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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended March 29, 1997
--------------
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from _______________________ to
__________________________
Commission File Number 1-7352
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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 Number)
incorporation or organization)
4400 Computer Drive, Westboro, Massachusetts 01580
- -------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (508) 898-5000
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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
--- ---
Number of shares outstanding of each of the registrant's classes of common
stock, as of April 25, 1997:
Common Stock, par value $.01 40,487,722
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(Title of each class) (Number of shares)
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<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
DATA GENERAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Quarter Ended Six Months Ended
------------------- --------------------
Mar. 29, Mar. 30, Mar. 29, Mar. 30,
in thousands, except net income per share 1997 1996 1997 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Product .................................. $292,022 $236,707 $541,822 $464,361
Service .................................. 97,358 98,488 196,011 198,443
-------- -------- -------- --------
Total revenues ...................... 389,380 335,195 737,833 662,804
Costs and expenses:
Cost of product revenues ................. 198,694 159,984 363,756 316,696
Cost of service revenues ................. 62,167 64,187 126,575 129,179
Research and development ................. 27,044 23,909 53,282 45,632
Selling, general, and administrative ..... 85,544 78,198 166,053 155,365
-------- -------- -------- --------
Total costs and expenses ............ 373,449 326,278 709,666 646,872
-------- -------- -------- --------
Income from operations ....................... 15,931 8,917 28,167 15,932
Interest Income .............................. 1,591 1,782 3,573 3,926
Interest expense ............................. 3,141 3,365 6,344 6,815
-------- -------- -------- --------
Income before income taxes ................... 14,381 7,334 25,396 13,043
Income tax provisions ........................ 600 1,000 1,200 2,000
-------- -------- -------- --------
Net income ................................... $ 13,781 $ 6,334 $ 24,196 $ 11,043
======== ======== ======== ========
Net income per share ......................... $ 0.32 $ 0.15 $ 0.57 $ 0.27
======== ======== ======== ========
Weighted average shares outstanding, including
common stock equivalents, where applicable ... 42,944 41,358 42,499 40,833
<FN>
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.
</FN>
</TABLE>
<PAGE>
<TABLE>
DATA GENERAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
(Unaudited)
Mar. 29, Sept. 28,
dollars in thousands 1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets:
Cash and temporary cash investments ................. $ 185,740 $ 178,997
Marketable securities ............................... 7,537 25,624
Receivables, net .................................... 271,142 257,815
Inventories ......................................... 153,505 129,783
Other current assets ................................ 27,362 24,593
--------- ---------
Total current assets ........................... 645,286 616,812
Property, plant, and equipment, net ..................... 170,634 167,672
Other assets ............................................ 82,994 75,959
--------- ---------
$ 898,914 $ 860,443
========= =========
Liabilities and stockholders' equity
Current liabilities:
Notes payable ....................................... -- 1,943
Accounts payable .................................... 153,355 121,625
Other current liabilities ........................... 229,140 242,616
--------- ---------
Total current liabilities ...................... 382,495 366,184
--------- ---------
Long-term debt .......................................... 148,001 149,971
--------- ---------
Other liabilities ....................................... 14,876 15,224
--------- ---------
Stockholders' equity:
Common stock:
Outstanding - 40,469,000 shares at Mar. 29, 1997
and 39,601,000 shares at Sept. 28, 1996 (net of
deferred compensation of $9,801 at Mar. 29, 1997
and $7,812 at Sept. 28, 1996) .................. 467,822 460,312
Accumulated deficit ..................................... (111,285) (135,481)
Unrealized gains on marketable securities ............... 6,366 9,708
Cumulative translation adjustment ....................... (9,361) (5,475)
--------- ---------
Total stockholders' equity ..................... 353,542 329,064
--------- ---------
$ 898,914 $ 860,443
========= =========
<FN>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
DATA GENERAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Six Months Ended
----------------------
Mar. 29, March 30,
in thousands 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income ..................................................... $ 24,196 $ 11,043
Adjustments to reconcile net income to
net cash provided from operating activities:
Depreciation .............................................. 39,946 43,315
Amortization of capitalized software development costs .... 9,924 8,107
Other non-cash items, net ................................. 6,130 1,117
Change in operating assets and liabilities ................ (16,548) (23,972)
--------- ---------
Net cash provided from operating activities ............... 63,648 39,610
--------- ---------
Cash flows from investing activities:
Expenditures for property, plant, and equipment ................ (51,775) (50,670)
Net proceeds from the sales (purchases) of marketable securities 14,746 26,672
Capitalized software development costs ......................... (16,508) (14,493)
Other .......................................................... -- 10,599
--------- ---------
Net cash provided from investing activities ............... (53,537) (27,892)
--------- ---------
Cash flows from financing activities:
Cash provided from stock plans ................................. 5,217 5,347
Decrease in notes payable ...................................... (1,794) --
Repayment of long-term debt .................................... (3,900) (3,000)
--------- ---------
Net cash (used by) provided from financing activities ..... (477) 2,347
--------- ---------
Effect of foreign currency rate fluctuations
on cash and temporary cash investments ............................ (2,891) (877)
--------- ---------
Increase in cash and temporary cash investments .................... 6,743 13,188
Cash and temporary cash investments - beginning of period .......... 178,997 117,201
--------- ---------
Cash and temporary cash investments - end of period ................ $ 185,740 $ 130,389
========= =========
Supplemental disclosure of cash flow information:
Interest paid .................................................. $ 6,022 $ 6,187
Income taxes paid .............................................. $ 567 $ 1,450
<FN>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these financial statements
</FN>
</TABLE>
<PAGE>
DATA GENERAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Consolidated Balance Sheet Details
Mar. 29, Sept. 28,
in thousands 1997 1996
- --------------------------------------------------------------------------------
Inventories:
Raw materials ................................ $ 10,865 $ 4,560
Work in process .............................. 58,148 50,769
Finished systems ............................. 55,860 43,710
Field engineering parts and components ....... 28,632 30,744
--------- ---------
$ 153,505 129,783
========= =========
Property, plant, and equipment:
Property, plant, and equipment ............... $ 636,777 $ 638,972
Accumulated depreciation ..................... (466,143) (471,300)
--------- ---------
$ 170,634 $ 167,672
========= =========
Note 2. Accounting Policies
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per
Share". SFAS 128 is effective for both interim and annual periods ending after
December 15, 1997. The Company is required by the Securities and Exchange
Commission to disclose proforma earnings per share ("EPS") amounts computed in
accordance with the SFAS 128 in the notes to the financial statements prior to
required adoption.
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------------------------------
March 29, 1997 March 30, 1996
--------------------------------------- -------------------------------------
Income Shares Per-Share Income Shares Per-Share
in thousands, except per share amounts (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------ ------
<S> <C> <C> <C> <C> <C> <C>
Basic Earnings Per Share
Net income available to
common stockholders $13,781 40,146 $ .34 $ 6,334 38,563 $ .16
===== =====
Effect of Dilutive Securities
Stock Options -- 2,798 -- 2,795
------- ------ ------- ------
Diluted Earnings Per Share
Net income available to common
stockholders and assumed
conversions $13,781 42,944 $ .32 $ 6,334 41,358 $ .15
======= ====== ===== ======= ====== =====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended
---------------------------------------------------------------------------------
March 29, 1997 March 30, 1996
--------------------------------------- -------------------------------------
Income Shares Per-Share Income Shares Per-Share
in thousands, except per share amounts (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------ ------
<S> <C> <C> <C> <C> <C> <C>
Basic Earnings Per Share
Net income available to
common stockholders $24,196 39,938 $ .61 $11,043 38,342 $ .29
===== =====
Effect of Dilutive Securities
Stock Options -- 2,579 -- 2,511
------- ------ ------- ------
Diluted Earnings Per Share
Net income available to common
stockholders and assumed
conversions $24,196 42,517 $ .57 $11,043 40,853 $ .27
======= ====== ===== ======= ====== =====
</TABLE>
For the quarters and six-month periods ended March 29, 1997 and March
30, 1996, the assumed conversion of the 7 3/4 % Convertible Subordinated
Debentures due 2001, 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.
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 1996 Annual Report. The results of operations for
the quarter ended March 29, 1997 are not necessarily indicative of the results
of the entire fiscal year.
Note 4. Letter of Credit and Reimbursement Agreement
On April 18, 1997, the company amended certain covenants of its $30
million unsecured letter of credit and reimbursement facility with a group of
banks. This agreement is available to secure issuances of letters of credit. The
current agreement has a duration of 364 days. 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. There were $5
million letters of credit secured by this facility at March 29, 1997.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Financial Condition
Cash and temporary cash investments as of March 29, 1997 were $185.7
million, an increase of $6.7 million from the end of fiscal 1996. At the same
date, the Company held $7.5 million in marketable securities, a net decrease of
$18.1 million during the current six-month period. The decrease was due to a
reduction of the unrealized gain of an equity security and the shortening of
maturities of United States treasury investments which changed their
classification to cash and temporary cash investments. In total, cash and
temporary cash investments along with marketable securities decreased $11.4
million for the current six-month period. The Company's marketable securities
are comprised of a single equity security of $7.5 million recorded at fair
market value and classified as available-for-sale. The unrealized gain on
marketable securities of $6.4 million is recorded as a separate component of
shareholders' equity. Net cash provided from operations for the six months ended
March 29, 1997 totaled $63.6 million; expenditures for property, plant, and
equipment were $51.8 million; capitalized software development costs totaled
$16.5 million; and cash provided from stock plans totaled $5.2 million. The
effect of foreign currency exchange rate fluctuations on cash and temporary cash
investments was a decrease of $2.9 million.
Net receivables were $271.2 million, an increase of $13.4 million from
$257.8 million at fiscal year-end 1996 due primarily to increased revenues.
Total inventories at March 29, 1997 were $153.5 million, an increase of $23.7
million from fiscal year-end 1996 primarily due to increased purchases related
to the growth of the Company's CLARiiON product line. Fixed asset dispositions
related to the sale of demonstration equipment totaled $3.8 million for the
current six-month period. Management expects that sales of demonstration
equipment will continue.
During the current six-month period, the Company paid $1.8 million to
retire notes payable that had consisted of borrowings by Data General France
SAS. The increase of $31.8 million in accounts payable from fiscal year-end 1996
levels was attributed mainly to the timing of payments related to material
purchases. Other current liabilities, excluding the current portion of long-term
debt, decreased $11.6 million from fiscal year-end 1996. This decrease was
primarily a result of reduced employee-related accruals and payments made
relating to previously recorded restructuring accruals. Long-term debt,
including the current portion of long-term debt, decreased a total of $3.9
million from fiscal 1996 year-end as a result of the Company reacquiring a
portion of the 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 material changes in
estimates to prior provisions or additional charges were recorded during fiscal
1996 or the first six-month period of fiscal 1997. The following table sets
forth the Company's restructuring activities for the six-month period ended
March 29, 1997. All charges, excluding asset writedowns and certain other
charges, are cash in nature and funded from operations.
<TABLE>
<CAPTION>
Six Months Ended
Sept. 28, 1996 Mar.29, 1997 Mar. 29, 1997
in millions Balance Charges Balance
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Provisions related to terminated employees $ 2.5 $ 1.0 $ 1.5
Provisions for leases 10.0 2.4 7.6
Writedown of assets to be sold
or discarded and other 2.0 .5 1.5
------- ------ -------
Total $ 14.5 $ 3.9 $ 10.6
======= ====== =======
</TABLE>
<PAGE>
The employee terminations related to the 1995 restructuring charges
were substantially completed during fiscal 1996. The remaining reserves at March
29, 1997 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
The Company reported net income of $13.8 million for the current
quarter ended March 29, 1997, an increase of 119% from $6.3 million for the
comparable prior-year period. Net income was $24.2 million for the six months
ended March 29, 1997, an increase of 120% from $11.0 million for the first
six-month period of fiscal 1996.
<TABLE>
<CAPTION>
Revenues (in millions)
- ---------------------------------------------------------------------------------------------------
Quarter ended Six months ended
---------------------------------- -----------------------------------
3/29/97 Change 3/30/96 3/29/97 Change 3/30/96
---------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Product $292.0 23% $236.7 $541.8 17% $464.4
% of Total Revenues 75% 71% 73% 70%
Service 97.3 (1%) 98.5 196.0 (1%) 198.4
% of Total Revenues 25% 29% 27% 30%
Total Revenues $389.3 16% $335.2 $737.8 11% $662.8
- --------------------------------------------------------------------------------------------------
</TABLE>
In the current quarter ended March 29, 1997, product revenues of $126.7
million from the Company's AViiON family of open systems server products
represented an increase of 10% from the comparable period of the prior year. In
the current quarter, revenues from the Company's Intel-based AViiON systems
increased 187%, while revenues from the Motorola-based AViiON systems declined
by 43% as compared with the comparable period of the prior year. The Company
anticipates that the percentage of product revenues generated by the Intel-based
AViiON products will continue to increase in fiscal 1997. Product revenues from
the Company's CLARiiON storage systems increased 38% from the comparable
prior-year period and accounted for 45% of total product revenues in the current
quarter. CLARiiON is sold primarily through the Company's Original Equipment
Manufacturer and distributor channels; thus sales in any given period are
subject to sales cycles and inventory levels of the Company's customers.
CLARiiON product revenues have been concentrated in a limited number of
customers, with a significant portion of the Company's CLARiiON product sales to
Hewlett-Packard Company. Product revenues from personal computers and peripheral
equipment increased $11.3 million from the same period in the prior year and
currently represent 10% of total product revenues compared to 7% for the
comparable prior-year period. Proprietary MV system revenues declined $3.5
million from the same period in the prior year and currently represent 2% of
total product revenues compared to 3% for the comparable prior-year period.
<PAGE>
For the six months ended March 29, 1997, product revenues of $248.4
million from the Company's AViiON family of open systems server products
increased 12% from $221.8 million for the first six-month period of fiscal 1996.
For the current six-month period, the Company's Intel-based AViiON revenues
increased 243%, while product revenues from the Motorola-based AViiON systems
declined by 40% as compared with the first six-month period of fiscal 1996.
Product revenues from the Company's CLARiiON storage systems increased 21% for
the comparable six-month period in fiscal 1996. Product revenues from personal
computer and peripheral equipment increased $14.5 million from the comparable
six-month period in the prior year and represent 8% of total product revenues
for the current six-month period compared to 7% for the comparable prior-year
period. Proprietary MV system revenues declined $5.3 million from the comparable
period in the prior year and currently represent 2% of total product revenues
for the current six-month period compared to 4% for the comparable period in
fiscal 1996.
<TABLE>
<CAPTION>
Revenues by Geographic Marketplace
- --------------------------------------------------------------------------------------------------------------------
Percentage of Percentage Change of
Consolidated Revenues $ of Revenues
------------------------------------------------------ ------------------------------------
Quarter ended Six months ended 3/29/97 - 3/30/96
------------------------------------------------------ ------------------------------------
3/29/97 3/30/96 3/29/97 3/30/96 Quarter ended Six months ended
------------------------------------------------------ ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Domestic
- --------
Product 64% 58% 62% 58% 36% 25%
Service 57% 58% 57% 58% (2%) (1%)
Total Revenues 63% 58% 61% 58% 25% 18%
Europe
- ------
Product 22% 27% 23% 28% (1%) (3%)
Service 33% 32% 32% 32% -- (2%)
Total Revenues 24% 28% 25% 29% -- (3%)
Other International
- -------------------
Product 14% 15% 15% 14% 16% 20%
Service 10% 10% 11% 10% 1% (1%)
Total Revenues 13% 14% 14% 13% 13% 15%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The increase in domestic product revenues for the current quarter and
six-month period ended March 29, 1997 was primarily a result of increased
CLARiiON shipments, increased shipments of the Company's Intel-based AViiON
systems, as well as increased personal computer and peripheral equipment
shipments. The decrease in European product revenues, including U.S. direct
export sales, for the current quarter and six-month period ended March 29, 1997,
was mainly attributable to the decrease in CLARiiON and MV revenues, which was
partly offset by an increase in AViiON and PC product revenues. The increase in
other international product revenues, including U.S. direct export sales, for
the current quarter and six-month period ended March 29, 1997 was primarily due
to the increase in revenues from the CLARiiON product line.
For the current six-month period, total revenues in the European
marketplace were also negatively impacted by approximately 2% due to a stronger
U.S. dollar as compared to the six-month period ended March 30, 1996.
<PAGE>
<TABLE>
<CAPTION>
Cost of Revenues (in millions)
- ------------------------------------------------------------------------------------------------------------------
Quarter ended Six months ended
----------------------------------------- -----------------------------------------
3/29/97 Change 3/30/96 3/29/97 Change 3/30/96
----------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Product $198.7 24% $160.0 $363.8 15% $316.7
% of Product Revenues 68% 68% 67% 68%
Service 62.1 (3%) 64.2 126.5 (2%) 129.2
% of Service Revenues 64% 65% 65% 65%
Total Cost of Revenues $260.8 16% $224.2 $490.3 10% $445.9
% of Total Revenues 67% 67% 66% 67%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The decrease in product cost as a percentage of product revenues for
the six months ended March 29, 1997 was the result of increasing volumes of
higher margin Intel-based AViiON systems, manufacturing cost reductions and
higher overall production volume.
<TABLE>
<CAPTION>
Operating Expenses (in millions)
- ---------------------------------------------------------------------------------------------------------------
Quarter ended Six months ended
---------------------------------- ---------------------------------
3/29/97 Change 3/30/96 3/29/97 Change 3/30/96
---------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
Research & Development $27.1 13% $23.9 $ 53.3 17% $ 45.6
% of Total Revenues 7% 7% 7% 7%
Selling, general & administrative $85.4 9% $78.2 $166.0 7% $155.4
% of Total Revenues 22% 23% 23% 23%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
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 six-month period, gross expenditures on research
and development and software development before capitalization were $69.8
million, an increase of 16% from $60.1 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, in the Company's
Non-Uniform Memory Access (NUMA) architecture for high-end servers and in THiiN
Line products for the internet.
The increase in selling, general and administrative expenses was the
result of increased sales and marketing efforts in the server and storage
businesses. Management believes that in the future, increases of selling,
general and administrative expenses may be required to support business growth.
However, the Company's objective is to have the ratio of these expenses as a
proportion of total revenues continue to decline. At March 29, 1997 the number
of employees totaled 4,929, a net increase of 66 employees from September 28,
1996 and a net reduction of 17 employees from March 30, 1996.
<PAGE>
Interest income for the current quarter was $1.6 million, an 11%
decrease from $1.8 million for the comparable period of fiscal 1996, due to
lower levels of invested cash and shorter investment maturity terms. Interest
expense for the current quarter was $3.2 million, a slight decrease from $3.4
million for the comparable period of fiscal 1996.
The income tax provision for the current quarter was $.6 million
compared to $1.0 million for the comparable prior-year period. The current year
tax provision relates primarily to foreign, state and federal alternative
minimum taxes.
<PAGE>
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 Report on Form 10-K for the 1996
fiscal year ended September 28, 1996 and this Quarterly Report on Form 10-Q for
the second fiscal quarter of 1997, which ended March 29, 1997.
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
The Company's patent infringement suit against IBM Corporation which
commenced in 1994, and IBM's countersuit against the Company, are 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.
The Company's second patent infringement suit against IBM Corporation
which commenced in May 1996, is 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 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 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
10. (cc)Amendment dated April 18, 1997 to Letter of Credit and
Reimbursement Agreement.
11. Computation of primary and fully diluted earnings per share.
(b) No reports on Form 8-K were filed during the quarter ended March
29, 1997.
<PAGE>
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
Senior Vice President
Chief Financial Officer
Dated: May 6, 1997
<PAGE>
EXHIBITS
Index to Exhibits.
10. (cc) Amendment dated April 18, 1997 to Letter of Credit and
Reimbursement Agreement.
11. Computation of primary and fully diluted earnings per share.
<PAGE>
EXHIBIT 10 (cc)
AMENDMENT NO. 4 TO LETTER OF CREDIT
AND REIMBURSEMENT AGREEMENT
THIS AMENDMENT NO. 4 TO LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT
(this "Agreement") is made and entered into as of this 18th day of April,
1997 among:
DATA GENERAL CORPORATION, a Delaware corporation ("Borrower"),
NATIONSBANK OF TEXAS, NATIONAL ASSOCIATION, a national banking association, THE
BANK OF NEW YORK and FLEET NATIONAL BANK, formerly known as 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, as further amended by Amendment No. 2 to Letter of Credit
and Reimbursement Agreement dated as of December 10, 1995, and as further
amended by Amendment No. 3 to Letter of Credit and Reimbursement Agreement dated
as of December 11, 1996, among the Borrower, the Lenders and the Agent (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) Section 1.01 of the Credit Agreement is hereby amended by
inserting therein the following new defined terms in alphabetical
position:
"Acquisition" means the acquisition of (i) a
controlling equity interest in another Person engaged in the
same or similar line of business of the Borrower (including
the purchase of an option, warrant or convertible or similar
type security to acquire such a controlling interest at the
time it becomes exercisable by the holder thereof), whether by
purchase of such equity interest or upon exercise of an option
or warrant for, or conversion of securities into, such equity
interest, or (ii) assets of another Person engaged in the same
or similar line of business of the Borrower which constitute
all or substantially all of the assets of such Person or of a
line or lines of business conducted by such Person.
"Cost of Acquisition" means, with respect to any
Acquisition, as at the date of entering into any agreement
therefor, the sum of the following (without duplication): (i)
the value of the capital stock, warrants or options to acquire
capital stock of the Borrower or any Subsidiary to be
transferred in connection therewith, (ii) any cash or other
property (excluding property described in clause (i)) and the
unpaid principal amount of any debt instrument given as
consideration, (iii) any Indebtedness assumed by the Borrower
or its Subsidiaries in connection with such Acquisition, and
(iv) out of pocket transaction costs for the services and
expenses of attorneys, accountants and other consultants
incurred in effecting such a transaction, and other similar
transaction costs so incurred. For purposes of determining the
Cost of Acquisition for any transaction, (A) the capital stock
of the Borrower shall be valued (I) at its market value as
reported on the New York Stock Exchange with respect to shares
that are freely tradeable, and (II) with respect to shares
that are not freely tradeable, as determined by the Board of
Directors of the Borrower and, if requested by the Agent,
determined to be a reasonable valuation by the independent
public accountants referred to in Section 6.01(a) hereof, (B)
the capital stock of any Subsidiary shall be valued as
determined by the Board of Directors of such Subsidiary and,
if requested by the Agent, determined to be a reasonable
valuation by the independent public accountants referred to in
Section 6.01(a) hereof, and (C) with respect to any
Acquisition accomplished pursuant to the exercise of options
or warrants or the conversion of securities, the Cost of
Acquisition shall include both the cost of acquiring such
option, warrant or convertible security as well as the cost of
exercise or conversion.
(b) Section 7.01 of the Credit Agreement is hereby amended by
deleting the ratio ".45 to 1.00" in the second line thereof and
inserting in replacement thereof the ratio ".55 to 1.00".
(c) Section 7.05 of the Credit Agreement is hereby amended by
deleting the word "and" at the end of clause (iii) thereof, deleting
the period at the end of clause (iv) thereof and inserting in
replacement thereof "; " and by inserting after clause (iv) thereof new
clauses (v) and (vi) which shall read as follows:
(v) Indebtedness in an aggregate principal
amount of up to $200,000,000 evidenced by certain
convertible bonds or similar instruments issued by the
Borrower;
(vi) Indebtedness of a Person acquired in an
Acquisition permitted under Section 7.07 hereof so long as (i)
such Indebtedness is not incurred in contemplation of such
Acquisition, (ii) neither the Borrower nor any Subsidiary
(other than the Person being acquired or a subsidiary of the
Person being acquired) is liable for or assumes such
Indebtedness and such Indebtedness is, and continues after
such Acquisition to be, non-recourse to the Borrower and all
Subsidiaries (other than the Person acquired or a subsidiary
of such Person) and (iii) the aggregate principal amount of
all such Indebtedness does not exceed $10,000,000; and
(vii) Indebtedness constituting part of the Cost
of Acquisition of any Acquisition permitted hereunder.
(d) Section 7.06(a) of the Credit Agreement is hereby amended
by (A) deleting the word "and" at the end of clause (v) thereof, (B)
deleting the period at the end of clause (vi) thereof and inserting in
replacement thereof the words "; and", (C) inserting after clause (vi)
thereof a new clause (vii) which shall read "(vii) Liens on assets
acquired in an Acquisition permitted under Section 7.07 hereof so long
as such Liens (i) are not incurred in contemplation of such Acquisition
and (ii) do not extend to any assets other than the assets being
acquired in such Acquisition."
(e) Section 7.07 of the Credit Agreement is hereby amended by
(A) deleting the word "and" at the end of clause (v) thereof, (B)
deleting the period at the end of clause (vi) thereof and inserting in
replacement thereof the words "; and", (C) inserting after clause (vi)
thereof a new clause (vii) which shall read "(vii) investments in an
aggregate amount not in excess of $200,000,000 in any Person or Persons
engaged in the same or similar line of business as the Borrower,
provided that if the amount of any individual investment exceeds
$25,000,000, the Borrower shall have furnished to the Agent a
certificate in the form of Exhibit E prepared on a historical pro forma
basis giving effect to such investment and demonstrating that no
Default or Event of Default would exist immediately after giving effect
thereto" and (D) by inserting the following new paragraph after clause
(vii);
; provided, however, the Borrower shall be permitted to make
Acquisitions if (i) the Person to be (or whose assets are to
be) acquired does not oppose such Acquisition, (ii) no Default
or Event of Default shall exist immediately after giving
effect to such Acquisition, and (iii) the Borrower shall have
furnished to the Agent (A) if the Cost of Acquisition shall
exceed $25,000,000, a certificate in the form of Exhibit E
prepared on a historical pro forma basis giving effect to such
Acquisition, which certificate shall demonstrate that no
Default or Event of Default would exist immediately after
giving effect thereto, and (B) if the Cost of Acquisition
shall exceed $200,000,000, pro forma historical financial
statements as of the end of the most recently completed Fiscal
Year of the Borrower and most recent interim fiscal quarter,
if applicable giving effect to such Acquisition.
3. Effectiveness. This Agreement shall become effective as of
the date hereof upon receipt by the Agent of seven fully executed copies of this
Agreement (which may be signed in counterparts).
4. 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 Lenders 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.
5. 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.
6. 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.
7. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original as against any
party whose signature appears thereon, and all of which shall together
constitute one and the same instrument.
8. Governing Law. This Agreement shall in all respects be
governed by the laws and judicial decisions of the State of New York.
9. 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.
10. 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 NATIONAL BANK
By:
Name:
Title:
AGENT:
NATIONSBANK OF TEXAS,
NATIONAL ASSOCIATION
as Agent for the Lenders
By:
Name:
Title:
EXHIBIT 11
<TABLE>
DATA GENERAL CORPORATION
COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
(Unaudited)
(In thousands except per share amounts)
<CAPTION>
Quarter Ended Six Months Ended
------------------- ------------------
Mar. 29, Mar. 30, Mar. 29, Mar. 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Primary earnings per share:
Net income ................................... $13,781 $ 6,334 $24,196 $11,043
======= ======= ======= =======
Weighted average shares outstanding .......... 40,146 38,563 39,920 38,322
Incremental shares from use of treasury
stock method for stock options ............. 2,798 2,795 2,579 2,511
------- ------- ------- -------
Common and common equivalent
shares, where applicable ................... 42,944 41,358 42,499 40,833
======= ======= ======= =======
Net income per share ......................... $ .32 $ .15 $ .57 $ .27
======= ======= ======= =======
Earnings per share assuming full dilution: (a)
Net income ................................... $13,781 $ 6,334 $24,196 $11,043
======= ======= ======= =======
Weighted average shares outstanding .......... 40,146 38,563 39,920 38,322
Incremental shares from use of treasury
stock method for stock options ............. 2,826 2,801 2,660 2,514
------- ------- ------- -------
Common and common equivalent shares,
assuming full dilution, where applicable ... 42,972 41,364 42,580 40,836
======= ======= ======= =======
Net income per share ......................... $ .32 $ .15 $ .57 $ .27
======= ======= ======= =======
<FN>
(a) For the quarters and six-month periods ended March 29, 1997 and March 30,
1996, 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.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE Q2 FY97 CONDENSED CONSOLIDATED BALANCE SHEET AND
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-27-1997
<PERIOD-END> MAR-29-1997
<CASH> 185,740
<SECURITIES> 7,537
<RECEIVABLES> 271,142
<ALLOWANCES> 0
<INVENTORY> 153,505
<CURRENT-ASSETS> 645,286
<PP&E> 636,777
<DEPRECIATION> 466,143
<TOTAL-ASSETS> 898,914
<CURRENT-LIABILITIES> 382,495
<BONDS> 148,001
0
0
<COMMON> 467,822
<OTHER-SE> (114,280)
<TOTAL-LIABILITY-AND-EQUITY> 898,914
<SALES> 541,822
<TOTAL-REVENUES> 737,833
<CGS> 363,756
<TOTAL-COSTS> 490,331
<OTHER-EXPENSES> 219,335
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,344
<INCOME-PRETAX> 25,396
<INCOME-TAX> 1,200
<INCOME-CONTINUING> 24,196
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,196
<EPS-PRIMARY> 0.57
<EPS-DILUTED> 0.57
</TABLE>
