<PAGE> 1
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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)
(978) 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 l934 during
the preceding twelve months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
--- ---
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practical date (March 31, 1998):
Common stock, par value $0.01 per share 45,948,952 shares
<PAGE> 2
2
WANG LABORATORIES, INC. AND SUBSIDIARIES
INDEX
Part I. FINANCIAL INFORMATION PAGE NO.
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets -
March 31, 1998 and June 30, 1997 3
Consolidated Statements of Operations -
Three and nine months ended March 31, 1998 and 1997 4
Consolidated Statements of Cash Flows -
Nine months ended March 31, 1998 and 1997 5
Notes to Consolidated Financial Statements -
March 31, 1998 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 28
SIGNATURE 34
<PAGE> 3
3
PART I - FINANCIAL INFORMATION
WANG LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
-------- --------
(Dollars in millions)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents $ 238.7 $ 242.2
Accounts receivable, net of allowance for
doubtful accounts of $19.8 at March 31,
1998 and $17.9 million at June 30, 1997 790.8 244.3
Inventories:
Finished products 8.2 5.6
Raw materials and work-in-process 134.5 7.8
Service parts and supplies 46.0 1.1
-------- --------
Total inventories 188.7 14.5
Other current assets 200.9 53.6
-------- --------
Total current assets 1,419.1 554.6
Depreciable assets, net of accumulated
depreciation of $161.7 million at March 31,
1998 and $131.7 million at June 30, 1997 292.1 123.0
Intangible assets, net of accumulated
amortization of $83.4 million at March 31,
1998 and $64.2 million at June 30, 1997 409.6 311.6
Other 117.8 45.6
-------- --------
Total assets $2,238.6 $1,034.8
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Borrowings due within one year $ 120.3 $ 63.3
Accounts payable 381.5 64.4
Accrued expenses 242.1 121.3
Other current liabilities 372.2 110.0
Deferred service revenue 156.1 69.5
-------- --------
Total current liabilities 1,272.2 428.5
-------- --------
Long-term liabilities 291.3 98.0
-------- --------
Commitments and contingencies
Minority interest 6.7 --
-------- --------
Series A Preferred Stock 86.0 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: 45,948,952
at March 31, 1998 and 38,008,004 at June 30, 1997 0.5 0.4
Capital in excess of par value 484.0 291.4
Cumulative translation adjustment (8.6) (3.7)
Retained earnings (deficit) (31.8) (3.6)
-------- --------
Total stockholders' equity 582.4 422.8
-------- --------
Total liabilities and stockholders' equity $2,238.6 $1,034.8
======== ========
</TABLE>
See notes to the consolidated financial statements.
<PAGE> 4
4
WANG LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1998 1997 1998 1997
------- ------- -------- -------
(Amounts in millions, except per share data)
<S> <C> <C> <C> <C>
REVENUES
Services $ 285.3 $ 246.8 $ 781.5 $ 698.1
Products 117.3 68.3 272.2 232.1
------- ------- -------- -------
Total revenues 402.6 315.1 1,053.7 930.2
------- ------- -------- -------
COSTS AND EXPENSES
Cost of services 225.0 193.4 613.5 529.0
Cost of products 93.3 49.5 211.7 171.0
Research and development 2.2 0.9 3.7 2.8
Selling, general and administrative 91.5 80.3 194.5 182.1
Amortization of intangibles -
acquisition and fresh-start 8.5 22.7 21.1 42.2
Acquisition-related charges 14.0 8.6 14.0 36.0
Restructuring charges 9.2 -- 9.2 --
------- ------- -------- -------
Total costs and expenses 443.7 355.4 1,067.7 963.1
------- ------- -------- -------
OPERATING LOSS (41.1) (40.3) (14.0) (32.9)
------- ------- -------- -------
OTHER (INCOME) EXPENSE
Interest (income) expense - net 3.7 2.6 0.1 4.9
Other (income) expense - net 0.1 0.1 (6.4) (0.6)
------- ------- -------- -------
Total other (income) expense 3.8 2.7 (6.3) 4.3
------- ------- -------- -------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
(44.9) (43.0) (7.7) (37.2)
Provision (benefit) for income taxes -- (21.1) 13.4 (18.1)
------- ------- -------- -------
LOSS FROM CONTINUING OPERATIONS (44.9) (21.9) (21.1) (19.1)
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAXES
-- 101.3 -- 76.6
------- ------- -------- -------
NET INCOME (LOSS) (44.9) 79.4 (21.1) 57.5
Dividends and accretion on preferred stock (3.5) (3.6) (10.6) (10.6)
------- ------- -------- -------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS
$ (48.4) $ 75.8 $ (31.7) $ 46.9
======= ======= ======== =======
PER SHARE AMOUNTS
Basic
Continuing operations $ (1.22) $ (0.69) $ (0.82) $ (0.81)
Discontinued operations -- 2.74 -- 2.09
------- ------- -------- -------
Net income (loss) per share $ (1.22) $ 2.05 $ (0.82) $ 1.28
======= ======= ======== =======
Diluted
Continuing operations $ (1.22) $ (0.69) $ (0.82) $ (0.81)
Discontinued operations -- 2.74 -- 2.09
------- ------- -------- -------
Net income (loss) per share $ (1.22) $ 2.05 $ (0.82) $ 1.28
======= ======= ======== =======
SHARES USED TO COMPUTE PER SHARE AMOUNTS
Basic 39.8 37.0 38.7 36.8
Diluted 39.8 37.0 38.7 36.8
</TABLE>
See notes to the consolidated financial statements.
<PAGE> 5
5
WANG LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1998 1997
------ ------
(Dollars in millions)
<S> <C> <C>
OPERATING ACTIVITIES
Loss from continuing operations $(21.1) $(19.1)
Depreciation 49.0 50.3
Amortization 23.3 44.3
Gain on asset sales (6.5) --
Non-cash provision (benefit) for income taxes 9.7 (21.9)
Non-cash compensation expense -- 36.0
Acquisition-related charges 14.0 5.5
Other restructuring charges 9.2 --
Payments for acquisition-related charges (14.9) (18.7)
Payments for restructuring charges (1.9) (4.8)
------ ------
60.8 71.6
------ ------
CHANGES IN OTHER ACCOUNTS AFFECTING OPERATIONS
Accounts receivable (11.7) (5.5)
Inventories 3.2 4.1
Other current assets (4.0) 1.0
Accounts payable and other current liabilities (36.8) (43.2)
Other (3.6) 2.9
------ ------
Net changes in other accounts affecting operations
(52.9) (40.7)
------ ------
Cash provided by continuing operations 7.9 30.9
------ ------
Net proceeds from sale of discontinued operations
-- 250.5
Cash used in discontinued operations (8.6) (35.8)
------ ------
Net cash provided by (used in) discontinued operations
(8.6) 214.7
------ ------
Cash provided by (used in) operations (0.7) 245.6
------ ------
INVESTING ACTIVITIES
Depreciable assets (54.3) (34.2)
Proceeds from asset sales 13.9 5.6
Business acquisitions, net of cash acquired 25.1 (169.9)
Other (0.4) (4.0)
------ ------
Cash used in investing activities (15.7) (202.5)
------ ------
FINANCING ACTIVITIES
Increase (decrease) in short-term borrowings 20.5 (0.3)
Proceeds from stock plans 8.4 5.2
Dividends paid on preferred stock (10.0) (10.1)
Other (1.9) --
------ ------
Cash provided by (used in) financing activities
17.0 (5.2)
------ ------
Effect of changes in foreign exchange rates on cash (4.1) (1.6)
------ ------
DECREASE IN CASH AND EQUIVALENTS (3.5) 36.3
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 242.2 175.3
------ ------
CASH AND EQUIVALENTS AT END OF PERIOD $238.7 $211.6
====== ======
</TABLE>
See notes to the consolidated financial statements.
<PAGE> 6
6
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1998
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 and
other special charges recorded in the three and nine month periods ended March
31, 1998 and 1997.
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 purchase of Olsy ("Olsy"), the wholly-owned
information technology ("IT") solutions and service subsidiary of Olivetti
S.p.A. ("Olivetti") on March 17, 1998, except for Olivetti Corporation of Japan
("OCJ"), Olsy's subsidiary in Japan, which was not completed until April 7,
1998. Cash of $39.6 million was deposited in escrow and was paid to Olivetti
upon completion of the purchase of OCJ. This cash deposit is reported in Other
noncurrent assets at March 31, 1998. Accordingly, the Company's Consolidated
Statements of Operations and of Cash Flows include the results of Olsy since
March 17, 1998, except for the results of OCJ. The Company also acquired a 19.9%
interest in Olivetti Ricerca, the Italian consortium supplying research and
development services to both the IT and telecom sectors. The investment is
recorded in Other noncurrent assets.
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 I-NET, Inc. ("I-NET") on August 29, 1996.
The Company's Consolidated Statements of Operations and of Cash Flows include
the results of I-NET since acquisition.
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.
<PAGE> 7
7
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1998
NOTE B - BUSINESS ACQUISITIONS AND ACQUISITION-RELATED CHARGES
OLSY
On March 17, 1998, the Company completed the purchase of Olsy, the wholly-owned
information technology solutions and service subsidiary of Olivetti, except for
OCJ, which was not completed until April 7, 1998 (see Note A). The Company also
acquired a 19.9% interest in Olivetti Ricerca, the Italian consortium supplying
research and development services to both the IT and telecom sectors. Olsy's
revenues for the calendar year ended December 31, 1997 were approximately $2.4
billion.
In consideration for Olsy, the Company paid Olivetti $68.6 million in cash;
8,750,000 shares of common stock (of which 1,500,000 are to be delivered before
the end of calendar year 1998 subject to shareholder approval) with a value of
$146.8 million at the time of issuance; 5,000,000 stock appreciation rights
("SARs") which give Olivetti value for the increase in the market price of the
Company's common stock above $30.00 per share at any time from March 2001 to
March 2005 and are redeemable in cash or common stock at the Company's election;
and the potential for an additional amount (an "earnout") of up to $56.0 million
payable in the year 2000, subject to meeting mutually-agreed performance targets
for the calendar years 1998 to 1999. The earnout will be recorded at the time it
becomes probable that a payment will be required and the amount can be
reasonably estimated.
The acquisition was accounted for using the purchase method of accounting in
accordance with Accounting Principles Board No. 16, "Business Combinations"
("APB 16"). Under APB 16, purchase price allocations are made to the assets
acquired and the liabilities assumed based on their respective fair values. The
value of the shares was recorded at a discount of 35% of the market value of the
Company's common stock. The value of the SARs was recorded based on the
historical and implied volatility of the common stock, considering both the
minimum guaranteed price and the restrictions on exercise inherent in the SARs.
These values were determined by independent valuations. The shares are not
registered and are subject to a three-year restriction period.
A summary of the acquisition, which excludes OCJ, follows (in millions):
<TABLE>
<S> <C>
Cash, excluding OCJ escrow, including transaction costs $ 47.0
Common stock and stock equivalents 146.9
Stock appreciation rights 41.8
------
Total consideration 235.7
Estimated fair value of net tangible assets
acquired 130.3
------
Excess of purchase price over net tangible
assets acquired $105.4
======
</TABLE>
<PAGE> 8
8
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1998
NOTE B (Continued)
The excess of the purchase price over the fair value of the net assets acquired
was $105.4 million and has been recorded based on a preliminary purchase price
allocation. Finalization of the allocation of the purchase price to assets
acquired and liabilities assumed is subject to appraisals, valuations,
evaluations and other analysis of the fair value of assets acquired and
liabilities assumed, including the anticipated valuation of certain purchased
research and development activities. Amortization for the fourteen day period
subsequent to the acquisition was $0.2 million calculated on a straight line
basis over an estimated useful life of 25 years.
The Company is repositioning itself to be the leading global desktop and network
services company and estimates that expenditures of as much as $380 million will
be required over the next 24 to 36 months in connection with the integration and
rightsizing of both Olsy and Wang. Of that total, approximately $275 million is
estimated to relate to organizational redundancies, $75 million related to
facilities, and $30 million related to systems and other costs. Under certain
conditions, costs related to the acquired Olsy business will be accounted for as
an additional cost of the acquisition at the time the formal plan of
restructuring is completed. Integration-related costs attributable to Wang will
be accounted for as charges to operations in the periods they are determined.
In connection with the acquisition, on March 13, 1998, the Company entered into
a multi-currency, revolving credit facility with Bankers Trust Company ("BTC")
and certain other financial institutions. The five-year facility provides
borrowings up to $500.0 million, including $200.0 million for letters of credit.
Interest on the borrowings is based on the LIBOR rate plus 0.75% to 1.50%,
depending on the Company's leverage ratio. Fees and expenses associated with the
new facility amounted to $7.5 million, approximately $3.5 million of which has
been charged to interest expense in the March quarter of 1998 associated with
that portion of the facility used to replace the existing $225 million facility.
The BTC agreement contains various financial covenants, including covenants
relating to the Company's operating results, working capital, net worth and
indebtedness. In addition to providing financing for the Olsy acquisition, the
credit facility will be used for general corporate purposes. As of March 31,
1998, borrowings of $68.6 million and letters of credit aggregating $8.8 million
were outstanding under the agreement. The financing is secured by substantially
all of the Company's domestic assets and partial pledges of selected
international subsidiaries.
<PAGE> 9
9
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1998
NOTE B (Continued)
I-NET
On August 29, 1996, the Company completed the 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.
Through September 1997, the Company paid $36.3 million to the holders of the
notes, including $2.2 million of interest. 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 in the three
months ended December 31, 1997, 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.
<PAGE> 10
10
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1998
NOTE C - SPECIAL CHARGES
During the quarter ended March 31, 1998, the Company recorded special charges of
$55.7 million including $23.2 million for integration and restructuring-related
costs, $10.3 million for advertising related to the Olsy acquisition, $7.3
million related to reductions in the carrying value of certain assets, $3.5
million of bank fees and $11.4 million of other costs.
The integration and restructuring-related costs of $23.2 million were provided
after certain actions had been identified, quantified and approved. Additional
charges are anticipated as the balance of the plan actions are quantified. The
integration and restructuring charges recorded in the March quarter consist of
the following (in millions):
<TABLE>
<S> <C>
Workforce-related $13.0
Depreciable assets and other 0.9
Facilities 9.3
-----
Total $23.2
=====
</TABLE>
These charges were recorded as of March 31, 1998 and were based upon best
estimates associated with approved actions through that date. The
facilities-related charges for the Company's excess facilities were recorded to
recognize the lower of the amount of the remaining lease obligations, net of any
sublease rentals, or the expected lease settlement costs. These costs have been
estimated only from the time when the space is expected to be vacated and only
if there are no plans to utilize the facility in the future. Costs incurred
prior to that time will be charged to operations. Depreciable asset-related
charges were provided to recognize, at net realizable value, the write-down to
disposal value of existing assets. Workforce-related charges, consisting
principally of severance costs, were recorded based on specific identification
of employees to be terminated, along with their job classifications or functions
and their locations. Cash requirements to complete these initial integration and
restructuring initiatives are estimated to approximate $8 million for the
remainder of fiscal 1998 and $15 million thereafter, although under certain
circumstances, the actual payment of termination costs may extend beyond that
date.
<PAGE> 11
11
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1998
NOTE D - EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1998 1997 1998 1997
------ ------ ------ ------
(In millions except per share data)
<S> <C> <C> <C> <C>
Numerator:
Loss from continuing operations $(44.9) $(21.9) $(21.1) $(19.1)
Dividends and accretion on the
Series A Preferred Stock (1.2) (1.2) (3.6) (3.6)
Dividends on the Series B Preferred Stock (2.3) (2.4) (7.0) (7.0)
------ ------ ------ ------
Numerator for basic and diluted earnings
per share - loss from continuing
operations available to common
shareholders $(48.4) $(25.5) $(31.7) $(29.7)
====== ====== ====== ======
Denominator:
Denominator for basic and diluted earnings
per share - weighted average shares 39.8 37.0 38.7 36.8
====== ====== ====== ======
Basic Earnings per Share - Continuing Operations $(1.22) $(0.69) $(0.82) $(0.81)
====== ====== ====== ======
Diluted Earnings per Share - Continuing Operations $(1.22) $(0.69) $(0.82) $(0.81)
====== ====== ====== ======
</TABLE>
Options to purchase approximately 6,680,000 shares of common stock and warrants
to purchase approximately 7,500,000 shares of common stock were excluded from
the computation of diluted earnings per share as their effect would be
antidilutive.
In connection with the sale of its software business 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 basis in shares of
common stock. The warrant was excluded from the computation of diluted earnings
per share as its effect would be antidilutive.
In connection with the acquisition of Olsy, the Company issued to Olivetti
5,000,000 stock appreciation rights ("SARs"). Each right entitles Olivetti to
receive from the Company an amount equal to the higher of: (a) $4.00 or (b) the
excess over $30.00 (the "strike price") of the fair market value per share of
Common Stock on the date of exercise. The Company may pay such amount in either
cash or shares of common stock at its option. The SARs can be exercised any time
from March 2001 to March 2005. The SARs were excluded from the computation of
diluted earnings per share as their effect would be antidilutive.
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.
<PAGE> 12
12
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1998
NOTE E - MICROSOFT ALLIANCE
On March 23, 1998, the Company and Microsoft Corporation announced an expansion
of their strategic alliance. The Company will significantly extend its service
capacity by training and certifying 2,500 professionals as Microsoft Certified
Systems Engineers and Microsoft Certified Solution Developers. To help customers
design and deploy Microsoft networked technology solutions, the Company will
open two Centers of Excellence, one at its new worldwide headquarters in
Billerica, Massachusetts, and one in Italy. The centers will showcase enterprise
solutions based on Microsoft technologies and the Company's integrated services.
In addition, the Company will establish Technology Integration Labs to design
and test customer solutions based on Microsoft technology and will lead with
Microsoft's enterprise products in customer accounts.
Under the terms of the agreement, Microsoft will fund the costs associated with
this program through an interest-free loan. These costs are expected to
approximate $25 million over the next three years. The loan will be repaid in
equal installments over five years, with the first payment due in 2001.
<PAGE> 13
13
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1998
NOTE F - SUBSEQUENT EVENTS
On April 7, 1998, the Company completed the purchase of OCJ, Olsy's subsidiary
in Japan. The cash payment of $39.6 million to Olivetti attributable to the
purchase of the Japanese subsidiary was held in an escrow account until the
transaction was completed. Accordingly, the results of OCJ are not included in
the Company's Consolidated Statements of Operations and of Cash Flows for the
three and nine months ended March 31, 1998.
On April 22, 1998, the Company's Board of Directors adopted a Shareholders
Rights Agreement. The description and terms of the Rights are set forth in a
Rights Agreement including all exhibits thereto, between the Company and
American Stock Transfer & Trust Company as Rights Agent.
<PAGE> 14
14
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, 1998, the Company completed the purchase of Olsy ("Olsy"), the
wholly-owned information technology ("IT") solutions and service subsidiary of
Olivetti S.p.A. ("Olivetti"), except for Olivetti Corporation of Japan ("OCJ"),
Olsy's subsidiary in Japan, which was not completed until April 7, 1998.
Accordingly, the Company's Consolidated Balance Sheet and Statements of
Operations and of Cash Flows include the results of Olsy since March 17, except
the results of the OCJ. Olsy develops, implements and manages IT solutions for
large public and private corporate customers, mainly in banking, the public
authorities and utilities sector, and retail. The company provides a broad range
of services, including application development and systems integration, network
integration and management services and distributed IT management services to a
worldwide customer portfolio. Olsy employs more than 12,000 individuals in more
than 40 countries, with annual revenues of approximately $2.4 billion in
calendar 1997.
In connection with the Company's acquisition of Olsy, the management of the
Company has adopted the name Wang Global. The change is subject to shareholder
approval. During the interim, the Company's legal name will continue to be Wang
Laboratories, Inc.; however, the Company will conduct its business as Wang
Global.
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 nine
month periods ended March 31, 1997. 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.
<PAGE> 15
15
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (Continued)
RESULTS OF CONTINUING OPERATIONS
THREE AND NINE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE AND NINE MONTHS
ENDED MARCH 31, 1997
OVERVIEW
For the three months ended March 31, 1998, the Company reported revenues of
$402.6 million, a 27.8% increase compared to the same prior year period. The
increase is attributable to growth in the Company's network services revenues
and the inclusion of Olsy's results for the fourteen days subsequent to
consummation of the transaction, partially offset by the anticipated decline in
proprietary revenues. Revenues for the three months ended March 31, 1998, at
constant currency, would have been approximately $8 million higher.
Revenues were $1,053.7 million for the nine months ended March 31, 1998, a 13.3%
increase from the same prior year period, when revenues of $930.2 million were
reported.
The Company reported an operating loss of $41.1 million for the three months
ended March 31, 1998, compared to an operating loss of $40.3 million for the
three months ended March 31, 1997. Operating losses for the nine months ended
March 31, 1998 and 1997 were $14.0 million and $32.9 million, respectively.
The operating loss for the three and nine month periods ended March 31, 1998
relates primarily to nonrecurring charges of $52.2 million recorded during the
March quarter. These costs include $23.2 million of Wang integration and
restructuring costs, $10.3 million for advertising related to the Olsy
acquisition, $7.3 million related to reductions in the carrying value of certain
assets and $11.4 million for other costs. The $52.2 million is recorded in the
Consolidated Statements of Operations as follows: $27.2 million in Selling,
general and administrative expenses; $1.8 million in Amortization of
intangibles; $12.5 million in Acquisition-related charges and $10.7 million in
Restructuring charges.
The operating loss for the three and nine months ended March 31, 1997 includes
$52.5 million of costs associated with the Company's organization of its then
ongoing services business around four global service delivery units after the
sale of it software business on March 17, 1997. Of that total, $13.3 million
resulted from the sale of the software business, $15.2 million was for
organizational realignment and reductions in the G&A infrastructure, $19.0
million related to reductions in the carrying value of certain assets (including
$14.4 million of intangible assets determined to be impaired) and $5.0 million
was for other charges. The writedown of the impaired intangible assets is
included in the $22.7 million of amortization of acquired and fresh-start
intangible assets reported in the Statement of Operations for the three months
ended March 31, 1997. The Company had also recorded acquisition-related charges
of $27.4 million in the three months ended September 30, 1996.
<PAGE> 16
16
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (Continued)
Excluding these charges, the Company would have reported operating income of
$11.1 million and $38.2 million in the three and nine months ended March 31,
1998, and operating income of $12.2 million and $47.0 million, respectively, in
the same prior year periods. Income before taxes for the three month periods
ended March 31, 1998 and 1997, was $10.8 million and $9.5 million, respectively.
Excluding the charges in fiscal 1998, the decline in operating income for the
nine month period 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 contribute to the downward pressure on consolidated gross
margins.
EBITDA (earnings before interest, income taxes, depreciation and amortization)
from continuing operations was $36.5 million and $36.2 million in the three
month periods ended March 31, 1998 and 1997, respectively. EBITDA from
continuing operations for the nine months ended March 31, 1998 and 1997 was
$115.1 million and $122.7 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.
The Company periodically evaluates the carrying value of intangible assets to
determine if impairment exists based upon estimated undiscounted future cash
flows. The impairment, if any, is measured by the difference between carrying
value and estimated discounted future cash flows and is charged to expense in
the period identified. The Company is currently in the process of performing a
detailed analysis of the carrying value of its intangible assets.
REVENUES
Revenues from proprietary sources (i.e., sales and service of proprietary VS and
GCOS products) declined at a rate of 27.8% for the three month period ended
March 31, 1998, compared to the same prior year period. Proprietary revenues
declined 26.1% for the nine month period ended March 31, 1998, 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> 17
17
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (Continued)
Services revenues increased by 15.6%, to $285.3 million for the three month
period ended March 31, 1998, compared to $246.8 million in the same prior year
period. Services revenues for the nine months ended March 31, 1998 were $781.5
million, a 12.0% increase compared to $698.1 million for the nine months ended
March 31, 1997. Network services revenues increased by 29.8%, to $242.1 million
in the three months ended March 31, 1998, compared to $186.5 million in the
three months ended March 31, 1997. Network services revenues increased by 28.0%,
to $640.5 million, in the nine months ended March 31, 1998, compared to $500.2
million in the nine months ended March 31, 1997. The nine month increase in
network services revenues was partially attributable to the acquisitions of
I-NET and Olsy. Proprietary services revenues decreased by 28.4%, to $43.2
million, for the three months ended March 31, 1998, compared to the three months
ended March 31, 1997. Proprietary services revenues decreased by 28.7%, to
$141.0 million, for the nine months ended March 31, 1998, compared to $197.9
million for the same prior year period.
Product revenues increased by 71.7%, to $117.3 million, for the three months
ended March 31, 1998 compared to the same prior year period. Proprietary product
sales declined by $3.5 million, or 25.2%, to $10.4 million for the three months
ended March 31, 1998, compared to the three months ended March 31, 1997. The
decline in proprietary product sales to $38.5 million for the nine months ended
March 31, 1998, compared to the nine months ended March 31, 1997 was $6.6
million, or 14.6%. Network product and other product sales nearly doubled, to
$106.9 million for the three months ended March 31, 1998, compared to $54.4
million in the same period of the prior year. Network product and other product
sales for the nine months ended March 31, 1998 were $233.7 million, an increase
of $46.7 million, or 25.0%, compared to the nine months ended March 31, 1997.
This increase was primarily attributable to the acquisition of Olsy.
GROSS MARGIN
Services gross margins for the three and nine months ended March 31, 1998 were
21.1% and 21.5%, respectively, compared to 21.6% and 24.2%, respectively, for
the three and nine month periods ended March 31, 1997. The gross margin percent
for the three and nine month periods was negatively affected by 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, the continuing dilutive impact of certain low margin commercial
contracts from I-NET and Olsy's lower margin structure, partially offset by the
favorable margin impact from the licensing and sale of $4.6 million 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.
Product gross margin for the three months ended March 31, 1998 decreased to
20.5%, from 27.5% in the comparable prior year period. Product gross margin for
the nine months ended March 31, 1998 decreased to 22.2%, compared to 26.3% for
the nine months ended March 31, 1997. This decrease is primarily the result of
the decline in proprietary product sales, which have historically higher margins
than the margins on resold client-server products, coupled with Olsy's lower
margin structure. The Company anticipates that the decline in proprietary
product revenues will continue to exert downward pressure on gross margin.
<PAGE> 18
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WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (Continued)
RESEARCH AND DEVELOPMENT EXPENSES
Research and development costs increased by $1.3 million for the three months
ended March 31, 1998, from $0.9 million in the comparable prior year period.
Research and development costs were $3.7 million for the nine months ended March
31, 1998, an increase of $0.9 million from the nine months ended March 31, 1997.
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 and to Olsy's support of
software technology for the banking industry.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the three months ended March
31, 1998, increased by $11.2 million, or 13.9%, to $91.5 million. This increase
is attributable to the inclusion of Olsy as well as the inclusion of $27.2
million of special charges, and compares to $80.3 million, including $23.1
million of special charges, in the same prior year period.
Selling, general and administrative expenses in the nine months ended March 31,
1998 were $194.5 million, including $27.2 million of special charges, an
increase of 6.8% compared to selling, general and administrative expenses of
$182.1 million, including $23.1 million for nonrecurring charges, in the same
prior year period.
Special charges recorded in Selling, general and administrative expenses in the
March 1998 quarter included $10.3 million for advertising branding and
positioning initiatives to launch the new combined company, Wang Global, $5.5
million related to reductions in the carrying value of certain assets and $11.4
million for other costs. Special charges of $23.1 million in the March 1997
quarter recorded in Selling, general and administrative expenses included $13.3
million which resulted from the sale of the software business, $8.3 million
related to reductions in the carrying value of certain assets and $1.5 million
for other costs.
Excluding these special charges, selling, general and administrative expenses
would have been $64.3 million, in the three months ended March 31, 1998 compared
to $57.2 million in the same prior year period, and would have been 16.0% and
18.1% of revenues, respectively. Selling, general and administrative expenses
for the nine months ended March 31, 1998 would have been $167.3 million,
compared to $159.0 million in the comparable prior year period, excluding
nonrecurring charges. Selling, general and administrative expenses would have
been 15.9% of revenues and 17.1% of revenues in the nine months ended March 31,
1998 and 1997, respectively, excluding the special charges.
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, in addition to other cost
control activities.
<PAGE> 19
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WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (Continued)
AMORTIZATION
Amortization of acquired intangible assets totaled $8.5 million in the three
months ended March 31, 1998, including $0.2 million for intangible assets
established as part of the Olsy acquisition for the fourteen day period, and
$1.8 million for the writedown of intangible assets determined to be impaired.
During the prior fiscal year, the Company eliminated its remaining fresh-start
intangible assets following the sale of its software business unit to Kodak
through the recognition of a deferred tax asset attributable to the realization
and 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 March 31, 1997 was $22.7 million, of which $2.2
million relates to the implementation of fresh-start reporting, $6.1 million
relates to intangible assets established in connection with business
acquisitions and $14.4 million relates to the writedown of acquired intangible
assets determined to be impaired. Amortization of acquired intangible assets
totaled $21.1 million in the nine months ended March 31, 1998. Amortization of
fresh-start and intangible assets in the nine months ended March 31, 1997 was
$42.2 million, of which $9.5 million relates to the implementation of
fresh-start reporting, $18.3 million relates to intangible assets established in
connection with business acquisitions and $14.4 million relates to the writedown
of acquired intangible assets determined to be impaired.
ACQUISITION-RELATED AND RESTRUCTURING CHARGES
Acquisition-related charges of $14.0 million in the three and nine months ended
March 31, 1998 reflect the costs associated with beginning to combine the
operations of the Company and Olsy; charges of $36.0 million in the nine months
ended March 31, 1997 primarily reflect the costs associated with combining the
operations of the Company and I-NET and other business consolidation activities.
Restructuring charges of $9.2 million in the three and nine months ended March
31, 1998 primarily reflect the costs associated with workforce reductions
relative to the declining VS revenue stream. There were no restructuring charges
recorded in the nine months ended March 31, 1997.
INTEREST INCOME AND EXPENSE
Net interest expense of $3.7 million in the three months ended March 31, 1998 is
primarily comprised of $5.6 million of interest expense, including $4.7 million
related to the Company's new Revolving Credit Facility with Bankers Trust
Company ("BTC") of $500 million, and the previous Revolving Credit Facility with
BTC, which was replaced with $225 million from the new facility, and $1.9
million of interest income. This compares to $2.6 million of net interest
expense in the same prior year period . Net interest expense of $0.1 million in
the nine months ended March 31, 1998 was comprised of $6.6 million of interest
income and $6.7 million of interest expense, compared to $4.9 million of net
interest expense in the same prior year period, consisting of $8.8 million of
interest expense and $3.9 million of interest income. Interest expense in the
prior year period principally relates to amounts borrowed under and fees
associated with the previous $225 million
<PAGE> 20
20
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (Continued)
Revolving Credit Facility with BTC. The increase in interest income in the three
and nine months ended March 31, 1998, 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.
OTHER INCOME AND EXPENSE
Net other expense of $0.1 million was reported in each of the three month
periods ended March 31, 1998 and 1997. Net other income of $6.4 million in the
nine months ended March 31, 1998 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 expense of $0.6 million in the same period of the prior year.
INCOME TAXES
The provision for income taxes in the nine months ended March 31, 1998 was $13.4
million, and included $9.7 million of non-cash expense. The benefit for income
taxes for the nine months ended March 30, 1997 relates to the utilization of
certain foreign net operating loss carryforwards incurred subsequent to the
Company's emergence from Chapter 11.
EMPLOYEES
At March 31, 1998, the Company had approximately 21,900 employees.
<PAGE> 21
21
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 $238.7 million at March 31, 1998, a decrease of $3.5
million from June 30, 1997.
Cash used in operations during the nine months ended March 31, 1998 was $0.7
million, and includes $23.7 million generated from Wang operating activities,
less $15.8 million used by Olsy during the period subsequent to the acquisition
and $8.6 million used for costs associated with prior discontinued operations.
Cash used in investing activities during the nine months ended March 31, 1998
was $15.7 million. $54.3 million was used for capital additions, including $23.8
million for consumable spares and $7.7 million towards the construction of new
facilities, offset by $13.9 million of proceeds on asset sales. Net cash
acquired in connection with the Olsy acquisition was $36.3 million and consists
of $113.3 million acquired less $68.6 million of cash consideration and
transaction costs of $8.4 million.
In connection with the acquisition, on March 13, 1998, the Company entered into
a multi-currency, revolving credit facility with Bankers Trust Company ("BTC")
and certain other financial institutions. The five-year facility provides
borrowings up to $500.0 million, including $200.0 million for letters of credit.
Interest on the borrowings is based on the LIBOR rate plus 0.75% to 1.50%,
depending on the Company's leverage ratio. Fees and expenses associated with the
new facility amounted to $7.5 million, approximately $3.5 million of which has
been charged to interest expense in the March quarter of 1998 associated with
that portion of the facility used to replace the existing $225 million facility.
The BTC agreement contains various financial covenants, including covenants
relating to the Company's operating results, working capital, net worth and
indebtedness. In addition to providing financing for the Olsy acquisition, the
credit facility will be used for general corporate purposes. As of March 31,
1998, borrowings of $68.6 million and letters of credit aggregating $8.8 million
were outstanding under the agreement. The financing is secured by substantially
all of the Company's domestic assets and partial pledges of selected
international subsidiaries.
Cash provided by financing activities was $17.0 million during the nine months
ended March 31, 1998, and consists primarily of net borrowings under the
Revolving Credit Facility with BTC of $68.6 million, principal payments in
connection with the settlement of the notes to the selling stockholders of I-NET
of $47.4 million, cash dividends paid of $10.0 million, less $8.4 million
proceeds from stock plans.
In addition to normal operating activities, capital expenditures and payment of
preferred dividends, the Company estimates that expenditures of as much as $380
million will be required in connection with the integration and rightsizing of
the combined company. The $380 million includes approximately $275 million
related to organizational redundancies, $75 million related to facilities and
$30 million related to systems and other costs. The Company currently estimates
that the cash utilization associated with these expenditures will approximate
$155 million, $155 million and $70 million in
<PAGE> 22
22
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (Continued)
calendar years 1998, 1999 and 2000, respectively. The Company estimates that the
$380 million will be recovered through cost savings through calendar year 2000,
or an estimated payback averaging approximately eighteen months.
Additionally, the Company has announced that it will spend an additional $12
million for advertising, branding and positioning initiatives to launch the
newly combined company, Wang Global, and approximately $12 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 is $20 million, which approximates the cumulative
proceeds, realized or expected to be realized, 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 as well as the
integration and restructuring initiatives previously discussed, 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.
RISKS AND UNCERTAINTIES
Certain statements 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. The Company or its
representatives may also make forward looking statements in other written
reports filed with the Securities and Exchange Commission ("SEC"), in materials
delivered to stockholders, in press releases or in oral statements to security
analysts, investors and others. Forward looking statements provide current
expectations of future events based on certain assumptions and include any
statement that does not directly relate to any historical or current fact. Words
such as "anticipates," "believes," "expects," "estimates," "intends," "plans,"
"projects," and similar expressions, may identify such forward-looking
statements. In accordance with the Act, set forth below are cautionary
statements that accompany those forward-looking statements. Readers should
carefully review these cautionary statements as they identify certain important
factors that could cause actual results to differ materially from those in the
forward-looking statements and from historical trends. 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. The
following cautionary statements are not exclusive and are in addition to other
factors discussed elsewhere in the Company's filings with the SEC and in
materials incorporated therein by reference.
<PAGE> 23
23
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (Continued)
IMPLEMENTATION OF BUSINESS STRATEGY. The Company's business strategy is to
increase the revenues and margins it realizes from providing network services
and products to customers and clients and to build upon that growth through
acquisitions and alliances with other companies. The Company's ability to
implement successfully this strategy over the long term, and the ultimate
success of this strategy and the achievement of sustained profitable growth is
uncertain and subject to a broad range of variables 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, recruit and retain required skilled personnel or the
inability to deliver the required services in a timely and satisfactory manner
to customers. 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, Dell Computer 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 relationships with Microsoft and Cisco also
includes certain contractual obligations, which, if not satisfied, could allow
Microsoft and Cisco, respectively, to terminate all or a portion of the
relationships.
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 revenues
from proprietary sources, including the acquired Bull proprietary product and
service revenue streams, to 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 and
gross margins from proprietary 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 and gross margins from proprietary sources will
not adversely impact the Company's results of operations or the price of its
equity.
RISKS OF NEWLY ACQUIRED BUSINESSES. In March and April 1998, the Company
completed its acquisition of the wholly-owned IT solutions and services business
of Olivetti ("Olsy") from the Olivetti Corporation. The transaction more than
doubled the revenue and number of employees of the Company. The Company will
confront a number of risks as it operates the Olsy business and integrates it
with the Company's existing business. As with any significant acquisition or
merger, the Company confronts challenges in retaining employees, customer
relationships, synchronizing service delivery
<PAGE> 24
24
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (Continued)
systems and business processes, and integrating logistics, marketing, and
product offerings to achieve greater efficiencies. Moreover, the Company may be
unable to implement all anticipated cost savings in the Olsy business. Finally,
there can be no assurance that the acquisition of Olsy or any of the Company's
other 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 such acquired companies. The Company
continues to evaluate such opportunities regularly, and one or more other
transactions could occur at any time.
The transfer of Company shares to Olivetti as part of the purchase price
for Olsy increases the risk that the Company's use of its net operating loss may
be limited in the future. Federal tax rules impose an annual limitation on the
use of a net operating loss when the change of ownership of shares in a
corporation exceeds a certain limit. The transfer of Company shares to Olivetti
brings the aggregate change of ownership close to, but not in excess of, that
stated limit. Other unforeseen changes of ownership may push the aggregate
change of ownership over the stated limit. The Company believes that even if the
annual limitation on the use of its net operating loss were imposed, such
limitation would be of no consequence as the projected annual limitation on the
use of a net operating loss exceeds the projected federal taxable income of the
Company.
DEPENDENCE ON KEY PERSONNEL. The Company depends to a significant extent on
key management personnel and technical employees. 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. In particular, the Company's new
relationship with Microsoft contemplates that the Company will train a
significant number of qualified Microsoft-certified personnel. 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 continual 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 companies provide the most
significant competition. The Company must also compete with smaller IT services
businesses providers, but which have, been able to develop strong local or
regional customer bases. 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. The Company may have
difficulty implementing the leading edge technology required to services
<PAGE> 25
25
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (Continued)
its customers. 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
address existing Year 2000 limitations. There can be no assurance that the
conversion will be completed in a timely manner.
In the course of providing complex, integrated solutions to customers, the
Company frequently forms alliances with third parties that supply both hardware
and software products and services. Future results will in part depend upon the
performance and capabilities of these parties, including their ability to deal
effectively with the Year 2000 issue. The Company is evaluating the impact of
the Year 2000 compliance on its suppliers and is working with its suppliers and
customers on resolving Year 2000 compliance issues. Because the Company relies
on the cooperation and assistance of its suppliers in addressing Year 2000
matters, there remains a possibility that the Company's reliance on its
suppliers could have a material adverse impact on future results.
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 prices 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.
<PAGE> 26
26
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (Continued)
DEPENDENCE ON GOVERNMENT REVENUE. In both the nine months ended March 31,
1998 and the year ended June 30, 1997, the Company derived approximately 30% of
its revenues from branches or agencies of the United States government, and
derived significant additional revenues from agencies of various foreign
governments. The Company expects that a significant portion of the revenue from
the newly-acquired Olsy operations will be attributable to the sale of goods and
services to governments of other countries and their instrumentalities and
agencies. A significant portion of the Company's US 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 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 government of the United States and
other foreign governments and their instrumentalities and agencies, are received
under a number of different contracts and from a number of different contracting
authorities.
INTERNATIONAL OPERATIONS. International revenues in recent years have
accounted for a substantial portion of the Company's total revenues. As a result
of the acquisition of Olsy, the Company expects to derive more than fifty
percent of its revenue from affiliates operating in non-US environments. 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. The introduction of the Euro may result in changes to business
practices throughout Europe affecting pricing, systems and competition. 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.
The Company's results of operations could also be affected by economic
conditions and changes in foreign countries and by macro-economic changes,
including recession and inflation. For example, weakness in some Asian markets
may have an adverse impact on the Company's business. 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.
NATURE OF CONTRACTS. Some of the Company's 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. Additionally, some of the customer relationships in the international
arena, particularly those acquired through the Olsy acquisition, are supported
by purchase orders in lieu of contracts of a predetermined
<PAGE> 27
27
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (Continued)
duration. Revenues supported by purchase orders are often less predictable and
may be jeopardized by the acquisition of Olsy by the Company. Finally, IT
outsourcing contracts in particular, often contain provisions that allow for
termination for convenience, service level agreement compliance, liquidated
damages and 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 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 other
acquisitions and otherwise implement its strategy. The Company has recently
entered into a $500 million secured credit facility in conjunction with the
completion of the transaction with Olivetti. While the Company believes that the
facility provides sufficient capital availability there can be no assurance that
sufficient capital will be available on terms acceptable to the Company.
ANTI-TAKEOVER PROVISIONS. The Company's Certificate of Incorporation and
By-Laws1 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. In addition, the
Company has recently adopted a shareholder rights plan which is intended to
deter coercive or unfair takeover tactics and to prevent a potential acquirer
from gaining control of the Company without offering a fair price to all of the
Company's shareholders.
<PAGE> 28
28
PART II - OTHER INFORMATION
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
4.1(24) Rights Plan
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
<PAGE> 29
29
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
<PAGE> 30
30
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
<PAGE> 31
31
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(22) Amendment No. 4 to the 1995 Employee Stock Incentive Plan
10.56(22) Amendment No. 5 to the 1995 Employee Stock Incentive Plan
10.57(22) Amendment No. 2 to the 1995 Director Stock Option Plan
10.58(22) Amendment No. 2 to the 1995 Employee Stock Purchase Plan
10.59(22) Short Term Incentive Plan
10.60(23) Stock Purchase Agreement and Wang Laboratories, Inc. and Wang
Nederlands B.V., Ing. C. Olivetti SpA and certain subsidiaries
10.61(23) Credit Agreement among Wang Laboratories, Inc., various
subsidiary borrowers and Bankers Trust Company and various
lending institutions
10.63 Olsy Employees Stock Incentive Plan
<PAGE> 32
32
Exhibit No. Description
- ----------- --------------------------------------------------------------
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.
(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, 1994.
(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.
<PAGE> 33
33
(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 on Form 10-Q
for the quarter ended September 30, 1997.
(22) Filed as an Exhibit to the Registrant's quarterly report on Form 10-Q
for the quarter ended December 31, 1997.
(23) Filed as an Exhibit to the Registrant's Current Report on Form 8-k
dated March 17, 1998.
(24) Filed as an Exhibit to the Registrant's Current Report on Form 8-k
dated May 15, 1998.
(b) During the quarter ended March 31, 1998 , the Registrant filed a
Current Report on Form 8-K, dated March 2, 1998 containing the press
release announcing the transaction regarding Olsy SpA and a Current
Report on Form 8-k dated March 17, 1998 containing the press release
announcing the completion of the Olsy transaction, the Stock Purchase
Agreement among Wang Laboratories, Inc., Wang Nederland B.V., Ing. C.
Olivetti & C. S.p.A. Olivetti Sistemas e Servicios Limitada and
Olivetti do Brasil S.A. and a Credit Agreement among Wang
Laboratories, Inc., various subsidiary borrowers, and Bankers Trust
Company and various lending institutions.
<PAGE> 34
34
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DATE: May 15, 1998
WANG LABORATORIES, INC.
/s/ Franklyn A. Caine
----------------------------------------
Franklyn A. Caine,
Executive Vice President and
Chief Financial Officer
<PAGE> 1
EXHIBIT 10.63
WANG LABORATORIES, INC.
(A DELAWARE CORPORATION)
OLSY EMPLOYEES' STOCK INCENTIVE PLAN
ARTICLE I
PURPOSE
1.1 PURPOSE. The purpose this Employees' Stock Incentive Plan (the "Plan")
is to further the growth, development and financial success of Wang
Laboratories, Inc. (the "Company") and its Subsidiaries by aligning the personal
interests of employees of the Company and its Subsidiaries, including employees
of Olivetti Solutions S.p.A. and its subsidiaries, Olivetti Corporation of Japan
and Olsy do Brasil Ltda., through the ownership of shares of the Company's
Common Stock and related incentives, to those of the Company's shareholders. The
Plan is further intended to provide flexibility to the Company in its ability to
compensate employees and to motivate, attract and retain the services of such
employees who have the ability to enhance the value of the Company and its
Subsidiaries. The Plan permits the granting of Options and Restricted Stock
awards on the terms specified herein.
ARTICLE II
DEFINITIONS
2.1 "Award" means an Option or Restricted Stock grant hereunder.
2.2 "Board" means the Board of Directors of the Company.
2.3 "Change in Control" shall mean (i) a merger or consolidation to which
the Company is a party and following which the stockholders of the Company prior
to such merger or consolidation do not have the voting power to elect a majority
of the members of the Board of Directors of the resulting entity; (ii) any
'person' (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange
Act of 1934, as amended), becoming the beneficial owner, directly or indirectly,
of more than 50% of any class of common stock of the Company, or of shares
having more than 50% of the aggregate voting power of the Company's capital
stock; (iii) a sale or transfer of substantially all of the assets of the
Company; (iv) a liquidation or reorganization of the Company or (v) during any
period of two consecutive years or less beginning after adoption of this Plan,
individuals who at the beginning of such period are members of the Board and any
new director(s) (other than directors designated by a person who has entered
into an agreement with the Company to effect a transaction of the type described
in clauses (i) through (iv) above) whose election by the Board or nomination for
election by the
<PAGE> 2
stockholders was approved by a vote of at least two-thirds of the directors
still in office who satisfy this test, cease for any reason to constitute a
majority of the Board.
2.4 "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.
2.5 "Company" means Wang Laboratories, Inc., a Delaware corporation, or
its successor.
2.6 "Employee" means any person who is a regular full time employee of the
Company or a Subsidiary, and such other employees thereof as may be selected by
the Committee from time to time provided however that Employee shall not include
any individual or who is an officer or director of the Company.
2.7 "Option" means an Award granted hereunder by the Committee to an
Employee in the form of a right to purchase Stock evidenced by an option
contract containing such provisions as the Committee may establish.
2.8 "Permanent Disability" shall mean a physical or mental condition of an
Employee that, (i) in the judgment of the Committee, permanently prevents such
Employee from being able to continue to serve as an active Employee in a
capacity comparable to that in which the Employee served prior to the
disability, or (ii) causes the Employee to become eligible for long-term
disability benefits under any long-term disability insurance plan then in effect
with the Company or its subsidiary that at such time is his or her employer.
2.9 "Plan" means this Stock Incentive Plan.
2.10 "Restricted Period" means that period of time, if any, which begins on
the date of an Award of Restricted Stock to an Employee, and which terminates on
the date upon which all restrictions with respect to such Restricted Stock shall
lapse or otherwise be terminated.
2.11 "Restricted Stock Agreement" means a written agreement, signed by the
Employee and the Company, which sets forth the number of shares of Restricted
Stock awarded to the Employee, the restrictions, if any, applicable thereto, the
price, if any, to be paid by the Employee therefor, and such other terms and
conditions as shall be deemed to be necessary or desirable by the Committee.
2
<PAGE> 3
2.12 "Restricted Stock" means such Stock as may be granted to an Employee
subject to such restrictions, if any, as may be determined by the Committee.
2.13 "Retirement" shall mean an Employee's cessation of employment by
reason of retirement, provided that the Employee has reached the age of 65
years, or the Employee has reached age 55 and his or her age plus years of
service to the Company total 75, or the Committee, in its sole and absolute
discretion, deems the Employee to have retired.
2.14 "Stock" means the Common Stock of the Company or any successor,
including any adjustments in the event of changes in capital structure of the
type described herein.
2.15 "Subsidiary" means any corporate entity, of which a majority of the
equity interest in, or the voting common or capital stock of, is owned directly
or indirectly by the Company.
ARTICLE III
ADMINISTRATION OF THE PLAN
3.1 ADMINISTRATION BY THE COMMITTEE. This Plan shall be administered by
the Committee. Members of the Committee are not eligible for Awards hereunder.
Unless otherwise required by law or rules it may establish, 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. A majority comprised of at least two
members shall constitute a quorum of the Committee.
3.2 POWERS. The Committee shall have full and final authority in its
discretion to operate, interpret, manage, administer, and make determinations
under or relevant to the Plan on behalf of the Company. This authority includes,
but is not limited to:
(a) the power to select Employees to receive Awards from time to time and
determine the type and terms and conditions of Awards;
(b) the power to grant Awards conditionally or unconditionally, on such
terms, conditions and restrictions not inconsistent with the provisions of
this Plan as it prescribes from time to time, including the power to
determine the option exercise or purchase price of the shares of Stock
subject to each Award and the time or times when the benefits of each Award
shall become vested,
3
<PAGE> 4
exercisable, or free of restrictions, as the case may be, and the duration
of any exercise, vesting or restricted period;
(c) the power to determine the number of shares of Stock subject to each
Award, and the time or times when Awards are made;
(d) the power to prescribe the form or forms of the instruments evidencing
Awards granted under this Plan, to construe and interpret the Plan and the
provisions of said instruments, and to make determinations of facts
relevant to administration of the Plan and benefits hereunder;
(e) the power to adopt, amend and rescind regulations consistent with the
provisions hereof for the operation, interpretation, management and
administration of the Plan;
(f) the power to delegate responsibility for Plan operation, management and
administration, subject to the Committee's oversight and control, on such
terms, consistent with the Plan, as the Committee may establish;
(g) the power to delegate to other persons the responsibility for
performing appropriate functions in furtherance of the Plan's purpose;
(h) the power to engage or authorize the engagement of the services of
persons, companies or organizations in furtherance of the Plan's purpose,
including but not limited to, banks, insurance companies, brokerage firms,
and consultants; and
(i) the power to waive or modify terms, conditions, restrictions and
forfeitures of Awards, in whole or in part, for such periods and for such
Employees, and on such terms as it shall determine.
ARTICLE IV
ELIGIBILITY AND SHARES SUBJECT TO THE PLAN
4.1 ELIGIBLE EMPLOYEES. Awards may be granted only to the Employees, or
groups or classes thereof, selected or approved by the Committee in its sole and
absolute discretion.
4.2 RELEVANT FACTORS. In selecting Employees to whom Awards shall be
granted, the Committee shall weigh such factors as are relevant to accomplish
the
4
<PAGE> 5
purposes hereof. An Employee who has been granted an Award may be granted one or
more additional Awards, if the Committee so determines.
4.3 NUMBER OF SHARES SUBJECT TO THE PLAN. Subject to the provisions of
Article IX of this Plan and any authorization of additional shares for the
purposes hereof, the aggregate number of shares of Stock for which Awards may be
granted under this Plan shall not exceed 605,000 shares. The Committee has the
authority to grant all shares of Stock under this Plan as Options or as
Restricted Stock, or in any combination thereof. The shares to be delivered upon
exercise of Options or the grant of Restricted Stock under this Plan shall be
made available, at the discretion of the Company, either from the authorized but
unissued shares or from previously issued and reacquired shares of Stock held by
the Company as treasury shares, including shares purchased in the open market.
Shares issued as Restricted Stock under the Plan that are later forfeited may
again be subject to Awards under the Plan, or may be cancelled and the reserve
for issuance hereunder shall then be increased by an equal number. If an Option
under this Plan shall expire or terminate unexercised as to any shares covered
thereby, such shares shall thereafter be available for the granting of other
Awards under this Plan.
4.4 NON-TRANSFERABILITY OF AWARDS. No Award granted under this Plan shall
be transferable by the Employee otherwise than by will or the laws of descent
and distribution, or pursuant to a qualified domestic relations order, and such
Award may be exercised during the Employee's lifetime only by the Employee.
ARTICLE V
STOCK OPTION AWARDS
5.1 STOCK OPTION AWARDS. The Committee shall establish from time to time
the provisions relating to the exercise price per share, expiration date,
waiting period, cumulative rights, vesting and such other terms and conditions
of Options granted under this Plan. The purchase price of the shares that may be
purchased under each Option shall not be less than par value.
5.2 EXERCISE. Each Option granted under this Plan shall be exercisable on
such date or dates, during such period, for such number of shares, and upon such
terms as shall be provided in the instrument evidencing such Option, which shall
be prescribed by the Committee. If the last day of the exercise term is a
Saturday, Sunday or legal holiday, exercisability may be extended to the next
following business day.
5.3 NOTICE OF EXERCISE. A person electing to exercise an Option shall give
written notice of exercise to the person or persons at the Company designated by
it to receive such notice. The exercise notice shall specify the number of
shares the optionee has elected to purchase, and the optionee
5
<PAGE> 6
shall at the time of exercise tender the full purchase price of the shares he or
she has elected to purchase. Until an optionee has been issued a certificate or
certificates for the shares so purchased, he or she shall possess no rights of a
record holder with respect to any of such shares.
5.4 PARTICULAR CIRCUMSTANCES' EFFECT ON OPTIONS. No Option shall be
affected by any change of duties or position of the optionee (including transfer
to or from a Subsidiary), so long as he or she continues to be an Employee.
Except in cases of death, Permanent Disability, Retirement or other
circumstances specified by the Committee in its discretion (including, but not
limited to, a 30-day extension for exercise following termination of
employment), if an optionee shall cease to be an Employee, all Options held by
such person will terminate on the date of termination of the person's
employment, and up to such date shall be exercisable only to the extent of the
purchase rights, if any, which have accrued as of such date. Nevertheless, the
Committee, in its sole and absolute discretion, upon any such cessation of
employment, may determine (but be under no obligation to determine) that such
accrued purchase rights shall be deemed to include additional shares covered by
such Option and/or may be extended for an additional period of time. In case of
dismissal for cause, the Company may revoke all rights of the Employee to
purchase shares that have not previously been issued to the Employee. In the
event of any Change in Control, all Options outstanding shall become immediately
exercisable for the full number of shares subject thereto regardless of any
vesting or exercise schedule otherwise specified in such Options, and optionees
shall be entitled to at least 20 days' prior notice and the opportunity to
exercise such rights before any transaction in connection with the Change in
Control may defeat or nullify the economic benefit thereof.
5.5 RETIREMENT OF OPTIONEE. Should an optionee begin Retirement while in
possession of an Option under this Plan, vesting and exercisability of such
Option shall continue as if the optionee were still an employee.
5.6 DISABILITY OF OPTIONEE. Should an optionee be determined by the
Committee to have suffered a Permanent Disability while in possession of an
Option under this Plan, vesting will forthwith accelerate, such that the Option
immediately becomes 100% vested, and the optionee or his or her legal
representative will have one year from the date of determination of the
Permanent Disability to exercise such Option, at which time the Option will
expire and no longer be exercisable, provided that in any case the Option shall
expire no later than the last day of the original term thereof.
5.7 DEATH OF OPTIONEE. Should an optionee (including one determined to
have suffered a Permanent Disability under Section 5.5 above) die while in
possession of the right to exercise an Option under this Plan, vesting will
forthwith accelerate, such
6
<PAGE> 7
that the Option immediately becomes 100% vested. Thereafter, such person(s) who
shall have been designated as beneficiary by the optionee, or in the absence
thereof, such person as shall be responsible for the administration of the
optionee's will or estate or, in the absence of the appointment of such person
within six months of the date the optionee died, the person(s) who shall be
entitled to acquire the property of the optionee, by will or by the laws of
descent and distribution (the "beneficiary"), may exercise such Option. This
exercise may occur at any time within one year from the date of death if such
Option is a Non-Qualified Option. Nevertheless, any such Option shall expire no
later than the last day of the original term of such Option.
ARTICLE VI
PROVISIONS APPLICABLE TO RESTRICTED STOCK AWARDS
6.1 STOCK AWARDS. No more than one-third of the shares of Stock subject to
a Restricted Stock Award to any Employee shall be granted without restrictions
and, with respect to the balance of such Stock, no restrictions shall lapse
prior to the expiration of one year from the date of the Award. Each award to an
Employee shall be evidenced by an appropriate Restricted Stock Agreement in a
form and with terms, conditions and restrictions prescribed by the Committee.
6.2 STOCK CERTIFICATES. At the time Restricted Stock is granted to an
Employee, shares representing the Restricted Stock shall be registered in the
name of such Employee or a third party who will hold the shares on behalf of the
Employee, but for the duration of any Restricted Period applicable thereto,
shall be held by the Company for the account of such Employee in certificated or
uncertificated form. Any certificates for such shares that are issued shall be
held by the Company and shall bear the following legend: "The sale or other
transfer of the Stock represented by this certificate, whether voluntary,
involuntary, or by operation of law, is subject to certain restrictions on
transfer set forth in the Wang Laboratories, Inc. Olsy Employees' Stock
Incentive Plan. The rules of such Plan may be obtained from the Secretary of
Wang Laboratories, Inc." If and to the extent that the Restricted Stock is
released from the applicable restrictions, the legend shall be removed from such
certificate and the certificate shall be promptly delivered to the Employee.
6.3 DIVIDENDS, VOTING AND TRANSFERS. During the Restricted Period, the
Employee (or any third party who will hold the shares on behalf of the Employee)
shall have the right to receive any dividends payable with respect to Restricted
Stock and to exercise the voting rights attaching thereto. The Restricted Stock
shall, however, be subject to the following restrictions during any applicable
Restricted Period, together with such other restrictions as the Committee shall
deem appropriate:
7
<PAGE> 8
(i) none of the Restricted Stock may be sold, exchanged, transferred,
assigned, pledged, or otherwise encumbered or disposed of by the Employee
during the applicable Restricted Period; and
(ii) subject to the other provisions of this Article, if such grantee
ceases to be an Employee prior to the expiration or other termination of
the applicable restriction, any Restricted Stock granted to such grantee
which is still subject to restriction shall be forfeited and all rights of
the grantee to such Restricted Stock shall terminate without further
obligation on the part of the Company.
6.4 FORFEITURE TERMS. Except as otherwise provided in a Restricted Stock
Agreement or determined by the Committee, upon the forfeiture of any Restricted
Stock with respect to which applicable restrictions have not lapsed, such
Restricted Stock shall, at the option of the Committee, (i) if a purchase price
had been paid for such Restricted Stock, be deemed to be offered for sale by the
grantee to the Company for a period of 30 days after the date of such forfeiture
at a price equal to the lesser of (y) the fair market value of the Stock at such
time or (z) the same price paid initially for such Restricted Stock or (ii) if
no purchase price had been paid for such Restricted Stock, be forfeited by the
grantee and shall revert to the Company without further action on anyone's part.
6.5 FINANCIAL HARDSHIP. With respect to any grantee, the Committee may, in
its sole and absolute discretion, accelerate the lapse of any restrictions with
respect to Restricted Stock granted to such grantee if, at the time of such
acceleration, the Committee determines that as the result of an unanticipated
emergency, such grantee will suffer severe financial hardship if such lapse of
restrictions is not accelerated. The extent to which any such lapse of
restrictions shall be accelerated shall be limited to the acceleration necessary
to satisfy the grantee's needs arising from the financial hardship.
6.6 MODIFICATION OF AWARDS. The Committee may, in its sole discretion,
prescribe that any restrictions on any Restricted Stock and under any applicable
Restricted Stock Agreement shall lapse in accordance with such schedule and/or
in accordance with such terms and conditions, other than the schedule or terms
and conditions for which provision was originally made, as provided by the
Committee; provided, however, that such modified schedule and/or terms and
conditions shall be more favorable to the grantee or grantees affected than the
original schedule or terms and conditions.
8
<PAGE> 9
6.7 PARTICULAR CIRCUMSTANCES. With respect to any grantee, if (i) such
grantee ceases to be an Employee of the Company or any Subsidiary prior to the
expiration of the applicable Restricted period by reason of death, Permanent
Disability or Retirement or (ii) a Change in Control occurs, all restrictions
set forth in the applicable Restricted Stock Agreement shall terminate as to the
related Restricted Stock, and certificates for the appropriate number of shares
of Stock free of the restrictions of the Plan and such Restricted Stock
Agreement shall be delivered to the grantee or his or her beneficiary or estate,
as the case may be. Unless otherwise determined by the Committee or provided in
a Restricted Stock Agreement, if a grantee ceases to be an Employee prior to the
end of the applicable Restricted Period for any other reason, such grantee shall
immediately forfeit all shares of Restricted Stock granted to such grantee which
then remain subject to restriction.
6.8 LAPSE OF RESTRICTIONS. At the end of the applicable Restricted Period
or at such earlier time as provided for herein, all restrictions contained in
the Plan and the applicable Restricted Stock Agreement shall terminate as to the
related Restricted Stock, and certificates for the appropriate number of shares
of Stock free of the restrictions of the Plan and the Restricted Stock
Agreement, registered in the name of the grantee, shall be delivered to the
grantee or his or her beneficiary or estate, as the case may be.
6.9 AWARDS HELD BY THIRD PARTIES. Notwithstanding any provision to the
contrary herein, the Committee may, in lieu of Awards of Restricted Stock made
directly to Employees, grant Restricted Stock to one or more nominees or
trustees for the benefit of such Employees of the Company and its Subsidiaries
as the Committee may designate. In such event, the rights of such Employees in
the Restricted Stock so granted are to be governed exclusively by such terms of
trust, or otherwise as are approved by the Committee. The Committee shall
administer the Plan, and make provisions relative to any such Awards, in a
manner designed to provide the Employees with rights and entitlements which
shall approximate as closely as possible those rights and entitlements specified
in this Article.
ARTICLE VII
RIGHTS AS AN EMPLOYEE
7.1 IMPLIED RIGHTS. Awards under the Plan are discretionary and are not
a part of regular salary. Awards may not be used in determining the amount of
compensation for any purpose under any benefit plan of the Company or any
Subsidiary, except as the Committee may from time to time expressly provide.
Neither the Plan nor any action taken hereunder shall be construed as giving any
9
<PAGE> 10
Employee the right to any Award, and an Award under the Plan shall not be
construed as giving any Employee any right to be retained in the employ or
service of the Company or any of its Subsidiaries for any period of time,
regardless of the terms or conditions of the Award or the manner in which such
terms or conditions are described in the applicable Award instrument.
7.2 BENEFICIARY DESIGNATION. If allowed by the Committee from time to
time, a grantee may designate a person or persons to receive, in the event of
his or her death, any rights to which he or she would be entitled under the
Plan. Such a designation shall be made in writing and filed with the Committee
or such person as it may designate. A beneficiary designation may be changed or
revoked by a grantee at any time by filing a written statement of such change or
revocation with the Board. If a grantee dies having failed to designate a
beneficiary or if a grantee's beneficiary does not survive the grantee, then the
grantee's estate shall be deemed to be his or her beneficiary.
ARTICLE VIII
AMENDMENT OF THE PLAN
8.1 AMENDMENT OF PLAN. The Committee or the Board may amend the Plan from
time to time.
8.2 EFFECT ON AWARDS. Awards granted prior to suspension or termination of
the Plan may not be amended or cancelled except with the consent of the grantee
of the Award. Any dispute or disagreement that may arise under or as a result
of, relating to or pursuant to, any Award or contract evidencing the same shall
be determined by the Committee, which determination shall be conclusive, binding
and final for all purposes with respect to all persons.
ARTICLE IX
CHANGES IN CAPITAL STRUCTURE
9.1 ADJUSTMENTS DUE TO CAPITAL CHANGES. The instruments evidencing Awards
granted hereunder shall be subject to adjustment in the event of changes in the
outstanding Stock of the Company by reason of Stock dividends, Stock splits,
recapitalizations, reorganizations, mergers, consolidations, combinations,
exchanges or other relevant changes in capitalization occurring after the date
of an Award to the same extent as would affect an actual share of Stock issued
and outstanding on the effective date of such change. In the event of any such
change, the aggregate number and classes of shares for which Awards may
thereafter be granted under this Plan shall be appropriately adjusted as
determined by the Committee so as to reflect such change.
10
<PAGE> 11
ARTICLE X
WITHHOLDING OF TAXES
10.1 COLLECTION OF TAXES DUE. The Company and its Subsidiaries shall have
the right, before any certificate for any Stock is delivered, to deduct or
withhold from any payment owed to a grantee, any amount that is necessary in
order to satisfy any withholding requirement that the Company in good faith
believes is imposed upon it in connection with Federal, state, or local taxes,
including transfer taxes, as a result of the issuance of, or lapse of
restrictions on, such Stock, or otherwise require such grantee to make provision
for payment of any such withholding amount. Subject to such conditions as may be
established by the Company, the Company may extend to grantees the choice to (i)
have Stock otherwise issuable under an Award withheld, (ii) tender back to the
Company Stock received pursuant to an Award, (iii) deliver to the Company
previously acquired Stock, (iv) have funds withheld from payments of wages,
salary or other cash compensation due the grantee or (v) pay the Company in
cash, in order to satisfy part or all of the obligations for any taxes required
to be withheld or otherwise deducted and paid by the Company or any such
Subsidiary in respect of the Stock subject to an Award. In the absence of other
satisfactory arrangements, the Company may act pursuant to clause (i) and/or, to
the extent permitted by law, clause (iv) above to the extent of an unsatisfied
tax obligation and shall collect such obligation accordingly. The grantee, by
his or her acceptance of the grant, will be deemed to have consented to such
action(s).
10.2 PAYMENT; DELIVERY OF SHARES. Unless otherwise provided by the
Committee, the Company, in the discretion of its management and subject to such
rules and restrictions as it may establish from time to time, may:
(a) accept payment for the shares related to an Award by any manner of
lawful consideration permitted by applicable statute, including stock of
the same class as said shares;
(b) issue shares registered in the name of a grantee to the custody of his
or her broker when requested in writing by the Employee with his or her
exercise notice, and when preceded by full payment or the broker's
irrevocable commitment on behalf of the grantee to pay the Company any
balance due on the purchase price for such shares following their issuance,
whereupon such issuance and payment will be viewed as contemporaneous; and
(c) allow grantees to start with one or more shares of Stock and exercise
an Option in full (no matter how many shares are covered by the Option) by
means of successions of partial exercise transactions in which the grantee
uses shares
11
<PAGE> 12
obtained on each exercise to purchase a larger number of shares on the next
exercise, and to represent the series of transactions by a single purchase
of the net amount of shares that results from such series of transactions.
ARTICLE XI
GOVERNMENTAL AND OTHER REGULATIONS
11.1 EFFECT OF APPLICABLE LAWS. The Plan and any Award hereunder shall be
subject to all applicable Federal and state laws, rules, and regulations and to
such approvals by any regulatory or governmental agency as may be required. The
issuance or delivery of any Award or of any Stock under an Award, may be
postponed by the Company for such period as may be required to comply with any
applicable requirements under securities laws, any applicable listing
requirements of any national securities exchange or automated quotation system
where the Stock is listed, and requirements under any other law or regulation
applicable to the issuance or delivery of such Stock. The Company shall not be
obligated to issue or deliver any Stock if the issuance or delivery thereof
shall constitute a violation of any provision of any law or of any regulation of
any governmental authority or any national securities exchange or automated
quotation system where the Stock is listed. Other than as expressly provided in
subsection 6.9 herein, neither the Plan nor any Award made hereunder shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any of its Subsidiaries and an
Employee or any other person.
ARTICLE XII
EFFECTIVE DATE AND TERM OF THE PLAN
12.1 EFFECTIVE DATE AND TERM. The Plan shall become effective upon its
adoption by the Board and shall continue until such time as it may be terminated
by action of the Board or the Committee.
12
<PAGE> 1
EXHIBIT 12.1
WANG LABORATORIES, INC. AND SUBSIDIARIES
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions except ratios)
<TABLE>
<CAPTION>
Predecessor
Company
-------------------
Nine months Year Year Year Nine months Three months
ended March 31, ended June 30, ended June 30, ended June 30, ended June 30, ended September 30,
1998 1997 1996 1995 1994 1993
--------------- -------------- -------------- -------------- -------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
FIXED CHARGES
Interest expense $ 6.7 $ 10.9 $ 5.1 $ 3.7 $ 3.5 $ 1.2
Portion of rent expense
representative of interest 8.5 9.4 9.4 5.9 5.6 2.7
------ ------ ------ ------ ------ ------
15.2 20.3 14.5 9.6 9.1 3.9
Preferred dividend requirement 17.7 23.5 37.7 14.5 8.7 --
------ ------ ------ ------ ------ ------
Combined fixed charges and
preferred dividend $ 32.9 $ 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 ($ 7.7)(1) ($22.3)(2) $ 94.9(3) $ 6.9(4) $ 18.4 ($ 8.5)
Fixed charges per above 15.2 20.3 14.5 9.6 9.1 3.9
------ ------ ------ ------ ------ ------
$ 7.5 ($ 2.0) $109.4 $ 16.5 $ 27.5 ($ 4.6)
====== ====== ====== ====== ====== ======
Ratio of earnings to combined
fixed charges and preferred dividends -- -- 2.1 -- 1.5 --
====== ====== ====== ====== ====== ======
Coverage deficiency (25.4) $(45.8) -- $ (7.6) -- $ (8.5)
====== ====== ====== ====== ====== ======
</TABLE>
(1) Includes $23.2 million of acquisition-related, restructuring and Chapter
11-related charges
(2) Includes $36.3 million of acquisition-related, restructuring and Chapter
11-related charges
(3) Includes $(1.1) million of acquisition-related, restructuring and Chapter
11-related charges
(4) Includes $62.1 million of acquisition-related, restructuring and Chapter
11-related charges
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENT OF OPERATIONS AND
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FOR
THE QUARTERLY PERIOD ENDED MARCH 31, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 238,700
<SECURITIES> 0
<RECEIVABLES> 810,600
<ALLOWANCES> 19,800
<INVENTORY> 188,700
<CURRENT-ASSETS> 1,419,100
<PP&E> 453,800<F1>
<DEPRECIATION> 161,700<F1>
<TOTAL-ASSETS> 2,238,600
<CURRENT-LIABILITIES> 1,272,200
<BONDS> 120,300
86,000
138,300
<COMMON> 400
<OTHER-SE> 443,700
<TOTAL-LIABILITY-AND-EQUITY> 2,238,600
<SALES> 272,200
<TOTAL-REVENUES> 1,053,700
<CGS> 211,700
<TOTAL-COSTS> 825,200
<OTHER-EXPENSES> 48,000<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,700
<INCOME-PRETAX> (7,700)
<INCOME-TAX> 13,400
<INCOME-CONTINUING> (21,100)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (21,100)
<EPS-PRIMARY> (0.82)
<EPS-DILUTED> (0.82)
<FN>
<F1>PP&E COST AND ACCUMULATED DEPRECIATION INCLUDE CAPITALIZED NON-CONSUMABLE
SPARES INVENTORY.
<F2>OTHER COSTS AND EXPENSES INCLUDES $23.2 MILLION OF NET ACQUISITION-RELATED,
RESTRUCTURING AND CHAPTER 11-RELATED CHARGES.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE 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 FORMS 10-Q FOR THE QUARTERLY PERIODS ENDED MARCH 31, 1998
AND 1997.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 159,500
<SECURITIES> 0
<RECEIVABLES> 328,000
<ALLOWANCES> 20,100
<INVENTORY> 16,200
<CURRENT-ASSETS> 535,700
<PP&E> 269,500<F1>
<DEPRECIATION> 144,600<F1>
<TOTAL-ASSETS> 1,019,500
<CURRENT-LIABILITIES> 406,000
<BONDS> 1,300
85,800
138,300
<COMMON> 400
<OTHER-SE> 303,500
<TOTAL-LIABILITY-AND-EQUITY> 1,019,500
<SALES> 232,100
<TOTAL-REVENUES> 930,200
<CGS> 171,000
<TOTAL-COSTS> 700,000
<OTHER-EXPENSES> 81,000<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,800
<INCOME-PRETAX> (37,200)
<INCOME-TAX> (18,100)
<INCOME-CONTINUING> (19,100)
<DISCONTINUED> 76,600
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 57,500
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 1.28
<FN>
<F1>PP&E COST AND ACCUMULATED DEPRECIATION INCLUDE CAPITALIZED NON-CONSUMABLE
SPARES INVENTORY.
<F2>OTHER COSTS AND EXPENSES INCLUDES $36.0 MILLION OF NET ACQUISITION-RELATED,
RESTRUCTURING AND CHAPTER 11-RELATED CHARGES.
</FN>
</TABLE>
