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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended September 28, 1996
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from
_______________________ to __________________________
Commission File Number 1-7352
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Data General Corporation
(Exact name of registrant as specified in its charter)
Delaware 04-2436397
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
4400 Computer Drive, Westboro, Massachusetts 01580
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (508) 898-5000
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $.01 New York Stock Exchange
London Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
London Stock Exchange
7-3/4% Convertible Subordinated New York Stock Exchange
Debentures Due 2001
8-3/8% Sinking Fund Debentures Due 2002 New York Stock Exchange
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(Title of each class) (Name of each exchange on which
registered)
Securities registered pursuant to Section 12(g) of the Act: None
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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 shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes ____X___ No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [X].
Aggregate market value of common stock held by non-affiliates of the
registrant, as of December 2, 1996: $600,917,294
Number of shares outstanding of each of the registrant's classes of common
stock, as of December 2, 1996:
Common Stock, par value $.01 39,730,000
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(Title of each class) (Number of shares)
Documents incorporated by reference:
Parts I and II - Portions of registrant's Annual Report to Stockholders
for the year ended September 28, 1996.
Part III - Portions of registrant's Proxy Statement dated December 18, 1996.
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<PAGE>
AViiON, CLARiiON, DASHER, DESKTOP GENERATION, DG/UX, ECLIPSE, microNOVA, NOVA
and WALKABOUT are registered trademarks, DG/ViiSION, NUMALiiNE, THiiN Line and
DataGenie are trademarks, and VALLiiANT is a service mark of Data General
Corporation.
All other brand and product names appearing in this publication are trademarks
or registered trademarks of their respective holders.
<PAGE>
PART I
Item 1. Business.
Data General Corporation, incorporated in Delaware on April 15, 1968,
develops and sells leading-edge computer systems and related technologies. The
company's range of products and services includes multi-user computer systems;
database servers; communications and networking servers; mass storage systems;
workstations, desktop and portable systems; more than 15,000 application
solutions offered in conjunction with various third-party firms; and a worldwide
service and support network. As used herein, the terms "Data General" and the
"company" mean Data General Corporation, and, unless otherwise indicated, its
consolidated subsidiaries.
Data General products are used for virtually all types of information
processing applications, including database management, integrated information
processing, distributed data processing, document imaging, office automation,
transaction processing, communications, decision support, accounting and
finance, health care information systems, manufacturing planning and control,
human resources management, data warehousing, educational administration,
testing, process control, and environmental monitoring. Other areas of use
include computer aided engineering, scientific and laboratory research, medical
instrumentation and imaging, signal analysis, data acquisition, instrumentation,
monitoring, and control. The company's products are used in stand-alone
applications and in networks.
During the last decade, advances in microprocessor technology and the
increasing availability of standards-based hardware and software have opened new
markets for Data General products. These trends resulted in the introduction of
networked computer systems, consisting of servers hosting PCs, terminals and
other workstations. This computing architecture offers customers significant
price/performance advantages over systems based on earlier architectures. In
response to these trends, Data General developed the AViiON(R) open family of
servers and the CLARiiON(R) family of storage systems. AViiON servers and
CLARiiON storage products now form the core of Data General's computing
business.
The AViiON family of computer systems includes two series: the newest
series of AViiON servers, introduced in 1995, based on Intel technology; and an
earlier series, available since 1989, based on Reduced Instruction Set Computing
(RISC) microprocessors from Motorola. Intel technology based AViiON servers run
the Microsoft Windows NT Server operating system; the DG/UX(TM) operating
system, Data General's commercial implementation of the standard UNIX operating
system; the SCO UnixWare System; and also run various other open operating
systems. Motorola based AViiON servers run primarily the DG/UX operating system.
In fiscal 1996, revenues from the AViiON family were approximately $460 million.
Since AViiON shipments began in fiscal 1989, AViiON has progressed through
several product generations and now has an installed base of nearly 38,000
systems.
The company's CLARiiON mass storage devices are open systems disk arrays
and other storage products for computers that run the UNIX operating system,
Windows NT Server, and selected other operating systems. In 1991, Data General
introduced its first RAID (Redundant Arrays of Inexpensive Disks) storage
systems for AViiON servers. In 1992, the company expanded that product family,
established the CLARiiON brandname, and made CLARiiON available for use on other
computer systems. CLARiiON now supports a wide range of open systems computing
platforms with a broad family of storage products ranging from disk arrays for
the PC/local area network (LAN) market, to high-capacity, high-availability
arrays for enterprise storage applications.
<PAGE>
"Open CLARiiON" products are available for use with systems from IBM,
Digital Equipment Corporation, Sun Microsystems, Hewlett-Packard Company,
Sequent Computer Systems, Inc. and Silicon Graphics, Inc., as well as with
systems running Novell NetWare, NT, OS/2, and SCO UNIX. Open CLARiiON products
are sold through systems integrators and distributors. However, the majority of
CLARiiON revenues are derived through OEM (Original Equipment Manufacturer)
relationships with major systems vendors and storage suppliers.
In 1995, the company outlined its technology direction for providing
high-performance systems based on Intel processors, Standard High Volume (SHV)
servers and Cache Coherent Non-Uniform Memory Access (ccNUMA) architecture. The
Intel-based AViiON computers began shipping in volume at the start of fiscal
1996. Data General is continuing to develop systems based on the NUMA
architecture. This class of product will constitute a major extension of the
high end of the AViiON product line and will enable customers to capitalize on
their existing investments in applications written for SMP (symmetric
multiprocessing) systems. Just as with the CLARiiON storage systems, the company
intends that NUMA systems will also be sold through OEM relationships. The
company formed the NUMALiiNE(TM) Business Unit in fiscal 1996 to take advantage
of the NUMA OEM business opportunity.
In June 1996, Data General announced that it was developing a new family of
products for the Internet. The implementation of Internet technology within
companies and organizations has become known as the "Intranet." While Intranets
are following the client/server model that will continue to leverage traditional
data processing systems including AViiON servers and CLARiiON storage systems,
the Internet is defining a new form of computing driven by information access.
Since storage and retrieval are the key tasks in Internet-driven computing, the
traditional data processing architecture is not required. New products have
already emerged, including "network computers" or "thin clients" dedicated to
viewing information. Data General envisions the need for "network attached
storage" dedicated to making information available at high speeds, and "thin
servers" dedicated to managing groups of thin clients in offices, homes,
classrooms, or anywhere groups of people need access to the Internet. To pursue
this opportunity, Data General formed the THiiN(TM) Line Business Unit in 1996.
It is anticipated that THiiN Line products will be brought to market in fiscal
1997 and will be sold mainly through alternative channels.
Data General also has formed the VALiiANT(SM) Business Unit, a contract
manufacturing operation, to take advantage of the company's world class
manufacturing expertise and facilities. Data General was the first U.S. computer
company to have its worldwide manufacturing operations gain ISO 9000
certification. By leveraging its existing manufacturing facilities, the company
believes VALiiANT provides Data General with an opportunity to realize
incremental revenues and profits.
Products and Services.
More than 88 percent of Data General's fiscal 1996 product revenues were
generated from the sale of AViiON servers and CLARiiON storage products. The
balance of the company's product revenues are derived from personal computers
and from a variety of older products which Data General continues to sell and
support based on customer demand. These products include: 32-bit ECLIPSE(R) MV
family systems; 16-bit ECLIPSE systems; DG/ViiSION(TM) personal computers;
DASHER(R) family personal computers; WALKABOUT(R) notebook computer systems;
DESKTOP GENERATION(R) systems; NOVA(R) systems; and microNOVA(R) microproducts.
<PAGE>
AViiON computers function as servers or as multi-user systems for a wide
range of applications, from departmental and reseller solutions, to large
commercial enterprises that need high availability systems to support large
numbers of users, handle large volumes of transactions, and support large
databases.
The Intel-based AViiON product family includes systems based on Pentium Pro
processors: the AV 4900 and AV 5900 enterprise servers; and the AV 3600, a
high-end departmental and PC server that also functions as an enterprise server.
The company also offers systems based on Pentium processors: the AV 2000 and AV
3000 deskside servers, and the AV 4800, and AV 5800 enterprise servers. The
company's enterprise servers combine high performance with extensive
reliability, availability and serviceability features typically found only on
larger computers. Together with a highly scaleable and expandable design that
leverages industry technology trends, these features make AViiON servers highly
suitable platforms for business-critical commercial applications. The AV 2000
and AV 3000 are competitively priced deskside servers that are ideal for
reseller applications as well as for use in departmental applications.
The earlier Motorola-based AViiON product family ranges from
high-performance, general-purpose systems and servers to entry-level
workstations. The AV 10000 includes up to 32 processors and employs NUMA
architecture features. AViiON AV 9500 servers include models with up to 16
processors. The AV 8500 server series is a mid-range line which offers from two-
to eight-processor systems. These office-package systems can be used to
integrate networks of personal computers, providing users with services like
communications, resource sharing, office and imaging applications, and
databases. The AV 5500 and AV 4500 systems are flexible and expandable
enterprise servers in deskside packaging. The AV 450 and AV 550 workstations are
designed for commercial applications, such as geographical information systems
and software development.
Intel processor-based AViiON servers run the Microsoft Windows NT Server
operating system, SCO UnixWare, and the company's DG/UX operating system. DG/UX,
Data General's version of the UNIX operating system, runs on all AViiON servers.
DG/UX is a sophisticated, commercial implementation of the UNIX System V Release
4 operating system. Data General has been enhancing DG/UX for over a decade to
provide a state-of-the-art platform for running core business applications.
DG/UX provides a robust file system, open connectivity, comprehensive systems
and storage management, standards compliance, and high levels of applications
scalability. DG/UX allows the clustering of AViiON systems enabling resource
sharing, higher levels of availability, and easier system administration. DG/UX
is also the first UNIX based operating system capable of meeting federal B2
level security requirements, the most demanding security within the
military/intelligence community. Data General also makes this capability
available for security conscious commercial customers.
The CLARiiON family of mass storage subsystems is based on Redundant Array
of Inexpensive Disk (RAID) technology, providing an architecture that speeds
access to data while safeguarding it. Individual CLARiiON chassis can
accommodate different numbers of disk drives, each SCSI disk drive having a
capacity up to 9.0 GB (billions of characters). Higher capacity disk drives can
be accommodated as they become available in the marketplace. Multiple CLARiiON
chassis can be combined in rackmount and multiple rackmount configurations to
achieve projected data storage of several terabytes. The drives are combined
with an intelligent I/O processor, which manages the array subsystem's
operations, and cache which provides improved performance. By utilizing RAID
technology, a portion of CLARiiON's disk resources is dedicated to data
redundancy. While individual drives may fail occasionally, the array system
remains operational and access to data continues, while the failed disk is
repaired or replaced. CLARiiON subsystems can be repaired while under power.
Each disk module comes in a specially designed carrier that can be removed from
its array group without disturbing data access.
ECLIPSE MV systems are 32-bit computers using custom-designed VLSI (very
large scale integration) chips which utilize a more powerful instruction set
than earlier 16-bit ECLIPSE and NOVA systems, enabling the execution of most
programs that operate on the earlier systems.
<PAGE>
All of the company's computer systems differ in speed, memory, and storage
capacity; are available with certain processor features; and are available with
a number of subassembly slots that may be used to accommodate peripheral
controllers.
Data General also sells a wide variety of peripheral equipment for use with
its computers. Peripheral equipment sold by the company includes video display
terminals, printers, plotters, communication controllers, multiplexors, disk
storage, memory, magnetic tape equipment, analog-to-digital converters and
digital-to-analog converters. The company also manufactures peripheral
controller subassemblies and related electronics for connecting its computers to
standard data communication equipment and computer systems manufactured by
others. Data General also designs and manufactures peripheral controller
subassemblies for use with electromechanical peripheral equipment it purchases
from third parties.
The company has developed and offers an extensive library of systems
software products for use with its computer systems, including database
management and communications software for industry-standard mainframe
protocols. This library includes operating systems with compilers, assemblers,
and general utility programs. The company's operating systems provide
compatibility throughout the company's product families.
Data General also offers its customers a wide range of applications
software solutions for both open and traditional systems. The company's
relationships with systems integrators, software suppliers, and
industry-specific Value Added Resellers (VARs) provide a growing presence
worldwide in many specialized markets. The company's Intel-based AViiON systems
are capable of running more than 15,000 applications from leading suppliers of
databases, languages, office automation and industry application packages. This
collection of software includes many products which can be used by customers who
are migrating data processing or data management tasks from mainframe computers.
To meet the specific market requirements, the company works with more than 1,000
VARs and distributors worldwide.
Data General's communications architecture is based upon the implementation
of both international and de facto standards in the data communications and
networking field. Data General now supports de facto standards such as TCP/IP
(Transmission Control Protocol/Internet Protocol), SNA (IBM's Systems Network
Architecture), Novell IPX/SPX, DECnet, AppleTalk, Async, and Bisync protocols,
among others. Formal standards support includes OSI (Open Systems
Interconnection), GOSIP (Government Open Systems Interconnection Profile), ISDN
(Integrated Services Digital Network), CMIP/CMIS for network management, and
numerous others. Data General is able to integrate mainframes, minicomputers and
various desktops (UNIX workstations, Macintosh, R , Async terminals,
X-terminals, Windows and DOS PCs) using a wide range of communications products
and services. Data General can help customers integrate their filing systems
(Novell, LAN Manager, NFS(R)), take advantage of UNIX print services, run UNIX
applications and unify their offices using network products such as mail,
electronic data interchange, and the like. Further, customers can create
cooperative program environments (client/server) through the use of various open
communications interfaces provided by Data General such as API LU 6.2, 0, 1, 2,
3, (for IBM environments), SPX for Novell, and TLI (for TCP/IP, OSI, and LAN
Manager environments). This set of communications capabilities enables Data
General systems to be incorporated in a variety of networks that include systems
and equipment manufactured by the company and by many other vendors.
The total purchase price of any computer system varies depending upon the
processing power, size of main memory and storage capacity, and upon the types
and quantities of accessory, peripheral controller subassembly, and peripheral
equipment ordered. Prices of the company's various products range from less than
$500 to over $1,000,000. Dollar volume discounts are offered on most products
sold by the company. New products and revisions to existing products have
resulted in improved price/performance ratios.
The company extends a limited service and/or parts warranty on
substantially all equipment sold and offers several types of maintenance
services and contracts at additional charges. Warranty and other maintenance
services are generally performed by service employees located in various offices
throughout the world. The company offers a mail-in parts exchange and repair
service and a cooperative maintenance program for qualified organizations, VARs,
and other customers capable of performing maintenance services. The cooperative
program includes spare parts, back-up support, depot service, diagnostics,
training, documentation, tools and test equipment, and service planning and
support. Data General supports thousands of products made by other vendors. The
company also offers an On-line Information Service, which provides customers
with immediate access to support information and personnel.
The company provides various services related to the installation and
operation of its computer systems and software. Systems engineers provide
systems and software installation support. The company's Professional Services
organization provides a broad array of systems design, applications development
and consulting services. The Special Systems group designs custom hardware
products under contract to individual customers. Customer training related to
systems and software sold by the company is provided at company training
facilities in various locations throughout the world or at the customer's own
facilities.
For the fiscal year ended September 28, 1996, product revenues were 70% of
consolidated total revenues and service revenues were 30% of consolidated total
revenues, and for the fiscal years ended September 30, 1995, and September 24,
1994, product revenues were 65% of consolidated total revenues and service
revenues were 35% of consolidated total revenues.
Marketing and Distribution.
The company uses multiple channels of distribution to sell its products.
Sales representatives in company offices, located throughout the world, sell
products mainly to large organizations, many of which are new accounts. A mass
merchandising organization, called "Data General Plus", is primarily responsible
for meeting the needs of existing customers with a product range including
replacement systems, system upgrades and a full range of supplies and
accessories sold through catalogs. The company also sells refurbished Data
General equipment.
Data General uses several third-party distribution channels, including
OEMs, VARs, and distributors. OEMs include companies that incorporate Data
General computers and CLARiiON storage systems into their product lines for
resale to the end user. VARs add applications software to the computer systems
purchased from the company before reselling them, and may provide assistance in
installing and maintaining the systems. Distributors meet customer needs by
stocking Data General products, including systems, servers, workstations,
personal computers and storage systems products for immediate off-the-shelf
delivery.
The company provides lease financing through various leasing and financing
programs arranged with third parties. Data General Leasing provides flexible
financing programs for all Data General products, as well as third party
hardware, software and services. These programs are available worldwide for
resellers, distributors and end users.
<PAGE>
The largest single customer during fiscal 1996 was Hewlett-Packard Company
which purchases CLARiiON storage systems for resale to its customers.
Hewlett-Packard Company accounted for 15% of consolidated total revenues in
fiscal 1996. The company did not have any other customers with revenues
exceeding 10% of the company's consolidated total revenues during fiscal 1996.
The company's business is not subject to any unusual seasonal fluctuations.
The company generally attempts to minimize the time from receipt of a
customer's order to shipment and virtually no orders are booked with shipment
dates in excess of one year from the date of order. As the company's product mix
shifts more towards industry-standard systems, it is anticipated that the
average time from order date to shipment date will further decrease. In
addition, a substantial portion of the orders received by the company are
subject to cancellation without significant penalty, at the option of the
customer, at any time prior to shipment. Therefore, the company believes that
disclosure of its backlog would not contribute to an understanding of the
company's business.
Organization and Structure.
The company's Worldwide Sales and Marketing operations are responsible for
direct sales, mass merchandising, reseller channels, and related marketing
activities. Sales divisions are structured to cover the following major
geographic areas: the United States, Canada, Latin America, Europe, and
Asia/Pacific. Worldwide Channel Sales is responsible for developing and
maintaining sales alliances with value-added resellers, independent software
vendors, and distributors, and for the Data General Plus sales activities in the
U.S. which support sales to the installed base of customers. The Worldwide
Healthcare Division is responsible for sales and marketing activities in the
healthcare market. The company's corporate marketing activities are focused
primarily on the AViiON family of computer systems and related software
solutions, and on specific market opportunities, such as Windows NT Server,
Secure Internet Servers, and PICK/UNIX-based systems.
The CLARiiON Business Unit is responsible for development of the company's
CLARiiON family of open mass storage products, and for developing channels and
partnerships for sales of Open CLARiiON.
The NUMALiiNE Business Unit was formed in fiscal 1996 to build OEM
relationships and take advantage of the market opportunity for systems based on
the NUMA architecture.
The THiiN Line Business Unit was formed in fiscal 1996 to develop and
market Internet appliances, including thin servers, network attached storage,
and information servers.
The Services organization encompasses Customer Service (field engineering
and other technical services) and Professional Services including Educational
Services, which provides customers worldwide with complete services to design,
implement, and support commercial computing environments.
Manufacturing and Corporate Quality is responsible for producing Data
General systems; for procuring associated components, subassemblies,
peripherals, and various other products which are incorporated into Data General
systems or sold under the Data General label; for the operation of the VALiiANT
contract manufacturing business unit; and for overall corporate quality
assurance.
The Finance organization includes the Controller, the Treasurer,
Information Management, Legal, Investor Relations, Property Management, and
Human Resources functions.
<PAGE>
Raw Materials.
Data General's manufacturing operations employ a wide variety of mechanical
and electronic components, raw materials and other supplies. In the design of
its products, the company routinely attempts to utilize multiple-sourced
components. However, in some instances, the company selectively uses
sole-sourced components, such as custom microprocessors and gate arrays, in
order to achieve desired system performance. These components are typically
based on the manufacturer's proprietary underlying process technology. In many
cases, the manufacturers will execute crosslicense agreements with other
manufacturers, and it may be possible for Data General to access such technology
through crosslicense agreements. However, it has been the company's experience
to date that the investment necessary to execute such crosslicense agreements
and to re-engineer the component is not warranted.
In a few instances, the company is dependent upon certain vendors for the
manufacture of significant components of its server and mass storage systems. If
these vendors were to become unwilling or unable to continue to manufacture
these products in required volumes, the company would have to identify and
qualify acceptable alternative vendors. The inability to develop alternate
sources, if required in the future, could result in delays or reductions in
product shipments. With respect to sole-sourced materials, the company has not
experienced any problems relative to the timeliness of product availability or
quality matters. To protect against such problems, however, the company has
generally implemented special inventory plans for these components. These plans
are designed to ensure that, if the sole-sourced supplier were unable to meet
the company's requirements, there would be sufficient inventory available to
cover the time required to re-engineer the product or develop an alternative
source of supply.
Patents.
In November, 1994 and in May, 1996, the company commenced patent
infringement litigation against International Business Machines Corporation
charging infringement of certain of the company's patents (See "Item 3. Legal
Proceedings", below). Although the company believes its claims are valid, it
cannot predict the outcome of the litigation. Should the company prevail in the
litigation, such patents could play a significant role in the conduct of its
business and accordingly would be material. The company believes that most of
its remaining patents do not presently play a significant role in the conduct of
its business or in its industry in general and most patents, granted or which
may be granted to it, while anticipated to be of value, are not expected to be
of material significance. The company also owns certain copyrights, trademarks
and proprietary information.
From time to time, companies in the industry have claimed that products and
components similar to those manufactured by the company are covered by valid
patents held by others. It may be necessary or desirable to obtain further
patent licenses in addition to those which the company now holds. Although there
is no assurance that such additional patent licenses could be obtained, the
company is of the opinion, based on industry practice and information presently
available, that such licenses could be obtained and on terms which would not
have a material effect on the company's consolidated financial position or
results of operations.
<PAGE>
Competition.
The computer industry has been characterized by rapid technological change,
product improvement, and price reductions. During fiscal 1996, the company
experienced revenue growth in the U.S., Europe, and from other international
geographies. Product revenues increased 22%, driven by strong growth in the Open
CLARiiON line of mass storage devices, and renewed growth in AViiON servers. The
company believes that the transition to Intel-based AViiON servers is
progressing smoothly. Data General's future may be adversely affected by new
technology developed by others or by price reductions initiated by competitors.
Some of the company's competitors are larger companies and have substantially
greater resources than the company. The company also competes with a number of
smaller manufacturers. The company believes that it is a significant
manufacturer of multi-user computer systems, servers, and mass storage devices
for commercial applications.
The company's AViiON systems have become increasingly competitive since
they were introduced in fiscal 1989 as more applications were ported to the
platform and new product introductions added to the depth of the product family.
AViiON systems compete favorably with standards-based systems from other
industry-leading vendors based upon a wide range of features and performance;
the ability to run multiple operating systems, including Windows NT Server, the
company's DG/UX operating system, and SCO UnixWare; and the availability of an
extensive range of applications software.
AViiON systems also compete favorably as a result of their ability to
connect with a variety of desktop systems manufactured by the company and by
other vendors. The company's worldwide service and support capability, which
includes service for certain products manufactured by other vendors (such as PCs
and workstations), also enhances the competitive strength of the company's
product families.
The company believes that its CLARiiON product was the first open,
RAID-based mass storage product. This product supports UNIX-based computers from
IBM, Digital Equipment Corporation, Sun Microsystems, Hewlett-Packard Company,
Sequent Computer Systems, Inc. and Silicon Graphics, Inc., as well as with
systems running on Novell NetWare, NT, as well as Data General systems. The
company believes no other vendor is shipping a product that offers the high
availability data access features and performance characteristics of CLARiiON
mass storage arrays.
Research and Development.
The company believes that if it is to compete successfully in the industry
it will require a continuing commitment to research and development. Research
and development expenses were $98.0 million in fiscal 1996, $85.9 million in
fiscal 1995, and $90.8 million in fiscal 1994. Research and development work
contracted to third parties during fiscal 1996 was insignificant. During fiscal
1996, the company focused its research and development efforts on its core
business technology, multi-user computer systems, servers, and mass storage
devices, including related software and services. This includes development work
on systems based on NUMA architecture for future high-end computer systems, and
work on servers and storage systems for future Internet applications.
Continued emphasis on applied research and development programs is
anticipated in order to improve existing products and to expand product line
capabilities. Research and development work is done primarily in the following
areas: general purpose computer systems; open mass storage devices; systems and
applications software; integrated circuit technology; microprocessor design;
network services and products; and contracted special product design.
<PAGE>
Environmental Conditions.
The company's various manufacturing facilities are subject to numerous laws
and regulations designed to protect the environment, particularly from plant
wastes and emissions. In the company's opinion, it is complying with such laws
and regulations. Compliance has not had, and is not expected to have, a material
effect upon the company's capital expenditures, results of operations, or
competitive position.
Employees.
The company had approximately 4,900 employees as of September 28, 1996,
compared with 5,000 employees as of September 30, 1995, and 5,800 employees as
of September 24, 1994. The net decrease in employees resulted from various
restructuring programs undertaken to reduce the company's infrastructure.
Additional information on the company's restructuring programs is included in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 3 of "Notes to Consolidated Financial Statements" in the
company's Annual Report to Stockholders for the fiscal year ended September 28,
1996. The "Management's Discussion and Analysis of Financial Condition and
Results of Operations" has been incorporated by reference into Item 7 of Part II
of this Report. The "Notes to Consolidated Financial Statements" have been
incorporated by reference into Item 8 of Part II of this Report.
The company's employees are not covered under any collective bargaining
agreements, and the company has not experienced any significant labor problems.
The company believes that its relationship with its employees is good.
International Operations.
Foreign business is conducted through company owned subsidiaries and
through a network of representatives and distributors. International revenues,
including U.S. direct export sales, amounted to approximately 40% of
consolidated total revenues in fiscal 1996, and 45% and 44% of consolidated
total revenues in fiscal 1995 and 1994, respectively. The majority of Data
General's international revenues are derived from western Europe, Asia and
Canada. In view of the locations and diversification of its international
activities, the company does not believe that there are any special risks beyond
the normal business risks attendant to activities abroad. The company maintains
a hedging program to minimize its exposure to foreign currency fluctuations.
Additional information relating to the company's international operations,
including financial information by major geographic area, is included in "Note
12. Geographic Segment Data" on page 29 of the company's Annual Report to
Stockholders for the fiscal year ended September 28, 1996.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
Data General desires to take advantage of the new "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995 and is filing this
information in Form 10-K. The company wishes to caution readers that the
following important factors, among others, in some cases have affected, and in
the future could affect, the company's actual results and could cause the
company's actual consolidated results in the future to differ materially from
those expressed in any forward-looking statements made by, or on behalf of, the
company.
<PAGE>
Period to Period Fluctuations. The company's operating results may
fluctuate for a number of reasons. The company has short delivery cycles and as
a result does not a have a large order backlog. This uncertainty is compounded
because each quarter's revenue results predominantly from orders booked and
shipped during the last month of the quarter, often disproportionately in the
latter half of that month. Because the company plans its expenses, many of which
are relatively fixed in the short-term, on the basis that its revenues will
continue to grow, even a relatively small revenue shortfall may cause period
results to be substantially below expectations. Such a revenue shortfall could
arise from any number of factors including lower than expected demand, supply
constraints, delays in the availability of new products, transit interruptions,
overall economic condition or natural disasters.
OEM Inventory Positions. The company has experienced significant growth in
its Open CLARiiON storage business which has become a substantial portion of the
company's product revenues. Open CLARiiON is sold primarily through the
company's Original Equipment Manufacturers ("OEM") and distributor channels;
thus sales in any given period are subject to customer sales cycles and
inventory practices. Due to the fact that Open CLARiiON revenues have been
concentrated in a limited number of customers, changes in OEM inventory levels
and the impact of their sales cycles could have a substantial impact on
operating results for a given period. A single customer during fiscal 1996
accounted for 15% of consolidated revenues.
New Product Development and Marketing. The computer industry is highly
competitive and requires very short time-to-market life-cycles which increase
the complexity and risk of new product development and introduction. Any
difficulties or delays in the development, production, testing or marketing of
products, or the failure of customers to accept these products or technologies
as planned, could materially affect the actual results of the company.
Product Transition. The industry in which the company operates is one of
constantly advancing technology. As new products are developed, some customers
may postpone purchase of products while waiting for new products to be
available. These purchase delays may cause revenues and operating results to be
lower during the period of product transition.
Development and Acceptance of new ccNUMA Architecture. The company is
currently working with Dolphin Interconnect Solutions, Inc. to develop a
standard interconnect technology for large-scale computing. The company is also
working with Intel Corporation to promote the technology, which the company
believes will allow companies throughout the computer industry to link multiple
Intel SHV (Standard High Volume) servers into commercial systems that will
perform at levels beyond current high-performance systems. Any delays or
failures in the development, marketing or acceptance of this new technology
could have a material impact on the expected revenue growth of the company's
AViiON Open systems business.
Software Development. The company continues to make significant investments
in software development efforts to ensure that its products are competitively
positioned in the commercial computer marketplace. The amount of expenditures
that qualify for capitalization under SFAS 86 (Accounting for the Costs of
Computer Software to Be Sold, Leased, or Otherwise Marketed) may vary from
period to period as software projects progress through the development
life-cycle. These variations could impact the operating results in any given
period.
International Operations. Because a significant portion of the company's
revenue is from sales outside of the United States, the company's results could
be negatively affected by such factors as changes in foreign currency exchange
rates (international sales are generally denominated in foreign currencies,
while the company accounts are in U.S. dollars), trade protection measures,
longer accounts receivable patterns, changes in regional or worldwide economic
or political conditions, or natural disasters.
<PAGE>
Suppliers. In a few instances, the company is dependent upon certain
vendors for the manufacture of significant components of its server and mass
storage systems. If these vendors were to become unwilling or unable to continue
to manufacture these products in required volumes, the company would have to
identify and qualify acceptable alternative vendors. The inability to develop
alternate sources, if required in the future, could result in delays or
reductions in product shipments. In addition, the company is part of an industry
that is increasingly reliant upon the timely supply of commodity components
which are integrated with proprietary technologies to create commercial computer
solution products. Any difficulties in obtaining raw materials, supplies, third
party products, and any other items needed for the production of computer and
storage systems could impact the ability of the company to ship its products in
any given period.
Manufacturing Operations. Over the last several years, the company has
consolidated its various manufacturing operations into three facilitates in
Apex, North Carolina; Southboro, Massachusetts; and Manila, Philippines. As a
result of this consolidation, most of the company's assembly, test and systems
integration operations are performed at the Apex facility. The company's ability
to ship products would be adversely affected and operating results would be
materially impacted were the Apex facility not able to operate at required
levels due to a business interruption such as a power failure or natural
disaster.
Legal Proceedings. The costs, settlements and other effects of legal and
administrative cases, proceedings and investigations, claims, by or against Data
General, relating to intellectual property rights and intellectual property
licenses may have an impact upon the operating results of the company.
Competition in the Computer Industry. The computer industry is highly
competitive with rapid technological advances in performance and functionality.
Many of the company's competitors have substantially greater financial,
technical, and marketing resources as well as larger installed customer bases
and a wider range of available software applications. The intense competitive
pressure in the industry could impact pricing, and therefore the operating
results of the company, in any given period.
Item 2. Properties.
The company's executive offices are located in Westboro, Massachusetts.
Manufacturing, research and development, service, marketing, and administrative
support facilities are located in various states and countries throughout the
world. All buildings are modern, air conditioned, and suitable and adequate for
the present activities of the company. Substantially all manufacturing equipment
is owned by the company and is well maintained.
In September 1996, the company sold its facility in Milford, Massachusetts.
In February 1996 the company also sold its facility in Woodstock, Connecticut.
Additional information regarding the company's principal plants and properties
is included under the heading "Facilities" on page 31 of the company's Annual
Report to Stockholders for the fiscal year ended September 28, 1996.
<PAGE>
Item 3. Legal Proceedings.
The company's patent infringement suit against IBM Corporation commenced in
November 1994, and IBM's countersuit against the company, remain in the
discovery stage in the United States District Court in Worcester, Massachusetts.
See Part II, Item 1, "Legal Proceedings" to the company's Quarterly Report on
Form 10-Q for the quarter ended December 24, 1994. The company alleges, among
other matters, that IBM's AS/400 CISC-based and System/390 computer product
lines infringe certain of the company's patents, and seeks, among other relief,
compensatory damages. IBM's countersuit alleges that certain of the company's
AViiON and CLARiiON products infringe various IBM patents.
In May, 1996, the company commenced an additional patent infringement suit
against IBM in the United States District Court for the District of
Massachusetts, in Worcester, Massachusetts. See Part II, Item 1, "Legal
Proceedings" to the company's Quarterly Report on Form 10-Q for the quarter
ended June 29, 1996. The company alleges, among other matters, that several IBM
products, including IBM's AS/400 RISC-based computer product line, infringe
certain of the company's patents and seeks, among other relief, injunctive and
compensatory damages.
The company believes its claims are valid, but it cannot predict the
outcome of either litigation.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Executive Officers of the Registrant.
Frederick R. Adler(1), Age 70, Chairman of the Executive Committee of the
Board of Directors since July 1982; Secretary of the company from 1968 to July
1982; retired senior partner in the law firm of Fulbright & Jaworski L.L.P., and
senior partner of such firm for more than five years; managing director of Adler
& Company, a venture capital investment firm, and a general partner of its
related investment funds for more than five years; former managing general
partner of Adler & Shaykin, a leveraged buyout firm, for more than five years.
Ronald L. Skates(1), Age 55, President and Chief Executive Officer of the
company since November 1989; Executive Vice President and Chief Operating
Officer of the company from August 1988 to November 1989; Senior Vice President
of the company from November 1986 to August 1988; Chief Financial Officer of the
company from November 1986 to August 1987; Partner, Price Waterhouse from July
1976 to November 1986.
J. Thomas West, Age 57, Senior Vice President of the company since November
1988; Vice President of the company from September 1983 to November 1988.
William J. Cunningham, Age 58, Senior Vice President of the company since
November 6, 1996; Vice President of the company from August 1989 to October
1996; prior positions at Apollo Computer Inc. included Vice President and
General Manager, Manufacturing and Research and Development, from October 1988
to June 1989; and Vice President and General Manager, Manufacturing and
Distribution, from September 1987 to September 1988; Vice President, U.S.
Manufacturing, for Honeywell Bull from March 1986 to September 1987.
<PAGE>
Arthur W. DeMelle, Age 56, Senior Vice President of the company since
November 6, 1996; Vice President of the company from March 1992 to October 1996
and Chief Financial Officer of the company since March 1992; prior positions
included Senior Vice President of Finance and Administration at Chep USA from
November 1989 to March 1992; Executive Vice President and Chief Financial
Officer at Emery Air Freight Corporation from April 1987 to May 1989; and
Executive Vice President and Chief Financial Officer at Purolator Courier
Corporation from July 1980 to April 1987.
Joel Schwartz, Age 54, Senior Vice President of the company since November
6, 1996; Vice President of the company from February 1989 to October 1996;
President and Chief Operating Officer of Polygen Corp. from August 1986 to
February 1989.
William L. Wilson, Age 52, Senior Vice President of the company since
November 6, 1996; Vice President of the company from March 1994 to October 1996;
prior positions with International Business Machines Corporation including
Assistant General Manager for Marketing - Enterprise Systems from 1992 to 1993,
General Manager of IBM's Integrated Systems Solutions Corporation (ISSC) from
1990 to 1992, and Marketing and Sales Director for U.S. Marketing Services from
1989 to 1990.
Executive officers of the company are elected annually and hold office
until the first meeting of the Board of Directors following the Annual Meeting
of Stockholders or until their successors have been elected and have duly
qualified.
(1) Member of Board of Directors and Executive Committee thereof.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
The information contained under the headings "Stock Price Range" on page
30; and "Number of Stockholders," "Dividend Policy," and "Stock Exchange
Listing" on page 33 of the company's Annual Report to Stockholders for the
fiscal year ended September 28, 1996 is incorporated herein by reference.
Item 6. Selected Financial Data.
The information contained under the heading "Five Year Summary of Selected
Financial Data" on page 10 of the company's Annual Report to Stockholders for
the fiscal year ended September 28, 1996 is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The information contained under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 11 through
15 of the company's Annual Report to Stockholders for the fiscal year ended
September 28, 1996 is incorporated herein by reference. This information should
be read in conjunction with the related consolidated financial statements
incorporated by reference under Item 8.
Item 8. Financial Statements and Supplementary Data.
The information contained in the consolidated financial statements, notes
to consolidated financial statements, and report of independent accountants,
under the heading "Quarterly Financial Data (Unaudited)," and "Facilities," on
pages 16 through 31 of the company's Annual Report to Stockholders for the
fiscal year ended September 28, 1996 is incorporated herein by reference.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not applicable.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information contained under the heading "Proposal No. 1 - Election of
Seven Directors" on pages 3 through 5 of the company's Proxy Statement dated
December 18, 1996 is incorporated herein by reference. See also "Executive
Officers of the Registrant" appearing in Part I hereof.
Item 11. Executive Compensation.
The information contained under the headings "Summary Compensation Table",
"Option Grants in the 1996 Fiscal Year", "Option Exercises in the 1996 Fiscal
Year and Fiscal Year-End Option Values", "Compensation Pursuant to Plans",
"Employee Agreements" and "Compensation of Directors" on pages 6 through 17 of
the company's Proxy Statement dated December 18, 1996 is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information contained under the heading "Beneficial Ownership of Common
Stock" and in the second paragraph and related table under the heading "Proposal
No. 1 - Election of Seven Directors" on pages 3 through 5 of the company's Proxy
Statement dated December 18, 1996 is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
Not applicable.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K.
(a) 1 and 2. Index to financial statements and related schedule:
Page
Five year summary of selected financial data . . . . . . . . . . . . . . . 10*
Management's discussion and analysis of financial condition and results
of operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11*
Consolidated balance sheets at September 28, 1996 and September 30, 1995 . 17*
For fiscal years ended September 28, 1996, September 30, 1995, and
September 24, 1994:
Consolidated statements of operations . . . . . . . . . . . . . 16*
Consolidated statements of cash flows . . . . . . . . . . . . . 18*
Consolidated statements of stockholder's equity . . . . . . . . 19*
Notes to consolidated financial statements . . . . . . . . . . . . . . . 20-29*
Report of independent accountants . . . . . . . . . . . . . . . . . . . . 30*
Supplemental financial information . . . . . . . . . . . . . . . . . . . . 30*
Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31*
Report of independent accountants on financial statement schedules . . . . 21
Financial statement schedule:
Schedule II - Valuation and qualifying accounts . . . . . . . . . 22
The financial statement schedule should be read in conjunction with the
financial statements in the 1996 Annual Report to Stockholders. All other
schedules have been omitted as they are not applicable, not required, or the
information is included in the consolidated financial statements or notes
thereto.
- ----------------------
* Page references are to the 1996 Annual Report to Stockholders. The 1996
Annual Report to Stockholders is not to be deemed filed as part of this
Report except for those parts thereof specifically incorporated by
reference into this Report.
<PAGE>
EXHIBITS
3. (a) Restated Certificate of Incorporation of the company, as amended,
including the company's Certificate of Designation dated October 17, 1986,
previously filed as Exhibit 3(a) to the company's Annual Report on Form
10-K for the fiscal year ended September 27, 1986, which is incorporated
herein by reference.
(b) Amendment to Certificate of Incorporation of the company, filed January
29, 1987, previously filed as Exhibit 3 to the company's Quarterly Report
on Form 10-Q for the quarter ended March 28, 1987, which is incorporated
herein by reference.
(c) By-Laws of the company, as amended.
4. (a) Indenture dated as of September 15, 1977 between the company and State
Street Bank and Trust Company (purchased from Fleet Bank of Massachusetts,
formerly Bank of New England and formerly New England Merchants National
Bank), as Trustee, which relates to the company's 8-3/8% Sinking Fund
Debentures Due 2002, previously filed as Exhibit 2.2 to the company's
Registration Statement on Form S-7, Registration Number 2-59710, which is
incorporated herein by reference.
(b) Rights Agreement Renewed and Restated as of October 19, 1996 between
the company and The Bank of New York, as Rights Agent, previously filed on
June 27, 1996, as Exhibit 1 to the company's Amendment to Registration
Statement on Form 8-A/A, which is incorporated herein by reference.
(c) Indenture, dated as of June 1, 1991, between the company and Fleet
National Bank, as Trustee, which relates to the company's 7-3/4%
Convertible Subordinated Debentures due 2001, previously filed as Exhibit
4(d) to Amendment No. 2 to the company's Registration Statement on Form S-3
(No. 33- 40817), which is incorporated herein by reference.
10. (a) Restricted Stock Option Plan, Appendix A to the prospectus included in
the company's Registration Statement on Form S-8, Registration Number
33-19759, which is incorporated herein by reference.
(b) Forms of Restricted Stock Option Agreement, previously filed as Exhibit
10(b) to the company's Annual Report on Form 10-K for the fiscal year ended
September 29, 1990, which is incorporated herein by reference.
(c) Form of Amendment to Restricted Stock Option Agreement, previously
filed as Exhibit 10(b) to the company's Quarterly Report on Form 10-Q for
the quarter ended June 25, 1988, which is incorporated herein by reference.
(d) Form of Amendments to Key Executive Restricted Stock Option Agreements,
previously filed as Exhibit 10(b) to the company's Quarterly Report on Form
10-Q for the quarter ended March 25, 1989, which is incorporated herein by
reference.
(e) Form of Amended and Restated Restricted Stock Option Agreement, between
the company and Ronald L. Skates, previously filed as Exhibit 10(f) to the
company's Quarterly Report on Form 10-Q for the quarter ended March 25,
1989, which is incorporated herein by reference.
<PAGE>
(f) Form of Amendment to Restricted Stock Option Agreements, between the
company and Frederick R. Adler, previously filed as Exhibit 10(g) to the
company's Quarterly Report on Form 10-Q for the quarter ended March 25,
1989, which is incorporated herein by reference.
(g) Amendment to Restricted and Employee Incentive Stock Option
Agreements, between the company and Ronald L. Skates, dated November 14,
1988, previously filed as Exhibit 10(e) to the company's Annual Report on
Form 10-K for the fiscal year ended September 24, 1988, which is
incorporated herein by reference.
(h) Forms of Incentive Stock Option Agreement, previously filed as Exhibit
10(d) to the company's Annual Report on Form 10-K for the fiscal year ended
September 26, 1987, which is incorporated herein by reference.
(i) Form of Amendment to Employee Stock Option Agreement, previously filed
as Exhibit 10(a) to the company's Quarterly Report on Form 10-Q for the
quarter ended June 25, 1988, which is incorporated herein by reference.
(j) Form of Amended and Restated Employee Stock Option Agreement, between
the company and Ronald L. Skates, previously filed as Exhibit 10(e) to the
company's Quarterly Report on Form 10-Q for the quarter ended March 25,
1989, which is incorporated herein by reference.
(k) Form of Amendments to Key Executive Stock Option Agreements, previously
filed as Exhibit 10(c) to the company's Quarterly Report on Form 10-Q for
the quarter ended March 25, 1989, which is incorporated herein by
reference.
(l) Non-Employee Director Restricted Stock Option Plan, Appendix A to the
prospectus included in the company's Registration Statement on Form S-8,
Registration Number 2-91481, which is incorporated herein by reference.
(m) Form of Non-Employee Director Restricted Stock Option Agreement,
previously filed as Exhibit 10(n) to the company's Annual Report on Form
10-K for the fiscal year ended September 29, 1990, which is incorporated
herein by reference.
(n) Form of Employment Agreement between the company and its full-time
officers, previously filed as Exhibit 10(a) to the company's Quarterly
Report on Form 10-Q for the quarter ended March 25, 1989, which is
incorporated herein by reference.
(o) Form of Indemnity Agreement between the company and its officers and
directors, previously filed as Exhibit 10 to the company's Quarterly Report
on Form 10-Q for the quarter ended March 28, 1987, which is incorporated
herein by reference.
(p) Form of Amendment dated September 1, 1993, to various Employment
Agreements between the company and its full-time officers, previously filed
as Exhibit 10(u) to the company's Annual Report on Form 10-K for the fiscal
year ended September 25, 1993, which is incorporated herein by reference.
(q) Data General Corporation Supplemental Retirement Benefit Plan dated as
of October 1, 1989, between the company and its highly compensated
employees, previously filed as Exhibit 10(x) to the company's Annual Report
on Form 10-K for the fiscal year ended September 24, 1994, which is
incorporated herein by reference.
<PAGE>
(r) Form of Supplemental Pension and Retiree Medical Agreement dated as of
December 7, 1994, between the company and it's current president and Chief
Executive Officer, previously filed as Exhibit 10(y) to the company's
Annual Report on Form 10-K for the fiscal year ended September 24, 1994,
which is incorporated herein by reference.
(s) 1994 Employee Director Stock Option Plan, Appendix A to the prospectus
included in the company's Registration Statement on Form S-8, Registration
Number 33-53039, which is incorporated herein by reference.
(t) Form of 1994 Non-Employee Director Stock Option Agreement, previously
filed as Exhibit 10(bb) to the company's Annual Report on Form 10-K for the
fiscal year ended September 24, 1994, which is incorporated herein by
reference.
(u) Form of Letter of Credit and Reimbursement Agreement dated as of
December 21, 1994, previously filed as Exhibit 10 to the company's'
Quarterly Report on Form 10-Q for the quarter ended December 24, 1994,
which is incorporated herein by reference.
(v) Employee Qualified Stock Purchase Plan, Appendix A to the prospectus
included in the company's Registration Statement on Form S-8, Registration
Number 33-53041, which is incorporated herein by reference.
(w) Employee Stock Option Plan, Appendix A to the prospectus included in
the company's Registration Statement on Form S-8, Registration Number
33-58237, which is incorporated herein by reference.
(x) Amendment dated October 9, 1995 to Letter of Credit and Reimbursement
Agreement, changing the Consolidated Tangible Net Worth limitation,
previously filed as Exhibit 10(dd) to the company's Annual Report on Form
10-K for the fiscal year ended September 30, 1995, which is incorporated
herein by reference.
(y) 1996 Fiscal Year Bonus Opportunity for Chief Executive Officer,
previously filed as Exhibit 10(ee) to the company's Annual Report on Form
10-K for the fiscal year ended September 30, 1995, which is incorporated
herein by reference.
(z) Amendment dated December 10, 1995 to Letter of Credit and Reimbursement
Agreement.
11. Computation of primary and fully diluted earnings per share.
13. Annual report to stockholders for the fiscal year ended September 28, 1996,
certain portions of which have been incorporated herein by reference.
21. Subsidiaries of the registrant.
23. Consent of independent accountants.
Exhibits, other than those incorporated by reference, have been included in
copies of this Report filed with the Securities and Exchange Commission.
Stockholders of the company will be provided with copies of these exhibits upon
written request to the company.
(b) There were no reports on Form 8-K filed during the last thirteen weeks
of the period covered by this Report.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
DATA GENERAL CORPORATION
(Registrant)
By: /s/ Ronald L. Skates
--------------------------------
Ronald L. Skates
President and Chief Executive Officer
December 18, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Ronald L. Skates President and Chief
- -------------------------------
Ronald L. Skates Executive Officer; December 18, 1996
Director
/s/ Frederick R. Adler Chairman of Executive
- -------------------------------
Frederick R. Adler Committee of Board of December 18, 1996
Directors: Director
/s/ Arthur W. DeMelle Senior Vice President
- -------------------------------
Arthur W. DeMelle Chief Financial Officer; December 18, 1996
Chief Accounting Officer
/s/Ferdinand Colloredo-Mansfeld Director December 18, 1996
- -------------------------------
Ferdinand Colloredo-Mansfeld
/s/ John G. McElwee Director December 18, 1996
- -------------------------------
John G. McElwee
/s/ Donald H. Trautlein Director December 18, 1996
- -------------------------------
Donald H. Trautlein
/s/ Richard L. Tucker Director December 18, 1996
- -------------------------------
Richard L. Tucker
/s/ W. Nicholas Thorndike Director December 18, 1996
- -------------------------------
W. Nicholas Thorndike
<PAGE>
DATA GENERAL CORPORATION
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Data General Corporation
Our audits of the consolidated financial statements referred to in our
report dated October 30, 1996 appearing on page 30 of the 1996 Annual Report to
Stockholders of Data General Corporation (which report and consolidated
financial statements are incorporated by reference in this Annual Report on Form
10-K) also included an audit of the Financial Statement Schedule listed in Item
14(a) of this Form 10-K. In our opinion, this Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
/s/Price Waterhouse LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
October 30, 1996
<PAGE>
<TABLE>
SCHEDULE II
DATA GENERAL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<CAPTION>
Balance at
Previous Balance at
End of Year Additions Deductions End of Year
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Description
SEPTEMBER 28, 1996:
Allowance for doubtful accounts ............. $ 14,079 $ 10,276 (a) $ (9,875) (b) $ 14,480
Valuation allowance on deferred tax asset (c) 201,255 19,827 (17,065) 204,017
SEPTEMBER 30, 1995:
Allowance for doubtful accounts ............. 13,752 10,197 (a) (9,870) (b) 14,079
Valuation allowance on deferred tax asset (c) 209,936 1,008 (9,689) 201,255
SEPTEMBER 24, 1994:
Allowance for doubtful accounts ............. 12,992 9,919 (a) (9,159) (b) 13,752
Valuation allowance on deferred tax asset (c) -- 209,936 -- 209,936
<FN>
- ------------------------------------------------------------------------------------------------
(a) Charged to costs and expenses.
(b) Accounts deemed uncollectable.
(c) SFAS 109 "Accounting for Income Taxes" adopted September 26, 1993.
</FN>
</TABLE>
<PAGE>
EXHIBITS
Index to Exhibits.
3. (a) Restated Certificate of Incorporation of the company, as amended,
including the company's Certificate of Designation dated October 17, 1986,
previously filed as Exhibit 3(a) to the company's Annual Report on Form
10-K for the fiscal year ended September 27, 1986, which is incorporated
herein by reference.
(b) Amendment to Certificate of Incorporation of the company, filed January
29, 1987, previously filed as Exhibit 3 to the company's Quarterly Report
on Form 10-Q for the quarter ended March 28, 1987, which is incorporated
herein by reference.
(c) By-Laws of the company, as amended.
4. (a) Indenture dated as of September 15, 1977 between the company and State
Street Bank and Trust Company (purchased from Fleet Bank of Massachusetts,
formerly Bank of New England and formerly New England Merchants National
Bank), as Trustee, which relates to the company's 8-3/8% Sinking Fund
Debentures Due 2002, previously filed as Exhibit 2.2 to the company's
Registration Statement on Form S-7, Registration Number 2-59710, which is
incorporated herein by reference.
(b) Rights Agreement Renewed and Restated as of October 19, 1996 between
the company and The Bank of New York, as Rights Agent, previously filed on
June 27, 1996, as Exhibit 1 to the company's Amendment to Registration
Statement on Form 8-A/A, which is incorporated herein by reference.
(c) Indenture, dated as of June 1, 1991, between the company and Fleet
National Bank, as Trustee, which relates to the company's 7-3/4%
Convertible Subordinated Debentures due 2001, previously filed as Exhibit
4(d) to Amendment No. 2 to the company's Registration Statement on Form S-3
(No. 33- 40817), which is incorporated herein by reference.
10. (a) Restricted Stock Option Plan, Appendix A to the prospectus included in
the company's Registration Statement on Form S-8, Registration Number
33-19759, which is incorporated herein by reference.
(b) Forms of Restricted Stock Option Agreement, previously filed as Exhibit
10(b) to the company's Annual Report on Form 10-K for the fiscal year ended
September 29, 1990, which is incorporated herein by reference.
(c) Form of Amendment to Restricted Stock Option Agreement, previously
filed as Exhibit 10(b) to the company's Quarterly Report on Form 10-Q for
the quarter ended June 25, 1988, which is incorporated herein by reference.
(d) Form of Amendments to Key Executive Restricted Stock Option Agreements,
previously filed as Exhibit 10(b) to the company's Quarterly Report on Form
10-Q for the quarter ended March 25, 1989, which is incorporated herein by
reference.
(e) Form of Amended and Restated Restricted Stock Option Agreement, between
the company and Ronald L. Skates, previously filed as Exhibit 10(f) to the
company's Quarterly Report on Form 10-Q for the quarter ended March 25,
1989, which is incorporated herein by reference.
<PAGE>
(f) Form of Amendment to Restricted Stock Option Agreements, between the
company and Frederick R. Adler, previously filed as Exhibit 10(g) to the
company's Quarterly Report on Form 10-Q for the quarter ended March 25,
1989, which is incorporated herein by reference.
(g) Amendment to Restricted and Employee Incentive Stock Option Agreements,
between the company and Ronald L. Skates, dated November 14, 1988,
previously filed as Exhibit 10(e) to the company's Annual Report on Form
10-K for the fiscal year ended September 24, 1988, which is incorporated
herein by reference.
(h) Forms of Incentive Stock Option Agreement, previously filed as Exhibit
10(d) to the company's Annual Report on Form 10-K for the fiscal year ended
September 26, 1987, which is incorporated herein by reference.
(i) Form of Amendment to Employee Stock Option Agreement, previously filed
as Exhibit 10(a) to the company's Quarterly Report on Form 10-Q for the
quarter ended June 25, 1988, which is incorporated herein by reference.
(j) Form of Amended and Restated Employee Stock Option Agreement, between
the company and Ronald L. Skates, previously filed as Exhibit 10(e) to the
company's Quarterly Report on Form 10-Q for the quarter ended March 25,
1989, which is incorporated herein by reference.
(k) Form of Amendments to Key Executive Stock Option Agreements, previously
filed as Exhibit 10(c) to the company's Quarterly Report on Form 10-Q for
the quarter ended March 25, 1989, which is incorporated herein by
reference.
(l) Non-Employee Director Restricted Stock Option Plan, Appendix A to the
prospectus included in the company's Registration Statement on Form S-8,
Registration Number 2-91481, which is incorporated herein by reference.
(m) Form of Non-Employee Director Restricted Stock Option Agreement,
previously filed as Exhibit 10(n) to the company's Annual Report on Form
10-K for the fiscal year ended September 29, 1990, which is incorporated
herein by reference.
(n) Form of Employment Agreement between the company and its full-time
officers, previously filed as Exhibit 10(a) to the company's Quarterly
Report on Form 10-Q for the quarter ended March 25, 1989, which is
incorporated herein by reference.
(o) Form of Indemnity Agreement between the company and its officers and
directors, previously filed as Exhibit 10 to the company's Quarterly Report
on Form 10-Q for the quarter ended March 28, 1987, which is incorporated
herein by reference.
(p) Form of Amendment dated September 1, 1993, to various Employment
Agreements between the company and its full-time officers, previously filed
as Exhibit 10(u) to the company's Annual Report on Form 10-K for the fiscal
year ended September 25, 1993, which is incorporated herein by reference.
(q) Data General Corporation Supplemental Retirement Benefit Plan dated as
of October 1, 1989, between the company and its highly compensated
employees, previously filed as Exhibit 10(x) to the company's Annual Report
on Form 10-K for the fiscal year ended September 24, 1994, which is
incorporated herein by reference.
<PAGE>
(r) Form of Supplemental Pension and Retiree Medical Agreement dated as of
December 7, 1994, between the company and it's current president and Chief
Executive Officer, previously filed as Exhibit 10(y) to the company's
Annual Report on Form 10-K for the fiscal year ended September 24, 1994,
which is incorporated herein by reference.
(s) 1994 Employee Director Stock Option Plan, Appendix A to the prospectus
included in the company's Registration Statement on Form S-8, Registration
Number 33-53039, which is incorporated herein by reference.
(t) Form of 1994 Non-Employee Director Stock Option Agreement, previously
filed as Exhibit 10(bb) to the company's Annual Report on Form 10-K for the
fiscal year ended September 24, 1994, which is incorporated herein by
reference.
(u) Form of Letter of Credit and Reimbursement Agreement dated as of
December 21, 1994, previously filed as Exhibit 10 to the company's'
Quarterly Report on Form 10-Q for the quarter ended December 24, 1994,
which is incorporated herein by reference.
(v) Employee Qualified Stock Purchase Plan, Appendix A to the prospectus
included in the company's Registration Statement on Form S-8, Registration
Number 33-53041, which is incorporated herein by reference.
(w) Employee Stock Option Plan, Appendix A to the prospectus included in
the company's Registration Statement on Form S-8, Registration Number
33-58237, which is incorporated herein by reference.
(x) Amendment dated October 9, 1995 to Letter of Credit and Reimbursement
Agreement, changing the Consolidated Tangible Net Worth limitation,
previously filed as Exhibit 10(dd) to the company's Annual Report on Form
10-K for the fiscal year ended September 30, 1995, which is incorporated
herein by reference.
(y) 1996 Fiscal Year Bonus Opportunity for Chief Executive Officer,
previously filed as Exhibit 10(ee) to the company's Annual Report on Form
10-K for the fiscal year ended September 30, 1995, which is incorporated
herein by reference.
(z) Amendment dated December 10, 1995 to Letter of Credit and Reimbursement
Agreement.
11. Computation of primary and fully diluted earnings per share.
13. Annual report to stockholders for the fiscal year ended September 28, 1996,
certain portions of which have been incorporated herein by reference.
21. Subsidiaries of the registrant.
23. Consent of independent accountants.
Exhibits, other than those incorporated by reference, have been included
in copies of this Report filed with the Securities and Exchange Commission.
Stockholders of the company will be provided with copies of these exhibits upon
written request to the company.
EXHIBIT 10 (z)
AMENDMENT NO. 2 TO LETTER OF CREDIT
AND REIMBURSEMENT AGREEMENT
THIS AMENDMENT NO. 2 TO LETTER OF CREDIT AND REIMBURSEMENT
AGREEMENT (this "Agreement") is made and entered into as of this
10th day of December, 1995 among:
DATA GENERAL CORPORATION, a Delaware corporation ("Borrower"),
NATIONSBANK OF TEXAS, NATIONAL ASSOCIATION, a national banking association, THE
BANK OF NEW YORK and FLEET BANK OF MASSACHUSETTS, N.A. (each individually, a
"Lender" and collectively, the "Lenders"); and
NATIONSBANK OF TEXAS, NATIONAL ASSOCIATION, a national banking
association, in its capacity as agent for the Lenders (in such capacity, the
"Agent");
W I T N E S S E T H:
--------------------
WHEREAS, the Borrower, the Lenders and the Agent have entered into a
Letter of Credit and Reimbursement Agreement dated as of December 21, 1994, as
amended by Amendment No. 1 to Letter of Credit and Reimbursement Agreement dated
as of October 5, 1995 among the Borrower, the Lenders and the Agent and as
hereby amended (as amended, the "Credit Agreement"), pursuant to which the
Lenders agreed to issue certain letters of credit on behalf of the Borrower; and
WHEREAS, the Borrower has requested that the Credit Agreement be
amended in the manner set forth herein and the Agent and the Lenders are willing
to agree to such amendment;
NOW, THEREFORE, in consideration of the mutual covenants and the
fulfillment of the conditions set forth herein, the parties hereto do hereby
agree as follows:
1. Definitions. Any capitalized terms used herein without
definition shall have the meaning set forth in the Credit
Agreement.
2. Amendment. Subject to the terms and conditions set forth
herein, the Credit Agreement is hereby amended as follows:
(a) The definitions of "Commitment Termination Date" and
"Consolidated Tangible Net Worth" shall be amended and
restated in their entirety to read as follows:
"Commitment Termination Date" means the earliest to
occur of (i) December 18, 1996 (364 days after the initial
Commitment Termination Date following the Closing Date prior
to amendment hereby pursuant to Amendment No. 2 to Letter of
Credit and Reimbursement Agreement dated as of December 10,
1995 among all parties hereto), or
<PAGE>
(ii) the date of termination of Lenders' obligations pursuant
to Section 8.01 hereof upon the occurrence of an Event of
Default, or (iii) such date as the Borrower may voluntarily
and permanently terminate the Letter of Credit Facility by
causing all Obligations of the Borrower to NationsBank and the
Lenders to be Fully Satisfied and terminating all obligations
of NationsBank and the Lenders with respect to Letters of
Credit and Participations;
"Consolidated Net Worth" means, at any time as of
which the amount thereof is to be determined, Consolidated
Shareholders' Equity less the effect of any amount in the
foreign exchange cumulative translation adjustment account as
disclosed on the consolidated financial statements of the
Borrower and its Subsidiaries referred to in Section
5.01(e)(i) hereof and to be delivered under Section 6.01
hereof, all as determined on a consolidated basis in
accordance with Generally Accepted Accounting Principles
applied on a Consistent Basis;
(b) Section 7.03 of the Credit Agreement is hereby
amended and restated in its entirety to read as follows:
7.03 Consolidated Net Worth. Permit at any
Determination Date the Consolidated Net Worth to be less than
(a) $250,000,000 as at December 31, 1995 and (b) as at each
succeeding Determination Date, the sum of (i) the amount of
Consolidated Net Worth required to be maintained pursuant to
this Section 7.03 as at the end of the immediately preceding
Fiscal Quarter, plus (ii) 50% of cumulative Consolidated Net
Income calculated for the Fiscal Quarter ending on such
Determination Date ("Minimum Consolidated Net Worth");
provided, however, in no event shall such Minimum Consolidated
Net Worth be decreased as a result of any net loss of the
Borrower and its Subsidiaries (i.e., negative Consolidated Net
Income) during any Fiscal Quarter.
3. Amendment Fee. The Borrower shall pay to the Agent for the pro rata
benefit of the Lenders based on their Applicable Commitment Percentages, a fee
(the "Facility Fee") equal to the product of the Total Letter of Credit
Commitment multiplied by 1/8 of 1% (.125%).
4. Effectiveness. This Agreement shall become effective as of the date
hereof upon receipt by the Agent of (a) seven fully executed copies of this
Agreement (which may be signed in counterparts) and (b) payment in full of the
Facility Fee to be held by the Agent for the pro rata benefit of the Lenders.
<PAGE>
5. Representations and Warranties. In order to induce the
Agent and the Lender to enter into this Agreement, the Borrower
represents and warrants to the Agent and the Lender as follows:
(a) The representations and warranties made by Borrower in
Article V of the Credit Agreement are true and correct on and as of the
date hereof, except to the extent that such representations and
warranties expressly relate to an earlier date and except that the
financial statements referred to in Section 5.01(e)(i) of the Credit
Agreement shall be deemed to be those financial statements most
recently delivered to the Agent and the Lenders pursuant to Section
6.01 of the Credit Agreement;
(b) There has been no material adverse change in the
condition, financial or otherwise, of the Borrower and its
Subsidiaries, taken as a whole, since the date of the most recent
financial reports of the Borrower received by the Agent and the Lenders
under Section 6.01(a) of the Credit Agreement, other than changes in
the ordinary course of business;
(c) The business and properties of the Borrower and its
Subsidiaries, taken as a whole, are not, and since the date of the most
recent financial report of the Borrower and its Subsidiaries received
by the Agent and the Lenders under Section 6.01(a) of the Credit
Agreement, have not been, adversely affected in any substantial way as
the result of any fire, explosion, earthquake, accident, strike,
lockout, combination of workers, flood, embargo, riot, activities of
armed forces, war or acts of God or the public enemy, or cancellation
or loss of any major contracts; and
(d) No event has occurred and is continuing which constitutes,
and no condition exists which upon the consummation of the transaction
contemplated hereby would constitute, a Default or an Event of Default
on the part of the Borrower under the Credit Agreement, either
immediately or with the lapse of time or the giving of notice, or both.
6. Entire Agreement. This Agreement sets forth the entire
understanding and agreement of the parties hereto in relation to
the subject matter hereof and supersedes any prior negotiations and
agreements among the parties relative to such subject matter.
7. Full Force and Effect of Agreement. Except as hereby specifically
amended, modified or supplemented, the Credit Agreement and all other Letter of
Credit Documents are hereby confirmed and ratified in all respects and shall
remain in full force and effect according to their respective terms.
8. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original
<PAGE>
as against any party whose signature appears thereon, and all of which shall
together constitute one and the same instrument.
9. Governing Law. This Agreement shall in all respects be
governed by the laws and judicial decisions of the State of New
York.
10. Enforceability. Should any one or more of the provisions
of this Agreement be determined to be illegal or unenforceable as
to one or more of the parties hereto, all other provisions
nevertheless shall remain effective and binding on the parties
hereto.
11. Credit Agreement. All references in any of the Letter of
Credit Documents to the Credit Agreement shall mean the Credit
Agreement as amended hereby.
[Signature page follows.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized officers, all as of the day and year
first above written.
BORROWER:
DATA GENERAL CORPORATION
By:
Name:
Title:
LENDERS:
NATIONSBANK OF TEXAS, NATIONAL
ASSOCIATION
By:
Name:
Title:
THE BANK OF NEW YORK
By:
Name:
Title:
FLEET BANK OF MASSACHUSETTS, N.A.
By:
Name:
Title:
<PAGE>
AGENT:
NATIONSBANK OF TEXAS, NATIONAL
ASSOCIATION as Agent for the Lenders
By:
Name:
Title:
<TABLE>
EXHIBIT 11
DATA GENERAL CORPORATION
COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
(In thousands except per share amounts)
<CAPTION>
Fiscal Year Ended
----------------------------------------------------------
Sept. 28, Sept. 30, Sept. 24, Sept. 25, Sept. 26,
1996 1995 1994 1993 1992
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Primary earnings per share:
Net income (loss) ............................ $ 28,145 $(46,703) $(87,693) $(60,479) $(62,512)
======== ======== ======== ======== ========
Weighted average shares outstanding .......... 38,769 37,052 35,774 34,464 32,788
Incremental shares from use of treasury
stock method for stock options ............. 2,312 814 -- 412 --
-------- -------- -------- -------- --------
Common and common equivalent
shares, where applicable ................... 41,081 37,866 35,774 34,876 32,788
======== ======== ======== ======== ========
Net income (loss) per share .................. $ 0.68 $ (1.23) $ (2.45) $ (1.73) $ (1.91)
======== ======== ======== ======== ========
Earnings per share assuming full dilution: (a)
Net income (loss) ............................ $ 28,145 $(46,703) $(87,693) $(60,479) $(62,512)
======== ======== ======== ======== ========
Weighted average shares outstanding ......... 38,769 37,052 35,774 34,464 32,788
Incremental shares from use of treasury
stock method for stock options ............. 2,565 907 -- 432 --
-------- -------- -------- -------- --------
Common and common equivalent shares
assuming full dilution, where applicable ... 41,334 37,959 35,774 34,896 32,788
======== ======== ======== ======== ========
Net income (loss) per share .................. $ 0.68 $ (1.23) $ (2.45) $ (1.73) $ (1.91)
======== ======== ======== ======== ========
- --------------------------------------------------------------------------
<FN>
(a) For the years ended September 28, 1996, September 30, 1995, September 24,
1994, September 25, 1993 and September 26, 1992, the assumed conversion of
convertible debentures, giving effect to the incremental shares and the
adjustment to reduce interest expense, results in anti-dilution and has
therefore been excluded from the computation. For the years ended September
24, 1994 and September 26, 1992, the assumed exercise of options
outstanding under the company's stock options plan using the treasury stock
method, is anti-dilutive and has been excluded from the computation.
</FN>
</TABLE>
DATA GENERAL CORPORATION
1996 ANNUAL REPORT
<PAGE>
Data General Corporation
4400 Computer Drive
Westboro, Massachusetts USA 01580
http://www.dg.com
email: [email protected]
1968 Data General founded; developed the NOVA, the first
minicomputer based on integrated circuit technology
1968-1980 Successive generations of 16-bit minicomputers; known for high
performance and excellent price/performance
1980-1988 Successive generations of 32-bit minicomputers; first machine
chronicled in Pulitzer Prize winning book by Tracy Kidder,
"The Soul of a New Machine"
1988 Announced open systems strategy based on industry-standard
microprocessors, operating systems, and storage components
1989 Delivered first AViiON(R)computer systems and UNIX for
commercial applications
1991 Delivered first RAID storage systems
1992 Introduced CLARiiON(R)disk arrays as second generation of RAID
systems for AViiON, ECLIPSE(R), and other computing platforms
June 1995 Announced new direction for AViiON product family; systems to
use Intel processors and standard SMP (symmetric
multiprocessing) motherboards
October 1995 Introduced first AViiON systems that use Intel architecture;
more than 15,000 applications available for customers
June 1996 Announced formation of NUMALiiNE(TM) Business Unit to
build OEM relationships and take advantage of market
opportunity for systems based on NUMA (non-uniform memory
access) architecture;
Announced formation of THiiN(TM) Line Business Unit to develop
and market Internet appliances, including thin servers,
network attached storage, and information servers
Data General designs advanced systems using the best commodity
technologies; builds software alliances to deliver leading enterprise
applications; and provides comprehensive integration services to
design, implement, and support business solutions.
<PAGE>
TO OUR STOCKHOLDERS, CUSTOMERS, AND EMPLOYEES:
Fiscal 1996 was a year of significant progress and positive financial results
for Data General. Product revenues increased 22 percent and reached the highest
level in our company's 28-year history. Total revenues increased by 14 percent
to $1.32 billion. We reported increased profitability in each quarter and
completed the year with net income of $28.1 million or $.68 per share.
On the expense side, we reduced overall operating expenses while continuing to
invest in our future. Selling, general, and administrative expenses were reduced
by $25 million, or seven percent, from fiscal 1995. Research and development
spending increased by $12 million, or 14 percent.
Continuing investments in research and development are essential to the future
of Data General. For the first half of this decade, we were focused on making a
business transition from proprietary minicomputers to open systems. That
transition is complete. This report describes the current state of Data
General's business and discusses the direction of our company, the opportunities
before us, and the new challenges we will face.
FY96 Earnings Per Share:
Q1 ................... $ .12
Q2 ................... $ .15
Q3 ................... $ .17
Q4 ................... $ .24
Data General Today
- ------------------
Data General is a company of talented individuals who work together to develop
and sell leading-edge computer systems and related technologies. We market our
technologies, products, and services in multiple business environments
throughout the world. Technology excellence has been the sustaining factor in
Data General's success since the company's founding in 1968. Data General's
principal assets, from which we have generated revenue and profits, have been
our research and development efforts and the technical talents of our people.
Complementing the company's technology excellence are other important assets--
multiple sales and distribution channels, customer services, and leading-edge
manufacturing--which have provided the necessary fulcrums to leverage our
technology into many markets. The overall combination of these capabilities
should enable Data General to succeed in today's extraordinarily competitive
computer systems business.
<PAGE>
AViiON Server Business
- ----------------------
The AViiON family of servers forms the core of Data General's product line. At
the start of fiscal 1996, we began building a new generation of AViiON servers
based on the Intel processor architecture. The transition to the Intel Pentium
and Pentium Pro processor platform from the Motorola platform is progressing. In
the fourth quarter of fiscal 1996, Intel processor-based systems represented
more than 40 percent of AViiON product revenues, and total AViiON revenues
reached their highest level since the family was introduced in 1989.
AViiON systems have been at the core of our product and business strategy as we
transformed Data General into an open systems company. We are now implementing a
plan to increase revenue growth and profits by leveraging our technology
development capabilities even more than in the past.
Our growth strategy has two parts: first, to bring industry-leading products to
market through alternative, low-cost distribution channels as well as through
our own sales force; and second, to leverage other Data General assets--the
supporting assets that have traditionally complemented our research and
development excellence.
New products resulting from our research and development efforts generate
incremental revenue. Our service and manufacturing capabilities also can be used
to generate sources of revenue independent of our core research and development.
Data General can build upon the strengths of these resources to seek incremental
market opportunities without compromising our core systems business. Success
will depend on our ability to take advantage of the many opportunities available
in these areas without building bureaucracies or adding fixed costs.
FY96 Intel based AViiON Revenue Growth (Millions of dollars):
Q1 ............................... 14
Q2 ............................... 27
Q3 ............................... 41
Q4 ............................... 51
The CLARiiON Business Model
- ---------------------------
The evolution of our CLARiiON storage systems business from a subset of the
AViiON product line to a stand-alone business is a clear example of this
strategy at its successful best. The CLARiiON product line was built upon
technology developed in traditional Data General research and development. At
the outset, CLARiiON technology provided our AViiON systems with important
differentiation and helped us win server business. We then achieved far greater
revenues and profits by developing CLARiiON business in alternative sales
channels. We formed the CLARiiON Business Unit late in 1992 and expanded sales
principally through OEM (original equipment manufacturer) relationships with
major systems vendors and storage suppliers. In fiscal 1996, CLARiiON Business
Unit sales nearly doubled to more than $350 million.
<PAGE>
The CLARiiON OEM sales approach to the market employed the right strategy at the
right time. It enabled us to grow the business rapidly without adding
significant sales and marketing costs. This is the business model we plan to
follow as we take other technologies developed in the systems area and turn them
into new products and market leadership.
Open CLARiiON Revenue Trend (Millions of dollars):
FY93 ................................... 7
FY94 ................................... 51
FY95 ................................... 187
FY96 ................................... 355
NUMALiiNE Technology
- --------------------
Research and development is producing a new class of AViiON systems that will be
based on NUMA (non-uniform memory access) architecture. These products will
constitute a major extension of the high end of our AViiON product line and will
enable our customers to capitalize on their existing investments in applications
written for SMP (symmetric multiprocessing) systems. We expect NUMA systems to
generate AViiON revenues through traditional sales channels. However, just as
with CLARiiON storage systems, NUMA systems also have revenue potential when
sold through OEM relationships.
We formed the NUMALiiNE Business Unit in June 1996 to leverage our NUMA OEM
opportunity. We signed NUMALiiNE OEM agreements with Fujitsu/ICL, the United
Kingdom's leading computer maker; Dansk Data Elektronik, Denmark's premier
supplier of mid-range UNIX computer systems; Daewoo Telecom Limited, part of the
Daewoo Group, one of Korea's largest companies; and Unisys Corporation, one of
the largest information companies in the U.S.
The small incremental sales and marketing investment we are making in the OEM
channel has the potential to deliver significant returns. We are leveraging the
fruits of our core business' research and development at a reasonable cost.
THiiN Line Internet Appliances
- ------------------------------
The Internet has become the hottest subject in computing. The implementation of
Internet technology on internal networks within companies and organizations has
become known as the "Intranet." While Intranets follow the client/server model
that will continue to leverage traditional data processing, the Internet is
defining a new form of computing driven by the need for information access.
Since storage and retrieval are the key tasks in information access-driven
computing, the traditional data processing architecture is not required. New
products, including "network computers" and other simplified devices dedicated
to
<PAGE>
viewing information, have already emerged. Beyond such "thin clients," Data
General envisions the need for "network attached storage" dedicated to making
information available at lightning speed, and "thin servers" dedicated to
managing groups of thin clients in offices, homes, classrooms, or anywhere that
groups of people need access to the Internet.
To pursue this opportunity, we formed the THiiN Line Business Unit. THiiN Line
products are expected to be brought to market in fiscal 1997 and will be sold
mainly through alternate channels. Again, we will build upon our core research
and development to generate incremental revenues and profits.
VALiiANT (SM) Manufacturing
- ----------------------------
An example of how we can leverage our supporting assets is our new VALiiANT
Business Unit. We formed this contract manufacturing operation to take advantage
of the company's world-class manufacturing expertise.
Data General was the first U.S. computer company to have its worldwide
manufacturing operations gain ISO 9000 certification. The VALiiANT effort does
not conflict with our basic computer systems strategy; rather it reinforces our
capabilities by using existing facilities to generate more revenue. If
successful, this venture will provide incremental revenues and profits, while
absorbing existing manufacturing overhead. VALiiANT sales and marketing efforts
are independent of our normal sales channels and require minimal fixed costs.
Data General is known for the scalability of our computer systems. Now we have
embarked on a plan for "asset scalability." NUMALiiNE, THiiN Line, and VALiiANT
are three new ways of scaling our key assets to generate new business and
profitability.
Customer Service and Professional Services
- ------------------------------------------
Services generated nearly $400 million in revenues in fiscal 1996. Our Customer
Service and Professional Services groups have developed broad expertise and
skills, and they provide valuable services to our customers. Our integrated
software and hardware services are focused on selected areas, including
Healthcare, Imaging, the Internet, and Windows NT applications integration.
<PAGE>
Our services business provides Data General with competitive advantages in the
market. However, it is not our intention to build a stand-alone systems
integration business. That would require major up-front investments in a
business characterized by low margins and many large players, and is in direct
opposition to the "asset leverage model" we employ in our product businesses.
Therefore, our strategy for serving customers is to strengthen our Professional
Services organization and leverage relationships with the leading systems
integrators.
Special Systems is one service organization that has made consistent
contributions to Data General's success over the years. It is an important
technological and marketing resource for the company, and an asset which can be
leveraged to provide more revenue for Data General and opportunities for our
employees.
The DataGenie(TM) family of handheld computers is an example of what Special
Systems can do. DataGenie was developed by Special Systems to meet the unique
needs of one of our strategic Healthcare solutions partners. Now it is being
expanded into other markets as a commercial product, and DataGenie is becoming a
profitable business venture.
FY97 Marketing Directions
- -------------------------
Today, Data General's primary sources of revenue are AViiON servers, CLARiiON
storage systems, and customer support services. In fiscal 1997 and in future
years, our current core businesses will be complemented by our NUMALiiNE and
THiiN Line products, and by leveraged assets such as our VALiiANT contract
manufacturing operations.
In fiscal 1997, AViiON development will concentrate on traditional mainstream
servers with ever increasing performance. We are committed to rapid delivery of
a family of Intel processor-based AViiON servers which provide market-leading
performance and competitive price/performance. These servers will offer
customers the choice of our DG/UX(R) operating system, the SCO UnixWare System,
and Microsoft Windows NT Server.
Data General will continue to maintain and expand the DG/UX operating system,
which is one of the most technically advanced UNIX operating systems in the
market. We also recognize that many customers want the industry to support a
standard UNIX operating system. Data General has taken a lead role in working
with the Santa Cruz Operation (SCO) in supporting SCO UnixWare.
<PAGE>
While we are developing advanced NUMA features for our DG/UX operating system,
we are also working with SCO on a special project to build these NUMA
features into SCO UnixWare.
It is increasingly clear that Microsoft Windows NT Server is a major market
force. We have the technical skills to participate in this market. We have
already demonstrated success in closing NT Server sales with major enterprise
applications such as SAP, PeopleSoft, and Oracle Financials. Windows NT Server
is becoming a leading platform for our channel sales partners throughout the
world. We believe Data General can leverage sales of AViiON servers using
Windows NT Server.
Collectively, DG/UX, SCO UnixWare, Windows NT Server, and operating systems such
as Novell NetWare and SCO Open Server, provide customers with a portfolio of
tens of thousands of AViiON applications.
Healthcare continues to be one of Data General's leading markets worldwide. To
capitalize on this growing market opportunity and leverage our successful
healthcare alliances, our healthcare sales and marketing activities have been
consolidated into a worldwide Healthcare Division.
Data General is also participating in the fast-growing market for secure
Intranets with AViiON and CLARiiON systems. CYBERSHIELD, a unique Internet
security solution, enables Data General to combine Internet, Intranet, and
firewall technology in a single integrated package designed to protect data from
both outside hackers and insiders who accidentally or intentionally corrupt it.
Data General's CYBERSHIELD is the most secure Internet server available--the
only server solution in the market with both B2- and E4-level security, the
world's highest system security levels.
Imaging is a growing worldwide market opportunity for Data General. Our
award-winning family of AV Image(R) products provides imaging solutions targeted
at efficient, affordable document management.
Open CLARiiON products account for more than one-third of Data General product
revenues. These sales are achieved primarily through OEMs, distributors, private
labelers, and value-added resellers. CLARiiON revenue growth in fiscal 1997 and
beyond will be a function of the growth in our OEM partners' server business and
overall disk array market growth. In the markets where we
<PAGE>
are targeting CLARiiON products--UNIX, Windows NT Server, Novell NetWare, and
departmental server environments--industry consultants are projecting strong
growth over the next few years.
Fibre Channel, which provides significant increases in data access speed, is one
of the key technologies for enabling continued growth in the CLARiiON business.
Data General demonstrated Fibre technology at the November 1996 Comdex show in
Las Vegas. Fibre products are expected to be available in 1997.
A Winning Culture
- -----------------
We have emerged from the open systems transition as a strong company with
talented people, valuable resources, and a well demonstrated entrepreneurial
spirit.
The EveryOne Sells program, for example, is a way in which any employee can
submit qualified sales leads. In the first full year of the program, EveryOne
Sells generated almost 3,000 leads and produced more than $18 million in
incremental revenues.
We have begun a new program--the Entrepreneurial Forum - to provide our
employees with an opportunity to initiate new business ideas. Any employee
anywhere in the world can present ideas at this forum. The goal is to suggest
ways in which we can take an existing product, an evolving technology, or any
other good idea, and leverage it into additional revenues for Data General.
Our people also exhibit a strong commitment to the communities in which we live
and work. In Raleigh, North Carolina, employees from our Apex manufacturing
facility helped to renovate a library at an apartment complex for the elderly
and disabled. Our Massachusetts employees developed a unique computer literacy
program for Worcester North High School, and spent nights and weekends training
the teachers, wiring the school, and installing the equipment and software. An
engineer from our AViiON development group initiated a donation of servers and
storage systems to his alma mater, Howard University, and personally ensured
that the equipment was installed and operating in support of a newly established
co-operative program at the school. Data General people demonstrate their
generosity to those in need throughout the year with programs such as the
"Giving Tree" at our Massachusetts facilities which provides holiday gifts to
more than 400 needy families. Data General is proud to have such dedicated and
generous employees.
<PAGE>
Outlook
- -------
I believe the opportunities for Data General are plentiful. Market forces and
standards have changed the dynamics of our business. We have the technology base
and the other skill sets we need to gain leadership positions in key areas of
the market. Most important, we have the people with the will to do so.
Our senior management team has led the company through the transition. In
recognition of their accomplishments, the Board of Directors elected William
Cunningham, Arthur DeMelle, Joel Schwartz, and William Wilson senior vice
presidents of the company. They join with Senior Vice President J. Thomas West,
head of Advanced Development, to form a solid and experienced management team
that is well prepared to lead Data General in the years ahead.
Our goal is to grow revenues through direct sales and increasingly through
stronger relationships with channel partners. We recognize that we cannot
accomplish this goal based on technology alone. Successful sales and channel
alliances are based on the ability of our sales and marketing people to nurture
close working relationships and build the level of trust that is needed for such
relationships. Our customers tell us that one of the reasons they choose to deal
with Data General instead of our competitors is our personal commitment to their
success--our availability, our flexibility, and our ability and willingness to
better understand their business and their requirements. These are traits
embodied in the Data General culture.
Fiscal 1996 was a turning point in the history of Data General. We enter fiscal
1997 well positioned for continued revenue growth and profitability with our
established AViiON server and CLARiiON storage businesses, a solid financial
position, and the significant opportunities we see in the emerging areas of NUMA
technology and the Internet.
Respectfully submitted,
Ronald L. Skates
President and Chief Executive Officer
<PAGE>
FINANCIAL REVIEW 1996:
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA .............................. 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS ................................................................ 11
CONSOLIDATED STATEMENTS OF OPERATIONS ..................................... 16
CONSOLIDATED BALANCE SHEETS ............................................... 17
CONSOLIDATED STATEMENTS OF CASH FLOWS ..................................... 18
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY ........................... 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ................................ 20
REPORT OF INDEPENDENT ACCOUNTANTS ......................................... 30
SUPPLEMENTAL FINANCIAL INFORMATION ........................................ 30
FACILITIES ................................................................ 31
OFFICERS, DIRECTORS, AND SENIOR MANAGEMENT ................................ 32
CORPORATE INFORMATION ..................................................... 33
Number of Employees:
1992 ......................... 7100
1993 ......................... 6500
1994 ......................... 5800
1995 ......................... 5000
1996 ......................... 4900
Revenue per Employee (Thousands of dollars):
1992 ........................ 157
1993 ........................ 166
1994 ........................ 193
1995 ........................ 232
1996 ........................ 270
Selling, General & Administrative expenses (Millions of dollars):
1992 ........................ 358
1993 ........................ 347
1994 ........................ 341
1995 ........................ 334
1996 ........................ 309
<PAGE>
<TABLE>
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
DATA GENERAL CORPORATION
<CAPTION>
YEAR ENDED
---------------------------------------------------------------------------
SEPT. 28, SEPT. 30, SEPT. 24, SEPT. 25, SEPT. 26,
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues ..................... $ 1,322,250 $ 1,159,316 $ 1,120,505 $ 1,077,869 $ 1,115,947
----------- ----------- ----------- ----------- -----------
Total cost of revenues ............. 877,692 772,047 733,114 654,718 655,047
Research and development ........... 98,022 85,886 90,826 100,172 111,336
Selling, general, and administrative 309,259 334,337 341,343 346,740 357,528
Restructuring charge ............... -- 43,000 35,000 25,000 48,000
----------- ----------- ----------- ----------- -----------
Total costs and expenses ......... 1,284,973 1,235,270 1,200,283 1,126,630 1,171,911
----------- ----------- ----------- ----------- -----------
Income (loss) from operations ...... 37,277 (75,954) (79,778) (48,761) (55,964)
Interest expense, net .............. 5,632 4,116 8,168 6,734 3,448
Other income, net .................. -- 41,972 2,353 416 --
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes .. 31,645 (38,098) (85,593) (55,079) (59,412)
Income tax provision ............... 3,500 8,605 2,100 5,400 3,100
----------- ----------- ----------- ----------- -----------
Net income (loss) .................. $ 28,145 $ (46,703) $ (87,693) $ (60,479) $ (62,512)
=========== =========== =========== =========== ===========
Primary net income (loss) per share $ 0.68 $ (1.23) $ (2.45) $ (1.73) $ (1.91)
<CAPTION>
AS OF
-----------------------------------------------------------------------------
SEPT. 28, SEPT. 30, SEPT. 24, SEPT. 25, SEPT. 26,
DOLLARS IN THOUSANDS 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Current assets ..................... $ 616,812 $ 591,485 $ 598,076 $ 611,660 $ 671,307
Current liabilities ................ 366,184 370,226 326,865 302,908 307,172
----------- ----------- ----------- ----------- -----------
Working capital .................... $ 250,628 $ 221,259 $ 271,211 $ 308,752 $ 364,135
=========== =========== =========== =========== ===========
Total assets ....................... $ 860,443 $ 832,018 $ 821,864 $ 866,329 $ 940,454
Annual expenditures for property,
plant, and equipment ............. $ 94,670 $ 96,471 $ 92,955 $ 94,968 $ 93,607
Long-term debt ..................... $ 149,971 $ 153,457 $ 156,942 $ 158,352 $ 162,258
Other liabilities .................. $ 15,224 $ 28,791 $ 29,445 $ 27,992 $ 20,988
Stockholders' equity ............... $ 329,064 $ 279,544 $ 308,612 $ 377,077 $ 450,036
Employees .......................... 4,900 5,000 5,800 6,500 7,100
<FN>
Results of operations are for 52-week periods except for 1995 which is a 53-week
period. The company has not declared or paid cash dividends since inception.
</FN>
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Data General Corporation
RESULTS OF OPERATIONS
The company reported net income of $28 million for fiscal 1996 compared with
a net loss of $47 million for fiscal 1995 and a net loss of $88 million for
fiscal 1994. Included in the net losses of fiscal years 1995 and 1994 are
restructuring charges of $43 million and $35 million, respectively, as well as
other income of $44.5 million from the settlement of litigation with Northrop
Grumman Corporation in fiscal year 1995.
Revenues (in millions)
===============================================================================
1996 Change 1995 Change 1994
---------------------------------------------------
Product $924 22% $757 5% $722
% of total Revenues 70% 65% 65%
Service 398 (1%) 402 1% 398
% of total Revenues 30% 35% 35%
Total Revenues $1,322 14% $1,159 3% $1,120
===============================================================================
Revenues in fiscal year 1996 grew 14% compared to the prior fiscal year. The
growth came primarily from domestic product revenues in the Open CLARiiON line
of mass storage devices and the AViiON server business. The European
marketplace, while experiencing growth in Open CLARiiON, was negatively impacted
by a decline in the AViiON server business, as well as the general conditions of
the European economy.
In fiscal 1996, revenues from the AViiON family were approximately $461
million, a 9% increase over fiscal 1995. AViiON systems revenues in fiscal 1995
decreased 10% from fiscal 1994. Since 1989, the company has established a
customer base of nearly 38,000 AViiON installations, with a total value of over
$2.5 billion. In fiscal 1996, the company introduced its Intel-based AViiON
systems. Such systems represented more than 29% of all fiscal 1996 AViiON
revenues. In fiscal 1996, the Open CLARiiON line of mass storage systems grew by
90% and represented 38% of the overall product revenues, compared to 25% of
total product revenues in the previous fiscal year. Open CLARiiON is sold
primarily through the company's Original Equipment Manufacturer ("OEM") and
distributor channels; thus sales in any given period are subject to sales cycles
and inventory levels of the company's customers. Open CLARiiON product revenues
have been concentrated in a limited number of customers, with a significant
portion of the company's Open CLARiiON product revenues to a single OEM. ECLIPSE
MV ("MV") revenues decreased 36% during fiscal 1996 compared to a 43% decline in
fiscal 1995. Proprietary revenues in fiscal 1996 represent only 4% of the
company's total product revenues. In fiscal 1996, product revenues from personal
computer and peripheral equipment decreased 22% from fiscal 1995, and in fiscal
1995 decreased 11% when compared with fiscal 1994.
<PAGE>
Revenues by Geographic Marketplace
===============================================================================
Percentage of Percentage of
Consolidated Revenues Change of $
of Revenues
-------------------------------- -------------------------
1996 1995 1994 1996-95 1995-94
-------------------------------- -------------------------
Domestic
Product 61% 55% 55% 22% 5%
Service 57% 56% 58% 0% (1%)
Total Revenues 60% 55% 56% 23% 2%
Europe
Product 24% 28% 27% 4% 12%
Service 32% 33% 31% (4%) 7%
Total Revenues 26% 30% 28% 1% 10%
Other International
Product 15% 17% 18% 10% (3%)
Service 11% 11% 11% 0% (2%)
Total Revenues 14% 15% 16% 8% (3%)
===============================================================================
In fiscal 1996, domestic marketplace revenues from the Open CLARiiON product
line more than doubled and AViiON product revenues increased 22%, partly
offset by a 25% decrease in ECLIPSE MV revenues and a 43% decrease in PC
revenues. In the prior year, the Open CLARiiON product line revenues were more
than doubled in this marketplace, offset by a 13% decrease in AViiON revenues, a
41% decrease in ECLIPSE MV revenues, and a small decrease in PC revenues. The
increase in European product revenues, including U.S. direct export sales, in
fiscal year 1996 was attributable to significant growth in the Open CLARiiON
product line offset by a 35% decline in ECLIPSE MV revenues, 20% decrease in PC
revenues and a 6% decrease in AViiON revenues. The 4% increase in product
revenues in the European marketplace was partly offset by the strengthening of
the U.S. dollar. The increase in other international product revenues, including
U.S. direct export sales, was primarily driven by significant growth in Open
CLARiiON, which more than doubled from the prior year, and a 14% increase in PC
revenues in fiscal year 1996. The increase was partly offset by a 64% decrease
in MV revenues, and a 6% decrease in AViiON revenues. The fiscal 1995 decrease
in other international product revenues was largely due to the decrease in
AViiON and MV revenues, which was partly offset by stronger revenues from the
Open CLARiiON product line.
In the service business, the company experienced a 2% decline in contract
maintenance revenues in both fiscal years 1996 and 1995 as compared with the
previous year. This decline was partially offset by modest growth in
professional service revenues during the same periods. In Europe, the effect of
foreign exchange accounted for less than 1% of the total 4% decrease in fiscal
1996 and 3% of the total 7% increase in fiscal 1995 service revenues.
Cost of Revenues (in millions)
==============================================================================
1996 Change 1995 Change 1994
----------------------------------------------------
Product $619 20% $514 6% $484
% of Product Revenues 67% 68% 67%
Service 259 0% 258 4% 249
% of Service Revenues 65% 64% 63%
Total Cost of Revenues $878 14% $772 5% $733
% of Total Revenues 66% 67% 65%
==============================================================================
<PAGE>
The primary reasons for the decrease in cost as a percentage of product
revenues were the result of increased volumes of higher margin Intel-based
AViiON systems, manufacturing cost reductions and lower component costs,
partially offset by increased volumes of relatively lower margin Open CLARiiON
revenues. The benefits of component cost reductions are likely to be temporary
as market pressures impact the company's product pricing.
The increase in cost of service revenues as a percentage of total service
revenues was primarily a result of the continued shift in service revenues
towards increased professional service sales, which yield a lower margin than
traditional maintenance service contract revenues.
Operating Expenses (in millions)
===============================================================================
1996 Change 1995 Change 1994
--------------------------------------------
Research & Development $98 14% $86 (5%) $91
% of Total Revenues 7% 7% 8%
Selling, general, & administrative $309 (7%) $334 (2%) $341
% of Total Revenues 23% 29% 30%
Restructuring charges - (100%) $43 23% $35
% of Total Revenues - 4% 3%
===============================================================================
The company continued to focus its research and development efforts on its
core business technology, multi-user computer systems, servers, and mass storage
devices. Gross expenditures on research and development, and software
development in fiscal 1996, before capitalization, increased 14% compared to
fiscal 1995. The increase in the level of expenditures was primarily driven by
investment in the next generation of CLARiiON products, in the company's Non
Uniform Memory Access ("NUMA") architecture for high-end servers and in products
for the Internet.
Selling, general and administrative expenses continue to decrease due to
the company's worldwide cost reduction and containment programs, which the
company has implemented in response to increasingly competitive industry
conditions.
Results of operations for fiscal 1995 and 1994 included charges of $43
million and $35 million, respectively, for estimated costs associated with a
worldwide workforce reduction along with other cost reduction programs,
primarily related to real estate. The provisions relating to the workforce
reduction were primarily for salary and benefit continuation and outplacement
service. At the close of fiscal 1996, the number of employees was approximately
4,900, a net reduction of 100 employees from September 30, 1995. During fiscal
year 1995 there was a net reduction of 800 employees from the 5,800 employed as
of September 24, 1994. There have been no material changes in the company's
original estimates of the costs associated with the previously announced
restructuring actions.
Net Income (Loss) (in millions)
===============================================================================
1996 1995 1994
---------- ------------ ------------
Income (loss) from operations $37 ($76) ($80)
Interest and other Income, net (5) 38 (6)
Tax provision (4) (9) (2)
---------- ------------ ------------
Net income (loss) $28 ($47) ($88)
===============================================================================
<PAGE>
Income from operations for fiscal 1996 of $37 million was comprised of $44
million from the domestic marketplace and $3 million from Europe, partially
offset by a loss from operations of $10 million from other international. The
loss from operations for fiscal 1995 of $76 million was comprised of $45
million, $15 million, and $16 million from the domestic marketplace, Europe, and
other international, respectively. These losses included restructuring charges
of $19 million in both domestic and Europe, as well as $5 million for other
international locations. These losses from operations compared with $45 million,
$18 million, and $17 million in fiscal 1994, for the domestic marketplace,
Europe and other international locations, respectively. Restructuring charges in
fiscal 1994 were $21 million, $12 million, and $2 million in each of these
areas, respectively.
Interest income for fiscal 1996 decreased 23% from fiscal 1995, following a
65% increase from fiscal 1994 to fiscal 1995. The current year decrease was
primarily due to lower levels of average invested cash and an overall reduction
in market interest rates. The prior year increase was primarily due to higher
average levels of invested funds and increasing market interest rates. Interest
expense for fiscal 1996 was $13.1 million, a slight decrease from $13.8 million
for fiscal 1995. Interest expense for fiscal 1995 remained relatively unchanged
from fiscal 1994.
Included in other income, net, in the fiscal 1995 Statement of Operations
is a pretax gain, net of related legal fees and other expenses, of $44.5 million
from the settlement with Northrop Grumman Corporation relative to a six-year
software copyright infringement and trade secrets litigation brought by the
company against Grumman Systems Support Corporation ("Grumman"). Under the terms
of the settlement, Grumman paid the company $53 million and the parties
dismissed the pending litigation.
The current year provision for income taxes relates primarily to foreign
and state taxes. The 1995 provision resulted primarily from the settlement of
the Grumman lawsuit, deferred taxes on undistributed earnings for certain
foreign subsidiaries, and foreign and state taxes. The company continues to have
significant operating loss carryforwards and unused tax credits available to
minimize future tax liabilities. Based on the weight of available evidence, the
company has a valuation allowance which offsets substantially all net deferred
tax assets existing as of September 28, 1996 and September 30, 1995. The amount
of the deferred tax asset considered realizable is subject to change based on
estimates of future taxable income during the carryforward period. The company
will assess the need for the valuation allowance at each balance sheet date
based on all available evidence.
In the first quarter of fiscal 1995, the company adopted SFAS 112,
"Employers' Accounting for Post-Employment Benefits" and SFAS 115, "Accounting
for Certain Investments in Debt and Equity Securities". SFAS 112 requires the
accrual of liabilities for the estimated cost of benefits provided by the
employer to former or inactive employees. The implementation of SFAS 112 did not
have a material effect on the company's consolidated financial position or
results of operations. SFAS 115 addresses accounting and reporting for
investments in certain debt and equity securities. All of the company's
investments in U.S. Treasury bills and notes at September 28, 1996 and September
30, 1995 have maturities of less than one year, and have been classified as
"held-to-maturity". In the second quarter of fiscal 1996, an equity security
held by the company as an investment and previously accounted for under the cost
method, began trading on a public stock exchange, and is classified as
"available-for-sale". In fiscal 1995, the company adopted SFAS 119, "Disclosure
about Derivative Financial Instruments and Fair Value of Financial Instruments".
In March 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of". In October 1995, FASB issued SFAS 123, "Accounting
for Stock-Based Compensation". In June 1996, FASB issued SFAS 125, "Accounting
for Transfer and Servicing of Financial Assets and Extinguishments of
Liabilities". The company will implement SFAS 123 using the proforma disclosure
method described in the pronouncement in fiscal 1997. SFAS 121 and 123 are
effective for fiscal years beginning after December 15, 1995. SFAS 125 is
effective for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996. The company will implement these
statements as required. The future adoption of SFAS 121 and 125 is not expected
to have a material effect on the company's consolidated financial position or
results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Cash and temporary cash investments as of September 28, 1996 were $179
million, an increase of $62 million from fiscal 1995. At the same date, the
company held $26 million in marketable securities which supplemented cash and
temporary cash investments, down $46 million from the prior fiscal year. These
securities include United States Treasury bills and notes, as well as an equity
security of $11 million recorded at fair market value and classified as
"available-for sale". Net cash provided from operations in fiscal 1996 was $105
million. Expenditures for property, plant and equipment were $95 million,
capitalized software development costs totaled $31
<PAGE>
million, and cash provided from stock plans equaled $10 million. Repayment of
long-term debt during the current fiscal year was $3 million, which was for the
repurchase of the company's 8 3/8% debentures due in 2002 to satisfy future
sinking fund requirements. The effect of currency fluctuations on cash and
temporary cash investments was a decrease of $1 million for fiscal year 1996.
Net receivables increased $7 million to $258 million at September 28, 1996,
primarily as a result of increased revenues. The company's worldwide days' sales
outstanding decreased three days when compared to the prior fiscal year
primarily as a result of increased collection activity. Inventory levels
increased $6 million during fiscal 1996, primarily as a result of increased end
of year procurement. Net property, plant, and equipment decreased $7 million
principally due to the sale of certain facilities and the sales of demonstration
equipment. Accounts payable increased $5 million primarily attributable to the
increase in end of year inventory procurements and the timing of payments
related to this activity. Current and other liabilities decreased $23 million to
$258 million at September 28, 1996, primarily as a result of payments made
relating to the previously recorded restructuring accruals, and reduced employee
related accruals.
For the three-year period ending September 28, 1996, cash and temporary
cash investments increased $59 million. Net cash provided from operations was
$296 million, including $53 million from the Grumman litigation settlement. The
sale of non-operating facilities, investments, and the sale-lease back of the
company's corporate headquarters provided $41 million. Proceeds pursuant to the
company's employee stock plans provided $24 million. Long-term debt decreased $9
million, primarily due to the repurchase of a portion of the company's 8 3/8%
debentures due in 2002, and the repayment of Industrial Revenue Bonds applicable
to the sales of the company's Portsmouth, New Hampshire and a portion of the
Woodstock, Connecticut facilities. Net proceeds from maturity of marketable
securities were $67 million. Expenditures for property, plant and equipment
totaled $284 million and the company's investment in capitalized software
development costs was $76 million. Notes payable were paid in the amount of $1
million during this three-year period. The effect of foreign exchange on this
three-year period was a $5 million increase to cash.
Operations have generally been the primary source of the company's cash.
Cash provided from operations has been augmented by proceeds from sales of stock
under the company's stock plans, from sales of facilities and other
non-operating assets, and the settlement of the Grumman litigation. The company
has not paid cash dividends since its inception in order to reinvest available
cash in operations.
At September 28, 1996, the company has a $30 million unsecured letter of
credit and reimbursement facility with a group of banks. This agreement is
available to secure the issuance of letters of credit. The facility contains
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 the current letter of credit facility is 2.0%
per annum above a base rate. The base rate is equal to the greater of prime rate
or the Federal Funds Effective Rate plus .5%. Commitment fees paid on available
funds during fiscal years 1996 and 1995 were not material. There were $8.0
million of letters of credit secured by this facility at September 28, 1996. At
September 30, 1995, there were $8.3 million of letters of credit secured by this
letter of credit facility. During fiscal years 1996 and 1995, there were no
borrowings under any of these facilities. The current agreement has a duration
of 364 days and expires on December 18, 1996. The company is currently in the
process of negotiating amendments to this letter of credit facility which would
extend its expiration date to December 17, 1997.
The company believes it is important to maintain a conservative capital
structure and a strong cash position. Cash is primarily invested in liquid
temporary investments pending its utilization. The company's investment policy
is to minimize risk while maximizing return on cash, and to keep uninvested cash
at a minimum. Cash is generally centralized domestically, although some cash is
also held at various subsidiaries around the world to meet local operating
funding requirements. All cash is freely remittable to the United States.
Although the actual level of spending will be influenced by many factors,
the company anticipates that expenditures for property, plant and equipment will
continue to be the primary non-operating use of cash during fiscal year 1997.
Most of the expenditures will be for capital assets directly related to the
company's open systems product sales, marketing, support and development. The
writedown of net book value of property, plant, and equipment during fiscal 1996
totaled $16 million, primarily as a result of sales of demonstration equipment
to end-users. Management expects that sales of demonstration equipment will
continue. Net fixed assets associated with the company's proprietary ECLIPSE MV
family of products represent less than 5% of the company's total net fixed
assets. Such assets are primarily spare parts employed to support the company's
MV service base, as well as those MVs which are serviced by third parties. Also
during fiscal 1997, cash totaling $8 million is expected to be utilized to
settle liabilities arising from the company's restructuring programs.
The company believes it has sufficient resources to provide for its current
operations and to continue to invest in the future.
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA GENERAL CORPORATION
<CAPTION>
YEAR ENDED
----------------------------------------
SEPT. 28, SEPT. 30, SEPT. 24,
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Product ............................ $ 924,140 $ 757,338 $ 722,423
Service ............................ 398,110 401,978 398,082
----------- ----------- -----------
Total revenues ................. 1,322,250 1,159,316 1,120,505
----------- ----------- -----------
COSTS AND EXPENSES
Cost of product revenues ........... 618,351 514,049 483,808
Cost of service revenues ........... 259,341 257,998 249,306
Research and development ........... 98,022 85,886 90,826
Selling, general, and administrative 309,259 334,337 341,343
Restructuring charge ............... -- 43,000 35,000
----------- ----------- -----------
Total costs and expenses ...... 1,284,973 1,235,270 1,200,283
----------- ----------- -----------
Income (loss) from operations ...... 37,277 (75,954) (79,778)
Interest income .................... 7,440 9,710 5,881
Interest expense ................... 13,072 13,826 14,049
Other income, net .................. -- 41,972 2,353
----------- ----------- -----------
Income (loss) before income taxes .. 31,645 (38,098) (85,593)
Income tax provision ............... 3,500 8,605 2,100
----------- ----------- -----------
Net income (loss) .................. $ 28,145 $ (46,703) $ (87,693)
=========== =========== ===========
PRIMARY NET INCOME (LOSS) PER SHARE:
Net income (loss) per share ....... $ 0.68 $ (1.23) $ (2.45)
Weighted average shares outstanding 41,081 37,866 35,774
<FN>
Results of operations are for 52-week periods except for 1995 which is a
53-week period. The accompanying Notes to Consolidated Financial Statements are
an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
DATA GENERAL CORPORATION
<CAPTION>
SEPT. 28, SEPT. 30,
DOLLARS IN THOUSANDS, EXCEPT PAR VALUE 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and temporary cash investments ................. $ 178,997 $ 117,201
Marketable securities ............................... 25,624 71,617
Receivables, less allowances of $14,480 at
Sept. 28, 1996 and $14,079 at Sept. 30, 1995 ...... 257,815 251,123
Inventories ......................................... 129,783 124,145
Other current assets ................................ 24,593 27,399
--------- ---------
Total current assets .............................. 616,812 591,485
Property, plant, and equipment, net ................... 167,672 174,914
Other assets .......................................... 75,959 65,619
--------- ---------
$ 860,443 $ 832,018
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable ....................................... $ 1,943 $ 2,033
Accounts payable .................................... 121,625 116,313
Other current liabilities ........................... 242,616 251,880
--------- ---------
Total current liabilities ......................... 366,184 370,226
--------- ---------
Long-term debt ........................................ 149,971 153,457
--------- ---------
Other liabilities ..................................... 15,224 28,791
--------- ---------
Commitments and Contingencies
Stockholders' equity:
Common stock, $.01 par value:
Outstanding -- 39,601,000 shares at Sept. 28, 1996
and 37,933,000 shares at Sept. 30, 1995 (net of
deferred compensation of $7,812 at Sept. 28, 1996
and $9,588 at Sept 30, 1995) ................... 460,312 446,762
Accumulated deficit ............................... (135,481) (163,626)
Unrealized gains on marketable securities ......... 9,708 --
Cumulative translation adjustment ................. (5,475) (3,592)
--------- ---------
Total stockholders' equity ...................... 329,064 279,544
--------- ---------
$ 860,443 $ 832,018
========= =========
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
DATA GENERAL CORPORATION
<CAPTION>
YEAR ENDED
--------------------------------------------
SEPT. 28, SEPT. 30, SEPT. 24,
IN THOUSANDS 1996 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) ....................................... $ 28,145 $ (46,703) $ (87,693)
Adjustments to reconcile net income (loss) to net cash
provided from operating activities:
Depreciation .......................................... 80,489 74,804 76,957
Amortization of capitalized software development costs 19,130 17,545 21,448
Amortization of deferred compensation ................. 3,866 4,265 5,329
Increase (decrease) in other liabilities .............. (8,263) (656) 1,453
Writedown of net book value of property, plant, and
equipment ........................................... 15,633 9,626 15,233
Other non-cash items, net ............................. (299) 7,232 7,061
Changes in operating assets and liabilities, net of
effects from sale of facilities and other assets:
(Increase) decrease in receivables .................. (9,268) 11,267 31,757
Increase in inventories ............................. (5,826) (5,743) (15,735)
Decrease in other current assets .................... 2,080 3,761 3,727
Increase in accounts payable ........................ 6,627 23,897 3,837
Increase (decrease) in other current liabilities,
excluding debt .................................... (27,191) 17,810 10,753
--------- --------- ---------
Net cash provided from operating activities ........... 105,123 117,105 74,127
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant, and equipment ......... (94,670) (96,471) (92,955)
Purchase of marketable securities ....................... (84,224) (240,507) (90,788)
Proceeds from sales and maturity of marketable securities 150,080 216,755 115,318
Capitalized software development costs .................. (30,714) (27,493) (17,582)
Net proceeds from sale of facilities and other assets ... 12,797 -- 28,314
Investment in equity securities ......................... (2,000) (600) (2,000)
--------- --------- ---------
Net cash used by investing activities ................. (48,731) (148,316) (59,693)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash provided from stock plans, net ..................... 9,684 7,740 6,901
Repayment of notes payable .............................. -- (607) --
Repayment of long-term debt ............................. (3,000) (3,500) (2,034)
--------- --------- ---------
Net cash provided from financing activities ........... 6,684 3,633 4,867
--------- --------- ---------
Effect of foreign currency rate fluctuations on cash and
temporary cash investments .............................. (1,280) 2,331 3,587
--------- --------- ---------
Increase (decrease) in cash and temporary cash
investments ............................................. 61,796 (25,247) 22,888
Cash and temporary cash investments -- beginning
of the period ........................................... 117,201 142,448 119,560
--------- --------- ---------
Cash and temporary cash investments -- end
of the period ........................................... $ 178,997 $ 117,201 $ 142,448
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid ......................................... $ 12,797 $ 12,762 $ 13,422
Income taxes paid ..................................... $ 1,716 $ 1,696 $ 3,444
<FN>
Results of operations are for 52-week periods except for 1995 which is a
53-week period. The accompanying Notes to Consolidated Financial Statements are
an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
DATA GENERAL CORPORATION
<CAPTION>
YEAR ENDED
------------------------------------------
SEPT. 28, SEPT. 30, SEPT. 24,
IN THOUSANDS 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK:
Beginning balance ..................... $ 446,762 $ 434,757 $ 422,589
Shares issued under stock plans, net .. 9,684 7,740 6,839
Amortization of deferred compensation . 3,866 4,265 5,329
--------- --------- ---------
Ending balance ........................ 460,312 446,762 434,757
--------- --------- ---------
ACCUMULATED DEFICIT:
Beginning balance ..................... (163,626) (116,923) (29,230)
Net income (loss) for year ............ 28,145 (46,703) (87,693)
--------- --------- ---------
Ending balance ........................ (135,481) (163,626) (116,923)
--------- --------- ---------
UNREALIZED GAINS ON MARKETABLE SECURITIES:
Beginning balance ..................... -- -- --
Net adjustment for year ............... 9,708 -- --
--------- --------- ---------
Ending balance ........................ 9,708 -- --
--------- --------- ---------
CUMULATIVE TRANSLATION ADJUSTMENT:
Beginning balance ..................... (3,592) (9,222) (16,282)
Net translation adjustment for year ... (1,883) 5,630 7,060
--------- --------- ---------
Ending balance ........................ (5,475) (3,592) (9,222)
--------- --------- ---------
Total stockholders' equity ............... $ 329,064 $ 279,544 $ 308,612
========= ========= =========
<FN>
Results of operations are for 52-week periods except for 1995 which is a
53-week period. The accompanying Notes to Consolidated Financial Statements are
an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DATA GENERAL CORPORATION
NOTE 1. NATURE OF BUSINESS
Data General Corporation (the "company") designs, manufactures, sells and
supports a broad range of multi-user computer systems, servers, and mass storage
devices. The company's range of products and services includes database servers;
communications and networking servers; workstations, desktop and portable
systems; mass storage devices; more than 15,000 application solutions offered in
conjunction with various third-party firms; and a worldwide service and support
network. The principal markets are the United States and Europe.
NOTE 2. ACCOUNTING POLICIES
FISCAL YEAR. The company's fiscal year ends on the last Saturday in September.
Fiscal year 1996 consisted of 52 weeks. Fiscal years 1995 and 1994 consisted of
53 and 52 weeks, respectively.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the
accounts of Data General Corporation and its domestic and foreign subsidiaries.
All significant intercompany transactions have been eliminated.
USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
FOREIGN CURRENCY TRANSACTIONS. The functional currencies for the company's
operations in Australia, Canada, Europe, Japan, and New Zealand are the local
currencies. Assets and liabilities of these operations are translated into U.S.
dollars at exchange rates in effect at the balance sheet date. Income and
expense items are translated at average exchange rates for the period.
Translation adjustments are reported as a separate component of stockholders'
equity.
For the company's other foreign operations, the U.S. dollar is the
functional currency. Assets and liabilities of these operations are remeasured
into U.S. dollars at exchange rates in effect at the balance sheet date, except
for inventories and property, plant, and equipment, which are remeasured at
historical exchange rates. Income and expense items are remeasured at average
rates for the period, except for cost of sales and depreciation, which are
remeasured at historical exchange rates. Gains and losses resulting from
remeasurement, not material in amount, are included in the results of
operations.
The company enters into foreign exchange contracts as a hedge against exposure
to fluctuations in exchange rates associated with certain transactions
denominated in foreign currencies, principally intercompany accounts receivable.
Market value gains or losses on these contracts are included in the cost of
product revenues and generally offset exchange gains or losses on the related
transactions. In fiscal 1995, the company adopted Statement of Financial
Accounting Standards ("SFAS") 119, "Disclosures about Derivative Financial
Instruments and Fair Value of Financial Instruments" that requires certain
additional disclosure regarding the amounts, nature, terms, purpose, and fair
values of the company's derivative financial instruments.
Foreign exchange transaction gains and losses, not material in amount for the
periods ended September 28, 1996, September 30, 1995 and September 24, 1994, are
included in the cost of product revenues.
Cash flows from foreign exchange contracts that are accounted for as hedges of
identifiable foreign exchange transactions are classified as cash flows from
operating activities in accordance with the nature of the transactions being
hedged.
TEMPORARY CASH INVESTMENTS AND MARKETABLE SECURITIES . Temporary cash
investments consist of highly liquid time deposits and commercial paper with
original maturities of 90 days or less. Marketable securities consist of U.S.
Treasury bills and notes with original maturities of 91 to 360 days, as well as
an equity security.
In fiscal 1995, the company adopted SFAS 115, "Accounting for Certain
Investments in Debt and Equity Securities". SFAS 115 addresses accounting and
reporting for investments in certain debt and equity securities. Under this
standard, the company is required to classify its marketable securities into one
or more of the following categories: held-to-maturity, trading, or
available-for-sale.
All of the company's investments in U.S. Treasury bills and notes have
maturities of less than one year, and have been classified as held-to-maturity.
These investments are recorded at amortized cost, which approximates market
value. In March 1996, an equity security held by the company as an investment
and previously accounted for under the cost method, began trading on a public
stock exchange. In accordance with SFAS 115, this security is considered to be
readily marketable and is classified as available-for-sale. This investment is
accounted for at fair market value at September 28, 1996 which totaled $10.9
million. The unrealized gain on marketable securities of $9.7 million is
recorded as a separate component of stockholders' equity at September 28, 1996.
INVENTORIES. Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method. Inventories consist primarily
of components and subassemblies and finished products held for sale. Rapid
technological change and new product introductions and enhancements could result
in excess or obsolete inventory. To minimize this risk, the company evaluates
inventory levels and expected usage on a periodic basis and records adjustments
as required.
In a few instances, the company is dependent upon certain vendors for the
manufacture of significant components of its server and mass storage systems. If
these vendors were to become unwilling or unable to continue to manufacture
these products in required volumes, the company would have to identify and
qualify acceptable alternative vendors. The inability to develop alternate
sources, if required in the future, could result in delays or reductions in
product shipments. With respect to sole-sourced materials, the company has not
experienced any problems relative to the timeliness of product availability or
quality matters. To protect against such problems, however, the company has
generally implemented special inventory plans for these components. These plans
are designed to ensure that, if the sole-sourced supplier were unable to meet
the company's requirements, there would be sufficient inventory available to
cover the time required to re-engineer the product or develop an alternative
source of supply.
<PAGE>
PROPERTY, PLANT, AND EQUIPMENT. Property, plant, and equipment is stated at
cost, less accumulated depreciation. Depreciation is computed using the
straight-line method, based on the following estimated useful lives: land
improvements, 10-12 years; buildings and building improvements, 3-25 years;
equipment, 3-10 years. Included in property, plant, and equipment are computer
equipment spares which are not available for resale. These spares are used to
support systems the company has sold or is using internally. Spares are
depreciated over a 3 year estimated useful life.
REVENUE RECOGNITION AND MAJOR CUSTOMERS. Product revenues are recognized at the
time of shipment. Service revenues, including post contract customer support,
are recognized ratably over applicable contractual periods or as services are
performed. The costs of these service revenues are charged to expense when
incurred.
During the year ended September 28, 1996, revenues from an Open CLARiiON
customer totaled $201 million, or approximately 15% of total revenues. The
company did not have any customers with revenues exceeding 10% of the company's
total revenues during fiscal 1995 and 1994.
RESEARCH & DEVELOPMENT, SOFTWARE DEVELOPMENT, AND WARRANTY COSTS. Research,
engineering, and product development costs are expensed as incurred. Software
development costs incurred after reaching technological feasibility are
capitalized and amortized to cost of product revenues over a period not to
exceed 4 years for operating system software and 3 years for application
software, which approximates the estimated economic lives of these software
products. On a quarterly basis, the company evaluates the recoverability of
capitalized software costs. In performing its evaluation, the company must make
estimates of anticipated future gross revenues as well as the remaining economic
lives of the product. It is reasonably possible that the estimates of the
remaining estimated economic life of these software products may be reduced. As
a result, the carrying amount of the capitalized software costs for a particular
software product may be reduced. Unamortized software development costs were
$60.7 million at September 28, 1996 and $49.1 million at September 30, 1995.
Writeoffs of certain capitalized software development costs totaled
approximately $2.7 million, $1.3 million and $2.7 million for fiscal years 1996,
1995 and 1994, respectively. Estimated direct on-line diagnostic support and
warranty costs are accrued at the time of product shipment.
ADVERTISING. Advertising costs are charged to operations when incurred. The
company has not incurred any costs associated with direct-response advertising
during fiscal years 1996, 1995 and 1994, and there were no capitalized
advertising costs at September 28, 1996, September 30, 1995 and September 24,
1994. Advertising expenses for fiscal 1996, 1995, and 1994 were $12.6 million,
$21.0 million, and $18.1 million, respectively.
RETIREMENT/POST-EMPLOYMENT BENEFITS. Net pension cost for the company's domestic
defined benefit pension plan is funded as accrued, to the extent that current
pension cost is deductible for U.S. Federal tax purposes and complied with the
General Agreement on Tariff and Trade Bureau (GATT) additional minimum funding
requirements for the plan year beginning October 1, 1995. The plan's transition
surplus is amortized over 19 years. Net pension cost for the company's
international defined benefit pension plans is generally funded as accrued. The
net transition surplus or obligation for these plans is amortized over periods
ranging from 15 to 20 years.
Net postretirement benefit costs for the company's domestic postretirement
benefits plan are generally funded as accrued, to the extent that current cost
is deductible for U.S. Federal tax purposes. The net transition obligation for
the plan is amortized over 19 years.
INCOME TAXES. In fiscal 1994, the company adopted 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. Deferred tax expense represents the change in the net
deferred tax asset or liability balance. In estimating future tax consequences,
SFAS 109 generally considers all expected future events other than enactments of
changes in the tax law or rates.
EARNINGS PER SHARE. Primary net income (loss) per share is based upon the
weighted average number of common shares outstanding, including dilutive common
stock equivalents. Common stock equivalents represent the net additional shares
resulting from the assumed exercise of options outstanding under the company's
stock option plans, using the "treasury stock" method. Net income (loss) per
share assuming full dilution is based upon the weighted average number of common
shares outstanding, including dilutive common stock equivalents and assumed
conversion of the company's 7 3/4% Convertible Subordinated Debentures, if
dilutive. For fiscal 1996, 1995 and 1994, these debentures are anti-dilutive and
have been excluded from the calculation.
OTHER RECENT PRONOUNCEMENTS. In March 1995, the Financial Accounting Standards
Board ("FASB") issued SFAS 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of". In October 1995, FASB
issued SFAS 123, "Accounting for Stock-Based Compensation". In June 1996, FASB
issued SFAS 125, "Accounting for Transfer and Servicing of Financial Assets and
Extinguishments of Liabilities". The company will implement SFAS 123 using the
proforma disclosure method described in the pronouncement in fiscal 1997. SFAS
121 and 123 are effective for fiscal years beginning after December 15, 1995.
SFAS 125 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996. The company
will implement these statements as required. The future adoption of SFAS 121 and
125 is not expected to have a material effect on the company's consolidated
financial position or results of operations.
<PAGE>
NOTE 3. RESTRUCTURING
During fiscal years 1995 and 1994, the company recorded restructuring provisions
of $43 million and $35 million, respectively. The amounts accrued and charged
against the established provisions were as follows:
<TABLE>
<CAPTION>
CURRENT CURRENT
BEGINNING YEAR YEAR ENDING
IN MILLIONS BALANCE PROVISION CHARGES BALANCE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FISCAL 1996 ACTIVITY
Provision related to terminated employees ........... $ 12.4 $ -- $ (9.9) $ 2.5
Provisions for leases ............................... 17.4 -- (7.4) 10.0
Writedown of assets to be sold or discarded and
other ............................................... 7.1 -- (5.1) 2.0
------- ------- -------- -------
Total ............................................ $ 36.9 $ -- $ (22.4) $ 14.5
------- ------- -------- -------
FISCAL 1995 ACTIVITY
Provision related to terminated employees ........... $ 19.7 $ 23.0 $ (30.3) $ 12.4
Provisions for leases ............................... 14.0 12.9 (9.5) 17.4
Writedown of assets to be sold or discarded and
other ............................................... 3.0 7.1 (3.0) 7.1
------- ------- -------- -------
Total ............................................ $ 36.7 $ 43.0 $ (42.8) $ 36.9
------- ------- -------- -------
</TABLE>
The 1995 restructuring charge included provisions for the termination of
approximately 520 employees as part of the company's continuing cost reduction
programs and realignment of the company's various sales, manufacturing, and
administrative operations. The fiscal 1995 provision for leases was primarily
for costs associated with vacated leased properties, mainly in Western Europe
and Australia, as a result of the company's ongoing centralization and
downsizing of its international operations. At September 28, 1996, the company
substantially completed the employee terminations related to the 1995
restructuring charges. The remaining reserves at September 28, 1996 are for the
remaining severance payments due to employees impacted by the restructuring
actions. The charges and remaining reserves for leases are for various domestic
branch sales offices and excess vacant rental properties, primarily located in
Europe.
The 1994 restructuring charge included provisions for the termination of
approximately 570 employees as part of the realignment of the company's
worldwide sales and service organizations. At September 28, 1996, the company
substantially completed the employee terminations related to the 1994
restructuring charges. The 1994 provision for leases relates primarily to the
closure of various domestic branch sales offices and excess vacant properties,
located primarily in the United Kingdom. The writedown of fixed assets was
primarily associated with consolidating certain activities in the European
marketplace. The fiscal 1993 restructuring actions were substantially concluded
prior to fiscal 1995. All charges, excluding asset writedowns, are principally
cash in nature. There have been no material changes in the company's previously
announced restructuring actions or the estimates accrued at September 28, 1996.
NOTE 4. CONSOLIDATED BALANCE SHEET DETAILS
<TABLE>
<CAPTION>
SEPT. 28, SEPT. 30,
IN THOUSANDS 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
INVENTORIES:
Raw materials .................................... $ 4,560 $ 9,173
Work in process .................................. 50,769 28,309
Finished systems ................................. 43,710 51,199
Field engineering parts and components ........... 30,744 35,464
--------- ---------
Total inventories ........................... $ 129,783 $ 124,145
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land ............................................. $ 2,997 $ 3,433
Buildings and improvements ....................... 78,493 84,416
Manufacturing and design equipment ............... 91,180 95,005
Data processing, office, and other equipment ..... 374,962 356,563
Computer equipment spares ........................ 91,340 95,583
--------- ---------
Total property, plant and equipment ......... 638,972 635,000
Accumulated depreciation ......................... (471,300) (460,086)
--------- ---------
Total property, plant and equipment, net .... $ 167,672 $ 174,914
--------- ---------
OTHER CURRENT LIABILITIES
Accrued employee compensation and benefits ....... $ 77,223 $ 68,247
Deferred revenues ................................ 44,621 43,185
Accrued restructuring charges .................... 14,543 36,863
Other accrued expenses ........................... 104,309 102,165
Current portion of long-term debt ................ 1,920 1,420
--------- ---------
Total other current liabilities ............. $ 242,616 $ 251,880
--------- ---------
</TABLE>
During the current fiscal year, the company sold two of the facilities that it
had previously closed as a result of cost reduction programs. The company sold
its Milford, Massachusetts, and the remaining portion of its Woodstock,
Connecticut facilities for proceeds of $6.3 million and $.5 million,
respectively.
During the current fiscal year, the company retired fully depreciated computer
equipment spares with an original cost of $16.0 million.
NOTE 5. NOTES PAYABLE
Notes payable at September 28, 1996 and September 30, 1995 consisted of
borrowings by Data General France SAS of $2.0 million. The borrowings are
unsecured, and involve no commitment fees or compensating balances. The interest
rate on the borrowings is .5% per annum above the Paris Interbank Offered Rate
(PIBOR), and was 4.4% and 6.9% at September 28, 1996 and September 30, 1995,
respectively. The weighted average interest rate on outstanding funds was 5.5%
and 7.1% during the years ended September 28, 1996 and September 30, 1995,
respectively. The weighted average interest rate during the period is based on
borrowings outstanding at the end of each of the company's twelve fiscal
periods.
<PAGE>
At September 28, 1996, the company has a $30 million unsecured letter of credit
and reimbursement facility with a group of banks. This agreement is available to
secure issuance of letters of credit. The facility contains 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 the current letter of credit facility is 2.0% per annum above a base rate.
The base rate is equal to the greater of prime rate or the Federal Funds
Effective Rate plus .5%. Commitment fees paid on available funds during fiscal
year 1996 and 1995 were not material. There were $8.0 million of letters of
credit secured by this facility at September 28, 1996. At September 30, 1995,
there were $8.3 million of letters of credit secured by this letter of credit
facility. The current facility has a duration of 364 days and expires on
December 18, 1996. The company is currently in the process of negotiating
amendments to this letter of credit facility which would extend its expiration
date to December 17, 1997.
NOTE 6. INCOME TAXES
Domestic and foreign income (loss) before taxes, and details of the income tax
provision (benefit) are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------
SEPT. 28, SEPT. 30, SEPT. 24,
IN THOUSANDS 1996 1995 1994
- ------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME (LOSS) BEFORE TAXES
Domestic ................. $ 32,200 $(13,336) $(54,201)
Foreign .................. (555) (24,762) (31,392)
-------- -------- --------
$ 31,645 $(38,098) $(85,593)
-------- -------- --------
INCOME TAX PROVISION (BENEFIT):
Current:
Federal .................. $ 650 $ 1,000 $ --
Foreign .................. 1,076 1,175 1,896
State .................... 800 2,000 700
-------- -------- --------
Total Current ....... 2,526 4,175 2,596
-------- -------- --------
Deferred:
Federal .................. 1,350 2,500 --
Foreign .................. (376) 1,930 (496)
-------- -------- --------
Total Deferred ...... 974 4,430 (496)
-------- -------- --------
$ 3,500 $ 8,605 $ 2,100
-------- -------- --------
</TABLE>
Deferred income taxes reflect the tax impact of temporary differences between
the amount of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws and regulations. Under SFAS 109, the benefit
associated with future deductible temporary differences is recognized if it is
more likely than not that a benefit will be realized. Based on the weight of
available evidence, the company has recorded a valuation allowance that offsets
substantially all net deferred tax assets as of the end of each related year.
The amount of the deferred tax asset considered realizable is subject to change
based on estimates of future taxable income during the carryforward period. The
company will assess the need for the valuation allowance at each balance sheet
date based on all available evidence. Principal components of the deferred tax
assets and liabilities included on the balance sheet at September 28, 1996 and
September 30, 1995 were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
------------------------
SEPT. 28, SEPT. 30,
IN THOUSANDS 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS
Inventory ....................................... $ 9,040 $ 8,428
Operating expenses .............................. 58,563 44,922
Intercompany profit in inventory and fixed assets 5,693 6,666
Depreciation .................................... 4,597 8,922
Restructuring ................................... 5,817 15,129
Stock option plans .............................. 5,527 5,425
Interest on convertible debentures .............. 1,292 1,292
Net operating losses ............................ 122,684 119,579
Tax credits ..................................... 11,796 9,765
--------- ---------
Gross deferred tax assets .................. 225,009 220,128
Less: Valuation allowances ...................... 204,017 201,255
--------- ---------
Total deferred tax assets .................. 20,992 18,873
--------- ---------
DEFERRED TAX LIABILITIES
Capitalized software development costs .......... (24,280) (18,437)
Other ........................................... (1,854) (4,604)
--------- ---------
Total deferred tax liabilities ............. (26,134) (23,041)
--------- ---------
Net deferred tax liabilities ............... $ (5,142) $ (4,168)
--------- ---------
</TABLE>
Reconciliation of the U.S. Federal statutory rate to the company's effective tax
rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------
SEPT. 28, SEPT. 30, SEPT. 24,
1996 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Federal statutory rate ............. 35.0% (35.0)% (35.0)%
State income taxes ...................... 2.5 5.2 .8
Net domestic and foreign
losses without tax benefits ........ 15.9 51.0 38.2
Net operating loss carryforwards utilized (43.0) (5.7) (2.2)
Foreign income taxed at different rates . (1.5) 4.4 0.1
Alternative minimum tax ................. 2.1 2.6 --
Other ................................... 0.1 0.1 0.6
---- ---- ----
Effective tax rate ...................... 11.1% 22.6% 2.5%
---- ---- ----
</TABLE>
<PAGE>
The company has U.S. Federal and foreign operating loss carryforwards of
approximately $332 million and tax credit carryforwards of approximately $12
million. The operating loss carryforwards expire in the years 1997 through 2010.
The tax credit carryforwards expire in the years 2000 through 2004.
Provision has not been made for U.S. or additional foreign taxes on
approximately $82 million of undistributed earnings of foreign subsidiaries, as
those earnings are considered to be permanently reinvested. Such earnings would
become taxable upon the sale or liquidation of these foreign subsidiaries or
upon the remittance of dividends. It is not practicable to estimate the amount
of the deferred tax liability on such earnings. Upon remittance, certain foreign
countries impose withholding taxes that are then available, subject to certain
limitations, for use as credits against the company's U.S. tax liability, if
any. The amount of withholding tax that would be payable upon remittance of the
entire amount of undistributed earnings would approximate $.9 million.
NOTE 7. LONG-TERM DEBT
<TABLE>
<CAPTION>
SEPT. 28, SEPT. 30,
IN THOUSANDS 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
7 3/4% Convertible Subordinated Debentures due 2001 $ 125,000 $ 125,000
8 3/8% Sinking Fund Debentures due 2002 ........... 26,891 29,877
--------- ---------
151,891 154,877
Less: current portion ............................. (1,920) (1,420)
--------- ---------
$ 149,971 $ 153,457
--------- ---------
</TABLE>
Maturities and sinking fund requirements for the next five fiscal years are as
follows: 1997 -- $1,920; 1998 -- $3,500; 1999 -- $3,500; 2000 -- $3,500; 2001 --
$128,500.
The 7 3/4% Convertible Subordinated Debentures are convertible at the option of
the holder, at any time prior to redemption or repurchase, into shares of Common
Stock of the company at a conversion price of $19.20 per share, subject to
adjustment for certain events. The debentures are subordinated to all Senior
Indebtedness (as defined in the indenture under which the debentures were
issued). At the option of the company, the debentures may be redeemed at any
time after June 1, 1994 at decreasing redemption prices, and may be redeemed at
the option of the holder if there is a Fundamental Change (as defined in the
indenture) in the company's operations. The indenture does not contain any
financial covenants or any restrictions on the payment of dividends or the
repurchase of the company's securities. Deferred debt issuance costs at
September 28, 1996 of $1.9 million are being amortized to interest expense over
the life of the debentures.
The 8 3/8% Sinking Fund Debentures are subject to mandatory sinking fund
payments which provide for annual principal retirements of $3.5 million through
2001. The company has the option, under certain conditions, to increase the
sinking fund payments or to redeem the debentures prior to maturity. Through
fiscal 1996, the company reacquired a total of $33.1 million principal amount of
debentures. Of all acquired debentures, $31.5 million principal amount was used
to satisfy sinking fund requirements through fiscal 1996. Subsequent to
September 28, 1996, the company reacquired an additional $3.9 million principal
amount of the debentures. The remainder of all acquired debentures may be used
to satisfy future sinking fund requirements. The debentures are subject to
covenants which include certain limitations on the incurrence of additional
debt, and the payment of dividends.
NOTE 8. FINANCIAL INSTRUMENTS, COMMITMENTS AND CONTINGENCIES
FINANCIAL INSTRUMENTS. The company enters into various types of financial
instruments in the normal course of business. Fair values for certain financial
instruments are based on quoted market prices. For other financial instruments,
fair values are estimated based on assumptions concerning the amount and timing
of estimated future cash flows and assumed discount rates reflecting varying
degrees of perceived risk. Accordingly, the fair values may not represent actual
values of the financial instruments that could have been realized as of year end
or that will be realized in the future.
Fair values for cash and temporary cash investments, marketable debt securities,
accounts receivable, notes payable, accounts payable, and accrued expenses
approximate carrying value at September 28, 1996 and September 30, 1995, due to
the relatively short maturity of these financial instruments. In fiscal year
1996, an equity security held by the company as an investment and previously
accounted for under the cost method began trading on a public stock exchange and
is classified as available-for-sale. The fair value of this marketable equity
security at September 28, 1996 totaled $10.9 million. The fair value of
investments and notes receivable, included in other assets, was $2.2 million and
$4.6 million at September 28, 1996 and September 30, 1995, respectively, which
is equal to their carrying values in both years. The fair value of long-term
debt, including debt due within one year, at September 28, 1996 and September
30, 1995 was $151.1 million and $142.9 million, respectively, compared to
carrying values of $151.9 million and $154.9 million, respectively.
The company enters into various forward contracts to limit its exposure to
fluctuations in foreign currency exchange rates. As of September 28, 1996, in
connection with the company's foreign exchange hedging programs, the company had
entered into forward exchange contracts to purchase $67.5 million and to sell
$117.4 million in various foreign currencies. The company's exposure to credit
risk is believed to be minimal since the counterparties are major financial
institutions. The market risk exposure is limited to risk related to currency
rate movements. As substantially all of these contracts were entered into
shortly before year end, the fair value of outstanding contracts at September
28, 1996, not material in amount, approximates the original value of the forward
contracts. Between the end of this fiscal year and October 1, 1996, forward
exchange contracts to purchase $63 million and to sell $69.7 million in various
foreign currencies matured and were settled. The remaining contracts mature at
various dates through January 28, 1997.
<PAGE>
The company's temporary cash investments, marketable securities and accounts
receivable are subject to potential concentrations of credit risk. The company's
investment policies limit the amount of investments in a single institution and
restrict investments to low-risk, highly liquid securities. Portions of the
company's trade receivables are concentrated in the U.S. government and in the
health care industry. Management does not believe that the company is subject to
any unusual risk beyond the normal credit risk attendant to operating its
business. Ongoing credit evaluations of customers' financial condition are
performed and generally, collateral is not required. The company maintains
reserves for potential credit losses and such losses, in the aggregate, have not
exceeded management's expectations.
In the normal course of business, the company enters into certain sales-type
lease arrangements with customers. These leases are generally sold to third
party financing institutions. A portion of these arrangements contain certain
recourse provisions under which the company remains liable. The company's
maximum exposure under the recourse provisions was approximately $13.7 million,
net of related reserves. A portion of this contingent obligation is
collateralized by security interests in the related equipment. The fair value of
the recourse obligation at September 28, 1996 was not determinable as no market
exists for these obligations.
LEASE COMMITMENTS. Lease agreements are primarily for sales and service offices
and the company's corporate headquarters. The leases expire at various dates
through 2014 and some contain options for renewal. Rental expense, including
amounts charged against previously established restructuring reserves for vacant
and sublet properties, was $32.2 million, $32.3 million, and $32.5 million for
fiscal years 1996, 1995 and 1994, respectively.
Future minimum rental payments under existing non-cancelable operating leases as
of September 28, 1996 are as follows:
FISCAL YEAR IN MILLIONS
- --------------------------------------
1997 .................... 28.8
1998 .................... 21.4
1999 .................... 16.1
2000 .................... 13.9
2001 .................... 12.2
Subsequent to 2001 ...... 44.4
------
$ 136.8
------
A majority of the leases contain escalation clauses which provide for increases
in base rentals to recover increases in future operating costs. The future
minimum rental payments shown above include base rentals, exclusive of any
future escalation. Approximately $49 million, prior to amounts expected to be
recovered through subleases, of the future minimum rental payments shown above
relate to facilities which have been closed or are expected to be closed as the
result of the company's restructuring and cost reduction program. A portion of
the future rental obligations for these facilities, net of amounts expected to
be recovered through existing and future subleases, has been accrued as part of
the restructuring charges.
LITIGATION. In fiscal 1995, the company settled with Northrop Grumman
Corporation its six-year copyright infringement and trade secrets litigation
against Grumman Support Systems Corporation ("Grumman"). Under the terms of this
settlement, Grumman paid the company $53 million and the parties have dismissed
all pending litigation. The company recognized a pre-tax gain, net of related
legal fees and other expenses, of $44.5 million resulting from the settlement,
which is included in other income, net, in the Consolidated Statement of
Operations.
In November 1994, the company commenced an action against IBM Corporation in the
United States District Court for the District of Massachusetts, in Worcester,
Massachusetts claiming several IBM products including the AS/400 mid-range
systems and System/390 mainframe line, infringe various company patents. The
suit seeks, among other relief, compensatory damages. In January 1995, IBM
answered the complaint, denied the company's infringement claims and
counterclaimed against the company, alleging that the company's AViiON and
CLARiiON products infringed various IBM patents. This action is in the discovery
stage.
In May 1996, the company commenced an additional action against IBM in the
United States District Court for the District of Massachusetts, in Worcester,
Massachusetts, in which the company claims that several IBM products, including
IBM's current AS/400 RISC-based computer product line, infringe up to five
company patents. (Four of the five patents involved in this action are also
involved in the proceedings initiated by the company against IBM in November
1994, described in the previous paragraph.) The suit seeks, among other relief,
injunctive and compensatory damages.
Although the company believes its claims are valid, it cannot predict the
outcome of the litigation. In the opinion of management, based on preliminary
evaluation of the IBM patents covered in the counterclaim, and subject to the
risks of litigation, the counterclaims are without merit, the company will
prevail thereon and the counterclaims will not have a material adverse impact on
the results of operations or the financial position of the company.
The company and certain of its subsidiaries are involved in various other patent
infringement, contractual, and proprietary rights suits. In the opinion of
management, the conclusion of these suits will not have a material adverse
effect on the financial position or results of operations and cash flows of the
company and its subsidiaries.
<PAGE>
NOTE 9. STOCKHOLDERS' EQUITY
The company has 100,000,000 authorized shares of common stock. As of September
28, 1996, 39,821,000 shares of common stock have been issued, of which 220,000
shares with a cost of $6.5 million are held by the company as treasury shares.
During fiscal 1996, 1,668,000 additional shares were issued. As of September 30,
1995, 38,153,000 shares of common stock had been issued, of which 220,000 shares
with a cost of $6.5 million were held by the company as treasury shares.
The company has 1,000,000 authorized shares of $.01 par value preferred stock.
The company's Board of Directors (the "Board") is authorized to issue shares of
preferred stock in such series and with such terms and conditions as the Board
may determine. In connection with the adoption of the company's Stockholder
Rights Plan (see below), 400,000 shares of preferred stock have been designated
as Series A Junior Participating Preferred Stock. No shares of preferred stock
have been issued as of September 28, 1996.
Under the Stockholder Rights Plan adopted in 1986, as amended, a dividend of
Stock Purchase Rights (the "Rights") was paid. The Rights enable common
stockholders to purchase from the company shares of Series A Junior
Participating Preferred Stock under certain circumstances following the
acquisition of, or attempt to acquire, 20% or more of the company's common stock
or a determination that an "adverse person" has purchased 15% or more of the
common stock. The Rights also entitle common stockholders to purchase shares of
the company's or an acquirer's common stock at one-half of market value under
circumstances which include certain transactions by or with a potential
acquirer, including "adverse persons", and mergers and certain asset sales. The
Rights may be redeemed by the company under certain circumstances.
NOTE 10. STOCK PLANS
EMPLOYEE QUALIFIED STOCK PURCHASE PLAN. This plan covers substantially all
employees and authorizes the issuance of a maximum of 8,600,000 shares of common
stock upon exercise of nontransferable options granted semiannually. The options
are exercisable six months after grant, at the lower of 85% of market value at
the beginning or end of the six-month period, through accumulation of payroll
deductions of up to 10% of each participating employee's regular base pay at the
beginning of each period. During fiscal 1996, options were exercised to purchase
706,000 shares at an average price of $7.89 per share. Unissued shares of common
stock reserved for future issuance under this plan were 359,000 shares at
September 28, 1996 and 1,065,000 shares at September 30, 1995.
EMPLOYEE STOCK OPTION PLAN. This plan authorizes the grant of either incentive
stock options or non-qualified stock options to key employees, including
officers and directors, to purchase up to 7,000,000 shares of common stock. For
incentive options, the purchase price is equal to the fair market value on the
date of grant. For non-qualified options the purchase price is determined by the
Employee Stock Option Plan Committee within limits as set forth in the plan.
Options granted under the plan generally are immediately exercisable and include
restrictions against disposition of the shares and a requirement, upon
termination of employment, to offer unvested shares for resale to the company at
their original purchase price. The periods over which restrictions lapse are
determined by the Employee Stock Option Plan Committee. Options may expire up to
ten years after date of grant. During fiscal 1995, 3,000,000 additional shares
of common stock were authorized for issuance under the plan and the termination
date of the plan was extended to November 2, 2004. Effective fiscal 1995, the
Employee Stock Option Plan Committee has discretion to designate options as
transferable.
Additional information concerning activity during fiscal 1996 is as
follows:
<TABLE>
<CAPTION>
SHARES
RESERVED FOR OPTIONS AVERAGE
FUTURE GRANTS OUTSTANDING PRICE
(000's) (000's) PER SHARES
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
September 30, 1995 .................. 2,540 3,212 $ 6.38
Options granted ................ (413) 413 $ 7.02
Options exercised .............. -- (287) $ 4.85
Option canceled ................ 180 (180) $ 6.45
----- ------
September 28, 1996 .................. 2,307 3,158 $ 6.61
----- ------
</TABLE>
RESTRICTED STOCK OPTION PLAN. This plan authorizes the grant of options to key
employees, including officers, directors, and consultants, to purchase up to
11,000,000 shares of the company's common stock. Option prices are determined by
the Restricted Stock Option Plan Committee within limits as set forth in the
plan. Options granted are immediately exercisable and include restrictions
against disposition of the shares and a requirement, upon termination of
employment, to offer unvested shares for resale to the company at their original
purchase price. The periods over which restrictions lapse are determined by the
Restricted Stock Option Plan Committee. Employees may use previously acquired
shares of the company's common stock to pay the exercise price of shares
purchased.
<PAGE>
Additional information concerning activity during fiscal 1996 is as follows:
<TABLE>
<CAPTION>
SHARES
RESERVED FOR OPTIONS AVERAGE
FUTURE GRANTS OUTSTANDING PRICE
(000's) (000's) PER SHARES
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
September 30, 1995 .................. 311 2,230 $ 4.22
Options granted ................ (211) 211 $ 5.27
Options exercised .............. -- (671) $ 4.00
Option canceled ................ 118 (118) $ 4.37
--- ------
September 28, 1996 .................. 218 1,652 $ 4.49
--- ------
</TABLE>
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN. This plan authorizes the grant of an
option to purchase 4,000 shares of common stock to each non-employee director on
the date of the director's annual election(s) to the Board of Directors. The
exercise price of options granted is 100% of the closing price per share of
common stock on the date of grant. An aggregate of 150,000 shares of common
stock may be issued under the plan. Options granted are immediately exercisable
and include restrictions against disposition of the shares. Should the optionee
cease to serve as a director, except under certain circumstances, any restricted
shares must be offered to the company at their original purchase price.
Restrictions lapse cumulatively to the extent of 25% of the grant on each
anniversary of the date of grant. During fiscal 1996, 24,000 options were
granted at an average price of $15.75 per share. At September 28, 1996, options
to purchase 64,000 shares at an average price of $11.17 per share were
outstanding and 86,000 shares were reserved for future grants.
NON-EMPLOYEE DIRECTOR RESTRICTED STOCK OPTION PLAN. This plan authorized the
grant of an option to purchase 4,000 shares of common stock to each non-employee
director upon his initial election to the Board of Directors. The exercise price
of options granted is the lesser of 50% of the book value per share of common
stock at the end of the fiscal year preceding the date of grant or 25% of the
fair market value per share on the date of grant. An aggregate of 32,000 shares
of common stock may be issued under the plan. Options granted are immediately
exercisable and include restrictions against disposition of the shares. Should
the optionee cease to serve as a director, except under certain circumstances,
any restricted shares must be offered to the company at their original purchase
price. Restrictions lapse cumulatively to the extent of 25% of the grant on each
anniversary of the date of grant. During fiscal 1996, options were exercised to
purchase 4,000 shares at an average price of $10.50 per share. At September 28,
1996, options to purchase 10,000 shares at an average purchase price of $2.66
per share were outstanding. This plan terminated on December 31, 1994.
Outstanding options can be exercised until their expiration date. No new options
can be issued.
In connection with the Restricted Stock Option Plan, the Non-Employee Director
Restricted Stock Option Plan, and non-qualified options issued under the
Employee Stock Option Plan, the aggregate excess of fair market value over
option price on the dates of grant is treated as deferred compensation. Such
deferred compensation is amortized to expense over the period of the
restrictions and is credited to additional paid-in capital.
NOTE 11. BENEFIT PLANS The company has a noncontributory defined benefit pension
plan which covers substantially all U.S. employees. The company also has a
supplemental retirement benefit plan, which covers certain U.S. employees.
Benefits under the plans are based on an employee's regular base pay and
creditable years of service, as defined in the plans. Certain of the company's
foreign subsidiaries also have retirement plans covering substantially all of
their employees. Benefits under these plans are generally based on either career
average or final average salaries and creditable years of service, as defined in
the plans. The annual cost for these plans is determined using the projected
unit credit actuarial cost method which includes significant actuarial
assumptions and estimates which are subject to change in the near term. Prior
service cost is amortized over the average remaining service period of employees
expected to receive benefits under the plan. Funds contributed to the plans are
invested primarily in common stocks, mutual funds, global bond funds and cash
equivalent securities.
The components of net pension expense are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------
SEPT. 28, SEPT. 30, SEPT. 24,
IN THOUSANDS 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost ............................... $ 7,468 $ 7,806 $ 8,608
Interest on projected benefit obligation ... 12,736 11,504 10,506
Actual return on plan assets ............... (14,362) (17,460) (3,286)
Deferral of net actuarial gains (losses) and
amortization of transition surplus and
prior service cost .................... 2,283 7,850 (6,083)
Curtailment loss, net of settlement gain ... (50) 817 533
-------- -------- --------
Net pension expense ........................ $ 8,075 $ 10,517 $ 10,278
-------- -------- --------
</TABLE>
The funded status of the plans is as follows:
<TABLE>
<CAPTION>
SEPT. 28, SEPT. 30,
IN THOUSANDS 1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C>
ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS:
Vested benefit obligation .................................. $ 150,779 $ 134,251
--------- ---------
Accumulated benefit obligation ............................. $ 158,683 $ 141,950
--------- ---------
Projected benefit obligation ............................... $ 178,353 $ 157,666
Market value of plan assets ..................................... 150,096 125,257
--------- ---------
Excess of projected benefit obligation over plan assets ......... 28,257 32,409
Unrecognized actuarial gain ..................................... 5,871 7,769
Unrecognized prior service cost ................................. (17,995) (18,166)
Unrecognized transition surplus, net ............................ 7,062 7,893
--------- ---------
Net pension liability included in current and other liabilities . $ 23,195 $ 29,905
--------- ---------
ASSUMPTIONS USED IN COMPUTING THE FUNDED
STATUS OF THE PLANS:
Weighted average discount rate ............................. 8.00% 8.00%
Expected long-term weighted average rate of return of assets 9.65% 9.57%
Weighted average rate of increase in compensation levels ... 4.31% 4.34%
</TABLE>
<PAGE>
As a result of the company's restructuring and cost containment programs,
pension curtailment losses of $.9 million and $.7 million were recognized in
fiscal 1995 and 1994, respectively. These amounts were previously reserved as
part of the fiscal 1994 and 1993 restructuring charges.
The company also has foreign defined contribution pension plans. Total pension
cost charged to expense for these plans was $1.6 million in fiscal 1996, $1.7
million in fiscal 1995, and $1.5 million in fiscal 1994.
The company's postretirement benefit plan provides certain medical and life
insurance benefits for retired employees. Substantially all U.S. employees of
the company may become eligible for these benefits if they remain employed until
normal retirement age and fulfill other eligibility requirements as specified by
the plan. With the exception of certain participants who retired prior to 1986,
the medical benefit plan requires monthly contributions by retired participants
in amounts equal to insured equivalent costs less a fixed company contribution
which is dependent on the participant's length of service and Medicare
eligibility. Benefits are continued to dependents of eligible retiree
participants for 39 weeks after the death of the retiree. The life insurance
benefit plan is noncontributory. Funds contributed to the plan are invested
primarily in common stocks, mutual funds and cash equivalent securities.
The components of net periodic postretirement benefit cost are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------
SEPT. 28, SEPT. 30, SEPT. 24,
IN THOUSANDS 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost .............................. $ 293 $ 308 $ 345
Interest on projected benefit obligation .. 655 657 676
Actual return on plan assets .............. (56) (150) (339)
Deferral of net actuarial gains and
amortization of transition surplus and
prior service cost ................... 282 344 482
------- ------- -------
Net pension expense ....................... $ 1,174 $ 1,159 $ 1,164
------- ------- -------
</TABLE>
The funded status of the plans is as follows:
<TABLE>
<CAPTION>
IN THOUSANDS SEPT. 28, SEPT. 30,
1996 1995
- ------------ ----------------------------------------------------------------------------
<S> <C> <C>
ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION:
Retirees ................................................... $ 3,989 $ 3,995
Fully eligible active plan participants .................... 1,088 1,031
Other active plan participants ............................. 3,683 3,490
------- -------
Total accumulated postretirement benefit obligation ............. 8,760 8,516
Market value of plan assets ..................................... 66 389
------- -------
Excess of accumulated postretirement benefit obligation
over plan assets ........................................... 8,694 8,127
Unrecognized transition obligation .............................. (2,468) (2,645)
Unrecognized prior service cost ................................. (791) (862)
Unrecognized actuarial gain ..................................... 1,118 924
------- -------
Net postretirement benefit liability included
in current and other liabilities ........................... $ 6,553 $ 5,544
------- -------
ASSUMPTIONS USED IN COMPUTING THE FUNDED
STATUS OF THE PLANS:
Weighted average discount rate ............................. 8.00% 8.00%
Expected long-term weighted average rate of return of assets 10.00% 10.00%
</TABLE>
For participants who receive full retiree medical benefits, the medical premium
rates were assumed to increase at 7% for fiscal 1996 and thereafter. A 1%
increase in the medical trend rate would not have a significant impact on the
accumulated postretirement benefit obligation as of October 1, 1996.
<PAGE>
NOTE 12. GEOGRAPHIC SEGMENT DATA
The company's operations involve a single industry segment -- the design,
manufacture, sale and support of multi-user computer systems, servers, and mass
storage devices.
Financial information, summarized by geographic area, is presented below.
<TABLE>
<CAPTION>
OTHER
IN THOUSANDS UNITED STATES EUROPE INTERNATIONAL ELIMINATIONS CONSOLIDATED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 28, 1996
Total revenues:
Unaffiliated customers ................. $ 941,916 $ 263,461 $ 116,873 $ 1,322,250
Interarea transfers .................... 120,810 -- 26,497 $ (147,307) --
----------- ----------- ----------- ----------- -----------
Total ............................. $ 1,062,726 $ 263,461 $ 143,370 $ (147,307) $ 1,322,250
----------- ----------- ----------- ----------- -----------
Income (loss) from operations ............... $ 42,277 $ 3,054 $ (9,613) $ 1,559 $ 37,277
----------- ----------- ----------- ----------- -----------
Identifiable assets ......................... $ 562,845 $ 177,903 $ 88,614 $ (106,897) $ 722,465
----------- ----------- ----------- -----------
Corporate assets ............................ 137,978
-----------
Total assets ...................... $ 860,443
-----------
YEAR ENDED SEPTEMBER 30, 1995
Total revenues:
Unaffiliated customers ................. $ 744,762 $ 295,357 $ 119,197 $ 1,159,316
Interarea transfers .................... 117,811 -- 20,416 $ (138,227) --
----------- ----------- ----------- ----------- -----------
Total ............................. $ 862,573 $ 295,357 $ 139,613 $ (138,227) $ 1,159,316
----------- ----------- ----------- ----------- -----------
Restructuring charge ........................ $ 19,168 $ 18,901 $ 4,931 $ 43,000
----------- ----------- ----------- -----------
Income (loss) from operations ............... $ (51,686) $ (15,108) $ (16,050) $ 6,890 $ (75,954)
----------- ----------- ----------- ----------- -----------
Identifiable assets ......................... $ 548,503 $ 193,971 $ 87,746 $ (104,248) $ 725,972
----------- ----------- ----------- -----------
Corporate assets ............................ 106,046
-----------
Total assets ...................... $ 832,018
-----------
YEAR ENDED SEPTEMBER 24, 1994
Total revenues:
Unaffiliated customers ................. $ 691,516 $ 303,754 $ 125,235 $ 1,120,505
Interarea transfers .................... 149,008 -- 18,084 $ (167,092) --
----------- ----------- ----------- ----------- -----------
Total ............................. $ 840,524 $ 303,754 $ 143,319 $ (167,092) $ 1,120,505
----------- ----------- ----------- ----------- -----------
Restructuring charge ........................ $ 20,800 $ 12,000 $ 2,200 $ 35,000
----------- ----------- ----------- -----------
Income (loss) from operations ............... $ (48,555) $ (18,282) $ (16,951) $ 4,010 $ (79,778)
----------- ----------- ----------- ----------- -----------
Identifiable assets ......................... $ 559,893 $ 239,669 $ 101,110 $ (179,389) $ 721,283
----------- ----------- ----------- -----------
Corporate assets ............................ 100,581
-----------
Total assets ...................... $ 821,864
-----------
</TABLE>
United States interarea transfers primarily represent shipments of equipment and
parts to international subsidiaries. Other international interarea transfers
primarily represent shipments of work in process and finished goods inventory
from manufacturing facilities to domestic operations. These interarea shipments
are made at transfer prices which approximate prices charged to unaffiliated
customers and have been eliminated from consolidated net revenues. United States
revenues from unaffiliated customers include direct export sales. Corporate
assets consist primarily of temporary cash investments and marketable
securities.
Total liabilities of international subsidiaries, before intercompany
eliminations, were $223.1 million at September 28, 1996 and $237.4 million at
September 30, 1995. Cumulative retained earnings of international subsidiaries
were $74.6 million at September 28, 1996 and $84.4 million at September 30,
1995.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
DATA GENERAL CORPORATION
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
OF DATA GENERAL CORPORATION
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows, and of stockholders'
equity present fairly, in all material respects, the financial position of Data
General Corporation and its subsidiaries at September 28, 1996 and September 30,
1995, and the results of their operations and their cash flows for each of the
three years in the period ended September 28, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Boston, Massachusetts
October 30, 1996
SUPPLEMENTAL FINANCIAL INFORMATION
DATA GENERAL CORPORATION
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
IN MILLIONS, EXCEPT PER SHARE AMOUNTS QUARTER QUARTER QUARTER QUARTER FISCAL YEAR
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FISCAL 1996:
Total revenues .................................... $ 327.6 $ 335.2 $ 323.2 $ 336.3 $ 1,322.3
Total cost of revenues ............................ 221.7 224.2 211.2 220.6 877.7
Net Income ........................................ 4.7 6.3 7.2 9.9 28.1
Net income per share .............................. $ 0.12 $ 0.15 $ 0.17 $ 0.24 $ 0.68
Net income per share assuming full dilution ....... $ 0.12 $ 0.15 $ 0.17 $ 0.24 $ 0.68
FISCAL 1995:
Total revenues .................................... $ 282.2 $ 283.8 $ 280.5 $ 312.8 $ 1,159.3
Total cost of revenues ............................ 183.9 186.7 190.7 210.7 772.0
Net Income (loss) ................................. 24.2(a) (11.1) (61.3)(b) 1.5 (46.7)
Net income (loss) per share ....................... $ 0.63 $ (0.30) $ (1.65) $ 0.04 $ (1.23)
Net income (loss) per share assuming full dilution $ 0.59 $ (0.30) $ (1.65) $ 0.04 $ (1.23)
</TABLE>
(a) Includes $44.5 million gain resulting from the settlement of litigation with
Northrop Grumman Corporation (see Note 8 of Notes to Consolidated Financial
Statements).
(b) Includes $43.0 million provision in fiscal year 1995 for estimated expenses
resulting from corporate-wide restructuring and cost reduction programs (see
Note 3 of Notes to Consolidated Financial Statements).
STOCK PRICE RANGE
The principal United States market on which the company's stock is traded is the
New York Stock Exchange. The following are the high and low sales prices for the
last two fiscal years.
<TABLE>
<CAPTION>
FISCAL 1996 FISCAL 1995
---------------------- ----------------------
HIGH LOW HIGH LOW
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First quarter ............... 14 3/4 9 1/4 11 1/2 9 1/8
Second quarter .............. 19 1/8 11 3/4 10 7/8 7 1/8
Third quarter ............... 17 1/8 12 1/4 10 1/8 7
Fourth quarter .............. 14 9 1/4 10 5/8 8 1/4
</TABLE>
<PAGE>
FACILITIES
DATA GENERAL CORPORATION
Data General does business in more than 70 countries through direct sales,
subsidiaries, distributors and representatives. The company has 32 subsidiaries
and approximately 250 sales and service offices. Major administrative,
development, manufacturing and support facilities, and subsidiaries'
headquarters locations are listed below.
FACILITY LOCATION
(Approximate Square Feet)
Westboro, Massachusetts corporate headquarters; administration;
(512,000/Leased) product development; special systems
Southboro, Massachusetts manufacturing service division; software
(545,000)* reproduction; distribution center; equipment
refurbishment; major unit repair; custom product
manufacturing; field engineering services and
logistics
Apex, North Carolina assembly, test and systems integration facility
(300,000)
Research Triangle Park, advanced systems research and development
North Carolina
(174,000)
Norcross, Georgia customer support center
(105,000/Leased)
Mississauga, Ontario sales; field engineering; administration
Canada
(32,000/Leased)
Etobicoke, Ontario, Canada product repair center
(18,000/Leased)
Chihuahua, Mexico product repair center
(67,000/Leased)
Schwalbach, Germany sales; customer education; services
(71,600/Leased)
Brentford, England sales; services; administration;
(120,000/Leased)** customer education
Manila, Philippines power supply and transformer manufacturing;
(68,000) communications products assembly and test
Melbourne, Australia product repair center; logistics and
(31,000/Leased) equipment refurbishment
* Includes 50,000 square-feet of space leased to a third party, and 200,000
square feet available for lease.
** Includes 30,000 square-feet of sub-leased space.
SUBSIDIARY HEADQUARTERS
Canada Toronto/Mississauga
ASIA/PACIFIC
Australia Sydney
Hong Kong
Japan Tokyo
Korea Seoul
Malaysia
New Zealand Wellington
Singapore
Thailand Bangkok
EUROPE
Austria Vienna
Belgium Brussels
Denmark Copenhagen/Glostrup
Finland Helsinki/Espoo
France Paris/Velizy
Germany Frankfurt/Schwalbach
Hungary Budapest
Italy Milan
Netherlands Amsterdam
Norway Olso/Voyenenga
Portugal Lisbon/Amadora
Spain Madrid
Sweden Stockholm/Kista
Switzerland Zurich
United Kingdom
and Ireland London/Brentford
LATIN AMERICA
Argentina Buenos Aires
Brazil Rio de Janeiro
Chile Santiago
Mexico Monterrey
Peru Lima
Puerto Rico San Juan
Venezuela Caracas
<PAGE>
OFFICERS, DIRECTORS AND SENIOR MANAGEMENT
DATA GENERAL CORPORATION
Frederick R. Adler Director, Chairman of the Executive Committee;
Retired Senior Partner, Fulbright & Jaworski
L.L.P. Attorneys at Law, New York, New York
Ethan Allen Jr. Vice President, Customer Services
Stephen P. Baxter Vice President, Europe
Ferdinand Colloredo-Mansfeld Director; Chairman of the Board, Cabot Partners
Limited Partnership, Boston, Massachusetts
William J. Cunningham* Senior Vice President, Manufacturing and Corporate
Quality
Arthur W. DeMelle* Senior Vice President; Chief Financial Officer
David J. Ellenberger* Vice President, Corporate Marketing
Jacob Frank Vice President and General Counsel
John J. Gavin Jr.* Vice President; Controller
Angelo Guadagno Vice President, Worldwide Channel Sales
Larry D. Hemmerich Vice President, CLARiiON Business Unit
Carl E. Kaplan Secretary; Senior Partner, Fulbright & Jaworski
L.L.P. Attorneys at Law, New York, New York
Robert C. McBride Vice President; Treasurer
John G. McElwee Director; Retired Chairman, John Hancock Mutual
Life Insurance Company, Boston, Massachusetts
Anthony C. Nicoletti Vice President, Asia/Pacific
Edward F. Pensel Vice President, Manufacturing Operations
James J. Ryan Vice President, Information Management Group
Joel Schwartz* Senior Vice President, Worldwide Sales and
Marketing
Ronald L. Skates President and Chief Executive Officer; Director
W. Nicholas Thorndike Director; Corporate Director and Trustee
Donald H. Trautlein Director; Retired Chairman, Bethlehem Steel
Corporation, Bethlehem, Pennsylvania
Richard L. Tucker Director; Managing Director, Trinity Investment
Management Corporation, Boston, Massachusetts
J. Thomas West Senior Vice President, Advanced Development; THiiN
Line Business Unit
William L. Wilson* Senior Vice President, Services and Strategic
Business Opportunities
* Elected during 1996
DIVISION VICE PRESIDENTS
Dennis R. Balch Software Development
Anthony P. DiBona U.S. Sales - Eastern Operations
Michael A. Feldstein** CLARiiON Product Development and Operations
Jonathan W. Lane Human Resources
Raymond J. Massey U.S. Sales - Western Operations
Michael I. Schneider Special Systems
Robert Van Steenberg AViiON Systems Development
Michael S. Worhach** Worldwide Healthcare Division
William L. Zastrow Imaging Business Unit
VICE PRESIDENTS
John T. Anderson U.S. Channel Sales
Ronald A. Edlin Professional Services
Philip Gerskovich** NUMALiiNE Business Unit
K. Todd Gresham** CLARiiON Sales
Fidelma Hayes-Russo** NUMALiiNE Systems Development
Robert C. Mara Personal Computer Business Unit
Linda Mentzer** AViiON Product Management
Michael P. Parise** Strategic Integrator Alliances
Thomas P. Rizk Customer Support
Daniel Sapir Strategic Alliances
Kenneth D. Sills** CLARiiON Support and Services
Paul M. Suffredini** CLARiiON Business Development
Suzanne G. Sweeney Enterprise Applications
** Appointed during 1996
<PAGE>
CORPORATE INFORMATION
DATA GENERAL CORPORATION
CORPORATE HEADQUARTERS Data General Corporation
4400 Computer Drive
Westboro, Mass. 01580
(508) 898-5000
LEGAL COUNSEL Fulbright & Jaworski L.L.P.
New York, New York
INDEPENDENT ACCOUNTANTS Price Waterhouse LLP
Boston, Mass.
DEBENTURE TRUSTEES First National Bank
63 Wall Street
New York, New York 10005
State Street Bank and Trust
225 Franklin Street
Boston, Mass. 02110
TRANSFER AGENT AND REGISTRAR The Bank of New York
800-524-4458
Address Shareholder Inquiries to:
The Bank of New York
Shareholder Relations Department - 11E
Post Office Box 11258
Church Street Station
New York, NY 10286
Send Certificates For Transfer and Address Changes
to:
The Bank of New York
Receive and Deliver Department - 11W
Post Office Box 11002
Church Street Station
New York, NY 10286
STOCK EXCHANGE LISTING New York Stock Exchange
London Stock Exchange
Unlisted trading privileges on Boston, Midwest,
Philadelphia, Pacific and Cincinnati exchanges
TRADING SYMBOL DGN
ANNUAL MEETING The Annual Meeting of Stockholders will be held
at 11:00 a.m., Wednesday, January 29, 1997 in the
Enterprise Room, State Street Bank Building,
225 Franklin Street, Boston, Mass.
NUMBER OF STOCKHOLDERS As of September 28, 1996 there were approximately
11,300 stockholders of record. This number
excludes individual stockholders holding stock
under nominee security position listings.
DIVIDEND POLICY No cash dividends have been declared or paid by
the company since its inception. It is the policy
of the company to retain any cash flow for future
business expansion. The company anticipates no
changes in this policy in the forseeable future.
PUBLISHED INFORMATION The company's Annual Report, Interim Reports,
Form 10-K, and Quarterly Reports on Form 10-Q as
filed with the Securities and Exchange Commission,
and other published information is available on
request to:
Investor Relations Department
Data General Corporation
4400 Computer Drive
Mail Stop 9S
Westboro, Massachusetts 01580
Published information, as well as mailed or faxed
copies of quarterly financial press releases, can
be obtained by calling 1-800-941-2382.
All information is available on Data General's
internet website at http://www.dg.com. In the
section titled "About Data General," select
"Financial Information for Investors."
Investors may also choose to:
Request information using e-mail to
[email protected]
Dial our FAX-back system at 1-800-99-DGFAX
(North America only) and press 411 to receive
a faxed menu of publications
Call Data General Corporation at 1-800-DATAGEN
- --------------------------------------------------------------------------------
This report contains forward-looking statements under the captions "To Our
Stockholders, Customers and Employees" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" which reflect Management's
current views of future events and financial performance. These forward-looking
statements involve risks and uncertainties, and are based upon many assumptions
and factors, including the effects of period-to-period fluctuations, OEM
inventory positions and new product development and marketing. Many of these
factors are discussed in the company's Securities and Exchange Commission
filings, including its annual report on Form 10-K for the year ended September
28, 1996. Any changes in such assumptions or factors could produce significantly
different results.
- --------------------------------------------------------------------------------
Data General
An Equal Opportunity / Affirmative Action Employer
Making a Commitment to Workforce Diversity
AViiON, AV/Image, CLARiiON, DG/UX, and ECLIPSE are registered trademarks;
DataGenie, NUMALiiNE, and THiiN Line are trademarks; and VALiiANT is a service
mark of Data General Corporation. Intel, the Intel Inside logo, Pentium, and
Pentium Pro are registered trademarks of Intel Corporation. All other brand and
product names are trademarks or registered trademarks of their respective
holders.
The materials contained herein are summary in nature, subject to change, and
intended for general information only. Details and specifications regarding Data
General equipment and software are included in the applicable technical manuals,
available from local sales representatives.
EXHIBIT 21
Subsidiaries of Data General Corporation.
The following are the company's subsidiaries as of September 28, 1996. All
beneficial interests are wholly-owned, directly or indirectly, by the company,
with the exception of Data General Technology (1990) Limited which is 45% owned.
All subsidiaries are included in the company's consolidated financial
statements.
State or
Jurisdiction of
Name Organization
- ---- ------------
Asia Data General Corporation .............................. Delaware
China Data General Corporation ............................. Delaware
CLARiiON Storage Systems, Inc. ............................. Delaware
Data General (Canada) Company .............................. Nova Scotia
Data General A.G ........................................... Switzerland
Data General A/S ........................................... Norway
Data General A/S ........................................... Denmark
Data General AB ............................................ Sweden
Data General Africa SARL ................................... France
Data General Australia Pty., Ltd. .......................... Australia
Data General Bahamas, Ltd. ................................. Bahamas
Data General Chile S.A ..................................... Chile
Data General Computers Sdn, Bhd ............................ Malaysia
Data General Corporation ................................... Greece
Data General Costa Rica, S.A ............................... Costa Rica
Data General de Mexico, S.A. de C.V ........................ Mexico
Data General del Peru, S.A ................................. Peru
Data General France SAS .................................... France
Data General Gesellschaft mbH .............................. Austria
Data General GmbH .......................................... Germany
Data General Graphics, Inc. ................................ Delaware
Data General Hong Kong Sales and Service, Ltd. ............. Hong Kong
Data General Hong Kong, Ltd. ............................... Hong Kong
Data General Computers Hungary Ltd. ........................ Hungary
Data General International Manufacturing Pte., Ltd. ........ Singapore
Data General International Sales Corporation ............... Delaware
Data General International, Inc. ........................... Delaware
Data General Ireland, Ltd. ................................. Ireland
Data General Israel, Ltd. .................................. Israel
Data General Japan YK ...................................... Japan
Data General Korea, Ltd. ................................... Korea
Data General Latin America, Inc. ........................... Delaware
Data General Limited ....................................... United Kingdom
<PAGE>
State or
Jurisdiction of
Name Organization
- ---- ------------
Data General do Brasil Ltda ................................ Brazil
Data General Manufacturing, Inc. ........................... Delaware
Data General Nederland BV .................................. The Netherlands
Data General New Zealand, Limited .......................... New Zealand
Data General OY ............................................ Finland
Data General Philippines, Inc. ............................. Philippines
Data General (Portugal) Sociedade de Computadores Lda ...... Portugal
Data General Puerto Rico, Inc. ............................. Delaware
Data General S.A ........................................... Belgium
Data General S.A ........................................... Spain
Data General S.p.A ......................................... Italy
Data General Singapore Pte., Ltd. .......................... Singapore
Data General Systems (Thailand) Limited .................... Thailand
Data General Technology (1990) Limited ..................... Israel
Data General Telecommunications, Inc. ...................... Delaware
D. G. Venezula, C.A ........................................ Venezuela
Data General Wholesale Pty., Ltd. .......................... Australia
Datagen Investment Trust ................................... Massachusetts
Datagen, Inc. .............................................. Delaware
DG Argentina S.A ........................................... Argentina
D G Foreign Sales Corporation, Inc. ........................ Barbados
Digicom .................................................... Delaware
Digital Computer Controls, Inc. ............................ Delaware
Digital Computer Controls International, Inc. .............. Delaware
General Risk Insurance Company Ltd. ........................ Bermuda
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-8 (Nos. 2-91481,
33-19759, 33-53039, 33-53041, and 33-58237) of Data General Corporation of our
report dated October 30, 1996 appearing in the 1996 Annual Report to
Stockholders which is incorporated by reference in this Annual Report on Form
10-K. We also consent to the incorporation by reference of our report on the
Financial Statement Schedule, which appears on page 21 of this Form 10-K.
/s/Price Waterhouse LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
December 18, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FY96 CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-28-1996
<PERIOD-END> SEP-28-1996
<CASH> 178,997
<SECURITIES> 25,624
<RECEIVABLES> 272,295
<ALLOWANCES> 14,480
<INVENTORY> 129,783
<CURRENT-ASSETS> 616,812
<PP&E> 638,972
<DEPRECIATION> 471,300
<TOTAL-ASSETS> 860,443
<CURRENT-LIABILITIES> 366,184
<BONDS> 149,971
0
0
<COMMON> 460,312
<OTHER-SE> (131,248)
<TOTAL-LIABILITY-AND-EQUITY> 860,443
<SALES> 924,140
<TOTAL-REVENUES> 1,322,250
<CGS> 618,351
<TOTAL-COSTS> 877,692
<OTHER-EXPENSES> 407,281
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,072
<INCOME-PRETAX> 31,645
<INCOME-TAX> 3,500
<INCOME-CONTINUING> 28,145
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,145
<EPS-PRIMARY> 0.68
<EPS-DILUTED> 0.68
</TABLE>