FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended July 2, 1994
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 1-5296
Digital Equipment Corporation
(Exact name of registrant as specified in its charter)
Massachusetts 04-2226590
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
146 Main Street, Maynard, Massachusetts 01754-2571
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (508) 493-5111
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered (a)
Common Stock, par value $1 New York Stock Exchange
per share Pacific Stock Exchange
Chicago Stock Exchange
Depositary shares each representing New York Stock Exchange
one-fourth of a share of 8 7/8%
Series A Cumulative Preferred Stock,
par value $1 per share
(a) In addition, shares of Common Stock of the registrant are listed on
the Montreal Exchange and certain stock exchanges in Switzerland and
Germany.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (a) 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 (b) has been subject to
such filing requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. []
As of September 12, 1994, 142,777,178 shares of the registrant's Common Stock,
par value $1, were issued and outstanding. The aggregate market value of
the registrant's voting stock held by non-affiliates of the registrant as of
September 12, 1994 was approximately $3.4 billion.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's 1994 Annual Report to Stockholders are
incorporated by reference in Part II hereof.
Portions of the registrant's Proxy Statement for its 1994 Annual Meeting
of Stockholders, scheduled to be held on November 10, 1994, are incorporated
by reference in Part III hereof.
<PAGE>
PART I
Item 1. Business.
General
Digital Equipment Corporation, a Massachusetts corporation founded in
1957, is one of the world's largest suppliers of networked computer systems
and components, software and services and a world leader in the development
and implementation, directly and through partners, of client/server
solutions for open computing environments. The Corporation offers a full
range of desktop, client/server and production systems and related
components, peripheral equipment, software and services used in a wide
variety of applications, industries and computing environments. The
Corporation does business in more than 100 countries, deriving more than
60% of its revenue from outside of the United States and developing and
manufacturing products in the Americas, Europe and the Pacific Rim.
The term "Corporation" when used herein refers to Digital Equipment
Corporation or Digital Equipment Corporation and its subsidiaries, as
required by the context.
For the last five fiscal years, the percentage of total operating
revenues contributed by the Corporation's principal classes of products was
as follows:
1994 1993 1992 1991 1990
Product sales 53.5% 52.8% 55.2% 59.7% 62.9%
Service and other revenues 46.5% 47.2% 44.8% 40.3% 37.1%
100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ======
Service and other revenues are derived principally from Digital and
multivendor hardware and software product services and systems integration
services.
Products
Systems and Products: Most of the Corporation's systems are general
purpose digital computers, designed to perform, interpret and record
computations on collected data or act as servers providing computing
resources across a network. The Corporation offers a broad range of
computer systems and servers based on Digital's Alpha AXP(TM) and VAX(R)
architectures, and the Intel(R) X86 architecture.
The Corporation's offerings include a line of VAX systems and servers,
from VAXstation(TM) workstations to high performance servers. The
Corporation also offers a full range of Intel-based and industry compatible
personal computers and network hardware and desktop integration products.
In addition, the Corporation is a major manufacturer and supplier of video
terminals, printers and network components, such as hubs, routers and
switches.
Alpha AXP: The Corporation's 64-bit, reduced instruction set computing
("RISC") architecture known as "Alpha AXP(TM)" is designed to support
multiple operating systems and to be the foundation for a leading high
performance computer system family. The Corporation offers a complete line
of Alpha AXP-based products, ranging from chips and boards to personal
computers and high performance workstations to larger general purpose
computer systems. Alpha AXP supports three major operating systems: the
Open Software Foundation's 64-bit unified UNIX(R) operating system (DEC
OSF/1)(R), the Corporation's OpenVMS(TM) operating system and Microsoft
Corporation's Windows NT(R) operating system. In April 1994, the
Corporation introduced a new line of competitively priced, high performance
Alpha AXP-based servers, the Digital 2100 series, which support symmetrical
multiprocessing.
Storage Business: Shortly after the close of the fiscal year, the
Corporation announced it had reached agreement with Quantum Corporation for
the sale of portions of its storage business, including its magnetic disk
drive, tape drive, solid state disk and thin-film heads businesses. The
Corporation expects to continue to offer peripheral and data storage
products for use with its computer systems after the transaction is
complete.
Software: The Corporation designs, develops or acquires from third
parties and distributes under license various software products for use on
its computer systems and computer systems from other vendors. These
products consist of operating systems, communication and networking
software, run-time services (such as data/information handling and
graphical user interfaces), language compilers, productivity tools,
production systems (including databases and transaction processing
monitors), office and workgroup software frameworks, and other application
software.
The Corporation's software offerings are intended to promote open
client/server computing and, to this end, are designed to industry-standard
interfaces that enable applications to work across different platforms and
operating systems. During the fiscal year, the Corporation announced the
development of several software products that support this strategy,
including its LinkWorks(TM) offerings. In addition, in November 1993 the
Corporation announced a joint effort with Microsoft Corporation to develop
the Common Object Model, a set of software standards that are designed to
enable software objects in different operating systems, data formats and
geographical locations to work together across a network.
Services
The Corporation provides a comprehensive portfolio of technical
consulting, systems integration and support services to help customers
plan, implement and manage their information technology solutions through a
global network of employees and partners.
The Corporation's services offerings include maintenance and support
services for the Corporation's products, as well as for products
manufactured by other companies; information systems consulting; technical
and application design services; education and customer training services;
systems integration and project management services; network design and
support services; and outsourcing and resource management services.
Sales and Distribution
The Corporation directly sells, markets and supports its products
and services through approximately 725 locations throughout the world.
Arrangements with third parties, including software developers, value added
resellers (VARs) and authorized distributors, are an increasingly important
part of the Corporation's focus on providing complete solutions to its
customers and expanding distribution of its products and services through
indirect channels.
For the fiscal year ended July 2, 1994, approximately 3.3% of the
Corporation's total operating revenues were derived directly from sales to
various agencies of the U.S. Government, and no other customer of the
Corporation accounted for more than 2% of total revenues.
The Corporation believes that the dollar amount of backlog is
not a meaningful indication of future revenues and historically has not
published such data. It has been and continues to be the Corporation's
objective to minimize the time from the receipt of a purchase order to
delivery of the product.
International Operations
Sales by the Corporation to customers outside the United States
amounted to 62%, 64% and 63% of total operating revenues for the fiscal
years ended July 2, 1994, July 3, 1993 and June 27, 1992, respectively.
International sales and marketing operations are conducted through
subsidiaries, by direct sales from the parent company, by resellers and
through various representative and distributorship arrangements.
The Corporation's international business is subject to risks
customarily encountered in foreign operations, including fluctuations in
monetary exchange rates, import and export controls and the economic,
political and regulatory policies of foreign governments. In view of the
diversification of the Corporation's international activities, the
Corporation does not believe that there are any special risks beyond the
normal business risks attendant to conducting business abroad.
See Notes A, B and I of Notes to Consolidated Financial Statements,
incorporated by reference herein, for further information on the
Corporation's international operations, including financial information
concerning the Corporation's operations by major geographical area.
Competition
The information technology industry is highly competitive,
international in scope and comprised of many companies. The methods of
competition include marketing, product performance, price, service,
technology and compliance with various industry standards, among others.
Present and potential competition in the various markets served by the
Corporation comes from firms of various sizes and types, some of which are
larger and have greater resources than the Corporation. Firms not
now in direct competition with the Corporation may introduce competing
products in the future. It is possible for companies to be at various
times competitors, customers and collaborators in different markets.
Materials
The Corporation obtains a wide variety of components, assemblies and
raw materials from a substantial number of suppliers. The Corporation has
established or has available alternate sources of supply for many of these
materials. The Corporation believes that the materials required for its
manufacturing operations are presently available in quantities sufficient
to meet demand; however, a portion of the Corporation's manufacturing
operations is dependent on the timely delivery of certain sub-assemblies
and components from significant suppliers. The failure of such suppliers to
deliver such items on a timely basis could adversely affect the
Corporation's operating results until alternative sources of supply could
be arranged.
Environmental Affairs
The Corporation's facilities are subject to numerous laws and
regulations designed to protect human health and safety and the
environment, particularly those relating to manufacturing and engineering,
chemical usage, waste and emissions. Pursuant to the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA"),
as amended, the Corporation has been notified that it is a potentially
responsible party ("PRP") for and is sharing the costs of investigating and
cleaning up certain sites listed on the federal National Priorities List of
Superfund Sites. Under similar state laws, the Corporation also is
incurring costs in connection with the investigation and remediation of
certain properties owned and/or operated by the Corporation. In the
opinion of the Corporation, compliance with these laws and regulations has
not had and should not have a material effect on the capital expenditures,
earnings or competitive position of the Corporation.
Patents
The Corporation owns or is licensed under a number of patents and patent
applications relating to its products. While the Corporation's portfolio
of patents and patent applications is of significant value to the
Corporation, the Corporation does not believe that any particular patent or
group of patents is of material importance to the Corporation's business as
a whole.
Research and Engineering
The Corporation is in an industry which is characterized by rapid
technological change. In the fiscal years ended July 2, 1994, July 3, 1993
and June 27, 1992, the Corporation spent $1.30 billion, $1.53 billion and
$1.75 billion, respectively, for research and engineering (R&E). Although
the Corporation expects to continue its ongoing R&E efficiency initiatives,
it also expects to continue to invest heavily in R&E to maintain and
strengthen its competitive position.
Employees
The Corporation had approximately 77,800 regular employees, and an
additional 5,000 temporary and contract workers worldwide at July 2, 1994.
Executive Officers of the Corporation
The following table sets forth the names and ages of the 11 executive
officers of the Corporation and certain information relating to their
positions held with the Corporation.
YEAR FIRST
NAME AGE PRESENT TITLE BECAME OFFICER
Robert B. Palmer 54 Director;
President and Chief 1985
Executive Officer
R. E. Caldwell 57 Vice President, Digital 1994
Semiconductor
Charles F. Christ 55 Vice President and General 1993
Manager, Components Division
Richard M. Farrahar 50 Vice President, Human 1993
Resources
Ilene B. Jacobs 47 Vice President and Treasurer 1985
Vincent J. Mullarkey 46 Vice President, Finance and 1992
Chief Financial Officer
Enrico Pesatori 53 Vice President and General 1993
Manager, Computer Systems
Division
E.C. Mick Prokopis 52 Vice President and Corporate 1994
Controller
John J. Rando 42 Vice President, Multivendor 1993
Customer Services
Thomas C. Siekman 52 Vice President and General 1993
Counsel
William D. Strecker 50 Vice President, Advanced 1985
Technology Group and
Chief Technical Officer
- -------------------
Executive officers of the Corporation are elected annually and hold office
until the first meeting of the Board of Directors following the annual
meeting of stockholders and until their successors have been chosen and
qualified. All of the executive officers named have been officers or held
managerial positions in the Corporation for at least the last five years,
except Messrs. Christ, Pesatori and Prokopis. Prior to joining the
Corporation, these officers held the following positions: Mr. Christ, who
joined the Corporation as Vice President, Mass Storage Group, in 1990,
served as a partner in Coopers & Lybrand's Management Consulting Services
group from 1989 to July 1990; from 1986 to 1989 he served as President and
Chief Executive Officer of Digital Sound Corporation. Mr. Pesatori had
been President and Chief Executive Officer of Zenith Data Systems from
January 1991 to January 1993; from October 1986 to 1989 he served as
President and Chief Executive Officer of North American operations for Ing.
Olivetti & C. S.p.A. ("Olivetti") and from 1989 to December 1990 he was
Senior Vice President, Corporate Marketing of Olivetti. Mr. Prokopis was
self employed from November 1993 to July 1994; from July 1992 to November
1993 he served as Executive Vice President of Ziff Communications Corp.;
from March 1992 to July 1992 he was Executive Vice President and Chief
Financial Officer of MAST Industries; from 1989 to 1992 he was the
Corporation's Finance Manager, Manufacturing, Engineering and Marketing and
from 1987 to 1989 he served as the Corporation's Manufacturing Controller.
Item 2. Properties
At the end of fiscal 1994, the Corporation owned or leased
approximately 39.1 million square feet of space worldwide. The Corporation
occupied approximately 32.3 million square feet, leased or sub-leased
to others approximately 1.3 million square feet, and due to restructuring
actions, had vacant space of approximately 5.5 million square feet, most of
which is available for sale or sub-lease. The total space owned or leased
decreased by approximately 3.0 million square feet from the prior year.
Approximately 54% of the occupied space is located in the United States;
approximately 59% of the occupied space is owned. The Corporation's
occupied facilities are substantially utilized, well maintained and
suitable for the products and services offered by the Corporation.
Approximately 500,000 square feet of space for new manufacturing
facilities is under construction and scheduled for completion during fiscal
1995. The Corporation anticipates it will occupy fewer square feet of
space worldwide at the end of fiscal 1995 than at the end of fiscal 1994.
Item 3. Legal Proceedings
The Corporation has been named as a defendant in several purported
class action lawsuits filed in the U.S. District Court for the Southern
District of New York and the U.S. District Court for the District of
Massachusetts alleging violations of the Federal securities laws in
connection with the Corporation's issuance and sale of Series A 8-7/8%
Cumulative Preferred Stock and the Corporation's financial results for the
fiscal quarter ended April 2, 1994. (See Note H of Notes to Consolidated
Financial Statements.)
Item 4. Submission of Matters to a Vote of Security Holders.
During the fourth quarter of the fiscal year covered by this report,
no matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
See the section entitled "Stock Information," which is
incorporated herein by reference, appearing on page 54 of the Corporation's
1994 Annual Report to Stockholders.
Item 6. Selected Financial Data.
See the section entitled "Eleven-Year Financial Summary," which is
incorporated herein by reference, appearing on pages 26 and 27 of the
Corporation's 1994 Annual Report to Stockholders.
Item 7. Management's Discussion and Analysis of Results of Operations
and Financial Condition.
See the section entitled "Management's Discussion and Analysis of
Results of Operations and Financial Condition," which is incorporated
herein by reference, appearing on pages 28 through 33 of the Corporation's
1994 Annual Report to Stockholders.
Item 8. Financial Statements and Supplementary Data.
The financial statements and supplementary data, which are incorporated
herein by reference from the Corporation's 1994 Annual Report to
Stockholders, are indexed under Item 14(a)(1). See also the financial
statement schedules appearing herein, as indexed under Item 14(a)(2).
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
See the section entitled "Election of Directors," which is incorporated
herein by reference from the Corporation's Proxy Statement for its 1994
Annual Meeting of Stockholders. See also the section entitled "Executive
Officers of the Corporation" appearing in Part I hereof.
Item 11. Executive Compensation.
See the section entitled "Executive Compensation," which is
incorporated herein by reference from the Corporation's Proxy Statement for
its 1994 Annual Meeting of Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
See the section entitled "Security Ownership of Directors and
Executive Officers" which is incorporated herein by reference from the
Corporation's Proxy Statement for its 1994 Annual Meeting of Stockholders.
Item 13. Certain Relationships and Related Transactions.
See the section entitled "Certain Relationships and Related
Transactions," which is incorporated herein by reference from the
Corporation's Proxy Statement for its 1994 Annual Meeting of Stockholders.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
(1) Financial statements which are incorporated herein by
reference from the Corporation's 1994 Annual Report to
Stockholders:
Report of Independent Accountants (page 35).
Consolidated Statements of Operations for fiscal years 1994,
1993 and 1992 (page 36).
Consolidated Balance Sheets as at July 2, 1994 and July 3,
1993 (page 37).
Consolidated Statements of Cash Flows for fiscal years 1994,
1993 and 1992 (page 38).
Consolidated Statements of Stockholders' Equity for fiscal
years 1994, 1993, and 1992 (page 39).
Notes to Consolidated Financial Statements (pages 40 through
53).
Eleven-Year Financial Summary (pages 26 and 27).
Quarterly Financial Data (page 54).
The Corporation's 1994 Annual Report to Stockholders is not to be
deemed filed as part of this report except for those parts thereof
specifically incorporated herein by reference.
(2) Financial statement schedules:
Page
S-1 Report of Independent Accountants
S-2 V - Property, Plant and Equipment
S-5 VI - Accumulated Depreciation and Amortization of
Property, Plant and Equipment
S-8 VIII - Valuation and Qualifying Accounts and Reserves
S-9 X - Supplemental Income Statement Information
All other schedules have been omitted since they are not required, not
applicable or the information has been included in the financial statements
or the notes thereto.
Individual financial statements of the Corporation have been omitted
because it is primarily an operating company and the consolidated
subsidiaries are not indebted, in a material amount, to any person other
than to the parent or to other consolidated subsidiaries.
(3) Exhibits:
3(a) - Restated Articles of Organization of the Corporation dated
March 11, 1991 (filed under cover of Form SE as Exhibit
3(a) to the Corporation's Annual Report on Form 10-K for
the fiscal year ended June 29, 1991 and incorporated herein
by reference).
(b) Articles of Amendment filed with the Secretary of State of
the Commonwealth of Massachusetts on November 4, 1993
(filed as Exhibit 4.3 to the Corporation's Registration
Statement on Form S-3, No. 33-51987 and incorporated herein
by reference).
(c) Certificate of Designation filed with the Secretary of
State of the Commonwealth of Massachusetts on March 21,
1994 (filed as Exhibit 4.1 to the Corporation's Report on
Form 8-K filed on March 23, 1994 and incorporated herein by
reference).
(d) - By-laws of the Corporation, as amended (filed as Exhibit
3(c) to the Corporation's Annual Report on Form 10-K for
the fiscal year ended June 30, 1990 and incorporated herein
by reference).
4(a) - Rights Agreement dated as of December 11, 1989 between
the Corporation and First Chicago Trust Company of New
York, as Rights Agent (filed under cover of Form SE as
Exhibit 4.1 to the Corporation's Current Report on
Form 8-K dated December 12, 1989 and incorporated herein
by reference).
(b) - Indenture dated as of September 15, 1992 between Citibank,
N.A. as Trustee, and the Corporation ("Indenture") (filed
as Exhibit 4 to the Corporation's Registration Statement
on Form S-3, No. 33-51378 and incorporated herein by
reference).
(c) - Form of 7 1/8% Note Due 2002, issued under the
Indenture (filed as Exhibit 4.2 to the Corporation's
Quarterly Report on Form 10-Q for the quarter ended
December 26, 1992 and incorporated herein by reference).
(d) - Form of 8 5/8% Debenture due November 1, 2012, issued
under the Indenture (filed as Exhibit 4.3 to the
Corporation's Quarterly Report on Form 10-Q for the
quarter ended December 26, 1992 and incorporated herein
by reference).
(e) - Form of 7% Note Due 1997, issued under the Indenture (filed
as Exhibit 4.4 to the Corporation's Quarterly Report on
Form 10-Q for the quarter ended December 26, 1992 and
incorporated herein by reference).
(f) - Form of 7 3/4% Debenture due April 1, 2023, issued under
the Indenture (filed as Exhibit 4.2 to the Corporation's
Quarterly Report on Form 10-Q for the quarter ended
March 27, 1993 and incorporated herein by reference).
10(a) - 1968 Employee Stock Purchase Plan (filed as Exhibit 99 to
the Corporation's Registration Statement on Form S-8, No.
33-50963 and incorporated herein by reference).*
(b) - 1976 Restricted Stock Option Plan, as amended (filed
as Exhibit 10(b) to the Corporation's Annual Report on
Form 10-K for the fiscal year ended June 27, 1992 and
incorporated herein by reference).*
(c) - 1981 International Employee Stock Purchase Plan
(filed as Exhibit 99 to the Corporation's Registration
Statement on Form S-8, No. 33-50945 and incorporated herein
by reference).*
(d) - 1985 Restricted Stock Option Plan, as amended (filed under
cover of Form SE as Exhibit 10(d) to the Corporation's Annual
Report on From 10-K for the fiscal year ended July 1, 1989 and
incorporated herein by reference).*
(e) - 1990 Equity Plan (contained in the prospectus included
in the Corporation's Registration Statement on Form S-8,
No. 33-37631 and incorporated herein by reference).*
(f) - 1990 Stock Option Plan for Nonemployee Directors
(contained in the prospectus included in the Corporation's
Registration Statement on Form S-8, No. 33-37628 and
incorporated herein by reference).*
(g) - Deferred Compensation Plan for Non-Employee Directors as
Amended and Restated Effective 18 May 1987 and as further
amended on 22 April 1991 (filed under cover of Form SE as
Exhibit 10(g) to the Corporation's Annual Report on Form
10-K for the fiscal year ended June 29, 1991 and
incorporated herein by reference).*
(h) - Retirement Arrangement for Non-Employee Directors (filed as
Exhibit 10(g) to the Corporation's Annual Report on Form
10-K for the fiscal year ended June 27, 1987 and incorporated
herein by reference).*
(i) - Form of Indemnification Agreement in effect between the
Corporation and each of its officers and directors (filed as
Exhibit 10(g) to the Corporation's Annual Report on Form 10-K
for the fiscal year ended July 2, 1988 and incorporated
herein by reference).*
(j) - Digital Equipment Corporation Restoration Pension Plan
effective as of May 1, 1992 (filed as Exhibit 10(j) to
the Corporation's Annual Report on Form 10-K for the
fiscal year ended June 27, 1992 and incorporated herein
by reference).*
(k) - Digital Equipment Corporation fiscal year 1995 Cash
Incentive Plan.*
(l) - Letter Agreement from the Corporation to Enrico Pesatori dated
as of February 2, 1993; Agreement between the Corporation and
Edward E. Lucente, dated as of April 29, 1994; and Agreement
between the Corporation and Gresham T. Brebach, Jr., dated as
of August 8, 1994.*
11 - Computation of net income/(loss) per share.
13 - The Corporation's 1994 Annual Report to Stockholders, certain
portions of which have been incorporated herein by
reference.
22 - List of Subsidiaries.
24 - Consent of independent accountants.
*Indicates management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K:
The Corporation filed with the Securities and Exchange Commission a
Report on Form 8-K on April 21, 1994.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
DIGITAL EQUIPMENT CORPORATION
(Registrant)
Date: September 16, 1994 By /s/Robert B. Palmer
Robert B. Palmer
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
President and Chief
Executive Officer
/s/ Robert B. Palmer (Principal Executive
Robert B. Palmer Officer) and Director September 16, 1994
Vice President, Finance
and Chief Financial Officer
/s/ Vincent J. Mullarkey (Principal Financial
Vincent J. Mullarkey Officer) September 16, 1994
Vice President and
Corporate Controller
/s/ E.C. Prokopis (Principal Accounting
E.C. Prokopis Officer) September 16, 1994
/s/ Vernon R. Alden Director September 16, 1994
Vernon R. Alden
/s/ Philip Caldwell Director September 16, 1994
Philip Caldwell
/s/ Colby H. Chandler Director September 16, 1994
Colby H. Chandler
/s/ Arnaud de Vitry Director September 16, 1994
Arnaud de Vitry
/s/ Robert R. Everett Director September 16, 1994
Robert R. Everet
/s/ Kathleen F. Feldstein Director September 16, 1994
Kathleen F. Feldstein
/s/ Thomas P. Gerrity Director September 16, 1994
Thomas P. Gerrity
/s/ Thomas L. Phillips Director September 16, 1994
Thomas L. Phillips
/s/ Delbert C. Staley Director September 16, 1994
Delbert C. Staley
<PAGE>
Report of Independent Accountants
Our report on the consolidated financial statements of Digital
Equipment Corporation has been incorporated by reference in this Form 10-K
from page 35 of the 1994 Annual Report to Stockholders of Digital Equipment
Corporation. In connection with our audits of such financial statements,
we have also audited the related financial statement schedules listed in
the index on page 9 of this Form 10-K.
In our opinion, the financial statement schedules referred to above,
when considered in relation to the basic financial statements taken as a
whole, present fairly, in all material respects, the information required
to be included therein.
/s/Coopers & Lybrand
Coopers & Lybrand
Boston, Massachusetts
July 26, 1994
<PAGE>
<TABLE>
SCHEDULE V
DIGITAL EQUIPMENT CORPORATION
Property, Plant and Equipment
(In Thousands)
Year Ended July 2, 1994
<CAPTION>
_________________________________________________________________________________________________
Column A Column B Column C Column D Column E Column F
_________________________________________________________________________________________________
Balance at Other Changes
Beginning Additions Retirement add (deduct) Balance at
Classification of Period at Cost and Sales Transfer End of Period
_________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Land.................... $ 363,264 $ 2,203 $ (9,280) $ 399 $ 356,586
Buildings............... 1,887,211 135,244 (56,264) 1,624 1,967,815
Leasehold
improvements.......... 532,369 34,305 (101,413) (50,639)(a) 414,622
Machinery and
equipment............. 4,410,586 510,348 (687,684) 48,616 (a) 4,281,866
___________ _________ __________ ____________ ___________
$ 7,193,430 $ 682,100 $(854,641) $ 0 $7,020,889
___________ __________ __________ ____________ ___________
___________ __________ __________ ____________ ___________
<FN>
(a) Reclassification between accounts.
</TABLE>
<PAGE>
<TABLE>
SCHEDULE V, cont'd.
DIGITAL EQUIPMENT CORPORATION
Property, Plant and Equipment
(In Thousands)
Year Ended July 3, 1993
<CAPTION>
_______________________________________________________________________________________________________
Column A Column B Column C Column D Column E Column F
_______________________________________________________________________________________________________
Balance at Other Changes
Beginning Additions Retirements add (deduct) Balance at
Classification of Period at Cost and Sales Transfers End of Period
_______________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Land.................... $ 372,989 $ 464 $ (10,159) $ (30) $ 363,264
Buildings............... 1,871,710 146,065 (129,390) (1,174) 1,887,211
Leasehold
improvements.......... 592,971 53,188 (116,300) 2,510 532,369
Machinery and
equipment............. 4,835,454 328,974 (752,536) (1,306) 4,410,586
___________ ____________ ____________ ______________ __________
$ 7,673,124 $ 528,691 $(1,008,385) $ 0 $7,193,430
__________ ___________ ____________ ______________ ___________
__________ ___________ ____________ ______________ ___________
</TABLE>
<PAGE>
<TABLE>
SCHEDULE V, cont'd.
DIGITAL EQUIPMENT CORPORATION
Property, Plant and Equipment
(In Thousands)
Year Ended June 27, 1992
<CAPTION>
________________________________________________________________________________________________
Column A Column B Column C Column D Column E Column F
________________________________________________________________________________________________
Balance at Other Changes
Beginning Additions Retirements add (deduct) Balance at
Classification of Period at Cost and Sales Transfers End of Period
_________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Land.................... $ 376,071 $ 701 $ (3,325) $ (458) $ 372,989
Buildings............... 1,836,323 83,617 (48,809) 579 1,871,710
Leasehold
improvements.......... 573,378 77,746 (57,603) (550) 592,971
Machinery and
equipment............. 4,642,820 548,372 (356,167) 429 4,835,454
__________ __________ __________ ____________ ____________
$7,428,592 $ 710,436 $(465,904) $ 0 $ 7,673,124
__________ __________ __________ ____________ ____________
__________ __________ __________ ____________ ____________
</TABLE>
<PAGE>
<TABLE>
SCHEDULE VI
DIGITAL EQUIPMENT CORPORATION
Accumulated Depreciation and Amortization of Property, Plant and Equipment
(In Thousands)
Year Ended July 2, 1994
<CAPTION>
_______________________________________________________________________________________________
Column A Column B Column C Column D Column E Column F
_______________________________________________________________________________________________
Additions
Balance at Charged to Other Changes
Beginning Costs and Retirements add (deduct) Balance at
Classification of Period Expenses and Sales Transfers End of Period
________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Buildings.......... $ 420,676 $ 64,347 $ (22,270) $ 1,919 $ 464,672
Leasehold
improvements..... 327,950 41,905 (70,113) (69,911)(a) 229,831
Machinery and
equipment........ 3,266,513 467,718 (605,326) 67,992 (a) 3,196,897
___________ ___________ _________ ____________ ___________
$4,015,139 $ 573,970 $(697,709) $ 0 $ 3,891,400
__________ ___________ __________ ____________ ___________
__________ ___________ __________ ____________ ___________
<FN>
(a) Reclassification between accounts.
</TABLE>
<PAGE>
<TABLE>
SCHEDULE VI, cont'd.
DIGITAL EQUIPMENT CORPORATION
Accumulated Depreciation and Amortization of Property, Plant and Equipment
(In Thousands)
Year Ended July 3, 1993
<CAPTION>
______________________________________________________________________________________________
Column A Column B Column C Column D Column E Column F
______________________________________________________________________________________________
Additions
Balance at Charged to Other Changes
Beginning Costs and Retirements add (deduct) Balance at
Classification of Period Expenses and Sales Transfers End of Period
________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Buildings.......... $ 398,012 $ 66,113 $ (44,535) $ 1,086 $ 420,676
Leasehold
improvements..... 342,116 56,789 (70,963) 8 327,950
Machinery and
equipment........ 3,363,294 575,729 (671,416) (1,094) 3,266,513
___________ __________ ___________ ____________ ___________
$ 4,103,422 $ 698,631 $(786,914) $ 0 $ 4,015,139
___________ __________ ___________ ____________ ___________
___________ __________ ___________ ____________ ___________
</TABLE>
<PAGE>
<TABLE>
SCHEDULE VI, cont'd.
DIGITAL EQUIPMENT CORPORATION
Accumulated Depreciation and Amortization of Property, Plant and Equipment
(In Thousands)
Year Ended June 27, 1992
<CAPTION>
___________________________________________________________________________________________
Column A Column B Column C Column D Column E Column F
___________________________________________________________________________________________
Additions
Balance at Charged to Other Changes
Beginning Costs and Retirement add (deduct) Balance at
Classification of Period Expenses and Sales Transfers End of Period
____________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Buildings.......... $ 344,422 $ 67,622 $ (13,844) $ (188) $ 398,012
Leasehold
improvements..... 315,765 64,667 (39,843) 1,527 342,116
Machinery and
equipment........ 2,990,575 600,247 (226,189) (1,339) 3,363,294
__________ ___________ __________ ____________ ___________
$3,650,762 $ 732,536 $(279,876) $ 0 $4,103,422
__________ __________ __________ ____________ ___________
__________ __________ __________ ____________ ___________
</TABLE>
<PAGE>
<TABLE>
SCHEDULE VIII
DIGITAL EQUIPMENT CORPORATION
Valuation and Qualifying Accounts and Reserves
(In Thousands)
<CAPTION>
___________________________________________________________________________________________________
Column A Column B Column C Column D Column E Column F
___________________________________________________________________________________________________
Balance at Charged to Charged Deductions Balance
Beginning Operations to Other from at End of
Description of Period Accounts Reserves(a) Period
____________________________________________________________________________________________________
Allowance for Possible Losses on Accounts Receivable
Year ended:
<S> <C> <C> <C> <C> <C>
July 02, 1994 $ 110,764 $ 50,247 (c) $ 1,286 $ 50,372 (c) $ 111,925
July 03, 1993 $ 129,686 $ 22,596 (b) $ 10,801 (d) $ 52,319 (e) $ 110,764
June 27, 1992 $ 84,999 $ 29,535 $ 31,735 (f) $ 16,583 (e) $ 129,686
<FN>
(a) Uncollectible accounts and adjustments.
(b) Includes recovery of accounts previously written off.
(c) Increased customer credits.
(d) Reclassification of reserve from other current liabilities related to fiscal year 1991 acquisition.
(e) Includes write-offs in the current year of amounts reserved at time of acquisition of businesses in prior periods.
(f) Acquired in business purchase.
</TABLE>
<PAGE>
<TABLE>
SCHEDULE X
DIGITAL EQUIPMENT CORPORATION
Supplemental Income Statement Information
(In Thousands)
Charged to costs and expenses
Year Ended
<CAPTION>
___________________________________________________________________________________________
July 02, 1994 July 03, 1993 June 27, 1992
___________________________________________________________________________________________
<S> <C> <C> <C>
Maintenance and repairs....... $ 247,494 (a) $ 326,441 $ 383,081
Advertising, amortization of intangible assets, royalties and taxes other than payroll and income taxes
are not set forth inasmuch as each such item does not exceed one percent of total operating revenues as
shown in the related Consolidated Statements of Operations.
<FN>
(a) Decrease principally due to facility closures and reduced number of fleet vehicles.
</TABLE>
Digital Restricted Distribution
FY95DESC.DOC 30 August 1994
Digital Equipment Corporation
Description of the FY95 Cash Incentive Plan
Intent
The FY95 Cash Incentive Plan (CIP or the "Plan") was approved by
the Board of Directors in June 1994. It provides the funding of
all management cash incentive programs<1> throughout the
Corporation based on overall corporate and organizational
performance and establishes the framework within which
organizational programs will award these funds to individuals.
The intent of this document is to give an overview of CIP and its
design features.
Concept
The purpose of the Cash Incentive Plan is to motivate and reward
superior performance in a given year. In addition, the CIP
should play a key role in helping to establish and emphasize a
performance-oriented culture, which is based on both team effort
and clear organizational accountabilities. Awards made under the
Plan will be based primarily on the achievement of performance
goals and business objectives, and yet allow the Board of
Directors, the Chief Executive Officer, and management the use of
judgment in assessing performance and determining payouts.
The Plan has been undergoing, and will continue to undergo a
transition from one based primarily on corporate results, with
adjustments for unit performance, to one that clearly reflects
the independent performance of individual organizations. In
FY95, the decision to fund the plan by both Company and
organizational performance reflects the current phase of our
Company transformation, and a continued need to emphasize
teamwork and the Corporation's overall performance.
Eligibility/Participation
Eligibility for the Plan is limited to selected regular employees
(active or on short term disability), working 20 hours or greater
per week, and in SRI 40 and above in the U.S. exempt salary
structure or an international equivalent. For FY95 many eligible
participants will be identified and communicated with early in
the year.
However, based on performance and contribution, other eligible
employees not previously communicated with early in the year may
be selected to participate at year end. In future years the plan
provides that all eligible employees will be identified and
receive notification at the beginning of the year.
Selection of participants will be conducted on a business by
business basis to ensure that participation reflects business
objectives and competitive practice.
Incentive Targets
Incentive award targets, expressed in either currency or as a
percentage of base salary, will be established for each
identified participant in the Plan at the time of their
selection. Targets that are expressed as a percentage will be
based on the salary rate in effect at the beginning of the fiscal
year; targets that are expressed in currency will be fixed for
the entire year. The target incentive levels are established to
be competitive with those offered by companies with which Digital
competes for employees and for the sale of products and services.
A range of incentive opportunity, above and below the target
level, may be communicated to each identified participant.
Cash Incentive Plan Funding
For FY95, 50% of the total CIP award fund will be based on
overall Digital performance in relation to the agreed-upon
business plan for the year. Digital performance will be based on
Operating Profit dollars actually achieved. A funding schedule
has been developed based on the following principles to provide a
range of total funding that is above and below the target
performance for the Corporation:
Outstanding Results: A level of performance that, considering
current business circumstances, would reflect unusual success.
Target Performance: Reflects the attainment of the agreed-upon
business plan.
Threshold Performance: A level of performance that, while less
than plan, merits some incentive payout.
Performance targets for the Cash Incentive Plan are expected to
increase over time whether Digital's business performance
improves or not. It would not be appropriate to pay significant
bonuses over the medium-to-long term without there having been
competitive returns to shareholders.
The other 50% of the total CIP Award Fund will be distributed to
organizations based on their achievement of goals established at
the beginning of the year and independent of overall Company
performance.
Evaluation of Organizational Performance
The allocation of the 50% organizational fund will recognize
business or organizational performance. This performance will be
evaluated on both objective and subjective criteria established
at the beginning of the year. In FY95 each major organization
may have up to three goals identified for these purposes. The
types of factors that might be included are profit, cash flow
from operations, and return on assets. Other measures such as
revenue, market share, successful new product introductions, and
customer satisfaction could also be adopted. Staff areas could
be evaluated on cost control, the attainment of specific
objectives, and how responsive they are to the needs of their
internal customers/clients.
The overriding objective is that the Chief Executive Officer
engages in a candid dialogue with each of his direct reports, and
they in turn with their management teams regarding performance
expectations and accountabilities.
Allocation of Awards, and Payments
A. Allocations of the Total Funds Available: Organizations are
allocated funds from the total available fund after the fiscal
year ends. Fifty percent of the total available funds will be
allocated to organizations based on the Corporation's
performance. The other fifty percent will be allocated based on
organizational performance.
B. Awards to Individuals: Organizations will make awards to
individuals from their allocations, according to the specific
program of the organization. These individual awards will follow
the commitments made to individuals identified at the beginning
of the year, and follow guidelines for award amounts to other
individuals selected for participation at year end. All awards
to individuals must be made based on their demonstrated
performance. Actual payouts to identified participants will vary
significantly around the target award -- from no award to twice
the target award -- based on the Corporation, the business, and
individual performance.
C. Award Payments: Awards are payable after the end of the fiscal
year and following the release of audited financial results of
the Corporation. To receive an incentive award, participants
must be:
1) employed by the Corporation at the time awards are paid, and;
2) an active employee for a minimum of three months during the
year, and;
3) assessed as having at least a satisfactory performance
rating.
Administration
The Plan will be administered by the Compensation and Stock
Option Committee of the Board of Directors. The Committee will
have the authority to make all decisions regarding the operation
of the Plan.
Unusual Events
The purpose of the Plan is to motivate and reward superior
performance. Therefore, in extraordinary situations, adjustments
may be made to retain the motivational impact of the Plan. The
Compensation and Stock Option Committee retains the discretion to
make the changes necessary to ensure the Plan's motivational
impact and provide a fair return to shareholders.
_______________________________
[FN]
<1> With the exception of three programs which were approved prior
to June 1993.
February 2, 1993
Mr. Enrico Pesatori
219 East Lake Shore Drive
Apartment 6D
Chicago, IL 60611
Re: Offer of Employment
Dear Enrico:
As the letter dated December 21, 1992, contemplated, the
following provisions shall constitute the terms and conditions
upon which you shall be employed with Digital Equipment
Corporation ("Digital" or the "Company")).
1. Status
You will be employed as of February 3, 1993, as a regular
employee with the title of Vice President and General Manager,
Personal Computer Business Unit, on an at-will basis and your
employment shall continue for so long as it is mutually
agreeable to both parties; provided, however, that your
employment will not be terminated during the first six months of
employment, and during the second six months, only on six
months' prior written notice. In this capacity, you will be a
member of the Senior Leadership Team.
2. Compensation
Your beginning annual rate of base compensation will be
$550,000.00, which is payable weekly (or on such other basis as
may be applicable to senior executives generally as Digital
shall determine from time to time). Your rate of base pay will
be reviewed periodically and adjusted accordingly in light of
the compensation practices and policies in effect from time to
time.
You will participate in Digital's short-term incentive
compensation program. Any payment thereunder will be made
solely in the discretion of Digital's Board of Directors (the
"Board"), subject to the Company's performance, which is the
same basis on which the other members of the Senior Leadership
Team participate. If payment under this program is made to
other members of the Senior Leadership Team, a payment will be
made to you as well. It will be recommended that your target
participation range will be at least $200,000 for on-plan
performance, pro-rated for the number of months of the fiscal
year during which you are employed by Digital; provided,
however, no less than $100,000 will be paid to you under this
program for fiscal year 1993.
3. Stock Awards
The Board has approved an award to you effective on your date of
hire and contingent on your actually being employed by Digital,
which grants you a stock award of 10,000 shares of Digital
common stock under the 1990 Equity Plan, which will be evidenced
by a separate award letter, to vest in equal amounts over a
five-year period from the effective date of the award. All
vesting restrictions on such stock shall lapse if your
employment is terminated by the Company for reasons other than
for "cause" or by you for "good reason" (as each such term is
defined in Paragraph 7, below). You will be solely responsible
for any income tax consequences (including making a Section
83(b) election) associated with your receipt of such an award.
The Board has approved an award to you effective on your date of
hire and contingent on your actually being employed by Digital,
which grants you an award of a non-qualified stock option with
respect to 30,000 shares of Digital common stock at an option
price of $35.00 under the 1990 Equity Plan, which will be
evidenced by a separate award letter, to become exercisable in
equal amounts over a five-year period from the effective date of
the award. All vesting restrictions on such stock shall lapse if
your employment is terminated by the Company for reasons other
than for "cause" or by you for "good reason" (as each such term
is defined in Paragraph 7, below).
4. Loan
The Board has approved a loan to you, contingent on your actually
being employed by Digital, in the principal amount of
$150,000.00 for the sole purpose of purchasing a new principal
residence in the Boston area, which shall be secured by a second
mortgage. You agree to execute a promissory note with terms
substantially as set forth in the attached form of promissory
note and execute such other documents which the Company
determines to be necessary or desirable to effect such security
and to establish the tax-free nature of the transaction under
Section 7872 of the Internal Revenue Code of 1986, as amended,
and the regulations thereunder.
5. Confidentiality Agreement
You will be required to sign Digital's Employee Invention and
Confidential Agreement (the "Confidentiality Agreement") as of
your date of hire, a copy of which is attached.
6. Employee Benefits
As a regular employee, you will be eligible to participate in
Digital's employee benefit plans, such as pension, savings,
disability, life insurance, medical coverage, dental coverage,
and cafeteria arrangements under the terms as separately
provided for under each such plan or arrangement, except as are
provided for below. To the extent necessary, Digital will
provide medical and dental coverage for your dependents who
reside outside of the United States under Company-provided
medical and dental plans for employees (and their dependents)
who are employed by the Company (or a subsidiary or affiliate,
as the case may be) in Italy. Moreover, to the extent it is
feasible to do so, Digital will make no contributions on your
behalf under the U.S. Social Security system and will make or
cause to be made such comparable contributions on your behalf
under the pension system in Italy. All other fringe benefit
arrangements that are provided to regular employees will be
provided to you except that you will be eligible for four weeks
of vacation on an annual basis.
7. Severance
If, prior to February 3, 1997, (a) you voluntarily terminate
your employment hereunder for good reason (as defined below), or
(b) Digital terminates your employment hereunder other than for
cause (as defined below), then, in either such event (each, a
"Severance Event"), Digital will, for a period of two years from
the date of such Severance Event, (i) continue to pay you your
base compensation as constituted at the time of the Severance
Event and (ii) provide you and your dependents with life
insurance, medical, dental and pension benefits equivalent to
those provided at the time of the Severance Event (collectively,
the "Severance Package"); provided, however, that if, at any
time during the two-year period following such Severance Event,
you accept employment (as defined below) with any entity which
competes (as defined below) with or if you publicly criticize
Digital, then Digital shall not be obliged to continue to
provide the Severance Package after such acceptance or
criticism, as the case may be. Notwithstanding anything
contained herein to the contrary, neither (a) your acceptance of
employment with any entity which does not compete with Digital,
nor (b) your failure to attempt to find other employment will
entitle Digital to discontinue the Severance Package. If so
requested by Digital, at the time of the Severance Event you
agree to enter into a separate agreement with Digital containing
the terms of this Paragraph 7.
For purposes of this Paragraph 7, the following terms shall have
the meanings set forth below:
(i) Being "employed" or "employment" means having a common law
employment relationship with another entity or engaging in any
other comparable position such as independent contractor for,
owner of, consultant to, or partner with or of another entity.
(ii) "Cause" means (a) the commission of a serious willful act
against Digital by which you intended to enrich yourself at the
expense of Digital (which may be evidenced by your arrest for,
or conviction, guilty plea, or plea of nolo contendere of a
crime involving moral turpitude); (b) your continued failure to
perform your duties hereunder in one or more material respects
through continued inattention or neglect (except that which is a
result of your illness or disability), which failure does not
cease within 15 days after written notice thereof specifying the
details of such conduct is given to you by the Board; or (c)
your willful misconduct which has caused or has a high
likelihood of causing material harm to Digital; or (d) the
breach of one or more terms of the Confidentiality Agreement.
(iii) "Good reason" means Digital's (a) effecting without your
consent a material change in the nature or scope of your
authority, powers, functions, duties, or responsibilities of the
position for which you are employed; (b) the reduction of your
base compensation or benefits provided to you pursuant to
Paragraph 6 hereof that are provided to all senior executives
generally (other than as a result of actions by Digital that
affect all senior executives generally) or benefits specifically
provided to you hereunder; (c) requiring you to relocate to an
area more than 50 miles from Maynard, Massachusetts; or (d) the
breach of any of the provisions of this Agreement.
(iv) "Compete" means rendering services directly or indirectly
to, becoming associated with or employed in any capacity by, or
having any ownership interest in any individual, firm,
corporation, or other entity engaged in or actively planning to
engage in any activities competitive with those activities of
Digital with respect to which you have managed, or with respect
to which you possessed or had access to Digital's confidential
information, know-how or trade secrets (including but not
limited to information, know-how, or trade secrets relating to
the research, development, design, manufacture, marketing, sale,
or distribution of any Digital product or service with respect
to which you possessed or had access to Digital's confidential
information, know-how, or trade secrets). For purposes of this
definition, "Digital" shall include Digital and any of its
subsidiaries and affiliates.
8. Relocation
You will be provided with the standard relocation benefits
offered transferring employees, including temporary housing for
up to 6 months. In addition, Digital will reimburse you up to
$20,000 for rent payments that you are required to make with
respect to your primary residence in the Chicago area for
periods of time after the date your employment with Digital
commences, upon request and receipt by Digital of appropriate
documentation.
9. Legal Fees and Assistance
Digital will reimburse you, upon request and receipt by Digital
of appropriate documentation, for legal fees you incur for
counsel provided to you in connection with your employment with
Digital, such reimbursement not to exceed $5,000.
Upon request, Digital also agrees to provide you with assistance
from the Law Department with regard to matters involving your
termination of employment from your last employer.
10. Personnel Policies and Procedures
Unless specifically excepted for above, your employment with
Digital will be subject to Digital's personnel policies and
procedures as amended from time to time.
11. Legal Status
Notwithstanding the foregoing, your employment with Digital is
contingent on Digital's ability to verify your identity and
employment eligibility as required by federal law.
12. Merger
This Agreement includes all of the agreements of the parties
relative to your employment with Digital, and supersedes any
prior agreements or representations between the parties as to
the subjects covered.
Please indicate your understanding and consent to the foregoing
by signing and dating the copy of this letter and returning it
to the undersigned.
Very truly yours,
/s/ Robert B. Palmer
Robert B. Palmer
President and CEO
I have read and agree to the terms as stated above.
/s/ Enrico Pesatori /s/ February 2, 1993
Signature Date
j:\empl-ep.agt
<PAGE>
AGREEMENT
WHEREAS, DIGITAL EQUIPMENT CORPORATION, on its own behalf and on
behalf of its officers, agents, directors, employees, assigns and
successors ("Digital") and Edward E. Lucente on his own behalf and
on behalf of his heirs, executors, administrators, and assigns ("Mr.
Lucente") have reached an amicable settlement regarding the
conditions of Mr. Lucente's voluntary resignation from his
employment with Digital.
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings set forth herein, Digital and Mr. Lucente hereby agree
as follows:
1 . Mr. Lucente voluntarily resigns his employment with Digital
effective as of April 29, 1994 (the "Effective Date").
2. Digital accepts Mr. Lucente's resignation as an officer and
as an employee of Digital as of his Effective Date. Payment
provided for under this Agreement shall not be construed in
any way to extend Mr. Lucente's employment or employment
status with Digital beyond the Effective Date.
3. a. Digital and Mr. Lucente contemplate that he will
continue active employment with Digital until his
Effective Date. During his period of active
employment, Mr. Lucente shall continue to be paid at
his current base rate of pay and shall be treated as an
active employee in all respects. Should Mr. Lucente
obtain and commence employment outside of Digital
before his Effective Date, his employment with Digital
shall immediately cease as of the date he commences
such outside employment, and such date shall be deemed
to be the Effective Date.
b. Digital and Mr. Lucente agree that Mr. Lucente will be
generally available to consult informally with the
President and other designated executives of Digital
for a period of one year from the Effective Date. It
is understood that from and after the Effective Date,
Mr. Lucente is otherwise free to engage in any activity
that he may desire to pursue, whether or not he
receives any remuneration therefor, provided that such
activity is not prohibited under any other provision of
this Agreement. If Mr. Lucente is asked to undertake
specific assignments on behalf of Digital, he may
decline to do so without consequence; if he agrees to
do so, he shall not receive any additional compensation
other than that which is provided for in Paragraph 6.
4. Mr. Lucente agrees that he shall not become employed by
a "competitor" of Digital as such term is defined below
at any time prior to the date that is 12 months
following his Effective Date.
5. A competitor of Digital shall be defined as, and limited to,
any of the following companies or any subsidiary of one of
the following companies, in which the parent company owns,
directly or indirectly, a controlling interest.
* International Business Machines (IBM)
* Data General Corporation
* American Telephone and Telegraph Company (AT&T)
* Sun Microsystems
* The National Cash Register Company (NCR)
* Prime Computer, Inc.
* Wang Laboratories, Inc.
* Fujitsu
* NEC
* Unisys, Inc.
* Hewlett-Packard Company
* Ing. C. Olivetti & C. S.P.A.
* Siemans AG
* STC PLC (ICL, Inc.)
* Apple Computer, Inc.
* Dell Computer Corporation
* Compaq Computer Corporation
Employment with one of said companies or their subsidiaries shall
be defined as including employee status and consulting with or
direct participation in the business affairs of any of said
companies or their subsidiaries which involves computers or
matters relating to computers. Employment with one of said
companies or their subsidiaries shall not include routine
business dealings with one of said companies while an employee of
a company not included on the above list. Digital may, in its
sole discretion, remove any one or set or all of such companies
and their subsidiaries from the list of competitors upon request
by Mr. Lucente, but may do so only in a writing delivered to Mr.
Lucente and signed by the President or an elected Vice President
of Digital. Digital agrees that its consent to removing any one
or set of such companies from the list of competitors upon
request by Mr. Lucente shall not be unreasonably withheld.
6. Digital, without admitting and while expressly denying
the commission of any wrongful act, including but not
limited to any violations of any federal, state or
local fair employment practice law, or other employment
practice law, or other employer duty or other
employment-related obligation (all of which are
hereinafter referred to as "employment relations laws")
or other equity, and Mr. Lucente agree that:
a. Digital shall make payment to Mr. Lucente in the form
of four installments. The first installment of
$282,502.80 shall be paid as soon as practicable after
the expiration of the seven-day revocation period, as
described in Paragraph 10, below. Subsequent
installments of $157,502.80, $157,502.80, and
$32,502.80, respectively, shall be paid quarterly
beginning August 1, 1994; provided, however, that the
third and fourth quarterly payments shall be made only
if Mr. Lucente is not employed with another entity at
an annualized rate of compensation of at least $300,000
during any period after the Effective Date. Each
installment payable under this subparagraph (a) shall
be less any amount required of Digital by law to be
withheld as income tax withholding or elected to be
deducted by Mr. Lucente on a voluntary basis. Actual
payment of each installment shall be made as soon as
reasonably possible after the respective payment date.
For purposes of Paragraphs 6, 9, and 11, being
"employed" or "employment" means entering into a
relationship with an entity as a common law employee,
consultant, independent contractor, partner, or owner
or any other comparable relationship. For purposes of
Paragraph 7, the term "employer" shall be inclusive of
such relationships with another entity which are not
common law employment relationships.
b. Digital shall also pay to Mr. Lucente as soon as
practicable after the Effective Date, a lump sum
payment equal to the value of his then accrued and
unused vacation time and personal holiday.
c. Mr. Lucente shall continue presently elected and paid
for health, dental, life insurance, and disability
benefits at the then current cost of such benefits to
active employees until his Effective Date. Digital
agrees to continue his health, dental, basic and
personal accident (if applicable) life insurance
benefits for a period of twelve months from the
Effective Date, or until he becomes eligible for such
coverage by virtue of other employment, whichever
occurs first, provided that Mr. Lucente continues to
make timely payment therefor subject to whatever
applicable changes, including cost, that are
implemented by Digital to such plans. Group universal
life insurance coverage shall be continued under the
terms of that policy. Thereafter, Mr. Lucente shall be
entitled to continued health and dental coverage under
the Consolidated Omnibus Budget Reconciliation Act of
1986 (COBRA) at the same cost to Mr. Lucente as for any
other employee who terminates on Mr. Lucente's
Effective Date for the same coverage, such coverage to
be for a period not to exceed the statutory limit.
d. Digital shall provide at its expense executive
outplacement services to Mr. Lucente. Mr. Lucente may
choose a firm from the list of approved vendors and may
begin to use such services upon execution of this
Agreement.
e. Mr. Lucente shall continue to participate in Digital's
Pension Plan and to accrue benefit service subject to
the terms and conditions of said Plan until his
Effective Date. Thereafter, his rights in said Plan
shall be determined under the terms of the Plan.
7. Mr. Lucente agrees not to actively recruit any Digital
employees on behalf of his future employer or employers and
not to utilize his knowledge of Digital and Digital's
employees to encourage their recruitment from Digital by his
future employer or employers for a period ending one year
after his Effective Date. The foregoing sentence does not
prohibit Mr. Lucente or his employers from entertaining and
accepting requests for employment from Digital employees as
long as they were not solicited by him. He further agrees
not to make any derogatory comments to persons or third
parties regarding his employment with Digital during the
period ending two years after his Effective Date.
8. Mr. Lucente agrees not to disclose or use any of Digital's
confidential information or confidential information
entrusted to Digital by others to any non-Digital person,
corporation, or other entity. Digital's confidential
information includes matters not generally known outside of
Digital, such as experimentation, research and developments
relating to existing and future products and services
marketed or used by Digital, and also any information which
gives Digital a competitive advantage including data
relating to the general business operations of Digital
(i.e., sales, costs, profits, organizations, customer lists,
pricing methods, etc.).
9. Mr. Lucente agrees to notify the President of Digital (or
his designee) within one week of accepting new employment
with another entity of the name and address thereof and the
annualized rate of compensation that he will be paid by such
entity, provided that the beginning date of such employment
is prior to April 1, 1995.
10. Mr. Lucente accepts the foregoing in full and complete
satisfaction of any and all claims of any kind or
description that he has or may have had or may have against
Digital or its officers, directors or employees to the date
of the execution of this Agreement including but not limited
to claims arising from any employment relations laws,
contract or tort law, public policy, law or equity or claims
for expenses or other monetary or equitable relief including
any right to or claim arising out of a right, to
re-employment. Mr. Lucente also releases Digital and its
officers, directors, agents and employees from liability for
such claims and waives any other rights relating to his
employment with, or his resignation from employment from,
Digital. This Agreement shall serve to inform Mr. Lucente
that Digital advises him to consult counsel before signing
this Agreement in order to assist him in considering his
rights and obligations as expressed in this Agreement prior
to his determining whether or not to sign it. Mr. Lucente
has a period of 21 days from the date he receives this
Agreement to accept this Agreement by signing in the space
indicated below and returning the signed Agreement to
Digital. He is also entitled to rescind this Agreement at
any time within the seven-day period after he executes it by
written notice to Digital.
11. Neither Mr. Lucente nor Digital shall release, reveal,
publish, cause to be published, publicize, discuss or
otherwise disclose either the fact or terms of this
Agreement except as provided for in Paragraph 12, below, and
except as Digital may be obligated to disclose on account of
statutory, regulatory, or other legal requirements or in
connection with Mr. Lucente's compliance with the
obligations described in paragraphs 4, 5, 7 or 8 and except
that Mr. Lucente may make such disclosures (i) to family
members or attorneys to whom he discloses such information
on a confidential basis or (ii) that are consistent with,
and only to the extent necessary to meet, his obligations
expressed in paragraphs 4, 5, 7 or 8, above, with respect to
his employment with prospective employers (as so defined
therein).
12. Mr. Lucente agrees to cooperate with Digital and its counsel
in the disposition of legal, administrative, or agency
proceedings that now exist or may arise. In this regard,
Mr. Lucente agrees to make himself available for meetings,
proceedings, depositions, etc. as may be reasonably
required.
13. The terms of this Agreement including all facts,
circumstances, statements or documents relating thereto,
shall not be admissible for any purpose in any litigation in
any forum other than to secure enforcement of the terms and
conditions of the Agreement. It is agreed by Mr. Lucente
and Digital that the consideration paid by Digital hereunder
is in return for specific performance by Mr. Lucente and
that Digital will seek and is entitled to specific
performance by Mr. Lucente in the event of a violation of
this Agreement by Mr. Lucente.
14. This Agreement has been reached by mutual accord of the
parties hereto, and the parties by their signatures indicate
their full agreement and understanding of its terms.
15. This Agreement includes all of the agreements of the parties
relative to Mr. Lucente's termination, and supersedes any
prior agreements or representations between the parties as
to the subjects covered. Without limiting the foregoing,
the letter dated April 7, 1993, extending an offer of
employment to Mr. Lucente is expressly superseded by this
Agreement. Mr. Lucente specifically agrees that nothing in
this Agreement modifies his obligations and responsibilities
under any prior Employee Agreement or Stock Option Agreement
previously executed by him, including without limitation,
any non-competition, protection of confidential information
of Digital or others, and employee obligations clauses.
16. This Agreement shall become effective upon execution of it
by Mr. Lucente and the representative of Digital listed
below.
DIGITAL EQUIPMENT CORPORATION
By:_/s/ Richard M. Farrahar
Richard M. Farrahar
Vice President, Personnel
Date: /s/ 5-13-94
/s/ Edward E. Lucente
Edward E. Lucente
Date:___________________________
<PAGE>
AGREEMENT
This agreement (the "Agreement") is entered into between Digital
Equipment Corporation, on its own behalf and on behalf of its
officers, agents, directors, employees, subsidiaries, affiliates,
assigns and successors (collectively, "Digital") and Gresham T.
Brebach, Jr. (on your own behalf and on behalf of your heirs,
executors, administrators, and assigns) regarding the termination
of your employment with Digital.
In consideration of the mutual covenants and undertakings set forth
herein, you and Digital hereby agree as follows:
1 . Your employment with Digital ended as of August 8, 1994
(the "Effective Date").
2. For a period of 6 months following your Effective
Date, you will not render any services directly or
indirectly to, or on behalf of, become associated
with or employed in any capacity by, have an
ownership interest in any individual, firm,
corporation, or other entity listed on Exhibit I,
hereto, or with respect to any other entity to the
extent that such services, association, employment,
or ownership interest relate to any activities
competitive with or similar to those activities of
Digital with respect to which you have managed or
with respect to which you have possessed or have had
access to Digital's confidential information, know-
how, or trade secrets (including but not limited to
information, know-how, or trade secrets relating to
the research, development, design, manufacture,
marketing, sale, or distribution of any Digital
product or service).
At your request, Digital will discuss any potential
employment or other comparable opportunity with you to
determine whether the opportunity, if taken, would
violate the terms of this Paragraph 2. Digital will
promptly respond to your inquiry and in its sole
discretion may waive all or part of the provisions of
this Paragraph 2 at your request, such waiver not to be
unreasonably withheld.
3. You will inform each subsequent employer or
person or entity with whom you becomes
associated, prior to accepting such employment,
of the existence of the obligation set forth in
Paragraph 2 and provide a copy of the text of
Paragraph 2 to such employer or other person or
entity, provided that the beginning date of
such employment is within 6 months from the
Effective Date.
4. You will notify Digital within one week of
accepting new employment of the name and address
thereof, provided that the beginning date of such
employment is within 6 months from the Effective
Date.
5. For a period of 6 months following the Effective Date,
you will not directly or indirectly solicit for
employment (either with yourself or with your employer at
the time or any of such employer's affiliates) or hire
(whether as an employee, consultant, or otherwise) any
executive orother employee of Digital; provided, however,
that in no event shall the provisions of this Paragraph 5
be deemed to impose any obligation on you with respect to
any solicitation or hiring where you neither have any
control over, nor participate in, such action. Without
limiting the generality of the foregoing, if you request
or consent (whether in writing or otherwise) that a third
party (such as an employee of a recruiting firm) take any
action which, if taken by yourself, would be a violation
of the foregoing provisions of this Paragraph 5, you
shall be deemed to "participate in" such action. It
shall not be a violation of this
Paragraph 5 if you solicit or hire, as those terms are
defined above, any secretary with whom you worked at
Digital, or if you hire any employee who has been
terminated by Digital under a transition layoff plan or
business spin off.
6. You will not disclose or use any of Digital's
confidential information or confidential information
entrusted to Digital by others to any non-Digital person,
corporation, or other entity. Digital's confidential
information includes matters not generally known outside
of Digital, such as experimentation, research and
developments relating to existing and future products and
services marketed or used by Digital, and also any
information relating to the general business operations
of Digital (including, but limited to, business
strategies, sales, costs, profits, organizations,
customer lists, and pricing methods).
7. You will refrain from seeking or accepting any
employment, re-employment or work of any sort (temporary,
contract, consultant, regular, part-time or other) with
or at Digital.
8. On or before expiration of the seven-day revocation
period described in Paragraph 10, you will have settled
all expense accounts and advances made by Digital to you
and completed all other procedures required of
terminating employees, and you will have returned to
Digital all property provided by Digital to you including
all credit, identification, and entry cards, equipment,
(except as provided for in Paragraph 9(f), below),
automobiles, and all documents, records, papers,
notebooks, and other materials and copies thereof
(regardless of the medium on which the copy is made)
related to or including any information which is
confidential to Digital.
9. Digital, without admitting and while expressly
denying the commission of any wrongful act,
including but not limited to any violations of
any federal, state or local fair employment
practice law, or other employment practice law,
or other employer duty or other
employment-related obligation (all of which are
hereinafter referred to as "employment
relations laws") or other equity, will provide
the following:
a. Payment of $58,333.33 on the first day of each
calendar month beginning with September 1994 and
ending in February 1995 (a total of six such
payments.) In no case will actual payment be made
prior to the expiration of the seven-day revocation
period described in Paragraph 10. Actual payment
shall be made as soon as reasonably practicable
after each such date. Each payment made under this
Paragraph 9 shall be less any amount required of
Digital by law to be withheld or elected to be
withheld by you on a voluntary basis.
For purposes of Paragraphs 4, 5, 6, 8, 9(a), and
9(c) of the Agreement, being "employed" or
"employment" means entering into a relationship with
an entity such as a common law employee, consultant,
independent contractor, partner, or owner or any
other comparable relationship.
b. On or before September 1, 1994, payment (i) in a
single sum equal to the value of your then accrued
and unused vacation time and (ii) in a single sum
equal to $150,000.00 as the remainder of the short-
term incentive compensation payment with respect to
fiscal year 1994, payable pursuant to the letter
agreement dated April 5, 1993, which outlined the
terms of Digital's offer of employment to you.
c. Continuation of elected and paid for health, dental,
life insurance, and disability benefits at the then
current cost of such benefits to active employees
until your Effective Date. Digital agrees to
continue your health, dental, and basic and personal
accident (if applicable) life insurance benefits
through February 8, 1995, or until you become
eligible for such coverage from another employer,
whichever occurs first, provided that you continue
to make timely payment therefor, subject to whatever
applicable changes are implemented by Digital to
such plans. Group universal life insurance coverage
in effect at the Effective Date shall be continued
under the terms of that policy. Thereafter, you
shall be entitled to continued health and dental
coverage under the Consolidated Omnibus Budget
Reconciliation Act of 1986 (COBRA) at the same cost
to you as for any other employee for the same
coverage, such coverage to be for a period not to
exceed the statutory limit.
d. Continuation of your participation in the Digital
Equipment Corporation Pension Plan and the Digital
Equipment Corporation Savings and Investment Plan
(the "Plans") under the terms and conditions of the
Plans until your Effective Date. Thereafter, your
rights in the Plans, if any, shall be determined
under the terms of the Plans.
e. Executive outplacement services with a firm of your
choice from an approved list of vendors. You may
begin to use such services upon execution of the
Agreement.
f. Retention at no cost to you of the equipment
previously provided to you by Digital, currently
located in your home and your Digital office which
is listed on Exhibit II, hereto.
10. In exchange for the consideration set forth above and for
other good and valuable consideration receipt of which is
hereby acknowledged:
a. You hereby accept the foregoing, in full and
complete waiver, release, and satisfaction of any
and all claims of any kind or description that you
have or may have had or may have through the date
you execute the Agreement against Digital or its
officers, directors or employees including but not
limited to claims arising from any employment
relations laws, contract or tort law, public policy,
law or equity or claims for expenses or other
monetary or equitable relief including any right to
or claim arising out of a right, to re-employment.
You also hereby release Digital from liability for
such claims and waive any other rights relating to
your employment, or your termination from
employment, with Digital. This release shall
include a release from claims under the Age
Discrimination in Employment Act of 1967 (ADEA).
Digital hereby advises you to consult counsel before
signing the Agreement and that you have, and are
entitled to, at least 21 days following the receipt
of the Agreement to execute it, although you are not
required to use all of this period if in your sole
and unlimited discretion and judgment you choose not
to do so. You are also entitled to rescind the
Agreement at any time within the seven-day period
after you execute it by written notice to Digital.
This waiver of your rights under ADEA shall not
apply to any claims arising after your execution of
the Agreement;
b. You agree to refrain from filing any complaint,
civil action, litigation or proceedings of any
nature or description against Digital, in an
judicial or quasi-judicial forum, based upon claims
released in Paragraph 10(a) except for enforcement
of the terms of this Agreement;
c. You represent that you have not filed any
complaints, administrative charges and/or lawsuits
or proceedings against Digital based upon claims
released in Paragraph 10(a), with any local, state
or federal court or agency and further that you have
not assigned or transferred to any person any
portion of any claim which is released or waived by
this Agreement; and
d. You agree to not file, participate in as a plaintiff
and/or class member, or commence yourself, or
encourage, induce, solicit or support the filing of,
or institution of any claim, suit, litigation,
grievance, arbitration, cause of action, or any
other proceeding against Digital by any other person
or persons based on claims released in Paragraph
10(a) or similar claims of third parties, whether or
not such claims arise from any employment relations
laws, including but not limited to claims based on
discrimination on the basis of age, sex, handicap,
disability, contract or tort law, public policy, law
or equity or claims for expenses or other monetary
or equitable relief.
Notwithstanding the foregoing, you shall not be
prohibited from giving testimony in lawsuits or
administrative proceedings initiated by third
parties if such testimony is compelled by legal
and/or administrative subpoena. You shall not
volunteer to provide such testimony and/or
encourage, induce or solicit others to call you as a
witness.
11. It is further agreed by you and Digital that the
consideration paid by Digital hereunder is in return for
specific performance by you, and that Digital will seek
and is entitled to specific performance by you in the
event of a violation of the Agreement by you in addition
to any other remedies available to Digital.
12. Neither you nor Digital shall release, reveal, publish,
cause to be published, publicize, discuss, or otherwise
disclose the facts or terms of the Agreement except as
provided for herein and in Paragraph 3 of the Agreement
and except as Digital may be obligated to disclose on
account of any statutory, regulatory, or other legal
requirements. The terms of the Agreement including all
facts, circumstances, statements or documents relating
thereto, shall not be admissible for any purpose in any
litigation in any forum other than to secure enforcement
of the terms and conditions of the Agreement. Both
Digital and you agree not to publicly discuss, nor make
any derogatory comments regarding, the facts and
circumstances leading to your departure from Digital, but
you may confirm that your departure was voluntary.
13. The Agreement has been reached by mutual accord of the
parties hereto, and the parties by their signatures
indicate their full agreement and understanding of its
terms.
14. The Agreement includes all of the agreements of the
parties relative to your termination, and supersedes any
prior agreements or representations between the parties
as to the subjects covered. You specifically agree that
nothing in the Agreement modifies your obligations and
responsibilities under any prior Employee Agreement or
Restricted Stock Option Agreement previously executed by
you, including without limitation, any non-competition,
protection of confidential information of Digital or
others, and employee obligations clauses. This Agreement
has no precedential effect, value, or impact whatsoever
as to any person not a party to it.
15. Should any provision or part of any provision of this
Agreement be found to be legally unenforceable and/or
against public policy, such unenforceability shall not
prevent enforcement of the remaining provisions or parts
of this Agreement.
16. The Agreement shall be interpreted under the laws of the
Commonwealth of Massachusetts.
DIGITAL EQUIPMENT CORPORATION
By:/s/ Richard M. Farrahar
Richard M. Farrahar
Vice President, Human Resources
Date:/s/ Sept. 6, 1994
/s/ Gresham T. Brebach, Jr.
Gresham T. Brebach, Jr.
Date:/s/ 30-Aug-1994
<PAGE>
EXHIBIT I
- AT & T
- Hewlett Packard
- IBM
The names above are inclusive of all such entities, subsidiaries
and affiliated companies.
<TABLE>
EXHIBIT 11
DIGITAL EQUIPMENT CORPORATION
Computation of Net Income Per Share/(Loss) Per Share
Year Ended
<CAPTION>
______________________________________________________________________________________________________________________
July 2, 1994 July 3, 1993 June 27, 1992 June 29, 1991 June 30, 1990
______________________________________________________________________________________________________________________
(In Thousands Except Income Per Share Data)
<S> <C> <C> <C> <C> <C>
Net income/(loss)........... $(2,156,063)(b) $ (251,330) $(2,795,507)(c) $ (617,427) $ 74,393
___________ ___________ ____________ ____________ ___________
___________ ___________ ____________ ____________ ___________
Net income/(loss) applicable
to common and common
equivalent shares.......... $(2,166,713) $ (251,330) $(2,795,507)(c) $ (617,427) $ 74,393
(a) (b)
____________ ___________ ____________ ____________ ___________
____________ ___________ ____________ ____________ ___________
Weighted-average number of
common shares outstanding
during the year........... . 137,090 130,409 124,864 121,558 121,745
____________ ___________ ____________ ____________ ___________
____________ ___________ ____________ ____________ ___________
See page S-11 for notes to Exhibit 11.
<PAGE>
Exhibit 11, cont'd.
Year Ended
<CAPTION>
______________________________________________________________________________________________________________________
July 2, 1994 July 3, 1993 June 27, 1992 June 29, 1991 June 30, 1990
______________________________________________________________________________________________________________________
(In Thousands Except Income Per Share Data)
<S> <C> <C> <C> <C> <C>
Common stock equivalents from
application of "treasury stock"
method to unexercised and out-
standing stock options......... 0 0 0 0 3,477
___________ __________ __________ __________ _________
___________ __________ __________ __________ _________
Total number of common and
common equivalent shares used
in the computation of net
income per share............... 137,090 130,409 124,864 121,558 125,222
___________ ___________ __________ ___________ _________
___________ ___________ __________ ___________ _________
Net income/(loss) per share..... $ (15.80)(b) $ (1.93) $ (22.39)(c) $ (5.08) $ .59
___________ ___________ ___________ __________ __________
___________ ___________ ___________ __________ __________
<FN>
(a) Includes dividends paid and declared on Series A 8 7/8% cumulative preferred stock totaling $10,650,000.
(b) Net loss and net loss per share include the cumulative effect of change in accounting principles of $51,026,000
and $0.37, respectively.
(c) Net loss and net loss per share include the cumulative effect of change in accounting principle of $485,495,000
and $3.89, respectively.
</TABLE>
Digital Equipment Corporation
Maynard, Massachusetts 01754
Digital Equipment Corporation
Annual Report 1994
Corporate Profile
Digital Equipment Corporation is a world leader in the development of
networked platforms for client/server computing. Digital's products and
services for open computing environments help customers simplify business
processes and enhance organizational productivity. The Company does business
in more than 100 countries and develops and manufactures products in the
Americas, Europe, Asia and the Pacific Rim. Building on its core competencies
in Software, Systems, Networks, and Services, Digital--working with its
business partners--provides a complete range of information processing
solutions from personal computers to integrated worldwide networks.
Financial Summary
Fiscal Year 1994 1993
Total operating revenues $13,450,790,000 $14,371,369,000
Restructuring charges $ 1,206,000,000 -
Net loss $(2,156,063,000) $ (251,330,000)
Net loss per common share $ (15.80) $ (1.93)
Total stockholders' equity $ 3,279,799,000 $ 4,885,399,000
Number of common stockholders 77,722 86,611
Stockholders' equity per
common share $ 20.24 $ 36.19
Number of regular employees 77,800 89,900
Annual Meeting
The Annual Meeting of Stockholders will be held at 11:00 a.m. Thursday,
November 10, 1994, at the World Trade Center, Commonwealth Pier, 164 Northern
Avenue, Boston, Massachusetts 02210. Stockholders of record on Monday,
September 12, 1994, will be entitled to vote at this meeting.<PAGE>
Contents
2 President's Letter
4 Q&A with Robert B. Palmer
6 Open Client/Server Computing
8 Software
12 Systems
16 Networks
20 Services
24 Teamwork
25 Financial Statements
<PAGE>
Open Client/Server Computing Solves Real Business Problems
"We have the ability--directly and through our partners--to implement and
support networked platforms and applications in multivendor environments more
quickly and cost effectively than anyone else".
"This capability is making Digital the leader in open client/server
computing--the combination of technologies that enables PCs, laptops,
workstations and other devices to tap into computers so that these systems
and the people who use them can share data and work together."
- --Robert B. Palmer, President and Chief Executive Officer
Digital Equipment Corporation
<PAGE>
[Photograph of Robert B. Palmer]
President's Letter
To Our Stockholders, Employees, Customers and Partners
Fiscal year 1994 was a year of both progress and frustration for
stockholders, for employees, for our customers and for our partners.
For the year, Digital reported a net loss of $2.16 billion, which includes
a restructuring charge of $1.2 billion and noncash asset write-offs and
accounting changes of $431 million. I am obviously disappointed with these
results. However, with the actions we took last year, including reducing
regular employee population by 12,000 and total occupied space by 5.2 million
square feet, and our announced restructuring plans for the future--for
example, the elimination of Digital's inefficient matrix management system--I
am confident that we have established a solid foundation for a return to
profitability.
As we exited the year, our business showed some positive and encouraging
signs:
We achieved year-over-year product order rate growth in both the third
and fourth quarters (the latter adjusted for a 14-week quarter a year
ago). This is the first time in nearly five years that we have seen an
increase in year-over-year order rate growth in consecutive quarters.
We reached two significant milestones in our Alpha AXP program. We have
shipped more than one billion dollars' worth of Alpha AXP systems since
the program's launch in November 1992, and Alpha AXP revenues surpassed
VAX revenues for the first time in the fourth quarter, growing 54 percent
from the preceding quarter.
The new Digital 2100 Alpha AXP server, announced in the fourth quarter,
got off to an excellent start. Market reception for this leadership
price/performance product, which offers exceptional scalability, has been
outstanding.
Personal computer revenues demonstrated accelerating year-over-year growth
rates each quarter, more than doubling in the fourth quarter and nearly
doubling for the full year. We enter fiscal 1995 with a balance sheet that
provides needed flexibility and resources and a portfolio of products and
services more competitive than they have been in several years. We all
want to see results quickly. We want the trauma of downsizing behind us
and a return to sustained profitability. But it is important that we do
not let our poor financial performance completely obscure the significant
progress we have made in several major dimensions in less than two years.
We enter fiscal 1995 with a balance sheet that provides needed flexibility
and resources and a portfolio of products and services more competitive than
they have been in several years.
We all want to see results quickly. We want the trauma of downsizing behind
us and a return to sustained profitability. But it is important that we do
not let our poor financial performance completely obscure the significant
progress we have made in several major dimensions in less than two years.
Two years ago, our products were not competitive in performance or
price/performance. Digital was a company wedded to its proprietary systems,
with little or no credibility in the marketplace around our UNIX offering--a
key requirement to be a competitor in today's open environments. Once merely
an "also-ran," our UNIX is now a recognized leader in standards compliance
for open computing.
Today, Digital can lay legitimate claim to being a truly open systems leader,
giving customers the flexibility and alternatives that they want--and with
leadership price/performance. Today we can truly say we support
industry-standard operating systems--UNIX, OpenVMS, Windows NT and
MS-DOS--across a broad set of platforms.
In two years, we have moved from being a company selling primarily through
direct channels to one that has a healthier, market-driven mix of direct and
indirect channels. In fiscal 1992, 29 percent of our products moved through
indirect channels; in the year just passed (fiscal 1994), we sold 45 percent
through indirect channels. And our goal for fiscal 1995 is more than 60
percent--which will be achieved in large part by a strategic refocus of our
core systems business models.
We are moving from being a low-volume, high-cost manufacturer and supplier
to a higher-volume, lower-cost manufacturer and supplier. Over the past two
years, unit volumes have exploded, driven by strong growth in PCs and Alpha
AXP workstations. We shipped nearly four times the number of computer systems
in fiscal 1994 compared with fiscal 1992, despite having reduced total
worldwide manufacturing capacity. By the end of fiscal 1995, we will be
shipping significantly greater volumes with a manufacturing population
one-half the size of two years ago.
We are refining our product and service cost structures to reflect the
demands of our customers and the challenges of our competition--while
establishing leadership price/performance across virtually every price band
where we compete.
These are major accomplishments. Two years into the turnaround, we have laid
the groundwork for our future success. We are succeeding in several of our
businesses, and many of our new products are being well received in the
marketplace. We are adapting the best and most successful business
strategies--honed and proven in the competitive PC, storage, components and
service segments of our business--and applying them on a larger scale across
the company.
But the question remains: with all that we have going for us, why aren't we
yet leading the industry with the sheer force of our global resources, our
unparalleled products, technology and skills? And why are we not yet
profitable?
The reality is that despite our progress we still have some critical issues
to address--and that is our mandate for fiscal 1995.
To ensure that decisions made and actions taken will lead to financial
success, we recently made one very important change to Digital's culture and
business: we have cast aside matrix management and instituted clear
accountability for revenue, profits, cash flows and assets within our
business units. We are eliminating the costly infrastructure associated with
the previous management system. The result will be a leaner, more decisive,
more agile company, sharply focused on meeting the needs of customers, the
demands of the marketplace and the challenges of our competitors.
In today's complex multivendor computing environment, our customers value our
ability to implement and support--directly and through partners--networked
client/ server platforms and applications. We are convincing increasing
numbers of customers that we can link computers worldwide--ours and
others--and keep them working better than anyone else in the business.
We will conduct our business by a few simple, strategic principles as we move
through our transition to profitability: we will protect our installed base;
we will organize and manage the company to market realities; we will not
compete with our key partners; we will continue to build on our strength of
high-performance networked platforms and engineer all of our products for
network readiness; and we will differentiate Digital throughout the world by
our outstanding global service and support capabilities.
We have done a great deal of work to prepare Digital to return to
profitability and position it for a strong, innovative future. There is more
work to do. And we will do it. My goal for the Company, its stockholders,
employees, customers and partners is to capitalize on that work by restoring
profitability in fiscal year 1995.
Robert B. Palmer
President and Chief Executive Officer
September 1, 1994
<PAGE>
Q&A with Robert B. Palmer
Commonly Asked Questions
Below are questions that stockholders and others frequently ask about the
Company:
Q: Digital has not been profitable for some time. When can we expect
profitability, and what will it take to get there?
A: We have set an aggressive goal to return to profitability by the end of
calendar year 1994. I cannot predict, however, when we will actually
return to--and sustain--profitability; much work remains to be done. We
must complete the restructuring plans we have announced, achieve a
competitive cost structure, increase our penetration of indirect sales
channels and build on the successes we have achieved in several areas,
including PCs and Alpha AXP systems.
Q: What are your financial goals?
A: We are working aggressively to return to sustainable levels of
profitability as soon as possible. As an interim goal, we have set a
target of maintaining total gross margins (products and services combined)
in the range of 30 to 32 percent of revenues. This will require a
continued focus on manufacturing efficiency and pricing discipline.
We are targeting spending on research and engineering in the range of 7
to 8 percent, and on selling, general and administrative expenses between
15 and 18 percent of revenues. These targets will be achieved through
successful implementation of our restructuring plan and through greater
reliance on indirect channels of distribution. While we do not necessarily
expect to reach these spending targets for the full fiscal year 1995, we
will make significant progress toward them.
Q: There have been many rumors that the Company is considering divestments.
Can you comment?
A: For understandable business reasons, we cannot list what nonstrategic
activities or operations the Company might divest in the future, but we
can talk about our underlying strategic approach.
As we strive to become more efficient, a critical element of our business
strategy is to sharpen our focus on those products and services where we
can provide added value to our customers as they choose and implement
open, networked platforms and servers. Activities that do not support that
focus are potential candidates for divestiture.
For example, we recently announced our intention to sell portions of our
storage business to a leading storage components manufacturer. The
segments we are selling--disk and tape drives and thin-film heads
businesses--have been fast-growing and successful for Digital in the OEM
(original equipment manufacturer) marketplace, but not central to our
business. We will continue to provide our customers with high-performance
storage subsystems that incorporate disk and tape storage products that we
will source from outside the Company.
Q: What are you doing to improve employee morale and ensure that you keep
the talent you need to be successful in the future?
A: It's natural for people to feel good about their jobs when they can see
success and for morale to suffer when the Company is doing poorly. Within
businesses that are doing well--Alpha AXP systems, PCs, storage,
components and peripherals, and customer service are all examples--morale
is very good.
The best way to improve the morale of all employees is to return
to sustainable profitability as soon as possible. All our efforts are
focused on that goal. We need to move through the painful but necessary
downsizing as rapidly as we can. We also recognize that compensation must
reward performance and instill accountability throughout the organization.
Q: How will you provide the necessary cash for both your restructuring and
operating needs?
A: The funding of our activities through the next phase of Digital's
turnaround is a critical challenge for the Company and an important
metric for management. We still have one of the lowest debt to total
capitalization ratios among the Fortune 50. We have laid out a plan to
fund our restructuring and operating needs from internal sources. We
believe this plan is credible and achievable.
Our accounts receivable DSO (days sales outstanding) and inventory turns
performance are not competitive today. If we had merely achieved the
performance levels in these two asset categories that we achieved in
fiscal 1993, we would have produced an additional $600 million in cash.
We have specific plans in place to improve asset management. We also
intend to cut capital spending this fiscal year by up to 40 percent
compared with last year. Proceeds from divestments will further add to
cash, and the Company has arranged for up to $600 million of backup
liquidity in the form of an accounts receivable securitization facility.
Q: So where does Digital stand today?
A: We have a large and loyal installed base; a substantial--and growing--
list of partners; a strategy that makes the best use of our strong
technology heritage and potential; talented, dedicated and enthusiastic
employees; very competitive hardware, software and service offerings;
and a balance sheet that enables us to continue to invest in our business
while taking necessary restructuring actions.
The pages that follow outline in detail what we believe are our sustaining
advantages.
<PAGE>
Open Client/Server Computing Advanced Technology for Today's Business
Needs.
Helping customers reengineer operations, open new markets and develop
new products.
"Digital's commitment to open client/server computing began with our
customers. They told us what they wanted. And we made the investments and
alliances needed to make client/server computing something more than just
a concept."
--Enrico Pesatori, Vice President and General Manager
Computer Systems Division
Digital Equipment Corporation
Many computer companies see client/server computing as the technology that
links personal computers together in a local area network.
Digital sees it as much more than that.
Client/server computing can enable customers to simplify business processes
to enhance both individual and corporate productivity.
A client/server environment should be seamless, with no artificial barriers
to keep people from sharing information and working together. At the same
time, client/server computing splits applications to enable the
cost-efficient distribution of computing resources. Client systems--
networked PCs, workstations and in some cases large systems--request
services from other systems throughout the network.
We're working with customers and strategic partners to take the concept of
client/server computing and apply it across the entire enterprise to
integrate people, processes, technology and information so everyone and
everything can work together.
This annual report details the products, services and technologies that are
making client/server computing a reality. It qualifies and quantifies the
client/server market and highlights the cost savings and productivity gains
that client/server computing is bringing to Digital customers around the
world. It gives customers, strategic partners and Digital developers an
opportunity to share their thoughts about the future. And it explores new
applications that are creating business opportunities for both Digital and
its customers.
Leadership in computer technology is not achieved overnight. The industry
has always been driven by two very different needs.
First, the need for personal productivity, the need to access data and
process information, a need that was met first by timesharing and later by
personal computers.
Second, the need for organizational productivity, the need to gather,
organize and process large volumes of data--a need that was met by the
mainframe and later by peer-to-peer networks and clusters of midrange
systems.
Client/server computing brings these two very different styles of computing
together.
Digital's contribution was to develop the network platforms, software
frameworks, integration and support services, strategic alliances, and
business practices needed to fully implement the client/server concept.
Working with our strategic partners, we are creating an open, enterprisewide
computing environment to meet the needs of customers seeking to develop a
competitive advantage or maximize the use of existing personnel and computing
resources.
As a company, we are focusing on our core competencies--the four
prerequisites for leadership in open, multivendor client/server computing:
Software--The software frameworks customers need to develop client/server
applications and integrate PC, Macintosh, UNIX, OpenVMS, Windows NT, OSF/1,
Sun, Hewlett-Packard, IBM and other systems.
Systems--Powerful 64- and 32-bit client and server systems based on Alpha
AXP, VAX and Intel microprocessors with the capacity to handle the huge
amounts of information inherent in enterprise-wide client/server
applications.
Networks--The hardware and software needed to open up the Information
Superhighway and link clients and servers--switches, routers, hubs, network
adapters, network operating systems, and mobile/wireless and other
telecommunications solutions.
Services--The systems and network integration and multivendor customer
services needed to plan, design, integrate, implement, manage and maintain
open multivendor client/server networks that include both legacy systems and
new technology.
These four competencies are interrelated. And--combined with the
organizational skills needed to develop and implement client/server
environments--they provide the foundation upon which Digital, its customers
and its strategic partners can base their future.
"Digital's Components Division delivers world-class products to build open,
networked client/server environments that simplify business processes and
increase productivity. We provide networking hardware, StorageWorks
subsystems, printers, terminals and other components to Digital and other
computer manufacturers, as well as to distributors and resellers."
--Charles Christ, Vice President and General Manager
Components Division
Digital Equipment Corporation
"If you profess support for open client/server computing, you have to support
multiple operating systems. Digital is fully committed to UNIX, OpenVMS and
Windows NT because they all have a place in client/server environments."
--William D. Strecker
Chief Technical Officer and Vice President
Advanced Technology Group
Digital Equipment Corporation
With open client/server computing, we are helping customers reengineer their
operations, open new markets, develop new products and improve both personal
and corporate productivity.
<PAGE>
Software
Frameworks for Open Client/Server Computing
[Two photographs. Top photograph of hubs and spokes linked together. Bottom
photograph of a man and woman standing near a table on which rests a Digital
personal computer, the DECpc XL 590. On and around the table are boxes
containing Digital's LinkWorks software.]
Teamwork--Digital, its strategic partners and independent software companies
have developed more than 6,000 applications for Alpha AXP systems. Here
Alexis Cox and Don Harbison of Digital's Software Products Group are pictured
with Digital's LinkWorks software and the award-winning DECpc XL590.
"Our next version of OLE COM (the Common Object Model) will support all
Microsoft platforms and--through our strategic relationship with Digital--
multivendor systems in open client/server environments."
--Jim Allchin, Vice President of Advanced Systems
Microsoft Corporation
The idea behind open client/server computing is simple, but its execution is
often difficult.
Client/server environments typically include computers from different
manufacturers, multiple operating systems, multiple databases and multiple
networks.
Whether you approach client/server computing from an enterprise-wide
perspective or take a departmental or application-specific perspective, you
face a difficult and complex task.
Fortunately, that task is becoming much easier. The software frameworks for
integrating databases, electronic mail systems, local area networks and
workgroup, production and technical applications across horizontal
multivendor environments are in place together with the industry-standard
"middleware" needed to link those applications.
The Common Object Model being developed by Digital and Microsoft is an
important component in frameworks and middleware, and in many client/server
applications from Digital software partners.
The concept behind object-oriented programming is straightforward. "Objects"
are software building blocks--packages of data together with programming that
applies to that data--that can be "linked" to create an application.
The development of a common model for object-oriented programming for both
personal computers and servers is critical in client/server computing, where
different systems and applications have to work together. Having a common
model simplifies program development.
Ad hoc application--for example, searching multiple databases for specific
information--can be created at the desktop by pointing to and clicking on
"objects" on the screen. More complex applications take more work, but
object-oriented programming is a welcome change from having to write line
after line of code.
The Digital/Microsoft Common Object Model has been called the software
equivalent of Ethernet. Ethernet provides a plug-and-play environment for
linking personal computers and other systems together in local area networks.
The Common Object Model provides a similar plug-and-play environment for
software.
Roughly one-third of the Fortune 1000 industrial corporations will implement
their first object-oriented applications this year, according to a survey by
Forrester Research, Inc.
Digital customers like Florida Power & Light, the Rehabilitative Services
Commission and the Spicer Clutch Division of Dana Corporation have blazed the
trail.
These early adapters have reported a two- to fourfold increase in programmer
productivity while developing new applications to give them an edge over
their competition.
<PAGE>
Software
Teamwork Brings It All Together
[Photograph of hubs and spokes linked together]
"I tell customers interested in open client/server computing to start with
software. If you have the right software, you can support just about any
computer or operating system."
--William R. Demmer, Vice President
Software Business Group
Digital Equipment Corporation
"Establishing an information framework does not require a massive overhaul of
existing technology. In fact, Digital LinkWorks software enhances existing
systems by enabling them to become part of an open, enterprise-wide
client/server network."
--Robert Staub, President
VW-GEDAS Group
VW-GEDAS: How Digital LinkWorks software simplified application development
and user support VW-GEDAS, the systems integration subsidiary of Volkswagen,
provides information-based solutions for both its parent company and
commercial customers.
Many of these solutions are based on Digital LinkWorks, an "object-oriented"
software framework for Windows applications. With LinkWorks software, files
created on Lotus 1-2-3, Microsoft Word, Excel and other desktop applications
can be packaged together as a single "object. These "objects"--or clusters of
related information--can be organized and represented as icons.
This makes it easier for the user to access all the information on a
particular subject without plowing through electronic file cabinets. The
integration of desktop applications with corporate databases makes it easier
for people to find the information they need to do their jobs. And it
simplifies support by eliminating many of the user requests for reports and
data that tie up data processing personnel.
<PAGE>
Bank of Montreal: Sharing customer information without compromising
confidentiality.
Many customers have legitimate concerns about making corporate or customer
data available to employees. Unfortunately, many client/server applications
lack the controls needed to ensure the confidentiality of this data.
At the same time, data processing managers are concerned about the cost of
developing and implementing client/server applications. Few software programs
come in on-budget and on-schedule because, all too often, there is no
framework around which programmers can develop applications.
One reason the Bank of Montreal decided to work with Digital in implementing
client/server computing was that Digital could provide the frameworks
required to simplify systems and data management, and messaging, workgroup
and production applications.
Using these frameworks and object-oriented programming, the Bank of Montreal
was able to provide authorized employees with easy access to corporate data
without compromising customer confidentiality.
"I can't stress strongly enough that this was a business project. We focused
on finding ways to help people work together rather than on technology.
Technology is just the means to an end. Digital understands that."
--Mike Frow, Vice President
Bank of Montreal
Client/Server Growth CIOs in large companies expect the percentage of their
client/server applications to increase from 5 percent in 1992 to 57 percent
by 1995.
1992 1995
5% 57%
Source: Deloitte & Touche LLP
[Bar graph represented by photographs of a hand on a keyboard]
<PAGE>
[Two photographs. Top photograph of Digital's Alpha AXP chip. Bottom
photograph of three men and one woman near a Digital 2100 Alpha AXP server.
The caption relating to both photographs reads "SYSTEMS A Two-Platform
Strategy: Intel and Alpha AXP".]
<PAGE>
Alpha AXP systems like the Digital 2100 Alpha AXP server--shown here with
George Murphy, Andrei Shishov, Rene Martinez and Fidelma Hayes of Digital's
Systems Business Unit--combine raw speed with the ability to address massive
databases.
"Digital PCs and Alpha AXP systems are complementary. As a technological
leader in personal, corporate and scientific computing, Digital is uniquely
positioned to help its customers implement open client/server applications,
whatever the platform."
--Bernhard Auer, Vice President and General Manager
Personal Computer Business Unit
Digital Equipment Corporation
In supporting network and client/server environments, Digital is focusing on
two platforms: high-performance Intel personal computers and servers and
Alpha AXP workstations, servers and systems with the highest performance and
best price/performance in the industry.
We support both 32-bit Intel and 64-bit Alpha AXP platforms because our
customers need and want both. Buying decisions are based on applications and
the speed with which a system runs those applications.
A high-speed bus can increase system performance. Digital manufactures and
sells chips that implement the new, industry-standard, high-speed PCI
(Peripheral Component Interconnect) bus. By building highly reliable personal
computers and servers around this bus--systems that are easy to upgrade and
have high-performance, high-capacity disks--Digital was able to offer
superior price/performance together with a three-year warranty.
Combining technological leadership with comprehensive customer support,
Digital broadened its distribution channels and doubled year-to-year personal
computer sales.
Today, Digital builds a complete family of high-performance Intel i486 and
Pentium servers, and personal and notebook computers to run the thousands of
applications that have been written for MS-DOS, Windows and Windows NT.
Applications are also driving the sales of Alpha AXP systems. With more than
6,000 UNIX, OpenVMS and Windows NT applications from independent developers,
we have shipped over one billion dollars' worth of Alpha AXP systems since
the program's launch.
Digital's Intel and Alpha AXP platforms are complementary. We have the
PC-to-UNIX integration and networking software, the middleware and the
multivendor service organization needed to integrate Intel and Alpha AXP
systems in multivendor networks.
As more and more customers link PCs and LANs in enterprise-wide networks and
implement client/server applications, the need for faster processing speed
and the ability to hold vast amounts of data in computer memory become
critical.
A 32-bit system can address only the equivalent of 96 file cabinets. This is
why insurance, credit card, utility, distribution and manufacturing companies
that process huge volumes of transactions and maintain massive databases are
moving applications to 64-bit systems. At the same time, Alpha AXP systems
provide the speed and raw computing power needed to tackle scientific and
imaging applications that used to require multimillion-dollar supercomputers.
While every major manufacturer of microprocessors has announced plans to move
to a 64-bit RISC architecture, Digital is the only company to offer a
complete family of 64-bit microprocessors, computers and operating systems.
We're also addressing the needs of customers looking for systems to support
mainframe downsizing and current applications with a complete line of Alpha
AXP and VAX systems that support "industrial- strength" OpenVMS software.
Many of the components and subsystems that account for the superior
performance of Digital's systems are produced by our Components Division.
Digital is a leading supplier of storage subsystems, networking products,
terminals, printers and peripherals to other computer companies, systems
integrators and distributors.
<PAGE>
Systems
For Complex Commercial and Technical Applications
[Photograph of Digital's Alpha AXP chip]
"Alpha AXP chips lead the industry in performance, setting a standard in the
open market and building momentum for Digital as a merchant vendor of
microprocessors and PCI peripheral chips."
--Ed Caldwell, Vice President, Digital Semiconductor
Digital Equipment Corporation
"It is not a question of when you will need 64 bits. It is a question of when
you will need that thirty-third bit. For a lot of applications, that time is
now."
--Willy Shih, Vice President
Product Strategy
Computer Systems Division
Digital Equipment Corporation
"You don't just buy technology, you make an investment. And when you invest
you have to look at the long term. You can't afford to buy equipment that
will become obsolete in a matter of years."
--Richard C. Zbikowski, Project Manager
Boston Edison Energy Management Center
Boston Edison: Alpha AXP systems provide the power for realtime energy
management and control. Few realtime applications are as demanding as energy
management and control. Electric utilities like Boston Edison have to balance
the supply and demand for power. This requires highly reliable realtime
processing and specialized application software.
In updating its energy management and control system, Boston Edison was
looking for a distributed, workstation-based solution that wouldn't become
obsolete in a matter of years. They wanted an open architecture.
They were one of the first, but by no means the last, major electric utility
to move their energy management and control to Alpha AXP workstations and
computers. In fact, of the 23 large (million-dollar-plus) energy management
and control contracts signed by North American utilities in 1993, 13 of the
wins went to Alpha AXP systems, according to a study by Newton-Evans Research
of Ellicott City, Maryland. In the U.K., Southern Electric, Northern
Electric, Yorkshire Electricity, SEEBOARD, London Electricity and the
National Grid Company have all chosen Alpha AXP systems for major projects.
Boston Edison chose Alpha AXP systems running UNIX and EMS/SCADA software
over IBM RS6000 AIX systems. In addition to providing Edison with a
price/performance advantage, Digital offered a 64-bit UNIX solution that
supports clusters and multiprocessing while meeting X/Open and other industry
standards. Equally important was the availability of EMS/SCADA realtime
software from CAE Electronics, Ltd., a Digital Technical OEM partner. CAE,
based in Montreal, Canada, is a worldwide leader in the development of power
distribution systems and recently won two contracts to install Alpha AXP
systems in China.
Boston Edison's Alpha AXP systems form part of a power distribution network
that serves more than 650,000 commercial, residential and industrial
customers.
<PAGE>
First Data: How Unix and Alpha AXP technology gave a Digital business partner
a competitive edge in the healthcare field. First Data Corp.'s Health Systems
Group serves some 700 hospitals and healthcare facilities in the U.S. and
international markets. The company designs and markets leading-edge
healthcare technology solutions, including computer-based patient record
applications. Three of their newest customer reference accounts are using
UNIX-based Alpha AXP systems.
At Georgetown Memorial, Roper and Union Memorial hospitals, these systems are
dramatically reducing the time it takes to run major reports and financial
reconciliations. At Georgetown Memorial, reports that took four to six hours
are now completed in 20 minutes. At Roper Hospital, monthly financial
reporting that took 24 hours is now finished in one to two hours.
On the strength of this performance, First Data is closing additional Alpha
AXP system sales. With Alpha AXP systems and services, Digital provides First
Data with a robust, industrial-strength UNIX together with the tools needed
to develop and maintain complex client/server and database applications.
And it is the ability to develop new applications that provides Digital
business partners like First Data with the competitive advantage they need to
succeed in a changing marketplace.
"Digital has given us what we needed: UNIX that meets industry standards.
Alpha AXP systems that set the standard for performance. And the kind of
support that comes with a true business partnership."
--Larry Ferguson, President
First Data Corp.
Health Systems Group
How big is 64 bits?
If one bit of information is represented by the smallest printable dot--one
pixel--a square representing 16 bits of information would consist of 65,536
pixels, and would cover an area of about three-quarters of an inch. A square
representing 32 bits would cover an area eighteen by eighteen feet. To
represent 64 bits, 4 billion times larger than 32 bits, an area the size of
Greece, 51,000 square miles, would be required.
16 bits 32 bits 64 bits
.75 square inch 16 square feet 51,000 square miles
Source: Illuminata
[Graphical representation of 16 bits through a square representing .75
inches; graphical representation of 32 bits through a square representing 16
square feet with a figure standing in the lower left corner; graphical
representation of 64 bits through a map of Greece representing 51,000 square
miles.]
<PAGE>
Networks
Opening the Information Superhighway
[Two photographs. Top photograph of a busy highway interchange. Bottom
photograph of a man sitting on a table and a man and a woman standing behind
a table on which rests the DEChub MultiSwitch. The caption relating to both
photographs reads "NETWORKS Opening the Information Superhighway".]
<PAGE>
Networking no longer means making a choice among competing technologies. The
DEChub MultiSwitch--pictured with Gary Vacon, Rich Graham and Cheryl Galvin
of Digital's Network Product Business--provides a technology-independent
backplane. ATM-ready, the DEChub MultiSwitch supports up to 16 Ethernet,
Token Ring and FDDI plug-in modules.
"We have a strategic relationship with Digital because we share a common
goal: To make it easier for computer users and computers to work together.
That's why Digital offers NetWare solutions and has incorporated Novell
NetWare into its PATHWORKS network operating system."
--Bob Frankenberg, Chairman and CEO
Novell, Inc.
The Information Superhighway is not a path from Point A to Point B. It is an
emerging global information utility and commercial trade route that can be
accessed by any computer, anywhere.
Global access is not a concept developed by a government agency, nor is the
Information Superhighway the creation of a giant corporation. In reality, the
Information Superhighway is the network that is evolving from the interlinked
communications systems that span the world.
The Internet--an existing network of 21,000 computer networks in 60 countries
that utilizes existing telecommunications links--is a prototype for the
Information Superhighway, giving businesses and individuals a worldwide
electronic mail network and access to remote databases, computer bulletin
boards and applications.
At the same time, many telecommunications networks are supporting
applications that are opening new markets and creating new business
opportunities--Electronic Data Interchange (EDI), mobile and wireless
communications, multimedia, video-on-demand, on-line transaction processing,
interoffice and intercompany electronic mail, and electronic publishing and
distribution.
Many of these applications are based on open client/server technology. Take
video-on-demand, for example. The set-top system--the box that will sit on
top of your video set--is the client. The computer system that stores and
transmits a digital video image into your home is the server.
Digital is working with U S West, NYNEX and USA Video to provide Alpha AXP
servers to implement video-on-demand so television viewers can see the
program or movie they want, when they want it.
But there's more to the Information Superhighway than the client and server
systems that will use the network. In addition to fiber-optic, coaxial,
wireless and microwave communications, specialized network operating systems,
hubs, bridges, repeaters, routers and high-speed digital switches are needed
to manage traffic and link local and wide area networks together. Then
there's the matter of security, keeping intruders out of your internal
network and protecting confidential and proprietary information.
Digital is providing hardware as well as networking and security software to
both corporate customers and communication service providers. We are working
with Australia's Optus Communications to build operational support systems--
the network operating, billing and administrative systems needed to control
and manage a fully digital, transcontinental telecommunications network.
We're providing Alpha AXP systems and high-speed FDDI switches to Glaxo
Research and Development in Stevenage, England, to support growing network
traffic as they develop, test and market new drugs in both Europe and the
Americas.
And we're working with virtually every one of our networking customers to
help them access, move and manage information both within the enterprise and
across the Information Superhighway so they can gain a competitive advantage.
<PAGE>
Networks
Stops Along the Highway
[Photograph of busy highway interchange]
"Without networking you wouldn't have open computing environments where
computers work together--where you can exchange ideas and data over the
Internet. Digital builds the switches, routers, hubs and adapters around
which customers can build open networks utilizing ATM, FDDI, Ethernet, Token
Ring and other communications technologies."
--Dr. Laurence G. Walker
Vice President
Network Product Business
Digital Equipment Corporation
"The Information Superhighway isn't going to mean much unless you have
secondary roads to support local traffic. Here at Iowa State, we're working
with Digital to build the open, high-speed multivendor network needed to
support the academic and research programs of a large university."
--Dr. George Strawn, Director of the Computation Center
Iowa State University of Science and Technology
Iowa State University: Building a science and research infrastructure around
Alpha AXP systems. The Internet was originally set up to support government
and academic research. It created a "virtual campus" where students and
scientists at one institution could work with their peers, access data and
use computer resources at other institutions around the world.
Iowa State University of Science and Technology has been part of the Internet
since 1985. Today, working with Digital, the University is developing the
local infrastructure needed to support a multivendor computing environment.
Using a Digital FDDI network and DECathena software, Iowa State's network now
includes more than 800 client and 50 server workstations located in 45
buildings across the campus.
Alpha AXP servers are a critical component because the network has to support
projects that involve massive databases. With 64-bit addressing, Iowa State's
Alpha AXP servers can manage databases and perform computations that used to
require mainframes and supercomputers.
<PAGE>
Times Mirror: Linking businesses in a citywide multimedia LAN using an
existing cable TV network. In a unique pilot program, Digital, Times Mirror
Cable Television and Arizona State University joined together to provide an
interactive, multimedia commerce network for companies in the Phoenix area.
Times Mirror Cable Television is providing the infrastructure; Arizona State
University, the demonstration facility and Internet access. Digital Alpha AXP
systems control the network, while a ChannelWorks bridge links existing
computers and LANs together. Digital is also providing the network management
software and services needed to convert the existing cable system into a
two-way interactive, high-speed network to support video, voice and data
applications through-out the metropolitan area.
By creating an open, broadband network, local businesses are able to work
closely together. For example, McDonnell Douglas Helicopter Systems and
Allied Signal Engine Division are now able to work with key local suppliers
to dramatically reduce the time it takes to develop and manufacture new
components.
Times Mirror Cable Television and Digital demonstrated the capabilities of
the Electronic Commerce Network (ECNet) for President Clinton and Vice
President Gore at the White House.
The network supports concurrent computer-aided design programs where
engineers at prime and sub-contractor sites can view and revise engineering
drawings simultaneously. It supports desktop videoconferencing and "white
boarding" so users at different sites see and annotate the same document at
the same time.
The Electronic Commerce Network is typical of the new cable services based on
Digital's ChannelWorks technology that are being built in the Americas,
Europe, Asia and the Pacific Rim.
"While everyone talks about the Information Superhighway, we've built an
on-ramp right here in Phoenix. Local companies are using it to speed product
development and intercompany communications. Large manufacturing companies
and their suppliers are gaining the edge they need to compete in global
markets."
--Larry W. Wangberg
President and Chief Executive Officer
Times Mirror Cable Television and
Chairman, National Cable Television Association
"The really great thing about the Electronic Commerce Network (ECNet) is that
we didn't have to invent whole new technologies to make it work, rather we
integrated well-developed technologies to support new applications so local
businesses could work closely together."
--Darel Eschbach, Executive Director
Telecommunications Services
Arizona State University
<PAGE>
Services
Supporting Open Client/Server Environments
[Two photographs: Top photograph of several clocks each showing time in a
different time zone. Bottom photograph of two men sitting on chairs and
holding clipboards and one woman standing. The caption relating to both
photographs reads "SERVICES Suporting Open/Server Environments".]
<PAGE>
A portfolio of services--Services account for nearly 50 percent of Digital's
business. Digital professionals like Art Bolton, Yvonne Wong, and Randy
Stotler provide systems and network integration services and support
customers with multivendor computing environments in thousands of customer
installations worldwide.
"Client/server environments are, by their very nature, multivendor. Because
of our networking leadership and extensive experience supporting multivendor
environments, Digital is uniquely qualified to be a leader in supporting
customers and their IT investments, today, and as they evolve to
client/server computing."
--John Rando, Vice President
Multivendor Customer Services
Digital Equipment Corporation
Practically every computer company sells hardware or software for network and
client/server environments. Most only support the equipment they sell.
Digital is different. We provide the most comprehensive portfolio of systems
and network integration and multivendor customer services in the industry.
We will take complete responsibility for major projects, from initial
feasibility studies all the way through implementation and management.
This requires more than just an understanding of technology. Implementing a
new system changes the way people work. That's why--in addition to providing
multivendor systems and network integration--we work closely and have
strategic alliances with independent consultants so together we can address
the business as well as the technical issues facing our customers.
And, as more and more customers adopt client/server solutions and build
enterprise-wide networks, gaps in service coverage and service quality
inevitably occur. Digital is filling these gaps. We provide multivendor
services, technical systems and network integration services, and customer
training in more than 100 countries to support both local and worldwide
enterprises.
Today, we are the only service provider prepared to take ownership of all the
support issues found in multivendor environments. We run help desks and train
users. We pull wire and install hardware and software upgrades. And we
provide a full range of system management services including asset management
and remote and on-site performance analysis and tuning. As testimony to our
open client/server support capabilities, Digital won InfoWorld magazine's
1994 award for best client/server technical support.
Digital supports hardware and software from IBM, Hewlett-Packard, Olivetti,
Apple, Compaq, Sun, Microsoft, WordPerfect, Oracle, NeXT and other companies.
In many cases, hardware and software companies rely on Digital to support
their products. For example, Digital has formal alliances with Dell,
Microsoft, Novell, National Semiconductor, British Telecom (BT) and other
computer, component and telecommunications companies to support their
customers in key markets around the world.
Professional and multivendor customer services represent a $6-billion-a-year
business for Digital with systems and network integration accounting for more
than one-third of the total. Today, Digital is one of the four largest
systems integration companies in the world and is ranked second by both
International Data Corporation and Computer Reseller News magazine.
Offering both systems integration and multivendor customer services, Digital
has all the resources needed to help customers plan, design, implement,
manage, maintain and support open client/server environments around the
world.
<PAGE>
Services
Supporting the Customer 24 Hours a Day
[Photograph of several clocks each showing time in a different time
zone]
"Our customers are looking for a business partner. They want to deal with a
computer company that can provide systems and network integration and
multivendor services. A company that can help them apply technology in ways
that enhance productivity and protect current and future investments."
--Enrico Pesatori, Vice President and General Manager
Computer Systems Division
Digital Equipment Corporation
"Having a service partner who can handle everything from chip swaps to fixing
laser printers is essential to keeping the Society's business running
smoothly on any given day."
--Robert Jackson
Information Technology General Manager
Yorkshire Building Society
Yorkshire Building Society: Bringing operational simplicity to a multivendor
network. The Yorkshire Building Society, with 136 branches throughout the
United Kingdom, faced a problem that is shared by many customers with
multivendor computing environments: Whom do you call when you have a problem?
In all too many cases, the source of a problem is not easily identified. Is
it a hardware or a software problem? Is it a problem with the local computer,
with the local area network, or with a laser printer or networked file
server? It's a problem that's compounded when you have equipment from IBM,
Hewlett-Packard, Philips, Olivetti, Dell and other computer manufacturers
running software created by dozens of different companies.
Yorkshire Building Society found the simple answer: Call Digital. We provide
the multivendor customer services that they need to keep everything running,
in every office.
Having a single service organization provides operational simplicity while
reducing costs and eliminating the delays that often occur when it's not
clear who owns a particular problem.
And when many customer branches lack on-site expertise, it is particularly
important that they be able to work with someone they know and trust.
<PAGE>
Tokyo Digital Phone:
Building the business support system for a new cellular network
In April 1992, Digital was called in by Tokyo Digital Phone (TDP) and its
partners in the DPG (Digital Phone Group)--CDP (Central DP) and KDP (Kansai
DP)--to build a business support system costing approximately 3 billion yen
($29 million) for a new cellular telephone company entering the highly
competitive Tokyo/Nagoya/Osaka market.
In April 1994, when the new network went into operation, the business support
system was up and running.
BACUSS--the Billing and Accounting Customer Support System--is a multivendor,
client/server system that interfaces directly with DPG's switching system to
handle leads, customer orders, customer care, inventory, billing, and account
and agent management.
TDP and Digital recognized that client/server computing would provide a
competitive advantage because it is scalable and allows the cost-efficient
distribution of computing resources while making information readily
available where and as needed.
DPG plans to license BACUSS to other cellular telephone companies looking for
a complete customer support system.
In addition to undertaking major systems integration projects like BACUSS,
Digital provides strategic and operations management services to help its
clients move to and function effectively within client/server environments.
"We see Digital as a true business partner rather than just a company we
contracted with for specific products and services. And having a close
relationship with the people you do business with is the key to staying
on-schedule and on-budget."
--Yosai Hayashi, Managing Director
Tokyo Digital Phone Co., Ltd.
Rate of growth 1994
Digital is a leading provider of multivendor customer services.
Multivendor Support Desktop Support PC Integration
30% 30% 50%
Source: Deloitte & Touche LLP
[Bar chart is superimposed over a map of the world]
<PAGE>
Teamwork
Digital's Culture and Values
[Photograph of front cover of Digital's 1994 Environmental Health & Safety
Annual Report, showing the globe and captioned Earth Vision]
As individuals and as a company, we have a tradition of achievement in
protecting the environment and in ensuring the health and safety of our
fellow employees. If you'd like a copy of our Environmental, Health and
Safety Annual Report, write to:
Digital Equipment Corporation
Environmental, Health and Safety
111 Powdermill Road
(MSO2-3/B16)
Maynard, Massachusetts
01754-1418
"Technology alone does not guarantee success. The challenge is to apply
technology to the problems facing the customer and the community. As a
company, and as individuals, we welcome that challenge."
--Robert B. Palmer, President and Chief Executive Officer
Digital Equipment Corporation
Throughout this annual report, we have focused on the importance of teamwork.
Open client/server computing is not something that we implement by ourselves;
it is a concept that can be implemented only in partnership with others.
Teamwork is based on trust. That means being honest in dealing with our
customers and business partners as well as with each other. It means respect
for the individual. It means that we are accountable--as individuals and as a
company--for meeting our commitments to our customers and business partners.
These core values create an environment that encourages innovation and
involvement. Digital is recognized as a leader in the development of managed
healthcare programs for its employees. And Digital was one of the first
companies in the country to establish an HIV/AIDS program office to educate
its employees.
We recognize our responsibility for the environment. We eliminated CFCs and
other ozone-depleting substances from our products, processes and services.
We introduced energy-efficient PCs. And we integrated environmental
compatibility features into our new video terminals and have a program to
extend environmental compatibility to other products, media, documentation
and packaging.
These are not isolated activities. In every country where we do business, we
try to make a difference. Digital employees volunteer their time and skills
to schools, hospitals and other community organizations. At the same time,
the company has a formal Corporate Contributions Program as well as an
External Research Program that supports projects at 125 colleges and
universities around the world.
We believe that computer technology can help make this a better world, and
that as individuals and as a company we have a contribution to make.
<PAGE>
Financial Statements
Eleven-Year Financial Summary 26
Management's Discussion and Analysis of
Results of Operations and Financial Condition 28
Report of Management 34
Report of Independent Accountants 35
Consolidated Statements of Operations 36
Consolidated Balance Sheets 37
Consolidated Statements of Cash Flows 38
Consolidated Statements of Stockholders' Equity 39
Notes to Consolidated Financial Statements
Note A - Significant Accounting Policies 40
Note B - Geographic Operations 41
Note C - Income Taxes 43
Note D - Capitalized Computer
Software Development Costs 44
Note E - Restructuring Actions 45
Note F - Debt 46
Note G - Postretirement and Other
Postemployment Benefits 46
Note H - Commitments and Contingencies 49
Note I - Other Financial Instruments 50
Note J - Investing Activities 50
Note K - Stock Plans 51
Note L - Stockholders' Equity 52
Note M - Subsequent Event 53
Supplementary Information
Quarterly Financial Data 54
Stock Information 54
Officers and Management 55
Directors 56
Committees of the Board 57
Corporate Consulting Engineers 57
Headquarters 58
Investor Information 59
Customer Inquiries 60
<PAGE>
<TABLE>
<CAPTION>
Eleven-Year Financial Summary
(dollars in millions except per share data
and stock prices) 1994 1993 1992 1991
________________________________________________________________________________________________
<S> <C> <C> <C> <C>
Revenues
Product sales $ 7,191 $ 7,588 $ 7,696 $ 8,299
Service and other revenues 6,260 6,783 6,235 5,612
______________________________________
Total operating revenues 13,451 14,371 13,931 13,911
______________________________________
Costs and Expenses
Cost of product sales, service and other revenues 8,912 8,631 8,132 7,278
Research and engineering expenses 1,301 1,530 1,754 1,649
Selling, general and administrative expenses 1 5,234 4,447 6,181 5,572
______________________________________
Operating income/(loss) (1,996) (237) (2,136) (588)
______________________________________
Net interest income/(expense) (24) 13 57 68
______________________________________
Income/(loss) before income taxes and cumulative
effect of change in accounting principle (2,020) (224) (2,078) (520)
______________________________________
Provision for income taxes 85 27 232 97
______________________________________
Net income/(loss)2 $(2,156) $ (251) $(2,796) $ (617)
_______________________________________
Net income/(loss) applicable per common share 2,3,4 $(15.80) $ (1.93) $(22.39) $ (5.08)
_______________________________________
Weighted average shares outstanding (in millions) 137 130 125 122
_______________________________________
Financial Position
Inventories $ 2,064 $ 1,755 $ 1,614 $ 1,595
Accounts receivable, net of allowance $ 3,319 $ 3,020 $ 3,594 $ 3,317
Net property, plant and equipment $ 3,129 $ 3,178 $ 3,570 $ 3,778
Total assets $10,580 $10,950 $11,284 $11,875
Long-term debt $ 1,011 $ 1,018 $ 42 $ 150
Stockholders' equity $ 3,280 $ 4,885 $ 4,931 $ 7,624
Stockholders' equity per common share 3 $ 20.24 $ 36.19 $ 38.58 $ 61.18
General Information and Ratios
Current ratio 1.4:1 1.8:1 1.4:1 2.0:1
Quick ratio .9:1 1.2:1 1.0:1 1.4:1
Working capital $ 1,832 $ 2,964 $ 2,015 $ 3,777
Investments in property, plant and equipment $ 682 $ 529 $ 710 $ 738
Depreciation $ 574 $ 699 $ 733 $ 772
Total debt as a percentage of total debt plus equity 24.1% 17.5% 1.8% 2.2%
Operating income/(loss) as a percentage of revenues (14.8)% (1.7)% (15.3)% (4.2)%
Income/(loss) before income taxes as a
percentage of revenues (15.0)% (1.6)% (14.9)% (3.7)%
Effective tax rate 4.2% 12.0% 11.2% 18.8%
Net income/(loss) as a percentage of revenues (16.0)% (1.7)% (20.1)% (4.4)%
Net income/(loss) as a percentage of average
stockholders' equity (52.8)% (5.1)% (44.5)% (7.8)%
Net income/(loss) as a percentage of average
total assets (20.0)% (2.3)% (24.1)% (5.2)%
Number of days sales of accounts receivable
outstanding 76 69 83 76
Inventory turns 4.7 5.1 5.1 4.6
Number of employees at year-end--regular 77,800 89,900 107,900 115,100
Number of employees at year-end--other 5,000 4,300 5,900 5,900
Common stockholders at year-end 77,722 86,611 99,644 98,023
Common stock yearly high and low sales prices $ 43-18 $ 49-30 $ 72-33 $ 87-45
______________________________________________________________________________________________
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Eleven-Year Financial Summary (cont.)
(dollars in millions except per share data
and stock prices) 1990 1989 1988 1987
_______________________________________________________________________________________________
<S> <C> <C> <C> <C>
Revenues
Product sales $ 8,146 $ 8,190 $ 7,541 $ 6,254
Service and other revenues 4,797 4,552 3,934 3,135
_______________________________________
Total operating revenues 12,943 12,742 11,475 9,389
_______________________________________
Costs and Expenses
Cost of product sales, service and other revenues 6,795 6,242 5,468 4,514
Research and engineering expenses 1,614 1,525 1,306 1,010
Selling, general and administrative expenses 1 4,521 3,639 3,066 2,253
_______________________________________
Operating income/(loss) 13 1,336 1,635 1,612
_______________________________________
Net interest income/(expense) 111 85 106 77
_______________________________________
Income/(loss) before income taxes and cumulative
effect of change in accounting principle 124 1,421 1,741 1,689
_______________________________________
Provision for income taxes 50 348 435 552
_______________________________________
Net income/(loss)2 $ 74 $ 1,073 $ 1,306 $ 1,137
_______________________________________
Net income/(loss) applicable per common share 2,3,4 $ .59 $ 8.45 $ 9.90 $ 8.53
_______________________________________
Weighted average shares outstanding (in millions) 125 127 132 133
_______________________________________
Financial Position
Inventories $ 1,538 $ 1,638 $ 1,575 $ 1,453
Accounts receivable, net of allowance $ 3,207 $ 2,965 $ 2,592 $ 2,312
Net property, plant and equipment $ 3,868 $ 3,646 $ 3,095 $ 2,127
Total assets $ 11,655 $ 10,668 $ 10,112 $ 8,407
Long-term debt $ 150 $ 136 $ 124 $ 269
Stockholders' equity $ 8,182 $ 8,036 $ 7,510 $ 6,294
Stockholders' equity per common share 3 $ 66.76 $ 66.12 $ 59.47 $ 49.87
General Information and Ratios
Current ratio 2.3:1 2.9:1 2.9:1 3.4:1
Quick ratio 1.6:1 1.9:1 2.0:1 2.4:1
Working capital $ 4,332 $ 4,501 $ 4,516 $ 4,377
Investments in property, plant and equipment $ 1,028 $ 1,223 $ 1,518 $ 748
Depreciation $ 759 $ 659 $ 516 $ 435
Total debt as a percentage of total debt plus equity 2.0% 2.0% 3.6% 4.2%
Operating income/(loss) as a percentage of revenues .1% 10.5% 14.2% 17.2%
Income/(loss) before income taxes as a percentage
of revenues 1.0% 11.2% 15.2% 18.0%
Effective tax rate 40.0% 24.5% 25.0% 32.7%
Net income/(loss) as a percentage of revenues .6% 8.4% 11.4% 12.1%
Net income/(loss) as a percentage of average
stockholders' equity .9% 13.8% 18.9% 18.9%
Net income/(loss) as a percentage of average
total assets .7% 10.3% 14.1% 14.6%
Number of days sales of accounts receivable outstanding 86 76 75 78
Inventory turns 4.3 3.9 3.6 3.4
Number of employees at year-end--regular 116,900 118,400 113,900 103,000
Number of employees at year-end--other 7,100 7,400 7,600 7,500
Common stockholders at year-end 92,934 99,084 103,162 99,379
Common stock yearly high and low sales prices $103-70 $122-86 $199-99 $174-82
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Eleven-Year Financial Summary (cont.)
(dollars in millions except per share data
and stock prices) 1986 1985 1984
_____________________________________________________________________________________
<S> <C> <C> <C>
Revenues
Product sales $ 5,103 $ 4,530 $ 3,804
Service and other revenues 2,487 2,156 1,780
____________________________
Total operating revenues 7,590 6,686 5,584
____________________________
Costs and Expenses
Cost of product sales, service and other revenues 4,282 4,087 3,379
Research and engineering expenses 814 717 631
Selling, general and administrative expenses 1 1,665 1,432 1,179
____________________________
Operating income/(loss) 829 450 395
____________________________
Net interest income/(expense) 28 (19) 6
____________________________
Income/(loss) before income taxes and cumulative
effect of change in accounting principle 857 431 401
____________________________
Provision for income taxes 240 (16)5 72
____________________________
Net income/(loss)2 $ 617 $ 447 $ 329
____________________________
Net income/(loss) applicable per common share 2,3,4 $ 4.81 $ 3.71 $ 2.87
____________________________
Weighted average shares outstanding (in millions) 131 124 115
____________________________
Financial Position
Inventories $ 1,200 $ 1,756 $ 1,852
Accounts receivable, net of allowance $ 1,903 $ 1,539 $ 1,527
Net property, plant and equipment $ 1,867 $ 1,731 $ 1,511
Total assets $ 7,173 $ 6,369 $ 5,593
Long-term debt $ 333 $ 837 $ 441
Stockholders' equity $ 5,728 $ 4,555 $ 3,979
Stockholders' equity per common share 3 $ 44.54 $ 38.43 $ 34.42
General Information and Ratios
Current ratio 4.9:1 4.9:1 3.8:1
Quick ratio 3.5:1 2.8:1 1.9:1
Working capital $ 4,223 $ 3,694 $ 3,001
Investments in property, plant and equipment $ 564 $ 572 $ 452
Depreciation $ 384 $ 315 $ 253
Total debt as a percentage of total debt plus equity 5.9% 15.7% 10.3%
Operating income/(loss) as a percentage of revenues 10.9% 6.7% 7.1%
Income/(loss) before income taxes as a percentage
of revenues 11.3% 6.4% 7.2%
Effective tax rate 28.0% (3.7)%5 18.0%
Net income/(loss) as a percentage of revenues 8.1% 6.7% 5.9%
Net income/(loss) as a percentage of average
stockholders' equity 12.0% 10.5% 8.7%
Net income/(loss) as a percentage of average
total assets 9.1% 7.5% 6.5%
Number of days sales of accounts receivable outstanding 79 75 83
Inventory turns 2.9 2.3 2.1
Number of employees at year-end--regular 88,300 83,000 79,800
Number of employees at year-end--other 6,400 6,000 5,800
Common stockholders at year-end 76,860 68,810 44,389
Common stock yearly high and low sales prices $ 94-46 $ 63-39 $ 61-33
_____________________________________________________________________________________
<FN>
1 Includes restructuring charges of $1,206M in 1994, $1,500M in 1992, $1,100M
in 1991 and $550M in 1990. Includes reduction in carrying value of
intangible assets of $310M in 1994.
2 In fiscal year 1994, net loss and net loss per share include a one-time
charge of $71M, or $.51 per share, and a one-time benefit of $20M, or
$.14 per share, for the cumulative effect of changes in accounting
principles. In fiscal year 1992, net loss and net loss per share include
the cumulative effect of change in accounting principle of $485M and $3.89,
respectively.
3 Per share data adjusted to reflect two-for-one stock split in May 1986.
4 See Note A of Notes to Consolidated Financial Statements.
5 Includes elimination of DISC taxes of $63M accrued prior to 1984.
</TABLE>
<PAGE>
<TABLE>
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Income and Expense Items as a
Percentage of Total Operating Revenues (a) Percentage Changes
<CAPTION>
___________________________________________________________________________________________________
1992 1993 1994 Income and Expense Items 1993-94 1992-93 1991-92
___________________________________________________________________________________________________
<S><C> <C> <C> <C> <C> <C> <C>
55.2% 52.8% 53.5% Product sales (5)% (1)% (7)%
44.8% 47.2% 46.5% Service and other revenues (8)% 9% 11%
___________________________________________________________________________________________________
100.0% 100.0% 100.0% Total operating revenues (6)% 3% -
___________________________________________________________________________________________________
55.2% 58.8% 69.1% Cost of product sales (b) 11% 5% 9%
62.3% 61.4% 63.0% Service expense and cost of other revenues (b) (5)% 7% 15%
___________________________________________________________________________________________________
58.4% 60.1% 66.3% Total cost of operating revenues 3% 6% 12%
12.6% 10.6% 9.7% Research and engineering expenses (15)% (13)% 6%
33.6% 30.9% 29.9% Selling, general and administrative expenses (9)% (5)% 5%
10.8% - 9.0% Restructuring charges NM (100)% 36%
___________________________________________________________________________________________________
(15.3)% (1.7)% (14.8)% Operating loss 100+% (89)% 100+%
___________________________________________________________________________________________________
0.7% .4% .3% Interest income (23)% (34)% (15)%
0.3% .4% .5% Interest expense 44% 32% (14)%
__________________________________________________________________________________________________
Loss before income taxes and cumulative
(14.9)% (1.6)% (15.0)% effect of change in accounting principle 100+% (89)% 100+%
___________________________________________________________________________________________________
1.7% .2% .6% Provision for income taxes 100+% (88)% 100+%
___________________________________________________________________________________________________
Loss before cumulative effect of change
(16.6)% (1.7)% (15.6)% in accounting principle 100+% (89)% 100+%
___________________________________________________________________________________________________
Cumulative effect of change in accounting
3.5% - .4% principle, net of tax benefits NM (100)% -
___________________________________________________________________________________________________
(20.1)% (1.7)% (16.0)% Net loss 100+% (91)% 100+%
___________________________________________________________________________________________________
<FN>
Note (a) Percentages of operating revenues may not be additive due to rounding.
Note (b) Cost of product sales and service expense and cost of other revenues
are shown as percentages of their related revenues.
NM - Not meaningful.
</TABLE>
<PAGE>
Revenues
In fiscal 1994, total operating revenues, which were $13.5 billion, declined
by $921 million or 6%, following an increase of $440 million or 3% in fiscal
1993 and an increase of $20 million, or less than 1% in fiscal 1992.
Non-U.S. revenues accounted for 62% of total operating revenues in fiscal
1994, down from 64% in fiscal 1993 and 63% in fiscal 1992. European revenues
declined to $5.9 billion in fiscal 1994, down from $7 billion and $6.8
billion in fiscal 1993 and 1992, respectively. The decline in fiscal 1994
European revenues was due principally to weak demand for the Corporation's
products and services in that region, exacerbated by the difficulties
associated with the Digital-Kienzle business acquired in 1991 (see Note J)
and negative effects of foreign currency fluctuations, discussed below.
Product sales for fiscal 1994 were $7.2 billion, or 53% of total operating
revenues, compared with $7.6 billion, or 53% of revenues, and $7.7 billion,
or 55% of revenues in fiscal 1993 and 1992, respectively. While the
Corporation shipped substantially more computer systems in fiscal 1994 than
in the previous fiscal year, product sales for fiscal 1994 declined compared
with the prior two years, due principally to a continued shift in the mix of
product sales toward low-end, lower-priced computer systems and away from the
Corporation's proprietary mid-range products.
In fiscal 1994, the Corporation experienced substantial growth in demand for
Alpha AXP-based systems, particularly workstations, and for Intel-based
personal computer products, as well as certain storage and component
products. Alpha AXP systems revenue represented approximately 13% of fiscal
1994 product sales, up from 3% for fiscal 1993. Revenues from the sale of
Intel-based personal computers represented 19% of fiscal 1994 product sales,
up from 9% for fiscal 1993. VAX systems revenues declined from 34% of product
sales in fiscal 1993 to 19% in fiscal 1994, as the Corporation is in the
midst of a major product transition. In the fourth quarter of fiscal 1994,
revenues from the sale of Alpha AXP systems exceeded revenues from the sale
of VAX systems for the first time.
In fiscal 1994, service and other revenues totaled $6.3 billion, or 47% of
total operating revenues, compared with $6.8 billion, or 47% of total
operating revenues, and $6.2 billion, or 45% of total operating revenues, for
fiscal 1993 and 1992, respectively. Service revenues declined by $524 million
or 8% in fiscal 1994, following increases of 9% and 11% in fiscal 1993 and
1992, respectively.
The decline in service revenues for fiscal 1994 was due to several factors,
including lower levels of revenue from the Corporation's VAX systems
maintenance business, greater reliability of and lower maintenance revenue
associated with the Corporation's newer, lower-priced products, and increased
competition in the maintenance business. In addition, revenues from systems
integration and consulting services were essentially unchanged from fiscal
1993, as the Corporation became more selective in pursuing systems
integration and other consulting opportunities. Service revenue associated
with the maintenance of other vendors' products grew in fiscal 1994,
partially offsetting the declines noted above. The Corporation expects the
market trends affecting service revenues from maintenance of VAX systems to
continue over the next year.
Movements in currency exchange rates are one of many competitive, industry
and economic factors which affect the Corporation's operating results. The
Corporation does business in more than 100 countries in major and emerging
markets. Revenues and costs in non-U.S. operations, including certain product
costs, are denominated in applicable local currencies. While the effects of
foreign currency translation for a fiscal period are included in applicable
revenue and expense categories, they are difficult to quantify precisely
because the Corporation responds to movements in currency exchange rates
through pricing, expense, sourcing or other management actions, as market
conditions permit. During fiscal 1994 and prior periods, the Corporation
entered into foreign exchange contracts covering most of its net monetary
assets, liabilities and firm commitments, with maturities which generally did
not exceed six months, to increase the predictability of the rate at which
non-U.S. revenues were translated into U.S. dollars. During fiscal 1994, the
net effect of foreign currency translation and gains and losses on foreign
exchange contracts was negative compared with fiscal 1993, whereas the net
effect in fiscal 1993 compared with fiscal 1992 was positive. (See Notes A
and I.)
Total Operating Revenues
Year $ Millions
____________________________________________________________________
94 ********************************************* 13451
+++++++++++++++++++++ 6260
93 ************************************************** 14371
+++++++++++++++++++++++ 6783
92 ************************************************ 13931
++++++++++++++++++++ 6235
91 *********************************************** 13911
++++++++++++++++ 5612
90 ****************************************** 12943
+++++++++++++ 4797
89 **************************************** 12742
+++++++++++ 4552
88 *********************************** 11475
++++++++++ 3934
87 ***************************** 9389
++++++++ 3135
86 ************************* 7590
++++++ 2487
85 ********************* 6686
+++++ 2156
84 *************** 5584
++++ 1780
____________________________________________________________________
++++ Service and Other Revenues
**** Total Operating Revenues
Non-United States Revenues
Year $ Millions
____________________________________________________________________
94 *********************************************** 8300
93 ***************************************************** 9164
92 ************************************************** 8799
91 ************************************************ 8380
90 ******************************************* 7281
89 **************************************** 7017
88 ********************************* 5730
87 ****************************** 4413
86 ************************* 3179
85 ********************* 2642
84 ****************** 1978
____________________________________________________________________
<PAGE>
Expenses and Profit Margins
The Corporation's total gross margin for fiscal 1994 was 34% of total
operating revenues, compared with 40% of total operating revenues in fiscal
1993 and 42% of total operating revenues in fiscal 1992.
The Corporation's gross margin on fiscal 1994 product sales was 31% of
product sales, compared with 41% of product sales and 45% of product sales
for fiscal 1993 and 1992, respectively. The decline in product gross margin
was due to several factors, including pricing, a continued shift in the
Corporation's mix of product sales toward low-end systems, which typically
carry lower margins, and a business model shift toward greater use of
indirect channels of distribution.
Recognizing these competitive conditions and the need to lower manufacturing
costs, the Corporation closed several manufacturing plants in fiscal 1994,
and recently announced the closure of three more plants in fiscal 1995. The
Corporation has implemented and will continue to refine organizational
changes intended to increase accountability in order to improve profitability
and facilitate the design and manufacture of products for volume markets.
Gross margin on service revenues for fiscal 1994 was 37% of service revenues,
compared with 39% of service revenues and 38% of service revenues in fiscal
1993 and 1992, respectively. The two percentage point decline in service
gross margin was due to a decline in revenue from the Corporation's
higher-margin systems maintenance business, as described above.
Research and engineering (R&E) spending for fiscal 1994 totaled $1.3 billion
(10% of total operating revenues), compared with $1.5 billion (11% of total
operating revenues) in fiscal 1993 and $1.8 billion (13% of total operating
revenues) in fiscal 1992. The decrease in R&E expenses was due to several
factors, including ongoing actions to eliminate redundant engineering efforts
and streamline product offerings, which resulted in a reduction in employee
population. The Corporation's R&E investment program is focused on
maintaining a strong, consistently market-driven product set and on attaining
and sustaining technology leadership in selected areas.
Fiscal 1994 selling, general and administrative (SG&A) expenses were $4.0
billion (30% of total operating revenues) compared with $4.4 billion (31% of
total operating revenues) and $4.7 billion (34% of total operating revenues)
for fiscal 1993 and 1992, respectively. Included in SG&A expenses for fiscal
1994 were $310 million of non-cash write-offs and write-downs associated with
intangible assets. (See Note J.) The decrease in SG&A expenses in fiscal 1994
was due principally to reductions in employee population, as well as
reductions in other overhead costs.
Research and Engineering
Year $ Millions
___________________________________________________________________
94 *************************************** 1301
93 ********************************************** 1530
92 ****************************************************** 1754
91 *************************************************** 1649
90 ************************************************* 1614
89 ********************************************** 1525
88 **************************************** 1306
87 ******************************** 1010
86 ************************** 814
85 *********************** 717
84 ********************* 631
___________________________________________________________________
Regular Employee Population
Year Thousands
___________________________________________________________________
94 ************************* 78
93 *********************************** 90
92 ****************************************** 108
91 ********************************************** 115
90 *********************************************** 117
89 ************************************************ 118
88 ********************************************** 114
87 **************************************** 103
86 ********************************* 88
85 ****************************** 83
84 **************************** 80
___________________________________________________________________
While expenses continue to decline, the Corporation's cost structure is still
too high for the level and mix of total operating revenues. As a result, at
the end of fiscal 1994 the Corporation approved additional restructuring
actions.
In the fourth quarter of fiscal 1994,the Corporation accrued restructuring
costs of $1.2 billion to cover actions taken in the fourth quarter and
planned actions for fiscal 1995 and 1996. Approximately $679 million of this
charge was to cover the cost of employee separations to be completed by the
end of fiscal 1995. The remaining $527 million was for facility closures and
related costs. The cost of employee separations includes termination benefits
for approximately 20,000 employees. A portion of these employee separations
occurred near the end of the fourth quarter of fiscal 1994 and the remainder
will occur by the end of fiscal 1995. These employees are located principally
in the United States and Europe.
Planned restructuring actions for fiscal 1995 include employee separations
across most organizations and functions, with approximately 40% to come from
sales and marketing, as the Corporation sells more products and services
through indirect channels of distribution. The planned facility closures
cover 10 million square feet of office and manufacturing space, principally
in the United States and Europe. Cash expenditures associated with these
restructuring actions are expected to be approximately $580 million in the
first half of fiscal 1995, $420 million for the remainder of fiscal 1995 and
$240 million related to facility closures beyond fiscal 1995. These actions
do not include workforce or facility reductions that may result from
divestments.
See Note E for a description of the Corporation's restructuring actions and
related costs.
As a result of actions associated with restructuring charges to operations in
fiscal 1992, 1991 and 1990, the Corporation has eliminated an estimated $2.8
billion of annualized operating expenses, including approximately $2.5
billion of annual cash expense related to workforce reductions and
approximately $335 million related to facility operating costs. When
completed, the actions associated with the restructuring charge in fiscal
1994 are expected to result in the elimination of additional annualized
operating expenses of approximately $1.8 billion, including $1.5 billion of
cash expense.
Total employee population decreased by 11,400 during fiscal 1994. The
Corporation had approximately 77,800, 89,900 and 107,900 regular employees at
the end of fiscal 1994, 1993 and 1992, respectively, and an additional 5,000,
4,300 and 5,900 temporary and contract workers at the end of fiscal 1994,
1993 and 1992, respectively.
Interest income in fiscal 1994 decreased to $49 million from $64 million in
fiscal 1993 and $96 million in fiscal 1992, reflecting lower interest rates
and lower average cash balances. Interest expense increased to $73 million
from $51 million in fiscal 1993 and $39 million in fiscal 1992. The increase
in fiscal 1994 interest expense was due principally to the full year's
interest expense on $1 billion of long-term debt issued during fiscal 1993.
Interest expense for fiscal 1994 included the differential received on
interest rate swap agreements entered into in the first quarter of fiscal
1994, relating to $750 million of long-term debt.
In fiscal 1994, the Corporation's income tax expense was $85 million on a
pre-tax loss of $2.0 billion. (See Note C.) In fiscal 1993, the
Corporation's income tax expense was $27 million on a pre-tax loss of $224
million. Income tax expense reflects several factors, including income taxes
provided for profitable non-U.S. operations and an inability to recognize
currently U.S. and certain non-U.S. tax benefits from operating losses. In
addition, fiscal 1994 income tax expense includes a $70 million reduction in
net deferred tax assets associated with non-U.S. operations.
The Corporation adopted Statement of Financial Accounting Standards (SFAS)
No. 109 - Accounting for Income Taxes, effective July 4, 1993. The Corporation
had previously accounted for income taxes under Accounting Principles Board
Opinion No. 11. In the first quarter of fiscal year 1994, the Corporation
recorded a one-time benefit of $20 million, or $.14 per share, for the
recognition of previously unrecognized tax benefits. There is no cash flow
impact from the adoption of SFAS No. 109. The standard was adopted on a
prospective basis and amounts presented for prior years were not restated.
(See Note C.)
In the fourth quarter of fiscal 1994, the Corporation adopted SFAS No. 112 -
Employers' Accounting for Postemployment Benefits, effective as of the
beginning of the fiscal year. SFAS No. 112 requires accrual accounting of
benefits provided to former or inactive employees after employment but before
retirement. These benefits include, but are not limited to, salary
continuation, supplemental unemployment benefits, severance benefits,
disability-related benefits, and continuation of benefits such as health care
benefits and life insurance coverage. The cumulative effect of adopting this
standard resulted in a one-time charge to income of $71 million (the
"transition obligation"), or $.51 per common share. This transition
obligation represents principally the cost of providing medical, dental and
life insurance benefits to individuals in the U.S. currently on long-term
disability during the estimated remaining period in which they will receive
disability benefits. The annual expense under the new standard, exclusive of
the transition obligation, is not significantly different than the annual
expense under the Corporation's former practice. There is no cash flow impact
from the adoption of SFAS No. 112. The first quarter of fiscal 1994 has been
restated to reflect the change in accounting principle. (See Supplementary
Information, Quarterly Financial Data.) Prior years' consolidated financial
statements have not been restated to reflect the adoption of SFAS No. 112.
In November 1992, the Financial Accounting Standards Board issued SFAS No.
115 - Accounting for Certain Investments in Debt and Equity Securities. SFAS
No. 115 expands the use of fair value accounting for certain debt and equity
securities. The Corporation will adopt SFAS No. 115 in the first quarter of
fiscal 1995. At the end of fiscal 1994, the Corporation had unrecognized
gains on long-term investments of approximately $65 million that would be
subject to SFAS No. 115 treatment.
<PAGE>
Availability of Funds to Support Current and Future Operations and Spending
for Operations
Cash and cash equivalents totaled $1.2 billion, $1.6 billion and $1.3 billion
at the end of fiscal 1994, 1993 and 1992, respectively.
Net cash used by operating activities was $375 million in fiscal 1994,
compared with net cash generated of $47 million and $431 million in fiscal
1993 and 1992, respectively. The $375 million net use of cash from operating
activities in fiscal 1994 was due principally to restructuring activities,
the net loss for the year and increased inventory levels in support of
increased demand for Alpha AXP, personal computer and certain storage
products. Net cash generated by operating activities in fiscal 1993 was
principally the result of improved accounts receivable, offset by
expenditures for restructuring activities, the net loss for the year and
decreased accounts payable.
Net cash used for investing activities was $626 million, $884 million and
$981 million in fiscal 1994, 1993 and 1992, respectively. Capital
expenditures totaled $682 million in fiscal 1994, compared with $529 million
and $710 million in fiscal 1993 and 1992, respectively. Capital expenditures
in fiscal 1994 included $206 million toward the construction of and purchase
of equipment for a new semiconductor fabrication facility in Hudson,
Massachusetts. This project has a currently estimated total cost of $425
million. Approximately $54 million of the remaining $91 million of unexpended
costs on the Hudson project is expected to be spent in fiscal 1995. The
Corporation expects total capital expenditures in fiscal 1995 to be less than
$500 million.
The Corporation disposed of property, plant and equipment and other assets in
fiscal 1994, generating approximately $121 million in cash proceeds, compared
with $68 million and $15 million in fiscal 1993 and 1992, respectively,
principally as a result of restructuring activities. Subsequent to the end of
the fiscal year, the Corporation and Quantum Corporation ("Quantum") signed
an agreement providing for Quantum's purchase of a portion of the
Corporation's storage business for $400 million. (See Note M.) The
Corporation also sold its shares of the common stock of Ing. Olivetti & C.
S.p.A. subsequent to the end of fiscal 1994 for approximately $148 million in
cash. (See Note J.)
Net cash generated from financing activities was $538 million and $1.1
billion in fiscal 1994 and 1993, respectively, and net cash used was $36
million in fiscal 1992. The principal financing activity in fiscal 1994 was
the issuance and sale of preferred stock, as discussed below, generating net
proceeds of $387 million. The Corporation also received $150 million during
fiscal 1994 from the issuance of common stock under the Corporation's stock
plans, compared with $196 million and $232 million in fiscal 1993 and 1992,
respectively.
On January 21, 1994, the Corporation filed with the Securities and Exchange
Commission a shelf registration statement on Form S-3 under the Securities
Act of 1933, as amended, covering the registration of debt securities,
preferred stock, depositary shares, and warrants to purchase equity and debt
securities, in an aggregate amount of $1.0 billion. In March 1994, the
Corporation issued and sold 16,000,000 Depositary Shares under the shelf
registration statement, each representing a one-fourth interest in a share of
the Corporation's Series A 8 7/8% Cumulative Preferred Stock (the "Series A
Preferred Stock"), par value $1.00 per share. Dividends on the Series A
Preferred Stock accrue at the annual rate of 8 7/8% (approximately $36
million in the aggregate). The Corporation paid approximately $2 million in
dividends in the fourth quarter of fiscal 1994. In addition, prior to the end
of fiscal 1994, the Corporation's Board of Directors declared a quarterly
dividend on the Series A Preferred Stock (totaling approximately $9
million), which was paid on July 15, 1994. (See Note L.)
Total long-term debt was $1.0 billion at the end of fiscal 1994 and fiscal
1993 and $91 million at the end of fiscal 1992. At the end of fiscal 1994,
substantially all of the Corporation's available lines of credit were unused,
including a three-year $750 million committed credit facility. Shortly after
the end of the fiscal year, the Corporation terminated its credit facility,
having replaced it as a source of liquidity with an accounts receivable
securitization facility. (See Note F.)
Investments in Property, Plant and Equipment
Depreciation Expense
Year $ Millions
______________________________________________________________________
94 *********************** 682
++++++++++++++++ 574
93 *************** 529
+++++++++++++++++++++++++ 699
92 ************************** 710
++++++++++++++++++++++++++++ 733
91 ***************************** 738
+++++++++++++++++++++++++++++++++ 772
90 ******************************************* 1028
+++++++++++++++++++++++++++++++ 759
89 ********************************************** 1223
++++++++++++++++++++++ 659
88 **************************************************** 1518
+++++++++++++ 516
87 ********************************** 748
++++++++++ 435
86 *************** 564
+++++++ 384
85 **************** 572
++++++ 315
84 ********** 452
+++++ 253
_____________________________________________________________________
+++ Depreciation
*** Investments
<PAGE>
Availability of Funds to Support Current and Future Operations and Spending
for Operations (continued)
The Corporation estimates that $1.0 billion of cash will be expended on
planned restructuring activities in fiscal 1995, and an additional $240
million beyond fiscal 1995. The Corporation intends to fund planned
restructuring activities from operations, asset management efforts and
existing cash, although if required, additional sources of cash are expected
to be available, as discussed above.
The Corporation's need for, cost of and access to funds are dependent on
future operating results, as well as conditions external to the Corporation.
The Corporation historically has maintained a conservative capital structure,
and believes that its current cash position and its sources of and access to
capital are adequate to support planned restructuring actions and operations.
<PAGE>
Report of Management
The Corporation's management is responsible for the preparation of the
financial statements in accordance with generally accepted accounting
principles and for the integrity of all the financial data included in this
annual report. In preparing the financial statements, management makes
informed judgments and estimates of the expected effects of events and
transactions that are currently being reported.
Management maintains a system of internal accounting controls that is
designed to provide reasonable assurance that assets are safeguarded and that
transactions are executed and recorded in accordance with management's
policies for conducting its business. This system includes policies which
require adherence to ethical business standards and compliance with all laws
to which the Corporation is subject. The internal controls process is
continuously monitored by direct management review and an internal audit
program under which periodic independent reviews are made.
The Corporation's independent public accountants annually review the
accounting and control systems of the Corporation. Their audit includes a
review of the internal control structure to the extent they consider
necessary and selective tests of transactions to support their report.
The Board of Directors, through its Audit Committee, which is composed of
four Board members who are independent of management, is responsible for
determining that management fulfills its responsibility with respect to the
Corporation's financial statements and the system of internal accounting
controls.
The Audit Committee meets regularly with representatives of management, the
independent accountants and the Corporation's internal auditors to review
audits, financial reporting and internal control matters, and when
appropriate, meets with the Corporation's outside counsel on relevant
matters. The independent accountants and the internal auditors have full and
free access to the Audit Committee and regularly meet privately with the
Audit Committee.
Coopers & Lybrand, independent accountants, have been engaged by the Audit
Committee of the Board of Directors, with the approval of the stockholders,
to audit the Corporation's financial statements. Their report follows.
Robert B. Palmer
President and Chief Executive Officer
Vincent J. Mullarkey
Vice President, Finance and Chief Financial Officer
<PAGE>
Report of Independent Accountants
To The Stockholders and Directors, Digital Equipment Corporation
We have audited the accompanying consolidated balance sheets of Digital
Equipment Corporation as of July 2, 1994 and July 3, 1993, and the related
consolidated statements of operations, cash flows, and stockholders' equity
for each of the three fiscal years in the period ended July 2, 1994. These
financial statements are the responsibility of the Corporation's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Digital
Equipment Corporation as of July 2, 1994 and July 3, 1993, and the
consolidated results of its operations and cash flows for each of the three
fiscal years in the period ended July 2, 1994, in conformity with generally
accepted accounting principles.
As discussed in Note G to the consolidated financial statements, the
Corporation changed its method of accounting for postretirement benefits
other than pensions in fiscal 1992.
Coopers & Lybrand
Boston, Massachusetts
July 26, 1994
<PAGE>
<TABLE>
Consolidated Statements of Operations
Digital Equipment Corporation
<CAPTION>
(in thousands except per share data) Year Ended
_________________________________________________________________________________________________
July 2, 1994 July 3,1993 June 27, 1992
_________________________________________________________________________________________________
<S> <C> <C> <C>
Revenues (Notes A and B)
Product sales $ 7,191,251 $ 7,587,994 $ 7,696,029
Service and other revenues 6,259,539 6,783,375 6,234,843
__________________________________________
Total operating revenues 13,450,790 14,371,369 13,930,872
__________________________________________
Costs and Expenses (Notes A, G, and K)
Cost of product sales 4,968,025 4,464,445 4,248,118
Service expense and cost of other revenues 3,943,612 4,166,946 3,883,705
Research and engineering expenses 1,301,347 1,530,119 1,753,898
Selling, general and administrative expenses (Note J) 4,027,869 4,447,160 4,680,822
Restructuring charges (Note E) 1,206,000 - 1,500,000
__________________________________________
Operating loss (1,996,063) (237,301) (2,135,671)
Interest income 49,422 63,831 96,176
Interest expense 73,353 50,837 38,517
__________________________________________
Loss before income taxes and cumulative effect of
changes in accounting principles (2,019,994) (224,307) (2,078,012)
Provision for income taxes (Notes A and C) 85,043 27,023 232,000
__________________________________________
Loss before cumulative effect of changes in
accounting principles (2,105,037) (251,330) (2,310,012)
Cumulative effect of changes in accounting principles,
net of tax (Notes C and G) 51,026 - 485,495
__________________________________________
Net Loss (2,156,063) (251,330) (2,795,507)
Dividends on preferred stock (Note L) 10,650 _ _
__________________________________________
Net loss applicable to common stock (2,166,713) (251,330) (2,795,507)
__________________________________________
Per Common Share (Note A)
Loss applicable before cumulative effect
of changes in accounting principles $ (15.43) $ (1.93) $ (18.50)
Cumulative effect of changes in accounting principles (.37) - (3.89)
__________________________________________
Net Loss Applicable per Common Share (Note A) $ (15.80) $ (1.93) $ (22.39)
__________________________________________
Weighted average common shares outstanding 137,090 130,409 124,864
_________________________________________________________________________________________________
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
Consolidated Balance Sheets
Digital Equipment Corporation
<CAPTION>
(in thousands)
_______________________________________________________________________________________________
July 2, 1994 July 3, 1993
_______________________________________________________________________________________________
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents (Note A) $ 1,180,863 $ 1,643,195
Accounts receivable, net of allowance of $111,925 and $110,764 3,318,854 3,020,252
Inventories (Note A) 2,063,978 1,755,140
Prepaid expenses and deferred income taxes (Note C) 324,676 463,928
____________________________
Total current assets 6,888,371 6,882,515
Net property, plant and equipment (Note A) 3,129,489 3,178,291
Other assets (Notes A, C, D and J) 561,911 889,537
____________________________
Total assets $10,579,771 $10,950,343
_______________________________________________________________________________________________
Liabilities and Stockholders' Equity
Current Liabilities
Bank loans and current portion of long-term debt (Note F) $ 32,614 $ 21,335
Accounts payable 1,197,350 822,434
Income taxes payable (Note C) 20,753 57,614
Salaries, wages and related items 619,756 556,151
Deferred revenues and customer advances (Note A) 1,239,792 1,138,323
Accrued restructuring costs (Note E) 1,351,075 738,989
Other current liabilities 594,925 583,868
____________________________
Total current liabilities 5,056,265 3,918,714
Deferred income taxes (Note C) 4,758 -
Long-term debt (Note F) 1,010,680 1,017,577
Postretirement and other postemployment benefits (Note G) 1,228,269 1,128,653
____________________________
Total liabilities 7,299,972 6,064,944
____________________________
Commitments and contingencies (Note H)
Stockholders' Equity (Notes K and L)
Preferred stock, $1.00 par value; authorized 25,000,000 shares;
4,000,000 shares of Series A 8 7/8% Cumulative Preferred Stock
issued and outstanding 4,000 -
Common stock, $1.00 par value; authorized 450,000,000 shares;
142,287,078 shares and 135,489,805 shares issued 142,287 135,490
Additional paid-in capital 3,390,040 2,851,960
Retained earnings/(deficit) (256,528) 1,937,627
Treasury stock at cost; 0 shares and 497,551 shares - (39,678)
____________________________
Total stockholders' equity 3,279,799 4,885,399
____________________________
Total liabilities and stockholders' equity $10,579,771 $10,950,343
_______________________________________________________________________________________________
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows
Digital Equipment Corporation
<CAPTION>
(in thousands)
________________________________________________________________________________________________
July 2, 1994 July 3,1993 June 27, 1992
________________________________________________________________________________________________
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net loss $(2,156,063) $ (251,330) $(2,795,507)
________________________________________
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation 573,970 698,631 732,536
Amortization 106,584 139,552 100,292
Reduction in carrying value of intangible assets (Note J) 310,000 - -
Other adjustments to income 84,026 185,617 269,095
(Increase)/decrease in accounts receivable (298,602) 574,016 (86,163)
(Increase)/decrease in inventories (308,838) (141,106) 155,881
(Increase)/decrease in prepaid expenses 82,513 (26,552) 42,908
Increase/(decrease) in accounts payable 374,916 (218,866) 277,918
Increase in taxes 18,913 75,590 55,142
Increase/(decrease) in salaries, wages, benefits and
related items (Note G) 163,221 (49,581) 1,115,240
Increase/(decrease) in deferred revenues and
customer advances 101,469 (70,312) 101,421
Increase/(decrease) in accrued restructuring
costs (Note E) 612,086 (807,915) 510,200
Decrease in other current liabilities (39,101) (60,828) (48,259)
_______________________________________
Total adjustments 1,781,157 298,246 3,226,211
_______________________________________
Net cash flows from operating activities (374,906) 46,916 430,704
_______________________________________
Cash Flows from Investing Activities
Investment in property, plant and equipment (682,100) (528,691) (710,436)
Proceeds from the disposition of property,
plant and equipment 97,456 46,049 15,141
Investment in other assets (Note J) (64,377) (423,573) (139,459)
Proceeds from the disposition of other assets 23,516 22,100 -
Business acquisitions, net of cash acquired (Note J) - - (146,387)
_______________________________________
Net cash flows from investing activities (625,505) (884,115) (981,141)
_______________________________________
Net cash flows from operating and investing activities (1,000,411) (837,199) (550,437)
_______________________________________
Cash Flows from Financing Activities
Proceeds from issuance of debt 22,742 984,482 25,821
Payments to retire debt (19,451) (36,860) (108,472)
Purchase of treasury shares - - (185,292)
Issuance of preferred, common and treasury shares,
including tax effects 536,563 195,600 231,502
Dividends paid (1,775) - -
_______________________________________
Net cash flows from financing activities 538,079 1,143,222 (36,441)
_______________________________________
Net increase/(decrease) in cash and cash equivalents (462,332) 306,023 (586,878)
Cash and cash equivalents at beginning of year 1,643,195 1,337,172 1,924,050
_______________________________________
Cash and cash equivalents at end of year $ 1,180,863 $1,643,195 $ 1,337,172
________________________________________________________________________________________________
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Stockholders' Equity
Digital Equipment Corporation<PAGE>
<CAPTION>
Additional Retained Total
Preferred Common Paid-in Earnings/ Treasury Stockholders'
(in thousands) Stock Stock Capital (Deficit) Stock Equity
_____________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
June 29, 1991 - $130,008 $2,636,141 $5,344,855 $(487,165) $ 7,623,839
_____________________________________________________________________________________________________________________
Purchase of 3,014,083 shares
of treasury stock (185,292) (185,292)
Shares issued under stock plans (266,660) 498,251 231,591
Restricted stock plans, charge
to operations 56,303 56,303
Net loss-1992 (2,795,507) (2,795,507)
____________________________________________________________________________________________________________________
June 27, 1992 - $130,008 $2,692,444 $2,282,688 $(174,206) $ 4,930,934
____________________________________________________________________________________________________________________
Shares issued under stock plans 5,482 149,321 (93,731) 134,528 195,600
Restricted stock plans, charge
to operations 42,038 42,038
Repurchase unexercised
option shares (31,843) (31,843)
Net loss-1993 (251,330) (251,330)
_____________________________________________________________________________________________________________________
July 3, 1993 - $135,490 $2,851,960 $1,937,627 $ (39,678) $ 4,885,399
_____________________________________________________________________________________________________________________
Issuance of preferred stock $4,000 382,745 386,745
Shares issued under stock plans 6,797 130,785 (27,442) 39,678 149,818
Restricted stock plans, charge
to operations 24,550 24,550
Dividends declared--preferred stock (10,650) (10,650)
Net loss-1994 (2,156,063) (2,156,063)
_____________________________________________________________________________________________________________________
July 2, 1994 $4,000 $142,287 $3,390,040 $ (256,528) $ - $ 3,279,799
_____________________________________________________________________________________________________________________
<FN>
See Notes K and L of Notes to Consolidated Financial Statements.
Cash dividends on common stock have never been paid by the Corporation. The
Corporation commenced paying dividends on preferred stock issued in fiscal
1994.
______________________________________________________________________________________________________________
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
Note A - Significant Accounting Policies
___________________________________________________________________________
Principles of Consolidation - The consolidated financial statements of the
Corporation include the financial statements of the parent and its U.S. and
non-U.S. subsidiaries. All intercompany accounts and profits have been
eliminated. Certain prior years' amounts have been reclassifed to conform
with current year presentation.
Fiscal Year - The fiscal year of the Corporation is the
fifty-two/fifty-three week period ending the Saturday nearest the last day
of June. The fiscal years ended July 2, 1994 and June 27, 1992 included 52
weeks. The fiscal year ended July 3, 1993 included 53 weeks.
Translation of Foreign Currencies - For non-U.S. operations, the U.S.
dollar is the functional currency. Monetary assets and liabilities of
foreign subsidiaries are translated into U.S. dollars at current exchange
rates. Nonmonetary assets such as inventories and property, plant and
equipment are translated at historical rates. Income and expense items are
translated at average exchange rates prevailing during the year, except that
inventories and depreciation charged to operations are translated at
historical rates. Exchange gains and losses arising from translation are
included in current income.
The Corporation enters into foreign exchange option and forward contracts to
hedge the impact of exchange rate movements on operations and the asset and
liability positions of non-U.S. subsidiaries. The impact of exchange rate
movements on contracts used to hedge transactions is included in income when
the operating revenues and expenses are recognized and, for contracts used
to hedge assets and liabilities, in the period in which the exchange rates
change. The cash flows related to these contracts are classified in the
Consolidated Statements of Cash Flows, as part of cash flows from operating
activities. See Note I for information on the Corporation's foreign exchange
contracts.
Revenue Recognition - Revenues from product sales are recognized at the time
the product is shipped. Service and other revenues are recognized ratably
over the contractual period or as the services are performed.
Warranty - Warranty revenues are recognized ratably over the warranty
period; warranty-related costs are recognized as service expense is
incurred. The Corporation also provides warranty coverage as a product
attribute on certain products. Estimated costs to repair such products are
accrued as product cost when the product is shipped.
Net Income/(Loss) Applicable per Common Share - Per common share amounts
are calculated based on the weighted average number of common shares and
common share equivalents outstanding during periods of net income, after
deducting applicable preferred stock dividends. Common share equivalents are
attributable to stock options. Per share amounts are calculated based only
on the weighted average number of common shares outstanding during periods
of net loss, after deducting applicable preferred stock dividends.
Cash Equivalents - The Corporation considers all highly liquid temporary
cash investments with maturities of three months or less at date of
acquisition to be cash equivalents. Cash equivalents are valued at cost plus
accrued interest, which approximates market.
Taxes - In general, the Corporation's practice is to reinvest the earnings
of its foreign subsidiaries in those operations, and repatriation of
retained earnings is done only when it is advantageous to do so. Applicable
taxes are provided only on amounts planned to be remitted.
Inventories - Inventories are stated at the lower of cost (first-in,
first-out) or market.
(in thousands)
____________________________________________________________________
July 2, 1994 July 3, 1993
____________________________________________________________________
Raw materials $ 476,172 $ 331,506
Work-in-process 605,503 502,200
Finished goods 982,303 921,434
____________________________________________________________________
Total inventories $ 2,063,978 $ 1,755,140
____________________________________________________________________
Property, Plant and Equipment - Property, plant and
equipment are stated at cost.
(in thousands)
___________________________________________________________________
July 2, 1994 July 3, 1993
___________________________________________________________________
Land $ 356,586 $ 363,264
Buildings 1,967,815 1,887,211
Leasehold improvements 414,622 532,369
Machinery and equipment 4,281,866 $ 4,410,586
___________________________________________________________________
Total property, plant and equipment 7,020,889 7,193,430
Less accumulated depreciation 3,891,400 4,015,139
___________________________________________________________________
Net property, plant and equipment $ 3,129,489 $ 3,178,291
___________________________________________________________________
<PAGE>
Note A - Significant Accounting Policies (continued)
___________________________________________________________________
Depreciation expense is computed principally on the following bases:
Classification Depreciation Lives and Methods
__________________________________________________________
Buildings 33 years (straight-line)
Leasehold Life of assets or term of lease,
Improvements whichever is shorter (straight-line)
Machinery and
Equipment 3 to 10 years (accelerated methods)
__________________________________________________________
When assets are retired, or otherwise disposed of, the assets and related
accumulated depreciation are removed from the accounts. Gains or losses
resulting from restructuring actions are included in accrued restructuring
costs. Other resulting gains and losses are included in income.
Other Assets - Other assets include equity investments, capitalized software
development costs, goodwill, deferred taxes and other intangible assets.
Software development costs are capitalized beginning at the time that
technical feasibility is established. These costs are amortized over three
years from the date the products are available for general use.
Goodwill is amortized using the straight-line method over the estimated
useful life of the asset, subject to periodic review of realizability.
Other intangible assets are amortized using unit-volume and straight-line
methods, as applicable, over their estimated useful lives, subject to
periodic review of realizability.
Note B Geographic Operations
__________________________________________________________________________
Industry - The Corporation operates in one business segment: the design,
manufacture, sale and service of networked computer systems.
Non-U.S. Operations - Sales and marketing operations outside the United
States are conducted principally through sales subsidiaries in Canada,
Europe, Central and South America, Asia and the Pacific Rim; by direct
sales from the parent corporation and through various representative
distributorship arrangements and value-added resellers. The Corporation's
non-U.S. manufacturing operations include plants in the Americas, Europe,
Asia and the Pacific Rim. The products of these manufacturing plants are
sold to the Corporation's sales subsidiaries, the parent corporation or
other manufacturing plants for further processing.
Intercompany transfers between geographic areas are accounted for at prices
which are intended to be representative of unaffiliated party transactions.
Sales to unaffiliated customers outside the United States, including U.S.
export sales, were $8.3 billion, $9.2 billion, and $8.8 billion for the
fiscal years ended July 2, 1994, July 3, 1993 and June 27, 1992,
respectively, which represented 62%, 64% and 63%, respectively, of total
operating revenues. Where applicable, the retained earnings of
substantially all of the Corporation's international subsidiaries have been
reinvested to support operations. These accumulated retained earnings,
before elimination of intercompany transactions, aggregated $2.9 billion,
$4.0 billion and $3.6 billion at July 2, 1994, July 3, 1993 and June 27,
1992, respectively.
<PAGE>
<TABLE>
Note B - Geographic Operations (continued)
_____________________________________________________________________________
<CAPTION>
(in thousands)
_____________________________________________________________________________
Year Ended July 2, 1994 July 3, 1993 June 27, 1992
_____________________________________________________________________________
<S> <C> <C> <C>
Net Revenues
United States:
Unaffiliated customer sales $ 5,176,748 $ 5,219,276 $ 5,154,159
Inter-area transfers 1,830,749 1,793,832 1,900,455
_____________________________________________
7,007,497 7,013,108 7,054,614
_____________________________________________
Europe:
Unaffiliated customer sales 5,832,332 6,973,709 6,751,222
Inter-area transfers 373,354 633,935 520,953
_____________________________________________
6,205,686 7,607,644 7,272,175
_____________________________________________
Canada, Asia, Latin Americas,
Pacific Rim:
Unafiliated customer sales 2,441,710 2,178,384 2,025,491
Inter-area transfers 1,707,291 1,378,870 1,168,956
_____________________________________________
4,149,001 3,557,254 3,194,447
_____________________________________________
Eliminations (3,911,394) (3,806,637) (3,590,364)
_____________________________________________
Net revenue $ 13,450,790 $ 14,371,369 $ 13,930,872
____________________________________________________________________________
Income/(Loss)
United States $ (740,709) $ (363,454) $ (1,971,032)
Europe (1,109,188) 12,446 (184,951)
Canada, Asia, Latin Americas,
Pacific Rim (170,097) 115,091 68,313
Eliminations 23,931 (1,384) (48,001)
______________________________________________
Operating loss (1,996,063) (237,301) (2,135,671)
______________________________________________
Interest income 49,422 63,831 96,176
Interest expense 73,353 50,837 38,517
______________________________________________
Loss before income taxes and
cumulative effect of changes
in accounting principles $ (2,019,994) $ (224,307) $ (2,078,012)
_____________________________________________________________________________
Assets
United States $ 4,997,184 $ 4,202,395 $ 4,766,206
Europe 4,098,780 4,910,165 5,195,715
Canada, Asia, Latin Americas,
Pacific Rim 1,945,236 1,730,754 1,854,167
Corporate assets 1,180,863 1,444,259 1,183,387
Eliminations (1,642,292) (1,337,230) (1,715,166)
______________________________________________
Total assets $ 10,579,771 $ 10,950,343 $ 11,284,309
_____________________________________________________________________________
</TABLE>
<PAGE>
<TABLE>
Note C - Income Taxes
____________________________________________________________________________
Income/(loss) before income taxes and cumulative effect of changes in
accounting principles (in thousands)
<CAPTION>
______________________________________________________________________________
Year Ended July 2, 1994 July 3, 1993 June 27, 1992
_____________________________________________________________________________
<S> <C> <C> <C>
U.S. $ (754,844) $ (383,808) $ (1,934,186)
Non-U.S. (1,265,150) 159,501 (143,826)
______________________________________________
Total $ (2,019,994) $ (224,307) $ (2,078,012)
_____________________________________________________________________________
Reconciliation of U.S. federal statutory rate to actual tax rate
_____________________________________________________________________________
Year Ended July 2, 1994 July 3, 1993 June 27, 1992
_____________________________________________________________________________
U.S. federal statutory tax
(benefit) rate (35.0)% (34.0)% (34.0)%
Tax benefit of manufacturing
operations in:(a)
Puerto Rico - (8.1) 1.7
Ireland (2.3) (16.0) (3.4)
Singapore (0.1) (7.8) -
Benefit not recorded due to net
loss carryforward position
U.S. 13.5 60.5 31.5
Non-U.S. 41.1 21.6 16.5
Non-U.S. tax rates (12.0) (0.8) 0.2
Other (1.0) (3.4) (1.3)
__________________________________________
Effective tax rate 4.2% 12.0% 11.2%
_____________________________________________________________________________
<FN>
Note (a) The income from products manufactured for export by the Corporation's
manufacturing subsidiary in Ireland is subject to a 10% tax rate through
December 2010. The income from certain products manufactured by the
Corporation's manufacturing subsidiary in Singapore is taxed at 15% through
December 1995. During fiscal year 1993, the Corporation discontinued its
manufacturing operation in Puerto Rico.
</TABLE>
<PAGE>
<TABLE>
Components of provisions for (benefits from) U.S. federal and non-U.S.
income taxes (in thousands)
<CAPTION>
____________________________________________________________________________
Year Ended July 2, 1994 July 3, 1993 June 27, 1992
____________________________________________________________________________
<S> <C> <C> <C>
U.S. federal:
Current $ - $ (5,023) $(155,883)
Deferred (14,431) (19,871) 107,249
____________________________________________
Total (14,431) (24,894) (48,634)
____________________________________________
Non-U.S.:
Current 5,618 (57,525) 92,794
Deferred 92,989 103,497 183,998
____________________________________________
Total 98,607 45,972 276,792
____________________________________________
State income taxes 867 5,945 3,842
____________________________________________
Total income taxes $ 85,043 $ 27,023 $ 232,000
____________________________________________________________________________
</TABLE>
The Corporation adopted Statement of Financial Accounting Standards (SFAS)
No. 109 - Accounting for Income Taxes, effective July 4, 1993. The
Corporation had previously accounted for income taxes under Accounting
Principles Board Opinion No. 11. In the first quarter of fiscal year 1994,
the Corporation recorded a one-time benefit of $20,000,000 or $.14 per common
share, for the recognition of previously unrecognized tax benefits. There is
no cash flow impact from the adoption of SFAS No. 109. The standard was
adopted on a prospective basis and amounts presented for prior years were not
restated.
<PAGE>
<TABLE>
Note C - Income Taxes (continued)
____________________________________________________________________________
Significant components of deferred tax assets and liabilities (in thousands)
<CAPTION>
______________________________________________________________________
Year ended July 2, 1994
______________________________________________________________________
Assets Liabilities
______________________________________________________________________
<S> <C> <C>
Inventory-related transactions $ 101,933 $ 8,437
Depreciation 61,335 44,693
Deferred warranty revenue 80,506 -
Postretirement/postemployment benefits 400,037 18,323
Restructuring 446,505 -
Tax loss carryforwards 1,424,927 -
Tax credit carryforwards 149,013 -
Intangible assets 106,368 -
Other 168,392 98,465
________________________
Gross deferred tax balances 2,939,016 169,918
Valuation allowance 2,677,673 -
________________________
Net deferred tax balances $ 261,343 $169,918
_____________________________________________________________________
</TABLE>
The gross deferred tax asset from tax loss carryforwards of $1.4 billion
represents $3.7 billion of net operating loss carryforwards on a tax return
basis which will generally expire as follows: $200,000,000 in 1998,
$350,000,000 in 1999, $1.2 billion in 2007, $500,000,000 in 2008,
$600,000,000 in 2009, and the remainder thereafter.
Tax credit carryforwards will generally expire as follows: $40,000,000 in
2001, $50,000,000 in 2002, $50,000,000 in 2003, and the remainder thereafter.
Major changes in the components of temporary differences and carryforwards
for the period ended July 2, 1994 include increases in gross deferred tax
assets relating to restructuring, tax loss carryforwards and intangibles in
the amounts of $211,938,000, $399,725,000 and $106,368,000, respectively.
For the period ended July 2, 1994, the total valuation allowance for deferred
tax assets increased $872,887,000. The increase in the valuation allowance
resulted from increased gross deferred tax assets associated with tax loss
carryforwards, restructuring and other deferred tax assets.
Gross deferred taxes were increased by $32,410,000 as a result of statutory
tax rate changes, fully offset by valuation allowances.
Fiscal year 1994 income tax expense includes a $70,000,000 reduction in net
deferred tax assets associated with non-U.S. operations.
In connection with its normal examination of the Corporation's 1989, 1990 and
1991 tax returns, the Internal Revenue Service has proposed adjustments. The
Corporation believes its judgments in these matters have been appropriate and
any adjustments which might result would not have a material effect on the
financial statements.
In fiscal years 1994, 1993 and 1992, income taxes paid were approximately
$42,419,000, $53,889,000 and $144,620,000, respectively.
See Note A for further explanation of the Corporation's income tax accounting
policies.
Note D - Capitalized Computer Software Development Costs
_____________________________________________________________________________
Unamortized computer software development costs were $124,780,000 and
$138,024,000 at July 2, 1994 and July 3, 1993, respectively. Amortization
expense was $67,515,000, $68,978,000 and $63,956,000 for the years ended July
2, 1994, July 3, 1993 and June 27, 1992, respectively. Accumulated
amortization was $208,837,000 and $168,845,000 at July 2, 1994 and July 3,
1993, respectively.
Note E - Restructuring Actions
____________________________________________________________________________
Accrued restructuring costs and charges include the cost of involuntary
employee termination benefits, facility closures and related costs
associated with restructuring actions. Employee termination benefits include
severance, wage continuation, notice pay, medical and other benefits.
Facility closures and related costs include gains and losses on disposal of
property, plant and equipment, lease payments and related costs.
Restructuring costs are accrued and charged to expense in accordance with an
approved management plan, supported by an appropriate level of specificity
for the planned actions. Actual restructuring costs are recognized as a
reduction in the accrued liability in the period incurred.
While expenses continue to decline, the Corporation's cost structure is still
too high for the level and mix of total operating revenues. As a result, at
the end of fiscal year 1994, the Corporation approved additional restructuring
actions and accrued related costs of $1.2 billion. Cash expenditures associated
with these actions are expected to be approximately $580,000,000 in the first
half of fiscal 1995, $420,000,000 in the second half of fiscal 1995 and
$240,000,000 related to facility closures beyond fiscal 1995. These actions do
not include workforce or facility reductions that may result from divestments.
The cost of employee separations associated with the fiscal year 1994 charge
includes termination benefits for approximately 20,000 employees. A portion
of these employee separations occurred near the end of the fourth quarter of
fiscal 1994 and the remainder will occur in fiscal 1995. These employees are
located principally in the U.S. and Europe. The greatest portion of employee
separations, approximately 40%, are expected to come from sales and marketing
functions, as the Corporation sells more products through indirect channels
of distribution. Most other organizations and functions also will be affected
by the planned reduction in employees. The fiscal 1994 charge also covers
costs associated with closure of 10 million square feet of facilities,
including office and manufacturing space, principally in the U.S. and Europe.
Restructuring actions have resulted in termination of approximately 12,000,
17,000 and 10,000 employees in fiscal years 1994, 1993 and 1992,
respectively.
<PAGE>
<TABLE>
<CAPTION>
Accrued restructuring costs (in thousands)
____________________________________________________________________________
Year ended July 2, 1994 July 3, 1993 June 27, 1992
____________________________________________________________________________
<S> <C> <C> <C>
Balance, beginning of year $ 738,989 $ 1,546,904 $ 1,036,704
__________________________________________
Charges to operations:
Employee separations 679,000 - 1,000,000
Facility closures and
related costs 527,000 - 500,000
__________________________________________
1,206,000 - 1,500,000
__________________________________________
Costs incurred:
Employee separations 372,450 454,900 759,500
Facility closures and
related costs 212,300 314,250 168,480
Other 9,164 38,765 61,820
__________________________________________
593,914 807,915 989,800
__________________________________________
Balance, end of year $1,351,075 $ 738,989 $ 1,546,904
__________________________________________
Cash expenditures:
Employee separations $ 532,000 $ 651,300 $ 822,150
Facility closures and related
costs, net of proceeds 67,550 174,700 106,050
__________________________________________
$ 599,550 $ 826,000 $ 928,200
____________________________________________________________________________
</TABLE>
At the end of fiscal year 1992, having fully utilized the balance of
restructuring costs accrued at the end of fiscal 1991 and in response to an
unanticipated decline in product sales during the second half of fiscal 1992
and resulting operating losses, additional restructuring plans were
formulated. These actions resulted in the accrual of $1.5 billion of
restructuring costs.
<PAGE>
<TABLE>
Note F - Debt
___________________________________________________________________________________________
<CAPTION>
Long-term debt, exclusive of current maturities (in thousands):
___________________________________________________________________________________________
Maturity Date
(Calendar Year) Interest Rate July 2,1994 July 3, 1993
___________________________________________________________________________________________
<S> <C> <C> <C> <C>
Lease obligations 1997-2002 7.64%-11.0%(a) $ 17,950 $ 24,578
Notes (b) 1997 7% 250,000 250,000
Notes (b) 2002 7 1/8% 250,000 250,000
Debentures (b) 2012 8 5/8% 250,000 250,000
Debentures (b) 2023 7 3/4% 250,000 250,000
Unamortized discount and
commissions (b) (15,092) (16,183)
Other debt obligations 7,822 9,182
___________________________
Total long-term debt,
exclusive of current maturities $ 1,010,680 $ 1,017,577
___________________________
<FN>
Note (a) Weighted average interest rate at July 2, 1994 and July 3, 1993 of
8.5% and 8.7%, respectively.
Note (b) The Notes and Debentures are not redeemable prior to maturity and
are not entitled to any sinking fund. The unamortized discount and
commissions relate to these Notes and Debentures.
____________________________________________________________________________
</TABLE>
Principal payments during the next five fiscal years are as follows:
1995 - $2,984,000; 1996 - $5,416,000; 1997 - $5,648,000; 1998 - $256,266,000;
1999 - $935,000.
In fiscal years 1994, 1993 and 1992, interest paid was $76,203,000,
$37,123,000 and $43,494,000, respectively.
Based primarily on dealer quotes, the fair value of long-term borrowings,
including current maturities, was approximately $834,000,000 and $1.1 billion
at July 2,1994 and July 3,1993, respectively.
The Corporation has entered into interest rate swap agreements which
effectively convert a portion of the long-term debt from fixed to variable
rates. As of July 2, 1994, the net face amount of interest rate swaps
outstanding was $1.3 billion, of which a net $750,000,000 was subject to
variable rates as a result of offsetting positions. Based on dealer quotes,
the fair value of such agreements, which represents the replacement value,
was a net payable of $42,800,000 at July 2, 1994. There were no interest rate
swaps in effect at July 3,1993.
The Corporation had available lines of credit totaling $1.2 billion for
fiscal years ended July 2,1994 and July 3,1993. Included in these lines of
credit was a $750,000,000 committed credit facility which was terminated by
the Corporation on July 25,1994, having been replaced as a source of
liquidity with an accounts receivable securitization facility as described
below. Substantially all of these lines of credit were unused at the end of
fiscal 1994 and 1993. Except for the $750,000,000 credit facility, which was
subject to an annual facility fee of 0.25%, commitment fees on the unused
lines of credit were neither material nor significant.
In addition to available lines of credit, in June 1994, the Corporation
entered into a five-year agreement with a major financial institution (i)
providing for the transfer and sale by the Corporation to a wholly-owned
subsidiary of the Corporation of a designated pool of domestic trade accounts
receivable (the "Receivables") and (ii) allowing the Corporation to sell to
a group of investors an undivided ownership interest in the Receivables for
proceeds of up to $600,000,000 (the "Purchase Limit"). The agreement includes
annual program fees totaling 0.2% of the Purchase Limit. As of July 2, 1994,
the entire $600,000,000 was available to the Corporation; however, no
interests in the Receivables had been sold.
Note G - Postretirement and Other Postemployment Benefits
_____________________________________________________________________________
Pension Plans - The Corporation and its subsidiaries have defined benefit and
defined contribution pension plans covering substantially all employees. The
benefits are based on years of service and compensation during the employee's
career. Pension cost is based on estimated benefit payment formulas. It is
the Corporation's policy to make tax-deductible contributions to the plans in
accordance with local laws. Contributions are intended to provide not only
for benefits attributed to service to date but also for those expected to be
earned in the future. For the U.S. pension plan, there were no contributions
in the fiscal years 1994, 1993 or 1992 due to the full funding limit of the
Omnibus Budget Reconciliation Act of 1987. The assets of the plans include
corporate equity and debt securities, government securities and real estate.
The Corporation's fiscal year 1994 pension cost, before curtailment gains,
declined, reflecting the positive effects of restructuring activities and a
change in future discretionary plan improvements. The net periodic pension
cost for defined contribution pension plans was $12,585,000, $7,944,000 and
$11,202,000 for the fiscal years ended July 2,1994, July 3,1993 and June 27,
1992, respectively. The measurement dates for all plans were within 90 days
of year-end. The Corporation recognized a one-time charge of $161,658,000 in
fiscal 1992 for special early retirement pension benefits as a component of
restructuring costs.
<PAGE>
<TABLE>
<CAPTION>
Components of net periodic pension cost (in thousands)
____________________________________________________________________________
Year Ended July 2, 1994 July 3, 1993 June 27, 1992
____________________________________________________________________________
<S> <C> <C> <C>
Service cost for benefits
earned during the period $ 180,694 $ 192,546 $ 234,842
Interest cost on projected
benefit obligations 191,525 201,203 180,898
Actual return on plan assets (143,465) (291,127) (166,055)
Net amortization and deferral (79,567) 79,421 (47,927)
_____________________________________________
Net periodic pension cost
before curtailment gains 149,187 182,043 201,758
Curtailment gains (272,918) - (138,100)
_____________________________________________
Net periodic pension cost for
defined benefit pension plans $ (123,731) $ 182,043 $ 63,658
_____________________________________________
Total pension cost for all
pension plans $ (107,686) $ 189,293 $ 87,833
_____________________________________________________________________________
Significant actuarial assumptions for pension plans
_____________________________________________________________________________
Year Ended July 2, 1994 July 3, 1993 June 27, 1992
_____________________________________________________________________________
U.S. pension plan:
Discount rate 8.0% 8.0% 8.5%
Expected long-term rate of
return on plan assets 9.0% 9.0% 9.0%
Rate of increase in future
compensation levels 6.0% 6.0% 6.5%
Non-U.S. pension plans:
Discount rate 5.0- 9.5% 5.0- 9.0% 5.0- 9.0%
Expected long-term rate of
return on plan assets 6.0-10.0% 6.0-10.0% 6.0-10.0%
Rate of increase in
future compensation levels 2.8- 7.2% 3.5- 7.5% 4.8- 8.0%
____________________________________________________________________________
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Funded status of pension plans as of the year-end measurement date
(in thousands)
______________________________________________________________________________
Year Ended July 2, 1994 July 3, 1993
______________________________________________________________________________
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $ (1,448,067) $ (1,321,322)
_____________________________
Accumulated benefit obligation $ (1,635,422) $ (1,497,035)
_____________________________
Projected benefit obligation $ (2,558,421) $ (2,606,673)
Plan assets at fair value 2,727,675 2,536,614
_____________________________
Over/(under) funded projected benefit obligation 169,254 (70,059)
Contributions made after measurement date but
before end of fiscal year 2,762 2,916
Unrecognized net gain (326,710) (275,390)
Unrecognized prior service cost/(credit) (88,519) 67,427
Unrecognized net transition asset (88,916) (78,597)
____________________________
Pension liability recognized on the
balance sheet $ (332,129) $ (353,703)
____________________________________________________________________________
</TABLE>
<PAGE>
Note G - Postretirement and Other Postemployment Benefits (continued)
____________________________________________________________________________
Postretirement Benefits Other Than Pensions - The Corporation has defined
benefit postretirement plans that provide medical and dental benefits for
U.S. retirees and their eligible dependents. Substantially all of the
Corporation's U.S. employees may become eligible for postretirement benefits
if they reach retirement age while working for the Corporation. The majority
of the Corporation's non-U.S. subsidiaries do not offer postretirement
benefits other than pensions to retirees.
The Corporation's postretirement benefits plans other than pensions are
funded as costs are incurred. Fiscal year 1993 expense reflects a reduction
from the prior year resulting from cost sharing changes. Retiree
contributions for the U.S. medical plan are based on length of service for
employees retiring after fiscal 1993.
The Corporation also recognized a one-time charge of $142,985,000 in fiscal
year 1992 for special early postretirement benefits other than pensions as a
component of restructuring costs.
The Corporation adopted Statement of Financial Accounting Standards No. 106
- - Employers' Accounting for Postretirement Benefits Other Than Pensions in
fiscal year 1992 and elected to recognize the cumulative effect immediately
for its U.S. and material non-U.S. plans, which resulted in a charge of
$485,495,000, net of tax benefits of $4,188,000, to fiscal year 1992
results.
<TABLE>
<CAPTION>
Components of net periodic postretirement benefits costs (in thousands)
____________________________________________________________________________
Year Ended July 2, 1994 July 3, 1993 June 27, 1992
____________________________________________________________________________
<S> <C> <C> <C>
Service cost for benefit
earned during the period $ 24,949 $ 25,560 $ 37,543
Interest cost on accumulated
postretirement benefits obligations 47,309 50,915 42,525
Actual return on plan assets - - -
Net amortization and deferral (9,964) (8,538) -
__________________________________________
Net periodic postretirement benefit
cost before curtailment gains 62,294 67,937 80,068
Curtailment gains (37,773) (30,000) -
__________________________________________
Net periodic postretirement
benefits cost $ 24,521 $ 37,937 $ 80,068
_____________________________________________________________________________
Significant actuarial assumptions for other postretirement
benefits plans (dollars in thousands)
_____________________________________________________________________________
Year Ended July 2, 1994 July 3, 1993 June 27, 1992
____________________________________________________________________________
U.S. plans:
Discount rate 8.0% 8.0% 8.5%
Health care cost trend rate,
current year 9.3% 10.6% 13.8%
Health care cost trend rate,
ultimate year 5.5% 6.0% 6.0%
Trend rate decreases to the ultimate
rate in the year 2005 2005 2005
Effect of a 1% increase in the trend
rate:
Increase in accumulated
postretirement benefits
obligation $110,011 $137,913 $148,386
Increase in net periodic
postretirement benefits cost $ 15,643 $ 17,598 $ 19,674
Non-U.S. plans:
Discount rate 5.0- 8.5% 5.0- 8.5% 5.0- 8.5%
Health care cost trend rate,
current year 4.0-12.0% 5.0-13.0% 5.0-14.0%
Health care cost trend rate,
ultimate year 4.0- 7.0% 5.0- 7.0% 5.0- 7.0%
Trend rates decrease to the
ultimate rates in the years 1994-2007 1993-2050 1992-2050
Effect of a 1% increase in the
trend rate:
Increase in accumulated
postretirement benefit
obligation $ 6,057 $ 5,861 $ 4,280
Increase in net periodic
postretirement benefit cost $ 909 $ 564 $ 578
_____________________________________________________________________________
</TABLE>
<TABLE>
<CAPTION>
Funded status of other postretirement benefits plans
as of the year-end measurement date (in thousands)
____________________________________________________________________________
Year Ended July 2, 1994 July 3, 1993
____________________________________________________________________________
<S> <C> <C>
Accumulated postretirement benefit
obligations:
Retirees $ (371,191) $ (413,887)
Fully eligible plan participants (22,180) (20,572)
Other active plan participants (233,065) (298,154)
_____________________________
Unfunded accumulated postretirement
benefit obligation (626,436) (732,613)
Unrecognized actuarial net loss 1,057 149,482
Unrecognized prior service credit (116,138) (139,610)
_____________________________
Other postretirement benefits liability
recognized on the balance sheet $ (741,517) $ (722,741)
_____________________________________________________________________________
</TABLE>
<PAGE>
Postemployment Benefits - In the fourth quarter of fiscal year 1994, the
Corporation adopted Statement of Financial Accounting Standards (SFAS) No.
112 - Employers' Accounting for Postemployment Benefits, effective as of the
beginning of the fiscal year. This standard requires the accrual of benefits
provided to former or inactive employees, after employment but before
retirement. These benefits include, but are not limited to, salary
continuation, supplemental unemployment benefits, severance benefits,
disability-related benefits and continuation of benefits such as health care
and life insurance coverage.
The cumulative effect of adopting this standard resulted in a one-time
charge to income of $71,068,000 (the "transition obligation"), or $.51 per
common share. This transition obligation represents principally the cost of
providing medical, dental and life insurance benefits to individuals in the
U.S. currently on long-term disability, during the estimated remaining
period in which they will receive disability benefits. The annual expense
under the new standard, exclusive of the transition obligation, is not
significantly different than the annual expense under the Corporation's
former practice. There is no cash flow impact from the adoption of SFAS No.
112. The first quarter of fiscal year 1994 has been restated to reflect the
change in accounting principle. Prior years' consolidated financial
statements have not been restated to reflect this change.
Note H - Commitments and Contingencies
____________________________________________________________________________
Lease Commitments - Minimum annual rentals under noncancelable leases (which
are principally for leased real estate, vehicles and equipment) for the
fiscal years listed are as follows:
Fiscal Years (in thousands)
_______________________________________________________________
1995 $ 304,895
1996 265,081
1997 194,866
1998 190,148
1999 106,002
Later years 514,661
______________________________________________________________
Total minimum lease payments $ 1,575,653
______________________________________________________________
Total rental expense for the fiscal years ended July 2, 1994, July 3, 1993
and June 27, 1992 amounted to $436,080,000, $503,094,000 and $544,811,000,
respectively.
Litigation - During the fourth quarter, the Corporation was named as a
defendant in several purported class action lawsuits filed in the U.S.
District Court for the Southern District of New York and the U.S. District
Court for the District of Massachusetts alleging violations of the Federal
securities laws arising from alleged misrepresentations and omissions in
connection with the Corporation's issuance and sale of Series A 8 7/8%
Cumulative Preferred Stock (the "Series A Preferred Stock") and the
Corporation's financial results for the quarter ended April 2, 1994. The
Corporation's directors, certain of its officers and the managing
underwriters of the Corporation's Series A Preferred Stock offering were also
named as defendants in certain of the actions. Plaintiffs alternatively seek
unspecified monetary damages or rescission of their purchase of the Series A
Preferred Stock. The Corporation believes that the claims asserted are
without merit and intends to vigorously defend itself against the claims.
Note I - Other Financial Instruments
____________________________________________________________________________
Off-Balance-Sheet Risk - The Corporation enters into foreign exchange option
and forward contracts on a continuing basis for periods consistent with its
committed exposures to limit potential losses from adverse exchange rate
movements on operations and to delay the short-term impact of foreign
currency movements on asset and liability positions of non-U.S. subsidiaries.
The foreign exchange option and forward contracts generally have maturities
which do not exceed three months and six months, respectively. The
Corporation does not anticipate any material adverse effect due to exchange
rate movements over the short-term period covered by these contracts. The
Corporation does not engage in speculation. See Note A for information on the
Corporation's accounting policy on foreign exchange.
As of July 2, 1994, the net face amount of foreign exchange option contracts
outstanding, substantially all of which were in European currencies, was
$363,000,000. Based on dealer quotes, the fair value of such contracts was a
net receivable of $2,000,000 at July 2, 1994. There were no foreign exchange
option contracts in effect prior to the fourth quarter of fiscal year 1994.
As of July 2, 1994 and July 3, 1993, the net face amount of foreign exchange
forward contracts outstanding, substantially all of which were in European
currencies, was $558,000,000 and $1.1 billion, respectively. Based on dealer
quotes, the fair value of such contracts, which represents the replacement
value, was a net payable of $46,000,000 at July 2, 1994 and a net receivable
of $14,400,000 at July 3, 1993.
Fair Value - The fair value of cash equivalents, debt, foreign exchange
contracts and investments is disclosed in relevant notes to the financial
statements. For all other financial instruments, the carrying amount
approximates fair value.
Concentration of Credit Risk - Financial instruments which potentially
subject the Corporation to concentrations of credit risk consist principally
of temporary cash investments and trade receivables.
The Corporation places its temporary cash investments with high credit
qualified financial institutions and, by policy, limits the amount of credit
exposure to any one financial institution. Concentrations of credit risk with
respect to trade receivables are limited due to the large number of customers
comprising the Corporation's customer base, and their dispersion across many
different industries and geographies.
As of July 2, 1994, the Corporation had no significant concentrations of
credit risk.
Note J - Investing Activities
___________________________________________________________________________
In June 1992, the Corporation entered into agreements to purchase common
stock of Ing. Olivetti & C. S.p.A. ("Olivetti") and to form a strategic
alliance with Olivetti. Pursuant to these agreements, as amended, the
Corporation purchased a total of 98,533,000 shares of Olivetti common stock
in fiscal year 1993 for a total investment of approximately $287,800,000. As
part of the alliance agreement, as amended, Olivetti has agreed to purchase a
minimum level of Alpha AXP products from the Corporation over a specified
period of time.
The Olivetti stock is recorded at $83,800,000. The remainder of the purchase
price was recorded as an intangible asset to be amortized over a period not
to exceed ten years. While the Corporation expects to generate significant
revenues from the sale of Alpha AXP products to Olivetti in the long term, in
fiscal year 1994, the sale of Alpha AXP products to Olivetti fell
significantly short of levels called for in the alliance agreement. In the
fourth quarter, the Corporation concluded that revenues and profits in the
future, although significant, would continue below levels called for in the
agreement. Accordingly, in the fourth quarter, the Corporation reduced the
carrying value of the intangible asset by $116,000,000 to its expected net
realizable value and included this amount as a charge to Selling, General and
Administration (SG&A) expenses on the Statement of Operations. The remainder
of the intangible asset will be amortized over a period not to exceed eight
years using the greater of unit-volume or straight-line methods.
At the end of fiscal year 1994, the investment in Olivetti stock had a fair
value of $147,000,000. Subsequent to the end of the fiscal year, the
Corporation sold all of its shares of Olivetti stock for approximately
$147,500,000.
On November 11, 1991, the Corporation signed an agreement with Philips
Electronics N.V. of The Netherlands to acquire most of the Philips
Information Systems Division ("Division"). The purchase price for the
acquired business was equal to the net asset value of the business as at
October 27, 1991, and was $146,387,000, net of cash acquired in the purchase.
The fiscal year 1992 operating results and statement of financial position
reflect the full consolidation of the acquired business as from October 28,
1991, including purchase price adjustments made in the fourth quarter of
fiscal 1992.
The acquisition included the Division's activities for financial
institutions, small and medium enterprises,image and document management
systems and all related customer service activities. The acquisition has been
accounted for as a purchase, and accordingly, the assets and liabilities have
been recorded at their estimated fair value at the date of acquisition.
The acquisition had no material effect on the total operating results for
fiscal year 1992, the year in which it was acquired.
Revenue and operating results for the Corporation's Digital-Kienzle business,
acquired in fiscal year 1991, fell significantly short of operating plan for
fiscal 1994 and from results of prior years despite restructuring efforts and
management changes in fiscal 1994 aimed at improving results. During the
fourth quarter of fiscal 1994, plans for further restructuring actions to be
taken in fiscal 1995 were finalized. The Corporation concluded that the
discounted cash flow, including restructuring actions associated with the
acquired business, will no longer support the carrying value of the
unamortized goodwill. Accordingly, the unamortized balance of goodwill
related to the acquisition of approximately $194,000,000 was written off as a
charge to operations. This was included in SG&A expenses on the Statement of
Operations.
Note K - Stock Plans
____________________________________________________________________________
Stock Options and Awards - Under its Equity Plan, the Corporation has awarded
restricted stock to certain officers and key employees. Under such Equity
Plan and its Restricted Stock Option Plans, the Corporation has granted
options to certain officers and key employees to purchase common stock at a
price determined by the Board of Directors. Shares purchased under the plans
are either subject to repurchase options and restrictions on sales which
lapse over an extended time period not exceeding 10 years, or become
exercisable ratably over periods of up to five years. In fiscal year 1992,
certain options were granted under such Equity Plan which become exercisable
ratably over five years, but only if the common stock achieves certain price
performance criteria.
Information concerning activity during the three years ended July 2, 1994 was
as follows:
Options Outstanding
_______________________________________________________________________
Shares Average
Reserved for Price
Future Grants Shares per Share
_______________________________________________________________________
June 29, 1991 3,281,810 19,305,823 $ 72.42
Additional Shares
Available for Grant 1,950,123 - $ -
Options Granted (2,901,830) 2,901,830 $ 58.00
Shares Awarded (623,490) - $ -
Options Exercised - (795,879) $ 29.73
Options Cancelled 493,879 (493,879) $ 82.47
Options Terminated (428,994) - $ -
_______________________________________________________________________
June 27, 1992 1,771,498 20,917,895 $ 71.81
Additional Shares
Available for Grant 1,950,123 - $ -
Options Granted (3,737,045) 3,737,045 $ 41.41
Shares Awarded (277,650) - $ -
Options Exercised - (553,486) $ 27.67
Options Cancelled 1,623,333 (1,623,333) $ 66.42
Options Cancelled under
Repurchase Program 2,653,570 (2,653,570) $ 153.00
Options Terminated (3,362,938) - $ -
_______________________________________________________________________
July 3, 1993 620,891 19,824,551 $ 56.89
Additional Shares
Available for Grant 2,032,347 - $ -
Options Granted (896,650) 896,650 $ 23.07
Shares Awarded (307,460) - $ -
Options Exercised - (106,612) $ 33.78
Options Cancelled 2,243,356 (2,243,356) $ 52.08
Options Terminated (1,248,476) - $ -
Regrant program:
Cancelled 5,765,914 (5,765,914) $ 59.10
Terminated (2,843,639) - $ -
Regrant (2,328,910) 2,328,910 $ 22.88
_______________________________________________________________________
July 2, 1994 3,037,373 14,934,229 $ 49.59
_______________________________________________________________________
<PAGE>
Note K - Stock Plans (continued)
___________________________________________________________________________
The excess, if any, of the fair market value of shares on the measurement
date over the exercise price is charged to operations each year as the
restrictions lapse.
In May 1994, the Board of Directors approved a program to offer employees of
the Corporation (other than executive officers of the Corporation), the
opportunity to exchange their outstanding stock options for new options to
purchase a reduced number of shares of common stock at a per share exercise
price equal to the fair market value of the common stock on the date the
program was approved (the "Regrant Program"). Under the Regrant Program,
outstanding options granted between 1985 and 1993 to purchase up to
11,854,084 shares of common stock with an average exercise price of $59.43
per share could be exchanged for new options to purchase up to 4,554,870
shares with an exercise price of $22.88 per share. The new options vest over
four years and have a seven-year term. As of July 3, 1994 and as reflected in
the table above, options to purchase 5,765,914 shares had been exchanged and
canceled for new options to purchase a total of 2,328,910 shares. As of July
22, 1994, the last date for acceptance of the Regrant Program, options to
purchase a total of 10,208,736 shares had been exchanged and canceled for new
options to purchase a total of 3,969,630 shares. No compensation expense was
reversed as a result of the Regrant Program. Future expense associated with
options canceled, and not replaced by new options under the Regrant Program,
will no longer be recognized, resulting in an expense reduction of
approximately $31,000,000 over four years.
In April 1993, the Board of Directors approved the repurchase of outstanding
options to purchase up to 2.8 million shares of common stock granted to
certain employees in fiscal year 1988 at an exercise price of $153.00 per
share which represented a discount of $30.00 per share from the fair market
value of the common stock on the date of grant. The original options to
purchase 3.2 million shares were subject to restrictions lapsing and
amortizing ratably over ten years. Optionholders were offered $3.00 per
unexercised option share in return for the cancellation of the option. The
repurchase price was determined after taking into account option pricing
models, the opinion of an independent advisor and the financial and
compensation objectives of the program. The Corporation repurchased
approximately 2.7 million shares at a cost of approximately $8,000,000, which
was charged to operations in fiscal 1993. In addition, the Corporation
reversed compensation expense recorded in previous years of $31,843,000 with
a corresponding reduction of additional paid-in capital.
Employee Stock Purchase Plans - Under the Corporation's Employee Stock
Purchase Plans, all U.S. and certain non-U.S. employees may be granted the
opportunity to purchase common stock at 85% of market value on the first or
last business day of the six-month payment period, whichever is lower. Common
stock reserved for future employee purchases aggregated 5,133,014 shares at
July 2,1994. There were 6,938,772 shares issued at an average price of $23.72
per share during the year ended July 2,1994; 6,404,574 shares issued at an
average price of $28.38 per share during the year ended July 3,1993; and
4,788,819 shares issued at an average price of $43.21 per share during the
year ended June 27,1992. There have been no charges to income in connection
with these Plans other than incidental expenses related to the issuance of
the shares. Federal income tax benefits relating to such Plans, if any, have
been credited to additional paid-in capital.
Stock Option Plan for Non-Employee Directors - The Stock Option Plan for
Non-Employee Directors provides for a one-time grant of an option to purchase
5,000 shares of the Corporation's common stock to non-employee directors. The
exercise price of an option is 100% of the fair market value per share of
common stock of the Corporation on the date the option is granted. An
aggregate of 100,000 shares of common stock are authorized for issuance under
the Plan, of which 50,000 have been granted at an average purchase price of
$49.01 per share. The options become exercisable at the rate of 20% per year,
with credit given for past service. None of these options had been exercised
as of July 2, 1994.
Note L - Stockholders' Equity
____________________________________________________________________________
On January 21, 1994, the Corporation filed with the Securities and Exchange
Commission a shelf registration statement on Form S-3 under the Securities
Act of 1933, as amended, covering the registration of debt securities,
preferred stock, depositary shares, and warrants to purchase equity and debt
securities, in an aggregate amount of $1 billion. In March 1994, the
Corporation issued and sold 16,000,000 Depositary Shares under the shelf
registration statement, each representing a one-fourth interest in a share of
the Corporation's Series A 8 7/8% Cumulative Preferred Stock (the "Series A
Preferred Stock"), par value $1.00 per share. Dividends on the Series A
Preferred Stock accrue at the annual rate of 8 7/8%, or $35,500,000 per year.
Dividends of $10,650,000 were declared in fiscal 1994 commencing in March
1994. At July 2, 1994, there were declared and unpaid dividends of
$8,875,000. These dividends were paid on July 15,1994.
The Series A Preferred Stock was offered to the public at $100 per share ($25
per Depositary Share) for a total of $400,000,000, leaving a balance of
$600,000,000 available for future issuance under the shelf registration. The
net proceeds of $387,000,000 from the Series A Preferred Stock offering is
available for working capital and other general corporate purposes. The
Series A Preferred Stock is not convertible into, or exchangeable for, shares
of any other class or classes of stock of the Corporation. The Series A
Preferred Stock is not redeemable prior to April 1,1999. On or after April
1,1999, the Corporation, at its option, may redeem shares of the Series A
Preferred Stock, as a whole or in part, for cash at the redemption price per
share of $100 ($25 per Depositary Share), plus accrued and unpaid dividends
to the redemption date. Upon dissolution, liquidation or the winding up of
the affairs of the Corporation, the holders of the Series A Preferred Stock
will be entitled to receive $100 per share ($25 per Depositary Share), plus
accrued and unpaid dividends, before any distribution to holders of the
Corporation's common stock.
The Corporation did not purchase any shares of its common stock during fiscal
years 1994 and 1993. The Corporation purchased on the open market 3,014,083
shares of its common stock at an aggregate purchase price of $185,292,000, or
$61.48 per share, during the year ended June 27, 1992. All of the acquired
shares were held as common stock in treasury, and subsequently issued to
employees under the Stock Plans. The difference between the average
acquisition cost of the shares and the proceeds from issuance is charged to
retained earnings.
The Corporation adopted a Stockholder Rights Plan in December 1989 pursuant
to which the Corporation authorized the distribution of one Common Stock
Purchase Right for each share of outstanding common stock. Under certain
conditions, each Right may be exercised for one share of common stock at an
exercise price of $400, subject to adjustment. Under circumstances defined in
the Plan, the Rights entitle holders to purchase stock having a value of
twice the exercise price of the Rights. Until they become exercisable, the
Rights are not transferable apart from the common stock. The Rights may be
redeemed by the Corporation at any time prior to the occurrence of certain
events at $.01 per Right. The Plan will expire on December 21, 1999, unless
the Rights are earlier redeemed by the Corporation.
Note M - Subsequent Event
____________________________________________________________________________
Subsequent to the end of the fiscal year, the Corporation and Quantum
Corporation ("Quantum") signed an agreement providing for Quantum's purchase
of the Corporation's magnetic disk drive, tape drive, solid state disk and
thin-film heads businesses for $400,000,000, $70,000,000 of which is to be
paid in the form of an interest-bearing note. The transaction includes the
Corporation's interest in Rocky Mountain Magnetics, Inc., facilities in
Shrewsbury, Massachusetts and Penang, Malaysia, and the lease of facilities
in Colorado Springs, Colorado and Batam, Indonesia. There are approximately
5,000 regular and temporary employees in the businesses being sold.
The sale has been approved by the Board of Directors of both companies, but
is subject to appropriate government approvals and other conditions. The
transaction is expected to close shortly after October 1, 1994.
<PAGE>
<TABLE>
Supplementary Information
Quarterly Financial Data (unaudited)
<CAPTION>
____________________________________________________________________________________________________
Income/ Income/
(Loss) (Loss)
Total Before After Net Income/
(in millions except Operating Gross Income Income Income/ (Loss)per
per share data) Revenues Profit Taxes Taxes1 (Loss) Common Share2
____________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
For the year ended July 2, 1994
Fourth Quarter $ 3,923 $1,175 $(1,673) $(1,747) $ (1,747) $(12.64)
Third Quarter 3,259 1,101 (178) (183) (183) (1.34)
Second Quarter 3,254 1,173 (69) (72) (72) (.53)
First Quarter3 3,015 1,090 (100) (103) (154) (1.14)
___________________________________________________________________
Total Year $13,451 $4,539 $(2,020) $(2,105) $ (2,156) $(15.80)
____________________________________________________________________________________________________
For the year ended July 3, 1993
Fourth Quarter $ 3,914 $1,576 $ 120 $ 113 $ 113 $ .85
Third Quarter 3,454 1,373 (28) (30) (30) (.23)
Second Quarter 3,689 1,514 (66) (74) (74) (.57)
First Quarter 3,314 1,277 (250) (260) (260) (2.04)
__________________________________________________________________
Total Year $14,371 $5,740 $ (224) $ (251) $ (251) $ (1.93)
___________________________________________________________________________________________________
<FN>
1 Before cumulative effect of changes in accounting principles.
2 Income/(loss) per share is computed independently for each of the quarters
presented and therefore does not sum to the total for the year.
3 Restated to reflect the adoption of SFAS No. 112 - Employers Accounting
for Postemployment Benefits.
</TABLE>
Stock Information
The Corporation's common stock is listed and traded on the Chicago Stock
Exchange, New York Stock Exchange, Pacific Stock Exchange, Montreal Exchange
and several European stock exchanges. There were 77,722 shareholders of
record as of July 2, 1994. The high and low quarterly sales prices for the
past three fiscal years are as follows:
1994
_____________________________________________________________________
Fiscal Quarter High Low
_____________________________________________________________________
Fourth $30 5/8 $18 1/4
Third 38 1/8 27 3/4
Second 39 1/8 34 1/8
First 43 1/8 35 1/4
_____________________________________________________________________
1993
_____________________________________________________________________
Fiscal Quarter High Low
Fourth $48 1/4 $38 1/4
Third 49 1/4 32 3/4
Second 40 5/8 30 3/8
First 44 33 1/4
_____________________________________________________________________
1992
_____________________________________________________________________
Fiscal Quarter High Low
_____________________________________________________________________
Fourth $54 7/8 $33 1/4
Third 65 1/2 49 1/4
Second 65 48 1/2
First 71 3/4 53 7/8
_____________________________________________________________________
<PAGE>
Officers and Management
_________________________________________________________
*Robert B. Palmer
President and Chief Executive Officer
Bernhard Auer
Vice President and General Manager, Personal Computer
Business Unit
Lawrence P. Cabrinety
Vice President, Components and Peripherals Business Unit
*R. E. Caldwell
Vice President, Digital Semiconductor
Bobby A. F. Choonavala
Vice President; President, Asia Pacific
*Charles F. Christ
Vice President and General Manager, Components Division
Harold D. Copperman
Vice President; President, The Americas
Vincenzo Damiani
Vice President and General Manager,
Accounts Business Unit
President, Digital Europe
William R. Demmer
Vice President, Software Business Group
*Richard M. Farrahar
Vice President, Human Resources
Samuel H. Fuller
Vice President, Corporate Research
Charles B. Holleran
Vice President, Communications
*Ilene B. Jacobs
Vice President and Treasurer
Gail S. Mann
Assistant General Counsel, Secretary and Clerk
Robert E. McNulty
Vice President and Chief Information Officer
*Vincent J. Mullarkey
Vice President, Finance and Chief Financial Officer
*Enrico Pesatori
Vice President and General Manager, Computer Systems
Division
*E. C. Mick Prokopis
Vice President and Corporate Controller
*John J. Rando
Vice President, Multivendor Customer Services
Robert J. Rennick
Vice President and General Manager, Storage Subsystems Business Unit
*Thomas C. Siekman
Vice President and General Counsel
*William D. Strecker
Vice President, Advanced Technology Group and Chief Technical Officer
Laurence G. Walker
Vice President and General Manager, Network Product Business Unit
*"Executive Officer" under the Securities Exchange Act of 1934.
<PAGE>
Directors
________________________________________________________________________
Robert B. Palmer
President and Chief Executive Officer
Digital Equipment Corporation
Vernon R. Alden
Director and Trustee of several organizations
Former Chairman, The Boston Company, Inc.
Philip Caldwell
Senior Managing Director of Lehman Brothers Inc.
Retired Chairman of the Board and Chief Executive Officer,
Ford Motor Company
Director of several corporations
Colby H. Chandler
Director of several corporations, Retired Chairman
of the Board and Chief Executive Officer, Eastman
Kodak Company
Arnaud de Vitry
Engineering consultant and Director and
Trustee of several organizations
Robert R. Everett
Retired President of the MITRE Corporation
Kathleen F. Feldstein
President of Economics Studies, Inc.
and Director of several organizations
Thomas P. Gerrity
Dean, Wharton School of the University of Pennsylvania
and Director of several corporations
Thomas L. Phillips
Director of several corporations, Retired Chairman of the
Board and Chief Executive Officer, Raytheon Company
Delbert C. Staley
Director of several corporations, Retired Chairman of the
Board and Chief Executive Officer, NYNEX Corporation
[Photograph of members of Digital's Board of Directors]
Board of Directors, Digital Equipment Corporation:
Standing, left to right: Colby H. Chandler, Thomas L. Phillips,
Kathleen F. Feldstein, Robert B. Palmer, Arnaud de Vitry, Delbert C.
Staley. Seated: Vernon R. Alden, Thomas P. Gerrity, Robert R. Everett,
Philip Caldwell.
<PAGE>
Committees of the Board
____________________________________________________________________________
Audit Committee
Philip Caldwell, Chairman
Vernon R. Alden
Colby H. Chandler
Kathleen F. Feldstein
Compensation and Stock Option Committee
Thomas L. Phillips, Chairman
Robert R. Everett
Thomas P. Gerrity
Delbert C. Staley
Nominating Committee
Arnaud de Vitry, Chairman
Vernon R. Alden
Colby H. Chandler
Thomas L. Phillips
Corporate Consulting Engineers
_____________________________________________________________
Peter F. Conklin
Corporate Consulting Engineer
Layered Software Group
Daniel W. Dobberpuhl
Corporate Consulting Engineer
Semiconductor Engineering
Richard B. Grove
Corporate Consulting Engineer
System Software Group
Robert J. Hannemann
Corporate Consulting Engineer
System Hardware Group
Richard J. Hollingsworth
Senior Corporate Consulting Engineer
Semiconductor Operations
Alan Kotok
Corporate Consulting Engineer
Advanced Technology Group
Nancy Kronenberg
Corporate Consulting Engineer
System Hardware Group
Butler Lampson
Senior Corporate Consulting Engineer
Corporate Research
Richard Lary
Corporate Consulting Engineer
Mass Storage
Jesse Lipcon
Corporate Consulting Engineer
Vice President, OpenVMS Systems
Alan G. Nemeth
Corporate Consulting Engineer
System Software Group
Mahendra Patel
Vice President and Corporate Consulting Engineer
Computer Systems Division
Jeff Schriesheim
Corporate Consulting Engineer
System Software Group
Richard Sites
Corporate Consulting Engineer
Corporate Research
Robert E. Stewart
Corporate Consulting Engineer
System Hardware Group
William D. Strecker
Senior Corporate Consulting Engineer
Vice President, Advanced Technology Group
Chief Technical Officer
Robert M. Supnik
Vice President and Senior Corporate Consulting Engineer
Computer Systems Division
Charles P. Thacker
Corporate Consulting Engineer
Corporate Research
Gayn B. Winters
Corporate Consulting Engineer
Advanced Technology Group
Richard T. Witek
Corporate Consulting Engineer
Semiconductor Engineering
<PAGE>
Headquarters
__________________________________________________________________
Corporate Headquarters
Digital Equipment Corporation
146 Main Street
Maynard, Massachusetts 01754-2571
Telephone: (508) 493-5111
Telex: 4430127 Digital ACT
Fax: (508) 493-8780
European Headquarters
Digital Equipment Corporation
International (Europe)
12 Avenue des Morgines
Case Postale 176
CH-1213 Petit-Lancy 1, Geneva
Switzerland
Telephone: (41)-(22) 709-4111
Telex: 845-422593 DEC CH
Fax: (41)-(22) 709-4140
Asia Pacific Headquarters
Digital Equipment Asia Pacific Pte Ltd.
300 Beach Road #39-00
The Concourse
Singapore 0719
Telephone: (65) 299-7188
Fax: (65) 295-1296
<PAGE>
Investor Information
____________________________________________________________________________
The Corporation's common stock (Ticker Symbol "DEC") is listed and traded on
the:
Chicago Stock Exchange
Montreal Exchange
New York Stock Exchange
Pacific Stock Exchange
Swiss Stock Exchanges of Zurich, Geneva and Basel; and the
German Stock Exchanges of Frankfurt, Munich and Berlin.
Unlisted trading privileges have been granted by the:
Boston Stock Exchange
Cincinnati Stock Exchange
Philadelphia Stock Exchange
Luxembourg Stock Exchange
The Corporation's Depositary Shares, each representing one-fourth of a share
of the Corporation's Series A 8 7/8% Cumulative Preferred Stock (Ticker
Symbol DEC PRA), are listed and traded on the New York Stock Exchange.
The Corporation maintains an Investor Relations office to assist
stockholders. Investors' inquiries are welcome, by telephone or letter.
Financial community information and requests to be placed on the
Corporation's mailing list should be directed to:
Director, Investor Relations
Digital Equipment Corporation
146 Main Street (MLO3-2/F41)
Maynard, Massachusetts 01754-2571
Telephone: (508) 493-7182
Fax:(508) 493-7633
Requests for specific information are handled as follows:
Digital Equipment Corporation's annual report on Form 10-K for the fiscal
year ended July 2, 1994, including schedules thereto, which is filed with
the Securities and Exchange Commission, will be sent without charge
upon written request. The Corporation's annual report, filings with the
Securities and Exchange Commission, interim reports and additional
information about the Corporation and its products can be obtained by
addressing:
Digital Equipment Corporation, Inquiry Section
c/o Moore Business Forms
Suite 100
293 Boston Post Road
Marlboro, Massachusetts 01752
Telephone: (508) 229-4752
As a company, we have a tradition of achievement in protecting the
environment and in ensuring the health and safety of our fellow employees.
A copy of our Environmental, Health and Safety Annual Report can be
obtained by writing:
Digital Equipment Corporation
Corporate Environmental Health and Safety
111 Powdermill Road (MSO2-3/B16)
Maynard, Massachusetts 01754-1418
Inquiries of an administrative nature relating to stockholder accounting
records, stock transfer, change of address, and employee purchases should be
directed to:
Digital Equipment Corporation
Investor Services
111 Powdermill Road (MSO1-1/L12)
Maynard, Massachusetts 01754-1418
Telephone: (508) 493-3703
Telephone: (508) 493-5213
Transfer Agent and Registrar
for Common Stock
First Chicago Trust Company of New York is the principal stock transfer
agent and registrar, and maintains the stockholder accounting records.
The agent will respond to questions on change of ownership, lost stock
certificates, consolidation of accounts and change of address.
Digital Equipment Corporation is also a stock transfer agent and registrar,
and maintains employees stockholder accounting records.
A change of address should be reported promptly by sending a signed and
dated note or postcard to First Chicago Trust Company of New York.
Stockholders should state the name in which the stock is registered,
account number, social security number (if available), as well as the old
and new addresses.
First Chicago Trust Company of New York
P.O. Box 2500
Jersey City, New Jersey 07303-2500
Telephone: (201) 324-0498
Depositary for the Series A 8 7/8% Cumulative Preferred Stock:
Citibank N.A.
Address correspondence to:
Citicorp Data Distributor
404 Sette Drive
Paramus, New Jersey 07653
(800) 422-2066
Eliminating Duplicate Mailings
______________________________________________________________________
To maintain more than one account, but eliminate duplicate mailings of
annual and quarterly reports to the same address, send the labels
(or a copy of the labels) from a company mailing to the Investor Services
Department, P.O. Box 490, Maynard, Massachusetts 01754, indicating the
names you wish to keep on the mailing list for annual and quarterly reports
and the names you wish to delete. This will affect only these mailings;
proxy materials will continue to be sent to each account.
Consolidating Accounts
_________________________________________________________________________
To consolidate separate accounts into one account, contact the Investor
Services Department, P.O. Box 490, Maynard, Massachusetts 01754, to obtain
necessary forms and instructions.
Auditors
Coopers & Lybrand
One Post Office Square
Boston, Massachusetts 02109
Telephone: (617) 478-5000
Legal Counsel
Testa, Hurwitz & Thibeault
53 State Street
Exchange Place
Boston, Massachusetts 02109-2809
Telephone: (617) 248-7000
Customer Inquiries
__________________________________________________________________________
Digital Equipment Corporation customers who have questions and/or problems
relating to their accounts should contact U.S. Customer Relations at (800)
332-4636.
Digital believes the customer, market, and product information in this
annual report is accurate as of its publication date. This information is
subject to change without notice. Digital is not responsible for any
inadvertent errors.
Digital will conduct its business in a manner that conserves the
environment.
The following are trademarks of Digital Equipment Corporation:
Alpha AXP, ChannelWorks, DECathena, DEChub, DECpc, Digital, the DIGITAL
logo, LinkWorks, OpenVMS, PATHWORKS, StorageWorks, and VAX.
The following are third-party trademarks:
Hewlett-Packard is a registered trademark of Hewlett-Packard Company.
IBM and AIX are registered trademarks of International Business Machines
Corporation.
Intel and i486 are trademarks and Pentium is a registered trademark of
Intel Corporation.
Lotus and 1-2-3 are registered trademarks of Lotus Development Corporation.
Macintosh is a registered trademark of Apple Computer, Inc.
Microsoft, MS-DOS, and Excel are registered trademarks and Windows and
Windows NT are trademarks of Microsoft Corporation.
Novell and NetWare are registered trademarks of Novell, Inc.
OSF/1 is a registered trademark of Open Software Foundation, Inc.
Sun is a registered trademark of Sun Microsystems, Inc.
UNIX is a registered trademark in the United States and other countries,
licensed exclusively through X/Open Company, Ltd. X/Open is a trademark of
X/Open Company, Ltd.
Printed in U.S.A. EA-C3688-87/94 09 23 225.0 MRO
Copyright 1994 Digital Equipment Corporation All Rights Reserved
Printed on Recycled Paper
Exhibit 22
SUBSIDIARIES
The following is a list of the Corporation's consolidated subsidiaries
as of July 2, 1994. The Corporation owns, directly or indirectly, 100% of
the voting securities of each subsidiary, unless marked with an asterisk.
State or
Jurisdiction
of
Name Organization
Basys Automation Systems, Inc. Delaware
Basys Automation Systems Limited United Kingdom
CASE & CAD Engineering Produktveckling i Stockholm Sweden
Computer Insurance Company Rhode Island
DEC Digital Equipment Corporation A.G./S.A. Switzerland
DECsys - Digital Systems (1993) Ltd. Israel
Digital DV - Leasing und CAD-Vertriebs GmbH Germany
Digital Computer Taiwan Limited Taiwan
Digital Equipment AB Sweden
Digital Equipment Asia Pacific Pte. Ltd. Singapore
Digital Equipment (BCFI) AB Sweden
Digital Equipment B.V. Netherlands
Digital Equipment Betriebliche Altersversorgung G.m.b.H. Germany
Digital Equipment of Canada Limited/Digital Equipment
du Canada Limitee Canada
Digital Equipment Caribbean, Inc. Delaware
Digital Equipment Centre Technique (Europe) S.A.R.L. France
Digital Equipment Chile Limitada Chile
Digital Equipment China Incorporated Peoples
Republic of
China
Digital Equipment China Ltd. Delaware
Digital Equipment do Brazil Ltda. Brazil
Digital Equipment Co. Limited United Kingdom
Digital Equipment Corporation A/S Norway
Digital Equipment Corporation A/S Denmark
Digital Equipment Corporation (Australia) Pty. Ltd. Australia
Digital Equipment Corporation (Consultancy) Limited States of
Jersey
Digital Equipment Corporation (Thailand) Ltd. Thailand
Digital Equipment Deutschland (Holding) GmbH Germany
Digital Equipment Corporation Espana, S.A. Spain
Digital Equipment Corporation Finance B.V. Netherlands
Digital Equipment Osterreich Aktiengesellschaft Austria
Digital Equipment Corporation International Massachusetts
Digital Equipment Corporation International (Europe) Switzerland
Digital Equipment Corporation Japan Japan
Digital Equipment Corporation OY Finland
Digital Equipment Corporation de Puerto Rico Delaware
Digital Equipment Corporation (New Zealand) Limited New Zealand
A/O Digital Equipment Corporation, Russia Russia
Digital Equipment Corporation Services-Europe S.A./N.V. Belgium
Digital Equipment (Cyprus) Ltd. Cyprus
Digital Equipment s.r.o. Czech
Republic
Digital Equipment Data Systems Aktiengesellschaft Austria
Digital Equipment (DEC) Limited Israel
Digital Equipment (DEC) Technical Center (Israel)
Limited Israel
Digital Equipment Dienstleistungen GmbH Germany
Digital Equipment Distribution (Ireland) Limited Republic of
Ireland
Digital Equipment Enterprises Espana, S.A. Spain
Digital Equipment Filipinas Incorporated Philippines
Digital Equipment Finance Corporation Delaware
Digital Equipment Foreign Sales Corporation B.V. Netherlands
Digital Equipment France France
Digital Equipment GmbH Germany
Digital Equipment Gulf W.L.L. Bahrain
Digital Equipment Hellas S.A. Greece
Digital Equipment (Holdings) B.V. Netherlands
Digital Equipment Holdings Italia S.p.a. Italy
Digital Equipment Hong Kong Limited Hong Kong
Digital Equipment (Hungary) Computing Technology Ltd. Hungary
Digital Equipment (India) Ltd. India
Digital Equipment International B.V. Netherlands
Digital Equipment International Betriebliche
Altersversorgungsgesellschaft G.m.b.H. Germany
Digital Equipment International Finance B.V. Netherlands
Digital Equipment International G.m.b.H. Germany
Digital Equipment International Limited Switzerland
Digital Equipment Ireland Limited Republic of
Ireland
Digital Equipment Korea, Incorporated Korea
Digital Equipment (Malaysia) Sdn. Bhd. Malaysia
Digital Equipment Maroc S.A.R.L. Morocco
Digital Equipment de Mexico, S.A. de C.V. Mexico
Digital Equipment Middle East Limited States of
Jersey
Digital Equipment PCdirect GmbH (Germany) Germany
Digital Equipment Panama, Inc. Panama
Digital Equipment Parts Center B.V. Netherlands
Digital Equipment Polska SP.Zo.o. Poland
Digital Equipment Portugal, Limitada Portugal
Digital Equipment PRC Limited Hong Kong
Digital Equipment Properties Limited United Kingdom
Digital Equipment Romania s.r.l. Romania
Digital Equipment S.A./N.V. Belgium
Digital System Services AB Sweden
Digital Equipment Slovakia s.r.o. Slovakia
Digital Equipment SME Limited United Kingdom
Digital Equipment S.p.a. Italy
Digital Equipment Scotland Limited United Kingdom
Digital Equipment Service Industries Solutions
Company Limited United Kingdom
Digital Equipment Services, Inc. Delaware
Digital Equipment Singapore (PTE) Limited Singapore
Digital Equipment (Small Medium Enterprise) B.V. Netherlands
Digital Equipment Storage Products (Malaysia) Sdn BHD Malaysia
Digital Equipment System-Integration GmbH Germany
Digital Equipment Corporation C.I.S. B.V. Netherlands
Digital Equipment (Thailand) Ltd. Thailand
Digital Equipment Turkiye A.S. Turkey
Digital Equipment de Venezuela (D.E.V.) C.A. Venezuela
Digital Growth, Inc. Massachusetts
Digital Incorporated Delaware
Digital International Sales Corporation Delaware
Digital-Kienzle Computersysteme GmbH & Co. K.G. Germany
Digital-Kienzle Computersysteme Verwaltungsgesellschaft
mbH Germany
Digital-PCS Systemtechnik GmbH Germany
Digital Realty Corporation Delaware
Digital Receivables Financing Corporation Delaware
Digital Sales and Services South Africa (Pty.) Limited Republic of
South Africa
Digital Sociedade de Previdencia Privada Brazil
*EA Systems, Inc. Delaware
Elebra Computadores S.A. Brazil
Old Colony Insurance Limited Bermuda
*Rocky Mountain Magnetics, Inc. Delaware
Rostvold System A/S Norway
Serrata Consulting Limited Canada
SIPAC S.p.a. Italy
Societe Civile Immobiliere (SCI) Parc du Bois Briard France
800-Software, Inc. California
Exhibit 24
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statements (Forms S-8) and related prospectuses of the Digital Equipment
Corporation 1976 and 1985 Restricted Stock Option Plans (No. 33-970), 1990
Equity Plan (No. 33-37631), 1990 Stock Option Plan for Nonemployee
Directors (No. 33-37628), 1968 Employee Stock Purchase Plan (No. 33-50945)
and 1981 International Employee Stock Purchase Plan (No. 33-50963) and the
Registration Statement and related propsectuses on Form S-3 (No. 33-51987),
of our reports dated July 26, 1994 on our audits of the consolidated
financial statements and financial statement schedules of Digital Equipment
Corporation as of July 2, 1994 and July 3, 1993 and for each of the three
fiscal years in the period ended July 2, 1994, which reports are
incorporated by reference or included in this Annual Report on Form 10-K.
/s/Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
September 15, 1994
