<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, 1997
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
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
600 Technology Park Drive
Billerica, Massachusetts 01821-4130
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(Address of principal executive offices) (Zip Code)
(978) 967-5000
--------------
(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of l934 during
the preceding twelve months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
---
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practical date (December 31, 1997):
Common stock, par value $0.01 per share 38,433,215 shares
<PAGE> 2
WANG LABORATORIES, INC. AND SUBSIDIARIES
INDEX
Part I. FINANCIAL INFORMATION PAGE NO.
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets -
December 31, 1997 and June 30, 1997 3
Consolidated Statements of Operations -
Three and six months ended December 31, 1997 and 1996 4
Consolidated Statements of Cash Flows -
Three and six months ended December 31, 1997 and 1996 5
Notes to Consolidated Financial Statements -
December 31, 1997 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURE 28
<PAGE> 3
PART I - FINANCIAL INFORMATION
<TABLE>
WANG LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
December 31, June 30,
1997 1997
------------ --------
(Dollars in millions)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents $ 159.5 $ 242.2
Accounts receivable, net 307.9 244.3
Inventories 16.2 14.5
Other current assets 52.1 53.6
-------- --------
Total current assets 535.7 554.6
Depreciable assets, net 124.9 123.0
Intangible assets, net 313.0 311.6
Other 45.9 45.6
-------- --------
Total assets $1,019.5 $1,034.8
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Borrowings due within one year $ 1.3 $ 63.3
Accounts payable, accrued expenses and other 319.6 295.7
Deferred service revenue 85.1 69.5
-------- --------
Total current liabilities 406.0 428.5
-------- --------
Long-term liabilities 85.5 98.0
-------- --------
Commitments and contingencies
Series A Preferred Stock 85.8 85.5
-------- --------
STOCKHOLDERS' EQUITY
Series B Preferred Stock, $0.01 par value,
143,750 shares authorized and outstanding,
liquidation preference of $143.8 million 138.3 138.3
Common stock, $0.01 par value, 100,000,000
shares authorized; outstanding shares:
38,433,215 at December 31, 1997 and
38,008,004 at June 30, 1997 0.4 0.4
Capital in excess of par value 297.2 291.4
Cumulative translation adjustment (6.8) (3.7)
Retained earnings (deficit) 13.1 (3.6)
-------- --------
Total stockholders' equity 442.2 422.8
-------- --------
Total liabilities and stockholders' equity $1,019.5 $1,034.8
======== ========
</TABLE>
See notes to the consolidated financial statements.
3
<PAGE> 4
<TABLE>
WANG LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1997 1996 1997 1996
------- ------ ------ ------
(Amounts in millions, except per share data)
<S> <C> <C> <C> <C>
REVENUES
Services $251.7 $249.8 $496.2 $451.3
Products 87.2 92.6 154.9 163.8
------ ------ ------ ------
Total revenues 338.9 342.4 651.1 615.1
------ ------ ------ ------
COSTS AND EXPENSES
Cost of services 195.4 191.0 388.5 335.6
Cost of products 65.5 70.0 118.4 121.5
Research and development 0.8 1.1 1.5 1.9
Selling, general and administrative 53.9 51.8 103.0 101.8
Amortization of intangibles -
acquisition and fresh-start 6.3 10.5 12.6 19.5
Acquisition-related charges -- -- -- 27.4
------ ------ ------ ------
Total costs and expenses 321.9 324.4 624.0 607.7
------ ------ ------ ------
OPERATING INCOME 17.0 18.0 27.1 7.4
------ ------ ------ ------
OTHER (INCOME) EXPENSE
Interest (income) expense - net (2.6) 2.9 (3.5) 2.3
Other (income) expense - net 0.2 (1.3) (6.6) (0.7)
------ ------ ------ ------
Total other (income) expense (2.4) 1.6 (10.1) 1.6
------ ------ ------ ------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 19.4 16.4 37.2 5.8
Income taxes 7.0 1.3 13.4 3.0
------ ------ ------ ------
INCOME FROM CONTINUING OPERATIONS 12.4 15.1 23.8 2.8
LOSS FROM DISCONTINUED OPERATIONS, NET OF TAXES -- (10.6) -- (24.7)
------ ------ ------ ------
NET INCOME (LOSS) 12.4 4.5 23.8 (21.9)
Dividends and accretion on preferred stock (3.6) (3.5) (7.1) (7.0)
------ ------ ------ ------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS
$ 8.8 $ 1.0 $ 16.7 $(28.9)
====== ====== ====== ======
PER SHARE AMOUNTS
Basic
Continuing operations $ 0.23 $ 0.32 $ 0.44 $(0.12)
Discontinued operations -- (0.29) -- (0.67)
------ ------ ------ ------
Net income (loss) per share $ 0.23 $ 0.03 $ 0.44 $(0.79)
====== ====== ====== ======
Diluted
Continuing operations $ 0.22 $ 0.30 $ 0.42 $(0.12)
Discontinued operations -- (0.27) -- (0.67)
------ ------ ------ ------
Net income (loss) per share $ 0.22 $ 0.03 $ 0.42 $(0.79)
====== ====== ====== ======
SHARES USED TO COMPUTE PER SHARE AMOUNTS
Basic 38.4 36.7 38.3 36.7
Diluted 40.6 38.6 40.3 36.7
</TABLE>
See notes to the consolidated financial statements.
4
<PAGE> 5
<TABLE>
WANG LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Six Months Ended
December 31,
1997 1996
------- ------
(Dollars in millions)
<S> <C> <C>
OPERATING ACTIVITIES
Income from continuing operations $ 23.8 $ 2.8
Depreciation 30.9 30.4
Amortization 14.1 20.6
Gain on asset sales (6.5) --
Non-cash provision for income taxes 11.7 1.1
Acquisition-related charges -- 27.4
Payments for acquisition-related charges (12.2) (12.7)
Payments for restructuring charges (1.2) (3.2)
------ ------
60.6 66.4
------ ------
CHANGES IN OTHER ACCOUNTS AFFECTING OPERATIONS
Accounts receivable (56.8) (27.1)
Inventories 3.8 0.7
Other current assets (3.3) (0.1)
Accounts payable and other current liabilities (1.3) (32.1)
Other (3.7) 1.7
------ ------
Net changes in other accounts affecting operations (61.3) (56.9)
------ ------
Cash provided by (used in) continuing operations (0.7) 9.5
Cash used in discontinued operations (5.6) (23.8)
------ ------
Cash used in operations (6.3) (14.3)
------ ------
INVESTING ACTIVITIES
Depreciable assets (38.3) (20.8)
Proceeds from asset sales 15.0 5.6
Business acquisitions, net of cash acquired (4.0) (168.1)
Other 2.7 (3.7)
------ ------
Cash used in investing activities (24.6) (187.0)
------ ------
FINANCING ACTIVITIES
Increase (decrease) in short-term borrowings (48.1) 103.8
Proceeds from stock plans 5.5 1.1
Dividends paid on preferred stock (6.7) (6.7)
------ ------
Cash provided by (used in) financing activities (49.3) 98.2
------ ------
Effect of changes in foreign exchange rates on cash (2.5) 1.2
------ ------
DECREASE IN CASH AND EQUIVALENTS (82.7) (101.9)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 242.2 175.3
------ ------
CASH AND EQUIVALENTS AT END OF PERIOD $159.5 $ 73.4
====== ======
</TABLE>
See notes to the consolidated financial statements.
5
<PAGE> 6
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
December 31, 1997
NOTE A - BASIS OF PRESENTATION
The financial information included herein has not been audited. However, in the
opinion of management, all material adjustments necessary for a fair
presentation of the results for the periods presented have been reflected and
consist only of normal recurring accruals, except for acquisition-related
charges recorded in the six month period ended December 31, 1996.
The accompanying financial information should be read in conjunction with the
consolidated financial statements and notes thereto contained in the Company's
Annual Report on Form 10-K filed with the Securities and Exchange Commission for
the fiscal year ended June 30, 1997.
The Company completed the sale of its software business unit to Eastman Kodak
Company ("Kodak") on March 17, 1997. The historical results of this business
unit have been reported as discontinued operations in the Company's Consolidated
Statements of Operations for the periods presented.
The Company completed the purchase of Advanced Paradigms, Inc. ("API") on
November 13, 1996 and I-NET, Inc. ("I-NET") on August 29, 1996. The Company's
Consolidated Statements of Operations and of Cash Flows include the results of
these companies since their respective acquisitions.
Certain amounts in the prior year periods have been reclassified to conform to
current presentations.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share", which is required to be adopted for financial
statements issued for periods ending after December 15, 1997. In accordance with
this Statement, the Company has changed the method previously used to compute
earnings per share and has restated prior periods. Basic earnings per share is
calculated based on the weighted average number of common shares outstanding,
including approximately 2.6 million shares yet to be distributed by the
Disbursing Agent appointed under the Company's Reorganization Plan. In addition,
diluted earnings per share includes the effect of stock options and warrants,
when dilutive. Income (loss) from continuing operations, for purposes of
calculating basic and diluted earnings per share, has been adjusted by
cumulative dividends and accretion related to the Company's preferred stock.
6
<PAGE> 7
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
December 31, 1997
NOTE B - BUSINESS ACQUISITION
I-NET
On August 29, 1996, the Company completed its purchase of all of the outstanding
shares of I-NET. In consideration for the shares of I-NET the Company paid
$100.2 million in cash and issued one-year, interest-free notes in the total
amount of $64.5 million. The Company discounted the notes at a rate of 8.0%, to
$59.7 million for accounting purposes, and increased the principal balance
through charges to interest expense through the settlement date.
The Company paid $36.3 million to the holders of the notes, including $2.2
million of interest, as of September 30, 1997. In accordance with the terms of a
final settlement of the notes reached November 13, 1997, the Company paid an
additional $14.9 million, including $1.6 million of accrued interest, to the
selling shareholders. The balance of $13.3 million was reversed during the
current quarter, of which $1.2 million was recorded as a reduction of interest
expense and $12.1 million was recorded as an adjustment of the original purchase
price.
7
<PAGE> 8
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
December 31, 1997
NOTE C - OTHER BALANCE SHEET INFORMATION
Components of selected captions in the Consolidated Balance Sheets follow (in
millions):
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
------------ --------
<S> <C> <C>
Accounts receivable
Billed $275.1 $226.2
Unbilled 52.9 36.0
------ ------
328.0 262.2
Less allowances 20.1 17.9
------ ------
$307.9 $244.3
====== ======
Inventories
Finished products $ 7.3 $ 5.6
Raw materials and work-in-process 7.8 7.8
Service parts and supplies 1.1 1.1
------ ------
$ 16.2 $ 14.5
====== ======
Depreciable assets
Land 3.5 $ 4.5
Buildings and improvements 25.2 25.0
Machinery and equipment 98.1 84.9
Spare parts 142.7 140.3
------ ------
269.5 254.7
Less accumulated depreciation 144.6 131.7
------ ------
$124.9 $123.0
====== ======
Intangible assets
Trademarks and patents $ 4.5 $ 4.1
Computer software 0.3 0.3
Installed base - service 61.6 61.6
License agreements 24.9 24.9
Assembled workforce 13.7 13.9
Goodwill 283.4 271.0
------ ------
388.4 375.8
Less accumulated amortization 75.4 64.2
------ ------
$313.0 $311.6
====== ======
Accounts payable, accrued expenses and other
Accounts payable $ 85.4 $ 64.4
Accrued expenses 124.7 121.3
Compensation and benefits 53.2 57.9
Restructuring, reorganization and
acquisition-related 18.1 33.9
Other 38.2 18.2
------ ------
$319.6 $295.7
====== ======
Long-term liabilities
Postretirement $ 17.1 $ 16.8
Pension 6.5 7.1
Facilities 8.3 9.2
Restructuring, reorganization and
acquisition-related 7.6 7.8
Insurance 7.6 5.6
Other 38.4 51.5
------ ------
$ 85.5 $ 98.0
====== ======
</TABLE>
8
<PAGE> 9
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
December 31, 1997
NOTE D - EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
----------------------- -----------------------
1997 1996 1997 1996
------ ------ ------ ------
(In millions except per share data)
<S> <C> <C> <C> <C>
Numerator:
Income from continuing operations $ 12.4 $ 15.1 $ 23.8 $ 2.8
Dividends and accretion on the
Series A Preferred Stock (1.2) (1.2) (2.4) (2.4)
Dividends on the Series B Preferred Stock (2.4) (2.3) (4.7) (4.6)
------ ------ ------ ------
Numerator for basic and diluted earnings
per share - Income (loss) from
continuing operations available to
common shareholders $ 8.8 $ 11.6 $ 16.7 $ (4.2)
====== ====== ====== ======
Denominator:
Denominator for basic earnings per share -
weighted average shares 38.4 36.7 38.3 36.7
Effect of dilutive securities:
Stock Options 1.9 1.9 1.8 --
Warrants 0.3 -- 0.2 --
------ ------ ------ ------
Denominator for diluted earnings per share - adjusted
weighted-average shares and assumed conversions
40.6 38.6 40.3 36.7
====== ====== ====== ======
Basic Earnings per Share $ 0.23 $ 0.32 $ 0.44 $(0.12)
====== ====== ====== ======
Diluted Earnings per Share $ 0.22 $ 0.30 $ 0.42 $(0.12)
====== ====== ====== ======
</TABLE>
In connection with the sale of its software business unit to Kodak, the Company
issued to Microsoft a warrant to purchase 1,000,000 shares of common stock at an
exercise price of $23.00 per share. The warrant became exercisable 90 days after
the closing and expires on the redemption date of the Series A Preferred Stock.
If and when exercised, the warrant will be settled on a net share basis. The
exercise price of the warrant was greater than the average market price of the
common shares and, thus, is antidilutive and is excluded from the computation of
diluted earnings per share.
For additional disclosures regarding the Series A and Series B Preferred Stock,
see the discussion of Superior Rights of Preferred Stock in the Risks and
Uncertainties section of Management's Discussion and Analysis of Financial
Condition and Results of Operations.
9
<PAGE> 10
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
December 31, 1997
NOTE E - CONTINGENCIES
The Company is a defendant in a number of lawsuits arising from the conduct of
its business. 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 such litigation will be material to the Company's
consolidated financial position or its results of operations.
10
<PAGE> 11
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This discussion includes certain forward-looking statements about matters such
as the Company's revenue, expected expenses, operating results and the need for
additional investment. Any such statements are subject to normal business risks
and uncertainties that could cause the actual results or needs to differ from
those described herein. For a further discussion of the various risks affecting
the business, refer to "Risks and Uncertainties" appearing at the end of this
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
BASIS OF PRESENTATION
On March 17, 1997, the Company completed the sale of its software business unit
to Eastman Kodak Company ("Kodak"). The historical results of the software
business have been reported as discontinued operations in the Company's
Consolidated Statements of Operations and of Cash Flows for the three and six
month periods ended December 31, 1996. The following discussion addresses the
results of the Company's continuing operations. The results of operations for
the periods reported are not necessarily indicative of those that may be
expected for the full fiscal year.
On November 13, 1996, the Company acquired Advanced Paradigms, Inc. ("API"). The
Company's Consolidated Statements of Operations and of Cash Flows include the
results of API since its acquisition.
On August 29, 1996, the Company completed the acquisition of I-NET, Inc.
("I-NET"). The Company's Consolidated Statements of Operations and of Cash Flows
include the results of I-NET since its acquisition.
The Company has confirmed that it is in discussions with Olivetti, SpA, to merge
Olivetti's information technology solutions and services subsidiary ("Olsy"),
and Wang's operations. There can be no assurance that the discussions will lead
to a transaction. However, should a transaction be consummated, it would have a
significant impact on the Company's revenues, cash flows, results of operations
and financial position.
RESULTS OF CONTINUING OPERATIONS
THREE AND SIX MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THREE AND SIX MONTHS
ENDED DECEMBER 31, 1996
OVERVIEW
For the three months ended December 31, 1997, the Company reported revenues of
$338.9 million, a 1.0% decrease compared to revenues for the same prior year
period. Revenues for the three months ended December 31, 1997, at constant
currency, would have exceeded the $342.4 million reported for the three months
ended December 31, 1996. Additionally, the decrease is attributable to the
anticipated decline in proprietary revenues, partially offset by growth of the
11
<PAGE> 12
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (Continued)
Company's network products and services revenues. Revenues were $651.1 million
for the six months ended December 31, 1997, a 5.9% increase from the same prior
year period, when revenues of $615.1 million were reported.
The Company reported operating income of $17.0 million for the three months
ended December 31, 1997, compared to operating income of $18.0 million for the
three months ended December 31, 1996. Operating income for the six months ended
December 31, 1997 was $27.1 million, compared to operating income of $7.4
million for the six months ended December 31, 1996. Operating income for the six
months ended December 31, 1996 includes $27.4 million of acquisition-related
charges which primarily reflect the costs associated with integrating the
operations of I-NET and other cost management activities.
Charges associated with the amortization of acquisition-related intangible
assets were $6.3 million and $6.8 million for the three month periods ended
December 31, 1997 and 1996, respectively. Amortization expense for
acquisition-related intangible assets was $12.6 million and $12.2 million for
the six month periods ended December 31, 1997 and 1996, respectively.
Excluding the acquisition-related charges in fiscal 1997, the decline in
operating income for the three and six month periods is primarily attributable
to the anticipated decline in higher-margin revenues from proprietary products
and services and the increase in the mix of lower-margin revenues from desktop
and network products and services, principally from the acquisition of I-NET.
The Company anticipates that the shift in revenue mix and the decline in
proprietary revenues will continue and will continue to exert downward pressure
on consolidated gross margins.
EBITDA (earnings before interest, income taxes, depreciation and amortization)
from continuing operations was $39.4 million and $46.4 million in the three
month periods ended December 31, 1997 and 1996, respectively. EBITDA from
continuing operations for the six months ended December 31, 1997 and 1996 was
$78.6 million and $86.5 million, respectively. EBITDA, which some investors
believe to be a meaningful measure for assessing a company's ability to meet its
cash requirements, is calculated by excluding from net income (loss):
acquisition-related, Chapter 11-related and restructuring costs and other
nonrecurring charges; income taxes; interest expense; interest income;
depreciation and amortization.
Revenues
Revenues from proprietary sources (i.e., sales and service of proprietary VS and
GCOS products) declined at a rate of 25.0% for the three month period ended
December 31, 1997, compared to the same prior year period. Proprietary revenues
declined 26.1% for the six month period ended December 31, 1997, compared to the
same prior year period. The Company expects that revenues from proprietary
sources will decline at a rate approximating 25% per year on a constant currency
basis but that rate may accelerate as the Company's customers make systems
decisions regarding Year 2000 compliance. Additionally, from one period to the
next, the rate of decline could be highly variable.
<PAGE> 13
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (Continued)
Services revenues increased by 0.8%, to $251.7 million for the three month
period ended December 31, 1997, compared to $249.8 million in the same prior
year period. Services revenues for the six months ended December 31, 1997 were
$496.2 million, a 10.0% increase compared to $451.3 million for the six months
ended December 31, 1996. Network services revenues increased by 11.2%, to $206.0
million in the three months ended December 31, 1997, compared to $185.3 million
in the three months ended December 31, 1996. Network services revenues increased
by 26.2%, to $402.3 million, in the six months ended December 31, 1997, compared
to $318.7 million in the six months ended December 31, 1996. The six month
increase in network services revenues was partially attributable to the
acquisition of I-NET. Proprietary services revenues decreased by 29.1%, to $45.7
million, for the three months ended December 31, 1997, compared to the three
months ended December 31, 1996. Proprietary services revenues decreased by
29.2%, to $93.9 million, for the six months ended December 31, 1997, compared to
$132.6 million for the same prior year period.
Product revenues decreased by 5.8%, to $87.2 million, for the three months
ended December 31, 1997 compared to the same prior year period. Proprietary
product sales declined by $0.7 million, or 5.1%, to $12.9 million for the three
months ended December 31, 1997, compared to the three months ended December 31,
1996. The decline in proprietary product sales to $26.2 million for the six
months ended December 31, 1997, compared to the six months ended December 31,
1996 was $3.6 million, or 12.1%. Network product and other product sales
decreased 5.9%, to $17.3 million for the three months ended December 31, 1997,
compared to $79.0 million in the same period of the prior year. Network product
and other product sales for the six months ended December 31, 1997 were $128.7
million, a decrease of $5.3 million, or 4.0%, compared to the six months ended
December 31, 1996.
GROSS MARGIN
Services gross margins for the three and six months ended December 31, 1997
were 22.4% and 21.7%, respectively, compared to 23.5% and 25.6%, respectively,
for the three and six month periods ended December 31, 1996. The decline in the
gross margin percent for the three and six month periods is the result of the
increase in lower-margin maintenance revenues on multi-vendor services
products, the decline in higher-margin revenues from proprietary maintenance
contracts and the continuing dilutive impact of certain low margin commercial
contracts from I-NET, partially offset by the favorable margin impact from the
licensing and sale of intellectual property. Although it is anticipated that
these factors will continue to exert pressure on services gross margin, the
Company believes that the effects can be managed by the continuing
implementation of cost reduction, integration and consolidation initiatives.
<PAGE> 14
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (Continued)
Product gross margin for the three months ended December 31, 1997 increased
slightly, to 24.9%, from 24.4% in the comparable prior year period. Despite this
small increase, the Company anticipates that the decline in proprietary product
revenues will continue to exert downward pressure on gross margin. Product gross
margin for the six months ended December 31, 1997 decreased to 23.6%, compared
to 25.8% for the six months ended December 31, 1996. This decrease is primarily
a result of the decline in proprietary product sales, which have historically
higher margins than the margins on resold client-server products.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development costs decreased by $0.3 million for the three months
ended December 31, 1997, from $1.1 million in the comparable prior year period.
Research and development costs were $1.5 million for the six months ended
December 31, 1997, a decrease of $0.4 million from the six months ended December
31, 1996. The Company's modest level of research and development spending is
primarily related to continuing support for its proprietary VS products and
specialized client server products sold to the U.S. government.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased by $2.1 million, to $53.9
million for the three months ended December 31, 1997, compared to the prior year
period, and increased slightly as a percentage of revenues, to 15.9% in the
three months ended December 31, 1997, compared to 15.1% in the three months
ended December 31, 1996. Selling, general and administrative expenses for the
six months ended December 31, 1997 were $103.0 million, an increase of 1.2% from
$101.8 million in the six months ended December 31, 1996. However, selling,
general and administrative expenses decreased as a percentage of revenues to
15.8% for the six months ended December 31, 1997, compared to 16.6% for the same
period of the prior year. The overall reduction in selling, general and
administrative expenses relative to revenues reflects the results of integration
activities initiated in connection with the Company's recent acquisitions.
OTHER COSTS AND EXPENSES
Amortization of acquired intangible assets totaled $6.3 million in the three
months ended December 31, 1997. During the prior fiscal year, the Company
eliminated its remaining fresh-start intangible assets following the sale of
the software business unit to Kodak through the recognition of a deferred tax
asset attributable to the expected utilization of tax net operating loss
carryforwards which existed at September 30, 1993. Amortization of fresh-start
and acquired intangible assets in the three months ended December 31, 1996 was
$10.5 million, of which $3.7 million relates to the implementation of
fresh-start reporting and $6.8 million relates to intangible assets established
in connection with business acquisitions. Amortization of acquired intangible
assets totaled $12.6 million in the six months ended December 31, 1997.
Amortization of fresh-start and intangible assets in the six months ended
December 31, 1996 was
14
<PAGE> 15
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (Continued)
$19.5 million, of which $7.3 million relates to the implementation of
fresh-start reporting and $12.2 million relates to intangible assets established
in connection with business acquisitions.
Acquisition-related charges of $27.4 million in the six months ended December
31, 1996, primarily reflect the costs associated with combining the operations
of the Company and I-NET and other business consolidation activities.
Other income and expense
Net interest income of $2.6 million in the three months ended December 31, 1997
was primarily comprised of $2.1 million of interest income and the reversal of
$1.2 million of previously recorded imputed interest expense on the notes to the
I-NET selling stockholders resulting from a reduction in the final payment of
the note in accordance with the final settlement reached on November 13, 1997.
This compares to $2.9 million of net interest expense in the same prior year
period. Net interest income of $3.5 million in the six months ended December
31, 1997 was comprised of $4.7 million of interest income and $1.2 million of
interest expense, compared to $2.3 million of net interest expense in the same
prior year period, consisting of $4.9 million of interest expense and $2.6
million of interest income. Interest expense in the prior year period
principally relates to amounts borrowed under and fees associated with the
Revolving Credit Facility with Bankers Trust Company. The increase in interest
income in the three and six months ended December 31, 1997, compared to the
prior year periods, was primarily due to higher cash balances resulting from the
sale of the Company's software business unit to Kodak. Net other expense of $0.2
million was reported in the three months ended December 31, 1997, compared to
net other income of $1.3 million in the same prior year period. Net other income
of $6.6 million in the six months ended December 31, 1997 primarily consisted of
a $6.5 million gain realized in the first quarter of fiscal 1998 on the sale of
certain land and facilities owned by the Company in Billerica, Massachusetts,
compared to net other income of $0.7 million in the same period of the prior
year.
Income taxes
The provision for income taxes in the six months ended December 31, 1997 was
$13.4 million, or 36%. This compares to a provision of $3.0 million, or 52%, in
the six months ended December 31, 1996. The higher provision amount in the
current period is attributable to higher current taxable income. The higher
effective rate in the prior period resulted from the then-current view that
certain book losses would not create future tax benefit.
Employees
At December 31, 1997, the Company had approximately 10,000 employees.
<PAGE> 16
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 were $159.5 million at December 31, 1997, a decrease of
$82.7 million from June 30, 1997.
Cash used in operations during the six months ended December 31, 1997 was $6.3
million, comprised of $0.7 million for current operating activities and $5.6
million used for transaction costs associated with discontinued operations.
Cash used in investing activities during the six months ended December 31, 1997
was $24.6 million and is primarily comprised of $38.3 million for capital
additions (including $15.8 million for purchases of non-consumable spares and
$4.6 million towards the construction of new facilities). Proceeds of $15.0
million were received from the sale of land and facilities owned by the Company
in Billerica.
Cash used in financing activities was $49.3 million during the six months ended
December 31, 1997, and includes principal payments of $47.4 million paid in
connection with the settlement of the notes to the selling stockholders of
I-NET, $0.7 million of net payments of other short-term borrowings and cash
dividends paid of $6.7 million, less proceeds of $5.5 million from stock plans.
In addition to normal operating activities, capital expenditures and payment of
preferred dividends, expected cash requirements over the next twelve months
include approximately $18 million for previously recorded integration-related,
restructuring and business realignment initiatives, as well as approximately $13
million for the completion of the construction and fit-up of the Company's new
corporate headquarters in Billerica, Massachusetts. The estimated total cost of
the construction activities related to the Billerica property is approximately
$18 million, compared to the estimated aggregate proceeds of approximately $18
million from the disposition of land and facilities.
The Company believes that existing cash balances, cash generated from
operations, and borrowing availability under its Revolving Credit Facility will
be sufficient to meet the Company's operational cash requirements for the next
twelve months, and for pursuing potential investments, acquisitions and other
expansion opportunities. As part of furthering its business strategy, the
Company explores acquisitions and 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 could involve the issuance of
debt or equity securities of the Company. In particular,
<PAGE> 17
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (Continued)
should the Olsy transaction be consummated, additional financing would be
required. Although the Company believes that such financing would be available,
there can be no assurance that sufficient new capital would be available on
terms acceptable to the Company.
RISKS AND UNCERTAINTIES
Except for statements of historical matters, the statements contained in this
Form 10-Q may be deemed "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 (the "Act"). The Company
desires to take advantage of the safe harbor provisions of the Act and is
including this statement for the express purpose of availing itself of the
protection of the safe harbor with respect to all forward-looking statements
that involve risks and uncertainties. Such forward-looking statements may relate
to various matters, including, without limitation, the Company's business,
revenue, expenses, profitability, acquisitions, dispositions, products,
services, intellectual property, expenses, labor matters, effective tax rate and
operating and capital requirements. In addition, forward-looking statements may
be included in other Company documents including, without limitation,
registration statements, Annual Report to Shareholders, the Form 10-K, Form 10-Q
and Form 8-K 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:
IMPLEMENTATION OF BUSINESS STRATEGY. The Company's business strategy is
to increase the revenues and margins it realizes from providing network services
to customers and clients and to build upon that growth through appropriate
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. The Company may not be able to achieve the revenue growth it is seeking
as a result of an inability to obtain new customer contracts or the inability to
deliver the required services in a timely manner under such contracts. In
addition, there can be no assurance that the Company will be able to implement
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 Company's existing strategic
relationships with Microsoft Corporation and Cisco Systems, Inc. are 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, such strategic relationships. The Company's
relationship with Microsoft also includes certain contractual obligations,
which, if not satisfied, could allow Microsoft to terminate all
17
<PAGE> 18
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (Continued)
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 that the Company and its management will
be able to effectively assimilate and manage the business of any acquired
companies. The foregoing risk factors apply to any significant acquisitions or
strategic alliances contemplated by the Company, including any possible
transaction with Olivetti. 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 and gross
margins are attributable to the servicing, upgrading and enhancement of its
installed base of VS and other proprietary systems. The Company expects that
revenues from proprietary sources, including the acquired Bull proprietary
product and service revenue streams, will decline at a rate approximating 25%
per year on a constant currency basis but that rate may accelerate as the
Company's customers make systems decisions regarding Year 2000 compliance.
Additionally, from one period to the next, the decline rate could be highly
variable. As the Company's proprietary revenues decline, the loss of individual
customers will have an increasingly significant effect on the rate of decline
for any particular measurement period. 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. There can be no assurance that
delays or difficulties in the implementation of the Company's strategy, or a
higher than anticipated decline in revenues from proprietary sources will not
adversely impact the Company's results of operations or the price of its equity.
Dependence on Key Personnel. The Company depends to a significant extent on
key management and technical personnel. The Company's growth and future success
will depend in large part on its ability to attract, motivate and retain highly
qualified personnel, particularly, trained and experienced technical
professionals capable of providing sophisticated network and desktop outsourcing
and integration services. Competition for such personnel is intense and there
can be no assurances that the Company will be successful in hiring, motivating
or retaining such qualified personnel. The loss of key personnel or the
inability to hire or retain qualified personnel could have a material adverse
effect on the Company's business, financial condition or results of operations.
Competition. The information technology ("IT") services industry, including
the network and desktop services markets, is intensely competitive and
undergoing rapid change. Worldwide competition is vigorous in all of the markets
in which the Company does business. The Company's competitors are numerous and
vary widely in market position, size and resources. Competitors differ
significantly depending upon the market, customer and geographic area involved.
In many of the Company's markets, traditional computer hardware manufacturing,
communications and consulting
<PAGE> 19
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (Continued)
companies provide the most significant competition. The Company must also
compete with other IT services businesses with more limited resources, but which
have, in a number of cases, been able to develop a strong local or regional
customer base. Many of the Company's competitors have substantially greater
resources, including larger research and engineering staffs and larger marketing
organizations, than those of the Company. There can be no assurance that the
Company will be able to compete successfully against other companies that
provide similar IT services.
YEAR 2000 LIABILITY. The Company supplies computer systems to large
organizations in the commercial and government markets, which include federal,
state and local customers. Any failure of the Company's products to perform,
including system malfunctions due to the onset of the calendar year 2000 (caused
by a data structure problem that will prevent software from properly recognizing
dates after the year 1999), could result in claims against the Company. Although
the Company maintains computer software and services errors and omissions
insurance, a claim brought against the Company could have a material adverse
effect on the Company's business, financial condition or results of operations.
Moreover, an increasing number of the Company's installed base of VS and other
traditional proprietary systems could choose to convert to other calendar year
2000 compliant systems in order to avoid such malfunctions. An increasing rate
of conversion would result in an increasing rate of decline of revenue
associated with such proprietary systems, and could have a material adverse
effect on the Company's business, financial condition or results of operations.
In addition, the Company operates legacy systems and applications that contain
Year 2000 limitations. Initiatives are underway to replace existing systems and
circument existing Year 2000 limitations. There can be no assurance that the
conversion will be completed in a timely manner.
POSSIBLE VOLATILITY OF PRICE OF COMMON STOCK. The market price of the
Company's Common Stock has fluctuated significantly in the past and may continue
to fluctuate in the future. Factors such as announcements of technological
innovations or other developments concerning the Company, its competitors or
other third parties, quarterly variations in the Company's results of
operations, non-recurring transactions and changes in overall industry and
economic conditions may all affect the market prices of the Common Stock and
cause it to fluctuate significantly. Moreover, the Company's expense levels are
based in part on expectations of future revenue levels, and a shortfall in
expected revenue could therefore have a disproportionate adverse effect on the
Company's net income. Furthermore, the market price of the stocks of many high
technology companies has experienced wide fluctuations that have not necessarily
been related to the operating performance of the individual companies.
DEPENDENCE ON GOVERNMENT REVENUE. In the six months ended December 31,
1997 and the year ended June 30, 1997, the Company derived approximately 31% and
30%, respectively, 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 or services under an
19
<PAGE> 20
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (Continued)
awarded contract, could have a material adverse effect 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.
INTERNATIONAL OPERATIONS. International revenues in recent years have
accounted for a substantial portion 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
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 losses due to international
currency fluctuations. In addition, effective intellectual property protection
may not be available in every foreign country in which the Company distributes
its own and other products and the loss of such protection could have a material
adverse effect on the business of the Company. Should a transaction be completed
with Olivetti, the significant increase in international revenues will increase
the Company's exposure to the risks associated with international operations.
NATURE OF CONTRACTS. Many of the Company'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 and actual results, when known, may differ materially
from such estimates. In addition, IT outsourcing contracts in particular, often
contain provisions that allow for termination for convenience, service level
agreement compliance, liquidated damages, penalties and are awarded based on a
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 6 1/2% Series B Cumulative
Convertible Preferred Stock ("Series B Preferred
20
<PAGE> 21
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (Continued)
Stock"), all of which shares have been issued. 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 and 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.
AVAILABILITY OF FINANCING. The Company may need to raise additional
funds through public or private debt or equity offerings in order to make
acquisitions and otherwise implement its strategy. In particular, should an Olsy
transaction be completed, additional financing would be required. There can be
no assurance that sufficient new capital will be available on terms acceptable
to the Company.
ANTI-TAKEOVER PROVISIONS. The Company's Certificate of Incorporation
and By-Laws and the Delaware General Corporation Law contain certain 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.
21
<PAGE> 22
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 25,
1997. The following three Class I directors were elected to serve for a three
year term: Joseph M. Tucci, Raymond C. Kurzweil and Frederick A. Wang.
The term of office of the following Class II and Class III directors
continued after the meeting: Marcia A. Hooper, Joseph J. Kroger, David A.
Boucher, Michael W. Brown, Axel J. Leblois.
The stockholders approved the following matters at the meeting:
<TABLE>
<CAPTION>
VOTES VOTES BROKER
FOR AGAINST ABSTENTIONS NON-VOTES
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Joseph M. Tucci,
nominee as Class I
director 30,231,235
Raymond C. Kurzweil,
nominee as Class I
director 30,057,122
Frederick A. Wang,
nominee as Class I
director 30,055,270
Anamendment to the
Company's Employees'
Stock Incentive Plan
increasing the number
of shares of Common
Stock available
under the Plan 23,856,084 3,517,787 84,259 2,799,909
Amendment to the
Company's 1995 Employees'
Stock Purchase Plan
increasing the number
of shares of Common
Stock available
under the Plan 24,487,279 2,931,777 83,384 2,755,599
Amendment to the
Company's 1995 Director
Stock Option Plan
increasing the number
of shares of Common
Stock available
under the Plan 24,049,772 3,365,571 87,097 2,755,599
Ratification of Ernst &
Young LLP as independent
auditors for the
current fiscal year 30,152,546 45,237 60,255
</TABLE>
22
<PAGE> 23
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(10) 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) By-Laws of the Registrant
10.1(3) 1993 Directors' Stock Option Plan
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 James J. Hogan
10.5(3) Consulting Agreement of Raymond C. Kurzweil
10.6(5) Employee Retention Agreement with James J. Hogan
10.7(7) Stock Incentive Plan, as Amended
10.8(8) Contingent Severance Compensation, as Amended with Franklyn A.
Caine (Employment Agreement)
10.9(8) Employees' Stock Incentive Plan
10.10(8) 1995 Director Stock Option Plan
23
<PAGE> 24
Exhibit No. Description
- ----------- -----------------------------------------------------------------
10.11(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
10.12(10) Employment Agreement with Donald P. Casey, as Amended
10.13(10) Employment Agreement with Stephen G. Jerritts
10.14(11) Form of Contingent Severance Compensation Agreements with Stephen
G. Jerritts and Ronald E. Cuneo
10.15(11) 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
10.16(12) 1994 Employees' Stock Incentive Plan, as Amended
10.17(12) Form of Amendment to Employment Letter Agreement for David I.
Goulden, William P. Ferry, Albert A. Notini and Franklyn A. Caine
10.18(13) 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
10.19(13) Registration Rights Agreement 6 1/2% Cumulative Convertible
Preferred Stock
10.20(14) 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
10.21(15) Stock Purchase Agreement with respect to the Registrant's
acquisition of I-NET, Inc.
10.22(15) 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
10.23(16) Employment Agreement of Joseph M. Tucci, as Amended
24
<PAGE> 25
Exhibit No. Description
- ----------- ----------------------------------------------------------------
10.24(16) Employment Agreement of Lucy A. Flynn
10.25(17) 1995 Employees' Stock Purchase Plan, as Amended
10.26(17) Employees' Stock Incentive Plan, as Amended
10.27(17) 1995 Director Stock Option Plan, as Amended
10.28(17) Employment Agreement of Joseph M. Tucci, as Amended
10.29(18) Asset Purchase Agreement, as amended, with respect to the
Registrant's sale of its software business unit to Eastman Kodak
Company
10.30(19) Amended and Restated Employment Agreement of Joseph M. Tucci
10.31(19) Restricted Stock Agreement of Joseph M. Tucci
10.32(19) Non-Qualified Long Term Incentive Stock Option Agreement of
Joseph M. Tucci
10.33(19) Second Amendment to the Change in Control Severance Agreement of
Joseph M. Tucci
10.34(19) Form of Non-Qualified Long Term Incentive Stock Option Agreement
with Messrs. Caine, Goulden and Notini, each an executive officer
of the Registrant
10.35(19) Form of Restricted Stock Agreement with Messrs. Caine, Goulden
and Notini, each an executive officer of the Registrant
10.36(19) Amended and Restated Employment Agreement of Ken S. Bajaj
10.37(19) Letter Agreement of Employment of Jose Ofman
10.38(19) Amendment Number 1 to Letter Agreement of Employment of Jose
Ofman
10.39(19) Non-Qualified Long Term Stock Option Agreement with Jeremiah J.
J. Van Vuuren
10.40(19) Letter Agreement for Special Bonus of Franklyn A. Caine
10.41(19) Change in Control Severance Agreement, as amended of Franklyn A.
Caine
10.42(19) Letter Agreement for Special Bonus of Albert A. Notini
10.43(19) Change in Control Severance Agreement, as amended of Albert A.
Notini
25
<PAGE> 26
Exhibit No. Description
- ----------- -----------------------------------------------------------------
10.44(19) Letter Agreement for Special Bonus of David I. Goulden
10.45(19) Change in Control Severance Agreement, as amended of David I.
Goulden
10.46(19) Amendment Number 1 to the 1993 Directors' Stock Option Plan
10.47(19) Amendment Number 2 to the Stock Incentive Plan
10.48(19) Amendment Number 3 to the Employees' Stock Incentive Plan
10.49(19) Letter Agreement for 1996 Bonus for Ken S. Bajaj
10.50(20) Restricted Stock Agreement of Jeremiah J. J. Van Vuuren with
Registrant
10.51(20) Employment Agreement of Jeremiah J. J. Van Vuuren with Wang
Laboratories Ireland B.V.
10.52(20) Employment Agreement of Jeremiah J. J. Van Vuuren
10.53(20) Change in Control Severance Agreement, as amended of Jeremiah J.
J. Van Vuuren
10.54(21) Form of Change in Control Severance Agreement with Messrs.
Buckingham and Brauneis
10.55 Amendment No. 4 to the 1995 Employee Stock Incentive Plan
10.56 Amendment No. 5 to the 1995 Employee Stock Incentive Plan
10.57 Amendment No. 2 to the 1995 Director Stock Option Plan
10.58 Amendment No. 2 to the 1995 Employee Stock Purchase Plan
10.59 Short Term Incentive Plan
12.1 Calculation of Ratio of Earnings to Fixed Charges
27.1 Financial Data Schedule
(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.
(3) Filed as an Exhibit to the Registrant's quarterly report on Form 10-Q for
the quarter ended December 31, 1993.
26
<PAGE> 27
(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 annual report on Form 10-K for the
fiscal year ending June 30, 1995.
(11) Filed as an Exhibit to the Registrant's report on Form 10-Q/A for the
quarter ended September 30, 1995.
(12) Filed as an Exhibit to the Registrant's quarterly report on Form 10-Q for
the quarter ended December 31, 1995.
(13) Filed as an Exhibit to the Registrant's quarterly report on Form 10-Q for
the quarter ended March 31, 1996.
(14) Filed as an Exhibit to the Registrant's Current Report on Form 8-K dated
May 3, 1996.
(15) Filed as an Exhibit to the Registrant's Current Report on Form 8-K dated
August 29, 1996.
(16) Filed as an Exhibit to the Registrant's annual report on Form 10-K for the
fiscal year ended June 30, 1996.
(17) Filed as an Exhibit to the Registrant's quarterly report on Form 10-Q for
the quarter ended December 31, 1996.
(18) Filed as an Exhibit to the Registrant's Current Report on Form 8-K dated
March 17, 1997.
(19) Filed as an Exhibit to the Registrant's quarterly report a Form 10-Q for
the quarter ended March 31, 1997.
(20) Filed as an Exhibit to the Registrant's annual report on Form 10-K for the
fiscal year ended June 30, 1997.
(21) Filed as an Exhibit to the Registrant's quarterly report a Form 10-Q for
the quarter ended September 30, 1997.
(b) During the quarter ended December 31, 1997, the Registrant filed no Current
Reports on Form 8-K.
27
<PAGE> 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, 1998
WANG LABORATORIES, INC.
/s/ Franklyn A. Caine
----------------------------------
Franklyn A. Caine,
Executive Vice President and
Chief Financial Officer
28
<PAGE> 1
Exhibit 10.55
WANG LABORATORIES, INC.
(A DELAWARE CORPORATION)
AMENDMENT NO. 4 TO
1995 EMPLOYEE STOCK INCENTIVE PLAN (THE "PLAN")
Pursuant to a vote of the Board of Directors of Wang Laboratories, Inc.
(the "Company") on December 1, 1997, the Plan has been amended as follows:
1. Article IV. Eligibility and Shares Subject to the Plan
4.3 Number of Shares subject to the Plan
The first sentence of this section has been amended to read
as follows:
"NUMBER OF SHARES SUBJECT TO THE PLAN. Subject to the
provisions of Article X of this Plan and the authorization
of additional shares of Stock for the purposes hereof, the
aggregate number of shares of Stock for which Awards may be
granted under this Plan shall not exceed 8,467,153 shares,
plus those shares of Stock which have expired, been
forfeited, or terminated unexercised since October 26, 1994
or which may expire or terminate unexercised in the future
(up to a maximum of 1,908,284 shares)."
<PAGE> 1
Exhibit 10.56
WANG LABORATORIES, INC.
(A DELAWARE CORPORATION)
AMENDMENT NO. 5 TO
1995 EMPLOYEE STOCK INCENTIVE PLAN (THE "PLAN")
Pursuant to a vote of the Board of Directors of Wang Laboratories, Inc.
(the "Company") on January 21, 1998, the Plan has been amended as follows:
1. Article II. Definitions
2.18 Subsidiary. The definition of Subsidiary has been amended and
restated in its entirety to the following:
"Subsidiary means any corporate entity, of which a majority of the
equity interest in or of the voting common or capital stock is owned
directly or indirectly by the Company."
<PAGE> 1
Exhibit 10.57
WANG LABORATORIES, INC.
(A DELAWARE CORPORATION)
AMENDMENT NO. 2 TO
1995 DIRECTOR STOCK OPTION PLAN (THE "PLAN")
Pursuant to a vote of the Organization, Compensation and Nominating
Committee of the Board of Directors of Wang Laboratories, Inc. (the "Company")
on January 21, 1998, the Plan has been amended as follows:
1. Section 4. Stock Subject to the Plan.
This section has been amended by deleting "180,000 shares" in line 2
and replacing it with "240,000 shares."
2. Section 9. Change in Control
In line 4 change the word "corporation" to "subsidiary."
<PAGE> 1
Exhibit 10.58
WANG LABORATORIES, INC.
(A DELAWARE CORPORATION)
AMENDMENT NO. 2 TO
1995 EMPLOYEES' STOCK PURCHASE PLAN (THE "PLAN")
Pursuant to a vote of the Organization, Compensation and Nominating
Committee of the Board of Directors of Wang Laboratories, Inc. (the "Company")
on January 21, 1998, the Plan has been amended as follows:
1. Section 1. Purpose
This section is amended by changing the last sentence of this section
to read as follows: "The number of shares that may be issued pursuant
to the Plan shall not exceed 809,607, plus such additional shares as
may result from the operation of Article 7 hereof."
<PAGE> 1
Exhibit 10.59
WANG LABORATORIES, INC.
EXECUTIVE MANAGEMENT
SHORT-TERM INCENTIVE PLAN
PLAN OBJECTIVES
The Executive Management Short-Term Incentive Plan ("Plan") of Wang
Laboratories, Inc. and its subsidiaries ("Wang") having a term from July 1, 1997
through December 31, 1997 ("Term"), is designed to:
* Reward participants for contributing to Wang's operational and
financial success.
* Reinforce the strategic and operational objectives most important
to Wang's future.
* Encourage teamwork and cultural values as a means of achieving
ongoing success.
* Provide for competitive compensation based on organizational and
individual achievement.
ELIGIBILITY
This Plan applies only to those positions deemed eligible by Wang's
Organization, Compensation and Nominating Committee ("Committee") which may add
(delete) positions or individuals to (from) the program at its sole discretion.
If eligibility occurs during the Term, the participant will be eligible for a
pro-rata award based on the achievement of defined targets, goals and objectives
during the time the new participant performed the applicable responsibilities.
TRANSFERS AND TERMINATION
The following applies to participants who transfer to a different job, either
voluntarily or involuntarily, during the plan year:
* The effective termination date from the Plan will be the last day
actually worked in the bonused position. Time between jobs,
vacation time and any period paid in lieu of notice will not be
considered in determining a final bonus.
* Bonus entitlements will be calculated up to the last day prior to
the effective termination date from the Plan.
Participants who terminate their employment from Wang, either voluntarily or
involuntarily, during the Term are not eligible for consideration. No bonus for
the Plan will be paid unless the participant is actively employed by Wang
through December 31, 1997.
FUNDING
<PAGE> 2
The plan will be funded and bonuses made available for payout if Wang achieves a
Total Corporate Composite Performance of 90% or more, as determined by the Board
of Directors. The attached Table will be utilized to determine the level of
funding.
At 90% achievement, the corresponding funding percentage will be 75% of the
incentive opportunity. A straight line pro-ration exists from 90% to 100%
performance achievement, where 100% achievement corresponds to a 100% funding
percentage. The maximum funding percentage is 150%, which occurs at 120%
achievement. A straight line pro-ration exists from 100% achievement to 120%
achievement. Notwithstanding the foregoing, the Chairman and CEO of the Company
and/or the Board of Directors of the Company, or the Organization, Compensation
and Nominating Committee thereof, may in their sole discretion modify the
achievement and pro-ration parameters set forth herein.
PAYOUT
Payout will be based on achievement of individual project-related objectives, as
documented in the attached Individual Objectives worksheet.
All payments under the Plan will be made to executive management participants in
shares of Wang Common Stock in accordance with Exhibit A. The number of shares
awarded will be calculated by taking the net amount of the bonus earned, after
statutory withholding amounts, and dividing it by the July 1, 1997 closing
NASDAQ market price of $21.0625. No fractional shares will be issued. Additional
statutory withholding amounts will be due and payable if the fair market value
of the Common Stock on the issuance date is greater than the July 1, 1997
closing price. Such amounts may be paid to the company in cash, by having funds
withheld from payment of wages, or by delivery of shares of Common Stock.
PLAN PROVISIONS
Nothing in this Plan shall be construed to create or imply the establishing of a
term contract between the company and any participant nor a guarantee of
employment for a specified period of time.
The specific details associated with each Plan participant are defined on the
attached pages and form an integral part of the Plan. All performance will be
measured against the applicable corporate approved financial plan.
The company at its sole discretion reserves the right to modify or cancel this
Plan at any time including the right to change or alter specified goals, bonus
categories and/or Plan continuation.
No modification of this Plan shall be valid unless in writing and signed by the
Senior Vice President and General Counsel.
<PAGE> 3
WANG LABORATORIES, INC.
CORPORATE STAFF EXECUTIVE
SHORT-TERM INCENTIVE PLAN
PLAN OBJECTIVES
The Corporate Staff Executive Short-Term Incentive Plan ("Plan") of Wang
Laboratories, Inc. and its subsidiaries ("Wang") having a term from July 1, 1997
through December 31, 1997 ("Term"), is designed to:
* Reward participants for contributing to Wang's operational and
financial success.
* Reinforce the strategic and operational objectives most important
to Wang's future.
* Encourage teamwork and cultural values as a means of achieving
ongoing success .
* Provide for competitive compensation based on organizational and
individual achievement.
ELIGIBILITY
This Plan applies only to those positions deemed eligible by Wang's Executive
Management. Executive Management may add (delete) positions or individuals to
(from) the program at its sole discretion. If eligibility occurs during the
Term, the participant will be eligible for a pro-rata award based on the
achievement of defined targets, goals and objectives during the time the new
participant performed the applicable responsibilities.
TRANSFERS AND TERMINATION
The following applies to participants who transfer to a different job, either
voluntarily or involuntarily, during the plan year:
* The effective termination date from the Plan will be the last day
actually worked in the bonused position. Time between jobs,
vacation time and any period paid in lieu of notice will not be
considered in determining a final bonus.
* Bonus entitlements will be calculated up to the last day prior to
the effective termination date from the Plan.
Participants who terminate their employment from Wang, either voluntarily or
involuntarily, during the Term are not eligible for consideration. No bonus
for the Plan will be paid unless the participant is actively employed by Wang
through December 31, 1997.
FUNDING
The plan will be funded and bonuses made available for payout if Wang achieves a
Total Corporate Composite Performance of 90% or more, as determined by the Board
of Directors. The attached Table will be utilized to determine the level of
funding.
<PAGE> 4
At 90% achievement, the corresponding funding percentage will be 75% of the
incentive opportunity. A straight line pro-ration exists from 90% to 100%
performance achievement, where 100% achievement corresponds to a 100% funding
percentage. The maximum funding percentage is 150%, which occurs at 120%
achievement. A straight line pro-ration exists from 100% achievement to 120%
achievement. Notwithstanding the foregoing, the Chairman and CEO of the Company
and/or the Board of Directors of the Company, or the Organization, Compensation
and Nominating Committee thereof, may in their sole discretion modify the
achievement and pro-ration parameters set forth herein.
PAYOUT
Payout will be based on achievement of individual objectives, as documented in
the attached Individual Objectives worksheet.
All payments under the Plan will be paid after the completion of the Term, and
may be paid 100% in cash or, if you elect, 50% will be paid in cash and 50% will
be paid in shares of the Company's Common Stock in accordance with the terms of
Exhibit A. The number of shares which may be awarded will be calculated by
taking 50% of the net amount of the bonus earned divided by the July 1, 1997
closing NASDAQ market price of $21.0625 per share. No fractional shares will be
issued. Additional statutory withholding amounts will be due and payable if the
fair market value of the Common Stock on the issuance date is greater than the
July 1, 1997 closing price. Such amounts may be paid to the Company in cash, by
having funds withheld from payment of wages, or by delivery of shares of Common
Stock.
You must elect to participate by signing and returning the enclosed
election form to Michael Hynes, HR Shared Services, by November 21, 1997. If you
fail to return the election form by the date, then you will receive any amount
earned pursuant to the Short Term Incentive Plan in cash.
PLAN PROVISIONS
Nothing in this Plan shall be construed to create or imply the establishing of a
term contract between the company and any participant nor a guarantee of
employment for a specified period of time.
The specific details associated with each Plan participant are defined on the
attached pages and form an integral part of the Plan. All performance will be
measured against the applicable corporate approved financial plan.
The company at its sole discretion reserves the right to modify or cancel this
Plan at any time including the right to change or alter specified goals, bonus
categories and/or Plan continuation.
No modification of this Plan shall be valid unless in writing and signed by the
Senior Vice President and General Counsel.
<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>
Predecessor B
Company
-------------
Six months Nine months Three months
ended Year Year Year ended ended
December 31, ended June 30, ended June 30, ended June 30, June 30, September 30,
1997 1997 1996 1995 1994 1993
------------ -------------- -------------- -------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
FIXED CHARGES
Interest expense $(0.5) $ 10.9 $ 5.1 $ 3.7 $ 3.5 | $ 1.2
Portion of rent expense |
representative of interest 5.6 9.4 9.4 5.9 5.6 | 2.7
----- ------ ------ ----- ----- | -----
5.1 20.3 14.5 9.6 9.1 | 3.9
|
Preferred dividend requirement 11.8 23.5 37.7 14.5 8.7 | --
----- ------ ------ ----- ----- | -----
Combined fixed charges and |
preferred dividend $16.9 $ 43.8 $ 52.2 $24.1 $17.8 | $ 3.9
===== ====== ====== ===== ===== | =====
|
EARNINGS |
Income (loss) from continuing |
operations before income |
taxes, discontinued operations, |
fresh-start reporting adjustment |
and extraordinary item $37.2 $(22.3)(1) $ 94.9(2) $ 6.9(3) $18.4 | $(8.5)
|
Fixed charges per above 5.1 20.3 14.5 9.6 9.1 | 3.9
----- ------ ------ ----- ----- | -----
$42.3 $ (2.0) $109.4 $16.5 $27.5 | $(4.6)
===== ====== ====== ===== ===== | =====
|
Ratio of earnings to combined |
fixed charges and preferred dividends 2.5 -- 2.1 -- 1.5 | --
===== ====== ====== ===== ===== | =====
|
Coverage deficiency -- $(45.8) -- $(7.6) -- | $(8.5)
===== ====== ====== ===== ===== | =====
(1) Includes $36.3 million of acquisition-related, restructuring and Chapter 11-related charges
(2) Includes $(1.1) million of acquisition-related, restructuring and Chapter 11-related charges
(3) Includes $62.1 million of acquisition-related, restructuring and Chapter 11-related charges
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF OPERATIONS, NOTE C-
OTHER BALANCE SHEET INFORMATION AND MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH (B) FORMS 10-Q FOR THE QUARTERLY PERIODS ENDED
DECEMBER 31, 1997 AND 1996.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1997
<PERIOD-START> JUL-01-1997 JUL-01-1996
<PERIOD-END> DEC-31-1997 DEC-31-1996
<EXCHANGE-RATE> 1 1
<CASH> 159,500 73,400
<SECURITIES> 0 0
<RECEIVABLES> 328,000 323,300
<ALLOWANCES> 20,100 14,300
<INVENTORY> 16,200 22,300
<CURRENT-ASSETS> 535,700 455,000
<PP&E> 269,500<F1> 252,300<F1>
<DEPRECIATION> 144,600<F1> 113,800<F1>
<TOTAL-ASSETS> 1,019,500 1,055,300
<CURRENT-LIABILITIES> 406,000 559,500
<BONDS> 1,300 165,300
85,800 85,100
138,300 138,300
<COMMON> 400 400
<OTHER-SE> 441,800 323,900
<TOTAL-LIABILITY-AND-EQUITY> 1,019,500 1,055,300
<SALES> 154,900 163,800
<TOTAL-REVENUES> 651,100 615,100
<CGS> 118,400 121,500
<TOTAL-COSTS> 506,900 457,100
<OTHER-EXPENSES> 14,100 48,800<F2>
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,200 4,900
<INCOME-PRETAX> 37,200 5,800
<INCOME-TAX> 13,400 3,000
<INCOME-CONTINUING> 23,800 2,800
<DISCONTINUED> 0 (24,700)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 23,800 (21,900)
<EPS-PRIMARY> 0.44 (0.79)
<EPS-DILUTED> 0.42 (0.79)
<FN>
<F1> PP&E COST AND ACCUMULATED DEPRECIATION INCLUDE CAPITALIZED NON-CONSUMABLE
SPARES INVENTORY.
<F2> OTHER COSTS AND EXPENSES INCLUDES $27.4 MILLION OF NET ACQUISITION RELATED,
RESTRUCTURING AND CHAPTER-11 RELATED CHARGES.
</FN>
</TABLE>
