FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended January 1, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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
(Address of principal executive offices) (Zip Code)
(508) 493-5111
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO.
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date. Number of
shares of Common Stock, par value $1, outstanding as of January 1,
1994: 137,889,665.<PAGE>
DIGITAL EQUIPMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per share data)
Three-Month Period Ended
---------------------------
January 1, December 26,
1994 1992
----------- -------------
REVENUES
Product sales................................. $ 1,659,924 $ 1,967,234
Service and other revenues.................... 1,594,155 1,722,209
------------ -------------
TOTAL OPERATING REVENUES...................... 3,254,079 3,689,443
------------ -------------
COSTS AND EXPENSES
Cost of product sales......................... 1,112,292 1,116,538
Service expense and cost of other revenues.... 968,473 1,058,270
Research and engineering expenses............. 330,948 404,843
Selling, general and administrative expenses.. 908,688 1,177,306
------------ -------------
Operating loss................................ ( 66,322) (67,514)
Interest income............................... 12,071 14,209
Interest expense.............................. 15,398 12,554
------------ -------------
LOSS BEFORE INCOME TAXES ..................... ( 69,649) (65,859)
PROVISION FOR INCOME TAXES.................... 2,495 8,000
------------ -------------
NET LOSS...................................... $ ( 72,144) ( 73,859)
============ =============
NET LOSS PER COMMON SHARE (1)................. $ ( .53) $ (.57)
============ =============
(1) Net loss per share is based on the weighted average number of
common shares outstanding during each period: 136,028,383 shares for the
three months ended January 1, 1994 and 129,154,484 for the three months
ended December 26, 1992. See page 8 of this report.
Cash dividends have never been paid by the Corporation.
The accompanying notes are an integral part of these financial
statements.
2
<PAGE>
DIGITAL EQUIPMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per share data)
Six-Month Period Ended
----------------------------
January 1, December 26,
1994 1992
------------ -------------
REVENUES
Product sales................................. $ 3,216,928 $ 3,735,055
Service and other revenues.................... 3,052,099 3,268,687
------------- -------------
TOTAL OPERATING REVENUES...................... 6,269,027 7,003,742
------------- -------------
COSTS AND EXPENSES
Cost of product sales......................... 2,093,707 2,136,495
Service expense and cost of other revenues.... 1,912,350 2,075,920
Research and engineering expenses............. 645,665 810,320
Selling, general and administrative expenses.. 1,780,895 2,308,493
------------- -------------
Operating loss................................ ( 163,590) ( 327,486)
Interest income............................... 29,284 27,425
Interest expense.............................. 35,034 16,344
------------- -------------
LOSS BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE.... ( 169,340) ( 316,405)
PROVISION FOR INCOME TAXES.................... 6,031 18,000
------------- -------------
LOSS BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE.............. ( 175,371) ( 334,405)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE................................... 20,042 0
------------- -------------
NET LOSS...................................... $ ( 155,329) $ ( 334,405)
============= =============
LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE PER COMMON SHARE....... $ (1.29) $ (2.60)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE PER COMMON SHARE.................. .14 -
------------- -------------
NET LOSS PER COMMON SHARE (1)................. $ (1.15) $ (2.60)
============= =============
3
<PAGE>
(1) Net loss per share is based on the weighted average number of
common shares outstanding during each period: 135,5l9,380 shares for the
six months ended January 1, 1994 and 128,578,210 for the six months ended
December 26, 1992. See page 9 of this report.
Cash dividends have never been paid by the Corporation.
The accompanying notes are an integral part of these financial
statements.
DIGITAL EQUIPMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
January 1, July 3,
1994 1993
------------- -------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents.................... $ 1,147,257 $ 1,643,195
Accounts receivables, net of allowances
of $100,548 and $110,764................... 2,795,969 3,020,252
Inventories
Raw materials.............................. 403,800 331,506
Work-in-process............................ 606,630 502,200
Finished goods............................. 939,926 921,434
------------- -------------
Total inventories............................ 1,950,356 1,755,140
Prepaid expenses and deferred income taxes... 405,669 463,928
------------- -------------
TOTAL CURRENT ASSETS......................... 6,299,25l 6,882,515
------------- -------------
Property, plant and equipment, at cost....... 7,l45,929 7,193,430
Less accumulated depreciation................ 4,000,269 4,015,139
------------- -------------
Net property, plant and equipment............ 3,l45,660 3,178,291
Other assets................................. 923,846 889,537
------------- -------------
TOTAL ASSETS................................. $ 10,368,757 $ 10,950,343
============= =============
The accompanying notes are an integral part of these financial statements.
4<PAGE>
January 1, July 3,
1994 1993
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank loans and current portion
of long-term debt.......................... $ 11,574 $ 21,335
Accounts payable............................. 767,055 822,434
Income taxes payable......................... 11,026 57,614
Salaries, wages and related items............ 552,626 556,151
Deferred revenue and customer advances....... 960,493 1,138,323
Restructuring reserve........................ 442,705 738,989
Other current liabilities.................... 553,793 583,868
------------ ------------
TOTAL CURRENT LIABILITIES.................... 3,299,272 3,918,714
Noncurrent deferred income taxes............. 26,369 -
Long-term debt............................... 1,017,360 1,017,577
Postretirement benefits...................... 1,195,805 1,128,653
------------ ------------
TOTAL LIABILITIES............................ 5,538,806 6,064,944
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, $1.00 par value; authorized
450,000,000 shares; issued 137,889,665
and 135,489,805 shares.................... 137,890 135,490
Additional paid-in capital................... 2,937,205 2,851,960
Retained earnings............................ 1,754,856 1,937,627
Treasury stock at cost, 0
and 497,551 shares....................... - (39,678)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY................... 4,829,95l 4,885,399
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY.................................... $10,368,757 $10,950,343
============ ============
The accompanying notes are an integral part of these financial statements.
5<PAGE>
DIGITAL EQUIPMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Six-Month Period Ended
---------------------------
January 1, December 26,
1994 1992
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss..................................... $ ( 155,329) $ (334,405)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation............................. 30l,722 346,923
Amortization............................. 60,996 67,240
Other adjustments to net loss............ 84,002 l4l,000
Decrease in accounts receivable.......... 224,283 462,248
Increase in inventories.................. (l95,2l6) (2l8,l96)
(Increase)/decrease in prepaid expenses.. 82,l45 (33,375)
Decrease in accounts payable............. (55,379) (2l2,856)
Increase/(decrease) in taxes............. (66,782) 89,666
Increase in salaries, wages, benefits
& related items........................ 63,627 75,238
Decrease in deferred revenues and
customer advances....................... (l77,830) (230,l52)
Decrease in restructuring reserves....... (34l,584) (45l,2l5)
Decrease in other current liabilities.... (65,303) (6l,333)
------------ ------------
Total adjustments............................ (85,3l9) (24,8l2)
------------ ------------
Net cash flows from operating activities..... (240,648) (359,2l7)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in property, plant and equipment.. (348,070) (256,463)
Proceeds from the disposition of net property,
plant, and equipment....................... 53,620 25,279
Investment in other assets................... (39,993) (2l8,633)
Proceeds from disposition of other assets.... 3,238 -
------------ ------------
Net cash flows from investing activities..... (33l,205) (449,8l7)
------------ ------------
Net cash flows from operating and
investing activities....................... (57l,853) (809,034)
------------ ------------
The accompanying notes are an integral part of these financial statements.
6<PAGE>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of debt........... 12,950 74l,320
Payments to retire debt...................... (23,573) (8,05l)
Issuance of common and treasury shares....... 86,538 l03,933
------------ ------------
Net cash flows from financing activities..... 75,9l5 837,202
------------ ------------
Net increase (decrease) in cash and cash
equivalents................................ (495,938) 28,l68
Cash and cash equivalents at the
beginning of the year...................... 1,643,l95 1,337,172
------------ ------------
Cash and cash equivalents at end of period... $ 1,147,257 $ 1,365,340
============ ============
The accompanying notes are an integral part of these financial statements.
7<PAGE>
DIGITAL EQUIPMENT CORPORATION
COMPUTATION OF NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE
(Dollars in thousands except per share data)
Three-Month Period Ended
------------------------------
January 1, December 26,
1994 1992
-------------- -------------
Net loss applicable to common and
common equivalent shares.................... $ (72,144) $ (73,859)
============== =============
Weighted-average number of common shares
outstanding during the period............... 136,028,383 129,154,484
Common stock equivalents from application
of "treasury stock" method to exercised and
outstanding stock options................... 0 0
-------------- -------------
Total weighted-average number of common
and common equivalent shares outstanding
during the period........................... 136,028,383 129,154,484
============== =============
Net loss per common and common
equivalent share............................ $ (0.53) $ (0.57)
============== =============
The accompanying notes are an integral part of these financial statements.
8<PAGE>
DIGITAL EQUIPMENT CORPORATION
COMPUTATION OF NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE
(Dollars in thousands except per share data)
Six-Month Period Ended
------------------------------
January 1, December 26,
1994 1992
-------------- -------------
Net loss applicable to common and
common equivalent shares.....................$ (155,329) $ (334,405)
============== =============
Weighted-average number of common shares
outstanding during period.................... 135,5l9,380 128,578,210
Common stock equivalents from application
of "treasury stock" method to exercised and
outstanding stock options.................... 0 0
-------------- -------------
Total weighted-average number of common
and common equivalent shares outstanding
during the period............................ 135,5l9,380 128,578,210
============== =============
Net loss per common and common
equivalent share.............................$ ( 1.15) $ ( 2.60)
============== =============
The accompanying notes are an integral part of these financial statements.
9<PAGE>
DIGITAL EQUIPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Significant Accounting Policies
Certain prior years' amounts have been reclassified to conform with current
year presentation.
Note B - Income Taxes
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, the Corporation recorded a one-time benefit of $20
million, or $0.14 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.
At July 4, 1993, the significant components of deferred tax assets and
liabilities upon the adoption of SFAS No. 109, were:
(dollars in millions)
---------------------------------
Deferred Tax Deferred Tax
Assets Liabilities
------------ ------------
Inventory-related
transactions $ 138 $ 7
Depreciation 66 4l
Postretirement benefits 358 -
Restructuring 235 -
Tax loss carryforwards (a) 1,025 -
Tax credit carryforwards 149 -
Other 283 234
------ ----
Gross deferred tax balances 2,254 282
Valuation allowance 1,805 -
------ -----
Net deferred tax balances $ 449 $ 282
====== =====
10<PAGE>
The deferred tax assets (a) of $l.0 billion represent $2.8 billion of net
operating loss carryforwards on a tax return basis which will generally
expire as follows: $150 million in 1998, $1.2 billion in 2007, $800
million in 2008, and the remainder thereafter. Tax credit carryforwards
will generally expire as follows: $40 million in 2001, $50 million in
2002, $40 million in 2003, and the remainder thereafter.
On August 10, 1993, the Omnibus Budget Reconciliation Act of 1993 was
signed into law. This act, among other things, raises the U.S. corporate
statutory tax rate from 34% to 35%. Due to the net operating loss
carryforwards, the Corporation does not expect the change in the statutory
tax rate to have a material impact on the Corporation's consolidated
financial position or results of operations for the foreseeable future.
Note C - Preferred Stock
On November 4, 1993, the stockholders of the Corporation approved an
amendment to the Corporation's Restated Articles of Organization to
authorize the issuance of up to 25,000,000 shares of preferred stock.
Note D - Subsequent Event
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 securities, including
senior and subordinated debt securities, preferred stock, depositary shares
and warrants to purchase equity and debt securities (the "Securities"), in
an aggregate amount of $l billion. The Securities may be offered from time
to time in amounts, at prices and on terms to be determined at the time of
sale. The Corporation believes the shelf registration provides additional
financing flexibility to meet potential future funding requirements and to
take advantage of potentially attractive capital market conditions.
Subsequent to the end of the second quarter of fiscal 1994, the
Corporation's annual facility fee on its three-year $750 million committed
credit facility was increased from 0.175% to 0.250%.
11<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
As an aid to understanding the Corporation's operating results, the
following tables indicate the percentage relationships of income and
expense items included in the statements of operations for the most recent
quarter and six-month period ended January 1, 1994 and the corresponding
quarter and six-month period ended December 26, 1992 of the preceding
fiscal year and the percentage changes in those items for such periods.
Components of total costs of operating revenues are shown as percentages of
their related revenues.
Income and Expense Items
as a Percentage of
Total Operating Revenues (a)
------------------------ -----------------------
Three-Month Period Ended Six-Month Period Ended
------------------------ ----------------------
Income and Jan. 1, Dec. 26, Jan. 1, Dec. 26,
Expense Items 1994 1992 1994 1992
----------- ----------- ----------- ---------
Product sales 5l.0% 53.3% 5l.3% 53.3%
Service and other revenues 49.0% 46.7% 48.7% 46.7%
----------- ----------- ----------- ---------
Total operating revenues 100.0% l00.0% 100.0% 100.0%
Cost of product sales 67.0% 56.8% 65.l% 57.2%
Service expense and cost
of other revenues 60.8% 61.4% 62.7% 63.5%
Total cost of operating
revenues 63.9% 58.9% 63.9% 60.l%
Research and engineering
expenses 10.2% ll.0% 10.3% 11.6%
Selling, general and
administrative expenses 27.9% 3l.9% 28.4% 33.0%
----------- ----------- ----------- ---------
Operating loss (2.0%) (1.8%) (2.6%) (4.7%)
Interest income .4% .4% .5% .4%
Interest expense .5% .3% .6% .2%
----------- ----------- ----------- ---------
Loss before income taxes
and cumulative effect of
change in accounting
principle (2.1%) (1.8%) (2.7%) (4.5%)
Provision for income taxes .1% .2% .l% .3%
----------- ----------- ----------- ---------
Loss before cumulative
effect of change in
accounting principle (2.2%) (2.0%) (2.8%) (4.8%)
Cumulative effect of
change in accounting
principle 0.0% 0.0% .3% 0.0%
----------- ----------- ----------- ---------
Net loss (2.2%) (2.0%) (2.5%) (4.8%)
=========== =========== =========== =========
Note (a) Percentage of operating revenues may not be additive due to
rounding.
12<PAGE>
Percentage Increases
(Decreases)
------------------------------------
Three-Month Six-Month
Period Ended Period Ended
Jan. 1, 1994 Jan. 1, 1994
vs. vs.
Income and Expense Items Dec. 26, 1992 Dec. 26,1992
--------------------------------- ------------- -------------
Product sales ( 16 %) ( 14 %)
Service and other revenues ( 7 %) ( 7 %)
Total operating revenues ( 12 %) ( 10 %)
Cost of product sales ( 0 %) ( 2 %)
Service expense and cost of other
revenues ( 9 %) ( 8 %)
Total cost of operating
revenues ( 4 %) ( 5 %)
Research and engineering
expenses ( 18 %) ( 20 %)
Selling, general and administrative
expenses ( 23 %) ( 23 %)
Operating loss ( 2 %) ( 50 %)
Interest income ( 15 %) 7 %
Interest expense 23 % 100+%
Loss before income taxes and
cumulative effect of change in
accounting principle 6 % ( 46 %)
Provision for income taxes ( 69 %) ( 66 %)
Loss before cumulative effect of
change in accounting principle ( 2 %) ( 48 %)
Cumulative effect of change in
accounting principle - NM
Net loss ( 2 %) ( 54 %)
NM=Not meaningful
13<PAGE>
REVENUES
Total operating revenues for the first six months of fiscal 1994 were
$6.27 billion, down 10% from the comparable period a year ago. Total
operating revenues included product sales of $3.22 billion, down 14% from a
year ago and service and other revenues of $3.05 billion, down 7%.
Operating revenues from customers outside the United States were $3.86
billion or 61% of total operating revenues, compared with $4.47 billion or
64% of total operating revenues for the comparable six-month period last
year. The Corporation continued to experience a significant decrease in
European revenues, as well as a decline in U.S. revenues, partially offset
by revenue growth in the Asia Pacific region and Latin America. Total
operating revenues for the quarter and first six months were negatively
affected by foreign currency exchange rate fluctuations.
For the quarter ended January 1, 1994, total operating revenues were
$3.25 billion, down 12% from the comparable period a year ago. Product
sales were $1.66 billion, down 16% and service and other revenues were
$1.59 billion, down 7%. Operating revenues from customers outside the
United States were $2.04 billion or 63% of total operating revenues; this
compared with $2.41 billion or 65% of total operating revenues for the
second quarter of fiscal 1993.
Although revenues from the sale of Alpha AXP systems continue to grow,
and represented approximately 10% of product sales for both the quarter and
first six months, the Corporation continues to experience a significant
decline in demand for its VAX systems. Product sales for the quarter and
first six months were positively affected by a growth in demand for
personal computers and Alpha AXP workstations, as well as storage devices
and networking products.
The decline in service revenues over the comparable periods of fiscal
1993 was due principally to lower levels of revenue from the Corporation's
VAX/VMS systems maintenance business, as well as the greater reliability
of, and lower maintenance revenues associated with newer products. This
was partially offset by an increase in revenues from maintenance of
products manufactured by other companies. In addition, the Corporation is
becoming more selective in pursuing consulting and systems integration
opportunities, increasing its focus on the profitability of projects; as a
result, revenues from consulting and systems integration services were down
slightly for the quarter and essentially flat for the first six months
compared with the comparable periods a year ago.
The Corporation continues to take actions to respond to changes in
industry demand, economic conditions and other factors affecting the
Corporation's business. In October, the Corporation announced new open
client-server products and related software and service products. The
Corporation continues to seek alliances with other companies and to focus
its resources in order to offer products and services which meet customer
needs for open systems. Just after the close of the second quarter, the
14<PAGE>
Corporation announced that it had hired a new general manager to lead its
European operations. The Corporation also is focusing on increasing market
penetration by improving its direct sales efforts, targeting the growing
small and medium enterprise information technology market and expanding its
use of resellers and other indirect channels of distribution.
EXPENSES AND PROFIT MARGINS
The Corporation recorded an operating loss of $66 million for the
second quarter of fiscal 1994, compared with an operating loss of $68
million in the second quarter a year ago. For the first six months, the
Corporation recorded an operating loss of $164 million, compared with an
operating loss of $327 million for the comparable period a year ago.
Gross profit on product sales for the quarter and first six months
declined from the comparable periods a year ago. Product gross margin
(gross profit as a percentage of product sales) represented 33% and 35% of
product sales, respectively, down 10 and 8 percentage points, respectively,
from the comparable periods last year. The decline in product gross profit
resulted from the decrease in product sales, a continued shift in the mix
of product sales toward personal computers and Alpha AXP-based systems
which typically carry lower margins than the Corporation's VAX systems,
competitive pricing pressures and unfavorable currency exchange rate
fluctuations, partially offset by manufacturing cost efficiencies.
Gross profit on service revenues for the quarter and first six months
declined slightly from the comparable periods a year ago. Service gross
margin (gross profit as a percentage of service revenues) represented 39%
and 37% of service revenues, respectively, slightly higher than the
comparable periods of fiscal 1993. The modest decline in service gross
profit resulted principally from lower service revenues, partially offset
by increased efficiency in service delivery and an increased focus on the
profitability of consulting projects.
Spending on research and engineering (R&E) in the quarter totaled $331
million, a decrease of 18% from the $405 million of the comparable quarter
a year ago. For the first six months, R&E spending totaled $646 million,
down 20% from the $810 million of the comparable period last year. The
Corporation is focusing its current R&E investments on maintaining a
strong, market-driven product set and on attaining and sustaining
technology leadership in selected areas.
Selling, general and administrative (SG&A) expenses totaled $909
million in the quarter, down 23% from the $1.18 billion of the comparable
quarter a year ago. For the first six months, SG&A spending totaled $1.78
billion, down 23% from the $2.31 billion of the comparable period in fiscal
1993.
While spending for R&E and SG&A is declining, the Corporation believes
its cost and expense levels are still too high for the level and mix of
15<PAGE>
total operating revenues. The Corporation is reducing expenses by
streamlining its product offerings and selling and administrative
practices, resulting in reductions in employee population, closing and
consolidation of facilities and reductions in discretionary spending. The
Corporation believes that the remaining restructuring reserve of $443
million is adequate to cover presently planned restructuring actions. The
Corporation will continue to take actions necessary to achieve a level of
costs appropriate for its revenues and competitive for its business.
Interest income for the quarter and first six months was $12 million
and $29 million, respectively. Interest expense for the quarter and first
six months was $15 million and $35 million, respectively, up from the
comparable periods a year ago due to the issuance of $1 billion aggregate
principal amount of long-term debt in fiscal 1993. Interest expense for
the second quarter includes 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.
Tax expense for the quarter and first six months was $2 million and $6
million, respectively. The tax expense reflects taxes provided for
profitable non-U.S. operations and an inability to recognize U.S. tax
benefits from operating losses.
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 1994, the
Corporation recorded a one-time benefit of $20 million, or $0.14 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 B).
AVAILABILITY OF FUNDS TO SUPPORT CURRENT AND FUTURE OPERATIONS
Cash and cash equivalents totaled $1.15 billion at the end of the
quarter, down from $1.64 billion at the end of fiscal 1993. The net
decrease in cash and cash equivalents for the quarter was $127 million.
Operating activities generated $6 million of cash for the quarter, and
used $241 million of cash for the first six months of fiscal 1994. Cash
used for the first six months was due principally to restructuring
activities, higher inventory levels and the operating loss, partially
offset by a decrease in accounts receivable.
Net cash used for investing activities was $198 million for the quarter
and $331 million for the first six months. Capital spending was $181
16<PAGE>
million for the quarter and $348 million for the first six months,
consisting principally of investments in semiconductor and storage
technology facilities and equipment. During the first six months, the
Corporation generated $57 million in cash proceeds from the disposal of
property, plant and equipment and other assets, principally as the result
of restructuring activities.
Net cash from financing activities was $65 million for the quarter, due
principally to the issuance of common stock under the Corporation's
employee stock plans.
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
securities, including senior and subordinated debt securities, preferred
stock, depositary shares and warrants to purchase equity and debt
securities (the "Securities"), in an aggregate amount of $1 billion. The
Securities may be offered from time to time in amounts, at prices and on
terms to be determined at the time of sale. The Corporation believes the
shelf registration provides additional financing flexibility to meet
potential future funding requirements and to take advantage of potentially
attractive capital market conditions (see Note D).
The Corporation historically has maintained a conservative capital
structure, and believes that its current cash position and access to
capital markets are adequate to support current and future operations.
* * * *
The accompanying consolidated balance sheets, statements of operations
and statements of cash flows reflect all adjustments of a normal recurring
nature which are, in the opinion of management, necessary to a fair
statement of the consolidated financial position at January 1, 1994 and the
consolidated results of operations and the consolidated statements of cash
flows for the interim periods ended January 1, 1994 and December 26, 1992.
17<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
4.1 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).
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Corporation during the
period covered by this report.
18<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
DIGITAL EQUIPMENT CORPORATION
(Registrant)
/s/William M. Steul
By_______________________________
Vice President, Finance and
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
February 4, 1994
19<PAGE>
