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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM 10-Q
(Mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 29, 1996
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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
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(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
incorporation or organization) Number)
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
Former name, former address and former fiscal year if changed since last
report: Not Applicable
______________________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such 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
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Number of shares outstanding of each of the registrant's classes of common
stock, as of July 26, 1996:
Common Stock, par value $.01 39,194,836
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(Title of each class) (Number of shares)
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
The condensed consolidated financial statements of Data General Corporation
(the "company"), consisting of condensed consolidated statements of operations
for the three and nine months ended June 29, 1996 and July 1, 1995, condensed
consolidated balance sheets as of June 29, 1996 and September 30, 1995,
condensed consolidated statements of cash flows for the nine months ended
June 29, 1996 and July 1, 1995, and the related notes to condensed consolidated
financial statements, are incorporated herein by reference to pages 3 through
6 of the company's Third Quarter 1996 Interim Report. The Third Quarter 1996
Interim Report has been included as Exhibit 19 to copies of this Report filed
with the Securities and Exchange Commission. Copies of the Interim Report may
be obtained by written request to the company, Attn: Investor Relations, MS 9S,
3400 Computer Drive, Westboro, MA 01580 or through the company's world wide
web site at: http://www.dg.com.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Financial Condition
Cash and temporary cash investments as of June 29, 1996 were $137.1 million,
an increase of $19.9 million from the end of fiscal 1995. In addition, the
company holds $34.9 million in marketable securities, a net decrease of $36.7
million during the current nine-month period primarily due to converting
certain securities to cash and temporary cash investments. In total, cash,
temporary cash investments and marketable securities decreased $16.8 million
for the current nine-month period. The securities held, which supplement
cash and temporary cash investments, include United States treasury bills and
notes, as well as an equity security of $18.1 million recorded at fair market
value and classified as available for sale. The unrealized gain on marketable
securities of $16.8 million is recorded as a separate component of
shareholders' equity. Net cash provided from operations for the nine months
ended June 29, 1996 totaled $47.8 million; expenditures for property, plant,
and equipment were $74.3 million; capitalized software development costs
totaled $22.6 million; and cash provided from stock plans totaled $6.4 million.
The effect of foreign currency exchange rate fluctuations on cash and temporary
cash investments was a decrease of $1.5 million.
Net receivables were $259.1 million, an increase of $8.0 million from $251.1
million at fiscal year-end 1995 due primarily to increased revenues. Total
inventories at June 29, 1996 were $127.7 million, an increase of $3.5 million
from fiscal year-end 1995 levels primarily due to an increase in end-of-quarter
inventory procurements. Fixed asset dispositions for the current nine-month
period totaled $11.4 million, primarily due to the sale of demonstration
equipment. Management expects that sales of demonstration equipment will
continue. Less than 15% of the company's total net fixed assets relate to the
company's proprietary ECLIPSE MV ("MV") family of products; these assets are
primarily comprised of spare parts required to support the MV service base of
over 19,000 installed units worldwide as well as those MVs which are serviced
by third parties.
The decrease of $16.8 million in accounts payable from fiscal year-end 1995
levels was attributed mainly to the timing of payments. Other current
liabilities decreased $17.6 million from fiscal year-end 1995. This decrease
was primarily a result of reduced employee related accruals and the payments
made relating to the previously recorded restructuring accruals. Long-term
debt, including the current portion of long-term debt, decreased a total of
$3.0 million from fiscal 1995 year-end as a result of the company reacquiring
a portion of its 8 3/8% Sinking Fund Debentures due in 2002.
During fiscal years 1995 and 1994, the company recorded restructuring
charges of $43 million and $35 million, respectively. No additional charges
or material changes in estimates to prior provisions were recorded during the
first nine-month period of fiscal 1996. The following table sets forth the
company's restructuring activities for the nine-month period ended June 29,
1996. All charges, excluding asset writedowns and certain other charges, are
cash in nature and funded from operations.
NINE MONTHS ENDED
SEPT. 30, 1995 JUNE 29, 1996 JUNE 29, 1996
(in millions) BALANCE CHARGES BALANCE
- ----------------------------------------------------------------------------
Provisions related
terminated employees $13.9 $(10.0) $ 3.9
Provisions for leases 17.4 (6.7) 10.7
Writedown of assets to be
sold or discarded and other 5.6 (4.3) 1.3
Total ---- ------- -----
$36.9 $(21.0) $15.9
===== ====== =====
During the first nine months of the current year the company substantially
completed the employee terminations related to the 1995 restructuring charges.
The remaining reserves at June 29, 1996 are for the remaining severance
payments due to employees impacted by the restructuring actions. The charges
and remaining provisions for leases are for the closure of various domestic
branch sales offices and excess vacant rental properties, primarily located
in Europe.
Results of Operations
Total revenues for the quarter ended June 29, 1996 increased 15% to $323.2
million from the same quarter of the previous year. Domestic revenues,
excluding U.S. direct export sales, were $197.8 million for the current
quarter, a 27% increase from $156.3 million for the comparable period of
fiscal 1995. Domestic revenues represented 61% of total revenues for the
current quarter and 56% of total revenues for the third quarter of fiscal
1995. European revenues, including U.S. direct export sales into the European
marketplace, were $78.3 million, a slight decrease from $79.2 million for the
comparable period in fiscal 1995. European revenues represented 24% and 28%
of total revenues in the current and prior-year periods, respectively. Other
international revenues, including U.S. direct export sales, were $47.1 million
for the current quarter, a 5% increase from $45 million for the comparable
period in fiscal 1995. Other international revenues represented 15% of total
revenues for the current quarter and 16% for the comparable prior-year period.
Total domestic revenues of $581.4 million for the nine months ended June 29,
1996 increased 28% from $455.2 million for the first nine-month period of
fiscal 1995. Domestic revenues were 59% of total revenues for the current
nine-month period and 54% of total revenues for the comparable prior-year
period. European revenues, including U.S. direct export sales into the
European marketplace, were $270.9 million, an increase of 7% from $254.2
million for the comparable period in fiscal 1995. This increase is primarily
a result of increased U.S. direct export sales. European revenues represented
27% and 30% of total revenues in the current nine-month and prior-year periods,
respectively. Other international revenues, including U.S. direct export
sales, were $133.7 million for the current nine-month period, a 2% decrease
from $137.1 million for the comparable prior-year period. Other international
revenues represented 14% and 16% of total revenues for the current nine-month
period and the comparable prior-year period, respectively.
Product revenues of $224.1 million for the current quarter ended June 29,
1996 increased 25% from the comparable prior-year period. Revenues of $112.2
million from the company's AViiON family of open systems server products
increased 22% from the comparable period of the prior year. In the current
quarter, the company experienced continued revenue growth of 54% in its
Intel-based AViiON systems while experiencing a decline of 20% in the
Motorola-based AViiON systems revenue as compared to the previous quarter.
The company expects the Motorola-based AViiON systems revenue will continue to
decline. Product revenues from the company's Open CLARiiON storage systems
increased 39% from the comparable prior-year period and accounted for 35% of
total product revenues in the current quarter. Open CLARiiON product revenues
in the third quarter of fiscal year 1996 decreased 19% compared with the second
quarter of the current 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 and for the current quarter, a
significant portion of the company's Open CLARiiON product revenues were to a
single OEM. The company believes the reduction of inventory levels of this
customer during the recent quarter impacted Open CLARiiON product revenues.
Open CLARiiON product revenues in any quarter may not be indicative of future
Open CLARiiON product revenues. Proprietary MV system revenues declined $2.1
million from the same period in the prior-year and currently represent 4% of
total product revenues compared to less than 7% for the comparable prior-year
period. The company expects to see a continued decline in its proprietary MV
product line as it completes its transition to Open systems. Product revenues
from personal computers and peripheral equipment increased $3.9 million from
the same period in the prior-year and represent 11% of total product revenues
in both the current and comparable prior-year periods.
Domestic product revenues, which were $140.6 million for the current
quarter, increased 42% from $99.1 million for the comparable period in fiscal
1995. Domestic product revenues were 63% of total product revenues for the
current quarter and 55% of total product revenues in the comparable prior-year
period. The increase in domestic product revenues was primarily a result of
increased Open CLARiiON shipments as well as increased shipments of the
company's Intel-based AViiON systems. European product revenues were $47.8
million for the current quarter, a 3% increase from $46.4 million in the
comparable prior-year period. European product revenues represented 21% of
total product revenues for the current quarter and 26% for the comparable
prior-year period. Other international product revenues were $35.7 million
for the current quarter, an increase of 4% from $34.2 million for the
comparable period in fiscal 1995. Other international product revenues
represented 16% of total product revenues in the current quarter and 19% of
total product revenues in the comparable prior-year period.
Product revenues of $688.4 million for the nine months ended June 29, 1996
increased 26% from $544.9 million for the first nine-month period of fiscal
1995. Domestic product revenues of $410.3 million for the first nine-month
period of the current year increased 44% from $284.9 million for the first
nine-month period of fiscal 1995. Domestic product revenues represented 59%
of total product revenues in the current nine-month period and 52% of total
product revenues in the prior-year period. European product revenues of
$176.4 million for the first nine-month period of the current year increased
13% from $156.5 million for the first nine-month period of fiscal 1995.
European product revenues represented 26% of total product revenues in the
current nine-month period and 29% of total product revenues in the prior-year
period. Other international product revenues were $101.7 million for the
current nine-month period, compared with $103.5 million for the comparable
period in fiscal 1995. Other international product revenues represented 15%
and 19% of total product revenues for the current nine-month and prior-year
periods, respectively.
Service revenues for the current quarter were $99.1 million, a slight
decrease from $100.8 million in the comparable period of fiscal 1995. Domestic
service revenues for the current quarter were $57.1 million, relatively
unchanged from $57.2 million in the comparable prior-year period. European
service revenues were $30.5 million, a 7% decrease from $32.8 million for the
comparable prior-year period. Other international service revenues for the
current quarter were $11.5 million, a 6% increase from $10.8 million for the
comparable prior-year period.
Service revenues for the current nine-month period were $297.6 million,
compared to $301.6 million for the first nine-month period of fiscal 1995,
reflecting a modest decline in service revenues as the mix of installed base
service contracts changes from proprietary to open systems. For the current
nine-month period, domestic service revenues were $171.0 million, a slight
increase from $170.2 million in the first nine-month period of fiscal 1995.
European service revenues for the current nine-month period were $94.5 million,
a decrease from $97.7 million reported for the first nine-month period of
fiscal 1995. Other international service revenues were $32.1 million for the
current nine-month period, a decrease from $33.7 million reported for the first
nine-month period of fiscal 1995.
Cost of revenues decreased to 65% of total revenues for the current quarter
compared with 68% for the comparable period in fiscal 1995. For the current
nine-month period ended June 29, 1996, cost of revenues increased slightly to
67% compared with 66% for the comparable prior year period. Cost of product
revenues decreased to 66% of product revenues for the current quarter and 67%
for the current nine-month period, compared with 70% and 68% of product
revenues, respectively, for the same periods of the prior year. The decrease
in the cost of product revenues was the result of increasing volumes of higher
margin Intel-based AViiON systems, manufacturing cost reductions and lower
component pricing. The benefits of component price reductions may be
temporary as market pressures impact the company's product pricing. Cost of
service revenues was 65% of service revenues for both the current quarter and
current nine-month period, compared with approximately 64% for the same
periods in fiscal 1995. The company continues to see a shift in service
revenues towards increased professional service sales, which yield a
lower margin than traditional maintenance contract revenues.
Research and development expenses for the current quarter were $25.8
million, a 13% increase from $22.8 million for the third quarter of fiscal
1995. Research and development expenses represented 8% of total revenues for
both the current quarter and the comparable prior year period. Research and
development expenses for the current nine-month period were $71.4 million, a
12% increase from $64.1 million for the same period of the prior-year. The
company continued to focus its research and development efforts on its core
business technology, multi-user computer systems, servers, and mass storage
devices. In the current nine-month period, gross expenditures on research and
development and software development before capitalization, were $94.0 million,
an increase of 11% from $84.7 million for the comparable prior-year period.
The increase in research and development expenditures is being driven by
investment in the next generation of CLARiiON products, the company's Non
Uniform Memory Access (NUMA) architecture for high-end servers and products
for the internet.
Selling, general, and administrative expenses for the current quarter were
$76.6 million, a decrease of 9% from $84.3 million for the comparable quarter
of fiscal 1995. Selling, general, and administrative expenses represented 24%
and 30% of total revenues in the current quarter and in the comparable
prior-year period, respectively. Selling, general, and administrative expenses
for the current nine-month period were $231.9 million, a decrease of 10% from
$257.4 million for the comparable prior-year period. The decrease in expenses
was a result of ongoing cost reductions that the company had undertaken to
maintain its competitive position. At June 29, 1996 the number of employees
totaled 4,875, a reduction of approximately 155 and 305 employees from
September 30, 1995 and July 1, 1995, respectively.
Interest income for the current quarter was $1.8 million, a 35% decrease
from $2.8 million for the comparable period of fiscal 1995, due primarily to
lower levels of invested cash. Interest expense for the current quarter was
$3.3 million, a slight decrease from $3.4 million for the comparable period of
fiscal 1995.
The income tax provision for the current quarter was $1.0 million compared
to $0.5 million for the comparable prior-year period. The current year
provision relates primarily to foreign and state taxes.
Statements concerning the company's business outlook or future economic
performance; anticipated profitability, revenues, expenses or other financial
items; product or service line growth, plans or objectives; and statements
concerning assumptions made or expectations as to any future events,
conditions, performance or other matters, are "forward-looking statements", as
that term is defined under the Federal Securities Laws. Forward-looking
statements are subject to risks, uncertainties and other factors which could
cause actual results to differ materially from those stated in such statements.
Such risks, uncertainties and factors include, but are not limited to,
fluctuations in customer demand, order patterns and inventory levels, changes
and delays in product development plans and schedules, customer acceptance of
new products, changes in pricing or other actions by competitors, general
economic conditions, as well as other risks detailed in the company's filings
with the Securities and Exchange Commission, including this Quarterly Report
on Form 10-Q for the third fiscal quarter, which ended June 29, 1996.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
The company's patent infringement suit against IBM Corporation, 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 infringed
certain of the company's patents.
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.
The company believes its claims are valid, but it cannot predict the outcome
of either litigation.
Item 2. Changes in Securities.
On December 6, 1995, the company's Board of Directors extended the term of
the company's Stockholders Rights Plan (the "Plan") to October 19, 2001. Also,
the Plan was amended to confirm The Bank of New York as the "Rights Agent"
under the Plan, replacing Morgan Shareholders Services Trust Company.
Subsequently, the company and The Bank of New York executed a "Rights
Agreement, dated as of October 3, 1986 and Renewed and Restated as of October
19, 1996" dated June 11, 1996 to record these changes, which was filed on June
27, 1996 as Exhibit 1 to Form 8-A/A. A copy of the Renewed and Restated Rights
Agreement, as filed with said Form 8-A/A, is incorporated herein by reference.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
4 (b) Rights Agreement, dated as of October 3, 1986 and Renewed and
Restated as of October 19, 1996 between the company and The Bank of
New York, as Rights Agent, previously filed as Exhibit 1 to the
company's Form 8-A/A dated June 11, 1996, which is incorporated
herein by reference.
11. Computation of primary and fully diluted earnings per share.
19. Third Quarter 1996 Interim Report of Data General Corporation.
(b) No reports on Form 8-K were filed during the current quarter ended
June 29, 1996.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATA GENERAL CORPORATION
(Registrant)
/s/ Arthur W. DeMelle
--------------------------
Arthur W. DeMelle
Vice President
Chief Financial Officer
Chief Accounting Officer
Dated: August 8, 1996
EXHIBITS
Index to Exhibits.
11. Computation of primary and fully diluted earnings per share.
19. Third Quarter 1996 Report of Data General Corporation.
EXHIBIT 11
DATA GENERAL CORPORATION
COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
(Unaudited)
(In thousands except per share amounts)
Quarter Ended Nine Months Ended
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June 29, July 1, June 29, July 1,
1996 1995 1996 1995
------- ------- ------- -------
Primary earnings per share:
Net income (loss) . . . . . . . $ 7,141 $ (61,384) $ 18,184 $ (48,239)
======= ========= ======== =========
Weighted average shares
outstanding . . . . . . . . . . 39,045 37,192 38,563 36,883
Incremental shares from use of
treasury stock method for stock
options. . . . . . . . . . . . 2,469 -- 2,497 554
-------- ---------- -------- ---------
Common and common equivalent
shares, where applicable . . . 41,514 37,192 41,060 37,437
====== ====== ====== ======
Net income (loss) per share . $0.17 $(1.65) $0.44 $(1.29)
===== ====== ===== ======
Earnings per share assuming full
dilution: (a)
Net income (loss) . . . . . . $ 7,141 $ (61,384) $ 18,184 $ (48,239)
======= ========== ======== =========
Weighted average shares
outstanding . . . . . . . . . 39,045 37,192 38,563 36,883
Incremental shares from use of
treasury stock method for stock
options . . . . . . . . . . . 2,501 -- 2,647 578
------ ------ ------ ------
Common and common equivalent
shares assuming full dilution,
where applicable . . . . . . . 41,546 37,192 41,210 37,461
====== ====== ====== ======
Net income (loss) per share . $0.17 $(1.65) $0.44 $(1.29)
===== ====== ===== ======
(a) For the quarters and nine-month periods ended June 29, 1996 and July 1,
1995, 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 quarter ended July 1, 1995, 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.
EXHIBIT 19
TO OUR STOCKHOLDERS, CUSTOMERS, AND EMPLOYEES:
Data General Corporation reported net income of $7.1 million, or $.17 per
share, on revenues of $323.2 million for its third quarter of fiscal 1996,
which ended June 29.
The third quarter revenues were 15 percent higher than last year's
comparable quarter revenues of $280.5 million. For the third quarter of 1995,
the company reported a net loss of $61.4 million, or $1.65 per share. The
third quarter 1995 results included a restructuring charge of $43.0 million.
Product revenues for the quarter increased 25 percent over the third
quarter of last year, as both of our major businesses, the AViiON server and
CLARiiON storage lines, posted significant increases.
We are most encouraged that during the third quarter, which has
historically been difficult for us, we achieved profitability for the fourth
consecutive quarter. Particularly satisfying was the growth from our Intel
based server line, which in the third quarter represented 37 percent of all
AViiON revenues.
Overall AViiON revenues were up 22 percent over last year's comparable
quarter. We believe we are well positioned now that we have begun a new
product cycle of enterprise servers based on the Intel Pentium Pro processor.
As the result of the increased revenue and a shift in overall product mix,
margins improved over the prior year quarter.
Earlier this month Data General announced that volume shipment of AViiON
systems based on Intel's Standard High Volume (SHV) motherboards has begun. In
recent tests, the new servers outperformed RISC-based systems from IBM,
Hewlett-Packard and Digital Equipment in the SPECint_rate_95 benchmark and
produced the best Transaction Processing Council Benchmark C (TPC-C)
performance per CPU to date.
With their performance, scalability, and high availability features, our
new AV 4900 and 5900 servers are the first true enterprise-level servers to
use Intel's Pentium Pro SHV motherboards. The Intel SHV motherboard used in
these systems is the basic building block we will use to make powerful
high-end, multi-processor AViiON systems based on state-of-the-art NUMA
(Non Uniform Memory Access) technology, which we plan to introduce late this
year.
To further strengthen our position as the industry leader in NUMA
technology, Data General established the NUMALiiNE Business Unit in June. The
new unit, under Vice President Phil Gerskovich, has been chartered to develop
OEM relationships and a worldwide distribution network for our NUMA technology.
Several leading international companies, including ICL in the United Kingdom,
Dansk Data Elektronik in Denmark, and Daewoo Telecom in Korea have already
announced plans to integrate Data General's NUMALiiNE technology into their
high-end systems.
Revenues for our CLARiiON storage line were 39 percent higher than last
year's third quarter. CLARiiON continues to be the industry leader in providing
advanced high availability and data integrity storage capabilities for
enterprise computing. Later this year we plan to enhance our current line and
introduce a family of products based on fibre channel technology.
During the third quarter Data General shipped its 25,000th CLARiiON disk
array with the milestone system going to Hewlett-Packard.
In addition to the NUMALiiNE Business Unit, we also announced during the
quarter the formation of the THiiN Line Business Unit, under the direction of
Senior Vice President Tom West. The THiiN Line unit will develop and market
internet appliances, such as "thin servers", which are designed for fast
information access on the internet.
Revenues for the first three quarters of 1996 totaled $986 million, an
increase of 16 percent over the $846.5 million in revenues reported for the
first nine months of fiscal 1995.
For the nine-month period, Data General reported net income of $18.2
million, or $.44 per share. For the same period last year Data General
reported a net loss of $48.2 million, or $1.29 per share. The 1995 figures
included a one-time, pre-tax gain of $44.5 million resulting from the
settlement of a software copyright and infringement and trade secret lawsuit
against Northrop Grumman Corporation, as well as the $43.0 million
restructuring charge.
Data General's financial position continues to be strong with cash and
marketable securities of $172 million at the end of the third quarter.
Data General is well positioned with the technology leadership we have
established with our AViiON server and CLARiiON storage lines, 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
August 8, 1996
Statements concerning the company's business outlook or future economic
performance; anticipated profitability, revenues, expenses or other financial
items; product or service line growth, plans or objectives; and statements
concerning assumptions made or expectations as to any future events,
conditions, performance or other matters, are "forward-looking statements", as
that term is defined under the Federal Securities Laws. Forward-looking
statements are subject to risks, uncertainties and other factors which could
cause actual results to differ materially from those stated in such
statements. Such risks, uncertainties and factors include, but are not
limited to, fluctuations in customer demand, order patterns and inventory
levels, changes and delays in product development plans and schedules,
customer acceptance of new products, changes in pricing or other actions by
competitors, general economic conditions, as well as other risks detailed in
the company's filings with the Securities and Exchange Commission, including
Data General's Quarterly Report on Form 10-Q for the third fiscal quarter,
which ended June 29, 1996.
AViiON and CLARiiON are registered trademarks, and NUMALiiNE and THiiN are
trademarks of Data General Corporation. All other brand and product names
referenced herein are trademarks or registered trademarks of their respective
companies.
DATA GENERAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Quarter Ended Nine Months Ended
---------------- -----------------
June 29, July 1, June 29, July 1,
in thousands, except net income
(loss) per share 1996 1995 1996 1995
- ----------------------------------------------------------------------------
Revenues:
Product . . . . . . . . . . . . .$224,083 $179,708 $688,444 $544,931
Service . . . . . . . . . . . . . 99,136 100,786 297,579 301,559
-------- -------- -------- --------
Total revenues. . . . . . . . . . 323,219 280,494 986,023 846,490
-------- -------- -------- --------
Costs and expenses:
Cost of product revenues . . . . . 147,232 126,491 463,928 368,222
Cost of service revenues . . . . . 64,036 64,191 193,215 193,160
Research and development . . . . . 25,801 22,807 71,433 64,059
Selling, general, and
administrative . . . . . . . . . . 76,563 84,268 231,927 257,356
Restructure charge . . . . . . . . - 43,000 - 43,000
------- ------- ------- -------
Total costs and expenses. . . . . 313,632 340,757 960,503 925,797
------- ------- ------- -------
Income (loss) from operations . . . 9,587 (60,263) 25,520 (79,307)
Interest income . . . . . . . . . . 1,833 2,811 5,759 7,584
Interest expense. . . . . . . . . . 3,279 3,427 10,095 10,483
Other income, net . . . . . . . . . - - - 41,972
------- ------- ------ ------
Income (loss) before income taxes. . 8,141 (60,879) 21,184 (40,234)
Income tax provisions . . . . . . . 1,000 505 3,000 8,005
------- ------- ------ ------
Net income (loss) . . . . . . . . . $7,141 $(61,384) $18,184 $(48,239)
======= ======= ====== ======
Net income (loss) per share . . . . $0.17 $(1.65) $0.44 $(1.29)
===== ====== ===== ======
Weighted average shares outstanding,
including common stock equivalents,
where applicable. . . . . . . . . . 41,514 37,192 41,060 37,437
No cash dividends have been declared or paid since inception.
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these financial statements.
DATA GENERAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 29, Sept. 30,
dollars in thousands 1996 1995
- ----------------------------------------------------------------------------
Assets
Current Assets:
Cash and temporary cash investments. . . . . . . . $137,103 $117,201
Marketable securities. . . . . . . . . . . . . . . 34,915 71,617
Receivables, net . . . . . . . . . . . . . . . . . 259,083 251,123
Inventories. . . . . . . . . . . . . . . . . . . . 127,654 124,145
Other current assets . . . . . . . . . . . . . . . 27,410 27,399
-------- --------
Total current assets . . . . . . . . . . . . . . 586,165 591,485
Property, plant, and equipment, net . . . . . . . . 176,814 174,914
Other assets . . . . . . . . . . . . . . . . . . . 68,468 65,619
-------- --------
$831,447 $832,018
======== ========
Liabilities and stockholders' equity
Current liabilities:
Notes payable. . . . . . . . . . . . . . . . . . . $ 1,941 $ 2,033
Accounts payable . . . . . . . . . . . . . . . . . 99,512 116,313
Other current liabilities. . . . . . . . . . . . . 234,300 251,880
------- -------
Total current liabilities. . . . . . . . . . . . 335,753 370,226
------- -------
Long-term debt . . . . . . . . . . . . . . . . . . . 151,889 153,457
------- -------
Other liabilities . . . . . . . . . . . . . . . . . 22,188 28,791
------- -------
Stockholders' equity:
Common stock:
Outstanding - 39,187,000 shares at Jun. 29, 1996
and 37,933,000 shares at Sept. 30, 1995 (net of
deferred compensation of $8,489 at Jun. 29, 1996
and $9,588 at Sept. 30, 1995). . . . . . . . . . 456,168 446,762
Accumulated deficit. . . . . . . . . . . . . . . . (145,442) (163,626)
Unrealized gains on marketable securities. . . . . . 16,766 -
Cumulative translation adjustment. . . . . . . . . . (5,875) (3,592)
------- -------
Total stockholders' equity. . . . . . . . . . . . 321,617 279,544
------- -------
$831,447 $832,018
======== ========
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these financial statements.
DATA GENERAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
-----------------
June 29, July 1,
in thousands 1996 1995
- ----------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . $ 18,184 $(48,239)
Adjustments to reconcile net income (loss) to
net cash provided from operating activities:
Depreciation. . . . . . . . . . . . . . . . . . . . . . 60,141 55,759
Amortization of capitalized software development
costs. . . . . . . . . . . . . . . . . . . . . . . . . . 14,647 13,178
Other non-cash items, net. . . . . . . . . . . . . . . . 9,787 16,612
Change in operating assets and liabilities. . . . . . . (54,916) 46,118
------- ------
Net cash provided from operating activities. . . . . . . 47,843 83,428
------- ------
Cash flows from investing activities:
Expenditures for property, plant, and equipment. . . . . .(74,268) (73,943)
Net proceeds from the sales (purchases) of
marketable securities. . . . . . . . . . . . . . . . . . 56,460 (44,877)
Capitalized software development costs. . . . . . . . . . (22,603) (20,625)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . 10,599 (600)
------ ------
Net cash used by investing activities. . . . . . . . . (29,812) (140,045)
------ -------
Cash flows from financing activities:
Cash provided from stock plans. . . . . . . . . . . . . . 6,364 3,955
Repayment of long-term debt.. . . . . . . . . . . . . . . (3,000) (2,700)
----- -----
Net cash provided from financing activities.. . . . . . . 3,364 1,255
----- -----
Effect of foreign currency rate fluctuations
on cash and temporary cash investments. . . . . . . . . . .(1,493) 2,512
----- -----
Increase (decrease) in cash and temporary cash investments. 19,902 (52,850)
Cash and temporary cash investments - beginning of period. 117,201 142,448
------- -------
Cash and temporary cash investments - end of period. . . $137,103 $ 89,598
======== ========
Supplemental disclosure of cash flow information:
Interest paid. . . . . . . . . . . . . . . . . . . . . $ 11,095 $ 11,355
Income taxes paid. . . . . . . . . . . . . . . . . . . .$ 1,679 $ 1,308
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these financial statements.
DATA GENERAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Consolidated Balance Sheet Details
June 29, Sept. 30,
in thousands 1996 1995
- -----------------------------------------------------------------------------
Inventories:
Raw materials. . . . . . . . . . . . . . . . . $ 6,740 $ 9,173
Work in process. . . . . . . . . . . . . . . . . .47,761 28,309
Finished systems. . . . . . . . . . . . . . . . . 40,618 51,199
Field engineering parts
and components. . . . . . . . . . . . . . . . . 32,535 35,464
-------- --------
$127,654 $124,145
======== ========
Property, plant, and equipment:
Property, plant, and
equipment. . . . . . . . . . . . . . . . . . $654,234 $635,000
Accumulated
depreciation. . . . . . . . . . . . . . . . . (477,420) (460,086)
-------- --------
$176,814 $174,914
======== ========
Note 2. Accounting Policies
In March 1996, a certain 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 Statement of Financial
Accounting Standards ("SFAS") No. 115, this security is now considered to be
readily marketable and is accounted for at fair market value. The security is
classified as available for sale with the corresponding unrealized holding
gain included as a separate component of shareholders' equity.
Note 3. Basis of Presentation and 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 the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments, consisting of
normal recurring accruals, considered necessary for a fair presentation. The
company's accounting policies are described in the Notes to Consolidated
Financial Statements in the company's 1995 Annual Report. The results of
operations for the quarter ended June 29, 1996 are not necessarily indicative
of the results of the entire fiscal year.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE Q3 FY96 CONDENSED CONSOLIDATED BALANCE SHEET AND
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-28-1996
<PERIOD-END> JUN-29-1996
<CASH> 137,103
<SECURITIES> 34,915
<RECEIVABLES> 259,083
<ALLOWANCES> 0
<INVENTORY> 127,654
<CURRENT-ASSETS> 586,165
<PP&E> 654,234
<DEPRECIATION> 477,420
<TOTAL-ASSETS> 831,447
<CURRENT-LIABILITIES> 335,753
<BONDS> 151,889
<COMMON> 456,168
0
0
<OTHER-SE> (134,551)
<TOTAL-LIABILITY-AND-EQUITY> 831,447
<SALES> 688,444
<TOTAL-REVENUES> 986,023
<CGS> 463,928
<TOTAL-COSTS> 960,503
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,095
<INCOME-PRETAX> 21,184
<INCOME-TAX> 3,000
<INCOME-CONTINUING> 18,184
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,184
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.44
</TABLE>
