<PAGE> 1
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ---- to ----
Commission file number 1-5677
WANG LABORATORIES, INC.
-----------------------
(Exact name of registrant as specified in its charter)
DELAWARE 04-2192707
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
600 Technology Park Drive
Billerica, Massachusetts 01821-4130
------------------------- ----------
(Address of principal executive offices) (Zip Code)
(508) 967-5000
--------------
(Registrant's telephone number, including area code)
Not Applicable
--------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
---
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practical date (December 31, 1996):
Common stock, par value $0.01 per share 36,552,891 shares
<PAGE> 2
2
WANG LABORATORIES, INC. AND SUBSIDIARIES
INDEX
Part I. FINANCIAL INFORMATION PAGE NO.
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - 3
December 31, 1996 and June 30, 1996
Condensed Consolidated Statements of Operations - 4
Three and six months ended December 31, 1996 and 1995
Condensed Consolidated Statements of Cash Flows - 5
Six months ended December 31, 1996 and 1995
Notes to Condensed Consolidated Financial Statements - 6
December 31, 1996
Item 2. Management's Discussion and Analysis of Financial 13
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 6. Exhibits and Reports on Form 8-K 24
SIGNATURE 28
<PAGE> 3
3
<TABLE>
PART I - FINANCIAL INFORMATION
WANG LABORATORIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
December 31, June 30,
1996 1996
----------- -------
(Dollars in millions)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS
Cash and equivalents $ 73.4 $175.3
Accounts receivable, net 309.0 194.1
Inventories 22.3 19.9
Other current assets 50.3 48.7
--------- ------
Total current assets 455.0 438.0
Depreciable assets, net 138.5 137.3
Intangible assets, net 397.4 211.2
Other 64.4 77.6
-------- ------
Total assets $1,055.3 $864.1
======== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Amounts due under revolving credit facility $ 104.1 $ --
Borrowings due within one year 61.2 21.9
Accounts payable, accrued expenses and other 319.4 257.6
Deferred service revenue 74.8 75.7
-------- ------
Total current liabilities 559.5 355.2
Long-term liabilities 86.4 77.4
Series A preferred stock 85.1 84.8
STOCKHOLDERS' EQUITY
Series B preferred stock, $0.01 par value,
143,750 shares authorized and outstanding,
liquidation preference of $143.8
million 138.3 138.3
Common stock, $0.01 par value, 100,000,000
shares authorized; outstanding shares:
36,552,891 at December 31, 1996 and
36,302,737 at June 30, 1996 0.4 0.4
Capital in excess of par value 267.5 268.6
Cumulative translation adjustment (0.2) (0.8)
Accumulated deficit (81.7) (59.8)
-------- ------
Total stockholders' equity 324.3 346.7
-------- ------
Total liabilities and stockholders' equity $1,055.3 $864.1
======== ======
</TABLE>
See notes to the condensed consolidated financial statements.
<PAGE> 4
4
<TABLE>
WANG LABORATORIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1996 1995 1996 1995
---- ---- ---- ----
(Dollars in millions, except per share data)
<S> <C> <C> <C> <C>
REVENUES
Product sales $107.2 $109.7 $190.1 $192.6
Service and other 256.5 182.8 464.3 364.1
------ ------ ------ ------
363.7 292.5 654.4 556.7
COSTS AND EXPENSES
Cost of product sales 75.3 72.6 130.0 127.3
Cost of service and other 195.0 122.2 344.4 246.3
Research and development 7.9 9.3 15.8 18.3
Selling, general and administrative 66.6 67.0 130.7 126.5
Amortization of intangibles -
acquisition and fresh-start 12.1 11.0 23.2 21.4
Integration-related costs and other
charges -- -- 29.1 27.2
------ ------ ------ ------
Total costs and expenses 356.9 282.1 673.2 567.0
------ ------ ------ ------
OPERATING INCOME (LOSS) 6.8 10.4 (18.8) (10.3)
OTHER (INCOME) EXPENSE
Interest expense 3.7 1.2 4.9 2.2
Other income - net (2.0) (2.9) (3.2) (5.9)
------ ------ ------ ------
Total other (income) expense 1.7 (1.7) 1.7 (3.7)
------ ------ ------ ------
INCOME (LOSS) BEFORE INCOME TAXES 5.1 12.1 (20.5) (6.6)
Provision for income taxes 0.6 5.2 1.4 7.2
------ ------ ------ ------
NET INCOME (LOSS) 4.5 6.9 (21.9) (13.8)
Dividends and accretion on
preferred stock (3.5) (3.4) (7.0) (6.8)
------ ------ ------ ------
NET INCOME (LOSS) APPLICABLE TO COMMON
STOCKHOLDERS $ 1.0 $ 3.5 $(28.9) $(20.6)
====== ====== ====== ======
Weighted average shares outstanding
(in millions) 36.7 37.6 36.7 35.8
NET INCOME (LOSS) PER SHARE $ 0.03 $ 0.09 $(0.79) $(0.58)
====== ====== ====== ======
</TABLE>
See notes to the condensed consolidated financial statements.
<PAGE> 5
5
<TABLE>
WANG LABORATORIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Six Months Ended December 31,
1996 1995
---- ----
(Dollars in millions)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (21.9) $(13.8)
Depreciation 31.3 28.0
Amortization 26.2 24.2
Non-cash provision for income taxes 1.1 6.8
Provision for integration-related
costs and other charges 29.1 27.2
Payments of integration-related costs,
restructuring and other charges (16.6) (25.7)
CHANGES IN OTHER ACCOUNTS AFFECTING OPERATIONS
Accounts receivable (31.4) (40.7)
Inventories 0.7 2.3
Other current assets (0.3) (1.2)
Accounts payable and other current
liabilities (30.7) (13.5)
Other 1.7 (0.6)
------- ------
Net changes in other accounts
affecting operations (60.0) (53.7)
------- ------
Net cash used in operations (10.8) (7.0)
------- ------
INVESTING ACTIVITIES
Investment in depreciable assets (22.1) (23.8)
Investment in capitalized software (1.3) (1.4)
Proceeds from asset sales 5.6 --
Business acquisitions, net of cash
acquired (168.1) (15.8)
Other (4.6) (3.6)
------- ------
Net cash used in investing activities (190.5) (44.6)
------- ------
FINANCING ACTIVITIES
Payments of long-term debt -- (0.4)
Net increase (decrease) in short-term
borrowings 103.8 (0.7)
Proceeds from sale of common stock 1.1 2.2
Dividends paid on preferred stock (6.7) (2.0)
------- ------
Net cash provided by (used in)
financing activities 98.2 (0.9)
------- ------
Effect of changes in foreign exchange
rates on cash 1.2 0.1
------- ------
DECREASE IN CASH AND EQUIVALENTS (101.9) (52.4)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 175.3 182.4
------- ------
CASH AND EQUIVALENTS AT END OF PERIOD $ 73.4 $130.0
======= ======
</TABLE>
See notes to the condensed consolidated financial statements.
<PAGE> 6
6
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1996
NOTE A - BASIS OF PRESENTATION
- ------------------------------
During interim periods, the Company follows the accounting policies set forth in
its most recent Annual Report on Form 10-K, filed with the Securities and
Exchange Commission. Users of financial information produced for interim periods
are encouraged to refer to the footnotes contained in the most recent Annual
Report on Form 10-K when reviewing interim financial statements.
The results of operations for the periods reported are not necessarily
indicative of those that may be expected for the full year. However, in the
opinion of management, the accompanying interim financial statements contain all
material adjustments, consisting principally of normal recurring adjustments
necessary to present fairly the financial condition, the results of operations
and cash flows of Wang Laboratories, Inc. and its consolidated subsidiaries for
the interim periods presented.
Earnings per share is based on the weighted average number of common shares
outstanding, including those yet to be distributed by the Disbursing Agent
appointed under the Company's Reorganization Plan, and the effect, when
dilutive, of stock options and warrants. Net income(loss), for purposes of
calculating earnings per share, has been reduced by cumulative dividends and
accretion related to the Company's preferred stock.
During the current fiscal year, the Company made two acquisitions. I-NET, Inc.
("I-NET") was acquired on August 29, 1996 and Advanced Paradigms, Inc. ("API")
was acquired on November 13, 1996. The Company's Statement of Operations and
Statement of Cash Flows for the six month period ended December 31, 1996 include
the results of the acquired businesses since acquisition. Prior period financial
statements have been restated to include the financial results of Avail Systems
Corporation, which was acquired in December 1995 in a transaction accounted for
using the pooling of interests method.
Certain amounts in previously issued financial statements were reclassified to
conform to current presentations.
NOTE B - BUSINESS ACQUISITIONS AND INTEGRATION-RELATED COSTS AND OTHER CHARGES
- ------------------------------------------------------------------------------
Advanced Paradigms Acquisition
On November 13, 1996, the Company acquired API, a privately-held Virginia-based
provider of enterprise-wide Microsoft-specific LAN/WAN solutions, for
approximately $6 million in cash and notes, plus assumed liabilities. API's
Microsoft-centric expertise complements the Company's network and desktop
services business, and enhances its position as a Microsoft Authorized Support
Center.
<PAGE> 7
7
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1996
NOTE B (Continued)
- ------
The acquisition was accounted for using the purchase method of accounting in
accordance with Accounting Principles Board Opinion No. 16, "Business
Combinations" ("APB 16"). Under APB 16, purchase price allocations were made to
the assets acquired and the liabilities assumed based on their respective fair
values. The excess of the purchase price over the net liabilities assumed of
$6.2 million has been recorded based on these preliminary purchase price
allocations.
I-NET Acquisition
On August 29, 1996, the Company acquired all of the outstanding shares of I-NET,
pursuant to the Stock Purchase Agreement between the Company and the other
stockholders of I-NET dated as of July 24, 1996, as amended on August 29, 1996.
I-NET, previously privately held, 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 communications and IT
outsourcing. In consideration for the shares of I-NET the Company paid the
stockholders of I-NET $100.2 million in cash and issued a $64.5 million
one-year, interest-free note. The Company has discounted the note payable at
8.0%, to $59.7 million, for accounting purposes and will increase the principal
balance through charges to interest expense to the maturity date. The final
settlement of the note issued to the selling stockholders is subject to a
reduction should the Company incur indemnified costs as defined by the Stock
Purchase Agreement. The Company has the option to pay, at maturity, up to fifty
percent of the principal amount of the note in Common Stock of the Company based
upon an agreed-upon formula.
The Company paid $44.2 million of existing I-NET debt and incurred $6.6 million
in transaction fees. The Company also assumed certain other liabilities. The
Company converted existing I-NET options to Wang options and canceled vested
I-NET stock options valued at $4.9 million which were recorded as part of the
purchase price. The Company had previously purchased a minority interest in
I-NET for $12.4 million.
In connection with the acquisition, the Company entered into an Amended and
Restated Revolving Credit Facility (the "Revolving Credit Facility") with
Bankers Trust Company ("BT") and certain other financial institutions. The
three-year reducing facility provides for borrowings of up to $225.0 million,
including up to $70.0 million of letters of credit, limited to the lesser of the
facility maximum or a formula based on the Company's accounts receivable and a
supplemental amount. The Revolving Credit Facility reduces to $200.0 million on
March 31, 1998, $175.0 million on September 30, 1998 and $150.0 million on March
31, 1999. Interest on any borrowings is based on the BT's
<PAGE> 8
8
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1996
NOTE B (Continued)
- ------
prime rate plus 0.25% to 1.25% or the LIBOR rate plus 1.25% to 2.25%. The
Revolving Credit Facility contains various financial covenants, including
covenants relating to the Company's operating results, working capital, net
worth, and indebtedness. Besides providing financing for the acquisition, the
Revolving Credit Facility will be used for general corporate purposes. As of
December 31, 1996, the Company had $104.1 million of outstanding borrowings
under the Revolving Credit Facility. Additionally, as of December 31, 1996,
letters of credit aggregating $11.7 million were outstanding under the Revolving
Credit Facility. Although financial accounting rules require the amounts due
under the Revolving Credit Facility to be classified as a current liability, the
terms of the Revolving Credit Facility do not require the Company to pay the
amounts due within the next twelve months.
The acquisition was accounted for using the purchase method of accounting in
accordance with Accounting Principles Board Opinion No. 16, "Business
Combinations" ("APB 16"). Under APB 16, purchase price allocations were made to
the assets acquired and the liabilities assumed based on their respective fair
values. The excess of the purchase price over the net liabilities assumed of
$205.3 million has been recorded based on these preliminary purchase price
allocations. Finalization of the allocation of the purchase price to assets
acquired and liabilities assumed, is subject to appraisals, evaluations and
other studies of the fair values of I-NET's assets and liabilities. The excess
of purchase price over the net liabilities assumed will be amortized using the
straight line method over a period of twenty-five years.
<TABLE>
A summary of the acquisition follows (in millions):
<S> <C>
Cash $100.2
Note to selling stockholders 59.7
Original investment in I-NET 12.4
Transaction costs 6.6
Stock options 4.9
------
Consideration, excluding assumed liabilities 183.8
Estimated fair value of net liabilities assumed 21.5
------
Excess of purchase price over net liabilities assumed $205.3
======
</TABLE>
The following pro forma results of operations have been prepared as though the
I-NET 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> 9
9
<TABLE>
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1996
NOTE B (Continued)
- ------
<CAPTION>
Six Months Ended
December 31,
1996 1995
-------- -------
<S> <C> <C>
Revenues $711.8 $737.5
Net loss $(29.2) $(34.1)
Net loss applicable to
common stockholders $(36.2) $(40.9)
Net loss per share applicable
to common stockholders $(0.99) $(1.14)
</TABLE>
Bull Acquisition
The Company and Bull negotiated a settlement of the objection proceedings which
the Company initiated to challenge the net asset value of the assets it had
acquired from Bull on January 31, 1995. As a result, the Company recorded in the
financial statements for the quarter ended September 30, 1996, a reduction to
Borrowings due within one year of $5.4 million, with a corresponding reduction
to Goodwill. The remaining obligation, totaling $16.5 million, plus accrued
interest of $2.8 million, was paid to Bull on December 30, 1996.
Integration-Related Costs and Other Charges
<TABLE>
The Company recorded a charge to operations of $29.1 million in the quarter
ended September 30, 1996, of which $12.3 million reflects the costs associated
with combining the operations of the Company and I-NET. An additional $5.7
million was recorded as a purchase accounting adjustment related to the cost of
integrating I-NET with the Company. Integration-related costs and other cost
reduction initiatives consist of the following (in millions):
<S> <C>
Workforce-related $13.4
Depreciable assets and other 8.2
Facilities 7.5
-----
Total $29.1
=====
</TABLE>
The formal plan was recorded as of September 30, 1996 based upon the best
information available at the time. 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. As a result of the acquisition
and other cost reduction initiatives, certain sales, technical support and
administrative functions are being combined and reduced. The Company plans to
release approximately 500 employees as part of these initiatives. The
facilities-related
<PAGE> 10
10
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1996
NOTE B (Continued)
- ------
reserves 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.
Cash outlays to complete these and earlier initiatives recorded as a charge to
operations are estimated to approximate $23 million for the remainder of fiscal
1997 and $17 million thereafter. Cash outlays to complete the initiatives
recorded as part of purchase accounting are estimated to approximate $6 million
for the remainder of fiscal 1997 and $17 million thereafter. Substantially all
workforce-related actions are expected to be complete in calendar 1997.
NOTE C - OTHER BALANCE SHEET INFORMATION
- ----------------------------------------
<TABLE>
Components of selected captions in the Condensed Consolidated Balance Sheet
follow (in millions):
<CAPTION>
December 31, June 30,
1996 1996
----------- --------
<S> <C> <C>
Accounts receivable $323.3 $204.9
Less allowances 14.3 10.8
------ ------
$309.0 $194.1
====== ======
Inventories
Finished products $ 9.0 $ 9.5
Raw materials and work-in-process 10.8 8.8
Service parts and supplies 2.5 1.6
------ ------
$ 22.3 $ 19.9
====== ======
Depreciable assets
Land $ 5.4 $ 5.4
Buildings and improvements 21.1 19.7
Machinery and equipment 88.6 62.9
Spare parts 137.2 140.9
------ -----
252.3 228.9
Less accumulated depreciation 113.8 91.6
------ ------
$138.5 $137.3
====== ======
Intangible assets
Trademarks and patents $ 27.2 $ 24.8
Computer software 38.2 37.1
Installed base - service 128.7 128.5
License agreements 29.9 29.9
Assembled workforce 16.4 16.2
Goodwill 257.5 50.7
Reorganization value in excess of amounts
allocated to
identifiable assets 30.6 30.6
Other 0.6 --
------ ------
529.1 317.8
Less accumulated amortization 131.7 106.6
------ ------
$397.4 $211.2
====== ======
</TABLE>
<PAGE> 11
11
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1996
<TABLE>
NOTE C (Continued)
- ------
<CAPTION>
December 31, June 30,
1996 1996
------------ --------
<S> <C> <C>
Accounts payable, accrued expenses and other
Accounts payable $ 80.0 $ 54.3
Accrued expenses 114.5 98.7
Compensation and benefits 62.6 49.1
Restructuring, reorganization and
integration-related
40.4 33.9
Other 21.9 21.6
------ ------
$319.4 $257.6
====== ======
Long-term liabilities
Postretirement $ 17.1 $ 17.3
Pension 7.8 8.0
Facilities 15.6 15.0
Restructuring, reorganization and
integration-related
9.9 5.2
Insurance 6.1 7.4
Other 29.9 24.5
------ ------
$ 86.4 $ 77.4
====== ======
</TABLE>
NOTE D - CONTINGENCIES
- ----------------------
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 in August of 1992, from which it
successfully emerged in September of 1993, 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 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.
<PAGE> 12
12
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)
DECEMBER 31, 1996
NOTE E - SUBSEQUENT EVENT
- -------------------------
On January 29, 1997, the Company and Eastman Kodak Company ("Kodak") signed a
definitive agreement whereby Kodak will acquire Wang's software business unit
for $260.0 million in cash. The sale is subject to regulatory approval and other
customary conditions. Upon closing, the Company expects to report a significant
nonrecurring gain. The business being transferred to Kodak would include Wang's
software business unit management, employees, products, technology, customers,
partners, and sales, marketing and research and development organizations
worldwide.
<TABLE>
The following pro forma summary financial information reflects the continuing
operations of the Company after reclassification of the operating results of the
software business unit as a discontinued operation. This information does not
purport to be indicative of the results of operations that would have been
attained had the software business been sold prior to the dates indicated, nor
of future results of operations of the Company. Additionally, this information
does not reflect the changes anticipated in fresh-start intangible amortization
expense and changes in interest income/expense which will result from the sale
of the software business unit to Kodak (in millions, except per share data).
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues $342.4 $271.3 $615.1 $517.6
Net income applicable to
common stockholders $ 12.6 $ 20.6 $ (2.2) $ 38.6
Net income (loss) per share
applicable to common
stockholders $ 0.34 $ 0.55 $(0.06) $ 1.08
</TABLE>
<PAGE> 13
13
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
On January 29, 1997, the Company and Eastman Kodak Company ("Kodak") signed a
definitive agreement whereby Kodak will acquire Wang's software business unit
for $260.0 million in cash. The business being transferred to Kodak would
include Wang's software business unit management, employees, products,
technology, customers, partners, and sales, marketing and research and
development organizations worldwide. The discussion below includes the results
of the software business as part of the Company's consolidated results; however,
where substantive, the impact of the sale on a prospective basis is addressed.
See also Note E to the condensed consolidated financial statements. The
following discussion compares the three months ended December 31, 1996 to the
same three month period of the prior year and the six months ended December 31,
1996 to the same six month period of the prior year.
The Company reported revenues of $363.7 million for the three months ended
December 31, 1996, a 24.4% increase compared to revenues of $292.5 million in
the same period of the prior year. Substantially all of the increase in revenues
is attributable to the I-NET, Inc. ("I-NET") and Dataserv acquisitions. Revenues
for the six months ended December 31, 1996 increased by 17.6%, to $654.4
million, compared to $556.7 million in the same prior year period. The Company
reported operating income of $6.8 million after amortization of fresh-start and
acquired intangible assets of $12.1 million for the three months ended December
31, 1996. This compares to operating income of $10.4 million after amortization
of fresh-start and acquired intangible assets of $11.0 million for the three
months ended December 31, 1995. The Company reported an operating loss of $18.8
million for the six months ended December 31, 1996, after integration-related
costs and other charges totaling $29.1 million which related to the acquisition
of I-NET and $23.2 million of amortization of fresh-start and acquired
intangible assets. This compares to an operating loss of $10.3 million for the
same prior year period, after integration-related costs and other charges of
$27.2 million related to the acquisition of Sigma and $21.4 million of
amortization of fresh-start and acquired intangible assets.
Earnings before interest, income taxes, depreciation and amortization ("EBITDA")
were $38.1 million for the three months ended December 31, 1996, compared to
$37.1 million in the same period of the prior year. EBITDA was $68.4 million and
$70.2 million for the six months ended December 31, 1996 and 1995, respectively.
EBITDA for the three and six month periods ended December 31, 1996, includes
losses of $8.3 million and $18.1 million, respectively, related to the Company's
software business unit being sold to Kodak. 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):
integration-related charges; income taxes; interest expense; interest income;
depreciation and amortization.
<PAGE> 14
14
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
- ---------------------
On November 13, 1996, the Company acquired Advanced Paradigms, Inc. ("API"), a
privately-held Virginia-based provider of enterprise-wide Microsoft-specific
LAN/WAN solutions, for approximately $6 million in cash and notes, plus assumed
liabilities. API's Microsoft-centric expertise complements the Company's network
and desktop services business, and enhances its position as a Microsoft
Authorized Support Center. The acquisition was accounted for using the purchase
method of accounting. Accordingly, the results of operations of the Company in
the accompanying financial statements include API's results of operations from
the date of acquisition.
On August 29, 1996, the Company completed the acquisition of 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, previously privately-held, 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, LAN/WAN communications, and IT outsourcing. The Company is
integrating I-NET with its existing businesses. The acquisition was accounted
for using the purchase method of accounting. Accordingly, the results of
operations of the Company in the accompanying financial statements include
I-NET's results of operations from the date of acquisition.
For the time periods presented, the Company focused 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. In addition, the
recent acquisition of I-NET positions the Company in one of the fastest growing
segments of the information technology services market. The sale of the
Company's software business unit to Kodak will enable the Company to focus all
of its resources on its network and desktop integration and services business.
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 the current
fiscal year at the rate of 20% to 25% 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. These changes in business
mix are expected to result in increased volatility of quarterly revenues and net
income.
<PAGE> 15
15
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
- --------------------
Product revenues during the three months ended December 31, 1996, increased by
21.8%, to $72.0 million in the United States, offset by a decrease in product
revenues outside the United States of 30.4%, to $35.2 million. Product revenues
for the six months ended December 31, 1996 increased by 22.9%, to $124.9 million
in the United States, offset by a 28.3% decrease in product revenues outside the
United States, to $65.2 million. Proprietary product sales totaled $13.6 million
in the three month period ended December 31, 1996, a decline of 28.4%.
Proprietary product sales in the six month periods ended December 31, 1996 and
1995 were $29.8 million and $37.3 million, respectively, a decline of 19.9%,
which is consistent with the Company's expectations. Network product and other
product sales were $82.7 million and $79.6 million in the three months ended
December 31, 1996 and 1995, respectively. Network product and other product
sales were $139.1 million and $135.6 million in the six month periods ended
December 31, 1996 and 1995, respectively, a modest increase of 2.6%. Open
software product sales were $10.9 million in the three months ended December 31,
1996, compared to $11.1 million in the same prior year period. Open software
product sales were negatively affected by the ongoing discussions concerning the
sale of the software business unit to Kodak. Open software product sales were
$21.1 million and $19.6 million in the six month periods ended December 31, 1996
and 1995, respectively.
Service and other revenues during the three months ended December 31, 1996
increased by 79.7%, to $183.2 million in the United States, partially offset by
a 9.3% decline, to $73.3 million, outside the United States. Service and other
revenues in the United States during the six months ended December 31, 1996 were
$318.4 million, an increase of 60.0%. This increase was partially offset by a
9.5% decrease, to $145.9 million, in service and other revenues outside the
United States. The increase in service and other revenues in the United States
is primarily attributable to the acquisitions of Dataserv in May 1996 and I-NET
in August 1996. Proprietary services revenues in the three months ended December
31, 1996 decreased by 23.1%, to $64.5 million. Proprietary services revenues in
the six month period ended December 31, 1996, declined by 24.7%, to $132.6
million. Network services revenues nearly doubled, to $189.8 million, in the
three months ended December 31, 1996. Network services revenues in the six
months ended December 31, 1996 were $327.6 million, an increase of 76.1%. This
increase was primarily due to the acquisitions of I-NET, Dataserv and BISS. Open
software services revenues increased to $2.2 million in the three months ended
December 31, 1996, compared to $1.3 million in the same prior year period, an
increase of 68.9%. Open software services revenues doubled, to $4.2 million in
the six months ended December 31, 1996, from $2.1 million in the comparable
prior year period.
<PAGE> 16
16
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
- --------------------
Product gross margin was 29.8% for the three months ended December 31, 1996,
compared to 33.8% for the same period of the prior year. Product gross margin
for the six months ended December 31, 1996 was 31.6%, compared to 33.9% for the
same prior year period. The decrease in gross margin is primarily a result of
the I-NET acquisition, which has historically lower margins than the Company.
Gross margin for service and other revenues for the three months ended December
31, 1996 decreased to 24.0%, from 33.1%. Gross margin for service and other
revenues for the six months ended December 31, 1996 decreased to 25.8%, from
32.3%. Margins were negatively affected by the increase in maintenance on
lower-margin multi-vendor service products as well as lower margins on I-NET
services.
The service gross margin continues to be adversely affected by consolidation in
the industry, resulting in competitive and technological pressures. Pressure
will continue to be exerted on the Company's service gross margin as a result of
increased lower-margin MVS maintenance revenues, coupled with the inclusion of
I-NET's lower gross margin structure going forward. It is expected that these
margin reductions will be partially offset by the implementation of integration
initiatives in subsequent periods.
Research and development costs for the three months ended December 31, 1996,
decreased by 15.0%, to $7.9 million, compared to $9.3 million for the same
period of the prior year. Of these amounts, $6.8 million and $8.0 million,
respectively, relate to the software business unit. Research and development
costs for the six months ended December 31, 1996 decreased by 13.7%, to $15.8
million, compared to $18.3 million in the same prior year period. Of these
amounts, $13.9 million and $15.6 million, respectively, relate to the software
business unit. The decrease is due to a combination of reductions in support of
the Company's proprietary VS and secured systems products and a more
tightly-focused research and development scope, partially offset by increased
development costs for core software products. The Company's development efforts
have been 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 for the three months ended December
31, 1996 remained virtually the same compared to the same prior year period,
despite the addition of selling, general and administrative expenses resulting
from the Dataserv and I-NET acquisitions. Selling, general and administrative
expenses decreased as a percentage of total revenues, to 18.3%, from 22.9% in
the comparable prior year period. Selling, general and administrative expenses
for the six months ended December 31, 1996 increased by $4.2 million from the
comparable prior year period, a modest increase considering the addition of
Dataserv and I-NET expenses. Again, selling,
<PAGE> 17
17
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
- ---------------------
general and administrative expenses decreased as a percentage of total revenues
to 20.0%, compared to 22.7% in the same period of the prior year. Selling,
general and administrative expenses were reduced as a result of integration
activities initiated in relation to the acquisitions. Continued integration
activities should contribute significantly to the elimination of unnecessary or
redundant programs, personnel, support costs and other related expenses going
forward.
Amortization of fresh-start and acquired intangible assets totaled $12.1 million
and $23.2 million for the three and six month periods ended December 1996,
respectively. Amortization for the three months ended December 31, 1996,
includes $4.8 million related to the implementation of fresh-start reporting and
$7.3 million for intangible assets established in connection with business
acquisitions. Amortization of $10.1 million related to fresh-start reporting and
$13.1 million for business acquisition intangible assets was recorded during the
six months ended December 31, 1996. Amortization of $11.0 million and $21.4
million was recorded during the three and six month periods ended December 31,
1995. Of these amounts, amortization of $6.3 million and $12.8 million related
to fresh-start reporting and amortization of $4.7 million and $8.6 million was
recorded for acquisition-related intangible assets, respectively.
Interest expense for the three and six month periods ended December 31, 1996,
increased to $3.7 million and $4.9 million, respectively, compared to $1.2
million and $2.2 million, respectively, for the same prior year periods. The
increase in interest expense is principally the result of amounts outstanding
under the Revolving Credit Facility with Bankers Trust Company and interest on
the note issued to the selling stockholders of I-NET. Interest income was $0.8
million and $2.0 million for the three months ended December 31, 1996 and 1995,
respectively. Interest income for the six months ended December 31, 1996 and
1995 was $2.6 million and $4.8 million, respectively. The reduction in interest
income is primarily due to the decrease in cash available for investing as a
result of the cash paid to acquire I-NET.
The provision for income taxes of $0.6 million and $5.2 million included $0.4
million and $5.0 million of non-cash expense for the three months ended December
31, 1996 and 1995, respectively, relating to the utilization of the Company's
net operating loss carryforwards. The provision for income taxes for the six
months ended December 31, 1996 and 1995 of $1.4 million and $7.2 million,
respectively, included $1.1 million and $6.8 million of non-cash expense.
At December 31, 1996, the Company employed approximately 10,500 people in
continuing operations, compared to 7,000 at December 31, 1995. The increase in
employees as a result of acquisitions was partially offset by integration
activities.
<PAGE> 18
18
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Liquidity and Sources of Capital
- --------------------------------
Cash and equivalents decreased by $101.9 million, to $73.4 million, primarily
due to cash payments related to the acquisition of I-NET. This compares to a
$52.4 million decrease in the same period of the prior year.
Cash used in operations totaled $10.8 million for the six months ended December
31, 1996, compared to $7.0 million of cash used in operations for the same prior
year period. Higher levels of receivables utilized $31.4 million of cash in the
current period, a 22.8% reduction compared to cash utilized of $40.7 million in
the same period of the prior year. The Company's continuing focus on cash
collections, including systems improvements, is primarily responsible for this
improved performance, especially in light of the Company's higher revenue base
this year as a result of acquisitions. Lower accounts payable and other current
liabilities resulted in reductions in cash of $30.7 million and $13.5 million
for the six months ended December 31, 1996 and 1995, respectively. The liability
reductions primarily relate to the timing of vendor payments, acquisition of
I-NET and a shift from a more product-related business to a more service-related
business.
Net cash used in investing activities totaled $190.5 million for the six months
ended December 31, 1996 compared to $44.6 million for the same period of the
prior year. The $168.1 million of cash paid for business acquisitions during the
six months ended December 31, 1996, includes payments of $151.5 million related
to the I-NET acquisition and $16.5 million to Bull in payment of the outstanding
note payable. Cash payments of $15.8 million for the prior year comparable
period relate to the Sigma and BISS acquisitions. Investment in depreciable
assets was $22.1 million for the six months ended December 31, 1996, compared to
$23.8 million for the same period of the prior year. Cash proceeds of $5.6
million were received as payment for the June 1996 sale of two-thirds of the
Company's remaining 30% equity investment in its New Zealand subsidiary.
Net cash provided by financing activities totaled $98.2 million for the period,
compared to net cash used in financing activities of $0.9 million in the same
period of the prior year. Net short-term borrowings provided $103.8 million of
cash for the six months ended December 31, 1996, compared to net payment of
short-term borrowings of $0.7 million in the same prior year period. The
borrowings during the current period were in support of the Company's
acquisition activities. Cash dividends of $6.7 million were paid on the
Company's preferred stock in the six months ended December 31, 1996, compared to
$2.0 million in dividends paid during the same prior year period. The increase
in cash dividends is attributable to the dividends on the 6 1/2% Series B
Cumulative Convertible Preferred Stock (the "Series B Preferred Stock") which
was issued in February 1996, coupled with the commencement of cash dividend
payments on the 4 1/2% Series A Cumulative Convertible Preferred Stock (the
"Series A Preferred Stock"), net of the dividend payments on the Exchangeable
Preferred Stock redeemed on February 27, 1996.
<PAGE> 19
19
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Liquidity and Sources of Capital (Continued)
- --------------------------------
In connection with the acquisition of I-NET, the Company entered into an Amended
and Restated Revolving Credit Facility (the "Revolving Credit Facility") with
Bankers Trust Company and certain other financial institutions. The three-year
reducing facility provides for borrowings of up to $225.0 million, including up
to $70.0 million of letters of credit, limited to the lesser of the facility
maximum or a formula based on the Company's accounts receivable and a
supplemental amount. At December 31, 1996, in addition to the cash balance on
hand, the Company had available to it the unused portions of the Revolving
Credit Facility, providing for additional borrowings and/or the issuance of
additional letters of credit of up to $109.2 million. Although financial
accounting rules require the amounts due under the Revolving Credit Facility to
be classified as a current liability, the terms of the Revolving Credit Facility
do not require the Company to pay the amounts due within the next twelve months.
In addition to normal operating activities, expected cash requirements over the
next twelve months include approximately $37 million for both new and previously
recorded integration-related initiatives.
The Company believes that existing cash balances, cash generated from
operations, and borrowing availability under the Revolving Credit Facility, will
be sufficient to meet the Company's cash requirements for operations for the
next twelve months, and to complete the planned integration-related activities.
As part of furthering its business strategy, the Company continually explores
the acquisition of or the opportunity for strategic relationships with other
businesses. One or more of these opportunities could have an impact on the
Company's liquidity through the use of cash or the issuance of debt, or result
in the issuance of additional equity securities of the Company.
Cash proceeds from the sale of the software business unit to Kodak will generate
$260.0 million in cash at the time of the closing. The net proceeds, after
payment of transaction costs, will be used to repay the revolving credit
facility outstanding balance, with the remainder available for general corporate
purposes, including acquisitions.
Risks and Uncertainties
- -----------------------
Except for historical matters, the matters discussed in this Form 10-Q are
forward-looking statements that involve risks and uncertainties. Such
forward-looking statements relate to the Company's business, acquisitions,
products, services, software, expenses, effective tax rate and operating and
capital requirements. In addition, forward-looking statements may be included in
various Company documents to be issued in the future and in various oral
statements by Company representatives to security analysts,
<PAGE> 20
20
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Risks and Uncertainties (Continued)
- -----------------------
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:
Implementation of Business Strategy. The Company's strategy is to build upon
internal growth in its targeted segments of the software and information
technology services markets with strategic alliances and acquisitions designed
to complement Wang's core competencies. The Company's ability to implement this
strategy fully over the long term, and the ultimate success of this strategy,
are subject to a broad range of uncertainties and contingencies, many of which
are beyond the Company's control. There can be no assurance that the Company
will be able to implement required strategic relationships or acquisitions, or,
if entered into, that such strategic relationships or acquisitions will in fact
further the implementation of the Company's business strategy. The portion of
the Company's strategic relationship agreement with Microsoft Corporation
("Microsoft") relating to the Company's software business unit will be
transferred to Kodak as part of the sale. The Company's remaining strategic
relationship with Microsoft is subject to a variety of uncertainties, including
possible evolutions in technology, business relationships or strategic plans of
the parties which may, in the future, result in the termination of, or a change
in the nature of or in the expectations with respect to, this strategic
relationship. The Company's relationship with Microsoft also includes certain
contractual obligations, which, if not satisfied, could allow Microsoft to
terminate all or a portion of the relationship. 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. The Company evaluates
such transactions regularly, and one or more such transactions could occur at
any time.
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, which revenues the Company expects will
continue to decline during the current fiscal year at a rate of 20% to 25% per
annum. As the Company's proprietary revenues decline, individual customer losses
may have a significant effect on the rate of decline. These changes in business
mix are expected to result in increased volatility of quarterly revenues and net
income. The Company's continued growth is predicated on the business strategy
described above (including the acquisition of new customer service and network
integration businesses) 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 that the decline in revenues from
traditional sources is more rapid than anticipated, the Company's results of
operations and the price of its equity securities could be adversely affected.
<PAGE> 21
21
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Risks and Uncertainties (Continued)
- -----------------------
Competition. The information technology industry, including the work management
software and outsourcing service and support markets, is intensely competitive
and undergoing rapid change. Competition is vigorous in all parts of the
worldwide market for work management software, software for the expanding
Internet marketplace and office-related software and services. The Company's
competitors are numerous and vary widely in market position, size and resources.
Some have substantially greater resources, including larger research and
engineering staffs and larger marketing organizations than the Company.
Competitors differ significantly depending upon the market, customer and
geographic area involved. In many of the Company's markets, traditional computer
hardware companies provide the most significant competition. The Company must
also compete, particularly in the market for open systems application software
and imaging technology, with newer, smaller businesses with more limited
resources, but which have, in a number of cases, been able to develop and bring
to market significant products with highly competitive technological features.
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 and IT
outsourcing markets are extremely competitive, 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.
Possible Volatility of Price of Common Stock. Factors such as announcements of
technological innovations or new products by the Company, its competitors or
other third parties, quarterly variations in the Company's results of
operations, and changes in overall industry conditions may all affect the market
prices of the Common Stock and cause it to fluctuate significantly. In addition,
because the Company does not have a significant history of financial results
since its reorganization, and because post-reorganization results are not
comparable with those prior to and during the Chapter 11 proceeding,
uncertainties concerning the financial performance of the Company on a sustained
basis may increase the volatility of the market prices of the Common Stock.
Furthermore, the market price of the stocks of many high technology companies
have experienced wide fluctuations that have not necessarily been related to the
operating performance of the individual companies.
International Operations. International revenues in recent years have accounted
for approximately one-half of the Company's total revenues. The Company's
international operations are subject to all of the risks normally associated
with international sales, including changes in regulatory compliance
requirements, compliance costs associated with International Standards
Organization (ISO) 9000 quality control standards, special standards
requirements, exposure to currency fluctuations, exchange rates, tariffs and
other barriers, difficulties in staffing and managing international subsidiary
<PAGE> 22
22
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Risks and Uncertainties (Continued)
- -----------------------
operations, potentially adverse tax consequences and country-specific product
requirements. While the Company attempts to reduce 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.
Dependence on Government Revenue. In fiscal 1996 the Company derived
approximately 22% of its revenues from branches or agencies of the United States
government, and derived significant additional revenues from agencies of various
foreign governments. A significant portion of the Company's United States
federal 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 involved 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 contract. Revenues from the United States 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 contract 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).
Nature of Contracts. Many of Wang's commercial contracts are for a fixed price
and are long-term in duration, which subjects the Company to substantial risks
relating to unexpected cost increases and other factors outside the control of
the Company. Revenues and profits on such contracts are recognized using
estimates; actual results, when known, may differ from such estimates. In
addition, IT outsourcing contracts, in particular, often contain provisions
which allow for termination for convenience, SLA compliance, penalties and the
competitive procurement process. Such contracts often require high expenditures
and long lead times with no assurance of success.
Superior Rights of Preferred Stock. The Board of Directors of the Company is
authorized under the Company's Certificate of Incorporation, without stockholder
approval, to issue from time to time up to an aggregate of 5,000,000 shares of
preferred stock, $0.01 par value per share (the "Preferred Stock"), in one or
more series. Of the 5,000,000 authorized shares of Preferred Stock, 90,000
shares have been designated as 4 1/2% Series A Cumulative Convertible Preferred
Stock (the "Series A Preferred Stock"), all of which shares have been issued,
and 143,750 shares have been designated as
<PAGE> 23
23
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Risks and Uncertainties (Continued)
- -----------------------
6 1/2% Series B Cumulative Convertible Preferred Stock (the "Series B Preferred
Stock"). The rights of holders of Common Stock are subject to, and may be
adversely affected by, the rights of holders of the Series A Preferred Stock and
the Series B Preferred Stock as well as any other series of preferred stock that
the Company may designate and issue in the future. In particular, before any
payment or distribution is made to holders of Common Stock upon the liquidation,
dissolution or winding-up of the Company, holders of both the Series A Preferred
Stock and the Series B Preferred Stock are entitled to receive a liquidation
preference of $1,000.00 per share, plus accrued and unpaid dividends. The
holders of the Series A Preferred Stock and the Series B Preferred Stock also
have various rights, preferences and privileges with respect to dividends,
redemption, voting, conversion and registration under the Securities Act.
Potential Dilution Attributable to Intercompany Convertible Instruments,
Privately Placed Stock and Warrants. The Company may, from time to time, in its
sole discretion, issue an aggregate of up to 50,000 units of Intercompany
Convertible Instruments to certain of its foreign subsidiaries in order to
increase the capitalization of such subsidiaries and help the Company maintain
its worldwide network of sales and service operations. At the present time,
49,225 Intercompany Convertible Instruments have been issued. The Intercompany
Convertible Instruments are redeemable for cash at $1,000.00 per unit by the
Company at any time and convertible at the election of the holder into $1,000.00
worth of Common Stock per unit at a conversion price equal to the greater of the
then market price per share of the Company's Common Stock or $4.00. Also,
5,411,900 shares of Common Stock are issuable upon conversion of the outstanding
shares of Series B Preferred Stock, and approximately 3,913,100 shares of Common
Stock are issuable upon conversion of the outstanding shares of Series A
Preferred Stock. In addition, the Company has issued and there are outstanding
7,500,000 warrants to purchase shares of Common Stock at an exercise price of
$21.45 per share (the "Warrants"). The Warrants were issued under the Company's
Reorganization Plan to holders of equity interests in the predecessor company.
Any conversion of the Intercompany Convertible Instruments or the Preferred
Stock or exercise of the Warrants could dilute the relative interest of holders
of outstanding Common Stock.
Anti-takeover Provisions. The Company's Certificate of Incorporation and By-Laws
and the Delaware General Corporation Law contain provisions which could have the
effect of delaying or preventing transactions that might result in a change in
control of the Company, including transactions in which stockholders might
otherwise receive a premium for their shares over the then-current market price,
and may limit the ability of stockholders to approve transactions that they deem
to be in their best interests.
<PAGE> 24
24
PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on November
26, 1996. The following three Class III directors were re-elected to serve for a
three year term: David A. Boucher, Michael W. Brown, Axel J. Leblois.
The term of office of the following Class I and Class II directors
continued after the meeting: Joseph M. Tucci, Raymond C. Kurzweil, Frederick A.
Wang, Marcia J. Hooper, Joseph J. Kroger and Paul E. Tsongas.
<TABLE>
The stockholders approved the following matters at the meeting:
<CAPTION>
Votes For Withheld Abstentions
--------- -------- -----------
<S> <C> <C>
David A. Boucher,
nominee as Class III
director 27,142,913 16,833
Michael W. Brown,
nominee as Class III
director 27,060,563 99,233
Axel J. Leblois,
nominee as Class III
director 27,142,174 17,572
<CAPTION>
Votes For Votes Against Abstentions
--------- ------------- -----------
<S> <C> <C> <C>
Ratification of Ernst &
Young LLP as independent
auditors for the current
fiscal year 26,882,467 153,034 14,305
</TABLE>
ITEM 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
Exhibit No. Description
- ----------- ---------------------------------------------------------------
2.1 1 The Amended and Restated Reorganization Plan of Wang
Laboratories, Inc. and Official Committee of Unsecured
Creditors dated September 30, 1993
3.1 2 Certificate of Incorporation
3.2 8 Certificate of Incorporation, as Amended
3.3 11 Certificate of Stock Designation with respect to the 4 1/2%
Series A Cumulative Convertible Preferred Stock
3.4 14 Certificate of Elimination of the Registrant's 11%
Exchangeable Preferred Stock
3.5 14 Certificate of Stock Designation with respect to the 6 1/2%
Series B Cumulative Convertible Preferred Stock
3.6 13 ByLaws of the Registrant
10.1 3 1993 Directors' Stock Option Plan
<PAGE> 25
Exhibit No. Description
- ----------- ----------------------------------------------------------------
10.2 4 Form of Contingent Severance Compensation Agreements with
Donald P. Casey, J.J. Van Vuuren, Albert A. Notini,
William P. Ferry, David I. Goulden, Bruce A. Ryan and
James J. Hogan, each an executive officer of the Company
10.3 5 Contingent Severance Compensation Agreement with Joseph M.
Tucci
10.4 6 Employment Agreement with William P. Ferry
10.5 6 Employment Agreement with James J. Hogan
10.6 3 Consulting Agreement of Raymond C. Kurzweil
10.7 5 Employee Retention Agreement with William P. Ferry
10.8 5 Employee Retention Agreement with James J. Hogan
10.9 5 Employment Agreement with Bruce A. Ryan
10.10 7 Stock Incentive Plan, as Amended
10.11 8 Contingent Severance Compensation, as Amended with
Franklyn A. Caine (Employment Agreement)
10.12 8 Employees' Stock Incentive Plan
10.13 8 1995 Director Stock Option Plan
10.14 9 The Asset and Stock Purchase Agreement among Wang
Laboratories, Inc., Bull HN Information Systems, Inc.,
Bull S.A. and, for certain purposes, Compagnie de
Machines Bull dated as of December 30, 1994 and a Credit
Agreement among Wang Laboratories, Inc., HFS, Inc. and
certain lenders and agents named therein and Banker's
Trust Company dated January 30, 1995
10.15 10 Employment Agreement with Ronald A. Cuneo
10.16 11 Employment Agreement with Donald P. Casey, as Amended
10.17 11 Employment Agreement with Stephen G. Jerritts
10.18 12 Form of Contingent Severance Compensation Agreements with
Stephen G. Jerritts and Ronald E. Cuneo
10.19 12 Form of Amendment to Contingent Severance Compensation
Agreements with Joseph M. Tucci, Donald P. Casey, Albert A.
Notini, William P. Ferry, David I. Goulden, James J. Hogan,
Stephen G. Jerritts and Franklyn A. Caine, each an executive
officer of the Company
10.20 13 Non-Negotiable Secured Promissory Note, as Amended from Joseph
M. Tucci to the Registrant
10.21 13 Pledge Agreement, as Amended, from Joseph M. Tucci to the
Registrant
10.22 13 1994 Employee's Stock Incentive Plan, as Amended
10.23 13 Employment Agreement with Robert K. Weiler
<PAGE> 26
26
Exhibit No. Description
- ----------- --------------------------------------------------------------
10.24 13 Contingent Severance Compensation Agreement with Robert K.
Weiler
10.25 13 Form of Amendment to Employment Letter Agreement for David I.
Goulden, William P. Ferry, Albert A. Notini and Franklyn A.
Caine
10.26 14 Form of Non-Qualified Long Term Incentive Option
to Purchase Shares of Common Stock for Messrs. Tucci, Caine,
Casey, Cuneo, Ferry, Goulden, Hogan, Jerritts, Notini, and
Van Vuuren
10.27 14 Registration Rights Agreement 6 1/2% Cumulative Convertible
Preferred Stock
10.28 14 Employment Agreement of Jean M. Edwards
10.29 14 Contingent Severance Compensation Agreement with Jean M. Edwards
10.30 15 Stock Purchase Agreement with respect to the Registrant's
acquisition of Dataserv Computer Maintenance, Inc. from
Dataserv, Inc., an indirect wholly-owned subsidiary of
BellSouth Corporation
10.31 16 Stock Purchase Agreement with respect to the Registrant's
acquisition of I-NET, Inc.
10.32 16 Amended and Restated Credit Agreement among the Company, Wang
Federal, Inc., Wang Canada Limited, I-NET, Inc., Dataserv
Computer Maintenance, Inc., certain Lenders, Co-Agents and a
Collateral Agent named therein, and Bankers Trust Company as
Agent and Issuing Bank dated as of August 29, 1996
10.33 17 Non-Qualified Option Agreement to Purchase Shares of Common
Stock for Robert K. Weiler
10.34 17 Employment Agreement of Joseph M. Tucci, as Amended
10.35 17 Employment Agreement of Lucy A. Flynn
10.36 1995 Employees Stock Purchase Plan, as Amended
10.37 Employees' Stock Incentive Plan, as Amended
10.38 1995 Director Stock Option Plan, as Amended
10.39 Employment Agreement of Joseph M. Tucci, as Amended
11.1 Statements re Computation of Per Share Earnings
12.1 Calculation of Ratio of Earnings to Fixed Charges
1 Filed as an Exhibit to the Registrant's Registration Statement on Form 8-A
(File No. 0-22470), filed on September 27, 1993.
2 Filed as an Exhibit to the Registrant's Registration Statement on Form S-8
(File No. 33-73210), filed on December 21, 1993.
<PAGE> 27
27
3 Filed as an Exhibit to the Registrant's quarterly report on Form 10-Q for
the quarter ended December 31, 1993.
4 Filed as an Exhibit to the Registrant's quarterly report on Form 10-Q for
the quarter ended March 31, 1994.
5 Filed as an Exhibit to the Registrant's Registration Statement on Form S-1,
as amended (File No. 33-81526) filed September 13, 1994.
6 Filed as an Exhibit to the Registrant's annual report on Form 10-K for the
fiscal year ended June 30, 1994.
7 Filed as an Exhibit to the Registrant's quarterly report on Form 10-Q for
the quarter ended September 30, 1994.
8 Filed as an Exhibit to the Registrant's quarterly report on Form 10-Q for
the quarter ended December 31, 1995.
9 Filed as an Exhibit to the Registrant's Current Report on Form 8-K dated
January 31, 1995.
10 Filed as an Exhibit to the Registrant's quarterly report on Form 10-Q for
the quarter ended March 31, 1995.
11 Filed as an Exhibit to the Registrant's annual report on Form 10-K for the
fiscal year ending June 30, 1995.
12 Filed as an Exhibit to the Registrant's report on Form 10-Q/A for the
quarter ended September 30, 1995.
13 Filed as an Exhibit to the Registrant's quarterly report on Form 10-Q for
the quarter ended December 31, 1995.
14 Filed as an Exhibit to the Registrant's quarterly report on Form 10-Q for
the quarter ended March 31, 1996.
15 Filed as an Exhibit to the Registrant's Current Report on Form 8-K dated
May 3, 1996.
16 Filed as an Exhibit to the Registrant's Current Report on Form 8-K dated
August 29, 1996.
17 Filed as an Exhibit to the Registrant's annual report on Form 10-K for the
fiscal year ended June 30, 1996.
(b) During the quarter ended December 31, 1996, the Registrant filed an
amendment on Form 8-K/A dated November 12, 1996 to its current report on Form
8-K dated August 29, 1996, containing audited financial statements of I-NET,
Inc. ("I-NET") as of December 31, 1995 and 1994 and for the years ended December
31, 1995, 1994 and 1993, unaudited financial statements of I-NET as of June 30,
1996 and for the six month periods ended June 30, 1996 and 1995 and pro forma
combined condensed financial statements as of and for the year ended June 30,
1996.
<PAGE> 28
28
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DATE: February 13, 1997
WANG LABORATORIES, INC.
/s/ Franklyn A. Caine
--------------------------------
Franklyn A. Caine,
Executive Vice President and
Chief Financial Officer
<PAGE> 1
Exhibit 10.36
WANG LABORATORIES, INC.
(a Delaware Corporation)
AMENDMENT NO. 1 TO
------------------
1995 EMPLOYEES STOCK PURCHASE PLAN (the "Plan")
-----------------------------------------------
Pursuant to a vote of the Board of Directors of Wang Laboratories,
Inc., on September 25, 1996, the Plan has been amended as follows:
1. The first paragraph of Section 2 "Administration" is amended and
restated in its entirety as follows:
"The committee of the Board of Directors having responsibility for
compensation matters, or such other committee as the Board of Directors shall
designate, shall administer and manage this Plan. If there is no such committee,
then the Board of Directors, excluding any members determined by the Board,
shall constitute the "Committee." Unless otherwise required by law or rules it
may establish, (a) the Committee may act through written consent of all its
members or vote of a majority comprised of at least two of its members and may
hold telephonic meetings where all participating members can hear each other,
and (b) a majority comprised of at least two members shall constitute a quorum
of the Committee."
<PAGE> 1
Exhibit 10.37
WANG LABORATORIES, INC.
(A Delaware Corporation)
AMENDMENT NO. 2 TO
------------------
EMPLOYEES' STOCK INCENTIVE PLAN ("the Plan")
--------------------------------------------
Pursuant to a vote of the Board of Directors of Wang Laboratories, Inc.
on September 25, 1996, the Plan has been amended as follows:
1. Article 2.5 "Committee" is amended and restated in its entirety as
follows:
"2.5 "Committee" means the Committee of the Board having responsibility
for compensation matters or such other Committee as the Board shall designate If
there is no Committee, then "Committee" means the Board, excluding any members
determined by the Board."
2. Article 3.1 "Administration by the Committee" is amended and restated
in its entirety as follows:
"3.1 ADMINISTRATION BY THE COMMITTEE. This Plan shall be administered
by the Committee. Unless otherwise required by law or rules it may establish,
the Committee may act through written consent of all of its members, or vote of
a majority comprised of at least two of its members, and may hold telephonic
meetings where all participating members can hear each other. A majority
comprised of at least two members shall constitute a quorum of the Committee.:
3. Article 4.1 "Eligible Employees" is amended and restated in its
entirety as follows:
"4.1 ELIGIBLE PARTICIPANTS. Awards may be granted only to Employees, or
groups or classes thereof, selected or approved by the Committee in its sole and
absolute discretion, and directors of and consultants to the Company, provided,
however, that the class of individuals to whom an Incentive Option may be
granted shall be limited to Employees. No person may be granted Awards for more
than one million shares of Stock of the Company in any one year, and such
limitation shall be interpreted in accordance with Section 162(m) of the Code."
4. Article 4.4 "Non-Transferability of Awards" is deleted in its entirety.
5. Article 6.7 "Minimum Six Month Holding Period" is deleted in its
entirety.
<PAGE> 2
-2-
6. Article 9.1 "Amendment of Plan" is amended and restated in its entirety
as follows:
"9.1 AMENDMENT OF PLAN. "The Committee or the Board may amend, suspend
or terminate the Plan or any portion thereof at any time, provided that no
amendment shall be made without stockholder approval if (i) such approval is
necessary to comply with any applicable tax or regulatory requirements,
including any securities laws, stock exchange or stock market rules, or (ii)
such amendment increases the number of shares of Common Stock available under
the Plan pursuant to Article 4.3, other than such increases authorized under
Article 10.1. Amendments requiring stockholder approval shall become effective
when adopted by the Board, but no Award granted after the date of such amendment
shall be come exercisable or vested (to the extent that such amendment to the
Plan was required to grant such Award to a particular Plan participant) unless
and until such amendment shall have been approved by the Company's stockholders.
If such stockholder approval is not obtained within twelve months of the Board's
adoption of such amendment, any Award granted on or after the date of such
amendment shall terminate to the extent that such amendment to the Plan was
required to enable the Company to grant such Award to a particular Plan
participant."
<PAGE> 1
Exhibit 10.38
WANG LABORATORIES, INC.
(a Delaware Corporation)
AMENDMENT NO. 1 TO
------------------
1995 DIRECTOR STOCK OPTION PLAN (the "Plan")
--------------------------------------------
Pursuant to a vote of the Board of Directors of Wang Laboratories, Inc.
(the "Company") on September 25, 1996, the Plan has been amended as follows:
1. Section 5(d) "Options Non-Transferable" is deleted in its entirety.
2. Section 11 "Amendment of the Plan" is amended and restated in its
entirety as follows:
"11. AMENDMENT OF THE PLAN.
The Board of Directors may suspend or discontinue the Plan or amend it
in any respect whatsoever; provided, however, that without approval of the
stockholders of the company, no amendment may increase the number of shares
subject to the Plan (except as provided in Section 7)."
<PAGE> 1
Exhibit 10.39
Mr. Joseph M. Tucci
10 Mountain Laurel Drive
Unit No. 604
Nashua, NH 03060
Re: Amendment to March 9, 1993 Agreement, as amended
------------------------------------------------
Dear Joe:
This letter constitutes a fifth amendment to the March 9, 1993 letter
agreement between Wang Laboratories, Inc. ("WLI") and you relative to your
employment by WLI as its Chief Executive Officer and Chairman of the Board of
Directors (the "Employment Letter"), as amended most recently on May 29, 1996.
WLI has agreed with you that the Employment Letter is amended as follows:
1. Paragraph 6 of the Employment Letter regarding Severance is
hereby amended, effective as of July 23, 1996, to provide that
if such Severance provision is triggered, during the
applicable salary continuation period under the Employment
Letter WLI will also continue to make available health and
dental (but no other) benefits to you at no cost.
The Employment Letter is hereby ratified and confirmed, except as
expressly modified herein.
Wang Laboratories, Inc.
By: /s/ Joseph J. Kroger
-------------------------------
Joseph J. Kroger
Interim Chairman Organization,
Organization, Compensation and
Nominating Committee
Dated: November 25, 1996
Agreed to:
/s/ Joseph M. Tucci
- ---------------------------
Joseph M. Tucci
<PAGE> 1
<TABLE>
Wang Laboratories, Inc. and Subsidiaries
EXHIBIT 11.1 - COMPUTATION OF EARNINGS PER SHARE
<CAPTION>
Three Months Ended Three Months Ended
December 31, 1996 December 31, 1995
----------------- -----------------
Primary Fully Diluted Primary Fully Diluted
------- ------------- ------- -------------
(In thousands except per share data)
<S> <C> <C> <C> <C>
Average shares of Common Stock
outstanding 36,412 36,412 35,919(1) 35,919(1)
Common equivalent shares for stock options 299 299 1,678 1,678
------- ------- ------- -------
36,711 36,711 37,597 37,597
======= ======= ======= =======
Net income $ 4,580 $ 4,580 $ 6,897 $ 6,897
Accretion and dividends on Preferred Stock (3,524) (3,524) (3,441) (3,441)
------- ------- ------- -------
Net income applicable to Common
Stockholders $ 1,056 $ 1,056 $ 3,456 $ 3,456
======= ======= ======= =======
Net income per share $ 0.03 $ 0.03 $ 0.09 $ 0.09
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
December 31, 1996 December 31, 1995
----------------- -----------------
Primary Fully Diluted Primary Fully Diluted
------- ------------- ------- -------------
(In thousands except per share data)
<S> <C> <C> <C> <C>
Average shares of Common Stock
outstanding 36,362 36,362 35,841(1) 35,841(1)
Common equivalent shares for stock options 299 299 -- --
-------- -------- -------- --------
36,661 36,661 35,841 35,841
======== ======== ======== ========
Net income (loss) $(21,857) $(21,857) $(13,812) $(13,812)
Accretion and dividends on
Preferred Stock (7,048) (7,048) (6,824) (6,824)
-------- -------- -------- --------
Net income (loss) applicable
to Common Stockholders $(28,905) $(28,905) $(20,636) $(20,636)
======== ======== ======== ========
Net income (loss) per share $ (0.79) $ (0.79) $ (0.58) $ (0.58)
======== ======== ======== ========
- ----------
<FN>
(1) Includes shares distributed, as well as those held in a disputed claim
reserve to be distributed when claims are resolved, and shares issued and
held in escrow in connection with the Avail Systems Corporation
acquisition.
</TABLE>
<PAGE> 1
<TABLE>
WANG LABORATORIES, INC. AND SUBSIDIARIES
EXHIBIT 12.1 - CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions except ratios)
<CAPTION>
Six months Year Year Nine months
ended December 31, ended June 30, ended June 30, ended June 30,
1996 1996 1995 1994
------- ------- ------- ------
<S> <C> <C> <C> <C>
FIXED CHARGES
Interest expense $ 4.9 $ 5.1 $ 3.7 $ 3.5
Portion of rent expense
representative of interest 5.0 9.4 5.9 5.6
------ ------- ------ -----
9.9 14.5 9.6 9.1
Preferred dividend requirement 11.7 37.7 14.5 8.7
------ ------- ------ -----
Combined fixed charges and
preferred dividend $ 21.6 $ 52.2 $ 24.1 $17.8
====== ======= ====== =====
EARNINGS
Income (loss) from continuing
operations before income
taxes, discontinued operations,
fresh-start reporting adjustment
and extraordinary item $(20.5)(1) $ 10.4(2) $(57.7)(3) $20.4
Fixed charges per above 9.9 14.5 9.6 9.1
------ ------- ------ -----
$(10.6) $ 24.9 $(48.1) $29.5
====== ======= ====== =====
Ratio of earnings to combined
fixed charges and preferred dividends -- -- -- 1.7
====== ======= ====== =====
Coverage deficiency $(10.6) $ (27.3) $(48.1) --
====== ======= ====== =====
</TABLE>
<TABLE>
Predecessor Company
---------------------------------------------------
<CAPTION>
Three months
ended September 30, For the year ended June 30,
-------------------------------
1993 1993 1992
------- -------------------------------
<S> <C> <C> <C>
FIXED CHARGES
Interest expense $ 1.2 $ 15.0 $ 44.6
Portion of rent expense
representative of interest 2.7 9.7 19.1
------ -------------------------------
3.9 24.7 63.7
Preferred dividend requirement -- -- --
------ -------------------------------
Combined fixed charges and
preferred dividend $ 3.9 $ 24.7 $ 63.7
====== ===============================
EARNINGS
Income (loss) from continuing
operations before income
taxes, discontinued operations,
fresh-start reporting adjustment
and extraordinary item $(22.6) $(197.2) $(346.5)
Fixed charges per above 3.9 24.7 63.7
------ -------------------------------
$(18.7) $(172.5) $(282.8)
====== ===============================
Ratio of earnings to combined
fixed charges and preferred dividends -- -- --
====== ===============================
$(18.7) $(172.5) $(282.8)
Coverage deficiency ====== ===============================
- ----------
<FN>
(1) Includes $29.1 million of integration-related costs and other charges.
(2) Includes $27.2 million of integration-related costs.
(3) Includes $64.2 million of integration-related costs and other charges.
Restated to include Avail Systems Corporation which was acquired
December 18, 1995 and accounted for using the pooling of interests
method.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
CONDENSED CONSOLIDATED BALANCE SHEET, CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS, NOTE C - OTHER BALANCE SHEET INFORMATION AND EXHIBIT 11.1 -
COMPUTATION OF EARNINGS PER SHARE, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH (B) FORM 10-Q FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 73,400
<SECURITIES> 0
<RECEIVABLES> 323,300
<ALLOWANCES> 14,300
<INVENTORY> 22,300
<CURRENT-ASSETS> 455,000
<PP&E> 252,300<F1>
<DEPRECIATION> 113,800<F1>
<TOTAL-ASSETS> 1,055,300
<CURRENT-LIABILITIES> 559,500
<BONDS> 0
85,100
138,300
<COMMON> 400
<OTHER-SE> 185,600
<TOTAL-LIABILITY-AND-EQUITY> 1,055,300
<SALES> 190,100
<TOTAL-REVENUES> 654,400
<CGS> 130,000
<TOTAL-COSTS> 474,400
<OTHER-EXPENSES> 68,100<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,900
<INCOME-PRETAX> (20,500)
<INCOME-TAX> 1,400
<INCOME-CONTINUING> (21,900)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (28,900)
<EPS-PRIMARY> (0.79)
<EPS-DILUTED> (0.79)
<FN>
<F1>PP&E COST AND ACCUMULATED DEPRECIATION INCLUDE CAPITALIZED NON-CONSUMABLE
SPARES INVENTORY.
<F2>OTHER COSTS AND EXPENSES INCLUDES $29.1 MILLION OF INTEGRATION-RELATED COSTS
AND OTHER CHARGES.
</FN>
</TABLE>
