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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 March 27, 1999
--------------
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from _______________________ to
__________________________
Commission File Number 1-7352
______________________________
Data General Corporation
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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
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Number of shares outstanding of each of the registrant's classes of common
stock, as of April 23, 1999:
Common Stock, par value $.01 50,607,446
- ---------------------------- -------------------
(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. 27, Mar. 28, Mar. 27, Mar. 28,
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Product................................................. $257,679 $263,744 $526,515 $530,921
Service................................................. 97,671 98,066 194,424 196,164
--------- -------- -------- --------
Total revenues..................................... 355,350 361,810 720,939 727,085
--------- -------- -------- --------
COSTS AND EXPENSES:
Cost of product revenues................................ 177,116 190,698 361,333 379,869
Cost of service revenues................................ 61,366 63,114 122,197 123,290
Research and development................................ 28,646 28,945 57,519 56,393
Selling, general, and administrative.................... 86,317 85,083 172,792 169,454
--------- -------- -------- --------
Total costs and expenses........................... 353,445 367,840 713,841 729,006
--------- -------- -------- --------
Income (loss) from operations............................... 1,905 (6,030) 7,098 (1,921)
Interest income............................................. 3,026 3,382 6,045 6,891
Interest expense............................................ 3,524 3,595 7,300 7,215
Other income................................................ 642 2,240 6,014 2,240
--------- -------- -------- --------
Income (loss) before income taxes........................... 2,049 (4,003) 11,857 (5)
Provision (benefit) for income taxes........................ 400 500 (6,300) 1,000
--------- -------- -------- --------
Net income (loss)........................................... $ 1,649 $ (4,503) $ 18,157 $ (1,005)
========= ======== ======== ========
BASIC NET INCOME (LOSS) PER SHARE
Net income (loss) per share............................. $0.03 $(0.09) $0.36 $(0.02)
===== ====== ===== ======
Weighted average shares outstanding..................... 50,325 48,887 50,063 48,763
====== ====== ====== ======
DILUTED NET INCOME (LOSS) PER SHARE:
Net income (loss) per share............................. $0.03 $(0.09) $0.35 $(0.02)
===== ====== ===== ======
Weighted average shares outstanding, including
common stock equivalents, where applicable.............. 51,631 48,887 51,433 48,763
====== ====== ====== ======
<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>
DATA GENERAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
(Unaudited)
Mar. 27, Sept. 26,
DOLLARS IN THOUSANDS, EXCEPT PAR VALUE 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and temporary cash investments............................................ $ 137,678 $ 158,220
Marketable securities.......................................................... 152,587 160,354
Receivables, net............................................................... 293,271 307,428
Inventories.................................................................... 128,907 141,639
Other current assets........................................................... 30,702 28,320
---------- ----------
Total current assets...................................................... 743,145 795,961
Property, plant, and equipment, net................................................ 194,179 180,454
Other assets....................................................................... 95,238 88,649
---------- ----------
Total assets.............................................................. $1,032,562 $1,065,064
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable............................................................... $ 119,786 $ 160,940
Other current liabilities...................................................... 263,067 269,774
---------- ----------
Total current liabilities................................................. 382,853 430,714
---------- ----------
Long-term debt..................................................................... 212,750 212,750
---------- ----------
Other liabilities.................................................................. 26,324 36,645
---------- ----------
Stockholders' equity
Common stock, $0.01 par value
Outstanding - 50,586,000 shares at Mar. 27, 1999
and 49,689,000 shares at Sept. 26, 1998 (net of
deferred compensation of $17,332 at Mar. 27, 1999
and $15,444 at Sept. 26, 1998)............................................ 636,868 626,137
Accumulated deficit................................................................ (213,819) (231,976)
Unrealized gains on marketable securities.......................................... 7,518 8,513
Equity adjustment for minimum pension liability.................................... (6,252) (6,252)
Cumulative translation adjustment.................................................. (13,680) (11,467)
---------- ----------
Total stockholders' equity................................................ 410,635 384,955
---------- ----------
Total liabilities and stockholders' equity................................ $1,032,562 $1,065,064
========== ==========
<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. 27, Mar. 28,
IN THOUSANDS 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).................................................................. $ 18,157 $ (1,005)
Adjustments to reconcile net income (loss) to
net cash provided from operating activities
Depreciation.................................................................. 38,194 38,442
Amortization of capitalized software development costs........................ 8,787 12,565
Gain on sale of marketable securities......................................... (6,014) (2,240)
Other non-cash items, net..................................................... (6,049) 2,693
Change in operating assets and liabilities.................................... (11,559) (42,021)
-------- --------
Net cash provided from operating activities................................... 41,516 8,434
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant, and equipment.................................... (63,357) (66,149)
Net proceeds from the purchases and sales of marketable securities................. 12,787 22,003
Capitalized software development costs............................................. (16,498) (21,290)
-------- --------
Net cash used by investing activities......................................... (67,068) (65,436)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash provided from stock plans..................................................... 7,301 5,212
-------- --------
Net cash provided from financing activities................................... 7,301 5,212
-------- --------
Effect of foreign currency rate fluctuations
on cash and temporary cash investments................................................ (2,291) (1,108)
-------- --------
Decrease in cash and temporary cash investments........................................ (20,542) (52,898)
Cash and temporary cash investments - beginning of period.............................. 158,220 216,814
-------- --------
Cash and temporary cash investments - end of period.................................... $137,678 $163,916
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid...................................................................... $ 6,807 $ 6,646
Income taxes paid.................................................................. $ 4,458 $ 908
<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)
<TABLE>
Note 1. Consolidated Balance Sheet Details
Mar. 27, Sept. 26,
in thousands 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Inventories
Raw materials...................................................................... $ 5,987 $ 1,420
Work in process.................................................................... 58,206 64,200
Finished systems................................................................... 40,954 50,632
Field engineering parts and components............................................. 23,760 25,387
--------- ---------
$ 128,907 $ 141,639
========= =========
Property, plant, and equipment
Property, plant, and equipment..................................................... $ 657,101 $ 641,612
Accumulated depreciation........................................................... (462,922) (461,158)
--------- ---------
$ 194,179 $ 180,454
========= =========
</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 potentially
dilutive common stock.
<TABLE>
Quarter Ended
-----------------------------------------------------------------------------------
Mar. 27, 1999 Mar. 28, 1998
---------------------------------------- ----------------------------------------
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 (loss) available to
common stockholders $1,649 50,325 $0.03 $(4,503) 48,887 $(0.09)
===== ======
Effect of Dilutive Securities
Stock options -- 1,306 -- --
------- ------ ------- ------
Diluted Earnings Per Share
Net income (loss) available to
common stockholders and
assumed conversions $1,649 51,631 $0.03 $(4,503) 48,887 $(0.09)
====== ====== ===== ======= ====== ======
</TABLE>
<PAGE>
<TABLE>
Six Months Ended
---------------------------------------------------------------------------------
Mar. 27, 1999 Mar. 28, 1998
---------------------------------------- --------------------------------------
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 (loss) available to
common stockholders $18,157 50,063 $0.36 $(1,005) 48,763 $(0.02)
===== ======
Effect of Dilutive Securities
Stock options -- 1,370 -- --
-------- ------ -------- -------
Diluted Earnings Per Share
Net income (loss) available to
common stockholders and
assumed conversions $18,157 51,433 $0.35 $(1,005) 48,763 $(0.02)
======= ====== ===== ======= ====== ======
<FN>
For the quarter and six-month periods ended March 27, 1999 and March
28, 1998, the assumed conversion of the 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. For the
quarter and six-month period ended March 28, 1998, the assumed exercise of stock
options, giving effect to the incremental shares, is anti-dilutive and has been
therefore excluded from the computation.
</FN>
</TABLE>
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 1998 Annual Report. The results of operations for
the quarter ended March 27, 1999 are not necessarily indicative of the results
of the entire fiscal year.
Note 4. Restructuring Charge
During fiscal year 1998, the Company approved and implemented a
restructuring program designed to strengthen the Company's focus on storage and
enterprise computing solutions and reduce costs in non-strategic areas. The
restructuring was adopted in response to the increasing price competition within
the computer hardware industry.
Accordingly, during fiscal year 1998, the Company recorded a charge of
approximately $135 million related to the restructuring program and certain
asset write-downs resulting from the plan. A summary of the related accrued
liability balance at March 27, 1999 is as follows:
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------
Less: Fiscal Year 1999
Sept. 26, 1998 Cash Payments and Mar. 27, 1999
in millions Balance Asset Write-downs Balance
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Employee termination benefits $ 27.0 $ 10.1 $ 16.9
Asset write-downs 6.7 5.0 1.7
Lease abandonments 10.6 1.4 9.2
Other exit costs 3.7 2.0 1.7
------ ------ ------
Total $ 48.0 $ 18.5 $ 29.5
====== ====== ======
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The provision included severance benefits for approximately 480 employees,
of which approximately 65% were based in the United States and the remainder in
Europe and Asia/Pacific. Of the 480 employees identified, approximately 422 were
terminated as of March 27, 1999. The remaining terminations are expected to be
complete by the end of the fiscal year. Asset write-downs are composed primarily
of fixed assets, including leasehold improvements and demonstration equipment
which are being disposed of in connection with the restructuring program. The
provision for lease abandonments relates to vacated lease properties, mainly in
Europe and Asia, and includes a change in estimate of $1.3 million for lease
abandonment costs accrued in prior years. There were no material changes in
estimates to prior provisions or additional charges recorded during the
six-month period ended March 27, 1999.
Note 5. Comprehensive Income
In the first quarter of fiscal 1999, the Company adopted SFAS Number 130,
"Reporting Comprehensive Income." This statement establishes standards for
reporting and displaying comprehensive income and its components in a full set
of general purpose financial statements. This statement requires the
classification of items of comprehensive income by their nature in a financial
statement and the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the equity section of
the balance sheet. The Company's total comprehensive income is as follows:
<TABLE>
Quarter Ended Six-Months Ended
--------------------------- -------------------------
Mar. 27, Mar. 28, Mar. 27, Mar. 28
in thousands 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income (loss) ........................... $ 1,649 $ (4,503) $ 18,157 $(1,005)
Other comprehensive income (expense):
Unrealized gains (losses) on
marketable securities................. (1,758) 7,527 (995) 8,202
Cumulative translation adjustment........ (1,601) (72) (2,213) (449)
------- -------- -------- -------
Total other comprehensive income (loss)...... (3,359) 7,455 (3,208) 7,753
------- -------- -------- -------
Total comprehensive income (loss)............ $(1,710) $ 2,952 $ 14,949 $ 6,748
======= ======== ======== =======
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
The Company reported net income of $1.7 million for the current quarter
ended March 27, 1999, compared with a net loss of $4.5 million for the same
period of the prior year. The net income was $18.2 million for the six-months
ended March 27, 1999, compared with a net loss of $1.0 million for the
comparable six-month period ended March 28, 1998. The net income for the current
six-month period includes a gain of $7.5 million resulting from a settlement
with the Internal Revenue Service related to taxes paid during the Company's
1983 through 1991 fiscal years and an additional gain of $6.0 million resulting
from sales of an investment.
<TABLE>
Revenues (in millions)
- ----------------------------------------------------------------------------------------------------------------------
Quarter ended Six-months ended
------------------------------------------------------------------------------------
3/27/99 Change 3/28/98 3/27/99 Change 3/28/98
------- ------ ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Product $257.7 (2%) $263.7 $526.5 (1%) $530.9
% of Total Revenues 73% 73% 73% 73%
Service 97.6 (1%) 98.1 194.4 (1%) 196.2
% of Total Revenues 27% 27% 27% 27%
Total $355.3 (2%) $361.8 $720.9 (1%) $727.1
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
In the fiscal quarter ended March 27, 1999, product revenues were $135.0
million from the Company's AViiON family of open systems server products
compared with product revenues of $133.5 million in the comparable period of the
prior year. In the current quarter, revenues from the Company's Intel
processor-based AViiON systems increased 12% to $125.9 million while revenues
from the Motorola processor-based AViiON systems declined by 56% compared with
the same period of the prior year. The Company anticipates that the percentage
of server product revenues generated by the Intel processor-based AViiON
products will continue to increase in fiscal 1999, while the Motorola
processor-based AViiON system revenues are expected to continue to decline.
Revenues from AViiON systems running the Microsoft Windows NT operating system
increased by approximately 13% as compared to the same quarter in fiscal 1998.
Product revenues from the Company's CLARiiON storage systems increased 12% to
$103.0 million from the comparable prior-year period despite a decline in
revenues from CLARiiON's largest OEM customer by nearly 50%. Excluding revenues
from this customer, CLARiiON revenues grew approximately 50% from the same
period of the prior-year. CLARiiON revenues accounted for 40% of total product
revenues in the current quarter. Within the CLARiiON family of storage systems,
full fibre channel revenues represented approximately 59% of total CLARiiON
revenues. The Company anticipates that the percentage of revenues from full
fibre channel products will continue to increase while the percentage of
revenues from SCSI-based products will decline. 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. CLARiiON product revenues have been
concentrated in a limited number of customers. Product revenues from personal
computers and other equipment decreased 28% from the same period in the prior
year and represented 7% of total product revenues compared to 9% for the
comparable prior-year period. Product revenues from VALiiANT, the Company's
contract manufacturing operation decreased by nearly $12 million from the
comparable quarter in fiscal 1998 as certain contracts have expired. VALiiANT
revenues represented less than 1% of total product revenues for the quarter
ended March 27, 1999.
For the six-months ended March 27, 1999, product revenues were $272.7
million from the Company's AViiON family of open systems server products
compared with product revenues of $266.8 million in the comparable period of the
prior year. In the current six-month period, revenues from the Company's Intel
processor-based AViiON systems increased 14% to $252.6 million while revenues
from the Motorola processor-based AViiON systems declined by 56% compared with
the same six-month period of the prior year. Revenues from AViiON systems
running the Microsoft NT operating system increased by approximately 24% from
the comparable period of the prior year. Product revenues from the Company's
CLARiiON storage systems increased 11% to $216.7 million from the comparable
prior-year period and accounted for 41% of total product revenues in the current
six-month period. Within the CLARiiON family of storage systems, full fibre
channel revenues increased nearly five times from the comparable six-month
period of the prior year and represented approximately 53% of total CLARiiON
revenues in the current six-month period. Product revenues from personal
computers and other equipment decreased 30% from the same six-month period in
the prior year and represented 7% of total product revenues compared to 9% for
the comparable prior-year period.
<TABLE>
Revenues by Geographic Marketplace
- --------------------------------------------------------------------------------------------------------------------------
Percentage of Percentage Change of
Consolidated Revenues $ of Revenues
---------------------------------------------------------------------------------------------
Quarter ended Six-months ended 3/27/99 - 3/28/98
---------------------------------------------------------------------------------------------
3/27/99 3/28/98 3/27/99 3/28/98 Quarter ended Six-months ended
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Domestic
Product 62% 59% 61% 60% 1% 1%
Service 60% 59% 59% 60% - (3%)
Total 61% 59% 60% 60% 1% -
Europe
Product 24% 25% 25% 24% (5%) -
Service 31% 31% 32% 31% - 5%
Total 27% 27% 27% 26% (3%) 1%
Other International
Product 14% 16% 14% 16% (12%) (8%)
Service 9% 10% 9% 9% (3%) (7%)
Total 12% 14% 13% 14% (10%) (8%)
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The increase in domestic product revenues for the current quarter and
six-month period ended March 28, 1999 was primarily a result of increased
shipments of CLARiiON and Intel processor-based AViiON systems, which was partly
offset by decreased shipments of Motorola processor-based AViiON systems and
VALiiANT products.
The decrease in European product revenues, including U.S direct export
sales, for the current quarter was due to decreased shipments of Motorola
processor-based AViiON systems and personal computers and other equipment,
offset, in part, by increases in Intel processor-based AViiON systems and
CLARiiON.
Other international product revenues, including U.S. direct export sales,
for the current quarter and six-month period ended March 27, 1999 decreased 12%
and 8%, respectively, as compared with the same fiscal periods in 1998. The
decreases for the three-month and six-month periods ended March 27, 1999, are
attributable to decreased shipments from CLARiiON offset, in part, by increases
in Intel processor-based AViiON systems.
In the service business, the Company experienced a 4% decrease in contract
maintenance revenues in the current quarter ended March 27, 1999 as compared
with the same period in fiscal 1998 due to a decline in the contract maintenance
service base. This decrease was offset, in part, by a 10% increase in
professional services revenues in the current quarter ended March 27, 1999 as
compared with the quarter ended March 28, 1998. Professional services revenues
represented approximately 27% of total service revenues in the current quarter.
For the six-month period the Company experienced a 3% decrease in contract
maintenance revenues offset, in part, by a 6% increase in professional services
revenue. Professional services revenues represented 26% of total service
revenues in the current six-month period.
The effect of foreign exchange on international revenues was negligible for
the current quarter.
Cost of Revenues (in millions)
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------
Quarter ended Six-months ended
-------------------------------------------------------------------------------------------
3/27/99 Change 3/28/98 3/27/99 Change 3/28/98
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Product $177.1 (7%) $190.7 $361.3 (5%) $379.9
% of Product Revenues 69% 72% 69% 72%
Service 61.4 (3%) 63.1 122.2 (1%) 123.3
% of Service Revenues 63% 64% 63% 63%
Total Cost of Revenues $238.5 (6%) $253.8 $483.5 (4%) $503.2
% of Total Revenues 67% 70% 67% 69%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The decrease in the product cost as a percentage of product revenues from
the comparable prior-year periods was primarily the result of the shift in
product mix to high-end NUMA technology based AViiON servers. The decrease in
the service cost as a percentage of service revenues for the current quarter
ended March 27, 1999 as compared to the same period of the prior year, is a
result of the reduction in labor costs associated with the Company's
restructuring program and improved spare parts management.
Operating Expenses (in millions)
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------
Quarter ended Six-months ended
----------------------------------------------------------------------------
3/27/99 Change 3/28/98 3/27/99 Change 3/28/98
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Research & Development $28.6 (1%) $28.9 $57.5 2% $56.4
% of Total Revenues 8% 8% 8% 8%
Selling, general & administrative $86.3 1% $85.1 $172.8 2% $169.5
% of Total Revenues 24% 24% 24% 23%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company continues to focus its research and development efforts on its
core business technology: multi-user computer systems and mass storage devices.
In the current six-month period, gross expenditures on research and development
and software development before capitalization were $74.0 million, a decrease of
5% from $77.6 million for the comparable prior-year period. Gross expenditures
on research and development before capitalization for the quarter ended March
27, 1999 were $37.1 million, a decrease of 6% from $39.5 million expended during
the quarter ended March 28, 1998. For both the three-month and six-month periods
ended March 27, 1999, continued increases in research and development
expenditures in CLARiiON fibre channel products and NUMA technology, were
offset, in part, by savings associated from the Company's restructuring program
implemented in fiscal year 1998.
For the current six-month period ended March 27, 1999, selling, general,
and administrative expenses increased by 2% over the comparable prior-year
quarter. The increase is a result of increased sales marketing efforts in the
storage business, partially offset by savings in the server business resulting
from the Company's fiscal 1998 restructuring program. Selling, general and
administrative expenses were $86.3 million for the three-month period ended
March 27, 1999, an increase of 1% as compared to the $85.1 million for the
three-month period ended March 28, 1998.
During fiscal year 1998, the Company approved and implemented a
restructuring program designed to strengthen the Company's focus on storage and
enterprise computing solutions and reduce costs in non-strategic areas. The
restructuring was adopted in response to the increasing price competition within
the computer hardware industry.
Accordingly, during fiscal year 1998, the Company recorded a charge of
approximately $135 million related to the restructuring program and certain
asset write-downs resulting from the plan. A summary of the related accrued
liability balance at March 27, 1999 is as follows:
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------
Less: Fiscal Year 1999
Sept. 26, 1998 Cash Payments and Mar. 27, 1999
in millions Balance Asset Write-downs Balance
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Employee termination benefits $ 27.0 $ 10.1 $ 16.9
Asset write-downs 6.7 5.0 1.7
Lease abandonments 10.6 1.4 9.2
Other exit costs 3.7 2.0 1.7
------ ------ ------
Total $ 48.0 $ 18.5 $ 29.5
====== ====== ======
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The provision included severance benefits for approximately 480 employees,
of which approximately 65% were based in the United States and the remainder in
Europe and Asia/Pacific. Of the 480 employees identified, approximately 422 were
terminated as of March 27, 1999. The remaining terminations are expected to be
complete by the end of the fiscal year. Asset write-downs are composed primarily
of fixed assets, including leasehold improvements and demonstration equipment
which are being disposed of in connection with the restructuring program. The
provision for lease abandonments relates to vacated lease properties, mainly in
Europe and Asia, and includes a change in estimate of $1.3 million for lease
abandonment costs accrued in prior years. There were no material changes in
estimates to prior provisions or additional charges recorded during the
six-month period ended March 27, 1999.
During fiscal year 1995, the Company recorded a restructuring charge of $43
million. As of March 27, 1999 the remaining reserves of $2.6 million from the
1995 restructuring charge are for excess vacant rental properties, primarily
located in Europe.
At March 27, 1999, the number of employees totaled approximately 4,800,
which is an increase of approximately 100 employees from the number of employees
at September 26, 1998 and a reduction of approximately 300 employees from March
28, 1998.
Interest income for the current quarter was $3.0 million, an 11% decrease
from $3.4 million for the comparable period of fiscal 1998, due to lower
interest yields and levels of invested cash. Interest expense for the current
quarter was $3.5 million, a 2% decrease from $3.6 million for the comparable
period of fiscal 1998, and relates primarily to interest on the Company's 6%
Convertible Subordinated Notes due 2004. Other income for the current quarter
includes a gain of $0.6 million from the sale of an equity investment in a
non-affiliated company. Interest income, interest expense and other income were
$6.0 million, $7.3 million and $6.0 million, respectively, for the six-month
period ended March 27, 1999 as compared to $6.9 million, $7.2 million and $2.2
million, respectively, for the comparable period of the prior year. Other income
consists of gains on sales of equity investments in non-affiliated companies in
both years.
The current quarter income tax expense of $0.4 million relates primarily to
foreign and state income taxes, as well as federal alternative minimum taxes.
The Company has a valuation allowance which offsets substantially all deferred
tax assets as of March 27, 1999 and March 28, 1998. 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, if appropriate.
The income tax benefit for the six-month period ended March 27, 1999 of $6.3
million includes a gain of $7.5 million resulting from a settlement with the
Internal Revenue Service for taxes paid during the Company's 1983 through 1991
fiscal years.
<PAGE>
Financial Condition
Cash and temporary cash investments as of March 27, 1999 were $137.7
million, a decrease of $20.5 million from the end of fiscal 1998. At the same
date, the Company held $152.6 million in marketable securities, a net decrease
of $7.8 million from the end of fiscal 1998. In total, cash and temporary cash
investments along with marketable securities decreased $28.3 million for the
current six-month period. The decrease was mainly attributable to the purchases
of equipment required for the Company's server and storage businesses, payments
reducing employee and vendor related accruals, and payments related to the
restructuring program implemented in June 1998. 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, commercial
paper and certificates of deposit, as well as equity securities recorded at
their fair market value of $8.8 million and are classified as
available-for-sale. The unrealized gain on marketable securities of $7.5 million
as of March 27, 1999 is recorded as a separate component of stockholders'
equity. During the current three-month and six-month periods ended March 27,
1999, the Company recorded gains of $0.6 million and $6.0 million, respectively
on the sale of an investment in marketable securities. Net cash provided from
operations for the six-months ended March 27, 1999 totaled $41.5 million;
expenditures for property, plant, and equipment totaled $63.4 million;
capitalized software development costs totaled $16.5 million. Cash provided from
stock plans totaled $7.3 million during the current six-month period ended March
27, 1999. The effect of foreign currency exchange rate fluctuations on cash and
temporary cash investments was a decrease of $2.3 million.
Net receivables as of March 27, 1999 were $293.3 million, a decrease of
$14.1 million from $307.4 million as of September 26, 1998. The decrease is
primarily attributable to a decline in revenues. Inventories as of March 27,
1999 were $128.9 million, a decrease of $12.7 million from September 26, 1998,
primarily as a result of the reduction in inventory levels related to improved
supply management. Net property, plant, and equipment increased $13.7 million
from September 26, 1998 to $194.2 million primarily due to the purchases of
equipment and capital expenditures for developing both operating and financial
systems and to support the new product initiatives in the server and storage
businesses. Fixed asset dispositions related to the sale of demonstration
equipment totaled $3.2 million for the current six-month period. Management
expects that sales of demonstration equipment will continue.
The increase of $6.6 million in other assets from September 26, 1998 to
$95.2 million at March 27, 1999 was attributed mainly to the capitalization of
software development costs net of related amortization.
The decrease of $41.2 million in accounts payable from September 26, 1998
levels was attributed mainly to the timing of payments related to purchases of
material and an increase in the value of unmatured foreign exchange contracts.
Other current and other liabilities decreased by approximately $17.0 million
from September 26, 1998 to $289.4 million. The decrease from September 26, 1998
was primarily related to funding of the Company's domestic pension plan and
payments related to the Company's restructuring program. Long-term debt of
$212.8 million remained unchanged from September 26, 1998.
<PAGE>
Year 2000 Information and Readiness Disclosure
The "Year 2000 issue" arises because many computer hardware and software
systems use only two digits to represent the year. As a result, these systems
and programs may not correctly handle dates beyond 1999, resulting in errors in
information or program or systems failures. Assessments of the potential effects
of the Year 2000 issues vary markedly among different companies, governments,
consultants, economists, and commentators. It is not possible to accurately
predict what the actual impact may be. In this context, the Company offers the
following statements concerning the Year 2000 issues. All statements made and
referred to here are Year 2000 readiness disclosures under the U.S. Year 2000
Information and Readiness Disclosure Act.
To better address the Year 2000 issue in a comprehensive and coordinated
manner, across all of Data General's operations worldwide, the Company has
created a cross-functional corporate Year 2000 project team, reporting and
responsible to the senior management of the Company. A project plan has been
adopted and is guiding the Company's efforts to assess and address Year 2000
issues pertaining to each of the identified functional areas of the company's
operations.
1. Product Readiness and Customer Communications
The Company is communicating with its customers concerning the Year 2000
issue. The primary means of communication are the Data General and CLARiiON Year
2000 Internet web sites at http://www.dg.com/year2000 and
http://www.clariion.com/corporat/yr2000readiness.html, where Year 2000 readiness
disclosures concerning various products and the Company's Year 2000 program are
made available to customers and the general public.
The Company has assessed the Year 2000 readiness of Data General's AViiON
computer systems and CLARiiON storage products, as well as of Data General
Pentium processor-based and later generation personal computers. Based on these
efforts as of March 27, 1999, the Company has determined that Data General's
AViiON computer systems and CLARiiON storage products are either Year 2000 Ready
or may be made so by means of Year 2000 updates or patches available from the
Company. As well, the Company offers a Year 2000 support strategy for the
current releases of Data General's DG/UX operating system software, the details
of which are available on the Data General Year 2000 web site. Most other active
Data General and CLARiiON-branded products, including many 32-bit ECLIPSE MV
computer systems, have also been evaluated for Year 2000 readiness. Consistent
with industry practices, inquiries concerning Year 2000 readiness of third-party
products resold by Data General are being referred to the third-party suppliers
of such products. The Company has determined not to test certain products for
Year 2000 Readiness. As well, some Data General products have been determined to
not be Year 2000 Ready. For the most current information concerning products'
Year 2000 readiness, customers are directed to the Data General Year 2000 web
sites, since the Company is making no statement regarding Year 2000 readiness
for any product except as noted on the Company's Year 2000 web sites.
2. Data General's Internal Systems, Manufacturing Processes, and Facilities
Data General has been preparing for Year 2000 since mid-1996, and has
established teams to coordinate solutions to the Year 2000 issue for its own
internal information systems and applications across the Company's operations
worldwide. Generally, the Company has structured the Year 2000 project in four
phases: inventory and assessment; remediation and/or avoidance; compliance
confirmation; and (as and when appropriate) contingency planning. As of December
31, 1998, Data General had substantially completed the assessment and inventory
phase of its Year 2000 project relative to the Company's key information system
and applications. As of March 27, 1999, approximately 60% of the Company's key
business systems have been qualified by the Company as Year 2000 Ready. Data
General continues to address known Year 2000 issues, and is committed to making
its key internal information systems Year 2000 Ready in time to meet the
Company's critical business requirements. Based on existing plans and schedules,
and subject to the possibility of delays, the Company plans to have
substantially all of its key business systems Year 2000 Ready by September 30,
1999. Although Data General's Year 2000 project relative to its critical
information management systems is still in process, the Company believes that
the impact of the Year 2000 issues on its core business systems and applications
should not have a material adverse impact on future results.
The Company has assessed the Year 2000 issue as related to its
manufacturing facilities and processes. Projects are underway to address those
Year 2000 issues which have been identified. The Company is not aware at
March 27, 1999, of any material Year 2000 concerns with respect to its
manufacturing facilities and processes.
The Company is also continuing its assessment of the possible impact of
Year 2000 issues on the operations of its offices and facilities (including such
matters as security systems, PBX and voicemail systems, and heating and
air-conditioning systems). Projects are underway to address those Year 2000
issues which have been identified. The Company is not aware at March 27, 1999,
of any material Year 2000 concerns with respect to the operation of its offices
and facilities.
The Company is also seeking to assess the Year 2000 risks arising from
external factors, such as potential interruptions of telecommunications or
transportation services, or utilities. The likelihood and extent of widespread
or persistent interruptions to such infrastructure services will generally be
difficult to predict. As better information becomes available, the Company will
be developing contingency plans intended to support the continued operation of
the Company's critical functions in the event of interruptions to infrastructure
services.
3. Data General's Suppliers
The Company's procurement organizations are seeking to monitor the Year
2000 readiness of the Company's key suppliers. The Company is assessing the
responses to Year 2000 readiness questionnaires sent in December 1998, to an
extensive list of suppliers, including those suppliers which the Company
considers most critical to its operations. The Company is following up with
these suppliers where appropriate. Since the Company's suppliers' Year 2000
preparations and assessments are ongoing, Data General's efforts to monitor the
Year 2000 readiness of key suppliers will be continuing. If Year 2000 readiness
issues are identified, the Company intends to take reasonable actions as needed
to address the Company's business requirements.
Since determining the Year 2000 readiness of suppliers depends upon their
cooperation and upon their disclosure of often imprecise or estimated
information, it is likely that the Company's inquiries will not be entirely
successful, and it remains possible that the actual outcomes may deviate from
the suppliers' assurances to the Company. It is possible that notwithstanding
the Company's efforts, interruptions of key components or services could have an
adverse impact on the Company's operations and future results.
The Company is evaluating contingency plans to mitigate or avoid potential
interruptions to normal business operations. It is likely, however, that not
every potential Year 2000 exposure will be avoided; for example alternative
sources of supply for single-sourced components may not always be readily
available. A measure of reasonable business risk will be undertaken relative to
the Year 2000 problem, both by Data General and by other companies.
4. Risks of Claims
There may be a potential for claims against the Company arising from
products and services that were not Year 2000 Ready. Because the Company is in
the business of selling computer system products, the Company's risk of being
subjected to lawsuits relating to Year 2000 issues with its products is likely
to be greater than that of companies in other industries. Although the Company
believes that it has valid defenses to Year 2000 claims which may be brought
against it by its customers, the outcomes of Year 2000 claims and the impact of
such claims on the Company cannot be determined at this time. The actual
outcomes will depend on the facts and circumstances of each situation and on an
evolving state of law as Year 2000 claims are addressed by legal systems
worldwide.
5. Costs associated with the Year 2000 Project
The cost of addressing Year 2000 issues is funded through operating cash
flows. The Company does not expect the amounts to have a material effect on its
financial position or results of operations. The Company has incurred costs of
approximately $3 million directly associated with Year 2000 projects to date as
of March 27, 1999.
6. Certain Additional Risk Factors
It is unknown how the Company's sales may be impacted by Year 2000 issues.
As the Company's customers focus on preparing their businesses for Year 2000,
capital budgets in the near term may be redirected toward remediation efforts,
potentially delaying the purchase or implementation of new systems, thereby
creating less demand for the Company's products and services. As well,
customers' procurement efforts may be temporarily delayed as a result of Year
2000 readiness testing within customers' operations. Alternatively, sales of
Year 2000 Ready Data General products could be increased, as Year 2000 Ready
products replace older products. Service revenues could be reduced if customers
discontinue support of products which are not Year 2000 Ready, or perhaps
increased as customers purchase new, Year 2000 Ready systems. As well, the
Company's sales during 1999 could be affected by the customers' perceptions of
Data General's own state of Year 2000 readiness. All these factors could affect
the Company's future revenues.
Overriding any preparations taken by the Company, the Year 2000 issue
presents risks and uncertainties that could affect the Company; these include
unexpected Year 2000 issues, or unexpected problems arising from plans
implemented to anticipate Year 2000 problems; interruptions to power, water or
telecommunications utility services; potential unavailability of skilled or
critical personnel; delays or interruptions in transportation systems; and
potential governments' responses to Year 2000 emergencies, among others.
Further, there can be no assurance that there will not be delays in, or
increased costs associated with, the Company's Year 2000 readiness efforts, or
that the Company's suppliers and other parties will adequately prepare for the
Year 2000. Notwithstanding the Company's diligent efforts, one can anticipate
that Data General will not be able in all cases to identify and avoid every
possible Year 2000 impact.
As of March 27, 1999, the Company is working to assess and evaluate likely
Year 2000 problem scenarios and to evaluate Year 2000 contingency plans in
appropriate cases. The Company expects that this contingency planning effort
will continue throughout 1999 as the Company completes its preparations for the
Year 2000 and learns more about the Year 2000 preparations and vulnerabilities
of third parties.
The nature of the uncertainties surrounding the Year 2000 issue is such
that it remains possible that Year 2000 issues could have a material adverse
impact on the Company's operations and financial results. While the Company does
not currently expect that this will be the case and continues to aggressively
pursue its preparations for Year 2000, the Company can offer no assurance
whether or to what extent the Company may be affected by matters which it has
not anticipated or by matters outside of the Company's control. The Company
recognizes the need to continue its analysis, assessment, monitoring, and
planning for the various Year 2000 issues, across its businesses worldwide, and
to address Year 2000 issues as they are identified. Within that uncertain
context, however, and subject to the various factors discussed above, the
Company believes as of March 27, 1999, the impact of Year 2000 issues on its
business should not have a material adverse effect on the Company's financial
position or results of operations.
Market Risk
The Company is exposed to market risk primarily in its cash and foreign
currency transactions. Because a substantial portion of the Company's operations
and revenue occur outside the United States, the Company's results can be
significantly impacted by changes in foreign currency exchange rates. The
Company manages its foreign currency risk through the use of forward foreign
currency contracts. The Company does not hold or enter into derivative financial
instruments for trading purposes. At inception, the forward foreign currency
contracts are designated as hedges of intercompany accounts receivable and
foreign sales which are firmly committed or forecasted. These contracts
generally mature within three-months. Market value gains and losses on these
contracts are included in the cost of product revenues and generally offset
exchange gains or losses on the related transactions.
As of March 27, 1999, the Company had entered into forward foreign currency
contracts to purchase $30.4 million and sell $84.0 million in various foreign
currencies with maturity dates on March 29 and March 30, 1999. The effect of
foreign exchange rate movements from March 27, 1999 until maturity did not have
a significant adverse or beneficial effect on the Company's financial position
or results of operations.
Euro Conversion
On January 1, 1999, 11 of the 15 members of the European Union established
fixed conversion rates between their existing currencies and the "euro." The
euro will trade on currency exchanges and the legacy currencies will remain
legal tender for a transition period between January 1, 1999 and January 1,
2002. During the transition period, public and private companies may pay for
goods and services using the euro or the participating country's legacy
currency. The participating countries will issue sovereign debt exclusively in
euros, and will redenominate outstanding sovereign debt. Participating countries
no longer control their own monetary policies by directing independent interest
rates for their legacy currencies. Instead, the authority to direct monetary
policy, including money supply and official interest rates will be exercised by
the new European Central Bank.
The Company has established plans and has begun developing the necessary
modifications for the technical adaptation of its internal information
technology and other systems to accommodate euro-denominated transactions. The
Company is also assessing the business implications of the conversion to the
euro, including long-term competitive implications and the effect of market risk
with respect to financial instruments. The Company is currently unable to
determine the ultimate financial impact of these matters, if any, on its results
of operations, financial condition or cash flows. However, the Company will
continue to assess the impact of euro conversion issues as the applicable
accounting, tax, legal, and regulatory guidance evolves.
Statements concerning the Company's business outlook or future economic
performance; Year 2000 readiness; currency market risk; Euro conversion issues;
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 1998
fiscal year-ended September 26, 1998 and this Quarterly Report on Form 10-Q for
the second fiscal quarter of 1999, which ended March 27, 1999.
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 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 AViiON and CLARiiON computer systems 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.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
3. (c) By-Laws of the Company, as amended through November 4, 1998,
previously filed as Exhibit 3(c) to the Company's Quarterly
Report on Form 10-Q for the quarter ended December 26, 1998,
which is incorporated herein by reference.
3. (e) Amendment to Certificate of Incorporation of the Company,
filed January 28, 1999, previously filed as Exhibit 3(e) to
the Company's Quarterly Report on Form 10-Q for the quarter
ended December 26, 1998, which is incorporated herein by
reference.
10. (w) Employee Qualified Stock Purchase Plan, as amended.
10. (jj) 1998 Employee Stock Option Plan, previously filed as Exhibit
4.1 to the Company's Registration Statement on Form S-8,
Registration Number 333-69559, which is incorporated herein by
reference.
10. (kk) Form of (Key Executive) 1998 Employee Stock Option Agreement,
previously filed as Exhibit 10(kk) to the Company's Quarterly
Report on Form 10-Q for the quarter ended December 26, 1998,
which is incorporated herein by reference.
10. (ll) Form of Amendment to Employment Agreements between the Company
and its key executives previously filed as Exhibit 10(ll) to
the Company's Quarterly Report on Form 10-Q for the quarter
ended December, 26, 1998, which is incorporated herein by
reference.
10. (mm) 1998 Non-Employee Director Stock Option Plan, previously filed
as Exhibit 4.2 to the Company's Registration Statement on Form
S-8, Registration Number 333-69559, which is incorporated
herein by reference.
10. (nn) Form of 1998 Non-Employee Director Stock Option Agreement,
previously filed as Exhibit 10(nn) to the Company's Quarterly
Report on Form 10-Q for the quarter ended December 26, 1998,
which is incorporated herein by reference.
10. (oo) Summary of 1999 Fiscal Year Bonus Opportunity for Chief
Executive Officer, previously filed as Exhibit 10(oo) to the
Company's Quarterly Report on Form 10-Q for the quarter
ended December 26, 1998, which is incorporated herein by
reference.
10. (pp) Amendment to Supplemental Pension and Retiree Medical
Agreement dated December 2, 1998, between the Company and its
President and Chief Executive Officer, previously filed as
Exhibit 10(pp) to the Company's Quarterly Report on Form 10-Q
for the quarter ended December 26, 1998, which is incorporated
herein by reference.
11. Computation of basic and diluted earnings per share.
(b) No reports on Form 8-K were filed during the current quarter ended
March 27, 1999.
<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/ John J. Gavin Jr.
--------------------------------------------
John J. Gavin Jr.
Chief Financial Officer, Vice President, and
and Corporate Controller
Dated: May 6, 1999
<PAGE>
EXHIBITS
Index to Exhibits.
3. (c) By-Laws of the Company, as amended through November 4, 1998,
previously filed as Exhibit 3(c) to the Company's Quarterly
Report on Form 10-Q for the quarter ended December 26, 1998,
which is incorporated herein by reference.
3. (e) Amendment to Certificate of Incorporation of the Company,
filed January 28, 1999, previously filed as Exhibit 3(e) to
the Company's Quarterly Report on Form 10-Q for the quarter
ended December 26, 1998, which is incorporated herein by
reference.
10. (w) Employee Qualified Stock Purchase Plan, as amended.
10. (jj) 1998 Employee Stock Option Plan, previously filed as Exhibit
4.1 to the Company's Registration Statement on Form S-8,
Registration Number 333-69559, which is incorporated herein by
reference.
10. (kk) Form of (Key Executive) 1998 Employee Stock Option Agreement,
previously filed as Exhibit 10(kk) to the Company's Quarterly
Report on Form 10-Q for the quarter ended December 26, 1998,
which is incorporated herein by reference.
10. (ll) Form of Amendment to Employment Agreements between the Company
and its key executives previously filed as Exhibit 10(ll) to
the Company's Quarterly Report on Form 10-Q for the quarter
ended December, 26, 1998, which is incorporated herein by
reference.
10. (mm) 1998 Non-Employee Director Stock Option Plan, previously filed
as Exhibit 4.2 to the Company's Registration Statement on Form
S-8, Registration Number 333-69559, which is incorporated
herein by reference.
10. (nn) Form of 1998 Non-Employee Director Stock Option Agreement,
previously filed as Exhibit 10(nn) to the Company's Quarterly
Report on Form 10-Q for the quarter ended December 26, 1998,
which is incorporated herein by reference.
10. (oo) Summary of 1999 Fiscal Year Bonus Opportunity for Chief
Executive Officer, previously filed as Exhibit 10(oo) to the
Company's Quarterly Report on Form 10-Q for the quarter
ended December 26, 1998, which is incorporated herein by
reference.
10. (pp) Amendment to Supplemental Pension and Retiree Medical
Agreement dated December 2, 1998, between the Company and its
President and Chief Executive Officer, previously filed as
Exhibit 10(pp) to the Company's Quarterly Report on Form 10-Q
for the quarter ended December 26, 1998, which is incorporated
herein by reference.
11. Computation of basic and diluted earnings per share.
EXHIBIT 10(w)
DATA GENERAL CORPORATION
EMPLOYEE QUALIFIED STOCK PURCHASE PLAN
1. Purpose
This Employee Qualified Stock Purchase Plan (the "Plan") is intended as an
incentive and to encourage stock ownership by all eligible employees of Data
General Corporation (the "Company") and all participating subsidiaries so that
they may share in the fortunes of the Company by acquiring or increasing their
proprietary interest in the Company. The Plan is designed to encourage eligible
employees to remain in the employ of the Company. It is intended that options
issued pursuant to this Plan shall constitute options issued pursuant to an
"employee stock purchase plan" within the meaning of Section 423 of the Internal
Revenue Code of 1986 (the "Code").
2. Eligible Employees
All employees of the Company or any of its participating subsidiaries who
have completed ninety days' employment with the Company or any of its
subsidiaries shall be eligible to receive options under this Plan to purchase
the Company's Common Stock (except employees in countries whose laws make
participation impractical). Persons who have been so employed for ninety days or
more on the February 1 next following the date this Plan is approved by the
stockholders of the Company shall receive their options as of such February 1.
Persons who attain the status of employment for ninety days or more after the
date on which the initial options are granted under this Plan shall be granted
options on the next date on which options are granted to all participating
employees. In no event may an employee be granted an option if such employee,
immediately after the option is granted, owns stock possessing 5 percent or more
of the total combined voting power or value of all classes of stock of the
Company or of its parent corporation or subsidiary corporation, as the terms
"parent corporation" and "subsidiary corporation" are defined in Section 425(e)
and (f) of the Code. For purposes of determining stock ownership under this
paragraph, the rules of Section 425(d) of the Code shall apply and stock which
the employee may purchase under outstanding options shall be treated as stock
owned by the employee.
For purposes of this Article 2, the term employee shall not include an
employee whose customary employment is 20 hours or less per week or is for not
more than 5 months in any calendar year.
3. Stock Subject to the Plan
The stock subject to the options shall be shares of the Company's
authorized but unissued shares of Common Stock of the Company or shares of
Common Stock reacquired by the Company, including shares purchased in the open
market. The aggregate number of shares which may be issued pursuant to this Plan
is 11,100,000, subject to increase or decrease by reason of stock split-ups,
reclassifications, stock dividends, changes in par value and the like.
4. Payment Periods and Stock Options
The six-month periods, August 1 to January 31 and February 1 to July 31,
are Payment Periods during which payroll deductions will be accumulated under
the Plan. Each Payment Period includes only regular pay days falling within it.
Twice each year, on the first business day of each Payment Period, the
Company will grant to each eligible employee who is then a participant in the
Plan an option to purchase on the last day of such Payment Period at the Option
Price hereinafter provided for such number of shares of the Common Stock of the
Company reserved for the purpose of the Plan as his or her accumulated payroll
deductions on the last day of such Payment Period will pay for at such Option
Price; provided and on condition that such employee remains eligible to
participate in the Plan throughout such Payment Period. The Option Price for
each Payment Period shall be the lesser of (i) 85% of the average market price
of the Company's Common Stock on the first business day of the Payment Period;
or (ii) 85% of the average market price of the Company's Common Stock on the
last business day of the Payment Period. In the event of an increase or decrease
in the number of outstanding shares of Common Stock of the Company through stock
split-ups, reclassifications, stock dividends, changes in par value and the
like, an appropriate adjustment shall be made in the number of shares and Option
Price per share provided for under the Plan, either by a proportionate increase
in the number of shares and a proportionate decrease in the Option Price per
share, or by a proportionate decrease in the number of shares and a
proportionate increase in the Option Price per share, as may be required to
enable an eligible employee who is then a participant in the plan as to whom an
option is exercised on the last day of any then current Payment Period to
acquire such number of full shares as his accumulated payroll deductions on such
date will pay for at the adjusted Option Price.
For purposes of this Plan the term "average market price" means, if the
Common Stock is listed on the New York Stock Exchange, the average of the high
and low prices of the Common Stock of the Company on such exchange or such other
national securities exchange as designated by the Board of Directors or, if the
Common Stock is traded over-the-counter securities market, the mean between the
bid and asked prices of the Common Stock.
For purposes of this Plan the term "business day" as used herein means a
day on which there is trading on the New York Stock Exchange or such other
national securities exchange as shall be designated by the Board of Directors
pursuant to the preceding paragraph.
No employee shall be granted an option which permits his rights to purchase
Common Stock under the Plan and any similar plans of the Company or any parent
or subsidiary corporations to accrue at a rate which exceeds $25,000 of the fair
market value of such stock (determined at the time such option is granted) for
each calendar year in which such option is outstanding at any time. The purpose
of the limitation in the preceding sentence is to comply with Section 423(b)(8)
of the Code.
5. Exercise of Option
Each eligible employee who continues to be a participant in the Plan on the
last business day of a Payment Period shall be deemed to have exercised his
option on such date and shall be deemed to have purchased from the Company such
number of full shares of Common Stock reserved for the purpose of the Plan as
his accumulated payroll deductions on such date will pay for at such Option
Price. If a participant is not an employee on the last business day of a Payment
Period, he shall not be entitled to exercise his option.
6. Unused Payroll Deductions
If the participant wishes to receive a certificate representing the shares
purchased pursuant to the option, only full shares of stock will be represented
by the stock certificate. Any balance remaining in an employee account after a
purchase will be reported to the employee and will be carried forward to the
next Payment Period.
7. Authorization for Entering Plan
An employee may enter the Plan by filling out, signing and delivering to
the Corporate Benefits Department an Authorization:
a) stating the percentage of either (i) the employee's regular base pay or
(ii) the employee's Total ESPP-Eligible Compensation to be deducted
regularly from the employee's pay and other compensation;
b) authorizing the purchase of stock for the employee in each Payment
Period in accordance with the terms of the Plan; and
c) specifying the exact name in which stock purchased for such employee
is to be issued as provided under Article 11 hereof.
Such Authorization for any Payment Period must be received by the Corporate
Benefits Department at least 10 days before the beginning date of the next
succeeding Payment Period. The amounts deducted from each employee's pay and
other compensation under the Plan during any Payment Period shall reflect any
adjustment(s) to regular base pay or Total ESPP-Eligible Compensation of such
employee paid during the Payment Period. For purposes of the foregoing, "Total
ESPP-Eligible Compensation" includes regular base pay together with those other
types of compensation designated by the Committee from time to time as included
in "Total ESPP-Eligible Compensation". No such designation shall be made which
would cause the Plan to cease to comply with the requirements of Section 423 of
the Internal Revenue Code, as amended.
Unless an employee files a new Authorization or withdraws from the Plan, an
employee's deductions and purchases under the Authorization he or she has on
file under the Plan will continue as long as the Plan remains in effect.
The Company will accumulate and hold for the employee's account the amounts
deducted from the employee's pay and compensation. No interest will be paid on
it.
8. Amount of Payroll Deductions
An employee may authorize payroll deductions by designating (1) a
percentage (stated as an even 0.5% percentage amount, not less than 0.5% and not
more than 10.0%), and (2) designating whether such percentage shall be applied
to (i) such employee's regular base pay or (ii) such employee's Total
ESPP-Eligible Compensation, provided, however, that the minimum deduction in
respect of any payroll period shall be $10.00 (or such lesser amount as the
Committee shall establish).
9. Change in Payroll Deductions
Each employee may decrease the percentage designated by such employee under
Section 8(1), above, not more than once in each Payment Period. Increases to
such percentage are not permitted during any Payment Period. Each employee may
increase or decrease the percentage designated by such employee under Section
8(1), above, or change such employee's election under Section 8(2), above, for
the next Payment Period by filing with the Company's Corporate Benefits
Department a new Authorization at least 10 days before the beginning of the next
Payment Period.
10. Withdrawal from the Plan
An employee may withdraw from the Plan, in whole but not in part, at any
time prior to the last business day of each Payment Period by delivering a
Withdrawal Notice to the Corporate Benefits Department, in which event the
Company will promptly refund the entire balance of his deductions not
theretofore used to purchase stock under the Plan.
An employee who withdraws from the Plan is like an employee who has never
entered the Plan. To re-enter, he or she must file a new Authorization at least
10 days before the beginning date of the next Payment Period which cannot,
however, become effective before the beginning of the next Payment Period
following his or her withdrawal.
11. Issuance of Stock
Certificates for stock issued to participants will be delivered as soon as
practicable after each Payment Period.
Stock purchased under the Plan will be issued only in the name of the
employee, or if his or her Authorization so specifies, in the name of the
employee and another person of legal age as joint tenants with rights of
survivorship.
12. No Transfer or Assignment of Employee's Rights
An employee's rights under the Plan are his or hers alone and may not be
transferred or assigned to, or availed of by, any other person. Any option
granted to an employee may be exercised only by such employee.
13. Termination of Employee's Rights
An employee's rights under the Plan will terminate when he ceases to be an
employee because of retirement, resignation, lay-offs, discharge, death, change
of status, or for any other reason. A Withdrawal Notice will be considered as
having been received from the employee on the day his or her employment ceases,
and all payroll deductions not used to purchase stock will be refunded.
If an employee's payroll deductions are interrupted by any legal process, a
Withdrawal Notice will be considered as having been received from him or her on
the day the interruption occurs.
14. Termination and Amendments to Plan
The plan may be terminated at any time by the Company's Board of Directors.
It will terminate in any case when all or substantially all of the unissued
shares of stock reserved for the purposes of the Plan have been purchased. If at
any time shares of stock reserved for the purposes of the Plan remain available
for purchase but not in sufficient number to satisfy all then unfilled purchase
requirements, the available shares shall be apportioned among participants in
proportion to their options and the Plan shall terminate. Upon such termination
or any other termination of the Plan, all payroll deductions not used to
purchase stock will be refunded.
The Board of Directors also reserves the right to amend the Plan from time
to time, in any respect provided, however, that no amendment shall be effective
without prior approval of the stockholders, which would (a) except as provided
in Article 3 and 4, increase the number of shares of Common Stock to be offered
above or (b) change the class of employees eligible to receive options under the
Plan.
15. Limitations on Sale of Stock Purchased Under the Plan
The Plan is intended to provide Common Stock for investment and not for
resale. The Company does not, however, intend to restrict or influence any
employee in the conduct of his or her own affairs. An employee may, therefore,
sell stock purchased under the Plan at any time he or she chooses; provided,
however, that because of certain Federal tax requirements, each employee will
agree by entering the Plan, promptly to give the Company notice of any such
stock disposed of within two years after the date of the last day of the Payment
Period during which the stock was purchased showing the number of such shares
disposed of. The employee assumes the risk of any market fluctuations in the
price of such stock.
16. Company's Payment of Expenses Related to Plan
The Company will bear all costs of administering and carrying out the Plan.
17. Participating Subsidiaries
The term "participating subsidiaries" shall mean any subsidiary of the
Company which is designated by the Board of Directors to participate in the
Plan. The Board of Directors shall have the power to make such designations
before or after the Plan is approved by the stockholders.
18. Administration of the Plan
The Plan shall be administered by a committee appointed by the Board of
Directors of the Company (the "Committee"). The Committee shall consist of not
less than three members of the Company's Board of Directors. The Board of
Directors may from time to time remove members from, or add members to, the
Committee. Vacancies on the Committee, howsoever caused, shall be filled by the
Board of Directors. The Committee shall elect one of its members as Chairman,
and shall hold meetings at such times and places as it may determine. Acts by a
majority of the Committee, or acts reduced to and approved in writing by a
majority of the members of the Committee, including written approvals by
electronic means, shall be valid acts of the Committee.
The interpretation and construction by the Committee of any provisions of
the Plan or of any options granted under it shall be final unless otherwise
determined by the Board of Directors. The Committee may from time to time adopt
such rules and regulations for carrying out the Plan as it may deem best. No
member of the Board of Directors or the Committee shall be liable for any action
or determination made in good faith with respect to the Plan or any option
granted under it. No member of the Committee shall be eligible to participate in
the Plan while serving as a member of the Committee.
19. Optionees Not Stockholders
Neither the granting of an option to an employee nor the deduction from his
or her pay shall constitute such employee a stockholder of the shares covered by
an option until such shares have been purchased by and issued to such employee.
20. Application of Funds
The proceeds received by the Company from the sale of Common Stock pursuant
to options granted under the Plan will be used for general corporate purposes.
21. Governmental Regulation
The Company's obligation to sell and deliver shares of the Company's Common
Stock under this Plan is subject to the approval of any governmental authority
required in connection with the authorization, issuance or sale of such stock.
22. Withholding of Additional Federal Income Tax
The Company, in accordance with Section 3402(a) of the Code and the
Regulations and Rulings promulgated thereunder, will withhold from the wages of
participating employees, in all payroll periods following and in the same
calendar year as the date on which compensation is deemed received by the
employee, additional income taxes in respect of the amount that is considered
compensation includible in the employee's gross income.
23. Approval of Stockholders
The Plan shall not take effect until approved by the holders of a majority
of the outstanding shares of Common Stock of the Company, which approval must
occur within the period beginning twelve months before and ending twelve months
after the date the Plan is adopted by the Board of Directors.
EXHIBIT 11
<TABLE>
DATA GENERAL CORPORATION
COMPUTATION OF BASIC AND DILUTED EARNINGS PER SHARE
(Unaudited)
(In thousands, except per share amounts)
Quarter Ended Six-Months Ended
------------------------ --------------------------
Mar. 27, Mar. 28, Mar. 27, Mar. 28,
1999 1998 1999 1998
------------------------ --------------------------
<S> <C> <C> <C> <C>
Basic earnings per share:
Net income (loss)........................................... $1,649 $(4,503) $18,157 $(1,005)
====== ======= ======= =======
Weighted average shares outstanding......................... 50,325 48,887 50,063 48,763
====== ======= ======= =======
Net income (loss) per share................................. $0.03 $(0.09) $0.36 $(0.02)
===== ====== ===== ======
DILUTED EARNINGS PER SHARE: (a)
Net income (loss)........................................... $1,649 $(4,503) $18,157 $(1,005)
====== ======= ======= =======
Weighted average shares outstanding......................... 50,325 48,887 50,063 48,763
Incremental shares from use of treasury
stock method for stock options............................ 1,306 -- 1,370 --
------ ------- ------ -------
Common and common equivalent shares,
assuming full dilution, where applicable.................. 51,631 48,887 51,433 48,763
====== ====== ====== ======
Net income (loss) per share................................. $0.03 $(0.09) $0.35 $(0.02)
===== ====== ===== ======
<FN>
(a) For the quarters and six-month periods ended March 27, 1999 and
March 28, 1998, 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 and six-month period ended March 28, 1998, the
assumed exercise of stock options, giving effect to the incremental shares,
is anti-dilutive and has been therefore excluded from the computation.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED
FROM THE Q2 FY99 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-25-1999
<PERIOD-END> MAR-27-1999
<CASH> 137,678
<SECURITIES> 152,587
<RECEIVABLES> 293,271
<ALLOWANCES> 0
<INVENTORY> 128,907
<CURRENT-ASSETS> 743,145
<PP&E> 657,101
<DEPRECIATION> 462,922
<TOTAL-ASSETS> 1,032,562
<CURRENT-LIABILITIES> 382,853
<BONDS> 212,750
0
0
<COMMON> 636,868
<OTHER-SE> (226,233)
<TOTAL-LIABILITY-AND-EQUITY> 1,032,562
<SALES> 257,679
<TOTAL-REVENUES> 355,350
<CGS> 177,116
<TOTAL-COSTS> 238,482
<OTHER-EXPENSES> 114,963
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,524
<INCOME-PRETAX> 2,049
<INCOME-TAX> 400
<INCOME-CONTINUING> 1,649
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,649
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
