ --
Interest cost 3.5 4.1 1.7 0.6 2.1
Return on assets (7.3) (4.8) (0.8) (0.3) (2.5)
Other 3.7 0.7 (1.0) (0.3) 0.4
----- ----- ----- ----- -----
$ 0.5 $ 0.5 $(0.1) $ -- $ --
===== ===== ===== ===== =====
</TABLE>
<TABLE>
The funded status of the U.S. plans was (in millions):
<CAPTION>
December 31, June 30, June 30,
1995 1995 1994
------------ -------- --------
<S> <C> <C> <C>
Fair value of plan assets $ 97.2 $ 88.6 $ 29.2
Projected benefit obligation (91.6) (84.9) (30.1)
------ ------ ------
Plan assets greater(less) than
projected benefit obligation 5.6 3.7 (0.9)
Unrecognized net (gain) loss (6.0) (3.7) 2.9
Unrecognized net transition asset (0.6) (0.6) (0.7)
Additional minimum liability -- -- (2.2)
------ ------ ------
Prepaid (accrued) pension costs $ (1.0) $ (0.6) $ (0.9)
====== ====== ======
Accumulated benefits $(91.6) $(84.8) $(30.1)
====== ====== ======
Vested benefits $(84.9) $(79.0) $(30.0)
====== ====== ======
</TABLE>
Settlement and curtailment gains of $1.6 million were recognized for the nine
months ended June 30, 1994 for non-U.S. plans, resulting primarily from the
conversion of defined benefit plans to defined contribution plans.
34
<PAGE> 35
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G (Continued)
<TABLE>
Non-U.S. net pension cost consisted of (in millions):
<CAPTION>
Reorganized Company Predecessor Company
------------------------------------- ------------------------
Six Months Year Nine Months Three Months Year
Ended Ended Ended Ended Ended
December 31, June 30, June 30, September 30, June 30,
1995 1995 1994 1993 1993
------------ -------- -------- ------------- --------
<S> <C> <C> <C> <C> <C>
Service cost $ 1.0 $ 1.3 $ 0.7 $ 0.3 $ 1.7
Interest cost 1.2 1.9 1.8 0.7 3.2
Return on assets (1.8) (2.6) (2.4) (0.9) (3.9)
Other (0.2) 0.3 0.6 0.1 0.4
----- ----- ----- ----- -----
$ 0.2 $ 0.9 $ 0.7 $ 0.2 $ 1.4
===== ===== ===== ===== =====
</TABLE>
<TABLE>
The funded status of non-U.S. plans was (in millions):
<CAPTION>
December 31, June 30, June 30,
1995 1995 1994
------------ -------- --------
<S> <C> <C> <C>
Fair value of plan assets $ 59.2 $ 59.6 $ 32.5
Projected benefit obligation (49.8) (50.7) (31.4)
------ ------ ------
Plan assets in excess of projected
benefit obligation 9.4 8.9 1.1
Unrecognized net gain (0.7) (0.9) (0.2)
------ ------ ------
Prepaid pension costs $ 8.7 $ 8.0 $ 0.9
====== ====== ======
Accumulated benefits $(44.2) $(45.0) $(29.8)
====== ====== ======
Vested benefits $(38.8) $(39.6) $(26.1)
====== ====== ======
</TABLE>
<TABLE>
The following assumptions were used to measure net periodic pension cost for the
defined benefit pension plans:
<CAPTION>
December 31, 1995 June 30, 1995 June 30, 1994
----------------- ----------------- -----------------
U.S. Non-U.S. U.S. Non-U.S. U.S. Non-U.S.
Plans Plans Plans Plans Plans Plans
----- -------- ----- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Discount rate 8.0% 7.0%-12.0% 8.0% 7.0%-12.0% 8.0% 7.5%-9.5%
Average increase
in compensation
levels 0.0%-4.0% 3.5%-9.0% 0.0%-4.0% 3.5%-9.0% 0.0% 4.0%-7.0%
</TABLE>
The expected long-term rate of return for plan assets was 8.0% for U.S. plans
and 7.5%-12.0% for non-U.S. plans for the six months ended December 31, 1995 and
for the years ended June 30, 1995, 1994 and 1993.
35
<PAGE> 36
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G (Continued)
As a result of freezing all future benefits under one of the U.S. plans, no
increase in compensation is assumed for this plan beginning in 1993. Plan assets
consist principally of equity and fixed income mutual funds. Annual cost is
determined using the projected unit credit actuarial method.
DEFINED CONTRIBUTION PLANS: Contributions are generally based on fixed amounts
of eligible compensation. The Company's expense for U.S. and non-U.S. plans
totaled $5.0 million for the six months ended December 31, 1995, $9.6 million
for the year ended June 30, 1995, $6.3 million for the nine months ended June
30, 1994, $2.8 million for the three months ended September 30, 1993, and $14.0
million for the year ended June 30, 1993.
OTHER POSTRETIREMENT BENEFITS: The Company provides postretirement benefits
under two U.S. plans and an international plan. One U.S. plan covers two groups
of current or previous employees. Class A retirees represent a closed group of
employees who were age 59 with at least 9 years of service as of December 31,
1984. Coverage includes lifetime medical and dental benefits. Benefits are
integrated with Medicare using a traditional coordination approach.
Contributions by retirees are fixed. Class B retirees represent all other
employees who have retired or will have retired with at least 10 years of
service and a total of 75 age and service points by June 30, 1995. These current
and future retirees can choose among the various medical options extended to
active employees. Employee contributions vary based upon the level of coverage
selected. The Company's contribution for Class B current and future retirees
will be adjusted annually to reflect increases in medical trends until the
contribution to the Plan equals twice the 1992 level. At that time, subsequent
cost increases will be paid fully by increases in employee contributions.
The second U.S. plan and the international plan cover employees of the
businesses acquired as part of the Bull acquisition. Postretirement healthcare
coverage was generally provided to employees retiring on or after attaining age
55, who had rendered at least 10 years of service, until the age of 65.
<TABLE>
U.S. net periodic postretirement benefit cost consisted of (in
millions):
<CAPTION>
Reorganized Company Predecessor Company
------------------------------------- ------------------------
Six Months Year Nine Months Three Months Year
Ended Ended Ended Ended Ended
December 31, June 30, June 30, September 30, June 30,
1995 1995 1994 1993 1993
------------ -------- -------- ------------- --------
<S> <C> <C> <C> <C> <C>
Service cost $ 0.1 $0.1 $0.1 $ -- $0.1
Interest cost 0.5 0.8 0.6 0.2 0.9
Amortization of
unrecognized gain (0.2) -- -- -- --
----- ---- ---- ---- ----
$ 0.4 $0.9 $0.7 $0.2 $1.0
===== ==== ==== ==== ====
</TABLE>
36
<PAGE> 37
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G (Continued)
<TABLE>
The funded status of the U.S. plans was (in millions):
December 31, June 30, June 30,
1995 1995 1994
------------ -------- --------
<S> <C> <C> <C>
Fair value of plan assets $ -- $ -- $ --
Accumulated postretirement benefit obligation:
Retirees 10.6 12.6 9.2
Other fully eligible plan participants 1.9 1.7 1.1
Other active plan participants 1.0 1.5 0.4
Unrecognized net gain 4.5 2.5 1.0
----- ----- -----
Accrued postretirement benefit liability $18.0 $18.3 $11.7
===== ===== =====
</TABLE>
Non-U.S. net periodic postretirement benefit cost approximated $0.1 million for
the six months ended December 31, 1995 and the year ended June 30, 1995.
<TABLE>
The funded status of the non-U.S. plan was (in millions):
<CAPTION>
December 31, June 30,
1995 1995
------------ --------
<S> <C> <C>
Fair value of plan assets $ -- $ --
Accumulated postretirement benefit obligation:
Retirees 0.8 0.6
Other fully eligible plan participants 0.2 0.3
Other active plan participants -- 0.5
---- ----
Accrued postretirement benefit liability $1.0 $1.4
==== ====
</TABLE>
<TABLE>
The following assumptions were used to measure net periodic postretirement
benefit costs:
<CAPTION> June 30,
December 31, 1995 June 30, 1995 1994
-------------------- -------------------- --------
U.S. Non-U.S. U.S. Non-U.S. U.S.
Plans Plan Plans Plan Plan
----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C>
Increase in healthcare costs
during the period 10.3-11.0% 11.0% 11.0-12.0% 11.0% 11.0%
Ultimate trend rates 5.0-6.3% 5.0% 5.0-7.0% 5.0% 7.0%
Years to ultimate trend rates 4-12 yrs 5 yrs 5-11 yrs 6 yrs 3 yrs
Discount rates 7.0-8.3% 8.0% 8.0% 8.0% 8.0%
</TABLE>
If the health care cost trend rate was increased 1%, the
accumulated postretirement benefit obligation as of December 31,
1995 would have increased by 4.7% and 10.3% for the U.S. and
non-U.S. plans, respectively. The effect of this change on the
aggregate of service and interest cost for the six months ended
December 31, 1995 would be an increase of 4.9% and 16.0% for the
U.S. and non-U.S. plans, respectively.
37
<PAGE> 38
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE H--INDUSTRY, GEOGRAPHIC AND SIGNIFICANT CUSTOMER INFORMATION
INDUSTRY SEGMENT INFORMATION: The Company operates primarily in one industry
segment, which includes serving customers in approximately 130 countries with
workflow, imaging, document management and related software applications for
client/server open systems, and integration and support services for office
networks, along with continuing to provide to its proprietary minicomputer
customers upgrade products, service, and open systems coexistence and migration
products.
GEOGRAPHIC INFORMATION: Transfer prices to non-U.S. sales subsidiaries, combined
with supplemental commission and expense reimbursement arrangements, are
intended to produce profit margins commensurate with the sales and service
effort associated with the products sold, and are comparable to prices charged
to unaffiliated distributors. Sales and transfers between manufacturing
subsidiaries are made with reference to prevailing market prices.
SIGNIFICANT CUSTOMER: The Company had revenues from the U.S. government and its
agencies of approximately $123 million for the six months ended December 31,
1995, $150 million for the year ended June 30, 1995, $101 million for the nine
months ended June 30, 1994, $40 million for the three months ended September 30,
1993, and $226 million in fiscal 1993, or approximately 22% of total revenues
for the six months ended December 31, 1995, 16% of total revenues for the year
ended June 30, 1995, 16% of total revenues for the nine months ended June 30,
1994, 19% of total revenues for the three months ended September 30, 1993, and
18% of total revenues for the year ended June 30, 1993. The majority of these
revenues were in the United States geographic area.
<TABLE>
Certain information on a geographic basis follows (in millions):
<CAPTION>
Reorganized Company Predecessor Company
------------------------------------- ------------------------
Six Months Year Nine Months Three Months Year
Ended Ended Ended Ended Ended
December 31, June 30, June 30, September 30, June 30,
1995 1995 1994 1993 1993
------------ -------- -------- ------------- --------
<S> <C> <C> <C> <C> <C>
Revenues from
unaffiliated
customers:
United States,
including direct
export sales $304.1 $453.7 $309.7 $109.0 $ 602.3
Europe 136.4 307.4 226.6 62.9 411.5
Asia/Pacific 82.6 134.3 78.6 29.5 182.1
Americas 33.6 51.8 29.5 9.5 51.1
------ ------ ------ ------ --------
$556.7 $947.2 $644.4 $210.9 $1,247.0
====== ====== ====== ====== ========
Interarea transfers:
United States $ 7.4 $ 20.9 $ 21.6 $ 5.8 $ 69.0
Europe -- 0.3 1.1 0.5 22.5
Asia/Pacific 0.8 -- 0.2 -- 32.9
Americas -- 0.2 -- -- 0.6
------ ------ ------ ------ --------
$ 8.2 $ 21.4 $ 22.9 $ 6.3 $ 125.0
====== ====== ====== ====== ========
</TABLE>
The decline in interarea transfers is due to the downsizing and sale of certain
manufacturing operations due to lower product revenues.
38
<PAGE> 39
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE H (Continued)
<TABLE>
<CAPTION>
Reorganized Company Predecessor Company
------------------------------------- ------------------------
Six Months Year Nine Months Three Months Year
Ended Ended Ended Ended Ended
December 31, June 30, June 30, September 30, June 30,
1995 1995 1994 1993 1993
------------ -------- -------- ------------- --------
<S> <C> <C> <C> <C> <C>
Income (loss) from
continuing
operations before
income taxes and
reorganization
items:
United States $(29.1) $(40.8) $ 26.4 $ 1.6 $(64.7)
Europe 9.0 10.5 8.2 (2.3) (19.1)
Asia/Pacific 5.6 (17.4) (16.8) 9.9 4.8
Americas 3.2 (12.7) 0.5 1.6 (0.2)
Eliminations 4.7 2.7 2.1 1.5 9.3
------ ------ ------ ------ ------
$ (6.6) $(57.7) $ 20.4 $ 12.3 $(69.9)
====== ====== ====== ====== ======
</TABLE>
The loss from continuing operations before income taxes and reorganization items
for the six months ended December 31, 1995 and the year ended June 30, 1995
includes $27.2 million and $64.2 million, respectively of acquisition-related
charges.
<TABLE>
<CAPTION>
Predecessor
Reorganized Company Company
------------------------------------- -------------
December 31, June 30, June 30, June 30,
1995 1995 1994 1993
------------ -------- -------- -------------
<S> <C> <C> <C> <C>
Identifiable assets
(excluding
intercompany):
United States $504.4 $517.1 $372.1 $268.9
Europe 196.1 181.7 203.5 176.8
Asia/Pacific 90.6 106.5 75.3 82.4
Americas 52.5 57.1 35.8 31.8
Eliminations and
other (1.8) (1.7) (0.7) 28.9
------ ------ ------ ------
$841.8 $860.7 $686.0 $588.8
====== ====== ====== ======
</TABLE>
The increase in identifiable assets from June 30, 1994 to June 30, 1995 is
primarily the result of the Bull acquisition, which occurred in January 1995.
The increase in identifiable assets from June 30, 1993 to June 30, 1994 is due
principally to the implementation of fresh-start reporting, which resulted in
the establishment of intangible assets.
39
<PAGE> 40
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I--COMMITMENTS AND CONTINGENCIES
LEASES: Rental expense amounted to $14.1 million for the six months ended
December 31, 1995, $17.6 million for the year ended June 30, 1995, $16.7 million
for the nine months ended June 30, 1994, $8.0 million for the three months ended
September 30, 1993, and $29.0 million in fiscal 1993. Future minimum lease
commitments on noncancelable operating leases are $36.5 million, $30.8 million,
$26.4 million, $20.5 million and $21.8 million for the twelve months ended
December 31, 1996, 1997, 1998, 1999 and 2000, respectively, and $44.3 million
thereafter. These minimum lease commitments include approximately $63 million
related to facilities the Company has elected to abandon in connection with the
restructuring and acquisition-related initiatives.
LETTERS OF CREDIT: At December 31, 1995 and June 30, 1995, the Company had $10.4
million and $9.2 million, respectively, in letters of credit outstanding under a
financing facility with BTCC (see Note D, Financing Arrangements).
FOREIGN CURRENCY GAINS(LOSSES): Foreign currency exchange and translation gains
or losses included in operations amounted to a $0.1 million gain for the six
months ended December 31, 1995, a $0.7 million loss for the year ended June 30,
1995, a $0.3 million loss for the nine months ended June 30, 1994, a $0.3
million gain for the three months ended September 30, 1993, and a $0.2 million
loss in fiscal 1993.
FORWARD EXCHANGE CONTRACTS: There were no forward exchange contracts at December
31, 1995. At June 30, 1995 and 1994, the Company had forward exchange contracts
with maturities of less than one year, to exchange predominately European
currencies for U.S. dollars in the amounts of $12.9 million and $9.5 million,
respectively, in foreign currency. Market risk arises from fluctuation of
currency rates during the period that contracts are outstanding.
LITIGATION: On October 27, 1994, Wang filed suit against FileNet Corporation
alleging the infringement of five Wang patents covering a wide range of imaging
and workflow technologies. A sixth imaging patent was subsequently added. Wang
is seeking damages and injunctive relief. The parties are currently engaged in
the discovery process. The trial is currently scheduled for calendar 1996.
The Company is a defendant in several "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 pursuant to the Reorganization Plan. 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 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. To date
approximately 60 claims have been made against the Company alleging damages for
RSI injuries. Claims for all but four of
40
<PAGE> 41
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I (Continued)
these have been filed as part of the Company's Chapter 11 proceeding (the
Company filed for Chapter 11 protection in August 1992 and effectively emerged
from Chapter 11 on September 30, 1993). The Company believes that all of these
actions, including those commended after the Chapter 11 proceeding, will be
resolved under the 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. 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 the Company is not in
a position to predict accurately the results of specific matters, the Company
does not currently believe that its liability, if any, for all litigation will
be material to the Company's consolidated financial position or its results of
operations.
On September 5, 1995, the Company filed suit in the United States District Court
for the Eastern District of Virginia against Decision One (formerly known as
Decision Servcom, Inc.) ("DSI"), alleging infringement by DSI of copyrights held
by the company on the operating system software for the Company's VS line of
minicomputers. On February 3, 1996, the Company and DSI reached an agreement to
settle the lawsuit on terms acceptable to the Company.
NOTE J--FRESH-START REPORTING, REORGANIZATION AND RESTRUCTURING
EXPENSES
FRESH-START REPORTING: At a hearing on September 20, 1993, the Company's
Reorganization Plan under Chapter 11 was confirmed by the United States
Bankruptcy Court for the District of Massachusetts (the "Court"). The formal
confirmation order was entered on September 21, 1993, and became effective on
September 30, 1993 (the "Confirmation Date"). The Reorganization Plan was
consummated on December 16, 1993 (the "Consummation Date").
As a result of the confirmation of the Reorganization Plan of Wang Laboratories,
Inc., the Company's predecessor Massachusetts corporation (the "Predecessor
Company"), the Company implemented fresh-start reporting as of September 30,
1993. Under the provisions of AICPA Statement of Position 90-7 ("SOP 90-7"),
"Financial Reporting by Entities in Reorganization under the Bankruptcy Code,"
the Company was required to adopt fresh-start reporting upon emergence from
Chapter 11 since the reorganization value (approximate fair value) of the assets
of the Company immediately before confirmation of the Plan was less than the
total of all post-petition liabilities and allowed pre-petition claims, and
holders of the existing voting shares immediately before the confirmation of the
Plan would receive less than 50% of the voting shares of the emerging Company.
The Company's Consolidated Balance Sheet as of June 30, 1994 was prepared as if
the Company were a new reporting entity at September 30, 1993, and reflects
certain reorganization adjustments that include the restatement of assets and
liabilities to approximate fair value and the discharge of outstanding
liabilities relating to creditors' claims against the Company, which have been
satisfied primarily by new common stock. The Statement of Operations and the
Statement of Cash Flows for the six months ended December 31, 1995, the year
ended June 30, 1995 and the nine months ended June 30, 1994 incorporate the
effects of fresh-start reporting. However, the Statement of Operations and
41
<PAGE> 42
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J (Continued)
the Statement of Cash Flows for the three months ended September 30, 1993 and
the year ended June 30, 1993 are based on historical costs. Accordingly, the
Company has presented the Statement of Operations and Statement of Cash Flows
for the nine months ended June 30, 1994 and the three months ended September 30,
1993, but has not presented a Statement of Operations and Statement of Cash
Flows for the twelve months ended June 30, 1994. A vertical line has been drawn
on the accompanying financial statements to distinguish between the Reorganized
Company and the Predecessor Company.
Under the Reorganization Plan, 30 million shares of the Company's new Common
Stock are being distributed to holders of unsecured claims against the
Predecessor Company, including debenture holders. Of the total shares to be
distributed, approximately 20 million shares were distributed as part of the
initial distribution and 7 million shares were distributed in March 1995 as a
second distribution. The balance of the shares remains in a disputed claims
reserve and is held by a Disbursing Agent appointed under the Reorganization
Plan. The Common Stock held in the disputed claims reserve may not be voted
until it has been distributed by the Disbursing Agent. The initial and second
distributions were based on the then-current amount of allowed unsecured claims
and estimated disputed unsecured claims, which were approximately $938 million
at the time of the initial distribution and $724 million at the second
distribution. Additional distributions are being made to holders of allowed
unsecured claims as either their claims are allowed, or as disputed claims are
disallowed. At the present time, the Company estimates that the final allowed
amount of unsecured claims will be in the $700 million to $725 million range.
In addition to the issuance and distribution of Common Stock, the Company made
cash payments totaling $10.9 million through December 31, 1995, to holders of
administrative claims, priority tax and wage claims, and certain debts and
executory contracts assumed as part of the Reorganization Plan. Certain
administrative priority cash claims received deferred cash payments plus
interest.
<TABLE>
The balance sheet of the Reorganized Company, upon adoption of fresh-start
reporting, contains the following (in millions):
<S> <C>
Reorganization value of assets $675.5
Less present value of liabilities
to be paid 431.6
------
Reorganization value of stockholders'
equity $243.9
======
</TABLE>
42
<PAGE> 43
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J (Continued)
The Statement of Operations for the three months ended September 30, 1993
contains a $329.3 million gain on debt discharge resulting from confirmation of
the Reorganization Plan and a $193.6 million fresh-start reporting adjustment
reflecting the restatement of assets and liabilities consistent with the
reorganization value of the Reorganized Company.
The reorganization value of the Company's assets and stockholders' equity was
established based upon the Company's "enterprise value," as determined by the
analysis of the Company's financial advisor, Donaldson, Lufkin and Jenrette
("DLJ"). In preparing its analysis, DLJ, among other things: (a) reviewed recent
publicly available financial statements of the Company, as well as financial
projections prepared by the Company; (b) prepared a discounted cash flow
analysis using a discount rate range of 21.5%-23.5% on the projections for
fiscal years 1994-1996; (c) considered the market values and historical
acquisitions of publicly traded companies comparable to the operating
characteristics of the Reorganized Company; and (d) considered economic and
industry information relevant to the operating business of the Company.
Financial projections prepared by the Company analyzed all aspects of the
Company's operations, including its customer base, technology, management and
infrastructure, to identify core competencies on which a new business could be
built. The business plan was based on success in developing and marketing
imaging and related open systems office productivity software, and in providing
value-added network integration and support services, initially to the Company's
installed VS base.
<TABLE>
"Enterprise value" represents an estimated value of the Company based upon its
reorganized capital structure at the Confirmation Date, estimated by DLJ to be
in a range from $325 to $425 million. For purposes of fresh-start reporting, the
mid-point of this range, or $375 million, was used. The "enterprise value" of
the Company consists of the following elements (in millions):
<S> <C>
Reorganized value of stockholders' equity $243.9
Long-term debt 4.4
Long-term restructuring 15.8
Other long-term liabilities 50.9
Exchangeable preferred stock and
common stock to be issued 60.0
------
$375.0
======
</TABLE>
43
<PAGE> 44
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J (Continued)
Unaudited Pro Forma financial data for the year ended June 30, 1994, assuming
the Plan was confirmed on July 1, 1993, indicates revenues of $855.3 million,
net income from continuing operations of $15.6 million, net income attributable
to common shareholders of $8.0 million and earnings per share of $0.25. The
unaudited Pro Forma net income includes the effect of amortization of the
fresh-start intangible assets of $6.9 million for the quarter ended September
30, 1993, and eliminates historical reorganization expenses, including
restructuring items, of $34.9 million associated with the Company's emergence
from Chapter 11. The earnings per share calculation assumes that the 30,479,766
shares issued in connection with the Plan and the 1.5 million shares issued in
the private placement financing, have been outstanding since the beginning of
the year, and that net income has been reduced by cumulative dividends and
accretion of $7.6 million related to the Company's Preferred Stock.
The unaudited Pro Forma financial data does not include the non-recurring $329.3
million gain on debt discharge and fresh-start reporting adjustment of $193.6
million, recorded in connection with the implementation of fresh-start
reporting. The assumptions do not purport to reflect all the changes that would
have occurred had the reorganization occurred on July 1, 1993.
<TABLE>
REORGANIZATION EXPENSES: Reorganization expenses relate to the
reorganization and restructuring of the Company in connection
with implementing the Reorganization Plan and consist of the
following (in millions):
<CAPTION>
Three Months Ended Year Ended
September 30, 1993 June 30, 1993
------------------ -------------
<S> <C> <C>
Restructuring, net $ 8.2 $ 92.2
Professional fees 16.1 15.4
Foreign exchange (gain) loss (3.9) 5.8
Write-off of pre-petition debt
issuance costs -- 4.0
Administrative and other incremental
Chapter 11 costs 14.5 9.9
----- ------
$34.9 $127.3
===== ======
</TABLE>
The net restructuring provisions recorded by the Predecessor Company of $8.2
million during the three-month period ended September 30, 1993 and $92.2 million
in fiscal 1993 have been classified as reorganization items in the statement of
operations. The restructuring initiatives undertaken during this period were in
direct response to a preliminary Joint Plan of Reorganization prepared by the
Company and the Official Creditors' Committee and filed with the Bankruptcy
Court on March 21, 1993. Acceptance of the Joint Plan was predicated on
additional downsizing and restructuring, consistent with the Company's business
plan as outlined in that document. Specific actions to be taken were identified,
quantified and recorded during the periods prior to finalization of the
preconfirmation financial statements.
44
<PAGE> 45
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J (Continued)
Professional fees and administrative and other incremental Chapter 11 costs for
the three months ended September 30, 1993, include $18.8 million of expenses
recorded in fresh-start reporting for amounts expected to be incurred through
the completion of all Chapter 11-related matters.
Foreign exchange gain (loss) relates primarily to the exposed portion of the
Company's pre-petition Swiss franc-denominated bonds and is due to exchange rate
fluctuations between the Swiss franc and the U.S. dollar.
In accordance with SOP 90-7, interest income earned post-petition of
approximately $0.9 million for the three months ended September 30, 1993, and
$1.0 million for the year ended June 30, 1993, is included in the
"Administrative and other incremental Chapter 11 costs" category listed above.
RESTRUCTURING EXPENSES: The Company had taken a series of restructuring
initiatives from 1989 through 1994. These actions were taken in response to the
dramatic changes taking place in the computer and information technology
industry beginning in the mid-1980s. Rapid developments in microprocessor
technology have resulted in smaller, more powerful computers and systems that
were replacing mainframe and mini-computer systems. As customers became less
dependent on proprietary computer systems and software, they began to migrate to
open systems hardware and software. The Company had already initiated a strategy
to transition from its emphasis on proprietary systems and software to its new
focus as a provider of office productivity solutions. However, these industry
changes resulted, during 1989, in a first-time decline in the Company's total
product and service revenues. The Company undertook restructuring initiatives in
direct response to these conditions. These actions included workforce
reductions, realignment of the sales and service organization, consolidation of
certain operating facilities, and the discontinuation of operations not
considered part of the Company's strategic direction. The need for continued
change and downsizing, which eventually outpaced available sources of cash
during 1992, resulted in the need for the Company to seek the relief of Chapter
11. The initiatives in 1993 and 1994 were taken to further restructure the
Company prior to its emergence from Chapter 11.
<TABLE>
The activity related to these restructuring actions through December 31, 1995,
is summarized in the following table (in millions):
<CAPTION>
Liabilities
Charges Discharged at
to September 30, Charges
Operations 1993 and Charges utilized
Balance in 1993 Effects of utilized Adjustments Charges Balance July 1 to Balance
June 30, and Fresh-start in 1993 to Accrual utilized June 30, December 31, December 31,
1992 1994 Reporting and 1994 in 1995 in 1995 1995 1995 1995
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Facilities $132.0 $ 2.8 $(30.4) $ (70.7) $ 1.2 $(24.7) $10.2 $(4.4) $ 5.8
Depreciable assets 78.3 67.8 (9.5) (121.7) (2.0) (9.2) 3.7 (0.2) 3.5
Workforce-related 80.2 35.3 9.6 (99.7) (0.6) (21.2) 3.6 (1.3) 2.3
Other 111.3 19.7 (9.4) (108.2) (0.8) (6.2) 6.4 (1.7) 4.7
------ ------ ------ ------- ----- ------ ----- ----- -----
Total $401.8 125.6 $(39.7) $(400.3) $(2.2) $(61.3) $23.9 $(7.6) $16.3
====== ====== ======= ===== ====== ===== ===== =====
Realized gains on
related asset
sales (25.2)
------
Net provision $100.4
======
</TABLE>
45
<PAGE> 46
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J (Continued)
<TABLE>
The December 31, 1995 and June 30, 1995 balances of the restructuring reserves
are classified as follows (in millions):
<CAPTION>
December 31, June 30,
1995 1995
------------ --------
<S> <C> <C>
Depreciable assets $ 3.5 $ 3.7
Accounts payable, accrued expenses
and other 8.9 14.8
Liabilities of businesses held for sale 0.4 1.0
Non-current liabilities 3.5 4.4
----- -----
$16.3 $23.9
===== =====
</TABLE>
Cash outlays to complete the balance of the Company's restructuring initiatives
are estimated to approximate $8 million in fiscal 1996 and $4 million in fiscal
1997. The cash outlays related to the facilities reserve are not expected to
extend beyond June 30, 1997, although they may be required earlier in the event
of any lease termination settlements. Workforce-related actions were completed
by September 30, 1994, although under certain circumstances the actual payment
of termination costs extended beyond that date.
The Company, after it had finalized a formal plan to restructure its operations,
recorded its restructuring charges and related reserves based upon the best
information available at the time. The facilities-related reserves for the
Company's excess manufacturing, 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 are 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 disposal value of real estate, leasehold improvements, spares and other
productive assets no longer required. Workforce-related reserves, consisting
principally of severance costs, were established based on specific
identification of the number of employees to be terminated, their job
classifications or functions and their locations. Other asset-related reserves
were established principally to recognize a write-down in the value of certain
inventory, capitalized software and other assets directly related to the actions
taken by the Company to significantly curtail manufacturing and development
activities related to its proprietary hardware and software products.
The 1993 and 1994 restructuring provisions were offset by $25.2 million in gains
on the sale of non-strategic assets sold in connection with the Company's
Reorganization Plan. The restructuring provisions included $67.8 million for
depreciable asset write-downs, $35.3 million for employee termination costs,
$10.3 million for the disposal of certain sales and manufacturing subsidiaries,
$2.8 million for abandonment of facilities, and $9.4 million for various other
restructuring actions, including the write-down of other assets, such as
inventories and capitalized software. These
46
<PAGE> 47
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J (Continued)
restructuring charges were required to further reduce the worldwide sales,
manufacturing, finance and administration, and research and development
personnel to approximately 5,000 people. These personnel reductions resulted in
significantly reduced requirements for real estate and other facilities and in
related write-downs in depreciable assets. Included in asset write-downs were
provisions for inventory write-downs as a result of the reduced manufacturing
requirements.
In December 1993, the Company sold a 70% interest in its New Zealand subsidiary
for net proceeds of $7.0 million. The loss on the sale was recorded as part of
the 1994 restructuring initiative. The Company recorded $0.8 million in equity
income for the twelve months ended June 30, 1995, relating to this subsidiary.
At June 30, 1995, the equity investment in New Zealand was $4.8 million and is
included in other non-current assets on the accompanying consolidated balance
sheet.
On March 31, 1993, the Company sold the remaining approximately 70% interest in
its Taiwan manufacturing subsidiary, Wang Laboratories Taiwan Ltd., and a 51%
interest in Wang Industrial Company Ltd. ("WICL"), its Taiwan sales and
marketing subsidiary. In return for the ownership interests in the two
subsidiaries, the Company and other Company subsidiaries were relieved of
approximately $184 million in obligations to the Taiwan manufacturing and sales
subsidiaries. During fiscal 1995, the Company sold its remaining 49% interest in
WICL. Proceeds from the sale amounted to $13.4 million.
NOTE K--FAIR VALUE OF FINANCIAL INSTRUMENTS
The Financial Accounting Standards Board requires disclosure of the fair value
of financial instruments under Statement of Financial Accounting Standard No.
107, "Disclosure About Fair Value of Financial Instruments."
The Company's financial instruments as of December 31, 1995, June 30, 1995 and
June 30, 1994 were cash and cash equivalents, forward exchange contracts, long-
and short-term debt, warrants and preferred stock. The carrying amounts reported
in the balance sheets for cash and cash equivalents, forward exchange contracts
and long and short-term debt approximate their fair value. The fair value of the
Company's publicly traded warrants is determined by the closing price on a
nationally recognized exchange. The fair value of the warrants was approximately
$38.4 million, $49.7 million and $44.1 million, at December 31, 1995 and June
30, 1995 and 1994, respectively. The fair values of the Company's preferred
stock are estimated using discounted cash flow analyses, based on the Company's
current incremental borrowing rate for similar borrowing arrangements. The
Company's 4 1/2% Preferred Stock approximates fair value while the fair value of
the 11% Preferred Stock was estimated at $72.9 million at December 31, 1995 and
$69.1 million at June 30, 1995.
NOTE L--SUMMARIZED INCOME STATEMENT DATA
On January 31, 1995, the Company completed the Bull acquisition. The purchase
price for Bull is subject to change based on post-closing adjustments to certain
balance sheet items as contractually required under the Asset and Stock Purchase
Agreement. The post-closing adjustments are the subject of ongoing negotiations
and are in the preliminary stages of arbitration. During this period of ongoing
negotiations the Company has been unable to obtain
47
<PAGE> 48
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE L (Continued)
the necessary cooperation from Bull and its auditors to either provide
pre-acquisition financial statements of the acquired Bull businesses, as audited
by Bull's auditors, or have the Company's own independent auditors conduct an
audit of the pre-acquisition financial statements.
In lieu of providing pre-acquisition financial statements of the acquired Bull
businesses, the Company has provided unaudited summarized consolidated income
statement data of the Company, including the acquired businesses, for the period
from February 1, 1995 to December 31, 1995. Because the acquired Bull businesses
have been integrated and consolidated with the Company's existing businesses,
separate financial statements of the acquired Bull businesses subsequent to the
acquisition are not available.
<TABLE>
Unaudited summarized income statement data for the eleven months ended December
31, 1995, which includes eleven months of Bull activity for the same period, are
as follows (in millions, except per share data):
<CAPTION>
Eleven Months Ended
December 31, 1995
-------------------
<S> <C>
Revenues $1,042.0
Net loss ($71.9)
Net loss applicable to common stockholders ($82.7)
Per share amounts:
Net loss ($2.01)
Net loss applicable to common stockholders ($2.31)
</TABLE>
NOTE M--SUBSEQUENT EVENT
On February 27, 1996, the Company completed a private placement of 2,875,000
Depositary Shares, each representing a 1/20 interest in a share of 6 1/2% Series
B Cumulative Convertible Preferred Stock (the "Series B Preferred Stock"), for
approximately $139 million, net of transaction costs. The 143,750 shares of
Series B Preferred Stock, represented by Depositary Shares, are convertible at
the option of the holder into Common Stock of the Company at a conversion price
of $26.5625 per share of Common Stock subject to adjustment for dividends
payable in common stock, the issuance of rights or warrants to purchase common
stock, the subdivision, combination or reclassification of common stock and the
distribution of other assets to all the holders of common stock. The Series B
Preferred Stock may not be redeemed before March 1, 1999. Thereafter, the Series
B Preferred Stock may be redeemed at the option of the Company, in whole or in
part, at specified redemption prices plus accrued and unpaid dividends.
Approximately $73 million of the proceeds were used to repurchase and retire all
of the outstanding shares of the Company's 11% Exchangeable Preferred Stock, at
the liquidation preference of $25.00 per share plus accrued and unpaid
dividends. The retirement of the 11% Exchangeable Preferred Stock will result in
a one-time dividend of $8.8 million reflecting the difference between the
repurchase value and the carrying value of the securities, which will be
recorded in the quarter ended March 31, 1996. The remainder of the proceeds will
be used for general corporate purposes, including possible business
acquisitions.
48
<PAGE> 49
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE M (Continued)
The unaudited Pro Forma Consolidated Balance Sheet as presented in the
accompanying December 31, 1995 Consolidated Balance Sheet was prepared as if the
issuance of the Series B Preferred Stock and the repurchase and retirement of
the 11% Exchangeable Preferred Stock had occurred as of December 31, 1995. The
unaudited Pro Forma Consolidated Balance Sheet includes the following
adjustments:
- -- Repurchase and retirement of 11% Exchangeable Preferred Stock, at par, for
$72.9 million. The difference of $9.0 million between the book value of
$63.9 million and repurchase price is recorded as a one-time dividend.
- -- Proceeds from the issuance of the Series B Preferred Stock totaling $143.8
million.
- -- Estimated transaction costs of $4.9 million associated with issuing of
Series B Preferred Stock, including underwriting, legal, accounting and
other fees.
The pro forma adjustments were estimated utilizing information currently
available and include adjustments which give effect to the transaction that are
directly attributable and factually supportable. The final adjustments recorded
by the Company will differ from those utilized to prepare the unaudited Pro
Forma Consolidated Balance Sheet at December 31, 1995. The unaudited Pro Forma
Consolidated Balance Sheet does not purport to reflect all changes that would
have occurred had the transaction occurred on December 31, 1995.
49
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-73210), pertaining to the Company's Stock Incentive Plan,
1993 Employees' Stock Grant Plan, Employees' Stock Purchase Plan and Senior
Management Stock Distribution Plan, the Registration Statement (Form S-8
No. 33-75350), pertaining to the Company's 1993 Directors' Stock Option
Plan, the Registration Statement (Form S-8 No. 33-89910), pertaining to the
Company's 1995 Director Stock Option Plan, the Registration Statements
(Form S-8 No. 33-89912 and No. 333-1333), pertaining to the Company's
Employees' Stock Incentive Plan, the Registration Statement (Form S-8 No.
33-89914), pertaining to the Company's 1995 Employees' Stock Purchase Plan,
the Registration Statement (Form S-8 No. 333-1335), pertaining to the Avail
Systems Corporation 1991 Incentive Stock Plan and the Registration
Statement (Form S-3 No. 33-58717) of Wang Laboratories, Inc. of our report
dated March 6, 1996, with respect to the consolidated financial statements
of Wang Laboratories, Inc. included in its Current Report on Form 8-K dated
April 3, 1996, filed with the Securities and Exchange Commission.
Ernst & Young LLP
Boston, Massachusetts
April 3, 1996
50
