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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 December 27, 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
- ------------------------------- --------------------------------------
(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
--------------
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 January 23, 1998:
Common Stock, par value $.01 48,704,757
---------------------------- ------------------
(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
--------------------
Dec. 27, Dec. 28,
in thousands, except per share amounts 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenues
Product ............................................ $267,177 $249,800
Service ............................................ 98,098 98,653
-------- --------
Total revenues ................................ 365,275 348,453
-------- --------
Costs and expenses
Cost of product revenues ........................... 189,171 165,062
Cost of service revenues ........................... 60,176 64,408
Research and development ........................... 27,448 26,238
Selling, general, and administrative ............... 84,371 80,509
-------- --------
Total costs and expenses ...................... 361,166 336,217
-------- --------
Income from operations ................................. 4,109 12,236
Interest Income ........................................ 3,509 1,982
Interest expense ....................................... 3,620 3,203
-------- --------
Income before income taxes ............................. 3,998 11,015
Income tax provisions .................................. 500 600
-------- --------
Net income ............................................. $ 3,498 $ 10,415
======== ========
Basic net income per share
Net income per share ............................... $ 0.07 $ 0.26
======== ========
Weighted average shares outstanding................. 48,640 39,694
======== ========
Net income per share assuming dilution
Net income per share ............................... $ 0.07 $ 0.25
======== ========
Weighted average shares outstanding, including
common stock equivalents, where applicable ......... 50,676 42,087
======== ========
<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>
1
<PAGE>
<TABLE>
DATA GENERAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
(Unaudited)
Dec.28, Sept. 27,
dollars in thousands 1997 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets
Cash and temporary cash investments .................. $ 141,347 $ 216,814
Marketable securities ................................ 156,624 151,455
Receivables, net ..................................... 303,826 296,375
Inventories .......................................... 186,131 166,008
Other current assets ................................. 32,696 27,584
----------- -----------
Total current assets ..................................... 820,624 858,236
Property, plant, and equipment, net ...................... 188,111 180,410
Other assets ............................................. 103,447 96,222
----------- -----------
$ 1,112,182 $ 1,134,868
=========== ===========
Liabilities and stockholders' equity
Current liabilities
Accounts payable ..................................... $ 158,649 $ 154,624
Other current liabilities ............................ 207,068 237,198
----------- -----------
Total current liabilities ................................ 365,717 391,822
----------- -----------
Long-term debt ........................................... 212,750 212,750
----------- -----------
Other liabilities ........................................ 9,075 11,516
----------- -----------
Stockholders' equity
Common stock
Outstanding - 48,701,000 shares at Dec. 27, 1997
and 48,588,000 shares at Sept. 27, 1997 (net of
deferred compensation of $16,874 at Dec. 27, 1997
and $14,157 at Sept. 27, 1997) .................. 609,194 607,130
Accumulated deficit ...................................... (76,083) (79,581)
Unrealized gains on marketable securities ................ 3,487 2,812
Cumulative translation adjustment ........................ (11,958) (11,581)
----------- -----------
Total stockholders' equity ...................... 524,640 518,780
----------- -----------
$ 1,112,182 $ 1,134,868
=========== ===========
<FN>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these financial statements.
</FN>
</TABLE>
2
<PAGE>
<TABLE>
DATA GENERAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Quarter Ended
------------------------
Dec. 27, Dec. 28,
in thousands 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities
Net income ..................................................... $ 3,498 $ 10,415
Adjustments to reconcile net income to
net cash provided from operating activities
Depreciation .............................................. 19,756 20,042
Amortization of capitalized software development costs .... 6,403 5,057
Other non-cash items, net ................................. 184 831
Change in operating assets and liabilities ................ (58,744) (20,638)
--------- ---------
Net cash (used by) provided from operating activities ..... (28,903) 15,707
--------- ---------
Cash flows from investing activities
Expenditures for property, plant, and equipment ................ (31,361) (23,994)
Net proceeds from the sales (purchases) of marketable securities (4,494) (63,450)
Capitalized software development costs ......................... (10,702) (8,160)
--------- ---------
Net cash used by investing activities ..................... (46,557) (95,604)
--------- ---------
Cash flows from financing activities
Cash provided from stock plans ................................. 606 774
Repayment of long-term debt .................................... -- (3,900)
--------- ---------
Net cash provided from (used by) financing activities ..... 606 (3,126)
--------- ---------
Effect of foreign currency rate fluctuations
on cash and temporary cash investments ............................ (613) (83)
--------- ---------
Decrease in cash and temporary cash investments .................... (75,467) (83,106)
Cash and temporary cash investments - beginning of period .......... 216,814 178,997
--------- ---------
Cash and temporary cash investments - end of period ................ $ 141,347 $ 95,891
========= =========
Supplemental disclosure of cash flow information
Interest paid .................................................. $ 6,437 $ 4,961
Income taxes paid .............................................. $ 263 $ 246
<FN>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these financial statements.
</FN>
</TABLE>
3
<PAGE>
DATA GENERAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
Note 1. Consolidated Balance Sheet Details
<CAPTION>
Dec. 27, Sept. 27,
in thousands 1997 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Inventories
Raw materials ................................ $ 23,003 $ 16,169
Work in process .............................. 87,970 78,335
Finished systems ............................. 46,715 44,349
Field engineering parts and components ....... 28,443 27,155
--------- ---------
$ 186,131 166,008
========= =========
Property, plant, and equipment
Property, plant, and equipment ............... $ 674,707 $ 657,351
Accumulated depreciation ..................... (486,596) (476,941)
--------- ---------
$ 188,111 $ 180,410
========= =========
</TABLE>
<TABLE>
Note 2. Accounting Policies
In the first quarter of fiscal 1998, the Company adopted Statement of
Financial Accounting Standards No. 128 ("SFAS 128") "Earnings per Share". The
following data show the amounts used in computing earnings per share and the
effect on income and the weighted average number of shares of dilutive potential
common stock.
<CAPTION>
Quarter Ended
-------------------------------------------------------------------------
Dec. 27, 1997 Dec 28, 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 $ 3,498 48,640 $ .07 $10,415 39,694 $ .26
===== =====
Effect of Dilutive Securities
Stock Options -- 2,036 -- 2,393
------- ------ ------ ------
Diluted Earnings Per Share
Net income available to common
stockholders and assumed
conversions $ 3,498 50,676 $ .07 $10,415 42,087 $ .26
======= ====== ===== ======= ====== =====
<FN>
For the quarters ended December 27, 1997 and December 28, 1997, the
assumed conversion of convertible debentures, giving effect to the incremental
shares and the adjustment to reduce interest expense, is anti-dilutive and has
therefore been excluded from the computation.
</FN>
</TABLE>
4
<PAGE>
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 1997 Annual Report. The results of operations for
the quarter ended December 27, 1997 are not necessarily indicative of the
results of the entire fiscal year.
5
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Financial Condition
Cash and temporary cash investments as of December 27, 1997 were $141.3
million, a decrease of $75.5 million from the end of fiscal 1997. At the same
date, the Company held $156.6 million in marketable securities, a net increase
of $5.2 million during the current three-month period. In total, cash and
temporary cash investments along with marketable securities decreased $70.3
million for the current three-month period. The decrease was mainly attributable
to the purchases of inventory required for the growth of the Company's server
and storage businesses and payments reducing employee-related accruals. The
marketable securities held, which supplement cash and temporary cash
investments, include United States treasury bills and notes, notes issued by
U.S. government agencies, and certificates of deposit, as well as equity
securities recorded at the fair market value of $4.8 million and classified as
available-for-sale. The unrealized gain on marketable securities of $3.5 million
is recorded as a separate component of stockholders' equity. Net cash used by
operations for the three months ended December 27, 1997 totaled $28.9 million;
expenditures for property, plant, and equipment were $31.4 million; capitalized
software development costs totaled $10.7 million; and cash provided from stock
plans totaled $.6 million. The effect of foreign currency exchange rate
fluctuations on cash and temporary cash investments was a decrease of $.6
million.
Net receivables were $303.8 million, an increase of $7.4 million from
$296.4 million at September 27, 1997. Total inventories at December 27, 1997
were $186.1 million, an increase of $20.1 million from September 27, 1997,
primarily as a result of end-of-quarter procurement required to support both the
server and storage businesses. Net property, plant, and equipment increased $7.7
million from September 27, 1997, principally due to the purchases of equipment
and capital expenditures for developing both operating and financial systems to
support the future growth of the Company. Fixed asset dispositions related to
the sale of demonstration equipment totaled $1.5 million for the current
three-month period. Management expects that sales of demonstration equipment
will continue.
The increase of $4 million in accounts payable from September 27, 1997
levels was attributed mainly to end-of-quarter inventory procurement. Other
current liabilities decreased $30.1 million from September 27, 1997. This
decrease was primarily a result of payments reducing employee-related accruals
and interest paid on the 6% Convertible Subordinated Notes due 2004. Long-term
debt of $212.8 million remained unchanged from September 27, 1997.
During fiscal year 1995, the Company recorded restructuring charges of
$43 million. No material changes in estimates to prior provisions or additional
charges were recorded during the first three-month period of fiscal 1998. All
charges, excluding asset writedowns and certain other charges, are cash in
nature and are funded from operations. The remaining reserves of $6.5 million at
December 27, 1997 are for the closure of various domestic branch sales offices
and excess vacant rental properties, primarily located in Europe, and for the
remaining severance payments due to employees impacted by the restructuring
actions.
6
<PAGE>
Results of Operations
The Company reported net income of $3.5 million for the current quarter
ended December 27, 1997, a decrease of 66% from $10.4 million for the comparable
prior-year period.
Revenues (in millions)
- --------------------------------------------------------------------------------
Quarter ended
-----------------------------------------------
12/27/97 Change 12/28/96
-------- ------ --------
Product $267.2 7% $249.8
% of Total Revenues 73% 72%
Service 98.1 (1%) 98.7
% of Total Revenues 27% 28%
Total $365.3 5% $348.5
- --------------------------------------------------------------------------------
In the fiscal quarter ended December 27, 1997, product revenues of
$133.3 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 nearly 70%, while revenues from the Motorola-based AViiON systems
declined by 57% with the comparable period of the prior year. The Company
anticipates that the percentage of server product revenues generated by the
Intel-based AViiON products will continue to increase in fiscal 1998, while the
Motorola-based AViiON system revenues are expected to continue to decline.
Product revenues from the Company's CLARiiON storage systems increased 1% from
the comparable prior-year period and accounted for 39% 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 a single OEM. Product revenues from personal computers and other equipment
increased 1% from the same period in the prior year and represented 9% of total
product revenues compared to 10% for the comparable prior-year period. In fiscal
1996, the Company formed the VALiiANT Business Unit, a contract manufacturing
operation, to take advantage of the Company's world class manufacturing
expertise and facility. The VALiiANT product revenues for the quarter ended
December 27, 1997 represented 2% of total product revenues.
7
<PAGE>
Revenues by Geographic Marketplace
- --------------------------------------------------------------------------------
Percentage of Percentage Change of
Consolidated Revenues $ of Revenues
--------------------------------- --------------------
Quarter ended 12/27/97 - 12/28/96
--------------------------------- --------------------
12/27/97 12/28/96 Quarter ended
--------------------------------- --------------------
Domestic
--------
Product 60% 60% 6%
Service 61% 57% 5%
Total 60% 59% 6%
Europe
------
Product 24% 25% 5%
Service 30% 32% (7%)
Total 26% 27% 1%
Other International
-------------------
Product 16% 15% 14%
Service 9% 11% (11%)
Total 14% 14% 9%
------------------------------------------------------------------------------
In the current quarter ended December 27, 1997, the increase in
domestic product revenues was primarily a result of increased shipments of
CLARiiON and the Company's Intel-based AViiON systems, which was partly offset
by the decrease in Motorola-based AViiON systems, and personal computer and
other equipment product revenues. The increase in European product revenues,
including U.S. direct export sales, for the quarter ended December 27, 1997 was
mainly attributable to the increase in personal computer and other equipment
product revenues and Intel-based AViiON product revenues partially offset by
decreases in CLARiiON product revenues. The increase in other international
product revenues, including U.S. direct export sales, for the current quarter
was primarily attributable to the increase in CLARiiON product revenues and
Intel-based AViiON product revenues.
In the service business, the Company experienced a 3% decline in
contract maintenance revenues in the current quarter ended December 27, 1997 as
compared with the quarter ended December 28, 1996, which was mostly offset by a
10% growth in professional service revenues during the same period.
For the current three-month period, total revenues in the European
marketplace were also negatively impacted by approximately 5% due to a stronger
U.S. dollar as compared to the three-month period ended December 28, 1996.
8
<PAGE>
Cost of Revenues (in millions)
- --------------------------------------------------------------------------------
Quarter ended
----------------------------------------------------
12/27/97 Change 12/28/96
----------------------------------------------------
Product $189.2 15% $165.1
% of Product Revenues 71% 66%
Service 60.2 (7%) 64.4
% of Service Revenues 61% 65%
Total Cost of Revenues $249.4 9% $229.5
% of Total Revenues 68% 66%
- --------------------------------------------------------------------------------
The increase in the product cost as a percentage of product revenues
for the quarter ended December 27, 1997 was primarily caused by competitive
pricing pressures and a shift in product mix. The decrease in the service cost
as a percentage of service revenues for the quarter ended December 27, 1997 was
the result of continued improvements in spare parts inventory management and
improved gross margins in the professional services business.
Operating Expenses (in millions)
- --------------------------------------------------------------------------------
Quarter ended
-------------------------------------------
12/27/97 Change 12/28/96
-------------------------------------------
Research & Development $27.4 5% $26.2
% of Total Revenues 8% 8%
Selling, general, & administrative $84.4 5% $80.5
% of Total Revenues 23% 23%
- --------------------------------------------------------------------------------
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 three-month period, gross expenditures on
research and development and software development before capitalization were
$38.1 million, an increase of 11% from $34.4 million for the comparable
prior-year period. The increase in research and development expenditures was
driven by investment in the next generation of CLARiiON fibre products, in the
Company's Non-Uniform Memory Access (NUMA) architecture for high-end servers,
and in THiiN Line products for the Internet.
9
<PAGE>
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 will 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 decline. At December 27, 1997 the number of
employees totaled 5,086, a net decrease of 37 employees from September 27, 1997
and a net increase of 202 employees from December 28, 1996.
Interest income for the current quarter was $3.5 million, a 75%
increase from $2 million for the comparable period of fiscal 1997, due to higher
levels of invested cash. Interest expense for the current quarter was $3.6
million, a 13% increase from $3.2 million for the comparable period of fiscal
1997 due to the interest expense related to the 6% Convertible Subordinated
Notes due 2004 which were issued during the third fiscal quarter of 1997.
The income tax provision for the current quarter was $.5 million
compared to $.6 million for the comparable prior-year period. The current year
tax provision relates primarily to foreign, state, and federal alternative
minimum taxes. The Company has a valuation allowance which offsets substantially
all deferred tax assets as of December 27, 1997 and December 28, 1996. The
amount of the deferred tax assets considered realizable is subject to change
based on estimates of future 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 and may adjust the level of the valuation
allowance within the next year.
10
<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 1997
fiscal year ended September 27, 1997 and this Quarterly Report on Form 10-Q for
the first fiscal quarter of 1998, which ended December 27, 1997.
11
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
The Company has been engaged in patent infringement litigation against
IBM Corporation since November 1994. Two lawsuits, both in the discovery stages,
are pending in the United States District Court for the District of
Massachusetts in Worcester. The Company alleges that several IBM products
including the AS/400 midrange systems and the AS/400 RISC-based computer product
line infringe various Company's patents. Both suits seek compensatory damages
and, where appropriate, injunctive relief. IBM has answered both complaints, has
denied the Company's infringement claims and has interposed counterclaims
alleging that the Company's CLARiiON storage products infringe IBM patents.
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 counterclaims 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.
Item 4. Submission of Matters to a Vote of Security-Holders
(a) The Annual Meeting of Stockholders of Data General Corporation was
held January 28, 1998.
(b) During the meeting, stockholders elected the following as directors
of Data General:
Frederick R. Adler
Ferdinand Colloredo-Mansfeld
Jeffrey M. Cunningham
Ronald L. Skates
W. Nicholas Thorndike
Donald H. Trautlein
Richard L. Tucker
The directors were elected by the following voting breakdowns:
Director Votes For Votes Withheld
Adler 42,756,548 233,424
Colloredo-Mansfeld 42,796,720 193,252
Cunningham 42,797,175 192,797
Skates 42,779,746 210,226
Thorndike 42,797,431 192,541
Trautlein 42,779,917 210,055
Tucker 42,796,187 193,785
12
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
10. (hh)Deferred Compensation Plan dated January 1, 1998, previously
filed as Exhibit 4.1 to the Company's Registration Statement
on Form S-8, Registration Number 333-45153, which is
incorporated herein by reference.
(ii)Grant of Common Stock to Non-Employee Directors dated November
5, 1997, previously filed as Exhibit 4.2 to the Company's
Registration Statement on Form S-8, Registration Number
333-45153, which is incorporated herein by reference.
(jj)Summary of 1998 Fiscal Year Bonus Opportunity for Chief
Executive Officer.
(kk) Summary of Retention Bonus for Chief Executive Officer.
(ll)Form of Amendment dated November 5, 1997 to various Indemnity
Agreements between the Company and its officers and directors.
(mm)Form of Amendment dated November 5, 1997 to various Employment
Agreements between the Company and its full-time officers.
11. Computation of basic and diluted earnings per share.
(b) No reports on Form 8-K were filed during the current quarter ended
December 27, 1997.
13
<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: February 5, 1998
14
<PAGE>
EXHIBITS
Index to Exhibits.
10. (hh)Deferred Compensation Plan dated January 1, 1998, previously filed as
Exhibit 4.1 to the Company's Registration Statement on Form S-8,
Registration Number 333-45153, which is incorporated herein by
reference.
(ii)Grant of Common Stock to Non-Employee Directors dated November 5, 1997,
previously filed as Exhibit 4.2 to the Company's Registration Statement
on Form S-8, Registration Number 333-45153, which is incorporated herein
by reference.
(jj)Summary of 1998 Fiscal Year Bonus Opportunity for Chief Executive
Officer.
(kk)Summary of Retention Bonus for Chief Executive Officer.
(ll)Form of Amendment dated November 5, 1997 to various Indemnity
Agreements between the Company and its officers and directors.
(mm)Form of Amendment dated November 5, 1997 to various Employment
Agreements between the Company and its full-time officers.
11. Computation of basic and diluted earnings per share.
15
EXHIBIT 10 (jj)
Summary of Fiscal Year 1998 Cash Bonus Opportunity
for the President and Chief Executive Officer
The Company provided Ronald L. Skates, President and Chief Executive Officer of
the Company, a bonus opportunity by which Mr. Skates would be entitled to earn a
cash bonus for the 1998 fiscal year based on the Company's performance as
measured against specified goals relating to earnings-per-share (with a maximum
of 300% of base salary), or, if greater, a cash bonus equal to 1.5% of the
increase in the Company's market capitalization during the fiscal year, based on
the 30-day average price of the Company's Common Stock as of the end of the 1998
fiscal year compared against the 30-day average price of the Company's Common
Stock as of the end of the 1997 fiscal year (subject to a maximum of $3.5
million, except in the event of a change of control). The Board also reserved
the right to adjust this bonus in the event of extraordinary transactions and to
award other bonuses.
EXHIBIT 10 (kk)
Summary of Fiscal Years 1998 - 2000 Retention Bonus
for the President and Chief Executive Officer
In September 1997, the Company provided Mr. Skates a restricted $7,000,000 bonus
as an incentive to remain in the employment of the Company as its Chief
Executive Officer for an additional three years. This bonus will become earned
and vested and its restrictions will lapse over the three-year period commencing
on September 28, 1997 and ending September 30, 2000. The bonus will become fully
vested and free of restrictions upon a change in control of the Company, or upon
termination of Mr. Skates's employment by the Company. If Mr. Skates terminates
his employment with the Company voluntarily prior to October 1, 2000, he will be
obligated to repay the Company on the day of such termination any unvested
amounts paid to him under this bonus.
EXHIBIT 10 (ll)
<PAGE>
AMENDMENT TO INDEMNITY AGREEMENT
(Dated as of November 5, 1997)
This Amendment to Indemnity Agreement is dated as of November 5, 1997
and entered into between Data General Corporation (the "Company") and
_____________________________ (the "Indemnitee").
Reference is made to that Indemnity Agreement dated
______________________ between the Indemnitee and the Company (the "Agreement").
Whereas the parties, for good and sufficient consideration, the receipt
and sufficiency of which is hereby confirmed, wish to amend the Agreement;
Now, therefore, the parties agree that the first sentence of Section 7
of the Agreement shall be, and is hereby amended, to read as follows:
"Upon written request by Indemnitee for indemnification pursuant to
Section 3 or 4 hereof, the entitlement of the Indemnitee to
indemnification pursuant to the terms of this Agreement shall be
determined by the following person or persons who shall be empowered to
make such determination: (a) the Board of Directors of the Company by a
majority vote of Disinterested Directors (as hereinafter defined), even
though less than a quorum; (b) a committee of Disinterested Directors
designated by majority vote of Disinterested Directors, even though
less than a quorum; or (c) if there are no Disinterested Directors, or
if such Disinterested Directors so direct, by Independent Counsel (as
hereinafter defined) in a written opinion to the Board of Directors, a
copy of which shall be delivered to Indemnitee."
Except as hereby amended, the Agreement is hereby ratified and confirmed.
IN WITNESS WHEREOF, the parties have executed this Amendment effective as of
November 5, 1997.
DATA GENERAL CORPORATION
By: ________________________ ________________________
Arthur W. DeMelle ________________________
Senior Vice President and
Chief Financial Officer
EXHIBIT 10 (mm)
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
(Dated as of November 5, 1997)
This Amendment to Employment Agreement is dated as of November 5, 1997
and entered into between Data General Corporation (the "Company") and
______________________ (the "Executive").
Reference is made to that Employment Agreement dated
______________________ between the Executive and the Company (the "Employment
Agreement").
Whereas the parties, for good and sufficient consideration, the receipt
and sufficiency of which is hereby confirmed, wish to amend the Employment
Agreement to clarify the meaning of certain terms used therein;
Now, therefore, the parties agree as follows:
1. Subsection 4(b) (ii) of the Employment Agreement is hereby amended
by so that it reads in its entirety as follows:
(ii) Annual Bonus. In addition to Annual Base Salary,
the Executive shall be awarded, for each fiscal year beginning or
ending during the Employment Period, an annual bonus (the "Annual
Bonus") in cash at least equal to the greater of (x) the highest
Annual Bonus (annualized for any fiscal year consisting of less
than twelve full months or with respect to which the Executive has
been employed by the Company for less than twelve full months)
paid or payable to the Executive by the Company and its affiliated
companies in respect of the three fiscal years immediately
preceding the fiscal year in which the Effective Date occurs (the
"Recent Annual Bonus"), or (y) 30% of the Executive's Annual Base
Salary. Each such Annual Bonus shall be paid no later than the end
of the third month of the fiscal year next following the fiscal
year for which the Annual Bonus is awarded, unless the Executive
shall elect to defer the receipt of such Annual Bonus. The term
"Annual Bonus" as used in this Subsection 4(b) and in Subsection
6(d) shall include all amounts paid as a bonus to the Executive
with regard to the applicable fiscal year.
<PAGE>
2. The first sentence of Subsection 6(a)(ii)(x)(B) of the Employment
Agreement (beginning, "If the Executive's employment ...") is hereby
amended so that such sentence reads as follows:
If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's
legal representatives under this Agreement, other than the
following obligations: (i) payment of the Executive's Annual Base
Salary through the Date of Termination to the extent not
theretofore paid, (ii) payment of the product of (x) the greater
of (A) the Annual Bonus paid or payable but for any deferral (and
annualized for any fiscal year consisting of less than twelve full
months or for which the Executive has been employed for less than
twelve full months) to the Executive for the most recently
completed fiscal year during the Employment Period, if any, and
(B) the highest Annual Bonus (annualized for any fiscal year
consisting of less than twelve full months or with respect to
which the Executive has been employed by the Company for less than
twelve full months) paid or payable to the Executive by the
Company and its affiliated companies in respect of the three
fiscal years immediately preceding the fiscal year in which the
Effective Date occurs (such greater amount hereafter referred to
as the "Highest Annual Bonus") and (y) a fraction, the numerator
of which is the number of days in the current fiscal year through
the Date of Termination, and the denominator of which is 365 and
(iii) payment of any compensation previously deferred by the
Executive (together with any accrued interest thereon) and not yet
paid by the Company and any accrued vacation pay not yet paid by
the Company (the amounts described in paragraphs (i), (ii) and
(iii) are hereafter referred to as "Accrued Obligations").
Except as hereby amended, the Employment Agreement is hereby ratified and
confirmed.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment effective as of
November 5, 1997.
DATA GENERAL CORPORATION
By: ________________________ ________________________
Arthur W. DeMelle ________________________
Senior Vice President and
Chief Financial Officer
EXHIBIT 11
<TABLE>
DATA GENERAL CORPORATION
COMPUTATION OF BASIC AND DILUTED EARNINGS PER SHARE
(Unaudited)
(In thousands except per share amounts)
<CAPTION>
Quarter Ended
---------------------
Dec. 27, Dec. 28,
1997 1996
------- -------
<S> <C> <C>
Basic earnings per share:
Net income ......................................... $ 3,498 $10,415
======= =======
Weighted average shares outstanding ................ 48,640 39,694
======= =======
Net income per share ............................... $ .07 $ .26
======= =======
Earnings per share assuming dilution: (a)
Net income ......................................... $ 3,498 $10,415
======= =======
Weighted average shares outstanding ................ 48,640 39,694
Incremental shares from use of treasury
stock method for stock options ................... 2,036 2,393
------- -------
Common and common equivalent shares,
assuming full dilution, where applicable ......... 50,676 42,087
======= =======
Net income per share ............................... $ .07 $ .25
======= =======
- --------------------------------------------------------------------------------
<FN>
(a) For the quarters ended December 27, 1997 and December 28, 1996, the assumed
conversion of convertible debentures, giving effect to the incremental
shares and the adjustment to reduce interest expense, is anti-dilutive and
has therefore been excluded from the computation.
</FN>
</TABLE>
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE Q1 FY98 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> 3-MOS
<FISCAL-YEAR-END> SEP-26-1998
<PERIOD-END> DEC-27-1997
<CASH> 141,347
<SECURITIES> 156,624
<RECEIVABLES> 303,826
<ALLOWANCES> 0
<INVENTORY> 186,131
<CURRENT-ASSETS> 820,624
<PP&E> 674,707
<DEPRECIATION> 486,596
<TOTAL-ASSETS> 1,112,182
<CURRENT-LIABILITIES> 365,717
<BONDS> 212,750
0
0
<COMMON> 609,194
<OTHER-SE> (84,554)
<TOTAL-LIABILITY-AND-EQUITY> 1,112,182
<SALES> 267,177
<TOTAL-REVENUES> 365,275
<CGS> 189,171
<TOTAL-COSTS> 249,347
<OTHER-EXPENSES> 111,819
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,620
<INCOME-PRETAX> 3,998
<INCOME-TAX> 500
<INCOME-CONTINUING> 3,498
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,498
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
