<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1 TO FORM 10-K
For Annual and Transition Reports Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
X Annual Report Pursuant to Section 13 or 15(d) of the Securities
----- Exchange Act of 1934
For the Fiscal Year ended June 30, 1996
COMMISSION FILE NUMBER 1-5677
WANG LABORATORIES, INC.
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(Exact name of Registrant as specified in its charter)
Delaware 04-2192707
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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
--------------
Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
Common Stock Purchase Warrants
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
----- -----
On August 30, 1996, the aggregate market value of voting stock held by
non-affiliates of the Registrant was $595,182,223 based on the closing price of
Common Stock on the Nasdaq National Market on August 30, 1996 and assuming a
market value of $50.00 per share for the Depositary Shares (each representing a
1/20 interest in a share of the 6 1/2% Cumulative Convertible Preferred Stock)
and assuming a market value of $1,000.00 per share for the 4 1/2% Series A
Cumulative Convertible Preferred Stock.
The number of shares outstanding of Common Stock outstanding as of August
30, 1996 was 36,399,098.
<PAGE> 2
Documents Incorporated By Reference
-----------------------------------
Document Form 10-K Part
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Definitive Proxy Statement with respect Part III
to the Annual Meeting of Stockholders
to be held on November 26, 1996
to be filed with the Securities and
Exchange Commission
<PAGE> 3
This Amendment to the Annual Report on Form 10-K of Wang Laboratories,
Inc. ("Wang" or the "Company") for the fiscal year ended June 30, 1996, gives
effect to certain changes in Item 6 - Selected Financial Data, Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Item 8 - Financial Statements and Supplementary Data.
This Amendment, which is the result of informal discussions with the
staff of the Securities and Exchange Commission, reflects the reversal of
certain reserves originally recorded by the Predecessor Company in 1993 upon the
confirmation of the Company's Chapter 11 Reorganization Plan. These reversals
have resulted in reductions to fresh-start intangible assets, accrued expenses
and non-current liabilities and in increases to net income and to equity of the
reorganized Company at September 30, 1993. The resulting balance sheets,
statements of operations, statements of cash flows, statements of equity,
footnotes and exhibits reflecting those changes for all subsequently reported
fiscal year periods are also included in this Amendment. The Statements of
Operations have also been modified to report separately the gross amounts of
acquisition=related costs, restructuring costs and Chapter 11 related costs.
Footnote B and J have been reformatted and expanded to reflect the revised
Statements of Operations format.
PART II
ITEM 6. SELECTED FINANCIAL DATA
See EXHIBIT A attached hereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
See EXHIBIT B attached hereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See EXHIBIT C attached hereto.
<PAGE> 4
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
WANG LABORATORIES, INC.
BY: /s/ Franklyn A. Caine
------------------------------------
Franklyn A. Caine
Executive Vice President and
Chief Financial Officer
August 12, 1997
<PAGE> 5
EXHIBIT A
Wang Laboratories, Inc. and Subsidiaries
<TABLE>
Five-Year Comparison of Selected Financial Data
<CAPTION>
(Dollars in millions except per share data)
Predecessor Company
--------------------------------
Year Ended
Year Year Nine Months Three Months June 30,
Ended Ended Ended Ended -----------------
June 30, 1996 June 30, 1995 June 30, 1994 Sept 30, 1993 1993 1992
(Restated) (Restated) (Restated) (Restated)
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<S> <C> <C> <C> <C> <C> <C>
Revenues $1,089.8 $947.2 $644.4 | $210.9 $1,247.0 $1,896.2
Income (loss) from continuing |
operations before reorgani- |
zation expenses, discontinued |
operations, fresh-start |
reporting adjustment and |
extraordinary item (5.5) $(68.1) $ 8.6 | $ 11.9 $ (69.9) $ (358.2)
|
Reorganization expenses -- -- -- | 20.8 (127.3) --
|
Income from discontinued |
operations -- -- -- | -- -- 1.6
Fresh-start reporting adjustment -- -- -- | 193.6 -- --
Gain on debt discharge -- -- -- | 329.3 -- --
-------- ------ ------ | ------ ------- -------
|
Net income (loss) (5.5) (68.1) $ 8.6 | 514.0 (197.2) (356.6)
Dividends and accretion on |
preferred stock (22.6) (8.7) (4.2) | -- -- --
------- ------ ------ | ------ ------- -------
|
Net income (loss) applicable to |
common stockholders $ (28.1) $(76.8) $ 4.4 | $514.0 $(197.2) $ (356.6)
======= ====== ====== | ====== ======= ========
|
Net income (loss) per share $ (0.77) $(2.24) $ 0.13 | * * *
======= ====== ====== | ====== ======= ========
|
Average number of employees 6,900 5,900 5,900 | 6,700 9,500 13,900
</TABLE>
<TABLE>
<CAPTION>
At June 30, 1996 1995 1994 1993 1992
(Restated) (Restated) (Restated)
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<S> <C> <C> <C> <C> <C>
Total assets $856.6 $852.5 $677.1 | $ 588.8 $1,065.9
|
Depreciable assets, net $137.3 $134.4 $ 79.6 | $ 137.4 $ 316.1
|
Working capital $ 67.6 $ 34.1 $ 95.1 | $ 26.3 $ (13.7)
|
Long-term debt, excluding |
Liabilities subject to |
compromise -- $ 23.0 $ 2.0 | $ 13.8 $ 452.6
|
Series A preferred stock $ 84.8 $ 84.1 $ -- | $ -- $ --
|
Exchangeable preferred stock $ -- $ 61.5 $ 53.2 | $ -- $ --
|
Stockholders' equity (deficit) $343.1 $220.8 $272.3 | $(501.4) $ (286.4)
|
Number of employees 7,900 6,900 5,300 | 6,900 12,900
</TABLE>
Certain prior years' amounts have been reclassified to conform to the
presentation for fiscal 1996. Employee data excludes discontinued operations
and businesses held for sale.
* 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. See notes to the consolidated financial statements.
<PAGE> 6
EXHIBIT B
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Recent Developments
- -------------------
On August 29, 1996, the Company acquired I-NET, Inc. ("I-NET") for approximately
$165 million in cash and notes, plus assumed liabilities. Prior to the
transaction, the Company had an investment in I-NET of approximately $12
million. I-NET, a privately-held business, is a vendor-independent provider of
outsourced network and desktop management services. These services include
enterprise network integration and operations, network management, client/server
technologies, local area network and wide area network ("LAN/WAN")
communications, document management services and IT outsourcing. I-NET
generated revenues of approximately $327 million for the year ended December
31, 1995. The Company is integrating I-NET with its existing businesses.
Integration-related costs associated with the acquisition will be recorded in
the first quarter of fiscal 1997 as part of a restructure charge to operations
totaling approximately $29 million.
On August 29, 1996, the Company also entered into a three-year Amended and
Restated Credit Facility (the "Facility") with a group of financial
institutions, which provides for borrowings of up to $225.0 million. Borrowings
under the Facility replaced the Company's existing credit facility, financed a
portion of the purchase price of I-NET and refinanced existing I-NET borrowings.
The remainder will be used for general corporate purposes.
Basis of Presentation
- ---------------------
The Company was required to adopt fresh-start reporting in accordance with the
American Institute of Certified Public Accountants Statement of Position No.
90-7 ("SOP 90-7"), "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code" in connection with its emergence from Chapter 11 in 1993. The
Company's basis of accounting for financial reporting purposes changed as of
September 30, 1993 (the "Confirmation Date") as a result of adopting SOP 90-7.
Management's discussion and analysis will: (i) compare the results of operations
for the year ended June 30, 1996 to the year ended June 30, 1995; (ii) discuss
the results of operations for the nine months ended June 30, 1994, due to the
changes in the Company's basis of accounting, which were effective September 30,
1993; (iii) compare the results of operations of the Company's predecessor
Massachusetts corporation (the "Predecessor Company") for the three months
ended September 30, 1993 to the comparable period of the prior year; and (iv)
explain the liquidity and sources of capital as of June 30, 1996.
Except for historical matters, the matters discussed in this Annual Report on
Form 10-K are forward-looking statements that involve risks and uncertainties.
Such forward-looking statements relate to the Company's business, acquisitions,
products,
<PAGE> 7
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Basis of Presentation (continued)
- ---------------------------------
services, software, expenses, effective tax rate and operating and capital
requirements. In addition, forward-looking statements may be included in various
other Company documents to be issued in the future and in various oral
statements by Company representatives to security analysts, investors and others
from time to time. There are a number of important factors that could cause the
Company's actual results of operations and financial condition in the future to
vary from that indicated by such forward looking statements. Such factors
include, without limitation, the following:
- - The Company's ability to implement its strategy of building upon internal
growth in the software and services office productivity segment of the
information processing industry with acquisitions and strategic alliances
designed to complement Wang's core competencies. There can be no assurance
that the Company will be able to implement acquisitions or strategic
relationships, or, if entered into, that such acquisitions or strategic
relationships will in fact further the implementation of the Company's
business strategy. In addition, there can be no assurance that any of the
Company's acquisitions or strategic alliances will result in long-term
benefits to the Company, or, with respect to one or more significant
acquisitions, that the Company and its management will be able to
effectively assimilate and manage the resulting business.
- - Currently, a significant portion of the Company's revenues are attributable
to the servicing, upgrading and enhancement of its installed base of VS and
other traditional proprietary systems. The Company expects the decline in
revenues from traditional sources to continue during fiscal 1997 at the
rate of 20 to 25 percent per annum. As the Company's proprietary revenues
decline, individual customer losses may have a significant effect on the
rate of decline. The Company's continued growth is predicated on the
business strategy described above (including the acquisition of new
customer service and network integration businesses and continued expansion
of its software business) more than offsetting the decline in revenues from
traditional sources. To the extent that there are delays and difficulties
in the implementation of the Company's strategy, or if the decline in
revenues from traditional sources is more rapid than anticipated, the
Company's results of operations could be adversely affected.
- - There can be no assurance that the Company will have the technical
resources to be able to introduce competitive software products on a timely
basis, invest in research and development activity on the same basis as its
competitors, or otherwise be able to develop new software and enhancements
to current software on a timely basis. In addition, the third-party
maintenance and support market is extremely competitive with low barriers
to entry, and many other organizations, including hardware-independent
service organizations, compete for the provision of maintenance and service
to users. In addition, firms not now in direct competition with the
Company, including large software development and sales companies, may in
the future introduce competing products or services.
- - International revenues in recent years have accounted for approximately 50
percent of the Company's total revenues. The Company's international
operations are subject to all of the risks normally associated with
international sales,
<PAGE> 8
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Basis of Presentation (continued)
- ---------------------------------
including changes in regulatory compliance requirements, costs associated
with labor laws and local workers' councils, special standards
requirements, exposure to currency fluctuations, tariffs and other
barriers, difficulties in staffing and managing international subsidiary
operations, potentially adverse tax consequences and country-specific
product requirements. While the Company expects to manage its currency
exposure, there can be no assurance that it will not experience significant
losses on international currency fluctuations. In addition, effective
intellectual property protection may not be available in every foreign
country in which the Company's products are distributed.
- - Revenues from branches and agencies of the U.S. government in recent years
have approximated 18 percent of total revenues. In addition, significant
additional revenues have been derived from agencies of various foreign
governments. A significant portion of the Company's U.S. government
revenues comes from orders under government contract or subcontract awards,
which involves the risk that the failure to obtain an award, or a delay on
the part of the government agency in making the award or of ordering or
paying for products under an awarded contract, could have an impact on the
financial performance of the Company for the period in question. Other
risks in government sales are the larger discounts (and thus lower margins)
often involved in government sales, the unpredictability of funding for
various government programs, and the ability of the government agency to
unilaterally terminate the contact. Revenues from the U.S. government and
government agencies are received under a number of different contracts and
from a number of different government agencies and departments. Most
sources of government revenues are independent of each other, although
occasionally orders under one contact or from one government agency may be
linked with orders under another contract or from another agency (so that
if one order or contract were canceled, it is likely that the other would
also be canceled).
Results of Operations
- ---------------------
Year ended June 30, 1996 compared to year ended June 30, 1995
- -------------------------------------------------------------
For the year ended June 30, 1996, the Company reported revenues of $1,089.8
million, a 15.1% increase compared to revenues of $947.2 million for the prior
year. The Company reported an operating loss of $2.4 million for the year, after
net acquisition-related, restructuring and Chapter 11-related charges of
$29.7 million and $42.6 million of amortization of fresh-start and acquired
intangible assets. This compares to an operating loss of $74.7 million for the
prior year, after net acquisition-related, restructuring and Chapter 11-related
charges of $70.7 million and $31.3 million of amortization of fresh-start and
acquired intangible assets.
Earnings before interest, income taxes, depreciation and amortization ("EBITDA")
were $134.9 million for the year, an increase of 63.5% compared to $82.5 million
for the prior year. EBITDA, which some investors believe to be a meaningful
measure for assessing a company's ability to meet its cash requirements, is
determined by excluding from the net income(loss): acquisition-related,
restructuring and Chapter 11-related charges; income taxes; interest expense;
interest income; depreciation and amortization.
<PAGE> 9
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Year ended June 30, 1996 compared to year ended June 30, 1995 (continued)
- -------------------------------------------------------------------------
The increase in fiscal 1996 revenues was due in large part to acquisitions the
Company has made since January 1995. The Bull, Sigma, BISS and Dataserv
acquisitions were accounted for using the purchase method of accounting.
Accordingly, the results of operations of the Company in the accompanying
financial statements include the results of operations of such acquired
companies from the date of acquisition. The Avail acquisition (described below)
was accounted for using the pooling of interests method of accounting.
Accordingly, the Company's historical financial statements have been restated to
reflect the combined results of the Company and Avail since July 1, 1994.
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. The Company integrated the acquired
businesses with its existing businesses. Acquisition-related charges of $81.1
million were recorded during the fiscal year ended June 30, 1995.
On July 21, 1995, the Company completed the acquisition of Sigma Imaging
Systems, Inc. ("Sigma") (subsequently renamed Wang Software N.Y., Inc.) for a
purchase price of $20.0 million, consisting of $15.0 million in cash and $5.0
million in stock of the Company. Sigma designs and markets workflow and imaging
software for paper-intensive process applications. These products provide
customers the scaleable, enterprise-wide processing power required for
high-volume, image-enabled transaction processing applications. Sigma's products
are used in some of the largest multi-site imaging and workflow systems in
operation today. Management believes Sigma products running on Microsoft
Corporation's Windows NT operating systems will allow Wang to benefit from
revenue growth opportunities made possible by its alliance with Microsoft
Corporation. Acquisition-related charges of $30.8 million were recorded during
the fiscal year ended June 30, 1996.
On October 18, 1995, the Company acquired BISS Limited ("BISS") for a purchase
price of $16.1 million in cash. BISS operates in the United Kingdom and designs,
installs, integrates and supports network and client/server computing solutions.
This acquisition advanced the Company's objective to be a major worldwide
provider of network integration services.
On December 18, 1995, the Company acquired Avail Systems Corporation ("Avail")
(subsequently renamed Wang Software Storage Management Group, Inc.) for Wang
common stock valued at $32.2 million. Avail develops software which automates
the storage, relocation, archiving and retrieval of information on client/server
PC networks. This acquisition added the next generation of storage management
technology to the Company's workflow and imaging systems. Additionally, the
Company's alliance with Microsoft Corporation has been expanded to include
co-development of storage management products using the Avail technology for
future Microsoft products.
<PAGE> 10
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
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Year ended June 30, 1996 compared to year ended June 30, 1995 (continued)
- -------------------------------------------------------------------------
On May 3, 1996, the Company acquired Dataserv Computer Maintenance, Inc.
("Dataserv") from BellSouth Corporation for $28.5 million in cash. Dataserv
provides customers with computer maintenance and support services for
point-of-sale retail scanners and registers and popular industry-standard
servers and desktop products, as well as application helpdesk and network
integration services. Dataserv services companies in the banking and financial
services, insurance, retail and manufacturing industries.
The Company's plan is to increase its revenue, over time, by increasing sales of
software and related products and services, along with other newer service
offerings. In addition, the Company continues to focus on providing software and
services to the office productivity segment of the information processing
industry, a market where the Company has name recognition and established
technological, professional and marketing expertise. The addition of the Bull
and Dataserv service businesses added a significant portion of multi-vendor
service ("MVS") contracts to the Company's existing MVS revenues. The Company
has directed additional resources to the MVS business with the goal of
continuing to increase this revenue stream in the future. As previously
discussed, the Company acquired I-NET, a network and desktop outsourcing
company. I-NET, with 1995 revenues of $327 million, is focused on network
outsourcing, one of the fastest growing segments of the information technology
services market. These changes in business mix are expected to result in
increased volatility of quarterly revenues.
The Company expects the decline in revenues from traditional sources, including
the acquired Bull proprietary product and service revenue streams (i.e., sales
and service of proprietary VS and GCOS products) to continue during fiscal 1997
at the rate of 20 to 25 percent per annum. As the Company's proprietary revenues
decline, the loss of individual customers may have a significant effect on the
rate of decline from one period to the next.
Product revenues increased 12.2% to $182.3 million in the United States, while
product revenues outside the U.S. decreased by 8.2% from the prior year to
$186.6 million. Proprietary product sales totaled $76.0 million compared to
$75.1 million for the prior year, as a result of a decrease in the Wang
proprietary product revenue, which was partially offset by an increase in Bull
proprietary product revenue due to twelve months of Bull revenue included in
1996 compared to five months of Bull revenue in 1995. Network product and other
product sales totaled $248.3 million compared to $269.3 million for the prior
year as the Company continues to de-emphasize the sale of OEM hardware products.
Open software product revenues for the year more than doubled to $44.6 million
from $21.3 million for the prior year.
Service and other revenues in the United States increased by 39.1% compared to
the prior year to $405.2 million, reflecting the acquisitions of Bull and
Dataserv. Service and other revenues outside the U.S. increased by 8.8% compared
to the prior year to $315.7 million.
<PAGE> 11
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Year ended June 30, 1996 compared to year ended June 30, 1995 (continued)
- -------------------------------------------------------------------------
Proprietary services decreased by 1.5% compared to the prior year to $339.8
million as a result of a decrease in the Wang proprietary product services
revenue, which was partially offset by an increase in Bull proprietary services
revenue due to twelve months of Bull revenue included in 1996 compared to five
months of Bull revenue in 1995.
Network services revenue increased 59.4% compared to the prior year to $376.1
million. This increase was mainly due to increased third party maintenance
revenues acquired from Bull, Dataserv and BISS and newer service offerings. Open
software services (i.e., revenue from software maintenance agreements) totaled
$5.1 million compared to $0.8 million for the prior year.
Product gross margin increased to 36.3% from 30.4% in the prior year. This
increase was due to changes in product mix, particularly the increased volume of
open software and the addition of Bull products.
Gross margin for service and other revenues increased slightly to 31.0% from
30.9% in the prior year. The increase in margin was principally the result of
cost reductions attained from the integration-related efforts related to the
acquired Bull businesses. Service margins continue to be negatively affected by
the increase in lower-margin maintenance on multi-vendor service products and
the decline in revenues from the Company's proprietary maintenance contracts
along with competitive and technological pressures. The Company expects these
factors to continue to exert pressure on service margins.
Research and development costs increased by $2.2 million, or 7.0%, over the
prior year, representing 3.1% and 3.3% of revenues in 1996 and 1995,
respectively. The increase is due to the Company's business acquisitions. The
Company's development efforts are largely focused on developing software for
open systems platforms, supplemented with a modest level of spending directed to
continuing support of its proprietary VS products.
Selling, general and administrative expenses increased $21.6 million, or 9.3%,
compared to the prior year, but decreased as a percent of revenue to 23.3%
compared to 24.5% for the prior year. The increased expenses are mainly due to
business acquisitions. Offsetting these increases were acquisition-related
initiatives and restructuring programs which contributed significantly to the
elimination of redundant facilities, personnel, support costs and other related
expenses.
Amortization of fresh-start and acquired intangible assets totaled $42.6 million
compared to $31.3 million for the prior year. Amortization includes $24.9
million related to fresh-start reporting and $17.7 million for intangible assets
established in connection with business acquisitions. For the prior year,
amortization of $25.6 million was related to fresh-start reporting and $5.7
million was related to business acquisitions.
Periodically, the accruals related to restructuring and reorganization-related
charges are reviewed and compared to their respective requirements. As a result
of those reviews, the accruals are adjusted for changes in cost and timing
assumptions of previously approved and recorded initiatives. Review of the
reorganization-related accruals in fiscal 1996 identified $1.1 million of
excess reorganization reserves and $2.2 million of excess Chapter 11 accounts
payable accruals which were reversed. The fiscal 1995 review of the
reorganization-related accruals identified $2.3 million of excess Chapter 11
accounts payable accruals which were reversed. These reversals are reported as
Chapter 11-related charges (income) in the statements of operations. Review of
the restructuring accruals identified net additional requirements of
$2.2 million in 1996 and excess reserves of $8.1 million in 1995 related to
previously approved and recorded initiatives. These adjustments are reported
as All other restructuring costs (income) in the statements of operations.
<PAGE> 12
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Year ended June 30, 1996 compared to year ended June 30, 1995 (continued)
- -------------------------------------------------------------------------
Interest expense increased to $5.1 million compared to $3.7 million for the
prior year. This increase is principally a result of interest on the acquisition
note payable to Bull. Other income was primarily comprised of interest income,
which totaled $9.1 million and $7.2 million for the years ended June 30, 1996
and 1995, respectively.
The provision for income taxes totaled $11.0 million, which included a non-cash
expense of $10.3 million as a result of the Company's ability to utilize its tax
net operating loss carryforwards. The income tax provision of $3.6 million for
the prior year included $3.4 million of such non-cash expense. The Company has
recorded a net deferred tax asset of $47.6 million at June 30, 1996, of which
$43.4 million was attributable to the expected utilization of tax net operating
loss carryforwards which existed at September 30, 1993, reducing reorganization
value in excess of amounts allocated to identifiable intangible assets. Of the
remainder, $1.7 million was attributable to acquired tax benefits, reducing
goodwill related to the Bull acquisition and $2.5 million was attributable to
the expected utilization of tax net operating loss carryforwards generated
subsequent to September 30, 1993, reducing the provision for income taxes.
Although realization is not assured, management believes that the net deferred
tax asset will be realized. The estimate of future taxable income relates to the
Company's operations outside the U.S. which have, in the past, consistently
generated a level of taxable income similar to the amounts of future taxable
income necessary to realize the net deferred tax asset. In addition, the Company
has tax planning strategies to prevent the tax net operating loss carryforwards
from expiring unused. The amount of the net deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced.
At June 30, 1996, the Company employed approximately 7,900 people, compared to
6,900 people at June 30, 1995. The increase in employees as a result of
acquisitions was partially offset by restructuring and integration activities.
Nine months ended June 30, 1994
- -------------------------------
The Company reported revenues of $644.4 million and operating income of $10.6
million for the nine months ended June 30, 1994. Operating income was reduced by
$20.2 million for the amortization of intangible assets established in
connection with fresh-start reporting. Net income for the period was $8.6
million.
EBITDA amounted to $66.6 million for the nine months ended June 30, 1994. EBITDA
was determined by excluding from net income: income taxes; interest expense;
interest income; depreciation and amortization.
Product revenues for the nine months ended June 30, 1994 totaled $128.8 million
in the U.S. and $110.3 million outside the U.S. Product revenues were comprised
of $73.6 million for proprietary product sales, $156.7 million for network
products and other product sales, and $8.8 million for open software product
sales. Product
<PAGE> 13
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Nine months ended June 30, 1994 (continued)
- -------------------------------------------
revenues continued to decline as expected due to reductions in the sales of
personal computer products. In addition, rapid technological change
significantly broadened the range of competing products and resulted in the
introduction and acceptance of lower-priced products (such as personal
computers), and a decrease in sales of traditionally higher-margin products
based on proprietary platforms. Sales of the Company's proprietary VS products
remained stable.
Service and other revenues for the nine months ended June 30, 1994 totaled
$180.9 million in the U.S. and $224.4 million outside the U.S. Service and other
revenues were comprised of $262.3 million of services for proprietary products
and $143.0 million of network services and other revenues. Reductions in service
and other revenues continued, primarily due to reduced maintenance revenues on
proprietary VS products, resulting from changes in product mix, competition from
third-party service providers, increased product reliability and decreased
renewals of maintenance contracts on older installed equipment. The reduction in
traditional service revenues was partially offset by new service offerings,
including multi-vendor product support, local area network services and cabling
services.
Revenues for the period included $14.5 million from European sales and service
subsidiaries, which were previously designated as "businesses held for sale" and
excluded from operations. In connection with the Company's Reorganization Plan,
the Company initially determined that it would need to sell or otherwise dispose
of its subsidiaries in Ireland, Italy, Spain and Sweden. This determination was
based on their then-current financial condition and future business projections,
including their ability to generate cash to support their operating activities.
In addition, as a result of the parent company's filing for Chapter 11, the
Company was unable to fund these subsidiaries. For these reasons, the
subsidiaries were classified as businesses held for sale in the Company's
financial statements. However, the Company subsequently restructured and
refocused the business activities of these entities. As a result, these entities
became financially viable and were returned to continuing operations.
Product gross margin was 38.2% for the nine months ended June 30, 1994. Product
gross margin was favorably affected by reduced manufacturing costs, resulting
from restructuring actions taken to reduce manufacturing capacity.
Gross margin for service and other revenues was 35.8% for the period. Service
gross margin was adversely affected by the revenue decreases and competitive
conditions previously noted, but these margin decreases were partially offset by
personnel and facilities cost reductions.
Research and development costs totaled $29.7 million, or 4.6% of revenues, for
the period. The Company refocused and streamlined its development program to
support its business strategy of developing software for open systems platforms,
including IBM, Hewlett-Packard, Sun Microsystems, Microsoft and Novell,
primarily for their workflow and imaging products. In addition, the Company
continued to support its proprietary VS products.
<PAGE> 14
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Nine months ended June 30, 1994 (continued)
- -------------------------------
Selling, general and administrative expenses totaled $176.1 million, or 27.3% of
revenues, for the period. Selling, general and administrative expenses continued
to decline as a result of restructuring programs implemented in connection with
the Company's Reorganization Plan, including depreciable asset write-downs,
workforce reductions, and the disposal or abandonment of certain sales and
manufacturing facilities.
Interest expense totaled $3.5 million for the nine months ended June 30, 1994,
and was primarily due to short-term debt at non-U.S. locations and fees incurred
on the Company's financing arrangement with Congress Financial Corporation.
Other income primarily included interest income and equity income of
unconsolidated subsidiaries. Interest income totaled $5.1 million for the nine
months ended June 30, 1994, and resulted primarily from investments in
marketable securities and time deposits. Equity income totaled $2.9 million for
the nine months ended June 30, 1994, and resulted from the Company's 49%
investment in its Taiwan sales and marketing subsidiary and its 30% investment
in its New Zealand subsidiary.
The provision for income taxes of $9.8 million for the period included $7.2
million of non-cash expense relating to the utilization of the Company's tax net
operating loss carryforwards. Realization of these tax net operating loss
carryforwards has been recognized as a reduction of Reorganization value in
excess of amounts allocated to identifiable intangible assets.
At June 30, 1994, the Company employed approximately 5,300 people in continuing
operations.
Three months ended September 30, 1993 compared to three months
- --------------------------------------------------------------
ended September 30, 1992
- ------------------------
The Company reported operating income of $12.4 million for the three months
ended September 30, 1993, compared to an operating loss of $23.2 million for the
same period of the prior year. After recognition of a $329.3 million gain on
debt discharge and a $193.6 million adjustment to increase historical cost of
the assets and liabilities of the Company to fair value, in connection with the
adoption of fresh-start reporting, the Company reported net income of $514.0
million compared to a net loss of $66.6 million for the same period of the prior
year.
Total revenues for the three months ended September 30, 1993 were as expected.
These revenues reflected fundamental changes in the Company's business and
operational structure as contemplated by its new business plan. Revenues for the
three months ended September 30, 1993 decreased $149.1 million, or 41.4%,
compared to the same period of the prior year. Net product sales decreased
53.1%, while service and other revenues decreased by 34.3%, compared to the same
period of the prior year.
<PAGE> 15
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Three months ended September 30, 1993 compared to three months ended September
- ------------------------------------------------------------------------------
30, 1992 (continued)
- --------
EBITDA amounted to $24.8 million for the three months ended September 30, 1993
(prior to reorganization expenses, including restructuring items of $20.8
million, a fresh-start reporting adjustment of $193.6 million and a gain on debt
discharge of $329.3 million) and $7.5 million for the three months ended
September 30, 1992 (prior to reorganization expenses, including restructuring
items of $28.0 million).
Revenues in the U.S. decreased by 33.7% to $109.0 million, while non-U.S.
revenues decreased by 47.9% to $101.9 million. Net product sales in the United
States decreased by 42.2%, while outside of the U.S. there was a decline of
62.0%, compared to the same period of the prior year. Most of the decrease in
product sales was due to reductions in the sales of personal computers, while
the remainder was primarily due to lower VS revenues. Revenues were negatively
affected by intense competitive and technological pressures in the computer
industry (particularly hardware sales), resulting in overcapacity and aggressive
pricing. In addition, rapid technological change significantly broadened the
range of competing products and resulted in the introduction and acceptance of
lower priced products (such as personal computers) and a decrease in sales of
traditionally higher-margin products based on proprietary technology. The
decline in revenues was generally consistent throughout all geographic segments
in which the Company operates.
Service and other revenues in the U.S. declined 28.5%, while outside of the
U.S., there was a decline of 39.4%, compared to the same period of the prior
year. Reduced service and other revenues occurred primarily due to reduced
product sales, changes in product mix, competition from third-party service
providers, increased product reliability, and decreased renewals of maintenance
contracts on older installed equipment. Maintenance revenues accounted for the
majority of the decrease in service and other revenues. The reduction in
traditional service revenues was partially offset by new service offerings,
including multi-vendor product support, local area network services and cabling
services.
Product gross margin increased to 37.4% from 27.4% in the comparable period of
the prior year. The increase was due primarily to reduced manufacturing costs,
resulting from actions taken to reduce manufacturing capacity.
Gross margin for service and other revenues was 40.8%, as compared to 46.6% for
the same period of the prior year. The Company reclassified, effective with the
quarter ended September 30, 1993, certain amounts to "Cost of service and other"
which were previously included in "Selling, general and administrative
expenses." The result of this reclassification was to increase Cost of service
and other by $13.5 million, compared with amounts originally reported for the
three months ended September 30, 1993. Information was not available to make
this reclassification for any periods prior to the three months ended September
30, 1993, and, accordingly, 1993 gross margin is not comparable to 1994 gross
margin. This reclassification accounted for the majority of the decrease in
gross margin from 1993 to 1994. Service gross margins were also adversely
affected by revenue decreases and competitive conditions previously noted.
Margin decreases were partially offset by non-recurring income of approximately
$5 million from settlements resulting from license agreements for single in-line
memory modules ("SIMMs") licensing agreements and restructuring-related actions
to reduce personnel and facilities costs.
<PAGE> 16
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Three months ended September 30, 1993 compared to three months ended September
- ------------------------------------------------------------------------------
30, 1992 (continued)
- --------
Research and development costs decreased by $13.9 million, or 58.2%,
representing 4.7% and 6.6% of revenues for the periods ending September 30, 1993
and 1992, respectively. The decrease was expected as the Company focused
development efforts primarily on software for open systems platforms including
IBM, Hewlett-Packard, Sun Microsystems, Microsoft and Novell.
Selling, general and administrative expenses decreased $79.3 million, or 56.3%,
from the prior year comparable quarter. Due to the reclassification noted above,
selling, general and administrative expenses for the three months ended
September 30, 1993 are not comparable to the three months ended September 30,
1992. Selling, general and administrative expenses decreased due to
implementation of restructuring programs that eliminated unnecessary or
redundant programs, personnel, facilities costs and other related expenses.
Interest expense decreased by $6.4 million to $1.2 million, an 84.2% decrease
compared to the same period of the prior year. This decrease was primarily due
to the elimination of interest on unsecured pre-Chapter 11 debt obligations.
Interest expense would have been $5.7 million higher for the three months ended
September 30, 1993, if the Company had continued to accrue interest on unsecured
pre-Chapter 11 debt obligations. Other income included, primarily, interest and
other income, foreign currency gains (losses) and income from minority
shareholder interests.
Interest income totaled $0.9 million and $1.3 million for the three months ended
September 30, 1993 and 1992, respectively. Interest income resulted primarily
from investments in marketable securities and time deposits. Minority interest
totaled $0.6 million for the three months ended September 30, 1992. There was no
income from interest in minority shareholders for the three months ended
September 30, 1993, as a result of the sale of the Company's remaining 70%
interest in its Taiwan manufacturing subsidiary in March 1993. Foreign currency
exchange resulted in a $0.3 million gain and a $3.7 million loss for the three
months ended September 30, 1993 and 1992, respectively.
The provision for income taxes principally related to income from non-U.S.
operations. Taxes arose from earnings in certain foreign subsidiary countries
that could not be offset by tax benefits in the foreign subsidiaries with
losses, and certain other taxes that applied regardless of earnings levels.
Reorganization expenses of $20.8 million for the three months ended September
30, 1993, consisted primarily of $5.4 million of incurred professional fees and
other related charges, a fresh-start adjustment of $7.2 million to accrue for
amounts expected to be paid through the completion of all Chapter 11-related
matters and $8.2 million of restructuring charges to increase accruals to the
amounts necessary to complete additional restructuring measures primarily at
locations outside of the U.S. Reorganization expenses totaling $28.0 million
for the comparable quarter of the prior year consisted primarily of
professional fees and a $19.5 million foreign exchange loss relating to the
exposed portion of the Company's pre-petition Swiss franc-denominated bonds,
which was due to the strengthening of the Swiss franc against the U.S. dollar
in the first quarter. Restructuring initiatives in 1993 and 1994 resulted in
annual savings of approximately $160 million for the twelve months ended
<PAGE> 17
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Three months ended September 30, 1993 compared to three months ended September
- ------------------------------------------------------------------------------
30, 1992 (continued)
- --------
June 30, 1994. The reduction in employees from 11,285 at September 30, 1992 to
6,405 at September 30, 1993 was primarily attributable to the restructuring
initiatives.
The gain on debt discharge of $329.3 million and the fresh-start reporting
adjustment of $193.6 million for the three months ended September 30, 1993, were
the result of recording the effects of the Reorganization Plan.
Liquidity and Sources of Capital
- --------------------------------
On February 27, 1996, the Company received $138.3 million, net of $5.5 million
issuance costs, from the private placement of 143,750 shares of 6 1/2% Series B
Cumulative Convertible Preferred Stock (the "Series B Preferred Stock"). Cash
dividends on the Series B Preferred Stock are cumulative at the rate of $65.00
per annum per share and are payable quarterly in arrears.
The Company's 11% Exchangeable Preferred Stock (the "Exchangeable Preferred
Stock") was repurchased at the liquidation preference value and retired using
$72.9 million of the proceeds from the sale of the Series B Preferred Stock. The
retirement of the Exchangeable Preferred Stock included a one-time special
dividend of $8.8 million reflecting the difference between the repurchase value
and the carrying value of the securities. The remainder of the proceeds from
the issuance of the Series B Preferred Stock was used for acquisitions and
general corporate purposes.
Cash and equivalents decreased $7.1 million to $175.3 million between June 30,
1995 and June 30, 1996, primarily due to restructuring, reorganization and
acquisition-related items and cash used for acquisitions. The decrease in cash
and equivalents from these activities was partially offset by the proceeds from
the issuance of the Series B Preferred Stock, net of the cash used to retire the
Exchangeable Preferred Stock. This compares to a $7.2 million decrease in the
prior year, primarily due to cash used for the Bull acquisition, which was
partially offset by $84.0 million generated from the issuance of the 4 1/2%
Series A Cumulative Convertible Preferred Stock (the "Series A Preferred
Stock") to Microsoft Corporation.
Cash provided by operations before restructuring and reorganization-related
items of $72.1 million, less cash used for restructuring and
reorganization-related items of $12.1 million, resulted in net cash provided by
operations of $60.0 million for the year ended June 30, 1996. This compares to
cash provided by operations before restructuring and reorganization-related
items of $82.4 million, less cash used for restructuring and
reorganization-related items of $55.1 million, resulting in net cash provided
by operations of $27.3 million for the year ended June 30, 1995. Cash provided
by operations before restructuring payments and reorganization-related items
for the years ended June 30, 1996 and 1995 includes $34.2 million and $20.3
million, respectively, for payments of acquisition-related charges.
Lower levels of receivables, net of acquired receivables, generated $4.5 million
and $49.5 million of cash in the years ended June 30, 1996 and 1995,
respectively.
<PAGE> 18
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Sources of Capital (continued)
- --------------------------------
Lower accounts payable and other current liabilities, net of acquired accounts
payable and other current liabilities, used $48.3 million and $42.0 million of
cash for the years ended June 30, 1996 and 1995, respectively. The liability
reductions primarily relate to a decrease in deferred service revenue caused by
the decline in proprietary maintenance contracts which usually are of a longer
term nature and require cash prepayments and to a shift to more service related
business from product related business.
Net cash used in investing activities totaled $121.9 million for the year ended
June 30, 1996, compared to $130.3 million for the prior year. Net cash used for
business acquisitions, net of cash acquired, totaled $65.5 million and $109.6
million for the years ended June 30, 1996 and 1995, respectively, and relate to
the acquisitions of Sigma, BISS, and Dataserv and an investment in I-NET in the
current year and primarily to Bull in the prior year. Investment in depreciable
assets increased by $11.0 million, primarily due to the acquisition of the Bull
businesses. Proceeds from the sale of assets for the year ended June 30, 1996
include $4.0 million from the sale of the Company's facility in Culembourg,
Netherlands and $1.0 million from the sale of a parcel of land in Massachusetts.
Proceeds from the sale of assets for the year ended June 30, 1995 included $13.4
million received from the sale of the Company's remaining 49% interest in WICL,
Inc., the Company's Taiwan sales and marketing subsidiary and $8.2 million from
the sale of the Company's facility in Rydalmere, Australia.
Net cash provided by financing activities totaled $55.2 million in the year
ended June 30, 1996, compared to $90.3 million in the prior year. Net cash
proceeds of $138.3 million were received from the issuance of the Series B
Preferred Stock, offset by the cash payment of $72.9 million to retire the
Exchangeable Preferred Stock.
In the year ended June 30, 1995, Microsoft Corporation invested $84.0 million in
the Company through the purchase of $90.0 million face amount of Series A
Preferred Stock, as part of a multi-year technical, service and marketing
agreement. Proceeds of $5.2 million and $2.3 million for the years ended June
30, 1996 and 1995, respectively, were received from the sale of common stock.
Cash dividends of $8.3 million were paid on the Company's preferred stock for
the year ended June 30, 1996, excluding the $8.8 million one-time special
dividend recorded in connection with the retirement of the Exchangeable
Preferred Stock.
Cash dividends of $17.1 million were paid for the year ended June 30, 1996,
including the one-time special dividend, which represents the difference between
the repurchase value and the carrying value of the Exchangeable Preferred Stock.
At June 30, 1996, in addition to the cash on hand, the Company had available to
it the unused portion of the BT Commercial Corporation ("BTCC") financing
arrangement, providing for borrowings and/or the issuance of additional letters
of credit of up to $64.9 million. As previously discussed, on August 29, 1996
the Company entered into a three-year amended and restated credit facility which
provides for borrowings and/or the issuance of letters of credit of up to $225.0
million.
<PAGE> 19
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Sources of Capital (continued)
- --------------------------------
The Company believes that existing cash balances, cash generated from
operations, and borrowing availability under the BTCC facility, as amended on
August 29, 1996, will be sufficient to meet the Company's cash requirements for
operations for the next twelve months, and to complete the planned
acquisition-related and restructuring efforts totaling approximately $31
million. As part of furthering its business strategy, the Company explores the
acquisition of, or the opportunity for, strategic relationships with other
businesses on an on-going basis. One or more of these opportunities could have
an impact on the Company's liquidity through the use of cash or the issuance of
debt, or result in the issuance of additional equity securities of the Company.
As a result of the acquisition of I-NET, the Company expects to be in a net
borrowing position over the near term.
<PAGE> 20
EXHIBIT C
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 June 30, 1996 and
1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for the years ended June 30, 1996 and 1995, the nine
months ended June 30, 1994, and the three months ended September 30, 1993. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule 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 June 30, 1996 and 1995, and the
consolidated results of their operations and their cash flows for the years
ended June 30, 1996 and 1995, the nine months ended June 30, 1994, and the three
months ended September 30, 1993, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
As more fully disclosed in Note A, under the caption Basis of Presentation, the
accompanying financial statements have been restated.
Ernst & Young LLP
Boston, Massachusetts
July 24, 1996, except for Note L as to which the date is
August 29, 1996 and except for the second paragraph of
Note A as to which the date is August 14, 1997.
<PAGE> 21
Wang Laboratories, Inc. and Subsidiaries
<TABLE>
Consolidated Statements of Operations (Restated)
<CAPTION>
(Dollars in millions except per share data) Predecessor
Company
------------
Year Year Nine Months Three Months
Ended Ended Ended Ended
June 30, June 30, June 30, September 30,
1996 1995 1994 1993
-------- -------- ----------- -------------
<S> <C> <C> <C> <C>
Revenues
Product sales $ 368.9 $ 365.7 $239.1 | $ 64.1
Service and other 720.9 581.5 405.3 | 146.8
-------- -------- ------ | -------
Total revenues 1,089.8 947.2 644.4 | 210.9
|
Costs and expenses |
Cost of product sales 235.0 254.4 147.7 | 40.1
Cost of service and other 497.4 401.8 260.1 | 86.9
Research and development 33.7 31.5 29.7 | 10.0
Selling, general and administrative 253.8 232.2 176.1 | 61.5
Amortization of intangibles - acquisition |
and fresh-start 42.6 31.3 20.2 | --
Acquisition-related charges 30.8 81.1 -- | --
Chapter 11-related charges (income) (3.3) (2.3) -- | --
All other restructuring costs (income) 2.2 (8.1) -- | --
-------- -------- ------ | -------
Total costs and expenses 1,092.2 1,021.9 633.8 | 198.5
-------- -------- ------ | -------
|
|
Operating income (loss) (2.4) (74.7) 10.6 | 12.4
|
Other (income) expense |
Interest expense 5.1 3.7 3.5 | 1.2
Other income - net (13.0) (13.9) (11.3) | (1.1)
-------- -------- ------ | -------
Total other (income) expense (7.9) (10.2) (7.8) | 0.1
-------- -------- ------ | -------
|
INCOME (LOSS) |
BEFORE REORGANIZATION |
EXPENSES, INCOME TAXES, FRESH- |
START REPORTING ADJUSTMENT |
AND EXTRAORDINARY ITEM 5.5 (64.5) 18.4 | 12.3
|
Reorganization expenses, including |
restructuring items -- -- -- | 20.8
-------- -------- ------ | -------
|
INCOME (LOSS) |
BEFORE INCOME TAXES, |
FRESH-START REPORTING ADJUSTMENT |
AND EXTRAORDINARY ITEM 5.5 (64.5) 18.4 | (8.5)
Provision for income taxes 11.0 3.6 9.8 | 0.4
-------- -------- ------- | -------
|
INCOME (LOSS) |
BEFORE FRESH-START REPORTING |
ADJUSTMENT AND EXTRAORDINARY ITEM (5.5) (68.1) 8.6 | (8.9)
</TABLE>
(CONTINUED ON NEXT PAGE)
<PAGE> 22
Wang Laboratories, Inc. and Subsidiaries
<TABLE>
Consolidated Statements of Operations (Restated) (Continued)
<CAPTION>
(Dollars in millions except per share data)
Predecessor
Company
-------------
Year Year Nine Months Three Months
Ended Ended Ended Ended
June 30, June 30, June 30, September 30,
1996 1995 1994 1993
-------- -------- ----------- -------------
<S> <C> <C> <C> <C>
Fresh-start reporting adjustment -- -- -- | 193.6
Gain on debt discharge -- -- -- | 329.3
------ ------ ----- | ------
|
NET INCOME (LOSS) (5.5) (68.1) 8.6 | 514.0
|
Dividends and accretion on |
preferred stock (22.6) (8.7) (4.2) | --
------ ------ ----- | ------
|
NET INCOME (LOSS) APPLICABLE TO |
COMMON STOCKHOLDERS $(28.1) $(76.8) $ 4.4 | $514.0
====== ====== ===== | ======
|
WEIGHTED AVERAGE SHARES AND COMMON |
SHARE EQUIVALENTS OUTSTANDING |
(In millions) 36.3 34.2 32.7 | *
|
NET INCOME (LOSS) PER SHARE $(0.77) $(2.24) $0.13 | *
====== ====== ===== | ======
<FN>
* Per share data is not presented for the period 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 revised capital structure
of the Company.
</TABLE>
See notes to the consolidated financial statements.
<PAGE> 23
Wang Laboratories, Inc. and Subsidiaries
<TABLE>
Consolidated Balance Sheets (Restated)
<CAPTION>
June 30,
--------------------
(Dollars in millions) 1996 1995
------ -----
<S> <C> <C>
Assets
Current assets
Cash and equivalents $175.3 $182.4
Accounts receivable, net 194.1 182.5
Inventories 19.9 24.4
Other current assets 48.7 37.2
------ ------
Total current assets 438.0 426.5
Depreciable assets, net 137.3 134.4
Intangible assets, net 203.7 265.8
Other 77.6 25.8
------ ------
Total assets $856.6 $852.5
====== ======
Liabilities and stockholders' equity
Current liabilities
Borrowings due within one year $ 21.9 $ 3.0
Accounts payable, accrued expenses
and other 272.8 296.1
Deferred service revenue 75.7 93.3
------ ------
Total current liabilities 370.4 392.4
Long-term liabilities
Debt -- 23.0
Other liabilities 58.3 70.7
------ ------
Total long-term liabilities 58.3 93.7
Series A preferred stock 84.8 84.1
Exchangeable preferred stock -- 61.5
Stockholders' equity
Series B preferred stock,
$0.01 par value, 143,750 shares
authorized and outstanding,
liquidation preference of $143.8 million 138.3 --
Common stock, $0.01 par value, 100,000,000
shares authorized; 36,302,737 and 35,698,730
shares outstanding, respectively 0.4 0.3
Capital in excess of par value 278.7 291.2
Cumulative translation adjustment (0.8) (0.5)
Accumulated deficit (73.5) (70.2)
------ ------
Total stockholders' equity 343.1 220.8
------ ------
Total liabilities and stockholders'
equity $856.6 $852.5
====== ======
</TABLE>
See notes to the consolidated financial statements.
<PAGE> 24
Wang Laboratories, Inc. and Subsidiaries
<TABLE>
Consolidated Statements of Cash Flows (Restated)
<CAPTION>
(Dollars in millions)
Predecessor
Company
------------
Year Year Nine Months Three Months
Ended Ended Ended Ended
June 30, June 30, June 30, September 30,
1996 1995 1994 1993
-------- -------- ----------- -------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (5.5) $ (68.1) $ 8.6 | $ 514.0
Depreciation 55.6 43.0 27.7 | 11.6
Amortization 48.0 36.8 21.9 | 0.8
Gain on asset sales (2.3) (1.6) -- | --
Non-cash provision for income taxes 10.3 3.4 7.2 | --
Provision for acquisition-related charges 30.8 81.1 -- | --
Provision (income) for Chapter 11-related charges (3.3) (2.3) -- | --
Provision (income) for all other restructuring costs 2.2 (8.1) -- | --
Payments of acquisition-related charges (34.2) (20.3) -- | --
|
Fresh-start reporting adjustment -- -- -- | (193.6)
Extraordinary gain on debt discharge -- -- -- | (329.3)
Reorganization provisions -- -- -- | 16.0
Foreign exchange adjustment -- -- -- | (7.4)
|
Changes in other accounts affecting operations |
Accounts receivable 4.5 49.5 15.8 | 13.5
Inventories 7.1 11.9 8.5 | 8.3
Other current assets 4.2 (0.5) 15.1 | 4.8
Accounts payable and other current |
liabilities (48.3) (42.0) 1.1 | (4.4)
Other 3.0 (0.4) 9.2 | 0.5
------- ------- ------ | -------
Net changes in other accounts affecting operations (29.5) 18.5 49.7 | 22.7
------- ------- ------ | -------
Net cash provided by operations |
before restructuring payments and |
reorganization-related items 72.1 82.4 115.1 | 34.8
Restructuring payments and reorganization- |
related items (12.1) (55.1) (81.4) | (25.7)
------- ------- ------ | -------
Net cash provided by operations 60.0 27.3 33.7 | 9.1
------- ------- ------ | -------
INVESTING ACTIVITIES |
Investment in depreciable assets (46.1) (35.1) (15.1) | (4.6)
Investment in capitalized software (3.4) (5.9) (2.6) | (1.3)
Proceeds from asset sales 5.0 26.4 11.2 | 4.7
Business acquisitions, net of cash acquired (65.5) (109.6) (3.4) | --
Other (11.9) (6.1) (5.4) | 0.3
------- ------- ------ | -------
Net cash used in investing activities (121.9) (130.3) (15.3) | (0.9)
------- ------- ------ | -------
</TABLE>
(CONTINUED ON NEXT PAGE)
<PAGE> 25
Wang Laboratories, Inc. and Subsidiaries
<TABLE>
Consolidated Statements of Cash Flows (Restated) (Continued)
<CAPTION>
(Dollars in millions)
Predecessor
Company
-------------
Year Year Nine Months Three Months
Ended Ended Ended Ended
June 30, June 30, June 30, September 30,
1996 1995 1994 1993
-------- -------- ----------- -------------
<S> <C> <C> <C> <C>
FINANCING ACTIVITIES
Proceeds from long-term debt -- 1.1 -- | 2.0
Payments of long-term debt (3.8) (1.8) (2.8) | (1.6)
Net increase (decrease) in short-term |
borrowings (2.5) 0.9 1.7 | (30.7)
Proceeds from sale of preferred stock 138.3 84.0 49.0 | --
Retirement of preferred stock (72.9) -- -- | --
Proceeds from sale of common stock 5.2 2.3 11.0 | --
Dividends paid on preferred stock (8.3) -- -- | --
Other (0.8) 3.8 -- | --
------ ------ ------ | ------
Net cash provided by (used in) |
financing activities 55.2 90.3 58.9 | (30.3)
------ ------ ------ | ------
Effect of changes in foreign |
exchange rates on cash (0.4) 5.5 3.0 | (3.7)
------ ------ ------ | ------
INCREASE (DECREASE) IN CASH |
AND EQUIVALENTS (7.1) (7.2) 80.3 | (25.8)
CASH AND EQUIVALENTS AT BEGINNING |
OF PERIOD 182.4 189.6 109.3 | 135.1
------ ------ ------ | ------
CASH AND EQUIVALENTS AT END OF PERIOD $175.3 $182.4 $189.6 | $109.3
====== ====== ====== | ======
</TABLE>
See notes to the consolidated financial statements.
<PAGE> 26
Wang Laboratories, Inc. and Subsidiaries
<TABLE>
Consolidated Statements of Stockholders' Equity (Restated)
<CAPTION>
Retained
Convertible New Class B Class C Capital in Cumulative Earnings
Preferred Common Common Common Excess of Translation (Accumulated
(Dollars in millions) Stock Stock Stock Stock Par Value Adjustment Deficit) Total
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance June 30, 1993 -- -- $ 81.0 $ 2.9 $ 977.5 $(84.4) $(1,478.4) $(501.4)
Net income 514.0 514.0
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) 0.3 253.7 254.0
Other 0.1 0.1
-- --- ------ ----- ------- ------ --------- -------
Balance
September 30, 1993 -
Reorganized Company -- 0.3 -- -- 253.7 -- -- 256.4
Net income 8.6 8.6
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 -- -- 263.9 3.0 5.1 272.3
</TABLE>
(CONTINUED ON NEXT PAGE)
<PAGE> 27
Wang Laboratories, Inc. and Subsidiaries
<TABLE>
Consolidated Statements of Stockholders' Equity (Restated) (Continued)
<CAPTION>
Retained
Convertible New Class B Class C Capital in Cumulative Earnings
Preferred Common Common Common Excess of Translation (Accumulated
(Dollars in millions) Stock Stock Stock Stock Par Value Adjustment Deficit) Total
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance June 30, 1994 -- 0.3 -- -- 263.9 3.0 5.1 272.3
Effect of pooling of
interests -
business combination 7.7 (4.1) 3.6
(1,790,971 shares)
Net loss (68.1) (68.1)
Stock issued in business
acquisition (1,650,000 22.9 22.9
shares)
Stock plans (277,993 2.3 2.3
shares)
Dividends and accretion on
preferred stock (5.6) (3.1) (8.7)
Currency translation (3.5) (3.5)
------ ---- --- --- ------ ----- ------ ------
Balance June 30, 1995 0.3 -- -- 291.2 (0.5) (70.2) 220.8
Net loss (5.5) (5.5)
Stock to be issued in
business acquisition 5.0 5.0
Stock plans (604,007 0.1 5.1 5.2
shares)
Dividends and accretion on
preferred stock (22.6) (22.6)
Issuance of cumulative
convertible preferred
stock, 138.3 138.3
net of issuance costs
Currency translation (0.3) (0.3)
Other 2.2 2.2
------ ---- --- --- ------ ----- ------ ------
Balance June 30, 1996 $138.3 $0.4 $-- $-- $278.7 $(0.8) $(73.5) $343.1
====== ==== === === ====== ===== ====== ======
</TABLE>
See notes to the consolidated financial statements.
<PAGE> 28
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, 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 became effective. At that time, the Company effectively
emerged from bankruptcy and terminated its debtor-in-possession status, subject
only to compliance with the terms of the Reorganization Plan.
As more fully described in Note J, upon emergence from bankruptcy, the Company
was required to adopt fresh start reporting. In connection therewith, the
Company recorded certain amounts as liabilities in the post emergence balance
sheet as of September 30, 1993. These liabilities were intended to cover
anticipated costs which the Company believed related more appropriately to the
operations of the Company prior to emergence from bankruptcy. The Company and
the staff of the Securities and Exchange Commission have had discussions with
respect to the appropriateness of recording these amounts as liabilities in
connection with the application of fresh start reporting. As a result of these
discussions, the Company has concluded that it is necessary to reverse certain
liabilities recorded in the Predecessor Company's September 30, 1993 balance
sheet and to restate the accompanying financial statements for all periods
presented to reflect the effects of these changes. This restatement had the
effect of increasing net income for the three months ended September 30, 1993 by
$14.1 million. For periods subsequent to September 30, 1993, this had the effect
of decreasing net income by $2.0 million or $0.07 per share in the nine months
ended June 30, 1994 and increasing the net loss by $6.8 million or $0.20 per
share and $4.9 million or $0.13 per share in fiscal 1995 and fiscal 1996,
respectively.
The financial statements for the years ended June 30, 1996 and 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. 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.
Certain amounts in previously issued financial statements have been reclassified
to conform to current presentations.
ESTIMATES: The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Significant estimates include collectibility of accounts
receivable, recoverability of depreciable assets, intangibles and deferred tax
assets and the adequacy of restructuring and acquisition and integration
reserves. Although the Company regularly assesses these estimates, actual
results could differ from those estimates.
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 $17.8 million and $14.4 million
at June 30, 1996 and 1995, respectively. Restrictions relate primarily to
statutory reserves for the Company's insurance subsidiaries.
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.
<PAGE> 29
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. Trade receivables
included $52.1 million and $53.5 million at June 30, 1996 and 1995,
respectively, due from the U.S. government and its agencies.
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 $22.7 million and $31.1 million at June 30, 1996 and 1995, respectively.
The June 30, 1996 and 1995 amounts include $16.5 million and $24.7 million,
respectively, of capitalized software recorded as part of fresh-start reporting.
Amortization of capitalized software totaled $6.1 million, $6.9 million and $5.1
million for the years ended June 30, 1996 and 1995 and the nine months ended
June 30, 1994, respectively, including $3.8 million, $4.7 million and $3.5
million related to fresh-start reporting.
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
The Company periodically 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.
<PAGE> 30
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.
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, accordingly, all depreciable assets were restated to
fair value. Consequently, 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 accounted for under the
percentage-of-completion method.
INCOME TAXES: The Predecessor Company adopted Statement of Financial Accounting
Standards 109, "Accounting for Income Taxes" ("SFAS 109") during the three
months ended September 30, 1993. Under SFAS 109, 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 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.
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.
<PAGE> 31
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A (Continued)
EARNINGS PER SHARE: Earnings per share are 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 to be distributed in
connection with the Sigma acquisition, 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 36,306,461 for the year ended June 30, 1996, 34,232,814 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 preferred stock.
Cumulative dividends totaled $22.6 million for the year ended June 30, 1996,
$8.7 million for the year ended June 30, 1995 and $4.2 million for the nine
months ended June 30, 1994.
POSTRETIREMENT BENEFITS: U.S. employees, exclusive of certain employees that are
covered by defined contribution plans of acquired businesses, are included in
the Wang Retirement Savings Plan. 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 either
of the years ended June 30, 1996 and 1995, or for the nine months ended June 30,
1994.
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.
RECENT ACCOUNTING PRONOUNCEMENTS: In March 1995, Statement of Financial
Accounting Standards 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of," ("SFAS 121") was issued. SFAS 121
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. SFAS 121 also addresses the accounting for long-lived assets
that are expected to be disposed. The Company will adopt SFAS 121 in the first
quarter of 1997. The effect of adoption is not expected to have a material
impact on the Company's financial position or results of operations.
In October 1995, Statement of Financial Accounting Standards 123, "Accounting
for Stock-Based Compensation," ("SFAS 123") was issued. The Company has
performed a review of SFAS 123, and at this point, as permitted by SFAS 123, has
elected to follow Accounting Principles Board Opinion 25, "Accounting for Stock
Issued to Employees," ("APB 25") and related Interpretations in accounting for
its stock-based compensation
<PAGE> 32
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A (Continued)
plans, rather than alternative fair value accounting provided for under SFAS
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. Although the Company can elect to continue
to use APB 25 for accounting purposes, SFAS 123 requires pro forma disclosures
of net income and earnings per share as if the fair value based method of
accounting required under SFAS 123 were used. The Company will be required to
provide these pro forma disclosures at June 30, 1997.
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 Accounting Principles Board 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. The
excess of the purchase price over the fair value of the net assets acquired of
$106.0 million has been recorded based on these preliminary purchase price
allocations.
A summary of the acquisition follows (in millions):
<TABLE>
<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 48.5
------
Excess of purchase price over net tangible
assets acquired $106.0
======
</TABLE>
The excess of purchase price over net assets acquired of $106.0 million has been
allocated to specific intangible asset categories as follows (in millions):
<TABLE>
<S> <C>
Software licenses $ 24.9
Installed base - service 56.5
Assembled workforce 11.7
Goodwill 12.9
------
$106.0
======
</TABLE>
The value attributable to the acquired assets was allocated in conformity with
the procedures specified by APB 16. Current assets and liabilities have been
recorded at book value, which approximates fair value.
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.
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).
<PAGE> 33
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B (Continued)
<TABLE>
<CAPTION>
Twelve Months Nine Months
Ended Ended
June 30, June 30,
1995 1994
------------- -----------
<S> <C> <C>
Revenues $1,209.7 $975.8
Net loss $ (55.9) $ (2.3)
Net loss applicable
to common shareholders $ (64.6) $ (6.5)
Net loss per share applicable
to common shareholders $ (1.91) $(0.20)
</TABLE>
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.
<PAGE> 34
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On July 21, 1995, the Company acquired Sigma Imaging Systems, Inc. ("Sigma")
(subsequently renamed Wang Software N.Y., Inc.), 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 consisted of $15.0 million in cash and $5.0
million in common stock
<PAGE> 35
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B (Continued)
of the Company. Cash payments of $9.0 million and $6.0 million were made on July
21, 1995 and February 15, 1996, respectively. 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 Systems Corporation ("Avail")
(subsequently renamed Wang Software Storage Management Group, Inc.), 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 1,790,971 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.
<TABLE>
Summarized financial information of Avail for periods prior to the acquisition
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>
<PAGE> 36
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B (Continued)
On May 3, 1996, the Company acquired Dataserv Computer Maintenance, Inc.
("Dataserv") from BellSouth Corporation for $28.5 million in cash. Dataserv
provides customers with computer maintenance and support services for
industry-standard servers, desktop products, point-of-sale retail scanners and
registers, as well as application helpdesk and network integration services.
Dataserv services companies in the banking and financial services, insurance,
retail and manufacturing industries. 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 $12.0 million and
is included in intangible assets.
<TABLE>
The following pro forma results of operations have been prepared as though the
Dataserv 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>
Year Year
Ended Ended
June 30, June 30,
1996 1995
-------- --------
<S> <C> <C>
Revenues $1,185.4 $1,071.6
Net loss $ (8.0) $ (55.9)
Net loss applicable
to common stockholders $ (30.6) $ (64.6)
Net loss per share applicable
to common stockholders $ (0.84) $ (1.90)
</TABLE>
ACQUISITION-RELATED CHARGES: On March 29, 1995, the Company's Board of Directors
approved an $81.1 million plan to proceed with integration and consolidation
initiatives principally related to the Bull acquisition. This charge is reported
as Acquisition-related charges in the accompanying statements of operations.
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.
<PAGE> 37
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B (Continued)
Gross acquisition-related charges of $30.8 million attributable to the Sigma
acquisition, were recorded during fiscal 1996 after actions had been identified
and quantified and the formal plan approved by the Company's Board of Directors.
Included in these acquisition charges is $16.0 million for in-process research
and development, representing 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 of $6.6 million 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
The activity related to these charges during fiscal years 1995 and 1996 is
summarized in the following table (in millions):
<TABLE>
<CAPTION>
Fiscal 1995 Activity
------------------------------------------------------------------
Balance New Purchase Currency Balance
6/30/94 initiatives accounting Utilization translation Other 6/30/95
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Acquisition-related accruals
Facilities $ - $ 6.1 $2.5 $ (3.4) $ - $ - $ 5.2
Depreciable assets - 15.8 4.1 (11.1) - - 8.8
Workforce-related - 46.0 - (9.6) 1.0 - 37.4
Other - 13.2 - (7.8) - (1.6) 3.8
--------------------------------------------------------------------------------------------
$ - $81.1(A) $6.6 $(31.9) $1.0 $(1.6) $55.2
============================================================================================
<CAPTION>
Fiscal 1996 Activity
------------------------------------------------------------------
Charges/
(reversals)-
changes in
estimates
and new Purchase Currency Balance
initiatives accounting Utilization Other translation 6/30/96
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Acquisition-related accruals
Facilities $(0.9) $ - $ (3.2) $(0.1) $ 1.0
Depreciable assets 22.0 - (30.0) - - 0.8
Workforce-related 3.7 2.4 (26.6) - (0.5) 16.4
Other 6.0 - (4.5) 0.4 0.1 5.8
-----------------------------------------------------------------------------
$30.8(A) $2.4 $(64.3) $ 0.4 $(0.5) $24.0
=============================================================================
<CAPTION>
(A) Comprised of:
1995 1996
----- -----
<S> <C> <C>
Increases in initial purchase price adjusted pursuant to SFAS 38 $ - $ -
Decreases in initial purchase price adjusted pursuant to SFAS 38 - -
Initial charges for Bull and Sigma acquisitions in 1995 and 1996, respectively 81.1 30.8
Increases and overages of estimated integration accruals recognized in income - 2.8
Reversals of estimated integration accruals recognized in income - (2.8)
------------------
$81.1 $30.8
==================
</TABLE>
<PAGE> 38
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B (Continued)
Periodically, the accruals related to the acquisition-related charges are
reviewed and compared to their respective requirements. As a result of those
reviews, the accruals are adjusted for changes in cost and timing assumptions of
previously approved and recorded initiatives. During the fiscal 1996 review of
the acquisition-related accruals, the Company identified excess reserves of $2.8
million, primarily related to facilities and depreciable assets, as well as $2.8
million of additional severance requirements relative to the workflow and
imaging R&D workforce in Paris acquired from Bull. Shortly after the Bull
acquisition, the Company's attempts to release these employees were met with
resistance by the Works Council, which was supported by the trade unions. The
Company entered protracted negotiations and litigation with the Works Council,
resulting in the additional charge recorded to settle the matter.
Cash outlays to complete the Company's acquisition-related initiatives are
estimated to approximate $22 million in fiscal 1997 and $1 million thereafter.
The June 30, 1996 and 1995 balances of acquisition-related reserves are
classified as follows (in millions):
<TABLE>
<CAPTION>
June 30, June 30,
1996 1995
-------- --------
<S> <C> <C>
Depreciable assets $ 0.8 $ 8.8
Accounts payable, accrued expenses
and other 22.0 41.8
Non-current liabilities 1.2 4.6
----- -----
$24.0 $55.2
===== =====
</TABLE>
<PAGE> 39
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>
June 30, June 30,
1996 1995
-------- --------
<S> <C> <C>
Accounts receivable $204.9 $193.3
Less allowances 10.8 10.8
------ ------
$194.1 $182.5
====== ======
Inventories
Finished products $ 9.5 $ 14.5
Raw materials and work-in-process 8.8 8.7
Service parts and supplies 1.6 1.2
------ ------
$ 19.9 $ 24.4
====== ======
Depreciable assets
Land $ 5.4 $ 7.1
Buildings and improvements 19.7 22.6
Machinery and equipment 62.9 52.7
Spare parts 140.9 113.3
------ ------
228.9 195.7
Less accumulated depreciation 91.6 61.3
------ ------
$137.3 $134.4
====== ======
</TABLE>
<PAGE> 40
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
NOTE C (Continued)
<CAPTION>
June 30, June 30,
1996 1995
-------- --------
<S> <C> <C>
Intangible assets
Trademarks and patents $ 24.8 $ 21.3
Computer software 37.1 42.2
Installed base - service 128.5 123.5
License agreements 29.9 29.9
Assembled workforce 16.2 11.7
Goodwill 50.7 18.9
Reorganization value in excess
of amounts allocated to
identifiable intangible
assets 21.2 77.8
------ ------
308.4 325.3
Less accumulated amortization 104.7 59.5
------ ------
$203.7 $265.8
====== ======
Accounts payable, accrued
expenses and other
Accounts payable $ 54.3 $ 62.3
Accrued expenses 117.5 98.9
Compensation and benefits 49.1 50.1
Restructuring, reorganization
and acquisition-related 30.3 60.4
Other 21.6 24.4
------ ------
$272.8 $296.1
====== ======
Other long-term liabilities
Postretirement $ 17.3 $ 18.5
Pension 8.0 8.2
Facilities 15.0 16.5
Restructuring, reorganization and
acquisition-related 2.6 9.3
Insurance 7.4 6.5
Other 8.0 11.7
------ ------
$ 58.3 $ 70.7
====== ======
</TABLE>
<PAGE> 41
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE D--FINANCING ARRANGEMENTS
<TABLE>
PREFERRED STOCK (in millions):
<CAPTION>
June 30, June 30,
1996 1995
-------- --------
<S> <C> <C>
Series A preferred stock, $0.01 par
value, 90,000 shares
authorized; 90,000 shares issued
and outstanding June 30, 1996
and 1995; redemption and
liquidation preference of
$90.0 million $84.8 $ 84.1
Exchangeable preferred stock,
$0.01 par value, 3,660,000 shares
authorized; outstanding
shares: 2,836,326 at
June 30, 1995; redemption
and liquidation preference of
$72.9 million, including
paid-in-kind dividends -- 61.5
----- ------
$84.8 $145.6
===== ======
</TABLE>
SERIES A PREFERRED STOCK: On May 30, 1995, the Company issued to Microsoft
Corporation 90,000 shares ($90.0 million face amount) of 4 1/2% Series A
Cumulative Convertible Preferred Stock (the "Series A Preferred Stock"),
redeemable on October 1, 2003 or within 180 days of a written request of the
holders thereof received by the Company at any time on or after May 30, 2002 at
$1,000.00 per share plus accrued and unpaid dividends. The excess of the
redemption value over the initial carrying value of $84.0 million 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 Series A Preferred Stock is convertible into Common Stock of the Company at
$23.00 per share, subject to adjustment in the event of a subdivision or
combination of the Common Stock. The stockholders of the Series A Preferred
Stock are entitled to one vote per share. Cash dividends of $45.00 per annum per
share are payable quarterly in arrears. The Company may redeem the Series A
Preferred Stock with cash or with Common Stock.
EXCHANGEABLE PREFERRED STOCK: On February 27, 1996, the Company repurchased and
retired, at the liquidation preference of $25.00 per share plus accrued and
unpaid dividends, all of the outstanding shares of the Company's 11%
Exchangeable Preferred Stock (the "Exchangeable Preferred Stock") for $72.9
million with proceeds from the issuance of the 6 1/2% Series B Cumulative
Convertible Preferred Stock. The retirement of the Exchangeable Preferred Stock
resulted in a one-time dividend of $8.8 million reflecting the difference
between the repurchase value and the carrying value of the securities.
<PAGE> 42
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE D (Continued)
BORROWING ARRANGEMENTS:
<TABLE>
Borrowings due within one year consisted of (in millions):
<CAPTION>
June 30, June 30,
1996 1995
-------- --------
<S> <C> <C>
Notes payable to banks $ -- $2.6
Note payable to Bull -- 9.25% at
June 30, 1996, payable in 1997 21.9 --
Current portion of long-term debt -- 0.4
----- ----
$21.9 $3.0
===== ====
</TABLE>
Notes payable to banks with weighted average interest rates of 12.1% were
outstanding at June 30, 1995.
<TABLE>
Long-term debt consisted of (in millions):
<CAPTION>
June 30, June 30,
1996 1995
-------- --------
<S> <C> <C>
Mortgage notes and other $-- $ 1.8
Note payable to Bull -- 21.6
--- -----
-- 23.4
Current portion of long-term debt -- 0.4
--- -----
$-- $23.0
=== =====
</TABLE>
Interest paid amounted to $2.4 million for the year ended June 30, 1996, $3.7
million for the year ended June 30, 1995, $3.8 million for the nine months ended
June 30, 1994 and $2.3 million for the three months ended September 30, 1993.
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 the Common Stock. The Company was in compliance with these covenants as of
both June 30, 1996 and 1995. As of June 30, 1996, letters of credit aggregating
$11.5 million were outstanding under the agreement, and $64.9 million was
available for use by the Company for either additional letters of credit or
borrowing.
Subsequent to June 30, 1996 the Company renegotiated its credit facility as
discussed in Note L, Subsequent Events.
<PAGE> 43
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>
Predecessor Company
-------------------
Year Year Nine Months Three Months
Ended Ended Ended Ended
June 30, June 30, June 30, September 30,
1996 1995 1994 1993
-------- -------- ----------- -------------------
<S> <C> <C> <C> <C>
Current:
Federal $ -- $ -- $ -- | $ --
Non-U.S. 0.7 0.7 2.3 | 0.3
State -- -- 0.3 | 0.1
Change in valuation |
allowance (2.5) -- -- | --
Tax benefit applied |
to reduce |
reorganization |
value in excess of |
amounts allocated |
to identifiable |
intangible assets |
and goodwill 12.8 2.9 7.2 | --
----- ---- ---- | ----
$11.0 $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>
Predecessor Company
-------------------
Year Year Nine Months Three Months
Ended Ended Ended Ended
June 30, June 30, June 30, September 30,
1996 1995 1994 1993
-------- -------- ----------- ------------------
<S> <C> <C> <C> <C>
Taxes at statutory
rate of 35% $ 3.6 $(18.9) $ 7.1 | $(7.9)
Amortization of excess |
reorganization value 2.4 1.9 0.9 | --
Non-deductible expenses 2.0 1.3 1.4 | 3.4
Non-deductible charge |
in connection with |
acquisition 5.6 -- -- | --
Foreign tax differential 0.8 (0.5) (1.6) | (0.2)
Repatriation of non- |
U.S. earnings, net -- -- 0.8 | --
Loss carryforwards |
not currently |
utilizable 3.7 22.7 1.9 | 6.9
Loss carryforwards |
utilized (5.3) -- -- | --
Change in valuation |
allowance (2.5) -- -- | --
Other, net 0.7 (2.9) (0.7) | (1.8)
----- ------ ----- | -----
$11.0 $ 3.6 $ 9.8 | $ 0.4
===== ====== ===== | =====
</TABLE>
<PAGE> 44
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E (continued)
<TABLE>
The significant components of deferred tax assets and liabilities were as
follows (in millions):
<CAPTION>
June 30, June 30,
1996 1995
-------- --------
<S> <C> <C>
Net operating loss and credit
carryforwards $ 561.8 $ 564.4
Accrued restructuring expenses 11.4 26.3
Other 62.2 36.5
------- -------
Gross deferred tax assets 635.4 627.2
------- -------
Fresh-start intangibles (20.6) (31.4)
Goodwill and other acquired intangibles (15.7) (20.8)
Other (28.8) (26.0)
------- -------
Gross deferred tax liabilities (65.1) (78.2)
------- -------
Valuation allowance (522.7) (549.0)
------- -------
Net deferred tax assets $ 47.6 $ --
======= =======
</TABLE>
The Company has recorded a net deferred tax asset of $47.6 million for the year
ended June 30, 1996, of which $43.4 million was attributable to the expected
utilization of tax net operating loss carryforwards which existed at September
30, 1993, reducing reorganization value in excess of amounts allocated to
identifiable intangible assets. Of the remainder, $1.7 million was attributable
to acquired tax benefits, reducing goodwill related to the Bull acquisition and
$2.5 million was attributable to the expected utilization of tax net operating
loss carryforwards generated subsequent to September 30, 1993, reducing the
provision for income taxes. Although realization is not assured, management
believes that the net deferred tax asset will be realized. The estimate of
future taxable income relates to the Company's operations outside the U.S. which
have, in the past, consistently generated a level of taxable income similar to
the amounts of future taxable income necessary to realize the net deferred tax
asset. In addition, the Company has tax planning strategies to prevent the tax
net operating loss carryforwards from expiring unused. The amount of the net
deferred tax asset considered realizable, however, could be reduced in the near
term if estimates of future taxable income during the carryforward period are
reduced.
Any tax benefits recognized after September 30, 1993, for cumulative temporary
differences and tax basis net operating loss carryforwards existing at September
30, 1993, will not reduce the provision for income taxes, but instead, will
first reduce reorganization value in excess of amounts allocated to identifiable
intangible assets to zero, secondly reduce other intangible assets related to
the reorganization to zero, and thereafter will increase capital in excess of
par value.
<PAGE> 45
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E (Continued)
<TABLE>
Tax benefits which are subsequently recognized through a reduction in the
valuation allowance will be recorded as follows (in millions):
June 30, June 30,
1996 1995
-------- --------
<S> <C> <C>
Reorganization value in excess of amounts
allocated to identifiable assets $ 13.7 $ 75.9
Goodwill and other non-current intangible assets 65.5 87.9
Capital in excess of par value 298.3 261.5
Income tax benefit to be reported in the
Statement of Operations 145.2 123.7
------ ------
$522.7 $549.0
====== ======
</TABLE>
As a result of the reorganization of the Company, 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 within the meaning of
Section 382 of the Internal Revenue Code, an annual limitation will be placed
upon the Company's ability to realize the benefit of its U.S. net operating loss
carryforwards.
Retained earnings of non-U.S. subsidiaries for which income taxes have not been
provided approximated $119.4 million and $113.4 million at June 30, 1996 and
June 30, 1995, respectively.
At June 30, 1996, the Company and its subsidiaries have tax basis net operating
loss carryforwards of approximately $1.4 billion and tax credit carryforwards of
approximately $96.5 million that are available to offset future taxable income.
<TABLE>
Tax basis loss carryforwards and tax credit carryforwards expire as follows (in
millions):
2002 &
1997 1998 1999 2000 2001 Beyond
---- ---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
U.S. tax basis loss carryforwards $ -- $ -- $ -- $ -- $85.6 $744.5
Non-U.S. tax basis loss
carryforwards $4.7 $10.5 $30.5 $16.0 $ 6.8 $505.4
Investment tax credit and
research and development
tax credit carryforwards $7.8 $17.5 $26.2 $20.7 $13.8 $ 10.5
</TABLE>
<PAGE> 46
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E (Continued)
Net taxes paid (refunded) amounted to $0.9 million for the year ended June 30,
1996, $0.7 million for the year ended June 30, 1995, and $(1.6) million for the
year ended June 30, 1994.
NOTE F--STOCKHOLDERS' EQUITY
SERIES B PREFERRED STOCK: 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"), $0.01 par value per share, for $138.3 million, net of
issuance costs. Each Depositary Share is 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. Each Depositary Share
entitles the holder to 1/20th of one vote. Cash dividends are cumulative at the
rate of $65.00 per annum per share ($3.25 per annum per Depositary Share)
payable quarterly in arrears.
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 Series A
and Series B Preferred Stock, as well as any other series of preferred stock
that the Company may designate and issue in the future.
1993 EMPLOYEES' STOCK GRANT PLAN: On December 16, 1993, 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 September 29, 1993. 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.
<PAGE> 47
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F (Continued)
STOCK OPTIONS:
1993 STOCK INCENTIVE PLAN: On September 30, 1993, the Company commenced the
granting of non-qualified options to certain employees 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
under this plan 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.
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 (the "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 are 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, 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 will be determined
based upon the average closing price of the Common Stock over the
<PAGE> 48
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F (Continued)
30-business-day period beginning 45 business days before the date of grant of
the option) and will 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.
<TABLE>
A summary of option activity from the Confirmation Date through June 30, 1996,
is as follows:
<CAPTION>
Options Option Price
Outstanding Per Share
----------- ------------
<S> <C> <C> <C>
Granted 2,151,150 $7.35 -$19.375
Exercised -- --
Canceled 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
Canceled 214,112 $7.35 -$17.875
---------
June 30, 1995 3,453,001 $7.35 -$19.375
Granted 2,175,750 $15.00-$24.125
Exercised 598,472 $7.35 -$19.375
Canceled 428,282 $7.35 -$18.750
---------
June 30, 1996 4,601,997 $7.35 -$24.125
Options exercisable at:
June 30, 1994 --
June 30, 1995 526,060
June 30, 1996 1,039,665
</TABLE>
At June 30, 1996, 1,942,421 shares were available for future grants.
EMPLOYEES' STOCK PURCHASE PLAN: The Employees' Stock Purchase Plan (the "Stock
Purchase Plan") permits 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 in two offerings, the second of which terminated on
April 30, 1995. The remainder of the 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
<PAGE> 49
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F (Continued)
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.
1995 EMPLOYEES' STOCK PURCHASE PLAN: On January 25, 1995, the Company's
stockholders approved the 1995 Employees' Stock Purchase Plan (the "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 of the parent company, 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. 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
DEFINED BENEFIT PLANS: The Company has two plans in the United States. The
first plan was frozen on June 30, 1992. The second U.S. plan was frozen on
December 31, 1995. As a result of freezing all future benefits under both U.S.
plans, no increase in compensation is assumed for either plan subsequent
to the dates that the plans were frozen.
<TABLE>
U.S. net pension cost consisted of (in millions):
<CAPTION>
Predecessor Company
-------------------
Year Year Nine Months Three Months
Ended Ended Ended Ended
June 30, June 30, June 30, September 30,
1996 1995 1994 1993
-------- -------- ----------- -------------------
<S> <C> <C> <C> <C>
Service cost $ 0.6 $ 0.5 $ -- | $ --
Interest cost 7.0 4.1 1.7 | 0.6
Actual return on assets (10.3) (4.8) (0.8) | (0.3)
Other, net 3.0 0.7 (1.0) | (0.3)
----- ----- ----- | -----
$ 0.3 $ 0.5 $(0.1) | $ --
===== ===== ===== | =====
</TABLE>
<PAGE> 50
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):
<CAPTION>
June 30, June 30,
1996 1995
-------- --------
<S> <C> <C>
Fair value of plan assets $ 99.6 $ 88.6
Projected benefit obligation (93.9) (84.9)
------ ------
Plan assets greater than
projected benefit obligation 5.7 3.7
Unrecognized net gain (5.7) (3.7)
Unrecognized net transition asset (0.5) (0.6)
------ ------
Accrued pension costs $ (0.5) $ (0.6)
====== ======
Accumulated benefits $(93.9) $(84.8)
====== ======
Vested benefits $(93.5) $(79.0)
====== ======
</TABLE>
<TABLE>
Non-U.S. net pension cost consisted of (in millions):
<CAPTION>
Predecessor Company
-------------------
Year Year Nine Months Three Months
Ended Ended Ended Ended
June 30, June 30, June 30, September 30,
1996 1995 1994 1993
------- -------- ----------- --------------------
<S> <C> <C> <C> <C>
Service cost $ 1.9 $ 1.3 $ 0.7 | $ 0.3
Interest cost 2.4 1.9 1.8 | 0.7
Actual return on assets (3.7) (2.6) (2.4) | (0.9)
Other, net 0.4 0.3 0.6 | 0.1
----- ----- ----- | -----
$ 1.0 $ 0.9 $ 0.7 | $ 0.2
===== ===== ===== | =====
</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.
<TABLE>
The funded status of non-U.S. plans was (in millions):
<CAPTION>
June 30, June 30,
1996 1995
-------- --------
<S> <C> <C>
Fair value of plan assets $ 58.8 $ 59.6
Projected benefit obligation (51.5) (50.7)
------ ------
Plan assets in excess of projected
benefit obligation 7.3 8.9
Unrecognized net (gain) loss 1.6 (0.9)
------ ------
Prepaid pension costs $ 8.9 $ 8.0
====== ======
Accumulated benefits $(46.4) $(45.0)
====== ======
Vested benefits $(41.6) $(39.6)
====== ======
</TABLE>
<PAGE> 51
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G (Continued)
<TABLE>
The following assumptions were used to measure the projected benefit obligation
for the defined benefit pension plans:
<CAPTION>
June 30, 1996 June 30, 1995
-------------------- --------------------
U.S. Non-U.S. U.S. Non-U.S.
Plans Plans Plans Plans
----- -------- ----- --------
<S> <C> <C> <C> <C>
Discount rate 8.0% 6.8%-12.0% 8.0% 7.0%-12.0%
Average increase
in compensation
levels 0.0% 3.5%-9.0% 0.0%-4.0% 3.5%-9.0%
</TABLE>
The expected long-term rate of return for plan assets was 8.0% for U.S. plans
and 7.5% to 12.0% for non-U.S. plans for the years ended June 30, 1996 and 1995.
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 $9.6 million for the years ended June 30, 1996 and 1995, $6.3 million
for the nine months ended June 30, 1994, and $2.8 million for the three months
ended September 30, 1993.
OTHER POSTRETIREMENT BENEFITS: The Company provides postretirement benefits
under two U.S. plans and an international plan. The first U.S. plan covers two
groups of current and 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 with at least 10 years of service and a total of 75
age and service points and current active employees who satisfied the
eligibility criteria by June 30, 1995. These 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 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 non-U.S. 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.
<PAGE> 52
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G (Continued)
<TABLE>
U.S. net periodic postretirement benefit cost consisted of (in millions):
<CAPTION>
Predecessor Company
-------------------
Year Year Nine Months Three Months
Ended Ended Ended Ended
June 30, June 30, June 30, September 30,
1996 1995 1994 1993
-------- -------- ----------- --------------------
<S> <C> <C> <C> <C>
Service cost $ 0.1 $0.1 $0.1 | $ --
Interest cost 0.9 0.8 0.6 | 0.2
Other, net (0.3) -- -- | --
----- ---- ---- | ----
$ 0.7 $0.9 $0.7 | $0.2
===== ==== ==== | ====
</TABLE>
<TABLE>
The funded status of the U.S. plans was (in millions):
<CAPTION>
June 30, June 30,
1996 1995
-------- --------
<S> <C> <C>
Fair value of plan assets $ -- $ --
Accumulated postretirement benefit obligation:
Retirees 10.4 12.6
Other fully eligible plan participants 1.7 1.7
Other active plan participants 1.1 1.5
Unrecognized net gain 4.6 2.5
----- -----
Accrued postretirement benefit liability $17.8 $18.3
===== =====
</TABLE>
Non-U.S. net periodic postretirement benefit cost approximated $0.1 million for
the year ended June 30, 1996 and the year ended June 30, 1995. A curtailment
gain of $0.5 million for the non-U.S. plan was recorded for the year ended June
30, 1996 and relates to the elimination of active employees not eligible for
retirement as of November 30, 1995.
<TABLE>
The funded status of the non-U.S. plan was (in millions):
<CAPTION>
June 30, June 30,
1996 1995
-------- --------
<S> <C> <C>
Fair value of plan assets $ -- $ --
Accumulated postretirement benefit obligation:
Retirees 0.8 0.6
Other fully eligible plan participants 0.1 0.3
Other active plan participants -- 0.5
Unrecognized net gain 0.2 --
---- ----
Accrued postretirement benefit liability $1.1 $1.4
==== ====
</TABLE>
<PAGE> 53
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G (Continued)
<TABLE>
The following assumptions were used to measure net periodic postretirement
benefit costs:
<CAPTION>
1996 1995 1994
------------------ ----------------- ----
U.S. Non-U.S. U.S. Non-U.S. U.S.
Plans Plan Plans Plan Plan
----- -------- ----- -------- ----
<S> <C> <C> <C> <C>
Increase in healthcare
costs during the period 9.3%-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 3-12 yrs 6 yrs 5-11 yrs 6 yrs 3 yrs
Discount rates 7.3%- 8.0% 8.0% 8.0% 8.0% 8.0%
</TABLE>
If the health care cost trend rate was increased 1.0%, the accumulated
postretirement benefit obligation as of June 30, 1996 would have increased by
4.1% and 9.6% 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 year ended June 30,
1996 would have been an increase of 4.2% and 9.9% for the U.S. and non-U.S.
plans, respectively.
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 $241 million for the year ended June 30, 1996, $150
million for the year ended June 30, 1995, $101 million for the nine months ended
June 30, 1994, and $40 million for the three months ended September 30, 1993.
The majority of these revenues were in the United States geographic area.
<PAGE> 54
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE H (Continued)
<TABLE>
Certain information on a geographic basis follows (in millions):
<CAPTION>
Predecessor Company
Year Year Nine Months -------------------
Ended Ended Ended Three Months Ended
June 30, June 30, June 30, September 30,
1996 1995 1994 1993
-------- -------- ----------- -------------------
<S> <C> <C> <C> <C>
Revenues from
unaffiliated
customers:
United States,
including direct
export sales $ 588.3 $453.7 $309.7 | $109.0
Other Americas 65.9 51.8 29.5 | 9.5
Europe 267.7 307.4 226.6 | 62.9
Asia/Pacific 167.9 134.3 78.6 | 29.5
-------- ------ ------ | ------
$1,089.8 $947.2 $644.4 | $210.9
======== ====== ====== | ======
|
Interarea transfers: |
United States $ 14.0 $ 20.9 $ 21.6 | $ 5.8
Other Americas -- 0.2 -- | --
Europe 0.1 0.3 1.1 | 0.5
Asia/Pacific -- -- 0.2 | --
-------- ------ ------ | ------
$ 14.1 $ 21.4 $ 22.9 | $ 6.3
======== ====== ====== | ======
|
Income (loss) |
before income taxes and |
reorganization |
items: |
|
United States $ (43.9) $(47.6) $ 24.4 | $ 1.6
Other Americas 9.8 (12.7) 0.5 | 1.6
Europe 20.0 10.5 8.2 | (2.3)
Asia/Pacific 16.8 (17.4) (16.8) | 9.9
Eliminations 2.8 2.7 2.1 | 1.5
-------- ------ ------ | ------
$ 5.5 $(64.5) $ 18.4 | $ 12.3
======== ====== ====== | ======
</TABLE>
<TABLE>
The income (loss) before income taxes and reorganization items for the years
ended June 30, 1996 and 1995 included $32.4 million and $73.6 million,
respectively, of net acquisition-related, restructuring and Chapter 11-related
charges.
<CAPTION>
June 30, June 30,
1996 1995
-------- --------
<S> <C> <C>
Identifiable assets
(excluding
intercompany):
United States $527.8 $508.9
Other Americas 51.6 57.1
Europe 184.8 181.7
Asia/Pacific 93.5 106.5
Eliminations and other (1.1) (1.7)
------ ------
$856.6 $852.5
====== ======
</TABLE>
<PAGE> 55
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I--COMMITMENTS AND CONTINGENCIES
<TABLE>
LEASES: Rental expense for the periods through June 30, 1996 was as follows (in
millions):
<S> <C>
Year ended June 30, 1996 $28.2
Year ended June 30, 1995 $17.6
Nine months ended June 30, 1994 $16.7
Three months ended September 30, 1993 $ 8.0
</TABLE>
<TABLE>
Future minimum lease commitments on noncancelable operating leases and sublease
income are as follows (in millions):
<CAPTION>
Year ended June 30,
----------------------------------------
1997 1998 1999 2000 2001 Thereafter
---- ---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Future minimum lease
commitments on
noncancelable leases $35.1 $30.0 $23.3 $22.2 $12.7 $35.9
Future minimum
sublease income $ 5.1 $ 4.1 $ 2.9 $ 1.6 $ 1.6 $ 6.7
</TABLE>
These future minimum lease commitments include approximately $42.6 million, net
of sublease income, related to facilities the Company has elected to abandon in
connection with the restructuring and acquisition-related initiatives.
FOREIGN CURRENCY GAINS(LOSSES): Foreign currency exchange and translation gains
or losses were insignificant for the year ended June 30, 1996. Foreign currency
exchange and translation gains or losses included in operations amounted to 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 and a $0.3 million gain for the three months
ended September 30, 1993.
FORWARD EXCHANGE CONTRACTS: At June 30, 1996 and 1995, the Company had forward
exchange contracts with maturities of less than one year, to exchange
predominantly European currencies for U.S. dollars in the amounts of $1.2
million and $12.9 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 1997.
On July 2, 1996, Wang filed suit against Watermark, a subsidiary of FileNet
Corporation, alleging the infringement of four Wang patents covering workflow
and imaging technologies. Wang is seeking damages and injunctive relief.
Prior to its filing for Chapter 11 protection, the Company was 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
<PAGE> 56
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I (Continued)
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.
NOTE J--FRESH-START REPORTING, REORGANIZATION AND RESTRUCTURING EXPENSES
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, 1996 and June 30, 1995
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 year ended June 30, 1996,
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
the Statement of Cash Flows for the three months ended September 30, 1993 is
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.
<PAGE> 57
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J (Continued)
Under the Reorganization Plan, 30 million shares of the Company's new Common
Stock were to be 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, net of periodic distributions
for allowed claims, 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.
REORGANIZATION EXPENSES: The restructuring provisions recorded by the
Predecessor Company during the period while in Chapter 11, 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.
<PAGE> 58
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J (Continued)
Reorganization expenses relate to the reorganization and restructuring of the
Company in connection with its emergence from Chapter 11 Bankruptcy and the
implementation of its Reorganization Plan. These charges consist of the
following (in millions):
<TABLE>
<CAPTION>
Nine Months Three Months Year
Ended Ended Ended
June 30, 1994 September 30, 199393 June 30, 1993
------------- -------------------- -------------
<S> <C> <C> <C>
Restructuring $ -- $ 8.2 $ 92.2
Professional fees -- 14.8 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 2.0 1.7 9.9
---- ----- ------
$2.0 $20.8 $127.3
==== ===== ======
</TABLE>
In conjunction with its emergence from Chapter 11 bankruptcy, an accrual of
$17.8 million was recorded, representing the estimated amount of the Predecessor
Company's liabilities that would be settled in cash.
The activity related to reorganization charges, excluding the `restructuring'
line item above, is summarized in the following table (in millions):
<TABLE>
<CAPTION>
Liabilities Fiscal 1995 Activity
Discharged -------------------------------------
at Charges/
Charges Sept 30, (reversals)-
to 1993 and Charges changes in
Balance Operations Effects of Utilized Balance estimates
June 30, in 1993 Fresh-start in 1993 June 30, and new Currency
1992 and 1994 Reporting and 1994 1994 initiatives Utilization translation
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Accrued reorganization $ -- $47.7 $ -- $(44.8) $ 2.9 $ -- $(1.5) $ --
Chapter 11 accounts payable -- -- 17.8 (9.9) 7.9 (2.3) (3.2) --
-----------------------------------------------------------------------------------------
$ -- $47.7 $17.8 $(54.7) $10.8 $(2.3) $(4.7) $ --
=========================================================================================
<CAPTION>
Fiscal 1996 Activity
--------------------------------------------
Charges/
(reversals)-
changes in
Balance estimates Balance
June 30, and new Currency June 30,
1995 initiatives Utilization translation 1996
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Accrued reorganization $ 1.4 $(1.1) $(0.3) $ -- $ --
Chapter 11 accounts payable 2.4 (2.2) -- -- 0.2
----------------------------------------------------------------
$ 3.8 $(3.3)(A) $(0.3) $ -- $0.2
================================================================
<CAPTION>
(A) Comprised of:
1995 1996
----- -----
<S> <C> <C>
Initial provisions for Chapter 11-related actions $ -- $ --
Increases due to changes to Chapter 11-related actions -- --
Decreases due to changes to Chapter 11-related actions (2.3) (2.2)
Increases and overages of estimated costs of actions -- --
Reversals of estimated costs of plans -- (1.1)
-------------------
$(2.3) $(3.3)
===================
</TABLE>
<PAGE> 59
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J (Continued)
Periodically, the accruals related to the reorganization-related charges are
reviewed and compared to their respective requirements. As a result of those
reviews, the accruals are adjusted for changes in cost and timing assumptions of
previously approved and recorded initiatives.
During fiscal 1996, a review of the appropriateness of the Chapter 11-related
accruals identified $1.1 million of excess reorganization reserves and $2.2
million of excess Chapter 11 accounts payable accruals which were reversed and
reported as Chapter 11-related charges in the statements of operations. The
Company determined the amount of excess reorganization reserves to be reversed
by reviewing its requirements for reserve utilization, primarily related to
litigation and bankruptcy administration, and reversing the balance of the
reserve identified as excess as a result of this analysis. The Chapter 11
accounts payable excess reserves related primarily to trade vendor liabilities
discharged with lower cash payment requirements than originally anticipated.
RESTRUCTURING: 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, during 1989, these industry changes
resulted 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.
Cash outlays to complete the balance of the Company's restructuring initiatives
are estimated to approximate $8 million in fiscal 1997 and $1 million in fiscal
1998. 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
<PAGE> 60
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J (CONTINUED)
capitalized software. These 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.
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.
The activity related to reserves established for restructuring activities is
summarized in the following table (in millions):
<TABLE>
<CAPTION>
Liabilities Fiscal 1995 Activity
Discharged ------------------------------------------------
at Charges/
Charges Sept 30, (reversals)-
to 1993 and Charges changes in
Balance Operations Effects of Utilized estimates
June 30, in 1993 Fresh-start in 1993 Balance and new Currency
1992 and 1994 Reporting and 1994 6/30/94 initiatives Utilization translation Other
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Restructure
Facilities $132.0 $ 2.8 $(30.4) $ (70.7) $33.7 $ (1.1) $(24.7) $2.3 $ -
Depreciable assets 78.3 67.8 (9.5) (121.7) 14.9 (3.2) (9.1) 0.8 0.3
Workforce-related 80.2 35.3 9.6 (99.7) 25.4 (2.4) (21.3) 1.3 0.6
Other 111.3 19.7 (9.4) (108.2) 13.4 (1.4) (6.2) 0.3 0.3
--------------------------------------------------------------------------------------------------------
$401.8 125.6 $(39.7) $(400.3) $87.4 (8.1) $(61.3) $4.7 $1.2
====== ============================= ==============================
Realized gains on related
asset sales (25.2) -
------ ------
Net reported expense $100.4 $ (8.1)(A)
====== ======
<CAPTION>
Fiscal 1996 Activity
--------------------------------------------------------
Charges/
(reversals)-
changes in
estimates
Balance and new Currency Balance
6/30/95 initiatives Utilization Other translation 6/30/96
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Restructure
Facilities $10.2 $ 3.3 $ (7.0) $ - $ - $6.5
Depreciable assets 3.7 0.1 (3.0) - (0.2) 0.6
Workforce-related 3.6 (0.2) (2.2) - (0.1) 1.1
Other 6.4 (1.0) (3.5) - - 1.9
---------------------------------------------------------------------------
$23.9 2.2 $(15.7) $ - $(0.3) $10.1
====== ===========================================
Realized gains on related
asset sales -
-----
Net reported expense $ 2.2(A)
=====
<CAPTION>
(A) Comprised of:
1995 1996
------ -----
<S> <C> <C>
Initial provisions for restructuring plans $ - $ -
Increases due to changes to restructuring plans - -
Decreases due to changes to restructuring plans - -
Increases and overages of estimated costs of plans 1.2 3.4
Reversals of estimated costs of plans (9.3) (1.2)
-------------------
Total $ (8.1) $ 2.2
===================
</TABLE>
<PAGE> 61
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J (Continued)
Periodically, the accruals related to the restructure charges are reviewed and
compared to their respective requirements. As a result of those reviews, the
accruals are adjusted for changes in cost and timing assumptions of previously
approved and recorded initiatives.
During fiscal 1995 the review of the restructure accruals relative to previously
approved and recorded actions identified $8.1 million of excess reserves,
primarily related to depreciable assets and workforce reduction actions. This
reversal is reflected as income in all other restructuring costs in the
statements of operations.
Review of the restructure reserves during fiscal 1996 identified net additional
requirements of $2.2 million for previously approved and recorded initiatives.
The facilities change in estimate charge of $3.3 million was required in Europe
due to the Company's lack of success in subleasing certain properties or
otherwise terminating its leases. This charge is included in All other
restructuring costs in the statements of operations.
The June 30, 1996 and 1995 balances of the restructuring reserves are classified
as follows (in millions):
<TABLE>
<CAPTION>
June 30, June 30,
1996 1995
-------- --------
<S> <C> <C>
Depreciable assets $ 0.6 $ 3.7
Accounts payable, accrued expenses
and other 8.1 14.8
Liabilities of businesses held for sale 0.2 1.0
Non-current liabilities 1.2 4.4
----- -----
$10.1 $23.9
===== =====
</TABLE>
<PAGE> 62
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE K--FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of 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 $53.6 million and $49.7 million at June
30, 1996 and 1995, respectively.
The fair values of the Company's exchangeable Preferred Stock are estimated
using discounted cash flow analyses, based on the Company's current incremental
borrowing rate for similar borrowing arrangements. The carrying value of the
Company's Series A Preferred Stock approximates fair value at June 30, 1996 and
1995. The fair value of the Exchangeable Preferred Stock was estimated at $69.1
million at June 30, 1995.
NOTE L--SUBSEQUENT EVENTS
On August 29, 1996, the Company acquired I-NET, Inc. ("I-NET") for approximately
$165 million in cash and notes, plus assumed liabilities. Prior to the
transaction, the Company had an investment in I-NET of approximately $12
million. I-NET, a privately-held vendor-independent business, is a provider of
outsourced network and desktop management services. These services include
enterprise network integration and operations, network management, client/server
technologies, LAN/WAN communications, document management services and IT
outsourcing. I-NET generated revenues of approximately $327 million for the year
ended December 31, 1995. The Company is integrating I-NET with its existing
businesses. Integration-related costs associated with the acquisition will be
recorded in the first quarter of fiscal 1997 as part of a restructure charge to
operations totaling approximately $29 million.
On August 29, 1996, the Company also entered into a three-year Amended and
Restated Credit Facility (the "Facility") with a group of financial institutions
which provides for borrowings of up to $225.0 million. The Facility will be used
to replace the Company's existing credit facility, to finance a portion of the
purchase price of I-NET, to refinance existing I-NET borrowings and for general
corporate purposes.
<PAGE> 63
Wang Laboratories, Inc. and Subsidiaries
<TABLE>
Quarterly Results of Operations (Unaudited)
(Dollars in millions except per share data)
September December March June
Three months ended 30, 31, 31, 30,
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended June 30, 1996 (Restated)
Revenues $264.2 $292.5 $265.0 $268.1
Costs 178.8 194.8 178.2 180.6
Expenses 68.8 76.4 69.5 70.1
Amortization of intangibles - acquisition
and fresh-start 10.3 10.8 10.5 11.0
Acquisition-related charges 27.2 -- -- 3.6
Chapter 11-related charges (income) -- -- -- (3.3)
All other restructuring costs (income) -- -- -- 2.2
------ ------ ------ ------
Operating income (loss) (21.2) 10.3 4.8 3.7
Interest and other (income) expense - net (2.0) (1.7) (1.8) (2.4)
Provision for income taxes 2.0 5.2 3.4 0.4
------ ------ ------ ------
Net income (loss) (21.2) 6.8 3.2 5.7
Dividends and accretion - preferred stock (3.4) (3.4) (12.2) (3.6)
------ ------ ------ ------
Net income (loss) applicable to
common stockholders $(24.6) $ 3.4 $ (9.0) $ 2.1
====== ====== ====== ======
Net income (loss) per share $(0.72) $ 0.09 $(0.25) $ 0.06
====== ====== ====== ======
As Previously Reported:
Net income (loss) $(20.7) $ 6.9 $ 5.0 $ 8.2
====== ====== ====== ======
Net income (loss) per share $(0.68) $ 0.09 $(0.20) $ 0.13
====== ====== ====== ======
<CAPTION>
September December March June
Three months ended 30, 31, 31, 30,
- -----------------------------------------------------------------------------------------------------
Year ended June 30, 1995 (Restated)
Revenues $192.2 $216.5 $253.3 $285.2
Costs 126.2 146.6 185.1 198.3
Expenses 56.9 56.3 73.2 74.4
Amortization of intangibles - acquisition
and fresh-start 6.5 6.4 8.7 9.7
Acquisition-related charges -- -- 69.7 11.4
Chapter 11-related charges (income) -- -- -- (2.3)
All other restructuring costs (income) -- -- (5.5) (2.6)
------ ------ ------ ------
Operating income (loss) 2.3 6.8 (79.8) (4.0)
1nterest and other (income) expense - net (2.9) (1.7) (3.2) (2.4)
Provision (benefit) for income taxes 2.7 4.5 (3.6) --
------ ------ ------ ------
Net income (loss) 2.5 4.0 (73.0) (1.6)
Dividends and accretion - preferred stock (2.0) (2.1) (2.1) (2.5)
------ ------ ------ ------
Net income (loss) applicable to
common stockholders $ 0.5 $ 1.9 $(75.1) $ (4.1)
====== ====== ====== ======
Net income (loss) per share $ 0.02 $ 0.06 $(2.16) $(0.12)
====== ====== ====== ======
As Previously Reported:
Net income (loss) $ 2.8 $ 4.3 $(73.3) $ 4.9
====== ====== ====== ======
Net income (loss) per share $ 0.02 $ 0.06 $(2.17) $ 0.12
====== ====== ====== ======
</TABLE>
The quarterly results differ from amounts previously reported as a result of the
restatement which is more fully described in Note A to the accompanying
financial statements.
<PAGE> 1
Wang Laboratories, Inc. and Subsidiaries
<TABLE>
EXHIBIT 11.1 - COMPUTATION OF EARNINGS PER SHARE
<CAPTION>
Year Ended Year Ended
June 30, 1996 June 30, 1995(1)
---------------------- ------------------------
Primary Fully Diluted Primary Fully Diluted
------- ------------- ------- -------------
(In thousands except per share data)
<S> <C> <C> <C> <C>
Average shares of Common
Stock outstanding 36,306 36,306 34,233 34,233
Common equivalent shares for
stock options -- -- -- --
-------- -------- -------- --------
36,306 36,306 34,233 34,233
======== ======== ======== ========
Net income(loss) $ (5,482) $ (5,482) $(68,056) $(68,056)
Accretion and dividends on
Preferred Stock (22,648) (22,648) (8,710) (8,710)
-------- --------- -------- --------
$(28,130) $(28,130) $(76,766) $(76,766)
======== ======== ======== ========
Net income(loss) per share $ (0.77) $ (0.77) $ (2.24) $ (2.24)
======== ======== ======== ========
<FN>
(1) Restated to include Avail Systems Corporation, which was acquired on
December 18, 1995, and accounted for using the pooling of interests
method.
</TABLE>
<PAGE> 1
WANG LABORATORIES, INC. AND SUBSIDIARIES
<TABLE>
EXHIBIT 12.1 - CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions except ratios)
<CAPTION>
Reorganized Company Predecessor Company
-------------------------------------------- ----------------------------------------------
Year Year Nine months Three months For the year ended June 30,
ended June 30, ended June 30, ended June 30, ended September 30, ---------------------------
1996 1995 1994 1993 1993 1992 1991
--------------- ----------- ------------ --------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FIXED CHARGES
Interest expense $ 5.1 $ 3.7 $ 3.5 $ 1.2 $ 15.0 $ 44.6 $ 44.0
Portion of rent expense
representative of interest 9.4 5.9 5.6 2.7 9.7 19.1 33.5
------ ------ ----- ------ ------ ------- -------
14.5 9.6 9.1 3.9 24.7 63.7 77.5
Preferred dividend requirement 37.7 14.5 8.7 -- -- -- --
------ ------ ----- ------ ------ ------- -------
Combined fixed charges and
preferred dividend $ 52.2 $24.1 $17.8 $ 3.9 $ 24.7 $63.7 $ 77.5
====== ====== ===== ====== ====== ======= =======
EARNINGS
Income (loss) from continuing
operations before income
taxes, discontinued operations,
fresh-start reporting adjustment
and extraordinary item $ 5.5(1) $(64.5)(2) $18.4 $ (8.5) $(197.2) $(346.5) $(368.8)
Fixed charges per above 14.5 9.6 9.1 3.9 24.7 63.7 77.5
------ ------ ----- ------ ------- ------- -------
$ 20.0 $(54.9) $27.5 $ (4.6) $(172.5) $(282.8) $(291.3)
====== ====== ===== ====== ======= ======= =======
Ratio of earnings to combined
fixed charges and preferred dividends -- -- 1.5 -- -- -- --
====== ====== ===== ====== ======= ======= =======
Coverage deficiency $(32.2) $(54.9) -- $( 4.6) $(172.5) $(282.8) $(291.3)
====== ====== ===== ====== ======= ======= =======
<FN>
(1) Includes $29.7 million of net acquisition-related, restructuring and
Chapter 11-related charges.
(2) Includes $70.7 million provision of net acquisition-related,
restructuring and Chapter 11-related charges. Restated to include Avail
Systems Corporation which was acquired December 18, 1995 and accounted for
using the pooling of interests method.
</TABLE>
<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 Statement (Form S-8 No. 33-88912),
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. 333-01333),
pertaining to the Company's Employees' Stock Incentive Plan, the Registration
Statement (Form S-8 No. 333-01335), pertaining to the Avail Systems Corporation
1991 Incentive Stock Plan, the Registration Statement (Form S-3 No. 333-03879)
of Wang Laboratories, Inc. and the related Prospectus, the Registration
Statement (Form S-3 No. 333-06611) of Wang Laboratories, Inc. and the related
Prospectus, the Registration Statement (Form S-8 No. 333-12963), pertaining to
the I-NET, Inc. Key Employee Stock Option Plan, the Registration Statement (Form
S-8 No. 333-12943), pertaining to the I-NET, Inc. 1996 Stock Incentive Plan, the
Registration Statement (Form S-3 and Form S-3/A No. 333-19789), of Wang
Laboratories, Inc. Common Stock, the Registration Statement (Form S-8 No.
333-26661), pertaining to Wang Laboratories, Inc. Common Stock, the Registration
Statement (Form S-8 No. 333-26635), pertaining to the I-NET, Inc. Key Employee
Stock Option Plan, the Registration Statement (Form S-8 No. 333-26637),
pertaining to the I-NET, Inc. 1996 Stock Incentive Plan, the Registration
Statement (Form S-3 No. 333-27969), of Wang Laboratories, Inc. pertaining to a
warrant for Common Stock, and the Registration Statement (Form S-3 No.
333-27971), of Wang Laboratories, Inc. Common Stock of our report dated July 24,
1996 except for Note L, as to which the date is August 29, 1996 and except for
the second paragraph of Note A as to which the date is August 14, 1997, with
respect to the consolidated financial statements and schedule of Wang
Laboratories, Inc. included in the Annual Report (Form 10-K) for the year ended
June 30, 1996.
ERNST & YOUNG LLP
Boston, Massachusetts
August 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION RXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENT OF OPERATIONS, NOTE C - OTHER
BALANCE SHEET INFORMATION, SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND
EXHIBIT 11.1 - COMPUTATION OF EARNINGS PER SHARE AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-K/A, AMENDMENT NO. 1 TO FORM 10-K FOR
THE FISCAL YEAR ENDED JUNE 30, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 175,300
<SECURITIES> 0
<RECEIVABLES> 204,900
<ALLOWANCES> 10,800
<INVENTORY> 19,900
<CURRENT-ASSETS> 438,000<F1>
<PP&E> 228,900<F1>
<DEPRECIATION> 91,600
<TOTAL-ASSETS> 856,600
<CURRENT-LIABILITIES> 370,400
<BONDS> 21,900
84,800
138,300
<COMMON> 400
<OTHER-SE> 203,700
<TOTAL-LIABILITY-AND-EQUITY> 856,600
<SALES> 368,900
<TOTAL-REVENUES> 1,089,800
<CGS> 235,000
<TOTAL-COSTS> 732,400
<OTHER-EXPENSES> 106,000<F2>
<LOSS-PROVISION> 600
<INTEREST-EXPENSE> 5,100
<INCOME-PRETAX> 5,500
<INCOME-TAX> 11,000
<INCOME-CONTINUING> (5,500)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,500)
<EPS-PRIMARY> (0.77)
<EPS-DILUTED> (0.77)
<FN>
FOOTNOTES:
<F1> PP&E Cost and Accumulated Depreciation include capitalized non-consumable
spares inventory.
<F2> Other Expenses includes $29.7 million of net acquisition-related,
restructuring and Chapter 11-related charges.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENT OF OPERATIONS, NOTE C - OTHER
BALANCE SHEET INFORMATION, SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND
EXHIBIT 11.1 - COMPUTATION OF EARNINGS PER SHARE AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-K/A, AMENDMENT NO. 1 TO FORM 10-K FOR THE
FISCAL YEAR ENDED JUNE 30, 1995.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<EXCHANGE-RATE> 1
<CASH> 182,400
<SECURITIES> 0
<RECEIVABLES> 193,300
<ALLOWANCES> 10,800
<INVENTORY> 24,400
<CURRENT-ASSETS> 426,500
<PP&E> 195,700<F1>
<DEPRECIATION> 61,300<F1>
<TOTAL-ASSETS> 852,500
<CURRENT-LIABILITIES> 392,400
<BONDS> 26,000
84,100
61,500
<COMMON> 300
<OTHER-SE> 220,800
<TOTAL-LIABILITY-AND-EQUITY> 852,500
<SALES> 365,700
<TOTAL-REVENUES> 947,200
<CGS> 254,400
<TOTAL-COSTS> 656,200
<OTHER-EXPENSES> 133,000<F2>
<LOSS-PROVISION> 6,400
<INTEREST-EXPENSE> 3,700
<INCOME-PRETAX> (64,500)
<INCOME-TAX> 3,600
<INCOME-CONTINUING> (68,100)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (68,100)
<EPS-PRIMARY> (2.24)
<EPS-DILUTED> (2.24)
<FN>
FOOTNOTES:
<F1> PP&E Cost and Accumulated Depreciation include capitalized non-consumable
spares inventory.
<F2> Other Expenses includes $70.7 million of net acquisition related,
restructuring and Chapter 11-related charges.
</FN>
</TABLE>
