SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(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 26, 1994
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 1-7352
Data General Corporation
(Exact name of registrant as specified in its charter)
Delaware 04-2436397
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4400 Computer Drive, Westboro, Massachusetts 01580
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (508)898-5000
Former name, former address and former fiscal year if changed since
last report: Not Applicable
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shor-
ter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
Number of shares outstanding of each of the registrant's classes
of common stock, as of April 22, 1994:
Common Stock, par value $.01 35,891,125
(Title of each class) (Number of shares)
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
The condensed consolidated financial statements of Data General
Corporation (the "company"), consisting of condensed consolidated
statements of operations for the three and six months ended March 26,
1994 and March 27, 1993, condensed consolidated balance sheets as of
March 26, 1994 and September 25, 1993, condensed consolidated
statements of cash flows for the six months ended March 26, 1994 and
March 27, 1993, and related notes to condensed consolidated financial
statements, are incorporated herein by reference to pages 3 through 6
of the company's Second Quarter 1994 Interim Report. The Second
Quarter 1994 Interim Report has been included as Exhibit 20 to copies
of this Report filed with the Securities and Exchange Commission.
Copies of the Interim Report may be obtained by written request to the
company, Attn: Investor Relations, MS A-235, 4400 Computer Drive,
Westboro, MA 01580.
During the first quarter of fiscal 1994, the company adopted
Statement of Financial Accounting Standards ("SFAS") 109, "Accounting
for Income Taxes". See Item 1. "Financial Statements" to the
company's Form 10-Q for the quarter ended December 25, 1993.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Financial Condition
Cash and temporary cash investments as of March 26, 1994 were
$128.8 million, an increase of $9.2 million from the end of fiscal
1993. In addition, the company holds $61.4 million in marketable
securities, a net decrease of $11.0 million during the current
six-month period. These securities, which supplemented cash and
temporary cash investments, are primarily invested in United States
Treasury bills and notes. Net cash provided from operations for the
six months ended March 26, 1994 totaled $48.7 million, expenditures
for property, plant, and equipment were $47.7 million, capitalized
software development costs totaled $9.0 million, and cash provided
from stock plans totaled $3.6 million. Net proceeds from the sale of
an investment totaled $5.8 million and the company also made a $2.0
million investment in an unaffiliated entity during the current
six-month period. The company repaid $1.2 million of long-term debt
in the current six-month period. The effect of foreign currency rate
fluctuations on cash and temporary cash investments was immaterial.
Net receivables decreased $15.6 million from fiscal year-end
1993, primarily as a result of more focused collection efforts in the
European marketplace. Total inventories at March 26, 1994 increased
$8.2 million from year-end 1993 levels, primarily due to increased
inventory procurement. Accounts payable increased $23.5 million from
fiscal year-end 1993, primarily due to the timing of quarter-end
inventory procurements and an increase in overall inventory levels.
Fixed asset dispositions for the first six-month period totaled $8.5
million, primarily as a result of sales of demonstration equipment to
end-users and approximately a $4.0 million writedown of net book value
of fixed assets to their realizable value associated with
consolidating certain activities in the European marketplace. The
writedown as a result of the consolidation activities is included in
the fiscal 1994 restructuring charge. Management expects that sales
of demonstration equipment will continue in the future. Other current
liabilities increased $24.9 million from fiscal year-end 1993 due
primarily to the $35 million restructure charge taken in the current
quarter offset by payments made relating to previously recorded
restructuring accruals. Other liabilities increased $4.1 million from
fiscal year-end 1993, primarily as a result of normal accruals
recorded for the company's pension plans.
Effective December 30, 1993, the company replaced the $70 million
revolving credit facility with an unsecured $40 million revolving
credit facility and an unsecured $30 million letter of credit facility
with the same group of banks as the original credit facility. The
revolving credit facility has a duration of one year; the letter of
credit facility has a duration of 364 days and provides for automatic
renewal on a daily basis. The facilities include certain covenants,
including restrictions on the sale or pledge of certain assets, the
declaration of dividends and the incurrence of other debt. The
interest rate for borrowings under each facility is 1.5% per annum
above the London Interbank Offered Rate (LIBOR). Commitment fees paid
on available funds are not material and there were $12.4 million of
letters of credit secured by the letter of credit facility at March
26, 1994. There were no borrowings under the revolving credit
facility as of March 26, 1994.
Results of Operations
Total revenues for the quarter ended March 26, 1994 increased 6%
from the same quarter of the previous year. Domestic revenues,
excluding U.S. direct export sales, were $161.0 million for the cur-
rent quarter, a 15% increase from $140.4 million for the comparable
period of fiscal 1993. Domestic revenues were 57% of total revenues
in the current quarter, compared with 53% of total revenues for the
second quarter of fiscal 1993. International revenues are now being
presented in two geographic segments, a change from previous filings.
The European segment is comprised solely of revenues from the European
marketplace. All other international revenues, including U.S. direct
export sales, will be referred to as "other international". European
revenues were $77.1 million for the current quarter, an 8% decrease
from $83.4 million for the comparable period in fiscal 1993. European
revenues represented 27% of total revenues in the current quarter and
31% of total revenues in the prior-year period. Other international
revenues were $44.8 million for the current quarter, a 3% increase
from $43.7 million for the comparable period in fiscal 1993. Other
international revenues represented 16% of total revenues in both the
current quarter and prior-year period. The increase in total revenues
for the current quarter was primarily due to the increase in demand
for the company's AViiON products and CLARiiON products sold for use
with other vendor's hardware (Open CLARiiON), along with an increase
in demand for personal computers and related equipment. The increase
in these product sales more than offset the continuing decrease in
sales of proprietary MV products and a decrease resulting from the
strengthening of the U.S. dollar in relation to foreign currencies.
Domestic revenues of $309.1 million for the six months ended
March 26, 1994 increased 7% from $287.9 million for the first
six-month period of fiscal 1993. Domestic revenues were 57% of total
revenues in the current six-month period and 53% of the total revenues
for the comparable prior-year period. European revenues were $145.4
million for the first six-month period of the current year, compared
with $175.0 million for the first six-month period of fiscal 1993.
European revenues represented 27% of total revenues in the current
six-month period and 32% of total revenues in the prior-year period.
Other international revenues were $89.7 million for the current
six-month period, compared with $84.2 million for the comparable
period in fiscal 1993. Other international revenues represented 16%
of total revenues in the current six-month period and 15% of total
revenues in the prior-year period.
Product revenues for the current quarter increased 10% from the
comparable prior-year period. Revenues from the company's AViiON
family of open systems products grew 25% during the current quarter
when compared with the second quarter of fiscal 1993. The company's
new line of Open CLARiiON mass storage systems produced significant
revenue growth compared to the second quarter of fiscal 1993 and
comprised 7% of total product revenues in the current quarter. The
company is making a consorted effort to expand distribution channels
for these products. Proprietary MV system revenues declined 48% from
the same period in the prior year. Revenues from personal computers
and other low margin equipment increased 27% over the same quarter of
the prior year. It is anticipated that revenues from the MV
proprietary product line will contribute a less significant percentage
of the company's overall revenues in future quarters.
Domestic product revenues, which were $103.5 million for the
current quarter, increased 24% from $83.6 million for the comparable
period in fiscal 1993. Domestic product revenues were 56% of total
product revenues in the current quarter and 50% of total product
revenues in the comparable prior-year period. The increase in
domestic product revenues was due to the increase in demand for the
company's newest generation of AViiON products and increases in both
personal computer and Open CLARiiON equipment sales. European product
revenues were $47.3 million for the current quarter, an 8% decrease
from $51.4 million for the comparable period in fiscal 1993. European
product revenues represented 26% of total product revenues in the
current quarter and 31% in the comparable prior-year period. Other
international product revenues were $33.5 million for the current
quarter, a 3% increase from $32.4 million for the comparable period in
fiscal 1993. Other international product revenues represented 18% of
total product revenues in the current quarter and 19% in the
comparable prior-year period.
For the current six-month period, domestic product revenues were
$195.2 million compared with $174.8 for the comparable six-month
period of fiscal 1993. Domestic product revenues were 56% of total
product revenues in the current six-month period and 51% of total
product revenues in the comparable prior-year period. European
product revenues were $85.6 million for the current six-month period
compared with $106.7 million for the first six-month period of fiscal
1993. European product revenues were 25% of total product revenues in
the current six-month period and 31% of total product revenues in the
comparable prior-year period. Other international product revenues
were $67.3 million for the current six-month period compared with
$61.5 million for the first six-month period of fiscal 1993. Other
international product revenues were 19% of total product revenues in
the current six-month period and 18% of total product revenues in the
comparable prior-year period. The decrease in European product
revenues was primarily due to generally weak economic conditions, the
impact of transitioning from the company's traditional proprietary
product line to open systems technology, and the strengthening of the
U.S. dollar in relation to foreign currencies.
Service revenues for the current quarter decreased 2% from the
comparable period of fiscal 1993. Domestic service revenues for the
current quarter were $57.5 million, a slight increase from $56.8
million for the second quarter of fiscal 1993. European service
revenues for the current quarter were $29.9 million, a 7% decrease
from $32.1 million for the prior-year period. Other international
service revenues for the current quarter and prior-year period were
$11.3 million.
For the current six-month period, domestic service revenues were
$113.9 million, relatively unchanged from the $113.1 million in the
first six-month period of fiscal 1993. European service revenues for
the current six-month period were $59.8 million, a 12% decrease from
$68.3 million reported for the first six-month period of fiscal 1993.
Other international service revenues were $22.5 million for the
current six-month period, relatively unchanged from the $22.7 million
reported for the first six-month period of fiscal 1993. The decrease
in European service revenues resulted primarily from the strengthening
of the U.S. dollar in relation to European currencies in the current
six-month period when compared to the same prior-year period. A
decrease in hardware maintenance service revenues, which is the direct
result of lower prices on service contracts for AViiON systems, has
been partially offset by increased revenues from systems integration
and consulting activities.
Cost of product revenues were 67% of product revenues for both
the current quarter and current six month period ended March 26, 1994,
compared with 61% and 60%, respectively, for the same periods of the
prior year. Competitive pricing pressures worldwide and the continued
transition to the lower margin AViiON family of open systems and Open
CLARiiON family of mass storage systems more than offset the benefits
resulting from the company's continuing cost reduction and
restructuring programs. Cost of service revenues for the current
quarter and first six-month period represented 64% and 62% of service
revenues, respectively, compared with 58% of service revenues for the
same periods of fiscal 1993. The increase in cost of service revenues
as a percentage of total service revenues was primarily a result of
the increase in revenues from systems integration activities which
yield a lower margin than traditional service contract revenues.
Research and development expenses for the current quarter de-
creased 12% from the second quarter of fiscal 1993 to $22.7 million,
and represented 8% of total revenues in the current quarter. For the
current six-month period, research and development expenses were 9% of
total revenue, decreasing 11% to $46.2 million from the comparable
prior-year period. The decrease results primarily from the company
continuing to focus its research and development efforts on its core
business technology, multi-user computer systems, servers, and mass
storage devices. In addition, a change in product mix to open systems
architecture has increased the use of industry-standard components
purchased from third parties, which has somewhat reduced the
requirement for research and development in hardware. The company is
also dedicating a higher proportion of its resources to software
development.
Selling, general, and administrative expenses for the current
quarter and the first six-month period remained relatively flat when
compared to the prior-year periods, and represented 31% and 32%,
respectively, of total revenues in the current quarter and six-month
period and 32% of total revenues for the comparable prior-year
periods.
While the company has made significant progress towards becoming
a supplier of open systems products and services, the company
continues to have a cost structure that is out of line with an open
systems business model. As a result, the company has identified
additional cost reduction steps which include the continuing
realignment of the company's worldwide sales and service
organizations. Therefore, income from operations for the current
quarter includes a $35 million charge for estimated costs associated
with the worldwide workforce reduction and approximately a $4.0
million writedown of net book value of fixed assets associated with
consolidating certain activities in the European marketplace. The
provision relating to the workforce reduction is primarily for salary
and benefit continuation and outplacement service. At March 26, 1994
the number of employees totaled 6,245, a reduction of 590 employees
from March 27, 1993. The company expects that by the end of fiscal
1994, the number of employees will be between 5,500 and 5,700. There
have been no material changes in the company's previously announced
restructuring actions or the estimates accrued at September 25, 1993.
Interest income for the current quarter and the first six-month
period decreased 38% and 36%, respectively, from the comparable
periods of fiscal 1993, primarily due to lower average levels of
invested cash and reduced interest rates on invested funds. Interest
expense for the current quarter and the first six-month period
decreased 2% and 5%, respectively, from the comparable periods of
fiscal 1993 primarily due to the retirement of two separate industrial
revenue bonds. Other income of $2.4 million resulted from the sale of
an investment held by the company in an unaffiliated entity.
The income tax provision for the current quarter and first
six-month period was $0.5 million and $1.1 million respectively,
compared with $1.4 million and $3.2 million for the same prior-year
periods. The provisions resulted primarily from foreign and state
taxes.
In November 1992, the Financial Accounting Standards Board
("FASB") issued SFAS 112, "Employers' Accounting for Post-Employment
Benefits". In May 1993, the FASB issued SFAS 114 and 115, "Accounting
by Creditors for Impairment of a Loan" and "Accounting for Certain
Investments in Debt and Equity Securities", respectively. SFAS 112
and SFAS 115 are effective for fiscal years beginning after December
15, 1993. SFAS 114 is effective for fiscal years commencing after
December 15, 1994. The company will implement these statements as
required. The future adoption of SFAS 112, SFAS 114 and SFAS 115 are
not expected to have a material effect on the company's consolidated
financial position or results of operations.
The revenue improvement during the current quarter reinforces
management's belief in the company's product and marketing strategy.
Management expects revenues from the MV proprietary product line to
contribute a less significant percentage of the company's overall
revenues in future quarters. In light of the significant change in
industry trends from proprietary to open systems technology, the
company remains very cautious for the remainder of fiscal 1994.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
In a previously reported action, in the U.S. District Court for
the District of Massachusetts, a jury, on January 28, 1993, awarded
the company $52.3 million in damages and related interest from Grumman
Systems Support Corporation ("Grumman") for infringing the company's
copyrights and misappropriating trade secrets relating to the
company's proprietary MV/ADEX diagnostic software. The award includes
approximately $15.9 million in pre-judgment interest. On May 13,
1993, Grumman's motion for judgment notwithstanding the verdict and/or
for a new trial was rejected. Grumman has appealed and on December 8,
1993, the appeal was argued to the United States First Circuit Court
of Appeals. The appeal remains undecided. The company will not
recognize the award in its financial statements until it is received
or assured. The company has deferred legal costs incurred subsequent
to the jury verdict in order to match these costs with the award when
recognized.
Item 4. Submission of Matters to a Vote of Security-Holders
(a) The Annual Meeting of Stockholders of Data General
Corporation was held January 26, 1994.
(b) During the meeting, stockholders elected the following as
directors of Data General:
Frederick R. Adler
Ferdinand Colloredo-Mansfeld
John G. McElwee
Ronald L. Skates
Donald H. Trautlein
The directors were elected by the following voting breakdowns:
Director Votes For Votes Withheld
Adler 28,641,442 478,987
Colloredo-Mansfeld 28,656,887 463,542
McElwee 28,638,678 481,751
Skates 28,654,661 465,768
Trautlein 28,641,721 478,708
(c) By 26,992,438 affirmative votes, with 5,476,423 voted for by
proxies of unmarked proxy cards, (1,398,271 against and
729,720 abstained), the stockholders approved a proposal to
increase the number of shares of common stock that may be
issued through the Employee Qualified Stock Purchase Plan to
8,600,000 shares from 6,600,000 shares.
(d) By 25,064,119 affirmative votes, with 5,476,423 voted for by
proxies of unmarked proxy cards, (3,200,898 against and
855,412 abstained), the stockholders approved a proposal to
adopt the 1994 Non-Employee Director Stock Option Plan which
grants the option to purchase shares of Common Stock of the
company to each non-employee director.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
11. Computation of primary and fully diluted earnings per share.
20. Second Quarter 1994 Interim Report of Data General Corpora-
tion.
(b) No reports on Form 8-K were filed during the current quarter
ended March 26, 1994.
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.
DATA GENERAL CORPORATION
(Registrant)
/s/ Arthur W. DeMelle
Arthur W. DeMelle
Vice President
Chief Financial Officer
Chief Accounting Officer
Dated: May 4, 1994
EXHIBITS
Index to Exhibits.
11. Computation of primary and fully diluted earnings per share.
20. Second Quarter 1994 Interim Report of Data General Corporation.
EXHIBIT 11
DATA GENERAL CORPORATION
COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
(Unaudited)
(In thousands except per share amounts)
Quarter Ended Six Months Ended
March 26, March 27, March 26, March 27,
1994 1993 1994 1993
Primary earnings per share:
Net loss. . . . . . . . . . . . $(47,989) $(7,581) $(69,080) $(6,822)
Weighted average shares
outstanding . . . . . . . . . 35,649 34,302 35,491 34,028
Incremental shares from use of
treasury stock method for stock
options . . . . . . . . . . . -- -- -- 817
Common and common equivalent
shares, where applicable. . . 35,649 34,302 35,491 34,845
Net loss per share. . . . . . . $(1.35) $(0.22) $(1.95) $(0.20)
Earnings per share assuming full
dilution:(a)
Net loss . . . . . . . . . . . $(47,989) $(7,581) $(69,080) $(6,822)
Weighted average shares
outstanding . . . . . . . . . 35,649 34,302 35,491 34,028
Incremental shares from use of
treasury stock method for stock
options . . . . . . . . . . . -- -- -- 817
Common and common equivalent
shares assuming full dilution 35,649 34,302 35,491 34,845
Net loss per share. . . . . . . $(1.35) $(0.22) $(1.95) $(0.20)
(a) For the quarters and six-month periods ended March 26, 1994 and March 27,
1993, the assumed conversion of convertible debentures, giving effect to the
incremental shares and the adjustment to reduce interest expense, was anti-
dilutive and has therefore been excluded from the computation.
TO OUR STOCKHOLDERS, CUSTOMERS AND EMPLOYEES:
CUSTOMERS AND EMPLOYEES:
Data General reported a net loss of $48.0 million, or $1.35 per share,
including a restructuring charge of $35.0 million, for its second quarter of
fiscal 1994, which ended March 26, 1994. For the second quarter last year, the
company reported a net loss of $7.6 million, or $.22 per share.
Revenues for the second quarter were $282.9 million, an increase of 8.0
percent over the first fiscal quarter. For the comparable quarter last year
the company reported revenues of $267.4 million.
We are encouraged that our total revenues increased year over year as well
as compared to the prior quarter. Our AViiON(R) product line provided strong
revenue growth. Additionally, in Europe, while certain geographies continue to
be under severe economic and competitive pressure, total revenues recovered
somewhat from the disappointing levels of the first quarter. We are also now
starting to see a solid and growing revenue contribution from our CLARiiON(TM)
storage line.
Revenues from sales of our proprietary systems represented just 14 percent
of our total product revenues during the quarter. During the same quarter a
year ago, revenues from the sales of proprietary systems were 29 percent of
total product revenues. While we have made significant progress toward becoming
a supplier of open systems products and services, we continue to have a cost
structure that is out of line with an open systems business model.
We have, therefore, identified additional cost reduction steps which
include further worldwide workforce reductions. Assuming we can continue to
grow revenues, the cost actions we have initiated will help us achieve our
objective of returning to profitability.
We expect that by the end of the fiscal 1994 the number of employees will
be between 5,500 and 5,700. At the beginning of fiscal 1994, the number was
6,550.
We continue to focus on balance sheet management. Data General's financial
position remains strong with cash and marketable securities of $190.2 million at
the end of the second quarter, an increase of $22.2 million from the first
quarter.
We are pleased with the recognition and acceptance that our AViiON family
continues to receive. AViiON received another honor recently when the product
line was rated number one in customer satisfaction for the second consecutive
year in a survey of RISC-based server users conducted by Computerworld, a
leading industry publication.
Approximately 75 percent of AViiON revenues during the quarter were
produced by the newest generation of systems, particularly our high-end AV 9500
and AV 8500 systems. We expect that percentage will increase this quarter as
we begin shipping our most powerful AViiON, the 16-processor AV 9500.
In just five years, the company has established an installed base of 25,000
AViiON systems, with a total value of about $1.25 billion.
During the quarter, we strengthened the AViiON line with the announcement of a
new clustered capability, AV Clusters, that allows 24-hours-per day, 365-days-
per year access to data. We call this Global Availability.
In addition, our CLARiiON Business Unit announced several new reseller
agreements during the quarter, including stategic partnerships with Memorex
Telex N.V. and Amdahl Corporation, for CLARiiON storage systems. The Memorex
agreement extends CLARiiON's market penetration into the IBM AS/400 customer
base while the Amdahl agreement expands CLARiiON's position in the Sun
Microsystem SPARCserver marketplace. We also extended the CLARiiON line to
support both NT and Netware-based servers. CLARiiON can now support the
industry's broadest range of systems, from networked PCs to mainframes.
For the first six months of fiscal 1994, Data General reported a net loss
of $69.1 million, or $1.95 per share, including the restructuring charge. For
the same period last year, the company reported a net loss of $6.8 million, or
$.20 per share.
Revenues for the first two quarters of 1994 totaled $544.1 million,
essentially the same as the comparable period last year.
The revenue improvement during the second quarter reinforces our belief in
our product and marketing strategy. We are cautious for the short-term,
particularly as the third quarter has traditionally been a weak quarter for us.
But looking beyond that, our proven ability to grow revenues with world-class
products and services for the open system market, together with aggressive
management of our cost structure, should result in meeting our objective of
returning to profitability.
Respectfully submitted,
(signature)
Ronald L. Skates
President and Chief Executive Officer
May 2, 1994
DATA GENERAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Quarter Ended Six Months Ended
in thousands, except Mar. 26, Mar. 27, Mar. 26, Mar. 27,
net loss per share 1994 1993 1994 1993
Revenues:
Product . . . . . . . . . . . . $184,335 $167,341 $348,032 $342,990
Service . . . . . . . . . . . . 98,592 100,117 196,122 204,108
Total revenues. . . . . . . . 282,927 267,458 544,154 547,098
Costs and expenses:
Cost of product revenues. . . . 122,814 102,238 234,417 205,979
Cost of service revenues. . . . 62,970 58,126 120,526 117,734
Research and development. . . . 22,720 25,941 46,236 51,853
Selling, general, and
administrative . . . . . . . . 87,037 85,847 174,060 172,073
Restructure charge. . . . . . . 35,000 -- 35,000 --
Total costs and expenses. . . 330,541 272,152 610,239 547,639
Loss from operations. . . . . . . (47,614) (4,694) (66,085) (541)
Interest income . . . . . . . . . 1,317 2,126 2,771 4,298
Interest expense. . . . . . . . . 3,545 3,613 7,019 7,379
Other income. . . . . . . . . . . 2,353 -- 2,353 --
Loss before income taxes. . . . . (47,489) (6,181) (67,980) (3,622)
Income tax provision. . . . . . . 500 1,400 1,100 3,200
Net loss. . . . . . . . . . . . . $(47,989) $ (7,581) $(69,080) $ (6,822)
Net loss per share. . . . . . . . $(1.35) $(0.22) $(1.95) $(0.20)
Weighted average shares outstand-
ing, including common stock
equivalents where applicable. . 35,649 34,302 35,491 34,845
No cash dividends have been declared or paid since inception.
The accompanying Notes to Condensed Consolidated Financial Statements are
an integral part of these financial statements.
DATA GENERAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
Mar. 26, Sept. 25,
dollars in thousands 1994 1993
Assets
Current assets:
Cash and temporary cash investments . . . . . . . . . . $128,781 $119,560
Marketable securities . . . . . . . . . . . . . . . . . 61,385 72,395
Receivables, net. . . . . . . . . . . . . . . . . . . . 269,867 285,481
Inventories . . . . . . . . . . . . . . . . . . . . . . 110,014 101,827
Other current assets. . . . . . . . . . . . . . . . . . 35,320 32,397
Total current assets. . . . . . . . . . . . . . . . . 605,367 611,660
Property, plant, and equipment, net . . . . . . . . . . . 175,859 177,551
Other assets. . . . . . . . . . . . . . . . . . . . . . . 73,482 77,118
$854,708 $866,329
Liabilities and stockholders' equity
Current liabilities:
Notes payable . . . . . . . . . . . . . . . . . . . . . $ 2,272 $ 2,267
Accounts payable. . . . . . . . . . . . . . . . . . . . 109,042 85,571
Other current liabilities . . . . . . . . . . . . . . . 239,945 215,070
Total current liabilities . . . . . . . . . . . . . . 351,259 302,908
Long-term debt. . . . . . . . . . . . . . . . . . . . . . 158,357 158,352
Other liabilities . . . . . . . . . . . . . . . . . . . . 32,141 27,992
Stockholders' equity:
Common stock:
Outstanding -- 35,869,000 shares at Mar. 26, 1994
and 35,267,000 shares at Sept. 25, 1993 (net of
deferred compensation of $10,634 at Mar. 26, 1994
and $11,619 at Sept. 25, 1993). . . . . . . . . . . . 428,793 422,589
Accumulated deficit . . . . . . . . . . . . . . . . . . (98,310) (29,230)
Cumulative translation adjustment . . . . . . . . . . . (17,532) (16,282)
Total stockholders' equity. . . . . . . . . . . . . . 312,951 377,077
$854,708 $866,329
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these financial statements.
DATA GENERAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
Mar. 26, Mar. 27,
in thousands 1994 1993
Cash flows from operating activities:
Net loss. . . . . . . . . . . . . . . . . . . . . . . .$(69,080) $ (6,822)
Adjustments to reconcile net loss to
net cash provided from (used by) operating activities:
Depreciation. . . . . . . . . . . . . . . . . . . . . 40,252 41,725
Amortization of capitalized software development costs 8,959 7,892
Other non-cash items, net . . . . . . . . . . . . . . 17,004 17,866
Change in operating assets and liabilities. . . . . . 51,546 (18,951)
Net cash provided from operating activities . . . . . 48,681 41,710
Cash flows from investing activities:
Expenditures for property, plant, and equipment . . . . (47,714) (51,195)
Net proceeds from (purchases of) marketable securities. 11,010 (5,897)
Capitalized software development costs. . . . . . . . . (9,000) (10,658)
Net proceeds from (purchases of) investments. . . . . . 3,793 --
Net cash used by investing activities . . . . . . . . (41,911) (67,750)
Cash flows from financing activities:
Cash provided from stock plans. . . . . . . . . . . . . 3,629 5,845
Increase in notes payable . . . . . . . . . . . . . . . -- 47
Repayment of long-term debt . . . . . . . . . . . . . . (1,234) --
Net cash provided from financing activities . . . . . 2,395 5,892
Effect of foreign currency rate fluctuations
on cash and temporary cash investments. . . . . . . . . 56 (5,824)
Increase (decrease) in cash and
temporary cash investments. . . . . . . . . . . . . . . 9,221 (25,972)
Cash and temporary cash investments - beginning of period 119,560 139,445
Cash and temporary cash investments - end of period . . .$128,781 $113,473
Supplemental disclosure of cash flow information:
Interest paid . . . . . . . . . . . . . . . . . . . . .$ 6,513 $ 6,615
Income taxes paid . . . . . . . . . . . . . . . . . . .$ 1,232 $ 1,501
Certain prior year amounts have been reclassified to conform to current year
presentation.
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these financial statements.
DATA GENERAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Consolidated Balance Sheet Details
Mar. 26, Sept. 25,
in thousands 1994 1993
Inventories:
Raw materials . . . . . . . . . . . . . . . . . . . . . $ 8,084 $ 6,665
Work in process . . . . . . . . . . . . . . . . . . . . 31,408 27,778
Finished systems. . . . . . . . . . . . . . . . . . . . 33,995 31,566
Field engineering parts and components. . . . . . . . . 36,527 35,818
$110,014 $101,827
Property, plant, and equipment:
Property, plant, and equipment. . . . . . . . . . . . . $674,445 $659,439
Accumulated depreciation. . . . . . . . . . . . . . . . (498,586) (481,888)
$175,859 $177,551
Note 2. Restructuring
Loss from operations for the current quarter includes a $35 million
provision for estimated expenses resulting from costs associated with a
worldwide workforce reduction and the writedown of net book value of fixed
assets resulting from the consolidation of certain activities in the European
marketplace. The provision relating to the workforce reduction is primarily for
salary and benefit continuation and outplacement service.
Note 3. Income Taxes
In the first quarter of fiscal 1994, the company adopted Statement of
Financial Accounting Standards ("SFAS") 109, "Accounting for Income Taxes".
SFAS 109 is an asset and liability approach that requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences
of events that have been recognized in the company's financial statements or
tax returns. In estimating future tax consequences, SFAS 109 generally
considers all expected future events other than enactments of changes in the
tax law or rates. Previously, the company used the SFAS 96 asset and
liability approach that gave no recognition to future events other than the
recovery of assets and settlement of liabilities at their carrying amounts.
The implementation of SFAS 109 did not have a material effect on either the
company's consolidated financial position or results of operations. The
company has a valuation allowance which offsets, in all material respects,
gross deferred tax assets existing as of March 26, 1994.
Note 4. Litigation
In a previously reported action, in the U.S. District Court for the District
of Massachusetts, a jury, on January 28, 1993, awarded the company $52.3
million in damages and related interest from Grumman Systems Support
Corporation ("Grumman") for infringing the company's copyrights and
misappropriating trade secrets relating to the company's proprietary MV/ADEX
diagnostic software. The award includes approximately $15.9 million in
pre-judgment interest. On May 13, 1993, Grumman's motion for judgment
notwithstanding the verdict and/or for a new trial was rejected. Grumman has
appealed and on December 8, 1993, argued its case to the United States
First Circuit Court of Appeals. The company will not recognize the award in
its financial statements until it is received or assured. The company has
deferred legal costs incurred subsequent to the jury verdict in order to match
these costs with the award when recognized.
Note 5. Basis of Presentation
In the opinion of management, the accompanying unaudited condensed consol-
idated financial statements reflect all adjustments, consisting of normal re-
curring accruals, considered necessary for a fair presentation. The company's
accounting policies are described in the Notes to Consolidated Financial
Statements in the company's 1993 Annual Report. The results of operations for
the quarter ended March 26, 1994, are not necessarily indicative of the
results for the entire fiscal year.
