-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PHRXdmfIizokKZ3jbi7Ybzbnl30tT7w8ljc465ann6uOge3nPFrVlAlACY3LC53+ c8b39rGdlCjAtBJUIZm0UQ== 0000026999-95-000011.txt : 19951229 0000026999-95-000011.hdr.sgml : 19951229 ACCESSION NUMBER: 0000026999-95-000011 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951228 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DATA GENERAL CORP CENTRAL INDEX KEY: 0000026999 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER & OFFICE EQUIPMENT [3570] IRS NUMBER: 042436397 STATE OF INCORPORATION: DE FISCAL YEAR END: 0925 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07352 FILM NUMBER: 95605318 BUSINESS ADDRESS: STREET 1: 4400 COMPUTER DR CITY: WESTBORO STATE: MA ZIP: 10580 BUSINESS PHONE: 5088985000 MAIL ADDRESS: STREET 1: 4400 COMPUTER DRIVE CITY: WESTBORO STATE: MA ZIP: 10580 10-K 1 FY95 10-K ========================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark one) [ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended September 30, 1995 OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from __________________ to _____________________ Commission File Number 1-7352 Data General Corporation (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 04-2436397 (I.R.S. Employer Identification Number) 4400 Computer Drive, Westboro, Massachusetts 01580 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (508) 898-5000 Securities registered pursuant to Section 12(b) of the Act: Common Stock, par value $.01 New York Stock Exchange London Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange London Stock Exchange 7-3/4% Convertible Subordinated New York Stock Exchange Debentures Due 2001 8-3/8% Sinking Fund Debentures Due 2002 New York Stock Exchange (Title of each class) (Name of each exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: None 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 this Form 10-K or any amendment to this Form 10-K [ X ]. 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 ------- ------- Aggregate market value of common stock held by non-affiliates of the registrant, as of December 1, 1995: $467,470,731 Number of shares outstanding of each of the issuer's classes of common stock, as of December 1, 1995: Common Stock, par value $.01 38,160,876 (Title of each class) (Number of Shares) Documents incorporated by reference: Parts I and II - Portions of registrant's Annual Report to Stockholders for the year ended September 30, 1995. Part III - Portions of registrant's Proxy Statement dated December 20, 1995. ============================================================================ AViiON, CEO, CLARiiON, DASHER, DESKTOP GENERATION, DG/ViiSION, ECLIPSE, microNOVA, NOVA, and WALKABOUT are registered trademarks, and CEO Connection, CEO Object Office, DG/UX, ECLIPSE MV/3200, ECLIPSE MV/3600, ECLIPSE MV/9800, ECLIPSE MV/25000, ECLIPSE MV/35000 and ECLIPSE MV/60000 are trademarks of Data General Corporation. All other brand and product names appearing in this publication are trademarks or registered trademarks of their respective holders. PART I Item 1. Business. Data General Corporation, incorporated in Delaware on April 15, 1968, designs, manufactures, sells, and supports a broad range of multi-user computer systems, servers, and mass storage devices. The company's range of products and services includes database servers, communications and networking servers, workstation, desktop, and portable systems, mass storage devices, more than 15,000 application solutions offered in conjunction with various third-party firms, and a worldwide service and support network. As used herein, the terms "Data General" and the "company" mean Data General Corporation, and, unless otherwise indicated, its consolidated subsidiaries. There is a wide and expanding variety of applications for the products manufactured by Data General. The company's products are used for database management, integrated information processing, distributed data processing, document imaging, office automation and financial applications, transaction processing, communications, decision support, computer-aided engineering, manufacturing planning and control, human resources management, educational administration, healthcare, testing, process control, and environmental monitoring. Other areas of use include scientific and laboratory research, medical instrumentation and imaging, signal analysis, data acquisition, instrumentation, monitoring, and control. The company's products are used in networks, at the enterprise level, and in stand-alone applications. Data General's AViiON(R) family of computer systems includes two series: one series, available since 1989, based on Reduced Instruction Set Computing (RISC) microprocessors from Motorola; and a new series of AViiON servers, introduced in 1995, based on Intel technology. All AViiON systems run the DG/UX(R) operating system, Data General's commercial implementation of the standard UNIX System V Release 4 operating system, and also run various other open operating systems. The company's CLARiiON(R) mass storage devices are open systems disk arrays and tape arrays for computers that run the UNIX operating system and selected other operating systems. Data General's ECLIPSE(R) MV family of minicomputers uses the company's proprietary hardware architecture and operating system. The company provides products and services needed for networking and interoperability, which enable computing systems from many vendors to function together in multi-platform environments. Data General also offers a broad line of personal computers. During the last decade, advances in microprocessor technology and the increasing availability of standards-based hardware and software significantly eroded the competitive advantage of proprietary minicomputer systems. These trends resulted in the introduction of networked computer systems, consisting of servers hosting PCs, terminals, and other workstations, which offer customers significant price/performance advantages over traditional minicomputers. In fiscal 1988, as a response to these developments, Data General management implemented a strategy that focused the company's resources on developing the AViiON family of open computer systems and the DG/UX operating system while continuing to enhance and upgrade the performance of its ECLIPSE MV family of minicomputers and related software. In fiscal 1995, revenues from the AViiON family were approximately $421 million. Since AViiON shipments began in fiscal 1989, AViiON has progressed through several product generations and now has an installed base approaching 30,000 systems and approximately $2.0 billion in value. In June of 1995, Data General announced that it had chosen the Intel architecture for a new generation of AViiON servers. At the same time, the company outlined its technology direction for providing high-performance systems based on Intel processors, Standard High Volume (SHV) servers and Cache Coherent Non-Uniform Memory Access (ccNUMA) architecture. This announcement was the result of a two-year process to prepare the company, the DG/UX operating system, and the company's software partners for this advanced computing technology. The new Intel based AViiON computers will begin to ship in volume during the second half of fiscal 1996. In 1991, Data General introduced its first RAID (Redundant Array of Independent Disks) storage systems for AViiON servers. In 1992, the company expanded that product family, named it CLARiiON, and made it available for use on other computer systems. With the addition of low-end products introduced in the past year, CLARiiON now supports virtually all open systems computing platforms with a broad family of storage products ranging from disk arrays for the PC and local area network (LAN) market, to high-capacity, high-availability disk arrays for enterprise storage applications. "Open CLARiiON" products are available for use with systems from IBM, Digital Equipment Corporation, Sun Microsystems, and other systems vendors, as well as with systems running Novell NetWare, Microsoft NT, IBM OS/2, and SCO UNIX. Open CLARiiON products are sold through systems integrators and distributors. However, the majority of the company's CLARiiON revenues are derived through OEM (Original Equipment Manufacturer) relationships with major systems vendors and storage suppliers. Products and Services. The company's computer systems can be grouped into the following product families: AViiON systems, CLARiiON mass storage subsystems; ECLIPSE MV family systems, DG/ViiSION(R) and DASHER(R) family personal computers and LAN servers, and WALKABOUT(R) notebook computer systems. AViiON servers and CLARiiON storage products are the core of the company's current business. The company also continues to sell and support the following earlier product families: 16-bit ECLIPSE systems; DESKTOP GENERATION(R) systems; NOVA(R) systems; and microNOVA(R) microproducts. AViiON computers function as servers or as multi-user systems for a wide range of applications, from departmental and Value Added Reseller (VAR) solutions, to large commercial enterprises that need high-availability systems to support large numbers of users, handle large volumes of transactions, and support large databases. The Intel based AViiON product family, including the AV 4700, AV 4800, and AV 5800 enterprise servers, combines high-performance with extensive reliability, availability, and serviceability features typically found only on larger computers. Together with a highly scaleable and expandable design that leverages industry technology trends, these features make AViiON servers based on Intel Pentium processors highly suitable platforms for business-critical commercial applications. The family also includes the AV 2000 and AV 3000, deskside servers that are ideal for VAR applications as well as for use in departmental applications running UNIX, NetWare, or Microsoft Windows NT Server. The Motorola based AViiON product family ranges from high-performance, general-purpose systems and servers to entry-level workstations. AViiON AV 9500 servers include models with up to sixteen processors. The AV 8500 server series is a mid-range line which offers from two- to eight-processor systems. These office-packaged systems can be used to integrate networks of personal computers, providing users with services such as communications, resource sharing, office and imaging applications, and databases. The AV 5500 and AV 4500 systems are flexible and expandable enterprise servers in deskside packaging. The AV 450 and AV 550 workstations are designed for commercial applications, such as Geographical Information Systems and software development. All AViiON systems run the DG/UX operating system, Data General's version of the UNIX operating system. DG/UX is a sophisticated, commercial implementation of the UNIX System V Release 4 operating system. Data General has been enhancing DG/UX for over a decade to provide a state-of- the-art platform for running core business applications. DG/UX provides a robust file system, open connectivity, comprehensive systems and storage management, standards compliance, and high levels of application scalability. Recent improvements to DG/UX include clustering of up to eight AViiON systems enabling resource sharing, higher levels of availability, and easier system administration. DG/UX is also the first UNIX based operating system to meet the United States Government's B2 level security requirements, the most demanding security code within the U.S. military/intelligence community. Data General plans to make this same capability available for security conscious commercial customers. The CLARiiON family of mass storage subsystems is based on RAID technology, providing an architecture that speeds access to data while safeguarding it. CLARiiON subsystems employ up to 20 disk drives. Currently, CLARiiON systems utilize SCSI 3.5 inch disk drives, each with a capacity of up to 4.0 GB (billions of characters), allowing a subsystem to store up to 80 GB of information. Higher capacity disk drives can be accommodated as they become available in the marketplace. Up to three subsystems can be combined in rackmount configurations. The drives are combined with an intelligent input/output processor, which manages the array subsystem's operations, and cache which provides improved performance. By utilizing RAID technology, a portion of CLARiiON disk resources is dedicated to data redundancy. While individual drives may occasionally fail, the array system remains operational while the failed disk is repaired or replaced. CLARiiON subsystems can be repaired while under power. Each disk module comes in a specially designed carrier that can be removed from its array group without disturbing data access. Data General's ECLIPSE MV systems are 32-bit computers using custom-designed very large scale integration chips which utilize a more powerful instruction set than did the earlier 16-bit ECLIPSE and NOVA systems, enabling the execution of most programs that operate on the earlier systems. The range of products includes: the low-end ECLIPSE MV/3200(TM) and ECLIPSE MV/3600(TM) computers; the mid-range ECLIPSE MV/98000(TM), MV/25000(TM) and MV/35000(TM), systems; and the high-end ECLIPSE MV/60000(TM) HA series of multi-process computers. The Data General family of personal computers includes DG/ViiSION entry- level systems, DASHER II mid-range through multi-user systems and LAN servers, and the WALKABOUT full-function notebook computer. These systems use the latest available microprocessors, including Intel Pentium processors. Connectivity to AViiON and ECLIPSE MV systems and other computers can be achieved using various communication products offered by Data General. All of the company's computer systems differ in speed, memory, and storage capacity; are available with certain processor features; and are available with a number of subassembly slots that may be used to accommodate peripheral controllers. Data General also sells a wide variety of peripheral equipment for use with its computers. Peripheral equipment sold by the company includes video display terminals, printers, plotters, communication controllers, multiplexors, disk storage, memory, magnetic tape equipment, analog-to- digital converters, and digital-to-analog converters. The company also manufactures peripheral controller subassemblies and related electronics for connecting its computers to standard data communication equipment and computer systems manufactured by others. Data General also designs and manufactures peripheral controller subassemblies for use with electro- mechanical peripheral equipment it purchases from third parties. The company has developed and offers an extensive library of systems software products for use with its computer systems, including database management and communications software for industry-standard mainframe protocols. This library includes operating systems with compilers, assemblers, and general utility programs. The company's operating systems provide compatibility within product families. The company's proprietary operating systems include the AOS/VS (Advanced Operating System/Virtual Storage) and AOS/VS II multi-programming systems, the AOS/RT32 real-time subset of AOS/VS, and DG/RDOS (Real-time Disk Operating System) for 32-bit systems. More than 40 programming languages are available with the company's systems, including common versions of BASIC, Business BASIC, COBOL 74, ICOBOL, Fortran IV, Fortran V, Fortran 77, ALGOL, DG/L, PL/1, APL, Pascal, "C", and Common Lisp. Data General's Ada compiler and Ada development environment software allow customers to program in Ada, a standard programming language used in military applications. Data General also offers its customers a wide range of applications software solutions for both open and proprietary systems. Computer programs are furnished pursuant to non-exclusive licenses. The company's relationships with systems integrators, software suppliers, and industry- specific VARs provide a growing worldwide presence in many specialized markets. The company's new Intel based AViiON systems are capable of running more than 15,000 applications from leading suppliers of databases, computer languages, office automation, and industry application packages. This collection of software includes many products that can be used by customers who are migrating data processing or data management tasks from mainframe computers. This represents an important application area for the company's AViiON servers. The company continues to support its CEO(R) integrated office automation software for ECLIPSE MV systems. This software allows users to perform routine office tasks, such as electronic mail, word processing, filing, and maintaining electronic calendars, while also having access to spreadsheets, graphics, a centralized database, or specialized applications developed by customers or purchased from Data General or third parties. The company also offers CEO Connection(TM) communications software, which allows CEO system functions to be used with products using the MS-DOS and Windows operating systems. In addition, CEO Object Office(TM) brings CEO office automation software to an icon-style graphics interface on a personal computer. Data General's communications architecture is based upon the implementation of both international and de facto standards in the data communications and networking field. Data General supports de facto standards such as TCP/IP (Transmission Control Protocol/Internet Protocol), SNA (IBM's Systems Network Architecture), Novell IPX/SPX, DECnet, AppleTalk, async and bisync protocols, among others. Formal standards support includes OSI (Open Systems Interconnection), GOSIP (Government Open Systems Interconnection Profile), ISDN (Integrated Services Digital Network), CMIP/CMIS for network management, and numerous others. Data General is able to integrate mainframes, minicomputers, and various desktops (UNIX workstations, Apple Macintosh, async terminals, X-terminals, MS-Windows, and DOS PCs) using a wide range of communications products and services. Data General can help customers integrate their filing systems (Novell, LAN Manager, and Sun NFS), take advantage of UNIX print services, run UNIX applications, and unify their offices using network products such as mail, electronic data interchange, and the like. Further, customers can create cooperative program environments (client/server) through the use of various open communications interfaces provided by Data General such as API LU 6.2, 0, 1, 2, 3, (for IBM environments), SPX (for Novell), and TLI (for TCP/IP, OSI, and LAN Manager environments). This set of communications capabilities enables Data General systems to be incorporated in a variety of networks that include systems and equipment manufactured by the company and by many other vendors. The total purchase price of any computer system varies depending upon the processing power, size of main memory, and storage capacity, and upon the types and quantities of accessory, peripheral controller subassembly, and peripheral equipment ordered. Prices of the company's various products range from less than $2,000 to over $1,000,000. Dollar volume discounts are offered on most products sold by the company. New products and revisions to existing products have resulted in improved price/performance ratios. The company extends a limited service and/or parts warranty on substantially all equipment it sells and offers several types of maintenance services and contracts at additional charges. Warranty and other maintenance services are generally performed by service employees located in various offices throughout the world. The company offers a mail-in parts exchange and repair service and a cooperative maintenance program for qualified organizations, resellers, and other customers capable of performing maintenance services. The cooperative program includes spare parts, back-up support, depot service, diagnostics, training, documentation, tools and test equipment, and service planning and support. Data General supports over 3,000 products made by other vendors. The company also offers an on-line information service, which provides customers with immediate access to support information and personnel. Data General provides various services related to the installation and operation of its computer systems and software. Systems engineers provide systems and software installation support. The company's Professional Services organization provides a broad array of systems design, applications development, and consulting services. The company's Special Systems group designs custom hardware products under contract to individual customers. Customer training related to systems and software sold by the company is provided at company training facilities in various locations throughout the world or at the customer's own facilities. For the fiscal years ended September 30, 1995, and September 24, 1994, product revenues were 65% of consolidated total revenues and service revenues were 35% of consolidated total revenues. For the fiscal year ended September 25, 1993, product revenues were 62% of consolidated total revenues and service revenues were 38% of consolidated total revenues. Marketing and Distribution. The company uses multiple channels of distribution to sell its products. Sales representatives, in company offices located throughout the world, sell products to end user customers and resellers. A mass merchandising organization, called "Data General Plus", is primarily responsible for meeting the needs of existing customers with a product range that includes replacement systems, system upgrades, and a full range of supplies and accessories sold through catalogs. The company also sells refurbished Data General equipment. Data General uses several third-party distribution channels, including OEMs, resellers, and distributors. OEMs include companies that incorporate Data General computers into other products, such as air traffic control systems, for resale to the final user. Resellers add applications software to the computer systems purchased from the company before reselling them, and may provide assistance in installing and maintaining the systems. Distributors meet customer needs by stocking Data General products, including systems, servers, workstations, personal computers, and storage systems products for immediate off-the-shelf delivery. The company provides lease financing through various leasing and financing programs arranged with third parties. Data General provides flexible financing programs for all Data General products, as well as third-party hardware, software, and services. These programs are available worldwide for resellers, distributors, and end users. Open CLARiiON is sold primarily through the company's Original Equipment Manufacturer ("OEM") and distributor channels. Revenues have been concentrated with a limited number of customers. For the current fiscal year, no single government agency, or any other single customer has accounted for more than 9% of consolidated total revenues. In fiscal 1995, sales made directly to various agencies of the United States Government represented approximately 5% of the company's consolidated total revenues. The company's business is not subject to any unusual seasonal fluctuations. The company generally attempts to minimize the time from receipt of a customer's order to shipment, and virtually no orders are booked with shipment dates in excess of one year from the date of order. As the company's product mix shifts more toward industry-standard systems, it is anticipated that the average time from order date to shipment date will continue to decrease. In addition, a substantial portion of the orders received by the company are subject to cancellation without significant penalty, at the option of the customer, at any time prior to shipment. Therefore, the company believes that discussions of its backlog would not contribute to an understanding of the company's business. Organization and Structure. The company's Worldwide Sales and Marketing operations are responsible for direct sales, mass merchandising, reseller channels, and related marketing activities. Sales divisions are structured to cover the following major geographic areas: the United States; General International Area (including Canada and Latin America); Europe; and Asia/Pacific. Marketing activities are focused primarily on the AViiON family of computer systems and related software solutions, and on specific market opportunities, such as multi-dimensional RDBMS (Relational Database Management System). The CLARiiON Business Unit is responsible for development of the company's CLARiiON family of open mass storage products, and for developing channels and partnerships for sales of Open CLARiiON systems. The company also has several targeted business units which are responsible for specific product families. These business units are: the ECLIPSE Business Unit, responsible for development and marketing of the company's ECLIPSE MV family of systems and related software; the Personal Computer Business Unit, which supplies customers with a full range of personal computers and related products; and the Imaging Business Unit, which markets a set of document imaging and management products. The Data General Services organization encompasses Customer Service (field engineering and other technical services) and Professional Services, which provides customers worldwide with complete services to design, implement, and support commercial computing environments. Manufacturing and Corporate Quality is responsible for producing Data General systems; for procuring associated components, subassemblies, peripherals, and various other products that are incorporated into Data General systems or sold under the Data General label; and for overall corporate quality assurance. The company's Finance organization includes the Controller, the Treasurer, Information Management, Legal, Investor Relations, Property Management, and Human Resources functions. Raw Materials. Data General's manufacturing operations employ a wide variety of mechanical and electronic components, raw materials, and other supplies. In the design of its products, the company routinely attempts to utilize multiple-sourced components. However, in some instances, the company selectively uses sole-sourced components, such as custom microprocessors and gate arrays, in order to achieve desired system performance; these components are typically based on the manufacturer's proprietary underlying process technology. In many cases, the manufacturers will execute cross- license agreements with other manufacturers, and it may be possible for Data General to access such technology through cross-license agreements. However, it has been the company's experience to date that the investment necessary to execute such cross-license agreements and to re-engineer the component is not warranted. With respect to sole-sourced materials, the company has not experienced significant problems relative to the timeliness of product availability or quality matters. To protect against such problems, however, the company has sought to implement special inventory plans for these components. These plans are designed to ensure that, if the sole-sourced supplier were unable to meet the company's requirements, there would be sufficient inventory available to cover the time required to re-engineer the product or develop an alternative source of supply. The company has not experienced any significant problems resulting from the inability to procure necessary raw materials. Patents. In November, 1994 the company commenced patent infringement litigation against International Business Machines Corporation charging infringement of certain of the company's patents (See "Item 3. Legal Proceedings", below). Although the company believes its claims are valid, it cannot predict the outcome of the litigation. Should the company prevail in the litigation, such patents could play a significant role in the conduct of its business and accordingly would be material. The company believes that most of its remaining patents do not presently play a significant role in the conduct of its business or in its industry in general and most patents, granted or which may be granted to it, while anticipated to be of value, are not expected to be of material significance. The company also owns certain copyrights, trademarks and proprietary information. From time to time, companies in the industry have claimed that products and components similar to those manufactured by the company are covered by valid patents held by others. It may be necessary or desirable to obtain further patent licenses in addition to those which the company now holds. Although there is no assurance that such additional patent licenses could be obtained, the company is of the opinion, based on industry practice and information presently available, that such licenses could be obtained on terms which would not have a material effect on the company's consolidated financial position or results of operations. Competition. The computer industry has been characterized by rapid technological change, product improvement, and price reductions. During fiscal 1995, the company experienced slight revenue growth from both the European marketplace and from other international product revenues, primarily from growth in the Open CLARiiON line of mass storage devices. Although revenues increased in Open CLARiiON, the results in the domestic market were negatively impacted by a combination of sales force and product transition issues. While the company believes that the effects of the sales force transition are now complete, the company expects to continue to see an impact from the product transition to the new Intel based AViiON products until these new products begin to ship in volume during the second half of fiscal year 1996. Data General's revenues may be adversely affected by new technology developed by others or by price reductions initiated by competitors. Some of the company's competitors are larger companies with substantially greater resources than the company. The company also competes with a number of smaller manufacturers. The company believes that it is a significant manufacturer of multi-user computer systems, servers, and mass storage devices for commercial applications. According to reports from International Data Corporation (IDC), Data General ranked among the leading suppliers of commercial medium-scale, UNIX-based systems in 1992, 1993 and 1994. The company's AViiON systems have become increasingly competitive since they were introduced in fiscal 1989, as more applications were ported to the platform and product introductions added to the depth of the family. AViiON systems compete favorably with standards-based systems from other industry-leading vendors based upon a wide range of features and performance, the company's DG/UX operating system, and the availability of an extensive range of applications software. Based on price/performance and other measures that demonstrate computer speed, throughput, and ability to run applications effectively, the company's current 32-bit ECLIPSE MV family of proprietary systems, using primarily the AOS/VS and AOS/VS II operating systems, competes favorably against 32-bit systems from other leading minicomputer vendors. Data General's primary market for proprietary systems is its existing customer base. AViiON and ECLIPSE systems also compete favorably as a result of their ability to connect with a variety of desktop systems manufactured by the company and by other vendors. The company's worldwide service and support capability, which includes service for certain products (such as PCs and workstations) manufactured by other vendors, also enhances the competitive strength of the company's product families. The company believes that its CLARiiON product was the first open, RAID- based mass storage product. This product supports UNIX-based computers from IBM, Digital Equipment Corporation, Sun Microsystems, and other systems vendors, and systems running on Novell NetWare, Microsoft NT, as well as Data General systems. NetWare is the dominant server operating system for PC LANs (local area networks). CLARiiON products continue to offer customers leading fault-tolerant data access features and performance characteristics. The company believes the potential market for Open CLARiiON is significant. Research and Development. The company believes that if it is to compete successfully in the industry, it will require a continuing commitment to research and development. Research and development expenses were $85.9 million in fiscal 1995, $90.8 million in fiscal 1994, and $100.2 million in fiscal 1993. Research and development work contracted to third parties during these years was insignificant. The net decrease in research and development expenses in these years is a result of the company dedicating a higher proportion of its resources to software development that requires capitalization. As in the prior two years, during fiscal 1995, the company focused its research and development efforts on its core business technology -- multi-user computer systems, servers, and mass storage devices, including related software and services. Continued emphasis on applied research and development programs is anticipated in order to improve existing products and to expand product line capabilities. Research and development work is done primarily in the following areas: general-purpose computer systems; open mass storage devices; systems and applications software; integrated circuit technology; microprocessor design; network services and products; and contracted special product design. Environmental Conditions. The company's various manufacturing facilities are subject to numerous laws and regulations designed to protect the environment, particularly from plant wastes and emissions. In the company's opinion, it is complying with such laws and regulations. Compliance has not had, and is not expected to have, a material effect upon the company's capital expenditures, results of operations, or competitive position. Employees. The company had approximately 5,000 employees as of September 30, 1995, compared to 5,800 employees as of September 24, 1994, and 6,500 employees as of the end of fiscal 1993. The decrease in employees resulted from various restructuring programs undertaken to reduce the company's infrastructure. Additional information on the company's restructuring programs is included in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 2 of "Notes to Consolidated Financial Statements" in the company's Annual Report to Stockholders for the fiscal year ended September 30, 1995. The "Management's Discussion and Analysis of Financial Condition and Results of Operations" has been incorporated by reference into Item 7 of Part II of this Report. The "Notes to Consolidated Financial Statements" have been incorporated by reference into Item 8 of Part II of this Report. The company's employees are not covered under any collective bargaining agreements, and the company has not experienced any significant labor problems. The company believes that it has a good relationship with its employees. International Operations. Foreign business is conducted through subsidiaries, representatives, and distributors, and to a lesser extent by direct sales. International revenues, including U.S. direct export sales, amounted to approximately 49% of consolidated total revenues in fiscal 1995, and 45% and 46% of consolidated total revenues in fiscal 1994 and 1993, respectively. The majority of Data General's international revenues are derived from western Europe, Asia and Canada. In view of the locations and diversification of its international activities, the company does not believe that there are any special risks beyond the normal business risks attendant to activities abroad. The company maintains a hedging program to minimize its exposure to foreign currency fluctuations. Additional information relating to the company's international operations, including financial information by major geographic area, is included in Note 11 "Geographic Segment Data" on page 25 of the company's Annual Report to Stockholders for the fiscal year ended September 30, 1995. Item 2. Properties. The company's executive offices are located in Westboro, Massachusetts. Manufacturing, research and development, service, marketing, and administrative support facilities are located in various states and countries throughout the world. All buildings owned are modern, air conditioned, and suitable and adequate for the present activities of the company. The company also leases space in 48 states and 28 countries, primarily for sales and service offices, the corporate headquarters, and certain manufacturing operations. Substantially all manufacturing equipment is owned by the company and is well maintained. In September 1994, the company sold its Westboro, Massachusetts, land and facilities, and entered into a 10-year leaseback arrangement for a portion of the property. During fiscal 1993, the company sold its facilities in Westbrook, Maine, and Portsmouth, New Hampshire, as well as a portion of its facility in Woodstock, Connecticut. The company is currently holding two facilities for future sale: Milford, Massachusetts, and the remaining portion of Woodstock, Connecticut. Additional information regarding the company's principal plants and properties is included under the heading "Facilities" on page 27 of the company's Annual Report to Stockholders for the fiscal year ended September 30, 1995. Item 3. Legal Proceedings. In fiscal 1995, Data General settled with Northrop Grumman Corporation its six-year software copyright infringement and trade secrets litigation against Grumman Systems Support Corporation ("Grumman"). Under the terms of this settlement, which was approved by the U.S. District Court, Grumman has paid to the company $53 million, and the parties have dismissed all pending litigation. The company's patent infringement suit against IBM Corporation, and IBM's counterclaim against the company remains in the discovery stage in the United States District Court for the District of Massachusetts (Worcester). See also "Item 1. Patents" to the company's Annual Report on Form 10-K for the year ended September 30, 1995. Item 4. Submission of Matters to a Vote of Security Holders. Not applicable. Executive Officers of the Registrant. Frederick R. Adler(1), Age 69, Chairman of the Executive Committee of the Board of Directors since July 1982; Secretary of the company from 1968 to July 1982; retiring Senior Partner in the law firm of Fulbright & Jaworski L.L.P.; and Senior Partner of such firm or Senior Partner or Chief Executive Officer of a professional corporation which was a Senior Partner in the predecessor firm of Reavis & McGrath, New York City, for more than five years; managing director of Adler & Company, a venture capital invest ment firm, and a general partner of its related investment funds for more than five years. Ronald L. Skates(1), Age 54, President and Chief Executive Officer of the company since November 1989; Executive Vice President and Chief Operating Officer of the company from August 1988 to November 1989; Senior Vice President of the company from November 1986 to August 1988; Chief Financial Officer of the company from November 1986 to August 1987; Partner, Price Waterhouse from July 1976 to November 1986. J. Thomas West, Age 56, Senior Vice President of the company since November 1988; Vice President of the company from September 1983 to November 1988. William J. Cunningham, Age 57, Vice President of the company since August 1989; prior positions at Apollo Computer Inc. included Vice President and General Manager, Manufacturing and Research and Development, from October 1988 to June 1989; and Vice President and General Manager, Manufacturing and Distribution, from September 1987 to September 1988; Vice President, U.S. Manufacturing, for Honeywell Bull from March 1986 to September 1987. Arthur W. DeMelle, Age 55, Vice President and Chief Financial Officer of the company since March 1992; prior positions included Senior Vice President of Finance and Administration at Chep USA from November 1989 to March 1992; Executive Vice President and Chief Financial Officer at Emery Air Freight Corporation from April 1987 to May 1989; and Executive Vice President and Chief Financial Officer at Purolator Courier Corporation from July 1980 to April 1987. Joel Schwartz, Age 53, Vice President of the company since February 1989; President and Chief Operating Officer of Polygen Corp. from August 1986 to February 1989. William L. Wilson, Age 51, Vice President of the company since March 1994; prior positions with International Business Machines Corporation including Assistant General Manager for Marketing - Enterprise Systems from 1992 to 1993, General Manager of IBM's Integrated Systems Solutions Corporation (ISSC) from 1990 to 1992, and Marketing and Sales Director for U.S. Marketing Services from 1987 to 1990. Executive officers of the company are elected annually and hold office until the first meeting of the Board of Directors following the Annual Meeting of Stockholders or until their successors have been elected and have duly qualified. (1) Member of Board of Directors and Executive Committee thereof. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters. The information contained under the headings "Stock Price Range" on page 26; and "Number of Stockholders", "Dividend Policy", and "Stock Exchange Listing" on page 29 of the company's Annual Report to Stockholders for the fiscal year ended September 30, 1995 is incorporated herein by reference. Item 6. Selected Financial Data. The information contained under the heading "Five Year Summary of Selected Financial Data" on page 9 of the company's Annual Report to Stockholders for the fiscal year ended September 30, 1995 is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The information contained under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 10 through 12 of the company's Annual Report to Stockholders for the fiscal year ended September 30, 1995 is incorporated herein by reference. This information should be read in conjunction with the related consolidated financial statements incorporated by reference under Item 8. Item 8. Financial Statements and Supplementary Data. The information contained in the consolidated financial statements, notes to consolidated financial statements, and report of independent accountants, under the heading "Quarterly Financial Data (Unaudited)", and "Facilities", on pages 13 through 27 of the company's Annual Report to Stockholders for the fiscal year ended September 30, 1995 is incorporated herein by reference. Item 9. Disagreements on Accounting and Financial Disclosure. Not applicable. PART III Item 10. Directors and Executive Officers of the Registrant. The information contained under the heading "Proposal No. 1 -- Election of Seven Directors" on pages 3 through 5 of the company's Proxy Statement dated December 20, 1995 is incorporated herein by reference. See also "Executive Officers of the Registrant" appearing in Part I hereof. Item 11. Executive Compensation. The information contained under the headings "Summary Compensation Table", "Option Grants in the 1995 Fiscal Year", "Option Exercises in the 1995 Fiscal Year and 1995 Fiscal Year-End Values", "Compensation Pursuant to Plans", "Employment Agreements", "Compensation of Directors" and "Directors' Retirement Program" on pages 6 through 18 of the company's Proxy Statement dated December 20, 1995 is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information contained under the heading "Beneficial Ownership of Common Stock" and in the second paragraph and related table under the heading "Proposal No. 1 -- Election of Seven Directors" on pages 2 through 4 of the company's Proxy Statement dated December 20, 1995 is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions. Not applicable PART IV Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K. (a) 1 and 2. Index to financial statements and related schedule: Page Five year summary of selected financial data . .. . . . . . . . . . . . . . . . . . . . . . . 9* Management's discussion and analysis of financial condition and results of operations . . . . . . . . 10-12* Consolidated balance sheets at September 30, 1995 and September 24, 1994 . . . . . . . . . . . 14* For fiscal years ended September 30, 1995, September 24, 1994, and September 25, 1993: Consolidated statements of operations . . . . . . . . . . . 13* Consolidated statements of cash flows . . . . . . . . . . . 15* Consolidated statements of stockholders' equity. . . . . . . 16* Notes to consolidated financial statements . . . . . . . . . . . 17-25* Report of independent accountants. . . . . . . . . . . . . . . . 26* Supplemental financial information . . . . . . . . . . . . . . 26* Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . 27* Report of independent accountants on financial statement schedules . . . . . . . . . . . . . . . . . 19 Financial statement schedule: Schedule II Valuation and qualifying accounts . . . . . . . 20 The financial statement schedule should be read in conjunction with the financial statements in the 1995 Annual Report to Stockholders. All other schedules have been omitted as they are not applicable, not required, or the information is included in the consolidated financial statements or notes thereto. * Page references are to the 1995 Annual Report to Stockholders. The 1995 Annual Report to Stockholders is not to be deemed filed as part of this Report except for those parts thereof specifically incorporated by reference into this Report. EXHIBITS 3. (a) Restated Certificate of Incorporation of the company, as amended, including the company's Certificate of Designation dated October 17, 1986, previously filed as Exhibit 3(a) to the company's Annual Report on Form 10-K for the fiscal year ended September 27, 1986, which is incorporated herein by reference. (b) Amendment to Certificate of Incorporation of the company, filed January 29, 1987, previously filed as Exhibit 3 to the company's Quarterly Report on Form 10-Q for the quarter ended March 28, 1987, which is incorporated herein by reference. (c) By-Laws of the company, as amended. 4. (a) Indenture dated as of September 15, 1977 between the company and State Street Bank and Trust Company (purchased from Fleet Bank of Massachusetts, formerly Bank of New England and formerly New England Merchants National Bank), as Trustee, which relates to the company's 8-3/8% Sinking Fund Debentures due 2002, previously filed as Exhibit 2.2 to the company's Registration Statement on Form S-7, Registration Number 2-59710, which is incorporated herein by reference. (b) Amended and Restated Rights Agreement dated as of May 19, 1988 between the company and Morgan Shareholders Services Trust Company, as Rights Agent, previously filed as Exhibit 4 to the company's Quarterly Report on Form 10-Q for the quarter ended June 25, 1988, which is incorporated herein by reference. (c) Indenture, dated as of June 1, 1991, between the company and Fleet National Bank, as Trustee, which relates to the company's 7-3/4% Convertible Subordinated Debentures due 2001, previously filed as Exhibit 4(d) to Amendment No. 2 to the company's Registration Statement on Form S-3 (No. 33-40817), which is incorporated herein by reference. 10. (a) Restricted Stock Option Plan, Appendix A to the prospectus included in the company's Registration Statement on Form S-8, Registration Number 33-19759, which is incorporated herein by reference. (b) Forms of Restricted Stock Option Agreement, previously filed as Exhibit 10(b) to the company's Annual Report on Form 10-K for the fiscal year ended September 29, 1990, which is incorporated herein by reference. (c) Form of Amendment to Restricted Stock Option Agreement, previously filed as Exhibit 10(b) to the company's Quarterly Report on Form 10-Q for the quarter ended June 25, 1988, which is incorporated herein by reference. (d) Form of Amendments to Key Executive Restricted Stock Option Agreements, previously filed as Exhibit 10(b) to the company's Quarterly Report on Form 10-Q for the quarter ended March 25, 1989, which is incorporated herein by reference. (e) Form of Amended and Restated Restricted Stock Option Agreement, between the company and Ronald L. Skates, previously filed as Exhibit 10(f) to the company's Quarterly Report on Form 10-Q for the quarter ended March 25, 1989, which is incorporated herein by reference. (f) Form of Amendment to Restricted Stock Option Agreements, between the company and Frederick R. Adler, previously filed as Exhibit 10(g) to the company's Quarterly Report on Form 10-Q for the quarter ended March 25, 1989, which is incorporated herein by reference. (g) Amendment to Restricted and Employee Incentive Stock Option Agreements, between the company and Ronald L. Skates, dated November 14, 1988, previously filed as Exhibit 10(e) to the company's Annual Report on Form 10-K for the fiscal year ended September 24, 1988, which is incorporated herein by reference. (h) Forms of Incentive Stock Option Agreement, previously filed as Exhibit 10(d) to the company's Annual Report on Form 10-K for the fiscal year ended September 26, 1987, which is incorporated herein by reference. (i) Form of Amendment to Employee Stock Option Agreement, previously filed as Exhibit 10(a) to the company's Quarterly Report on Form 10-Q for the quarter ended June 25, 1988, which is incorporated herein by reference. (j) Form of Amended and Restated Employee Stock Option Agreement, between the company and Ronald L. Skates, previously filed as Exhibit 10(e) to the company's Quarterly Report on Form 10-Q for the quarter ended March 25, 1989, which is incorporated herein by reference. (k) Form of Amendments to Key Executive Stock Option Agreements, previously filed as Exhibit 10(c) to the company's Quarterly Report on Form 10-Q for the quarter ended March 25, 1989, which is incorporated herein by reference. (l) Non-Employee Director Restricted Stock Option Plan, Appendix A to the prospectus included in the company's Registration Statement on Form S-8, Registration Number 2-91481, which is incorporated herein by reference. (m) Form of Non-Employee Director Restricted Stock Option Agreement, previously filed as Exhibit 10(n) to the company's Annual Report on Form 10-K for the fiscal year ended September 29, 1990, which is incorporated herein by reference. (n) Form of Employment Agreement between the company and its full-time officers, previously filed as Exhibit 10(a) to the company's Quarterly Report on Form 10-Q for the quarter ended March 25, 1989, which is incorporated herein by reference. (o) Form of Indemnity Agreement between the company and its officers and directors, previously filed as Exhibit 10 to the company's Quarterly Report on Form 10-Q for the quarter ended March 28, 1987, which is incorporated herein by reference. (p) Form of Revolving Credit Agreement dated as of November 22, 1991, previously filed as Exhibit 10(aa) to the company's Annual Report on Form 10-K for the fiscal year ended September 28, 1991, which is incorporated herein by reference. (q) Form of Amendment to Revolving Credit Agreement, previously filed as Exhibit 10(a) to the company's Quarterly Report on Form 10-Q for the quarter ended March 28, 1992, which is incorporated herein by reference. (r) Form of Amendments dated April 12, 1993 and September 23, 1993 to Revolving Credit Agreement dated November 22, 1991, previously filed as Exhibit 10(t) to the company's Annual Report on Form 10-K for the fiscal year ended September 25, 1993, which is incorporated herein by reference. (s) Form of Amendment dated September 1, 1993, to various Employment Agreements between the company and its full-time officers, previously filed as Exhibit 10(u) to the company's Annual Report on Form 10-K for the fiscal year ended September 25, 1993, which is incorporated herein by reference. (t) Form of Amendment dated December 30, 1993, amending and restating Revolving Credit Agreement and Letter of Credit Agreement, previously filed as Exhibit 10 to the company's Quarterly Report on Form 10-Q for the quarter ended December 25, 1993, which is incorporated herein by reference. (u) Form of Amendment dated September 16, 1994 to Revolving Credit Agreement and Letter of Credit Agreement dated December 30, 1993, previously filed as Exhibit 10(w) to the company's Annual Report on Form 10-K for the fiscal year ended September 24, 1994, which is incorporated herein by reference. (v) Data General Corporation Supplemental Retirement Benefit Plan dated as of October 1, 1989, between the company and its highly compensated employees, previously filed as Exhibit 10(x) to the company's Annual Report on Form 10-K for the fiscal year ended September 24, 1994, which is incorporated herein by reference. (w) Form of Supplemental Pension and Retiree Medical Agreement dated as of December 7, 1994, between the company and it's current president and Chief Executive Officer, previously filed as Exhibit 10(y) to the company's Annual Report on Form 10-K for the fiscal year ended September 24, 1994, which is incorporated herein by reference. (x) Form of Amendments dated April 18, 1994 to Revolving Credit Agreement and Letter of Credit Agreement dated December 30, 1993, previously filed as Exhibit 10(z) to the company's Annual Report on Form 10-K for the fiscal year ended September 24, 1994, which is incorporated herein by reference. (y) 1994 Non-Employee Director Stock Option Plan, Appendix A to the prospectus included in the company's Registration Statement on Form S-8, Registration Number 33-53039, which is incorporated herein by reference. (z) Form of 1994 Non-Employee Director Stock Option Agreement, previously filed as Exhibit 10(bb) to the company's Annual Report on Form 10-K for the fiscal year ended September 24, 1994, which is incorporated herein by reference. (aa) Form of Letter of Credit and Reimbursement Agreement dated as of December 21, 1994, previously filed as Exhibit 10 to the company's Quarterly Report on Form 10-Q for the quarter ended December 24, 1994, which is incorporated herein by reference. (bb) Employee Qualified Stock Purchase Plan, Appendix A to the prospectus included in the company's Registration Statement on Form S-8, Registration Number 33-53041, which is incorporated herein by reference. (cc) Employee Stock Option Plan, Appendix A to the prospectus included in the company's Registration Statement on Form S-8, Registration Number 33-58237, which is incorporated herein by reference. (dd) Amendment dated October 9, 1995 to Letter of Credit and Reimbursement Agreement, changing the Consolidated Tangible Net Worth limitation. (ee) 1996 Fiscal Year Bonus Opportunity for Chief Executive Officer. 11. Computation of primary and fully diluted earnings per share. 13. Annual report to stockholders for the fiscal year ended September 30, 1995, certain portions of which have been incorporated herein by reference. 21. Subsidiaries of the registrant. 23. Consent of independent accountants. Exhibits, other than those incorporated by reference, have been included in copies of this Report filed with the Securities and Exchange Commission. Stockholders of the company will be provided with copies of these exhibits upon written request to the company. (b) There were no reports on Form 8-K filed during the last thirteen weeks of the period covered by this Report. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DATA GENERAL CORPORATION (Registrant) By:_____________________ Ronald L. Skates President and Chief Executive Officer December 20, 1995 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 Ronald L. Skates ------------------- President and Chief Ronald L. Skates Executive Officer; December 20, 1995 Director Frederick R. Adler ------------------- Chairman of Executive Frederick R. Adler Committee of Board of December 20, 1995 Directors; Director Arthur W. DeMelle --------------------- Vice President Arthur W. DeMelle Chief Financial Officer; December 20, 1995 Chief Accounting Officer Ferdinand Colloredo-Mansfeld - ---------------------------- Ferdinand Colloredo-Mansfeld Director December 20, 1995 John G. McElwee --------------------- John G. McElwee Director December 20, 1995 Donald H. Trautlein ---------------------- Donald H. Trautlein Director December 20, 1995 Richard L. Tucker ------------------- Richard L. Tucker Director December 20, 1995 W. Nicholas Thorndike --------------------- W. Nicholas Thorndike Director December 20, 1995 DATA GENERAL CORPORATION REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of Data General Corporation Our audits of the consolidated financial statements referred to in our report dated October 20, 1995 appearing in the 1995 Annual Report to Stockholders of Data General Corporation (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also include an audit of the Financial Statement Schedule listed in Item 14(a) of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PRICE WATERHOUSE LLP Boston, Massachusetts October 20, 1995 SCHEDULE II DATA GENERAL CORPORATION VALUATION AND QUALIFYING ACCOUNTS (In thousands) Balance at Previous Balance at End of Year Additions Deductions End of Year Description SEPTEMBER 30, 1995: Allowance for doubtful accounts . . . . . . . . .$ 13,752 $ 10,197(a) $(9,870)(b) $ 14,079 Valuation allowance on deferred tax asset (c) . 209,936 1,008 9,689 201,255 SEPTEMBER 24, 1994: Allowance for doubtful accounts . . . . . . . . . 12,992 9,919(a) (9,159)(b) 13,752 Valuation allowance on deferred tax asset (c) . 0 209,936 0 209,936 SEPTEMBER 25, 1993: Allowance for doubtful accounts . . . . . . . . . .19,934 11,379(a) (18,321)(b) 12,992 (a) Charged to costs and expenses. (b) Accounts deemed uncollectable. (c) SFAS 109 Accounting for Income Taxes adopted September 26, 1993. EXHIBITS Index to Exhibits. 3. (a) Restated Certificate of Incorporation of the company, as amended, including the company's Certificate of Designation dated October 17, 1986, previously filed as Exhibit 3(a) to the company's Annual Report on Form 10-K for the fiscal year ended September 27, 1986, which is incorporated herein by reference. (b) Amendment to Certificate of Incorporation of the company, filed January 29, 1987, previously filed as Exhibit 3 to the company's Quarterly Report on Form 10-Q for the quarter ended March 28, 1987, which is incorporated herein by reference. (c) By-Laws of the company, as amended. 4. (a) Indenture dated as of September 15, 1977 between the company and State Street Bank and Trust Company (purchased from Fleet Bank of Massachusetts, formerly Bank of New England and formerly New England Merchants National Bank), as Trustee, which relates to the company's 8-3/8% Sinking Fund Debentures due 2002, previously filed as Exhibit 2.2 to the company's Registration Statement on Form S-7, Registration Number 2-59710, which is incorporated herein by reference. (b) Amended and Restated Rights Agreement dated as of May 19, 1988 between the company and Morgan Shareholders Services Trust Company, as Rights Agent, previously filed as Exhibit 4 to the company's Quarterly Report on Form 10-Q for the quarter ended June 25, 1988, which is incorporated herein by reference. (c) Indenture, dated as of June 1, 1991, between the company and Fleet National Bank, as Trustee, which relates to the company's 7-3/4% Convertible Subordinated Debentures due 2001, previously filed as Exhibit 4(d) to Amendment No. 2 to the company's Registration Statement on Form S-3 (No. 33-40817), which is incorporated herein by reference. 10. (a) Restricted Stock Option Plan, Appendix A to the prospectus included in the company's Registration Statement on Form S-8, Registration Number 33-19759, which is incorporated herein by reference. (b) Forms of Restricted Stock Option Agreement, previously filed as Exhibit 10(b) to the company's Annual Report on Form 10-K for the fiscal year ended September 29, 1990, which is incorporated herein by reference. (c) Form of Amendment to Restricted Stock Option Agreement, previously filed as Exhibit 10(b) to the company's Quarterly Report on Form 10-Q for the quarter ended June 25, 1988, which is incorporated herein by reference. (d) Form of Amendments to Key Executive Restricted Stock Option Agreements, previously filed as Exhibit 10(b) to the company's Quarterly Report on Form 10-Q for the quarter ended March 25, 1989, which is incorporated herein by reference. (e) Form of Amended and Restated Restricted Stock Option Agreement, between the company and Ronald L. Skates, previously filed as Exhibit 10(f) to the company's Quarterly Report on Form 10-Q for the quarter ended March 25, 1989, which is incorporated herein by reference. (f) Form of Amendment to Restricted Stock Option Agreements, between the company and Frederick R. Adler, previously filed as Exhibit 10(g) to the company's Quarterly Report on Form 10-Q for the quarter ended March 25, 1989, which is incorporated herein by reference. (g) Amendment to Restricted and Employee Incentive Stock Option Agreements, between the company and Ronald L. Skates, dated November 14, 1988, previously filed as Exhibit 10(e) to the company's Annual Report on Form 10-K for the fiscal year ended September 24, 1988, which is incorporated herein by reference. (h) Forms of Incentive Stock Option Agreement, previously filed as Exhibit 10(d) to the company's Annual Report on Form 10-K for the fiscal year ended September 26, 1987, which is incorporated herein by reference. (i) Form of Amendment to Employee Stock Option Agreement, previously filed as Exhibit 10(a) to the company's Quarterly Report on Form 10-Q for the quarter ended June 25, 1988, which is incorporated herein by reference. (j) Form of Amended and Restated Employee Stock Option Agreement, between the company and Ronald L. Skates, previously filed as Exhibit 10(e) to the company's Quarterly Report on Form 10-Q for the quarter ended March 25, 1989, which is incorporated herein by reference. (k) Form of Amendments to Key Executive Stock Option Agreements, previously filed as Exhibit 10(c) to the company's Quarterly Report on Form 10-Q for the quarter ended March 25, 1989, which is incorporated herein by reference. (l) Non-Employee Director Restricted Stock Option Plan, Appendix A to the prospectus included in the company's Registration Statement on Form S-8, Registration Number 2-91481, which is incorporated herein by reference. (m) Form of Non-Employee Director Restricted Stock Option Agreement, previously filed as Exhibit 10(n) to the company's Annual Report on Form 10-K for the fiscal year ended September 29, 1990, which is incorporated herein by reference. (n) Form of Employment Agreement between the company and its full-time officers, previously filed as Exhibit 10(a) to the company's Quarterly Report on Form 10-Q for the quarter ended March 25, 1989, which is incorporated herein by reference. (o) Form of Indemnity Agreement between the company and its officers and directors, previously filed as Exhibit 10 to the company's Quarterly Report on Form 10-Q for the quarter ended March 28, 1987, which is incorporated herein by reference. (p) Form of Revolving Credit Agreement dated as of November 22, 1991, previously filed as Exhibit 10(aa) to the company's Annual Report on Form 10-K for the fiscal year ended September 28, 1991, which is incorporated herein by reference. (q) Form of Amendment to Revolving Credit Agreement, previously filed as Exhibit 10(a) to the company's Quarterly Report on Form 10-Q for the quarter ended March 28, 1992, which is incorporated herein by reference. (r) Form of Amendments dated April 12, 1993 and September 23, 1993 to Revolving Credit Agreement dated November 22, 1991, previously filed as Exhibit 10(t) to the company's Annual Report on Form 10-K for the fiscal year ended September 25, 1993, which is incorporated herein by reference. (s) Form of Amendment dated September 1, 1993, to various Employment Agreements between the company and its full-time officers, previously filed as Exhibit 10(u) to the company's Annual Report on Form 10-K for the fiscal year ended September 25, 1993, which is incorporated herein by reference. (t) Form of Amendment dated December 30, 1993, amending and restating Revolving Credit Agreement and Letter of Credit Agreement, previously filed as Exhibit 10 to the company's Quarterly Report on Form 10-Q for the quarter ended December 25, 1993, which is incorporated herein by reference. (u) Form of Amendment dated September 16, 1994 to Revolving Credit Agreement and Letter of Credit Agreement dated December 30, 1993, previously filed as Exhibit 10(w) to the company's Annual Report on Form 10-K for the fiscal year ended September 24, 1994, which is incorporated herein by reference. (v) Data General Corporation Supplemental Retirement Benefit Plan dated as of October 1, 1989, between the company and its highly compensated employees, previously filed as Exhibit 10(x) to the company's Annual Report on Form 10-K for the fiscal year ended September 24, 1994, which is incorporated herein by reference. (w) Form of Supplemental Pension and Retiree Medical Agreement dated as of December 7, 1994, between the company and it's current president and Chief Executive Officer, previously filed as Exhibit 10(y) to the company's Annual Report on Form 10-K for the fiscal year ended September 24, 1994, which is incorporated herein by reference. (x) Form of Amendments dated April 18, 1994 to Revolving Credit Agreement and Letter of Credit Agreement dated December 30, 1993, previously filed as Exhibit 10(z) to the company's Annual Report on Form 10-K for the fiscal year ended September 24, 1994, which is incorporated herein by reference. (y) 1994 Non-Employee Director Stock Option Plan, Appendix A to the prospectus included in the company's Registration Statement on Form S-8, Registration Number 33-53039, which is incorporated herein by reference. (z) Form of 1994 Non-Employee Director Stock Option Agreement, previously filed as Exhibit 10(bb) to the company's Annual Report on Form 10-K for the fiscal year ended September 24, 1994, which is incorporated herein by reference. (aa) Form of Letter of Credit and Reimbursement Agreement dated as of December 21, 1994, previously filed as Exhibit 10 to the company's Quarterly Report on Form 10-Q for the quarter ended December 24, 1994, which is incorporated herein by reference. (bb) Employee Qualified Stock Purchase Plan, Appendix A to the prospectus included in the company's Registration Statement on Form S-8, Registration Number 33-53041, which is incorporated herein by reference (cc) Employee Stock Option Plan, Appendix A to the prospectus included in the company's Registration Statement on Form S-8, Registration Number 33-58237, which is incorporated herein by reference. (dd) Amendment dated October 9, 1995 to Letter of Credit and Reimbursement Agreement, changing the Consolidated Tangible Net Worth limitation. (ee) 1996 Fiscal Year Bonus Opportunity for Chief Executive Officer. 11. Computation of primary and fully diluted earnings per share. 13. Annual report to stockholders for the fiscal year ended September 30, 1995, certain portions of which have been incorporated herein by reference. 21. Subsidiaries of the registrant. 23. Consent of independent accountants. Exhibits, other than those incorporated by reference, have been included in copies of this Report filed with the Securities and Exchange Commission. Stockholders of the company will be provided with copies of these exhibits upon written request to the company. EX-10 2 AMENDMENT NO. 1 TO LETTER OF CREDIT EXHIBIT 10 (dd) AMENDMENT NO. 1 TO LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT THIS AGREEMENT NO. 1 TO LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT (this "Agreement") is made and entered into as of the 5th day of October, 1995 amount; DATA GENERAL CORPORATION, a Delaware corporation ("Borrower"), NATIONSBANK OF TEXAS, NATIONAL ASSOCIATION, a banking association, THE BANK OF NEW YORK and FLEET BANK OF MASSACHUSETTS, N.A. (each individually, a "Lender" and collectively, the "Lenders"); and NATIONSBANK OF TEXAS, NATIONAL ASSOCIATION, a national banking association, in its capacity as agent for the Lenders (in such capacity, the "Agent"); W I T N E S S E T H: --------------------------------- WHEREAS, the Borrower, the Lenders and the Agent have entered into a Letter of Credit and Reimbursement Agreement dated as of December 21, 1994, as amended hereby (the "Credit Agreement"), pursuant to which the Lenders agreed to issue certain letters of credit on behalf of the Borrower; and WHEREAS, the Borrower has requested that the Credit Agreement be amended in the manner set forth herein and the Agent and the Lenders are willing to agree to such amendment; and NOW, THEREFORE, in consideration of the mutual covenants and the fulfillment of the conditions set forth herein, the parties hereto do hereby agree as follows: 1. Definitions. Any capitalized terms used herein without definitions shall have the meaning set forth in the Credit Agreement. 2. Amendment. Subject to the terms and conditions set forth herein, the Credit Agreement is hereby amended as follows: (a) Section 7.03 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: 7.03 Consolidated Tangible New Worth. Permit at any Determination Date Consolidated Tangible Net Worth to be less than $340,000,000. 3. Amendment Fee. The Borrower shall pay to the Agent for the pro rata benefit of the Lenders an amendment fee (the "Amendment Fee") in an amount equal to $30,000. 4. Effectiveness. This Agreement shall become effective as of the date hereof upon receipt by the Agent of (a) seven fully executed copies of the Agreement (which may be signed in counterparts) and (b) payment in full of the Amendment Fee to be held by the Agent for the pro rata benefit of the Lenders. 5. Representations and Warranties. In order to induce the Agent and the Lenders to enter into this Agreement, the Borrower represents and warrants to the Agent and the Lenders as follows: (a) The representations and warranties made by Borrower in Article V of the Credit Agreement are true and correct on and as of the date hereof, except to the extent that such representations and warranties expressly relate to an earlier date and except that the financial statements referred to in Section 5.01(e) (i) of the Credit Agreement shall be deemed to be those financial statements most recently delivered to the Agent and the Lenders pursuant to Section 6.01 if the Credit Agreement. (b) There has been no material adverse change in the condition, financial or otherwise, of the Borrower and its Subsidiaries, taken as a whole, since the date of the most recent financial reports of the Borrower received by the Agent and the Lenders under Section 6.01 (a) of the Credit Agreement, other than changes in the ordinary course of business; (c) The business and properties of the Borrower and its Subsidiaries, taken as a whole, are not, and since the date of the most recent financial report of the Borrower and its Subsidiaries received by the Agent and the Lenders under Section 6.01 (a) of the Credit Agreement, have not been, adversely affected in any substantial way as the result of any fire, explosion, earthquake, accident, strike, lockout, combination of workers, flood, embargo, riot, activities of the armed forces, war or acts of God or the public enemy, or cancellations or loss of any major contracts; and (d) No event has occurred and is continuing which constitutes, and no condition exists which upon the consummation of the transaction contemplated hereby would constitute, a Default or an Event of Default on part of the Borrower under the Credit Agreement, either immediately or with the lapse of time or giving of notice, or both. 6. Entire Agreement. This Agreement sets forth the entire understanding and agreement of parties hereto in relation to the subject matter hereof and supersedes any prior negotiations and agreements among the parties relative to such subject matter. 7. Full Force and Effect of Agreement. Except as hereby specifically amended, modified or supplemented, the Credit Agreement and all other Letter of Credit Documents are hereby confirmed and ratified in all respects and shall remain in full force and effect according to their respective terms. 8. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. 9. Governing Law. This Agreement shall in all respects be governed by laws and judicial decisions of the State of New York. 10. Enforceability. Should any one or more of the provisions of this Agreement be determined to be illegal or unenforceable as to one or more of the parties hereto, all other provisions nevertheless shall remain effective and binding on the parties hereto. 11. Credit Agreement. All references in any of the Letter of Credit Documents to the Credit Agreement shall mean the Credit Agreement as amended hereby [Signature page follows.] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by there duly authorized officers, all as of the day and year first above written. BORROWER: DATA GENERAL CORPORATION By: Name: Title: LENDERS: NATIONSBANK OF TEXAS, NATIONAL ASSOCIATION By: Name: Title: THE BANK OF NEW YORK By: Name: Title: FLEET BANK OF MASSACHUSETTS, N.A. By: Name: Title: AGENT: NATIONSBANK OF TEXAS, NATIONAL ASSOCIATION as Agent for the Lenders By: Name: Title: 1996 President & Chief Executive Bonus EX-10 3 1996 FISCAL YEAR BONUS OPPORTUNITY FOR CHIEF EXECUTIVE OFFICER Exhibit 10 (ee) December 6,1995 Mr. Ronald L. Skates Data General Corporation 3400 Computer Drive Westboro, MA 01580 Dear Mr. Skates: The purpose of this letter is to memorialize the bonus opportunity granted to you by the Corporation's Board of Directors at its meeting on December 6, 1995. The terms of the opportunity are: You will be entitled to earn as a cash bonus for the 1996 Fiscal Year the greater of (a) $200,000 for each $.10 of earnings per share, with a maximum payment of 250% of salary, which earnings per share would be based on primary reported net income per share as of the close of the 1996 fiscal year or (b) 1.5% of the increase in market capitalization based on the following formula: the difference between (i) the product of the average daily closing market price of the Corporation's Common Stock on the New York Stock Exchange for 30 trading days prior to the close of the 1996 fiscal year times the number of shares actually outstanding as of the close of the 1996 fiscal year and (ii) the product of the average daily closing market price of the Corporation's Common Stock on the New York Stock Exchange from October 2, 1995 through December 6, 1995 times the number of shares actually outstanding as of the close of business of the 1995 fiscal year. In the event of a change of control, the change of control price will be used to determine the bonus and the bonus would be payable upon the change of control. The Board would have the power to modify the award in the event of extraordinary transactions, excluding change of control. The Board would retain the right to award discretionary bonuses to you. For your information, the "starting" calculation for purposes of that portion of the bonus opportunity relating to market capitalization is: $11.67 (average daily closing market price on the NYSE from 10/2 - 12/6/95) X 37,932,730 (the number of shares actually outstanding as of the close of business on 9/30/95) = $442,674,959.10. Very truly yours, DATA GENERAL CORPORATION By_____________________ ACCEPTED AND AGREED: Ronald L. Skates EX-11 4 FY95 EARNINGS PER SHARE EXHIBIT 11 DATA GENERAL CORPORATION COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE (in thousands except per share amounts) Fiscal Year Ended Sept. 30, Sept. 24, Sept. 25, Sept. 26, Sept. 28, 1995 1994 1993 1992 1991 Primary earnings per share: Net income (loss) . . $(46,703) $(87,693) $(60,479) $(62,512) $85,641 Weighted average shares outstanding . . . 37,059 35,774 34,453 32,788 31,160 Incremental shares from use of treasury stock method for stock options. 807 -- 423 -- 1,508 Common and common equivalent shares, where applicable . . . 37,866 35,774 34,876 32,788 32,668 Net income (loss) per share . . . . . . . $(1.23) $(2.45) $(1.73) $(1.91) $2.62 Earnings per share assuming full dilution: Net income (loss) . . . $(46,703) $(87,693) $(60,479) $(62,512) $85,641 Interest on convertible debentures, net of income taxes . . . . . . --(a) --(a) --(a) --(a) 2,634 Net income (loss) for purposes of calculating earnings per share assuming full dilution . . . .$(46,703) $(87,693) $(60,479) $(62,512) $88,275 Weighted average shares outstanding. . 37,059 35,774 34,453 32,788 31,247 Incremental shares from use of treasury stock method for stock options . . . . . . 807 -- 423 -- 3,022 Incremental shares from assumed conversion of convertible debentures. . -- -- -- -- 1,807 Common and common equivalent shares, where applicable . . . 37,866(a) 35,774(a) 34,876(a) 32,788(a) 36,076 Net income (loss) per share. . . . . . . . . . .$(1.23) $(2.45) $(1.73) $(1.91) $2.45 - ---------------------- (a) For the years ended September 30, 1995, September 24, 1994 , September 25, 1993 and September 26, 1992, the assumed conversion of convertible debentures, giving effect to the incremental shares and the adjustment to reduce interest expense, results in anti-dilution and has therefore been excluded from the computation. EX-13 5 FY95 ANNUAL REPORT DATA GENERAL CORPORATION 1995 ANNUAL REPORT (photo of SHV server) Advancing the Evolution of Commodity Computing Data General Corporation 4400 Computer Drive Westboro, Massachusetts, USA 01580 http://www.dg.com email: AViiON@dg.com 1968 Founded, built the NOVA, the first minicomputer based on integrated circuit technology 1968-1980 Successive generations of 16-bit minicomputers; known for high performance and excellent price/performance 1980-1988 Successive generations of 32-bit minicomputers; first machine chronicled in Pulitzer Prize winning book by Tracy Kidder, "The Soul of A New Machine" 1988 Announced open systems strategy based on industry-standard microprocessors, operating systems, and storage components 1989 Delivered first AViiON(R) computer systems and UNIX for commercial applications 1991 Delivered first RAID storage systems 1992 Introduced CLARiiON(R) disk arrays as second generation of RAID systems for AViiON, ECLIPSE(R), and other computing platforms June 1995 Announced new direction for AViiON product family; systems to use Intel(R) processors and standard SMP (symmetric multiprocessing motherboards Oct 1995 Introduced first AViiON systems that use Intel Pentium(R) architecture; more than 15,000 applications available for customer use Nov 1995 Announced general specifications for advanced family of AViiON servers using Pentium(R) Pro processors Data General designs advanced systems using the best commodity technologies; builds software alliances to deliver leading solutions; and provides comprehensive integration services to design, implement, and support total computing solutions. TO OUR STOCKHOLDERS, CUSTOMERS AND EMPLOYEES: In fiscal 1995, Data General made significant progress in our two major businesses -- AViiON servers and CLARiiON storage systems -- and maintained our revenue base in related services. We also reduced our operating costs and ended the year with revenue growth and a profitable fourth quarter. AViiON Server Business We launched the AViiON family of servers and our DG/UX(R) operating system for the commercial market in 1989. Our AViiON product family has progressed through several generations and now has an installed base approaching 30,000 systems and $2 billion in value, and DG/UX has received the highest overall ratings in the industry from leading research firms. In June, we announced that we had chosen the Intel architecture for our new generation of AViiON servers. At the same time, we outlined our technology direction for providing high-performance systems based on Intel processors, Standard High Volume (SHV) servers, and Cache Coherent Non-Uniform Memory Access (ccNUMA) architecture. This announcement was the result of a two-year process to prepare ourselves, our operating system, and our software partners for this advanced computing technology. In October, as we entered fiscal 1996, we introduced our first Intel based AViiON servers. These servers run our DG/UX operating system to deliver the performance needed in a broad range of applications, for departments or throughout an entire enterprise. They also run Microsoft Windows NT Server, one of the industrys fastest-growing operating systems. This ensures that our customers have the widest range of applications available to them. Long before we announced our new AViiON line, we began working with the industry's leading software developers. We also expanded the capabilities of DG/UX to run on both the Intel based AViiON systems and on existing Motorola based AViiON systems. This greatly simplified the porting and recompiling of applications. As a result, all of the major database vendors and many leading enterprise application developers completed the porting of their software to our Intel based AViiON platform, and the new generation of AViiON is already capable of running more than 15,000 applications. In addition, the new AViiON servers outstanding price/performance and unique ability to run a true enterprise UNIX operating system or Windows NT Server make them particularly appealing to resellers. CLARiiON Storage Business In 1991, we introduced our RAID storage systems for our AViiON servers. In 1992, we expanded that product family, named it CLARiiON, and made it available for use on other computer systems. With the addition of low-end products introduced in the past year, CLARiiON now supports virtually all open systems computing platforms with a broad family of storage products ranging from disk arrays for the PC/local area network (LAN) market, to high-capacity, high- availability arrays for enterprise storage applications. CLARiiON products are sold through systems integrators and distributors. However, the majority of CLARiiON revenues are derived through OEM relationships with major systems vendors and storage suppliers. We experienced exceptional growth in our CLARiiON storage systems business in fiscal 1995 with revenues tripling from the prior year. We believe this growth in CLARiiON sales demonstrates the increasing importance of disk array technology in the marketplace. It also reaffirms our focus on data integrity and providing high availability in the open enterprise. Services Our strategy recognizes the critical role of our worldwide services operations. Revenues from services, including Customer Service and Professional Services, totaled $402 million in fiscal 1995. A strong Customer Service operation is a prerequisite for enterprise customers who need 24-hour/365-day support. Data General provides customers with a single point of contact to ensure integrated hardware and software support and maintenance. We are focusing our service resources on system and network expertise, and establishing alliances with leading service specialists for comprehensive customer support. Our Professional Services organizations provide AViiON customers worldwide with complete services to design, implement, and support commercial computing environments. To make it easier for customers to install and integrate our products, we now offer nearly 100 packaged professional services that implement standard statements of work at defined prices. We are also offering a complete set of services to ease the incorporation of new Intel based AViiON systems into our customers' existing Motorola based AViiON environments. Fiscal 1995 Results Revenues for the fiscal 1995 year were $1.16 billion, compared with $1.12 billion for the previous year. We reported a fiscal 1995 net loss of $46.7 million, or $1.23 per share, which included a restructuring charge of $43.0 million for a workforce reduction, and other cost reduction activities related primarily to real estate. The fiscal 1995 figures also include a pre-tax gain of $44.5 million resulting from the settlement of a software copyright and trade secret lawsuit against Northrop Grumman Corporation. In fiscal 1994, Data General reported a net loss of $87.7 million, or $2.45 per share, which included a restructuring charge of $35 million. Financial Strength Data General's financial position continues to be strong. Cash as a percentage of revenues is among the highest in our industry. Our inventory turn rate is among the best in the industry. At year end, cash and marketable securities totaled $188.8 million. Our cash position was helped early in the fiscal year by $53 million received from settlement of the Northrop Grumman suit. Business Strategy and Outlook Since we began our move to open systems in 1988, we have changed virtually every aspect of our business. We made tough cultural and organizational changes. We focused on what we do best - hardware and systems software development - and leveraged our core technological strengths. Fiscal 1995 Product Revenue Distribution AViiON Servers 56% CLARiiON Storage 25% Personal Computers 12% ECLIPSE MV Systems 7% This strategy has transformed Data General from a proprietary to an open systems business. Today we are a company with leading-edge technology and a strong financial position. Data General is positioned for growth. Our strength is our ability to take advantage of constantly changing technologies to deliver value for our customers. Our new generation of AViiON servers is based on what is clearly the industry's most durable architecture -- the Intel architecture. Intel technology is the standard on which the PC market is based, and we believe it will soon become the standard for the server market. The long transition from proprietary to open systems has been a challenging time for employees, customers, and stockholders. The short transition of our AViiON systems to the Intel architecture has been carefully planned. We are confident that the steps we are taking to generate AViiON and CLARiiON revenue growth will enable us to achieve our goal of sustained profitability. Respectfully submitted, Ronald L. Skates President and Chief Executive Officer ADVANCING THE EVOLUTION OF BUSINESS COMPUTING More than anything else, component integration is responsible for the extraordinary success of today's computer industry. From transistors to integrated circuits to microprocessors, increasingly greater degrees of component integration have allowed designers to package ever more power into ever smaller spaces. Moore's Law With the advent of semiconductor technology came the modern computing era, framed by Intel co-founder Gordon Moore's observation that chip capacity and performance could be expected to double every couple of years. Moore's Law has held true for the past 30 years. It fuels the computer industry and makes it unique. Most of the traditional business world, in contrast, changes in a linear fashion. The combination of these trends suggests why momentous shifts in market dynamics can occur at times of profound technology change. Put simply, the exponential curve charted by Moore's Law means that today's high-value-added product is likely to become tomorrow's low-margin commodity. Further, jarring technological changes, or discontinuities, can actually accelerate this phenomenon. Markets may be restructured -- and new competitive opportunities may appear -- virtually overnight. For example, Data General and the minicomputer industry were born during the discontinuity created when integrated circuits replaced transistors. Another discontinuity occurred in the early 1980s when engineers first built computers using 16-bit microprocessors. This spawned the PC industry, hastened acceptance of related design standards, and led to even greater economies and incentives for further integration. Today, component integration occurs not just on the chip but at the motherboard level, where complex, system-level functions are carried out. Soon this dynamic will shift again, with companies building systems around pre-packaged commodity SMP (symmetric multiprocessing) subsystems. AViiON Server Technology Our new generation of AViiON servers is based on Intel processor technology. At the same time, we will continue to manufacture and support our Motorola based family of AViiON servers. Intel has a history of delivering continuing generations of processors with increasing speed and performance. This technology enables Data General to build a scalable range of systems that preserves customer investments in applications while taking advantage of the breadth and performance growth of the Intel architecture -- from the current Pentium processor family, to systems based on Pentium Pro processors and Standard High Volume (SHV) server motherboards starting in 1996. SHV boards combine up to four Pentium Pro processors with cache, main memory, and input/output logic in economical, off-the-shelf packaging. They are becoming the industry's newest commodity building blocks. AViiON enterprise servers based on Intel's SHV boards will run current SMP applications without modification. For flexibility and availability, they will permit multi-system clustering and resource sharing, and will be complemented by inexpensive, single or dual Pentium Pro deskside servers. But to function optimally in higher processor-count implementations, SHV boards will have to be interconnected within a large-scale system architecture. Data General is now building critical SHV-interconnect technology which will implement the industry-standard Scalable Coherent Interface (SCI) protocol, and will enable development of highly optimized enterprise servers based on the architecture design known as ccNUMA, or Cache Coherent Non-Uniform Memory Access. ccNUMA is regarded as the most effective system architecture for higher-end SMP designs. DG/UX Operating System These very powerful, commodity-based technologies require enabling software -- high functionality, high-value software like our DG/UX operating system. With DG/UX, AViiON enterprise servers will be able to handle the most demanding applications used by business, from data warehousing and data mining to transaction processing and decision support. DG/UX is a sophisticated, commercial implementation of the UNIX system V Release 4 operating system. Data General has been enhancing DG/UX for over a decade to provide a state-of-the-art platform for running core business applications. DG/UX provides a robust file system, open connectivity, comprehensive systems and storage management, standards compliance, and high levels of applications scalability. Recent improvements to DG/UX include clustering of up to eight AViiON systems enabling resource sharing, higher levels of availability, and easier system administration. DG/UX is also the first UNIX based operating system to meet federal B2 level security requirements, the most demanding security within the military/intelligence community. Data General plans to make this same capability available for security-conscious commercial customers. In addition to DG/UX, AViiON systems run Windows NT Server and a variety of shrink-wrapped operating systems. This provides customers with a choice of environments for running more than 15,000 applications, including all the leading enterprise and database software. The list includes UNIX software from such leading companies as Computer Associates, Informix, Oracle, PeopleSoft, Pick Systems, Progress, SAP, Sybase, Tivoli, Unidata and VMark; as well as approximately 7,000 shrink-wrapped applications available with Windows NT Server. CLARiiON Disk Arrays Complementing Data Generals focus on enterprise servers is our focus on large-scale enterprise storage products. CLARiiON disk arrays are built from leading-edge, off-the-shelf components. Today, they pack up to 80 gigabytes of fault-tolerant data storage in deskside modules that are economical, small, fast, and open. CLARiiON products are fully compatible with Data Generals and other leading vendors UNIX systems, as well as with NetWare, Windows NT, and major legacy platforms. The CLARiiON family is important for another reason. CLARiiON demonstrates how Data General invests intellectual resources in systems architectures and software to deliver powerful data-center products built around commodity components. Leveraging Commodity Economics Today, we are on the brink of a major technological discontinuity. It is caused by the shift to commodity SMP building blocks, and it presents serious challenges as well as tremendous opportunities to system vendors, resellers, and information technology executives. For systems vendors, the issue is no longer how to build the fastest chip, disk, or box, but how to make the most of commoditization; in other words, how to cut time and cost while bringing to market new product designs based on SHV server technologies. For resellers, rapid technology advancements provide continual opportunities for new applications and new markets for their solutions. For information technology executives, Moore's Law requires adopting strategies for taking advantage of technological discontinuities without disrupting end-user services. For Data General, the opportunity is clear. The company will serve as a strategic supplier and partner to system vendors, resellers, and information technology executives, supporting their efforts to evolve business computing in the months and years ahead. Financial Review 1995 Five Year Summary of Selected Financial Data. . . . . . . . . . . . . . . . . 9 Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . .10 Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . .13 Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . .14 Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . .15 Consolidated Statements of Stockholders' Equity . . . . . . . . . . . . . . .16 Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . .17 Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . .26 Supplemental Financial Information. . . . . . . . . . . . . . . . . . . . . .26 Facilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27 Officers, Directors, and Senior Management. . . . . . . . . . . . . . . . . .28 Corporate Information . . . . . . . . . . . . . . . . . . . . . . . . . . . .29 FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA DATA GENERAL CORPORATION YEAR ENDED SEPT. 30, SEPT. 24, SEPT. 25, SEPT. 26, SEPT. 28, IN THOUSANDS, 1995 1994 1993 1992 1991 EXCEPT PER SHARE AMOUNTS Total revenues . . .$1,159,316 $1,120,505 $1,077,869 $1,115,947 $1,228,854 Total cost of revenues . . . . . 772,047 733,114 654,718 655,047 659,559 Research and development. . . . 85,886 90,826 100,172 111,336 101,986 Selling, general, and administrative . . 334,337 341,343 346,740 357,528 384,317 Restructuring charge . . . . . . 43,000 35,000 25,000 48,000 -- Total costs and expenses . . . . 1,235,270 1,200,283 1,126,630 1,171,911 1,145,862 Income (loss) from operations . . . . (75,954) (79,778) (48,761) (55,964) 82,992 Interest expense, net. . . . . . . . 4,116 8,168 6,734 3,448 4,451 Other income, net. . 41,972 2,353 416 -- 13,000 Income (loss) before income taxes. . . . . . . (38,098) (85,593) (55,079) (59,412) 91,541 Income tax provision. . . . . 8,605 2,100 5,400 3,100 5,900 Net income (loss). .$ (46,703) $ (87,693) $ (60,479) $ (62,512) $ 85,641 Primary net income (loss) per share. . . . . ($1.23) ($2.45) ($1.73) ($1.91) $2.62 Net income (loss) per share assuming full dilution. . . ($1.23) ($2.45) ($1.73) ($1.91) $2.45 AS OF SEPT. 30, SEPT. 24, SEPT. 25, SEPT. 26, SEPT. 28, DOLLARS IN THOUSANDS 1995 1994 1993 1992 1991 Current assets . . . $ 591,485 $ 598,076 $ 611,660 $ 671,307 $ 684,480 Current liabilities. 370,226 326,865 302,908 307,172 265,816 Working capital. . . $ 221,259 $ 271,211 $ 308,752 $ 364,135 $ 418,664 Total assets . . . . $ 832,018 $ 821,864 $ 866,329 $ 940,454 $ 944,046 Annual expenditures for property, plant, and equipment. . . . . $ 96,471 $ 92,955 $ 94,968 $ 93,607 $ 82,766 Long-term debt . . . $ 153,457 $ 156,942 $ 158,352 $ 162,258 $ 164,911 Other liabilities. . $ 28,791 $ 29,445 $ 27,992 $ 20,988 $ 18,878 Stockholders' equity $ 279,544 $ 308,612 $ 377,077 $ 450,036 $ 494,441 Employees. . . . . . 5,000 5,800 6,500 7,100 8,500 Results of operations are for 52-week periods except for 1995 which is a 53-week period. The company has not declared or paid cash dividends since inception. RESULTS OF OPERATIONS The company reported a net loss of $47 million for fiscal 1995 compared with a net loss of $88 million for fiscal 1994 and a net loss of $60 million for fiscal 1993. Included in these fiscal year losses are restructuring charges of $43 million, $35 million, and $25 million, respectively. Total revenues were $1.16 billion in fiscal 1995, compared with $1.12 billion in fiscal 1994 and $1.08 billion in fiscal 1993. Revenues in three of four quarters of the 1995 fiscal year showed revenue growth compared to the same quarters of the prior fiscal year. The growth in fiscal 1995 came from both the European marketplace and from other international product revenues. The increases in these two marketplaces resulted from growth in the Open CLARiiON line of mass storage devices during this fiscal year and the impact of the weakening of the U.S. dollar in relation to European currencies. The domestic marketplace, while experiencing growth in Open CLARiiON, was negatively impacted by a combination of sales force and product transition issues. While the company believes that the effects of the sales force transition are now complete, the company expects to continue to see an impact from the product transition to the new Intel-based AViiON products until these new products begin to ship in volume during the second half of fiscal year 1996. Product revenues, which accounted for 65% of total revenues in fiscal 1995 and 1994, and 62% in fiscal 1993, increased 5% to $757 million in fiscal 1995 from $722 million in fiscal 1994, following a 7% increase from $673 million in fiscal 1993. In fiscal 1995, revenues from the AViiON family were approximately $421 million, a 10% decrease from fiscal 1994 as a result of sales force and production transition issues. The company remains cautious for the short term, while transitioning to the new Intel-based AViiON systems. Fiscal 1994 showed a 20% increase in AViiON systems revenues when compared with fiscal 1993. ECLIPSE MV ("MV") revenues decreased 43% during fiscal 1995 compared to a 48% decline in fiscal 1994. MV revenues currently represent only 7% of the company's total product revenues. In only its third year of shipments, the Open CLARiiON line of mass storage systems grew considerably, representing 25% of the overall product revenues in the current fiscal year, compared to 7% of total product revenues in the previous fiscal year. The company is encouraged by the growth of its Open CLARiiON storage line and its acceptance in the worldwide marketplace. Open CLARiiON is sold primarily through the company's Original Equipment Manufacturer ("OEM") and distributor channels. Revenues have been concentrated with a limited number of customers. For the current fiscal year, a significant portion of the company's Open CLARiiON revenues were to a single OEM. The recent growth in Open CLARiiON revenues may not be indicative of future Open CLARiiON revenue trends. The domestic market represented 51% of total product revenues in fiscal 1995, 55% and 52% in fiscal years 1994 and 1993, respectively. Domestic product revenues for fiscal 1995 decreased 3% from fiscal 1994, following a 17% increase from fiscal 1993. The CLARiiON product line more than doubled in this marketplace in fiscal 1995, offset by a 13% decrease in AViiON revenues, a 41% decrease in ECLIPSE MV revenues, and a small decrease in PC revenues. Almost 60% of the prior year growth was attributable to increases from sales of Open CLARiiON mass storage systems. European product revenues, including U.S. direct export sales, increased 12% to $215 million in fiscal 1995 from $192 million in fiscal 1994. The increase in fiscal year 1995 was attributable to significant growth in the Open CLARiiON product line offset by a 43% decline in ECLIPSE MV revenues. AViiON and PC revenues were flat in this marketplace. The weakening of the U.S. dollar in relation to European currencies accounted for 2% of the total 12% increase in this marketplace. Fiscal 1994 European product revenues represented a 12% decrease from $219 million in fiscal 1993. Other international product revenues, including U.S. direct export sales, increased 19% to $154 million in fiscal 1995 from $130 million in the previous year. Open CLARiiON increased significantly, offset by a 48% decrease in MV revenues and a 9% decrease in AViiON revenues. Fiscal 1994 revenues represented a 16% increase from fiscal 1993 revenues of $112 million. The fiscal 1994 increase in other international product revenues was largely due to stronger revenues from the South Pacific area and an increase in U.S. direct export sales to Japan. Total service revenues of $402 million in fiscal 1995 remained relatively constant compared to $398 million in fiscal 1994. Fiscal 1994 service revenues reflected a 2% decrease from $405 million for fiscal 1993. Domestic service revenues remained relatively unchanged at $227 million in fiscal 1995 compared to $230 and $229 million in fiscal 1994 and fiscal 1993, respectively. European service revenues increased 7% to $130 million in fiscal 1995 following a drop of 7% in fiscal 1994 to $122 million from $131 million in fiscal year 1993. Foreign exchange accounted for 3% of the total 7% increase in fiscal 1995 and 3% of the total 7% decrease in fiscal 1994. Other International service revenues of $44 million in fiscal 1995 decreased 2% from $46 million in fiscal 1994. Fiscal 1994 other international service revenues remained constant compared to fiscal 1993. Cost of revenues accounted for 67% of total revenues in fiscal 1995 as compared to 65% in fiscal 1994. For the year ended September 25, 1993, total cost of revenues amounted to 61% of total revenues. Cost of product revenues increased to 68% of product revenues in fiscal 1995, compared with 67% and 62% in fiscal years 1994 and 1993, respectively. The primary reason for the increase in cost as a percentage of product revenues is due to shipments of the lower gross margin CLARiiON family of mass storage systems. This is partially offset by benefits resulting from the company's cost reduction and restructuring programs. Cost of service revenues was 64% of service revenues in fiscal year 1995, an increase from 63% and 59% in fiscal years 1994 and 1993, respectively. The increase in cost of service revenues as a percentage of total service revenues was primarily a result of increases in revenues from systems integration activities which yield a lower margin than traditional service contract revenues. In fiscal 1995, research and development expenses were $86 million or 7% of total revenues, compared to $91 million and $100 million or 8% and 9% of total revenues for fiscal years 1994 and 1993, respectively. The net decrease in research and development expenses during this fiscal year was primarily caused by the company dedicating a higher proportion of its resources to software development that requires capitalization. The company continues to focus its research and development efforts on its core business technology, multi-user computer systems, servers, and mass storage devices. In fiscal 1995, gross expenditures on research and development and software development, before capitalization, increased 5% compared to fiscal 1994. The increase in expenditures was primarily a result of material purchases relating to the prototyping of the new Intel-based product line and the porting of DG/UX (Data General's UNIX Operating System) to the new architecture. Selling, general and administrative expenses continue to decrease due to the company's worldwide cost reduction and containment programs. Selling, general and administrative costs decreased 2% to $334 million in fiscal 1995 when compared to fiscal 1994. Fiscal 1994 costs represented a 2% decrease from fiscal year 1993. The company has responded to increasingly competitive industry conditions through ongoing cost reduction and containment programs from fiscal 1990 to fiscal 1995 which have been the primary factor in reducing the current year's selling, general, and administrative expenses by more than $110 million compared to fiscal 1990. While the company has made the transition to a supplier of open systems products and services, in the first half of fiscal 1995, the company continued to have a cost structure which exceeded that of an open systems business model. Early in the third quarter of the current fiscal year, the company identified additional cost reduction steps which include further worldwide sales and service workforce reductions. Consequently, results of operations for fiscal 1995 include a charge of $43 million for estimated costs associated with a worldwide workforce reduction along with other cost reduction programs, primarily related to real estate. The provision relating to the workforce reduction is primarily for salary and benefit continuation and outplacement service. Fiscal 1994 and 1993 included charges of $35 million and $25 million, respectively, for estimated costs associated with the worldwide workforce reduction, real estate, and other costs associated with the company's restructuring actions. At the close of fiscal 1995, the number of employees was approximately 5,000, a reduction of 800 employees from September 24, 1994. Fiscal year 1994 saw a reduction of 700 employees from the 6,500 employed as of September 25, 1993. Peak employment was 17,700 in fiscal 1984. There have been no material changes in the company's previously announced restructuring actions or the estimates accrued at September 30, 1995. During fiscal 1993, the company sold three of the facilities that it had previously closed as a result of cost reduction programs. The company sold its Westbrook, Maine, its Portsmouth, New Hampshire, and a portion of its Woodstock, Connecticut facilities for proceeds of $8.7 million, $5.1 million and $1.9 million, respectively. Loss from operations for fiscal 1995 of $76 million was comprised of $45 million from the domestic marketplace, $15 million from Europe and $16 million from other international. These losses include restructuring charges of $19 million for each of domestic and Europe, and $5 million for other international. These losses from operations compare with $45 million, $18 million, and $17 million in fiscal 1994, for the domestic marketplace, Europe and other international, respectively. Restructuring charges were $21 million, $12 million, and $2 million in each of these areas, respectively. Interest income for fiscal 1995 increased 65% from fiscal 1994, following a 27% decrease from fiscal 1993 to fiscal 1994. The current year increase was primarily due to higher levels of invested cash and higher market interest rates. The prior year decrease was primarily due to lower average levels of invested funds and an overall reduction in market interest rates. Interest expense for fiscal 1995 remained relatively unchanged from both fiscal 1994 and 1993. Included in other income, net, in the fiscal 1995 Statement of Operations is a pretax gain, net of related legal fees and other expenses, of $44.5 million from the settlement with Northrop Grumman Corporation of the six-year software copyright infringement and trade secrets litigation against Grumman Systems Support Corporation ("Grumman"). Under the terms of the settlement, Grumman paid the company $53 million and the parties have dismissed all pending litigation. The income tax provision for the current year was $8.6 million, compared to $2.1 million in fiscal 1994 and $5.4 million in fiscal 1993. The current year provision resulted primarily from deferred tax on undistributed earnings for certain foreign subsidiaries and foreign and state taxes. The 1994 and 1993 provisions primarily resulted from foreign and state taxes. The company continues to have significant operating loss carryforwards and unused tax credits available to minimize future tax liabilities. During the first quarter of fiscal 1994, the company adopted Statement of Financial Accounting Standard ("SFAS") 109, "Accounting for Income Taxes". SFAS 109 is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the company's financial statements or tax returns. Previously, the company used the SFAS 96 asset and liability approach that gave no recognition to future events other than the recovery of assets and settlement of liabilities at their carrying amounts. The implementation of SFAS 109 did not have a material effect on either the company's consolidated financial position or results of operations. Under SFAS 109, the benefit associated with future deductible temporary differences is recognized if it is more likely than not that a benefit will be realized. Based on historical evidence, the company has recorded a valuation allowance which offsets substantially all net deferred tax assets existing as of September 30, 1995 and September 24, 1994. In the first quarter of fiscal 1995, the company adopted SFAS 112, "Employers' Accounting for Post-Employment Benefits" and SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS 112 requires the accrual of liabilities for the estimated cost of benefits provided by the employer to former or inactive employees. SFAS 115 addresses accounting and reporting for investments in certain debt and equity securities. Under this standard, the company is required to classify its marketable securities into one or more of the following categories: held-to-maturity, trading, or available for sale. All of the company's marketable securities at September 30, 1995 and September 24, 1994 have maturities of less than one year, and have been classified as being 'held-to-maturity'. The implementation of SFAS 112 and SFAS 115 did not have a material effect on the company's consolidated financial position or results of operations. In the fourth quarter of fiscal 1995, the company adopted SFAS 119, "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments". The adoption of this statement requires certain additional disclosure regarding the amounts, nature, terms, purpose, and fair values of the company's derivative financial instruments. In May 1993, the Financial Accounting Standards Boards ("FASB") issued SFAS 114, "Accounting by Creditors for Impairment of a Loan". In March 1995, the FASB issued SFAS 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". In October 1995, the FASB issued SFAS 123, "Accounting for Stock-Based Compensation". SFAS 114 is effective for fiscal years commencing after December 15, 1994. SFAS 121 and 123 are effective for fiscal years beginning after December 15, 1995. The company will implement these statements as required. The future adoption of SFAS 114, 121, and 123 is not expected to have a material effect on the company's consolidated financial position or results of operations. LIQUIDITY AND CAPITAL RESOURCES The company's financial position remains strong. Cash and temporary cash investments as of September 30, 1995 were $117 million, a decrease of $25 million from fiscal 1994. However, at September 30, 1995, the company held $72 million in marketable securities, a net increase of $24 million from the prior fiscal year, which supplemented cash and temporary cash investments. These securities are primarily invested in United States Treasury bills and notes. Net cash provided from operations in fiscal 1995 was $117 million, which included $53 million received in the first quarter of this year from the settlement of the Grumman software copyright infringement and trade secrets litigation. Expenditures for property, plant and equipment were $96 million and capitalized software development costs totaled $27 million. Cash provided from stock plans was approximately $8 million. The company disbursed $1 million in connection with an investment in an unaffiliated entity and in repayment of notes payable. Repayment of long-term debt during the current fiscal year was $4 million, including a $3 million repurchase of the company's 8 3/8% debentures due in 2002 to satisfy future sinking fund requirements. The effect of currency fluctuations on cash and temporary cash investments was an increase of $2 million for fiscal year 1995. Net receivables decreased $8 million to $251 million at September 30, 1995, primarily as a result of improved collections worldwide, partially offset by the increase in fourth quarter fiscal 1995 revenues when compared to the same prior year period. The company's worldwide days sales outstanding decreased 7 days when compared to the prior fiscal year as a result of the increased collection activity, primarily relating to the Open CLARiiON line of mass storage systems. This product line is sold primarily through the company's OEM and distributor channels where receivable cycles are generally shorter than the computer systems product line. Inventory levels increased $6 million during fiscal 1995, primarily as a result of increased end of quarter procurement and manufacture of finished goods. Net property, plant, and equipment increased $10 million principally due to increased capital expenditures in the areas of leasehold improvements and internal equipment and the investment in recently implemented core financial enterprise systems and associated hardware. Accounts payable increased $24 million primarily attributable to the increase in end of quarter inventory procurements and the timing of payments related to this activity. Other current liabilities and other liabilities increased $20 million to $281 million at September 30, 1995, primarily as a result of increased income tax accruals and an increase in employee related accruals, primarily for the company's pension benefits. Operations have generally been the primary source of the company's cash. Cash provided from operations has been augmented by proceeds from sales of stock under the company's stock plans, from sales of facilities and other non-operating assets, and the settlement of the Grumman litigation. The company has not paid cash dividends since its inception in order to reinvest available cash in operations. The company is currently offering two facilities for sale: Milford, Massachusetts and the remaining portion of Woodstock, Connecticut. As sales of these facilities occur, the net proceeds will continue to supplement the net cash generated from operating activities. For the three year period ending September 30, 1995, cash and temporary cash investments decreased $22 million. Net cash provided from operations was $266 million, including $53 million from the Grumman litigation settlement. The sale of facilities and other net investments provided $47 million. Sales pursuant to the company's employee stock plans provided $24 million. Long-term debt decreased $9 million, primarily due to repayment of Industrial Revenue Bonds in connection with the sales of the company's Portsmouth, New Hampshire and a portion of the Woodstock, Connecticut facilities and the repurchase of a portion of the company's 8 3/8% debentures due in 2002. Net proceeds from maturity of marketable securities were $5 million. Expenditures for property, plant and equipment totaled $284 million and the company's investment in capitalized software development costs was $68 million. Notes payable were paid in the amount of $2 million during this three year period. The effect of foreign exchange on this three year period was insignificant. At September 30, 1995, the company has a $30 million unsecured letter of credit and reimbursement facility with a group of banks. This agreement is available to secure the issuance of letters of credit. The facility contains certain covenants, including restrictions on the sale or pledge of certain assets, the declaration of dividends and the incurrence of other debt. The interest rate for borrowings under the current letter of credit facility is 2.0% per annum above a base rate. The base rate is equal to the greater of prime rate or the Federal Funds Effective Rate plus .5%. Commitment fees paid on available funds are not material and there were $8.3 million of letters of credit secured by this facility at September 30, 1995. At September 24, 1994, there were $11.6 million of letters of credit secured by the previous letter of credit facility. The current facility has a duration of 364 days and expires on December 20, 1995. The company is currently in the process of establishing a replacement letter of credit facility. The company believes it is important to maintain a conservative capital structure and a strong cash position. Cash is invested in liquid temporary investments pending its utilization. The company's investment policy is to minimize risk while maximizing return on cash, and to keep uninvested cash at a minimum. Cash is generally centralized domestically, although some cash is also held at various subsidiaries around the world to meet local operating funding requirements. All cash is freely remittable to the United States. Although the actual level of spending will be influenced by many factors, the company anticipates that expenditures for property, plant and equipment will continue to be the primary non-operating use of cash during fiscal year 1996. Most of the expenditures will be for capital assets directly related to the company's open systems product sales, marketing, support and development. Net fixed assets associated with the company's proprietary ECLIPSE MV family of products represent less than 15% of the company's total net fixed assets. Such assets are primarily spare parts employed to support the company's MV service base of over 19,000 installed units worldwide, as well as those MVs which are serviced by third parties. The caption "writedown of net book value of property, plant, and equipment" in the Consolidated Statements of Cash Flows includes the net book value of demonstration equipment sold to customers which was charged to cost of product revenues. The proceeds from these sales are recorded in product revenues. Management expects that sales of demonstration equipment will continue. Also during fiscal 1996, cash sourced from operations totaling $23 million is expected to be utilized in relation to the company's restructuring programs. The company believes it has sufficient resources to provide for its current operations and to continue to invest in the future. CONSOLIDATED STATEMENTS OF OPERATIONS DATA GENERAL CORPORATION YEAR ENDED SEPT. 30, SEPT. 24, SEPT. 25, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 1995 1994 1993 REVENUES Product. . . . . . . . . . . . . . . . . . $ 757,338 $ 722,423 $ 672,965 Service. . . . . . . . . . . . . . . . . . 401,978 398,082 404,904 Total revenues . . . . . . . . . . . . 1,159,316 1,120,505 1,077,869 COSTS AND EXPENSES Cost of product revenues . . . . . . . . . 514,049 483,808 415,128 Cost of service revenues . . . . . . . . . 257,998 249,306 239,590 Research and development . . . . . . . . . 85,886 90,826 100,172 Selling, general, and administrative . . . 334,337 341,343 346,740 Restructuring charge . . . . . . . . . . . 43,000 35,000 25,000 Total costs and expenses. . . . . . . 1,235,270 1,200,283 1,126,630 Loss from operations . . . . . . . . . . . (75,954) (79,778) (48,761) Interest income. . . . . . . . . . . . . . 9,710 5,881 8,032 Interest expense . . . . . . . . . . . . . 13,826 14,049 14,766 Other income, net. . . . . . . . . . . . . 41,972 2,353 416 Loss before income taxes . . . . . . . . . (38,098) (85,593) (55,079) Income tax provision . . . . . . . . . . . 8,605 2,100 5,400 Net loss . . . . . . . . . . . . . . . . . $ (46,703) $ (87,693) $ (60,479) PRIMARY NET LOSS PER SHARE: Net loss per share . . . . . . . . . . . ($1.23) ($2.45) ($1.73) Weighted average shares outstanding. . . 37,866 35,774 34,876 NET LOSS PER SHARE ASSUMING FULL DILUTION: Net loss per share . . . . . . . . . . . ($1.23) ($2.45) ($1.73) Weighted average shares outstanding. . . 37,866 35,774 34,876 Results of operations are for 52-week periods except for 1995 which is a 53-week period. The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements. CONSOLIDATED BALANCE SHEETS DATA GENERAL CORPORATION SEPT. 30, SEPT. 24, DOLLARS IN THOUSANDS, EXCEPT PAR VALUE 1995 1994 ASSETS Current assets: Cash and temporary cash investments. . . . . . $ 117,201 $ 142,448 Marketable securities. . . . . . . . . . . . . 71,617 47,865 Receivables, less allowances of $14,079 at Sept. 30, 1995 and $13,752 at Sept. 24, 1994 251,123 258,709 Inventories. . . . . . . . . . . . . . . . . . 124,145 118,412 Other current assets . . . . . . . . . . . . . 27,399 30,642 Total current assets . . . . . . . . . . . . 591,485 598,076 Property, plant, and equipment, net. . . . . . . 174,914 164,777 Other assets . . . . . . . . . . . . . . . . . . 65,619 59,011 $ 832,018 $ 821,864 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable. . . . . . . . . . . . . . . . . $ 2,033 $ 2,461 Accounts payable . . . . . . . . . . . . . . . 116,313 92,338 Other current liabilities. . . . . . . . . . . 251,880 232,066 Total current liabilities. . . . . . . . . . 370,226 326,865 Long-term debt . . . . . . . . . . . . . . . . . 153,457 156,942 Other liabilities. . . . . . . . . . . . . . . . 28,791 29,445 Commitments and Contingencies Stockholders' equity: Common stock, $.01 par value: Outstanding -- 37,933,000 shares at Sept. 30, 1995 and 36,457,000 shares at Sept. 24, 1994 (net of deferred compensation of $9,588 at Sept. 30, 1995 and $9,348 at Sept. 24, 1994) . . . . . . . . . . . . 446,762 434,757 Accumulated deficit. . . . . . . . . . . . . (163,626) (116,923) Cumulative translation adjustment. . . . . . (3,592) (9,222) Total stockholders' equity . . . . . . . . 279,544 308,612 $ 832,018 $ 821,864 The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements. CONSOLIDATED STATEMENTS OF CASH FLOWS DATA GENERAL CORPORATION YEAR ENDED SEPT. 30, SEPT. 24, SEPT. 25, IN THOUSANDS 1995 1994 1993 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss. . . . . . . . . . . . . . . . $ (46,703) $ (87,693) $ (60,479) Adjustments to reconcile net loss to net cash provided from operating activities: Depreciation. . . . . . . . . . . . . 74,804 76,957 78,756 Amortization of capitalized software development costs. . . . . 17,545 21,448 17,768 Amortization of deferred compensation. . . . . . . . . . . . 4,265 5,329 5,344 Increase (decrease) in other liabilities . . . . . . . . . . . . (656) 1,453 7,004 Writedown of net book value of property, plant, and equipment . . . . . . . . . . . . . 9,626 15,233 20,917 Gain on sale of investment. . . . . . -- (4,653) (3,216) Other non-cash items, net . . . . . . 7,232 11,714 6,157 Changes in operating assets and liabilities, net of effects from sale of facilities and other assets: (Increase) decrease in receivables . . . . . . . . . . . 11,267 31,757 (12,171) (Increase) decrease in inventories . . . . . . . . . . . (5,743) (15,735) 15,895 (Increase) decrease in other current assets. . . . . . . 3,761 3,727 (255) Increase in accounts payable. . . . 23,897 3,837 1,812 Increase (decrease) in other current liabilities, excluding debt. . . . . . . . . . 17,810 10,753 (2,901) Net cash provided from operating activities. . . . . . . . . . . . . 117,105 74,127 74,631 CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for property, plant, and equipment . . . . . . . . . . . . (96,471) (92,955) (94,968) Purchase of marketable securities . . . (240,507) (90,788) (110,470) Proceeds from maturity of marketable securities . . . . . . . . 216,755 115,318 114,953 Capitalized software development costs . . . . . . . . . . . . . . . . (27,493) (17,582) (23,078) Net proceeds from sale of facilities and other assets . . . . . -- 28,314 21,284 Investment in equity securities . . . . (600) (2,000) -- Net cash used by investing activities. . . . . . . . . . . . . (148,316) (59,693) (92,279) CASH FLOWS FROM FINANCING ACTIVITIES: Cash provided from stock plans, net . . 7,740 6,901 9,575 Repayment of notes payable. . . . . . . (607) -- (1,234) Repayment of long-term debt . . . . . . (3,500) (2,034) (3,599) Net cash provided from financing activities. . . . . . . . 3,633 4,867 4,742 Effect of foreign currency rate fluctuations on cash and temporary cash investments. . . . . . . 2,331 3,587 (6,979) Increase (decrease) in cash and temporary cash investments . . . . . . . . . . . . . . (25,247) 22,888 (19,885) Cash and temporary cash investments -- beginning of the period . . . . . . . . . . . . . 142,448 119,560 139,445 Cash and temporary cash investments -- end of the period . . . . . . . . . . . . . $ 117,201 $ 142,448 $ 119,560 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid . . . . . . . . . . . . $ 12,762 $ 13,422 $ 13,983 Income taxes paid . . . . . . . . . . $ 1,696 $ 3,444 $ 3,098 Results of operations are for 52-week periods except for 1995 which is a 53-week period. The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY DATA GENERAL CORPORATION YEAR ENDED SEPT. 30, SEPT. 24, SEPT. 25, IN THOUSANDS 1995 1994 1993 COMMON STOCK: Beginning balance. . . . . . . . . . . $ 434,757 $ 422,589 $ 407,798 Shares issued under stock plans, net . 7,740 6,839 9,447 Amortization of deferred compensation. 4,265 5,329 5,344 Ending balance . . . . . . . . . . . . 446,762 434,757 422,589 ACCUMULATED EARNINGS (DEFICIT): Beginning balance. . . . . . . . . . . (116,923) (29,230) 31,249 Net loss for year. . . . . . . . . . . (46,703) (87,693) (60,479) Ending balance . . . . . . . . . . . . (163,626) (116,923) (29,230) CUMULATIVE TRANSLATION ADJUSTMENT: Beginning balance. . . . . . . . . . . (9,222) (16,282) 10,989 Net translation adjustment for year. . 5,630 7,060 (27,271) Ending balance . . . . . . . . . . . . (3,592) (9,222) (16,282) Total stockholders' equity. . . . . . . . $ 279,544 $ 308,612 $ 377,077 Results of operations are for 52-week periods except for 1995 which is a 53-week period. The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements. DATA GENERAL CORPORATION NOTE 1. ACCOUNTING POLICIES FISCAL YEAR. The company's fiscal year ends on the last Saturday in September. Fiscal year 1995 consisted of 53 weeks. Fiscal years 1994 and 1993 consisted of 52 weeks. PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the accounts of Data General Corporation and its domestic and foreign subsidiaries (the "company"). All significant intercompany transactions have been eliminated. TRANSLATION OF FOREIGN CURRENCIES. The functional currencies for the company's operations in Australia, Canada, Europe, Japan, and New Zealand are the local currencies. Assets and liabilities of these operations are translated into U.S. dollars at exchange rates in effect at the balance sheet date. Income and expense items are translated at average exchange rates for the period. Translation adjustments are reported as a separate component of stockholders' equity. For the company's other foreign operations, the U.S. dollar is the functional currency. Assets and liabilities of these operations are remeasured into U.S. dollars at exchange rates in effect at the balance sheet date, except for inventories and property, plant, and equipment, which are remeasured at historical exchange rates. Income and expense items are remeasured at average rates for the period, except for cost of sales and depreciation, which are remeasured at historical exchange rates. Gains and losses resulting from remeasurement, not material in amount, are included in the results of operations. The company enters into foreign exchange contracts as a hedge against exposure to fluctuations in exchange rates associated with certain transactions denominated in foreign currencies, principally intercompany accounts receivable. Market value gains or losses on these contracts are included in the cost of product revenues and generally offset exchange gains or losses on the related transactions. During fiscal 1995, the company adopted Statement of Financial Accounting Standards ("SFAS") 119, "Disclosures about Derivative Financial Instruments and Fair Value of Financial Instruments". The adoption of this statement requires certain additional disclosure regarding the amounts, nature, terms, purpose, and fair values of the company's derivative financial instruments. Foreign exchange transaction gains and losses, not material in amount for the periods ending September 30, 1995 and September 24, 1994, are included in the cost of product revenues. CONSOLIDATED STATEMENTS OF CASH FLOWS. Temporary cash investments consist of highly liquid time deposits and commercial paper with original maturities of 90 days or less. Marketable securities consist primarily of U.S. Treasury bills and notes with original maturities of 91 to 360 days. These investments are recorded at amortized cost, which approximates market value. In the first quarter of fiscal 1995, the company adopted SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS 115 addresses accounting and reporting for investments in certain debt and equity securities. Under this standard, the company is required to classify its marketable securities into one or more of the following categories: held-to-maturity, trading, or available for sale. All of the company's marketable securities at September 30, 1995 and September 24, 1994 have maturities of less than one year, and have been classified as being 'held-to-maturity'. The implementation of SFAS 115 did not have an effect on the company's consolidated financial position or results of operations. Cash flows from foreign exchange contracts that are accounted for as hedges of identifiable foreign exchange transactions are classified as cash flows from operating activities in accordance with the nature of the transactions being hedged. INVENTORIES. Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. PROPERTY, PLANT, AND EQUIPMENT. Property, plant, and equipment is stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method, based on the following estimated useful lives: land improvements, 10-12 years; buildings and building improvements, 3-25 years; equipment, 3-10 years. Included in property, plant, and equipment are computer equipment spares which are not available for resale. These spares are used to support systems the company has sold or is using internally. Spares are depreciated over a 3 year estimated useful life. REVENUE RECOGNITION. Product revenues are recognized at the time of shipment. Service revenues, including postcontract customer support, are recognized ratably over applicable contractual periods or as services are performed. The costs of these service revenues are charged to expense when incurred. RESEARCH, DEVELOPMENT, AND WARRANTY COSTS. Research, engineering, and product development costs are expensed as incurred. Software development costs incurred after reaching technological feasibility are capitalized and amortized to cost of product revenues over a period not to exceed 4 years for operating system software and 3 years for application software, which approximates the estimated economic lives of these software products. Unamortized software development costs were $49.1 million at September 30, 1995 and $39.2 million at September 24, 1994. Amortization of capitalized software development costs for fiscal 1995 and fiscal 1994 included approximately $1.3 million and $2.7 million, respectively, related to the writedown of certain capitalized software costs to net realizable value. Estimated direct on-line diagnostic support and warranty costs are accrued at the time of product shipment. ADVERTISING. Advertising costs are charged to operations when incurred. The company has not incurred any costs associated with direct-response advertising during fiscal years 1995, 1994, or 1993 and there were no capitalized advertising costs at September 30, 1995 and September 24, 1994. Advertising expenses for fiscal 1995, 1994, and 1993 were $21.0 million, $18.1 million, and $17.1 million, respectively. RETIREMENT/POST-EMPLOYMENT BENEFITS. Net pension cost for the company's domestic defined benefit pension plan is funded as accrued, to the extent that current pension cost is deductible for U.S. Federal tax purposes. The plan's transition surplus is amortized over 19 years. Net pension cost for the company's international defined benefit pension plans is generally funded as accrued. The net transition surplus or obligation for these plans is amortized over periods ranging from 15 to 21 years. Net postretirement benefit costs for the company's domestic postretirement benefits plan are generally funded as accrued, to the extent that current cost is deductible for U.S. Federal tax purposes. The net transition obligation for the plan is amortized over 20 years. In the first quarter of fiscal 1995, the company adopted SFAS 112, "Employers' Accounting for Post-Employment Benefits". SFAS 112 requires that the cost of benefits to be provided by the employer to former or inactive employees after employment, but before retirement, be accrued when it is probable that a benefit will be provided. The implementation of SFAS 112 did not have a material effect on the company's consolidated financial position or results of operations. INCOME TAXES. In fiscal 1994, the company adopted SFAS 109, "Accounting for Income Taxes". SFAS 109 is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the company's financial statements or tax returns. Deferred tax expense represents the change in the net deferred tax asset or liability balance. In estimating future tax consequences, SFAS 109 generally considers all expected future events other than enactments of changes in the tax law or rates. Previously, the company used the SFAS 96 asset and liability approach that gave no recognition to future events other than the recovery of assets and settlement of liabilities at their carrying amounts. The implementation of SFAS 109 did not have a material effect on either the company's consolidated financial position or results of operations. EARNINGS PER SHARE. Primary net income (loss) per share is based upon the weighted average number of common shares outstanding, including dilutive common stock equivalents. Common stock equivalents represent the net additional shares resulting from the assumed exercise of options outstanding under the company's stock option plans, using the "treasury stock" method. Net income (loss) per share assuming full dilution is based upon the weighted average number of common shares outstanding, including dilutive common stock equivalents and assumed conversion of the company's 7-3/4% Convertible Subordinated Debentures, if dilutive. For fiscal 1995, 1994 and 1993, these debentures are anti-dilutive and have been excluded from the calculation. OTHER RECENT PRONOUNCEMENTS. In May 1993, the Financial Accounting Standards Board ("FASB") issued SFAS 114, "Accounting by Creditors for Impairment of a Loan". In March 1995, the FASB issued SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". In October 1995, the FASB issued SFAS 123, "Accounting for Stock-Based Compensation". SFAS 114 is effective for fiscal years commencing after December 15, 1994. SFAS 121 and 123 are effective for fiscal years beginning after December 15, 1995. The company will implement these statements as required. The future adoption of SFAS 114, 121, and 123 is not expected to have a material effect on the company's consolidated financial position or results of operations. NOTE 2. RESTRUCTURING During fiscal years 1995, 1994, and 1993, the company recorded restructuring provisions of $43 million, $35 million, and $25 million, respectively. The amounts accrued and charged against the established provisions were as follows: CURRENT CURRENT BEGINNING YEAR YEAR ENDING IN MILLIONS BALANCE PROVISION CHARGES BALANCE FISCAL 1995 ACTIVITY Provisions related to terminated employees: Termination payments . . . . . . . . . . . $15.2 $21.8 $(28.9) $ 8.1 Pension and OPEB costs (curtailment loss). 1.5 -- (.8) .7 Other costs. . . . . . . . . . . . . . . . 1.1 1.2 (.6) 1.7 Provisions related to employees not terminated 1.9 -- -- 1.9 Provisions for leases. . . . . . . . . . . . 14.0 12.9 (9.5) 17.4 Writedowns of assets to be sold or discarded .7 2.2 (1.0) 1.9 Other. . . . . . . . . . . . . . . . . . . . 2.3 4.9 (2.0) 5.2 Total. . . . . . . . . . . . . . . . . . $36.7 $43.0 $(42.8) $36.9 FISCAL 1994 ACTIVITY Provisions related to terminated employees: Termination payments . . . . . . . . . . . $15.4 $18.9 $(19.1) $15.2 Pension and OPEB costs (curtailment loss). .7 1.5 (.7) 1.5 Other costs. . . . . . . . . . . . . . . . .8 1.0 (.7) 1.1 Provisions related to employees not terminated -- 2.1 (.2) 1.9 Provisions for leases. . . . . . . . . . . . 19.1 4.2 (9.3) 14.0 Writedowns of assets to be sold or discarded 1.3 4.3 (4.9) .7 Other. . . . . . . . . . . . . . . . . . . . 2.1 3.0 (2.8) 2.3 Total. . . . . . . . . . . . . . . . . . $39.4 $35.0 $(37.7) $36.7 The 1995 restructuring charge included provisions for the termination of approximately 520 employees as part of the company's continuing cost reduction programs and realignment of the company's various sales, manufacturing, and administrative operations. The fiscal 1995 provision for leases is primarily for costs associated with newly vacated leased properties, mainly in Western Europe and Australia, as a result of the company's ongoing centralization and downsizing of its international operations. At September 30, 1995 approximately 350 terminations related to the fiscal 1995 restructuring charge had occurred with the remaining separations scheduled to be substantially completed during fiscal 1996. The 1994 restructuring charge included provisions for the termination of approximately 570 employees as part of the realignment of the company's worldwide sales and service organizations. At September 30, 1995, approximately 530 terminations related to this charge had occurred with the remaining separations scheduled to be completed during the first half of fiscal 1996. The 1994 provision for leases relates primarily to the closure of various domestic branch sales offices and excess vacant properties, located primarily in the United Kingdom. The writedown of fixed assets was primarily associated with consolidating certain activities in the European marketplace. The fiscal 1993 restructuring actions were substantially concluded prior to fiscal 1995. All charges, excluding asset writedowns, are principally cash in nature. There have been no material changes in the company's previously announced restructuring actions or the estimates accrued at September 30, 1995. NOTE 3. CONSOLIDATED BALANCE SHEET DETAILS IN THOUSANDS SEPT. 30, SEPT. 24, 1995 1994 INVENTORIES: Raw materials. . . . . . . . . . . . . . . . . . . . . $ 9,173 $ 11,791 Work in process. . . . . . . . . . . . . . . . . . . . 28,309 36,282 Finished systems . . . . . . . . . . . . . . . . . . . 51,199 35,521 Field engineering parts and components . . . . . . . . 35,464 34,818 Total inventories. . . . . . . . . . . . . . . . . . $124,145 $118,412 PROPERTY, PLANT, AND EQUIPMENT: Land . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,433 $ 3,433 Buildings and improvements . . . . . . . . . . . . . . 84,416 78,685 Manufacturing and design equipment . . . . . . . . . . 95,005 103,537 Data processing, office, and other equipment . . . . . 356,563 331,100 Computer equipment spares. . . . . . . . . . . . . . . 95,583 126,169 Total property, plant, and equipment . . . . . . . . 635,000 642,924 Accumulated depreciation . . . . . . . . . . . . . . . (460,086) (478,147) Total property, plant, and equipment, net. . . . . . $174,914 $164,777 OTHER CURRENT LIABILITIES: Accrued employee compensation and benefits . . . . . . $ 68,247 $ 59,857 Deferred revenues. . . . . . . . . . . . . . . . . . . 43,185 43,260 Accrued restructuring charges. . . . . . . . . . . . . 36,863 36,696 Income taxes payable . . . . . . . . . . . . . . . . . 15,253 8,086 Other accrued expenses . . . . . . . . . . . . . . . . 86,912 82,747 Current portion of long-term debt. . . . . . . . . . . 1,420 1,420 Total other current liabilities. . . . . . . . . . . $251,880 $232,066 Property, plant, and equipment at September 30, 1995 includes assets which are held for sale as a result of the company's corporate-wide restructuring programs. The original cost and net book value of these assets is $12,243 and $4,837, respectively. In fiscal 1994, the company sold its Westboro, Massachusetts land and facilities for net proceeds of $16.7 million and subsequently has entered into a 10-year lease arrangement for a portion of the property. This arrangement has been accounted for as an operating lease. No gain was recognized on this transaction. During the current fiscal year, the company retired fully depreciated computer equipment spares with an original cost of $49,498. NOTE 4. NOTES PAYABLE Notes payable at September 30, 1995 and September 24, 1994 consisted of borrowings by Data General SARL (France) of $2.0 million and $2.5 million, respectively. The borrowings are from various banks, are unsecured, and involve no commitment fees or compensating balances. The interest rate on the borrowings is .5% per annum above the Paris Interbank Offered Rate (PIBOR), and was 6.9% and 6.2% at September 30, 1995 and September 24, 1994, respectively. The weighted average interest rate on outstanding funds was 7.1% and 6.8% during the years ended September 30, 1995 and September 24, 1994, respectively. The weighted average interest rate during the period is based on borrowings outstanding at the end of each of the company's twelve fiscal periods. At September 30, 1995, the company has a $30 million unsecured letter of credit and reimbursement facility with a group of banks. This agreement is available to secure issuance of letters of credit. The facility contains certain covenants, including restrictions on the sale or pledge of certain assets, the declaration of dividends and the incurrence of other debt. The interest rate for borrowings under the current letter of credit facility is 2.0% per annum above a base rate. The base rate is equal to the greater of prime rate or the Federal Funds Effective Rate plus .5%. Commitment fees paid on available funds during fiscal year 1995 and 1994 were not material and there were $8.3 million of letters of credit secured by this facility at September 30, 1995. At September 24, 1994, there were $11.6 million of letters of credit secured by the previous letter of credit facility. The current facility has a duration of 364 days and expires on December 20, 1995. The company is currently in the process of establishing a replacement letter of credit facility. NOTE 5. INCOME TAXES Domestic and foreign loss before taxes, and details of the income tax provision (benefit) are as follows: YEAR ENDED SEPT. 30, SEPT. 24, SEPT. 25, IN THOUSANDS 1995 1994 1993 LOSS BEFORE TAXES: Domestic. . . . . . . . . . . . . . $(13,336) $(54,201) $(15,119) Foreign . . . . . . . . . . . . . . (24,762) (31,392) (39,960) $(38,098) $(85,593) $(55,079) INCOME TAX PROVISION (BENEFIT): Current: Federal . . . . . . . . . . . . . $ 1,000 $ -- $ -- Foreign . . . . . . . . . . . . . 1,175 1,896 2,955 State . . . . . . . . . . . . . . 2,000 700 850 Total current . . . . . . . . . 4,175 2,596 3,805 Deferred: Federal . . . . . . . . . . . . . 2,500 -- 919 Foreign . . . . . . . . . . . . . 1,930 (496) 676 Total deferred. . . . . . . . . 4,430 (496) 1,595 $ 8,605 $ 2,100 $ 5,400 Deferred income taxes reflect the tax impact of temporary differences between the amount of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws and regulations. Under SFAS 109, the benefit associated with future deductible temporary differences is recognized if it is more likely than not that a benefit will be realized. Based on historical evidence, the company has recorded a valuation allowance that offsets substantially all net deferred tax assets. Principal components of the deferred tax assets and liabilities included on the balance sheet at September 30, 1995 and September 24, 1994 were as follows: SEPT. 30, SEPT. 24, IN THOUSANDS 1995 1994 DEFERRED TAX ASSETS: Inventory . . . . . . . . . . . . . . . . . . . . . .$ 8,428 $ 10,881 Operating expenses. . . . . . . . . . . . . . . . . . 44,922 44,750 Intercompany profit in inventory and fixed assets . . 6,666 9,574 Depreciation. . . . . . . . . . . . . . . . . . . . . 8,922 8,086 Restructuring . . . . . . . . . . . . . . . . . . . . 15,129 15,414 Stock option plans. . . . . . . . . . . . . . . . . . 5,425 7,548 Interest on convertible debentures. . . . . . . . . . 1,292 1,293 Net operating losses. . . . . . . . . . . . . . . . . 119,579 119,809 Tax credits . . . . . . . . . . . . . . . . . . . . . 9,765 11,230 Gross deferred tax assets . . . . . . . . . . . . . 220,128 228,585 Less: Valuation allowance . . . . . . . . . . . . . . 201,255 209,936 Total deferred tax assets . . . . . . . . . . . . . 18,873 18,649 DEFERRED TAX LIABILITIES: Capitalized software development costs. . . . . . . . (18,437) (16,449) Other . . . . . . . . . . . . . . . . . . . . . . . . (4,604) (1,938) Total deferred tax liabilities. . . . . . . . . . . (23,041) (18,387) Net deferred tax asset (liability). . . . . . . . . $(4,168) $ 262 Reconciliation of the U.S. Federal statutory rate to the company's effective tax rate is as follows: YEAR ENDED SEPT. 30, SEPT. 24, SEPT. 25, 1995 1994 1993 U.S. Federal statutory rate . . . . . . . . . . . . .(35.0)% (35.0)% (34.7)% State income taxes. . . . . . . . . . . . . . . . . . 5.2 .8 1.5 Net domestic and foreign losses without tax benefits. 51.0 38.2 42.3 Net operating loss carryforwards utilized . . . . . . (5.7) (2.2) (1.4) Foreign income taxed at different rates . . . . . . . 4.4 .1 .7 Alternative minimum tax . . . . . . . . . . . . . . . 2.6 -- -- Other . . . . . . . . . . . . . . . . . . . . . . . . .1 .6 1.4 Effective tax rate. . . . . . . . . . . . . . . . . . 22.6% 2.5% 9.8% The company has U.S. Federal and foreign operating loss carryforwards of approximately $327 million and tax credit carryforwards of approximately $10 million. The operating loss carryforwards expire in the years 1996 through 2010. The tax credit carryforwards expire in the years 2000 through 2005. Provision has not been made for U.S. or additional foreign taxes on approximately $75 million of undistributed earnings of foreign subsidiaries, as those earnings are considered to be permanently reinvested. Such earnings would become taxable upon the sale or liquidation of these foreign subsidiaries or upon the remittance of dividends. It is not practicable to estimate the amount of the deferred tax liability on such earnings. Upon remittance, certain foreign countries impose withholding taxes that are then available, subject to certain limitations, for use as credits against the company's U.S. tax liability, if any. The amount of withholding tax that would be payable upon remittance of the entire amount of undistributed earnings would approximate $.7 million. NOTE 6. LONG-TERM DEBT SEPT. 30, SEPT. 24, IN THOUSANDS 1995 1994 7-3/4% Convertible Subordinated Debentures due 2001. . . $125,000 $125,000 8-3/8% Sinking Fund Debentures due 2002. . . . . . . . . 29,877 32,562 Industrial revenue bonds . . . . . . . . . . . . . . . . -- 800 154,877 158,362 Less current portion . . . . . . . . . . . . . . . . . . (1,420) (1,420) $153,457 $156,942 Maturities and sinking fund requirements for the next five fiscal years are as follows: 1996 -- $1,420; 1997 -- $3,500; 1998 -- $3,500; 1999 -- $3,500; 2000 -- $3,500. The 7-3/4% Convertible Subordinated Debentures are convertible at the option of the holder, at any time prior to redemption or repurchase, into shares of Common Stock of the company at a conversion price of $19.20 per share, subject to adjustment for certain events. The debentures are subordinated to all Senior Indebtedness (as defined in the indenture under which the bonds were issued). At the option of the company, the bonds may be redeemed at any time after June 1, 1994 at decreasing redemption prices, and may be redeemed at the option of the holder if there is a Fundamental Change (as defined in the indenture) in the company's operations. The indenture does not contain any financial covenants or any restrictions on the payment of dividends or the repurchase of the company's securities. Deferred debt issuance costs at September 30, 1995 of $2.3 million are being amortized to interest expense over the life of the debentures. The 8-3/8% Sinking Fund Debentures are subject to mandatory sinking fund payments which provide for annual principal retirements of $3.5 million through 2001. The company has the option, under certain conditions, to increase the sinking fund payments or to redeem the debentures prior to maturity. Through fiscal 1995, the company reacquired a total of $30.1 million principal amount of the debentures. Of all acquired debentures, $28.0 million principal amount was used to satisfy sinking fund requirements through fiscal 1995. Subsequent to September 30, 1995, the company reacquired an additional $3.0 million principal amount of the debentures. The remainder of all acquired debentures may be used to satisfy future sinking fund requirements. The debentures are subject to covenants which include certain limitations on the incurrence of additional debt, and the payment of dividends. The industrial revenue bonds have been paid in full at September 30, 1995. During fiscal 1994, the company repaid the Woodstock and Milford Industrial Revenue Bonds. All payments were made according to their scheduled repayment dates. NOTE 7. FINANCIAL INSTRUMENTS, COMMITMENTS AND CONTINGENCIES FINANCIAL INSTRUMENTS. The company enters into various types of financial instruments in the normal course of business. Fair values for certain financial instruments are based on quoted market prices. For other financial instruments, fair values are estimated based on assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates reflecting varying degrees of perceived risk. Accordingly, the fair values may not represent actual values of the financial instruments that could have been realized as of year end or that will be realized in the future. Fair values for cash and temporary cash investments, marketable securities, accounts receivable, notes payable, and accounts payable approximate carrying value at September 30, 1995 and September 24, 1994, due to the relatively short maturity of these financial instruments. The fair value of investments and notes receivable, included in other assets, was $4.6 million and $4.0 million at September 30, 1995 and September 24, 1994, respectively, which is equal to their carrying values in both years. The fair value of long-term debt, including debt due within one year, at September 30, 1995 and September 24, 1994 was $142.9 million and $134.9 million, respectively, compared to carrying values of $154.9 million and $158.4 million, respectively. The company enters into various forward contracts to limit its exposure to fluctuations in foreign currency exchange rates. As of September 30, 1995, in connection with the company's foreign exchange hedging programs, the company had entered into forward exchange contracts to purchase $61.2 million and to sell $119.9 million in various foreign currencies. The company's exposure to credit risk is believed to be minimal since the counterparties are major financial institutions. The market risk exposure is limited to risk related to currency rate movements. As substantially all of these contracts were entered into shortly before year end, the fair value of outstanding contracts at September 30, 1995, not material in amount, approximates the original value of the forward contracts. Between the end of this fiscal year and October 4, 1995, forward exchange contracts to purchase $61.2 million and to sell $72.8 million in various foreign currencies matured and were settled. The remaining contracts mature at various dates through January 30, 1996. The company's temporary cash investments, marketable securities and accounts receivable are subject to potential concentrations of credit risk. The company's investment policies limit the amount of investments in a single institution and restrict investments to low-risk, highly liquid securities. Portions of the company's trade receivables are concentrated in the U.S. government and in the health care industry. Management does not believe that the company is subject to any unusual risk beyond the normal credit risk attendant to operating its business. Ongoing credit evaluations of customers' financial condition are performed and generally, collateral is not required. The company maintains reserves for potential credit losses and such losses, in the aggregate, have not exceeded management's expectations. In the normal course of business, the company enters into certain sales-type lease arrangements with customers. These leases are generally sold to third party financing institutions. A portion of these arrangements contain certain recourse provisions under which the company remains liable. The company's maximum exposure under the recourse provisions was approximately $13.1 million, net of related reserves. A portion of this contingent obligation is collateralized by security interests in the related equipment. The fair value of the recourse obligation at September 30, 1995 was not determinable as no market exists for these obligations. LEASE COMMITMENTS. Lease agreements are primarily for sales and service offices and the company's corporate headquarters. The leases expire at various dates through 2014 and some contain options for renewal. Rental expense, including amounts charged against previously established restructuring reserves for vacant properties, was $32.3 million, $32.5 million, and $34.4 million for fiscal years 1995, 1994, and 1993, respectively. Future minimum rental payments under existing non-cancelable operating leases as of September 30, 1995 are as follows: FISCAL YEAR IN MILLIONS 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 33.3 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26.0 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.6 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.7 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.2 Subsequent to 2000 . . . . . . . . . . . . . . . . . . . . . 54.7 $158.5 A majority of the leases contain escalation clauses which provide for increases in base rentals to recover increases in future operating costs. The future minimum rental payments shown above include base rentals, exclusive of any future escalation. Approximately $62 million, prior to amounts expected to be recovered through subleases, of the future minimum rental payments shown above relate to facilities which have been closed or are expected to be closed as the result of the company's restructuring and cost reduction program. A portion of the future rental obligations for these facilities, net of amounts expected to be recovered through existing and future subleases, has been accrued as part of the restructuring charges. LITIGATION. In the first quarter of fiscal 1995, the company settled with Northrop Grumman Corporation its six-year copyright infringement and trade secrets litigation against Grumman Support Systems Corporation ("Grumman"). Under the terms of this settlement, Grumman paid the company $53 million and the parties have dismissed all pending litigation. The company recognized a pre-tax gain, net of related legal fees and other expenses, of $44.5 million resulting from the settlement, which is included in other income, net, in the Consolidated Statement of Operations. In November, 1994, the company commenced an action against IBM Corporation in the United States District Court in Worcester, Massachusetts claiming several IBM products including the AS/400 mid-range systems and System/390 mainframe line, infringed various company patents. The suit seeks, among other relief, compensatory damages. In January, 1995, IBM answered the complaint, denied the company's infringement claims and counterclaimed against the company, alleging that the company's AViiON and CLARiiON products infringed various IBM patents. This action is in the discovery stage. Although the company believes its claims are valid, it cannot predict the outcome of the litigation. In the opinion of management, based on preliminary evaluation of the IBM patents covered in the counterclaim, and subject to the risks of litigation, the counterclaims are without merit, the company will prevail thereon and the counterclaims will not have a material adverse impact on the business or financial condition of the company. The company and certain of its subsidiaries are involved in various other patent infringement, contractual, and proprietary rights suits. In the opinion of management, the conclusion of these suits will not have a material adverse effect on the financial position or results of operations and cash flows of the company and its subsidiaries. NOTE 8. STOCKHOLDERS' EQUITY The company has 100,000,000 authorized shares of common stock. As of September 30, 1995, 38,153,000 shares of common stock have been issued, of which 220,000 shares with a cost of $6.5 million are held by the company as treasury shares. During fiscal 1995, 1,476,000 additional shares were issued. As of September 24, 1994, 36,677,000 shares of common stock had been issued, of which 220,000 shares with a cost of $6.5 million were held by the company as treasury shares. The company has 1,000,000 authorized shares of $.01 par value preferred stock. The company's Board of Directors (the "Board") is authorized to issue shares of preferred stock in such series and with such terms and conditions as the Board may determine. In connection with the adoption of the company's Stockholder Rights Plan (see below), 400,000 shares of preferred stock have been designated as Series A Junior Participating Preferred Stock. No shares of preferred stock have been issued as of September 30, 1995. Under the Stockholder Rights Plan adopted in 1986, as amended, a dividend of Stock Purchase Rights (the "Rights") was paid. The Rights enable common stockholders to purchase from the company shares of Series A Junior Participating Preferred Stock under certain circumstances following the acquisition of, or attempt to acquire, 20% or more of the company's common stock or a determination that an "adverse person" has purchased 15% or more of the common stock. The Rights also entitle common stockholders to purchase shares of the company's or an acquiror's common stock at one-half of market value under circumstances which include certain transactions by or with a potential acquiror, including "adverse persons", and mergers and certain asset sales. The Rights may be redeemed by the company under certain circumstances. The Rights will expire in October 2001. NOTE 9. STOCK PLANS EMPLOYEE QUALIFIED STOCK PURCHASE PLAN. This plan covers substantially all employees and authorizes the issuance of a maximum of 8,600,000 shares of common stock upon exercise of nontransferable options granted semiannually. The options are exercisable six months after grant, at the lower of 85% of market value at the beginning or end of the six-month period, through accumulation of payroll deductions of up to 10% of each participating employee's regular base pay during such period. During fiscal 1995, options were exercised to purchase 799,000 shares at an average price of $6.45 per share. Unissued shares of common stock reserved for future issuance under this plan were 1,065,000 shares at September 30, 1995 and 1,864,000 shares at September 24, 1994. EMPLOYEE STOCK OPTION PLAN. This plan authorized the grant of either incentive stock options or non-qualified stock options to key employees, including officers and directors, to purchase up to 7,000,000 shares of common stock. For incentive options, the purchase price is equal to the fair market value on the date of grant. For non-qualified options the purchase price is determined by the Employee Stock Option Plan Committee within limits as set forth in the plan. Options granted under the plan generally are immediately exercisable and include restrictions against disposition of the shares and a requirement, upon termination of employment, to offer unvested shares for resale to the company at their original purchase price. The periods over which restrictions lapse are determined by the Employee Stock Option Plan Committee. Options may expire up to ten years after date of grant. During fiscal 1995, 3,000,000 additional shares of common stock were authorized for issuance under the plan and the termination date of the plan was extended to November 2, 2004. Effective fiscal 1995, the Employee Stock Option Plan Committee has discretion to designate options as transferable. Additional information concerning activity during fiscal 1995 is as follows: SHARES RESERVED FOR OPTIONS AVERAGE FUTURE GRANTS OUTSTANDING PRICE (000's) (000's) PER SHARE September 24, 1994. . . . 597 2,319 $ 7.03 Options authorized. . . 3,000 -- -- Options granted . . . . (1,371) 1,371 5.57 Options exercised . . . -- (164) 4.07 Options cancelled . . . 314 (314) 8.85 September 30, 1995. . . . 2,540 3,212 $ 6.38 RESTRICTED STOCK OPTION PLAN. This plan authorized the grant of options to key employees, including officers, directors, and consultants, to purchase up to 11,000,000 shares of the company's common stock. Option prices are determined by the Restricted Stock Option Plan Committee within limits as set forth in the plan. Options granted are immediately exercisable and include restrictions against disposition of the shares and a requirement, upon termination of employment, to offer unvested shares for resale to the company at their original purchase price. The periods over which restrictions lapse are determined by the Restricted Stock Option Plan Committee. Employees may use previously acquired shares of the company's common stock to pay the exercise price of shares purchased. Company policy requires that shares tendered by an employee to exercise an option be held by the employee for a minimum period of three months prior to the exercise date. Additional information concerning activity during fiscal 1995 is as follows: SHARES RESERVED FOR OPTIONS AVERAGE FUTURE GRANTS OUTSTANDING PRICE (000's) (000's) PER SHARE September 24, 1994. . . . . 421 2,631 $ 4.17 Options granted . . . . . (261) 261 4.34 Options exercised . . . . -- (511) 3.74 Options cancelled . . . . 151 (151) 5.18 September 30, 1995. . . . . 311 2,230 $ 4.22 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN. This plan authorizes the grant of an option to purchase 4,000 shares of common stock to each non-employee director on the date of the director's annual election(s) to the Board of Directors. The exercise price of options granted is 100% of the closing price per share of common stock on the date of grant. An aggregate of 150,000 shares of common stock may be issued under the plan. Options granted are immediately exercisable and include restrictions against disposition of the shares. Should the optionee cease to serve as a director, except under certain circumstances, any restricted shares must be offered to the company at their original purchase price. Restrictions lapse cumulatively to the extent of 25% of the grant on each anniversary of the date of grant. During fiscal 1995, 24,000 options were granted at an average price of $8.38 per share. At September 30, 1995, options to purchase 40,000 shares at an average price of $8.43 per share were outstanding and 110,000 shares were reserved for future grants. NON-EMPLOYEE DIRECTOR RESTRICTED STOCK OPTION PLAN. This plan authorized the grant of an option to purchase 4,000 shares of common stock to each non-employee director upon his initial election to the Board of Directors. The exercise price of options granted is the lesser of 50% of the book value per share of common stock at the end of the fiscal year preceding the date of grant or 25% of the fair market value per share on the date of grant. An aggregate of 32,000 shares of common stock may be issued under the plan. Options granted are immediately exercisable and include restrictions against disposition of the shares. Should the optionee cease to serve as a director, except under certain circumstances, any restricted shares must be offered to the company at their original purchase price. Restrictions lapse cumulatively to the extent of 25% of the grant on each anniversary of the date of grant. During fiscal 1995, options to purchase 4,000 shares at an average price of $2.66 per share were issued and options were exercised to purchase 2,000 shares at an average price of $4.38 per share. At September 30, 1995, options to purchase 14,000 shares at an average purchase price of $4.90 per share were outstanding. This plan terminated on December 31, 1994. Outstanding options can be exercised until their expiration date. No new options can be issued. In connection with the Restricted Stock Option Plan, the Non-Employee Director Restricted Stock Option Plan, and non-qualified options issued under the Employee Stock Option Plan, the aggregate excess of fair market value over option price on the dates of grant is treated as deferred compensation. Such deferred compensation is amortized to expense over the period of the restrictions and is credited to additional paid-in capital. NOTE 10. BENEFIT PLANS IN THOUSANDS The company has a noncontributory defined benefit pension plan which covers substantially all U.S. employees. The company also has a supplemental retirement benefit plan, which covers certain U.S. employees. Benefits under the plans are based on an employee's regular base pay and creditable years of service, as defined in the plans. Certain of the company's foreign subsidiaries also have retirement plans covering substantially all of their employees. Benefits under these plans are generally based on either career average or final average salaries and creditable years of service, as defined in the plans. Prior service cost is amortized over the average remaining service period of employees expected to receive benefits under the plan. Funds contributed to the plans are invested primarily in common stocks, mutual funds, global bond funds and cash equivalent securities. The components of net pension expense are as follows: YEAR ENDED SEPT. 30, SEPT. 24, SEPT. 25, 1995 1994 1993 Service cost . . . . . . . . . . . . . . . .$ 7,806 $ 8,608 $ 7,835 Interest on projected benefit obligation . . 11,504 10,506 9,380 Actual return on plan assets . . . . . . . .(17,460) (3,286) (12,629) Deferral of net actuarial gains (losses) and amortization of transition surplus and prior service cost. . . . . . 7,850 (6,083) 5,636 Curtailment loss, net of settlement gain . . 817 533 -- Net pension expense . . . . . . . . . . .$10,517 $10,278 $10,222 The funded status of the plans is as follows: SEPT. 30, SEPT. 24, 1995 1994 ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS: Vested benefit obligation . . . . . . . . . . . $134,251 $116,057 Accumulated benefit obligation. . . . . . . . . $141,950 $121,602 Projected benefit obligation. . . . . . . . . . $157,666 $137,777 Market value of plan assets. . . . . . . . . . . . 125,257 104,449 Excess of projected benefit obligation over plan assets. . . . . . . . . . . 32,409 33,328 Unrecognized actuarial gain. . . . . . . . . . . . 7,769 1,370 Unrecognized prior service cost. . . . . . . . . . (18,166) (17,072) Unrecognized transition surplus, net . . . . . . . 7,893 9,125 Net pension liability included in current and other liabilities . . . . . . . . . . . . . $ 29,905 $ 26,751 ASSUMPTIONS USED IN COMPUTING THE FUNDED STATUS OF THE PLANS: Weighted average discount rate. . . . . . . . . 8.00% 8.04% Expected long-term weighted average rate of return on assets. . . . . . . . . . . 9.57% 9.57% Weighted average rate of increase in compensation levels . . . . . . . . . . . . . 4.34% 4.49% On October 1, 1994, the U.S. plan was amended to provide pension benefits during the first year of service for present and future employees and to eliminate the eligibility year of service. In addition, pensionable compensation was limited to $150 per year, subject to IRS indexing in future years. The net effect of these amendments was an increase of approximately $9,500, $9,800, and $10,800 in the fiscal 1995 vested benefit obligation, accumulated benefit obligation, and projected benefit obligation, respectively. As a result of the company's restructuring and cost containment programs, pension curtailment losses of $910 and $652 were recognized in fiscal 1995 and 1994, respectively. These amounts were previously reserved as part of the fiscal 1994 and 1993 restructuring charges, respectively. The company also has foreign defined contribution pension plans. Total pension cost charged to expense for these plans was $1,685 in fiscal 1995, $1,464 in fiscal 1994, and $2,288 in fiscal 1993. The company's postretirement benefit plan provides certain medical and life insurance benefits for retired employees. Substantially all U.S. employees of the company may become eligible for these benefits if they remain employed until normal retirement age and fulfill other eligibility requirements as specified by the plan. With the exception of certain participants who retired prior to 1986, the medical benefit plan requires monthly contributions by retired participants in amounts equal to insured equivalent costs less a fixed company contribution which is dependent on the participant's length of service and Medicare eligibility. Benefits are continued to dependents of eligible retiree participants for 39 weeks after the death of the retiree. The life insurance benefit plan is noncontributory. Funds contributed to the plan are invested primarily in common stocks, mutual funds and cash equivalent securities. The components of net periodic postretirement benefit cost are as follows: YEAR ENDED SEPT. 30, SEPT. 24, SEPT. 25, 1995 1994 1993 Service cost . . . . . . . . . . . . . . . . $ 308 $ 345 $ 316 Interest on accumulated benefit obligation . 657 676 680 Actual return on plan assets . . . . . . . . (150) (339) (212) Deferral of net actuarial gains and amortization of transition obligation and prior service costs. . . . . 344 482 407 Net periodic postretirement benefit cost. $1,159 $1,164 $1,191 The funded status of the plan is as follows: SEPT. 30, SEPT. 24, 1995 1994 ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION: Retirees. . . . . . . . . . . . . . . . . . . . . . $3,995 $4,217 Fully eligible active plan participants . . . . . . 1,031 1,194 Other active plan participants. . . . . . . . . . . 3,490 3,229 Total accumulated postretirement benefit obligation. . 8,516 8,640 Market value of plan assets. . . . . . . . . . . . . . 389 955 Excess of accumulated benefit postretirement benefit obligation over plan assets . . . . . . . . . . . . . 8,127 7,685 Unrecognized transition obligation . . . . . . . . . . (2,645) (2,821) Unrecognized prior service cost. . . . . . . . . . . . (862) (934) Unrecognized actuarial gain. . . . . . . . . . . . . . 924 454 Net postretirement benefit liability included in current and other liabilities. . . . . . . . . . . $5,544 $4,384 ASSUMPTIONS USED IN COMPUTING THE FUNDED STATUS OF THE PLAN: Discount rate . . . . . . . . . . . . . . . . . . . . 8.0% 8.0% Expected long-term rate of return on assets . . . . . 10.0% 10.0% Prior service cost results from a plan amendment effective October 1, 1991, which increased amounts payable for employees who retire after December 31, 1985. Prior service cost is amortized over the average remaining service period of the employees expected to receive benefits under the plan. For participants who receive full retiree medical benefits, the medical premium rates were assumed to increase at the following rates: fiscal year 1995 - -- 7%; thereafter -- 7%. A 1% increase in the medical trend rate would not have a significant impact on the accumulated postretirement benefit obligation as of October 1, 1995. During fiscal 1994, the company dissolved the Voluntary Employees' Beneficiary Association trust which funded the cost of employee medical, life, long-term disability, and dental insurance benefits for the company's full-time permanent U.S. employees. Administration and funding of these benefit plans is now handled directly by the company with no changes in the coverages provided to employees. Amounts charged to expense are based on projected benefit levels determined on an annual basis. NOTE 11. GEOGRAPHIC SEGMENT DATA IN THOUSANDS The company's operations involve a single industry segment -- the design, manufacture, sale and support of multi-user computer systems, servers, and mass storage devices. Financial information, summarized by geographic area, is presented below. OTHER UNITED INTER- ELIMINA- CONSOLI- STATES EUROPE NATIONAL TIONS DATED YEAR ENDED SEPTEMBER 30, 1995: Total revenues: Unaffiliated customers. .$744,762 $295,357 $119,197 $1,159,316 Interarea transfers . . . 117,811 -- 20,416 $(138,227) -- Total . . . . . . . . .$862,573 $295,357 $139,613 $(138,227) $1,159,316 Restructuring charge. . . .$ 19,168 $ 18,901 $ 4,931 $ 43,000 Income (loss) from operations. . . . . . . .$(51,686) $(15,108) $(16,050) $ 6,890 $ (75,954) Identifiable assets . . . .$548,503 $193,971 $ 87,746 $(104,248) $ 725,972 Corporate assets. . . . . . 106,046 Total assets. . . . . . . $ 832,018 YEAR ENDED SEPTEMBER 24, 1994: Total revenues: Unaffiliated customers. .$691,516 $303,754 $125,235 $1,120,505 Interarea transfers . . . 149,008 -- 18,084 $(167,092) -- Total . . . . . . . . .$840,524 $303,754 $143,319 $(167,092) $1,120,505 Restructuring charge. . . .$ 20,800 $ 12,000 $ 2,200 $ 35,000 Income (loss) from operations. . . . . . . .$(48,555) $(18,282) $(16,951) $ 4,010 $ (79,778) Identifiable assets . . . .$559,893 $239,669 $101,110 $(179,389) $ 721,283 Corporate assets. . . . . . 100,581 Total assets. . . . . . . $ 821,864 YEAR ENDED SEPTEMBER 25, 1993: Total revenues: Unaffiliated customers. .$614,823 $342,945 $120,101 $1,077,869 Interarea transfers . . . 208,675 -- 20,859 $(229,534) -- Total . . . . . . . . .$823,498 $342,945 $140,960 $(229,534) $1,077,869 Restructuring charge. . . .$ 7,300 $ 15,300 $ 2,400 $ 25,000 Income (loss) from operations. . . . . . . .$(11,213) $(22,760) $(21,148) $ 6,360 $ (48,761) Identifiable assets . . . .$561,921 $297,923 $ 96,602 $(194,630) $ 761,816 Corporate assets. . . . . . 104,513 Total assets. . . . . . . $ 866,329 United States interarea transfers primarily represent shipments of equipment and parts to international subsidiaries. Other international interarea transfers primarily represent shipments of work in process and finished goods inventory from manufacturing facilities to domestic operations. These interarea shipments are made at transfer prices which approximate prices charged to unaffiliated customers and have been eliminated from consolidated net revenues. United States revenues from unaffiliated customers include direct export sales. Corporate assets consist primarily of temporary cash investments and marketable securities. Total liabilities of international subsidiaries, before intercompany eliminations, were $237,405 at September 30, 1995 and $295,651 at September 24, 1994. Cumulative retained earnings of international subsidiaries were $84,363 at September 30, 1995 and $109,541 at September 24, 1994. REPORT OF INDEPENDENT ACCOUNTANTS DATA GENERAL CORPORATION TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF DATA GENERAL CORPORATION In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of cash flows, and of stockholders' equity present fairly, in all material respects, the financial position of Data General Corporation and its subsidiaries at September 30, 1995 and September 24, 1994, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1995, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ Price Waterhouse LLP Boston, Massachusetts October 20, 1995 SUPPLEMENTAL FINANCIAL INFORMATION DATA GENERAL CORPORATION QUARTERLY FINANCIAL DATA (UNAUDITED) IN MILLIONS, EXCEPT FIRST SECOND THIRD FOURTH FISCAL PER SHARE AMOUNTS QUARTER QUARTER QUARTER QUARTER YEAR FISCAL 1995: Total revenues . . . . . . . $282.2 $283.8 $280.5 $312.8 $1,159.3 Total cost of revenues . . . 183.9 186.7 190.7 210.7 772.0 Net income (loss). . . . . . 24.2 (b) (11.1) (61.3)(a) 1.5 (46.7) Net income (loss) per share. $ .63 $ (.30) $(1.65) $ .04 $ (1.23) Net income (loss) per share assuming full dilution. . . $ .59 $ (.30) $(1.65) $ .04 $ (1.23) FISCAL 1994: Total revenues . . . . . . . $261.2 $282.9 $283.8 $292.6 $1,120.5 Total cost of revenues . . . 169.2 185.8 187.8 190.3 733.1 Net loss . . . . . . . . . . (21.1) (48.0)(a) (12.4) (6.2) (87.7) Net loss per share . . . . . $ (.60) $(1.35) $ (.34) $ (.17) $ (2.45) Net loss per share assuming full dilution. . . $ (.60) $(1.35) $ (.34) $ (.17) $ (2.45) (a) Includes $43.0 million and $35.0 million provision in fiscal years 1995 and 1994, respectively, for estimated expenses resulting from corporate- wide restructuring and cost reduction programs (see Note 2 of Notes to Consolidated Financial Statements). (b) Includes $44.5 million gain resulting from the settlement of litigation with Northrop Grumman Corporation (see Note 7 of Notes to Consolidated Financial Statements). STOCK PRICE RANGE FISCAL 1995 FISCAL 1994 HIGH LOW HIGH LOW First quarter . . . . . . . . . . 11-1/2 9-1/8 10-3/4 8-3/4 Second quarter. . . . . . . . . . 10-7/8 7-1/8 10 7-3/8 Third quarter . . . . . . . . . . 10-1/8 7 8 6-3/4 Fourth quarter. . . . . . . . . . 10-5/8 8-1/4 10 7-3/8 FACILITIES DATA GENERAL CORPORATION Data General does business in more than 70 countries through direct sales, subsidiaries, distributors and representatives. The company has 32 subsidiaries and approximately 250 sales and service offices. Major administrative, development, manufacturing and support facilities, and subsidiaries' headquarter locations are listed below. FACILITY LOCATION (Approximate Square Feet) Westboro, Massachusetts corporate headquarters; (490,000/Leased) administration; product development; special systems Southboro, Massachusetts manufacturing service division; (545,000)* software reproduction; distribution center; equipment refurbishment; major unit repair; custom product manufacturing; field engineering services and logistics Apex, North Carolina assembly, test and systems (300,000) integration facility Research Triangle Park, advanced systems research North Carolina and development (174,000) Norcross, Georgia customer support center (105,000/Leased) Mississauga, Ontario sales; field engineering; Canada administration (37,000/Leased) Etobicoke, Ontario, Canada product repair center (25,000/Leased) Chihuahua, Mexico product repair center (67,000/Leased) Schwalbach, Germany sales; customer education; (71,600/Leased) services Brentford, England sales; services; (120,000/Leased)** administration; customer education Manila, Philippines power supply and transformer (68,000) manufacturing; communications products assembly and test Melbourne, Australia product repair center; (31,000/Leased) logistics and equipment refurbishment SUBSIDIARY HEADQUARTERS Canada Toronto/Mississauga ASIA/PACIFIC Australia Sydney Hong Kong Japan Tokyo Korea Seoul Malaysia New Zealand Wellington Singapore Thailand Bangkok EUROPE Austria Vienna Belgium Brussels Denmark Copenhagen/Glostrup Finland Helsinki/Espoo France Paris/Velizy Germany Frankfurt/Schwalbach Hungary Budapest Italy Milan Netherlands Amsterdam Norway Olso/Voyenenga Portugal Lisbon/Amadora Spain Madrid Sweden Stockholm/Kista Switzerland Zurich United Kingdom and Ireland London/Brentford LATIN AMERICA Argentina Buenos Aires Brazil Rio de Janeiro Chile Santiago Mexico Monterrey Peru Lima Puerto Rico San Juan Venezuela Caracas * Includes 50,000 square-feet of space leased to a third party, and 200,000 square feet available for lease. ** Includes 26,000 square-feet of sub-leased space. As part of its consolidation efforts, Data General has for sale, facilities in Woodstock, Connecticut and Milford, Massachusetts. OFFICERS, DIRECTORS AND SENIOR MANAGEMENT DATA GENERAL CORPORATION Frederick R. Adler Director, Chairman of the Executive Committee; Retiring Senior Partner, Fulbright & Jaworski L.L.P., Attorneys at Law, New York, New York Ethan Allen Jr. Vice President, Customer Services Stephen P. Baxter Vice President, General International Ferdinand Colloredo-Mansfeld Director; Chairman of the Board, Cabot Partners Limited Partnership, Boston, Massachusetts William J. Cunningham Vice President, Manufacturing Arthur W. DeMelle Vice President; Chief Financial Officer Jacob Frank Vice President and General Counsel John J. Gavin Jr. Treasurer Angelo Guadagno Vice President, U.S. Sales Larry D. Hemmerich* Vice President, CLARiiON Business Unit Carl E. Kaplan Secretary; Senior Partner, Fulbright & Jaworski L.L.P., Attorneys at Law, New York, New York Robert C. McBride Vice President; Controller John G. McElwee Director; Retired Chairman, John Hancock Mutual Life Insurance Company, Boston, Massachusetts Anthony C. Nicoletti Vice President, Asia/Pacific Claes L. Nordwall Vice President, Europe Edward F. Pensel* Vice President, Manufacturing Operations James J. Ryan Vice President, Information Management Group Joel Schwartz Vice President, Worldwide Sales and Marketing Ronald L. Skates President and Chief Executive Officer; Director W. Nicholas Thorndike Director; Corporate Director and Trustee Donald H. Trautlein Director; Retired Chairman, Bethlehem Steel Corporation, Bethlehem, Pennsylvania Richard L. Tucker Director; Managing Director, Trinity Investment Management Corporation, Boston, Massachusetts J. Thomas West Senior Vice President, Advanced Development William L. Wilson Vice President, Services and Strategic Business Opportunities * Elected during 1995 DIVISION VICE PRESIDENTS Dennis P. Balch** Software Development Anthony P. DiBona U.S. Sales - Eastern Operations David J. Ellenberger Corporate Marketing Jonathan W. Lane** Human Resources Raymond J. Massey** U.S. Sales - Western Operations Michael I. Schneider Special Systems Robert Van Steenberg AViiON Systems Development William L. Zastrow Imaging Business Unit AREA VICE PRESIDENTS John T. Anderson** U.S. Channel Sales William Cadogan European Services Ronald A. Edlin Professional Services Robert C. Mara Personal Computer Business Unit Thomas P. Rizk Customer Support Daniel Sapir** Strategic Alliances Suzanne G. Sweeney** Strategic Alliances John Winter Latin America Michael S. Worhach Healthcare Business ** Appointed during 1995 CORPORATE INFORMATION DATA GENERAL CORPORATION CORPORATE HEADQUARTERS Data General Corporation 4400 Computer Drive Westboro, Mass. 01580 (508) 898-5000 LEGAL COUNSEL Fulbright & Jaworski L.L.P. New York, New York INDEPENDENT ACCOUNTANTS Price Waterhouse LLP Boston, Mass. DEBENTURE TRUSTEES First National Bank 63 Wall Street New York, New York 10005 State Street Bank and Trust 225 Franklin Street Boston, Mass. 02110 TRANSFER AGENT AND REGISTRAR The Bank of New York 800-524-4458 Address Shareholder Inquiries to: The Bank of New York Shareholder Relations Department - 11E Post Office Box 11258 Church Street Station New York, NY 10286 Send Certificates For Transfer and Address Changes to: The Bank of New York Receive and Deliver Department - 11W Post Office Box 11002 Church Street Station New York, NY 10286 STOCK EXCHANGE LISTING New York Stock Exchange London Stock Exchange Unlisted trading privileges on Boston, Midwest, Philadelphia, Pacific and Cincinnati exchanges TRADING SYMBOL DGN ANNUAL MEETING The Annual Meeting of Stockholders will be held at 11:00 a.m., Wednesday, January 31, 1996 in the Enterprise Room, State Street Bank Building, 225 Franklin Street, Boston, Mass. NUMBER OF STOCKHOLDERS As of September 30, 1995 there were approximately 12,500 stockholders of record. This number excludes individual stockholders holding stock under nominee security position listings. DIVIDEND POLICY No cash dividends have been declared or paid by the company since its inception. It is the policy of the company to retain any cash flow for future business expansion. The company anticipates no changes in this policy in the forseeable future. PUBLISHED INFORMATION The company's Annual Report, Interim Reports, Form 10-K, and Quarterly Reports on Form 10-Q as filed with the Securities and Exchange Commission, and other published information is available on request to: Investor Relations Department Data General Corporation 4400 Computer Drive Mail Stop 9S Westboro, Massachusetts 01580 Published information, as well as mailed or faxed copies of quarterly financial press releases, can be obtained by calling 1-800-941-2382. All information is available on Data General's internet website at http://www.dg.com. In the section titled "About Data General," select "Financial Information for Investors." Investors may also choose to: o Request information using e-mail to AViiON@dg.com o Dial our FAX-back system at 1-800-99-DGFAX (North America only) and press 411 to receive a faxed menu of publications o Call Data General Corporation at 1-800-DATAGEN Data General An Equal Opportunity / Affirmative Action Employer Making a Commitment to Workforce Diversity AViiON, CLARiiON, DG/UX, and ECLIPSE are registered trademarks of Data General Corporation. Intel, the Intel Inside logo, Pentium, and Pentium Pro are registered trademarks of Intel Corporation. All other brand and product names are trademarks or registered trademarks of their respective holders. The materials contained herein are summary in nature, subject to change, and intended for general information only. Details and specifications regarding Data General equipment and software are included in the applicable technical manuals, available from local sales representatives. EX-22 6 FY95 SUBSIDIARIES OF REGISTRANT EXHIBIT 21 Subsidiaries of Registrant. The following are the company's subsidiaries as of the close of the fiscal year ended September 30, 1995. All beneficial interests are wholly-owned, directly or indirectly, by the company, with the exception of Data General Technology (1990) Limited which is 45% owned. All subsidiaries are included in the company's consolidated financial statements. State or Jurisdiction of Name Organization Asia Data General Corporation . . . . . . . . . . . . . . . . . Delaware China Data General Corporation . . . . . . . . . . . . . . . . Delaware CLARiiON Storage Systems, Inc. . . . . . . . . . . . . . . . . Delaware Data General (Canada) Company . . . . . . . . . . . . . . . . . Nova Scotia Data General A.G. . . . . . . . . . . . . . . . . . . . . . . . Switzerland Data General A/S. . . . . . . . . . . . . . . . . . . . . . . . Norway Data General A/S. . . . . . . . . . . . . . . . . . . . . . . . Denmark Data General AB . . . . . . . . . . . . . . . . . . . . . . . . Sweden Data General Africa SARL . . . . . . . . . . . . . . . . . . . France Data General Australia Pty., Ltd. . . . . . . . . . . . . . . . Australia Data General Bahamas, Ltd. . . . . . . . . . . . . . . . . . . Bahamas Data General Chile S.A. . . . . . . . . . . . . . . . . . . . . Chile Data General Computers Sdn, Bhd. . . . . . . . . . . . . . . . Malaysia Data General Corporation . . . . . . . . . . . . . . . . . . . Greece Data General Costa Rica, S.A. . . . . . . . . . . . . . . . . Costa Rica Data General de Mexico, S.A. de C.V. . . . . . . . . . . . . . Mexico Data General del Peru, S.A. . . . . . . . . . . . . . . . . . Peru Data General France SARL . . . . . . . . . . . . . . . . . . . France Data General Gesellschaft mbH . . . . . . . . . . . . . . . . Austria Data General Gmbh . . . . . . . . . . . . . . . . . . . . . . Germany Data General Graphics, Inc. . . . . . . . . . . . . . . . . . . Delaware Data General Hong Kong Sales and Service, Ltd. . . . . . . . . Hong Kong Data General Hong Kong, Ltd. . . . . . . . . . . . . . . . . . Hong Kong Data General Hungary . . . . . . . . . . . . . . . . . . . . . Hungary Data General International Manufacturing Pte., Ltd. . . . . . . Singapore Data General International Sales Corporation . . . . . . . . . Delaware Data General International, Inc. . . . . . . . . . . . . . . Delaware Data General Investment Corporation . . . . . . . . . . . . . . Delaware Data General Ireland, Ltd. . . . . . . . . . . . . . . . . . . Ireland Data General Israel, Ltd. . . . . . . . . . . . . . . . . . . . Israel Data General Japan YK . . . . . . . . . . . . . . . . . . . . Japan Data General Korea, Ltd. . . . . . . . . . . . . . . . . . . . Korea Data General Latin America, Inc. . . . . . . . . . . . . . . . Delaware Data General Limited . . . . . . . . . . . . . . . . . . . . . United Kingdom Data General Ltda. . . . . . . . . . . . . . . . . . . . . . . Brazil Data General Manufacturing, Inc. . . . . . . . . . . . . . . . Delaware Data General Nederland BV . . . . . . . . . . . . . . . . . . The Netherlands Data General New Zealand, Limited . . . . . . . . . . . . . . . New Zealand Data General OY . . . . . . . . . . . . . . . . . . . . . . . . Finland Data General Philippines, Inc. . . . . . . . . . . . . . . . . Philippines Data General (Portugal) Sociedade de Computadores Lda. . . . . Portugal Data General Puerto Rico, Inc. . . . . . . . . . . . . . . . . Delaware Data General S.A. . . . . . . . . . . . . . . . . . . . . . . . Belgium Data General S.A. . . . . . . . . . . . . . . . . . . . . . . . Spain Data General S.p.A. . . . . . . . . . . . . . . . . . . . . . . Italy Data General Singapore Pte., Ltd. . . . . . . . . . . . . . . Singapore Data General Systems (Thailand) Limited . . . . . . . . . . . . Thailand Data General Technology (1990) Limited. . . . . . . . . . . . . Israel Data General Telecommunications, Inc. . . . . . . . . . . . . Delaware Data General Venezula C.A. . . . . . . . . . . . . . . . . . . Venezuela Data General Wholesale Pty., Ltd. . . . . . . . . . . . . . . . Australia Datagen Investment Trust. . . . . . . . . . . . . . . . . . . . Delaware Datagen, Inc. . . . . . . . . . . . . . . . . . . . . . . . . Delaware DG Argentina S.A. . . . . . . . . . . . . . . . . . . . . . . . Argentina DG Foreign Sales Corp., Inc. . . . . . . . . . . . . . . . . . Virgin Islands Digicom . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware Digital Computer Controls, Inc. . . . . . . . . . . . . . . . Delaware Digital Computer Controls International, Inc. . . . . . . . . . Delaware General Risk Insurance Company Ltd. . . . . . . . . . . . . . . Bermuda EX-23 7 FY95 INDEPENDENT ACCOUNTANTS EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectuses constituting part of the Registration Statements on Form S-8 (Nos. 2-91481, 33-11527, 33-19759, 33-33300, 33-53039, and 33-53041) of Data General Corporation of our report dated October 20,1995 appearing in the 1995 Annual Report to Stockholders which is incorporated by reference in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule, which appears on page 19 of this Form 10-K. PRICE WATERHOUSE LLP Boston, Massachusetts December 20, 1995 EX-27 8 ART. 5 FDS ANNUAL 10-K
5 1,000 12-MOS SEP-30-1995 SEP-30-1995 117,201 71,617 251,123 14,079 124,145 591,485 635,000 460,086 832,018 370,226 153,457 443,170 0 0 (163,626) 832,018 757,338 1,159,316 514,049 772,047 463,223 0 4,116 (38,098) 8,605 (46,703) 0 0 0 (46,703) (1.23) (1.23)
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