-----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, Qvi1Y7zbIo+Yeqes5+MbMhHwzXmGfhZKpWeVx+NL81hxI+etu5W/afCjf3Y6ld1F UwMfeo5SdVyRTRvhXwHfnw== 0000026999-96-000016.txt : 19961219 0000026999-96-000016.hdr.sgml : 19961219 ACCESSION NUMBER: 0000026999-96-000016 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19960928 FILED AS OF DATE: 19961218 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: 96682402 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 FY96 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 28, 1996 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 04-2436397 -------- ---------- (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 4400 Computer Drive, Westboro, Massachusetts 01580 - -------------------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (508) 898-5000 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 whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ____X___ No _____ Indicate 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]. Aggregate market value of common stock held by non-affiliates of the registrant, as of December 2, 1996: $600,917,294 Number of shares outstanding of each of the registrant's classes of common stock, as of December 2, 1996: Common Stock, par value $.01 39,730,000 - ---------------------------- ---------- (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 28, 1996. Part III - Portions of registrant's Proxy Statement dated December 18, 1996. ================================================================================ AViiON, CLARiiON, DASHER, DESKTOP GENERATION, DG/UX, ECLIPSE, microNOVA, NOVA and WALKABOUT are registered trademarks, DG/ViiSION, NUMALiiNE, THiiN Line and DataGenie are trademarks, and VALLiiANT is a service mark 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, develops and sells leading-edge computer systems and related technologies. The company's range of products and services includes multi-user computer systems; database servers; communications and networking servers; mass storage systems; workstations, desktop and portable systems; 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. Data General products are used for virtually all types of information processing applications, including database management, integrated information processing, distributed data processing, document imaging, office automation, transaction processing, communications, decision support, accounting and finance, health care information systems, manufacturing planning and control, human resources management, data warehousing, educational administration, testing, process control, and environmental monitoring. Other areas of use include computer aided engineering, scientific and laboratory research, medical instrumentation and imaging, signal analysis, data acquisition, instrumentation, monitoring, and control. The company's products are used in stand-alone applications and in networks. During the last decade, advances in microprocessor technology and the increasing availability of standards-based hardware and software have opened new markets for Data General products. These trends resulted in the introduction of networked computer systems, consisting of servers hosting PCs, terminals and other workstations. This computing architecture offers customers significant price/performance advantages over systems based on earlier architectures. In response to these trends, Data General developed the AViiON(R) open family of servers and the CLARiiON(R) family of storage systems. AViiON servers and CLARiiON storage products now form the core of Data General's computing business. The AViiON family of computer systems includes two series: the newest series of AViiON servers, introduced in 1995, based on Intel technology; and an earlier series, available since 1989, based on Reduced Instruction Set Computing (RISC) microprocessors from Motorola. Intel technology based AViiON servers run the Microsoft Windows NT Server operating system; the DG/UX(TM) operating system, Data General's commercial implementation of the standard UNIX operating system; the SCO UnixWare System; and also run various other open operating systems. Motorola based AViiON servers run primarily the DG/UX operating system. In fiscal 1996, revenues from the AViiON family were approximately $460 million. Since AViiON shipments began in fiscal 1989, AViiON has progressed through several product generations and now has an installed base of nearly 38,000 systems. The company's CLARiiON mass storage devices are open systems disk arrays and other storage products for computers that run the UNIX operating system, Windows NT Server, and selected other operating systems. In 1991, Data General introduced its first RAID (Redundant Arrays of Inexpensive Disks) storage systems for AViiON servers. In 1992, the company expanded that product family, established the CLARiiON brandname, and made CLARiiON available for use on other computer systems. CLARiiON now supports a wide range of 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. "Open CLARiiON" products are available for use with systems from IBM, Digital Equipment Corporation, Sun Microsystems, Hewlett-Packard Company, Sequent Computer Systems, Inc. and Silicon Graphics, Inc., as well as with systems running Novell NetWare, NT, OS/2, and SCO UNIX. Open CLARiiON products are sold through systems integrators and distributors. However, the majority of CLARiiON revenues are derived through OEM (Original Equipment Manufacturer) relationships with major systems vendors and storage suppliers. In 1995, 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. The Intel-based AViiON computers began shipping in volume at the start of fiscal 1996. Data General is continuing to develop systems based on the NUMA architecture. This class of product will constitute a major extension of the high end of the AViiON product line and will enable customers to capitalize on their existing investments in applications written for SMP (symmetric multiprocessing) systems. Just as with the CLARiiON storage systems, the company intends that NUMA systems will also be sold through OEM relationships. The company formed the NUMALiiNE(TM) Business Unit in fiscal 1996 to take advantage of the NUMA OEM business opportunity. In June 1996, Data General announced that it was developing a new family of products for the Internet. The implementation of Internet technology within companies and organizations has become known as the "Intranet." While Intranets are following the client/server model that will continue to leverage traditional data processing systems including AViiON servers and CLARiiON storage systems, the Internet is defining a new form of computing driven by information access. Since storage and retrieval are the key tasks in Internet-driven computing, the traditional data processing architecture is not required. New products have already emerged, including "network computers" or "thin clients" dedicated to viewing information. Data General envisions the need for "network attached storage" dedicated to making information available at high speeds, and "thin servers" dedicated to managing groups of thin clients in offices, homes, classrooms, or anywhere groups of people need access to the Internet. To pursue this opportunity, Data General formed the THiiN(TM) Line Business Unit in 1996. It is anticipated that THiiN Line products will be brought to market in fiscal 1997 and will be sold mainly through alternative channels. Data General also has formed the VALiiANT(SM) Business Unit, a contract manufacturing operation, to take advantage of the company's world class manufacturing expertise and facilities. Data General was the first U.S. computer company to have its worldwide manufacturing operations gain ISO 9000 certification. By leveraging its existing manufacturing facilities, the company believes VALiiANT provides Data General with an opportunity to realize incremental revenues and profits. Products and Services. More than 88 percent of Data General's fiscal 1996 product revenues were generated from the sale of AViiON servers and CLARiiON storage products. The balance of the company's product revenues are derived from personal computers and from a variety of older products which Data General continues to sell and support based on customer demand. These products include: 32-bit ECLIPSE(R) MV family systems; 16-bit ECLIPSE systems; DG/ViiSION(TM) personal computers; DASHER(R) family personal computers; WALKABOUT(R) notebook computer 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 reseller 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 includes systems based on Pentium Pro processors: the AV 4900 and AV 5900 enterprise servers; and the AV 3600, a high-end departmental and PC server that also functions as an enterprise server. The company also offers systems based on Pentium processors: the AV 2000 and AV 3000 deskside servers, and the AV 4800, and AV 5800 enterprise servers. The company's enterprise servers combine 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 highly suitable platforms for business-critical commercial applications. The AV 2000 and AV 3000 are competitively priced deskside servers that are ideal for reseller applications as well as for use in departmental applications. The earlier Motorola-based AViiON product family ranges from high-performance, general-purpose systems and servers to entry-level workstations. The AV 10000 includes up to 32 processors and employs NUMA architecture features. AViiON AV 9500 servers include models with up to 16 processors. The AV 8500 server series is a mid-range line which offers from two- to eight-processor systems. These office-package systems can be used to integrate networks of personal computers, providing users with services like 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. Intel processor-based AViiON servers run the Microsoft Windows NT Server operating system, SCO UnixWare, and the company's DG/UX operating system. DG/UX, Data General's version of the UNIX operating system, runs on all AViiON servers. 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. DG/UX allows the clustering of AViiON systems enabling resource sharing, higher levels of availability, and easier system administration. DG/UX is also the first UNIX based operating system capable of meeting federal B2 level security requirements, the most demanding security within the military/intelligence community. Data General also makes this capability available for security conscious commercial customers. The CLARiiON family of mass storage subsystems is based on Redundant Array of Inexpensive Disk (RAID) technology, providing an architecture that speeds access to data while safeguarding it. Individual CLARiiON chassis can accommodate different numbers of disk drives, each SCSI disk drive having a capacity up to 9.0 GB (billions of characters). Higher capacity disk drives can be accommodated as they become available in the marketplace. Multiple CLARiiON chassis can be combined in rackmount and multiple rackmount configurations to achieve projected data storage of several terabytes. The drives are combined with an intelligent I/O processor, which manages the array subsystem's operations, and cache which provides improved performance. By utilizing RAID technology, a portion of CLARiiON's disk resources is dedicated to data redundancy. While individual drives may fail occasionally, the array system remains operational and access to data continues, 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. ECLIPSE MV systems are 32-bit computers using custom-designed VLSI (very large scale integration) chips which utilize a more powerful instruction set than earlier 16-bit ECLIPSE and NOVA systems, enabling the execution of most programs that operate on the earlier systems. 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 electromechanical 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 throughout the company's product families. Data General also offers its customers a wide range of applications software solutions for both open and traditional systems. The company's relationships with systems integrators, software suppliers, and industry-specific Value Added Resellers (VARs) provide a growing presence worldwide in many specialized markets. The company's Intel-based AViiON systems are capable of running more than 15,000 applications from leading suppliers of databases, languages, office automation and industry application packages. This collection of software includes many products which can be used by customers who are migrating data processing or data management tasks from mainframe computers. To meet the specific market requirements, the company works with more than 1,000 VARs and distributors worldwide. 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 now 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, Macintosh, R , Async terminals, X-terminals, 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, NFS(R)), 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 $500 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 sold 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, VARs, 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 thousands of 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. The company 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 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 year ended September 28, 1996, product revenues were 70% of consolidated total revenues and service revenues were 30% of consolidated total revenues, and 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. 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 mainly to large organizations, many of which are new accounts. A mass merchandising organization, called "Data General Plus", is primarily responsible for meeting the needs of existing customers with a product range including 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, VARs, and distributors. OEMs include companies that incorporate Data General computers and CLARiiON storage systems into their product lines for resale to the end user. VARs 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 Leasing 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. The largest single customer during fiscal 1996 was Hewlett-Packard Company which purchases CLARiiON storage systems for resale to its customers. Hewlett-Packard Company accounted for 15% of consolidated total revenues in fiscal 1996. The company did not have any other customers with revenues exceeding 10% of the company's consolidated total revenues during fiscal 1996. 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 towards industry-standard systems, it is anticipated that the average time from order date to shipment date will further 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 disclosure 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, Canada, Latin America, Europe, and Asia/Pacific. Worldwide Channel Sales is responsible for developing and maintaining sales alliances with value-added resellers, independent software vendors, and distributors, and for the Data General Plus sales activities in the U.S. which support sales to the installed base of customers. The Worldwide Healthcare Division is responsible for sales and marketing activities in the healthcare market. The company's corporate marketing activities are focused primarily on the AViiON family of computer systems and related software solutions, and on specific market opportunities, such as Windows NT Server, Secure Internet Servers, and PICK/UNIX-based systems. 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. The NUMALiiNE Business Unit was formed in fiscal 1996 to build OEM relationships and take advantage of the market opportunity for systems based on the NUMA architecture. The THiiN Line Business Unit was formed in fiscal 1996 to develop and market Internet appliances, including thin servers, network attached storage, and information servers. The Services organization encompasses Customer Service (field engineering and other technical services) and Professional Services including Educational 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 which are incorporated into Data General systems or sold under the Data General label; for the operation of the VALiiANT contract manufacturing business unit; and for overall corporate quality assurance. The 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 crosslicense agreements with other manufacturers, and it may be possible for Data General to access such technology through crosslicense agreements. However, it has been the company's experience to date that the investment necessary to execute such crosslicense agreements and to re-engineer the component is not warranted. In a few instances, the company is dependent upon certain vendors for the manufacture of significant components of its server and mass storage systems. If these vendors were to become unwilling or unable to continue to manufacture these products in required volumes, the company would have to identify and qualify acceptable alternative vendors. The inability to develop alternate sources, if required in the future, could result in delays or reductions in product shipments. With respect to sole-sourced materials, the company has not experienced any problems relative to the timeliness of product availability or quality matters. To protect against such problems, however, the company has generally implemented 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. Patents. In November, 1994 and in May, 1996, 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 and 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 1996, the company experienced revenue growth in the U.S., Europe, and from other international geographies. Product revenues increased 22%, driven by strong growth in the Open CLARiiON line of mass storage devices, and renewed growth in AViiON servers. The company believes that the transition to Intel-based AViiON servers is progressing smoothly. Data General's future 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 and have 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. 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 new product introductions added to the depth of the product family. AViiON systems compete favorably with standards-based systems from other industry-leading vendors based upon a wide range of features and performance; the ability to run multiple operating systems, including Windows NT Server, the company's DG/UX operating system, and SCO UnixWare; and the availability of an extensive range of applications software. AViiON 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 manufactured by other vendors (such as PCs and workstations), 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, Hewlett-Packard Company, Sequent Computer Systems, Inc. and Silicon Graphics, Inc., as well as with systems running on Novell NetWare, NT, as well as Data General systems. The company believes no other vendor is shipping a product that offers the high availability data access features and performance characteristics of CLARiiON mass storage arrays. 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 $98.0 million in fiscal 1996, $85.9 million in fiscal 1995, and $90.8 million in fiscal 1994. Research and development work contracted to third parties during fiscal 1996 was insignificant. During fiscal 1996, 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. This includes development work on systems based on NUMA architecture for future high-end computer systems, and work on servers and storage systems for future Internet applications. 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 4,900 employees as of September 28, 1996, compared with 5,000 employees as of September 30, 1995, and 5,800 employees as of September 24, 1994. The net 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 3 of "Notes to Consolidated Financial Statements" in the company's Annual Report to Stockholders for the fiscal year ended September 28, 1996. 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 its relationship with its employees is good. International Operations. Foreign business is conducted through company owned subsidiaries and through a network of representatives and distributors. International revenues, including U.S. direct export sales, amounted to approximately 40% of consolidated total revenues in fiscal 1996, and 45% and 44% of consolidated total revenues in fiscal 1995 and 1994, 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 12. Geographic Segment Data" on page 29 of the company's Annual Report to Stockholders for the fiscal year ended September 28, 1996. CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. Data General desires to take advantage of the new "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 and is filing this information in Form 10-K. The company wishes to caution readers that the following important factors, among others, in some cases have affected, and in the future could affect, the company's actual results and could cause the company's actual consolidated results in the future to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the company. Period to Period Fluctuations. The company's operating results may fluctuate for a number of reasons. The company has short delivery cycles and as a result does not a have a large order backlog. This uncertainty is compounded because each quarter's revenue results predominantly from orders booked and shipped during the last month of the quarter, often disproportionately in the latter half of that month. Because the company plans its expenses, many of which are relatively fixed in the short-term, on the basis that its revenues will continue to grow, even a relatively small revenue shortfall may cause period results to be substantially below expectations. Such a revenue shortfall could arise from any number of factors including lower than expected demand, supply constraints, delays in the availability of new products, transit interruptions, overall economic condition or natural disasters. OEM Inventory Positions. The company has experienced significant growth in its Open CLARiiON storage business which has become a substantial portion of the company's product revenues. Open CLARiiON is sold primarily through the company's Original Equipment Manufacturers ("OEM") and distributor channels; thus sales in any given period are subject to customer sales cycles and inventory practices. Due to the fact that Open CLARiiON revenues have been concentrated in a limited number of customers, changes in OEM inventory levels and the impact of their sales cycles could have a substantial impact on operating results for a given period. A single customer during fiscal 1996 accounted for 15% of consolidated revenues. New Product Development and Marketing. The computer industry is highly competitive and requires very short time-to-market life-cycles which increase the complexity and risk of new product development and introduction. Any difficulties or delays in the development, production, testing or marketing of products, or the failure of customers to accept these products or technologies as planned, could materially affect the actual results of the company. Product Transition. The industry in which the company operates is one of constantly advancing technology. As new products are developed, some customers may postpone purchase of products while waiting for new products to be available. These purchase delays may cause revenues and operating results to be lower during the period of product transition. Development and Acceptance of new ccNUMA Architecture. The company is currently working with Dolphin Interconnect Solutions, Inc. to develop a standard interconnect technology for large-scale computing. The company is also working with Intel Corporation to promote the technology, which the company believes will allow companies throughout the computer industry to link multiple Intel SHV (Standard High Volume) servers into commercial systems that will perform at levels beyond current high-performance systems. Any delays or failures in the development, marketing or acceptance of this new technology could have a material impact on the expected revenue growth of the company's AViiON Open systems business. Software Development. The company continues to make significant investments in software development efforts to ensure that its products are competitively positioned in the commercial computer marketplace. The amount of expenditures that qualify for capitalization under SFAS 86 (Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed) may vary from period to period as software projects progress through the development life-cycle. These variations could impact the operating results in any given period. International Operations. Because a significant portion of the company's revenue is from sales outside of the United States, the company's results could be negatively affected by such factors as changes in foreign currency exchange rates (international sales are generally denominated in foreign currencies, while the company accounts are in U.S. dollars), trade protection measures, longer accounts receivable patterns, changes in regional or worldwide economic or political conditions, or natural disasters. Suppliers. In a few instances, the company is dependent upon certain vendors for the manufacture of significant components of its server and mass storage systems. If these vendors were to become unwilling or unable to continue to manufacture these products in required volumes, the company would have to identify and qualify acceptable alternative vendors. The inability to develop alternate sources, if required in the future, could result in delays or reductions in product shipments. In addition, the company is part of an industry that is increasingly reliant upon the timely supply of commodity components which are integrated with proprietary technologies to create commercial computer solution products. Any difficulties in obtaining raw materials, supplies, third party products, and any other items needed for the production of computer and storage systems could impact the ability of the company to ship its products in any given period. Manufacturing Operations. Over the last several years, the company has consolidated its various manufacturing operations into three facilitates in Apex, North Carolina; Southboro, Massachusetts; and Manila, Philippines. As a result of this consolidation, most of the company's assembly, test and systems integration operations are performed at the Apex facility. The company's ability to ship products would be adversely affected and operating results would be materially impacted were the Apex facility not able to operate at required levels due to a business interruption such as a power failure or natural disaster. Legal Proceedings. The costs, settlements and other effects of legal and administrative cases, proceedings and investigations, claims, by or against Data General, relating to intellectual property rights and intellectual property licenses may have an impact upon the operating results of the company. Competition in the Computer Industry. The computer industry is highly competitive with rapid technological advances in performance and functionality. Many of the company's competitors have substantially greater financial, technical, and marketing resources as well as larger installed customer bases and a wider range of available software applications. The intense competitive pressure in the industry could impact pricing, and therefore the operating results of the company, in any given period. 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 are modern, air conditioned, and suitable and adequate for the present activities of the company. Substantially all manufacturing equipment is owned by the company and is well maintained. In September 1996, the company sold its facility in Milford, Massachusetts. In February 1996 the company also sold its facility in Woodstock, Connecticut. Additional information regarding the company's principal plants and properties is included under the heading "Facilities" on page 31 of the company's Annual Report to Stockholders for the fiscal year ended September 28, 1996. Item 3. Legal Proceedings. The company's patent infringement suit against IBM Corporation commenced in November 1994, and IBM's countersuit against the company, remain in the discovery stage in the United States District Court in Worcester, Massachusetts. See Part II, Item 1, "Legal Proceedings" to the company's Quarterly Report on Form 10-Q for the quarter ended December 24, 1994. The company alleges, among other matters, that IBM's AS/400 CISC-based and System/390 computer product lines infringe certain of the company's patents, and seeks, among other relief, compensatory damages. IBM's countersuit alleges that certain of the company's AViiON and CLARiiON products infringe various IBM patents. In May, 1996, the company commenced an additional patent infringement suit against IBM in the United States District Court for the District of Massachusetts, in Worcester, Massachusetts. See Part II, Item 1, "Legal Proceedings" to the company's Quarterly Report on Form 10-Q for the quarter ended June 29, 1996. The company alleges, among other matters, that several IBM products, including IBM's AS/400 RISC-based computer product line, infringe certain of the company's patents and seeks, among other relief, injunctive and compensatory damages. The company believes its claims are valid, but it cannot predict the outcome of either litigation. Item 4. Submission of Matters to a Vote of Security Holders. Not applicable. Executive Officers of the Registrant. Frederick R. Adler(1), Age 70, Chairman of the Executive Committee of the Board of Directors since July 1982; Secretary of the company from 1968 to July 1982; retired senior partner in the law firm of Fulbright & Jaworski L.L.P., and senior partner of such firm for more than five years; managing director of Adler & Company, a venture capital investment firm, and a general partner of its related investment funds for more than five years; former managing general partner of Adler & Shaykin, a leveraged buyout firm, for more than five years. Ronald L. Skates(1), Age 55, 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 57, Senior Vice President of the company since November 1988; Vice President of the company from September 1983 to November 1988. William J. Cunningham, Age 58, Senior Vice President of the company since November 6, 1996; Vice President of the company from August 1989 to October 1996; 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 56, Senior Vice President of the company since November 6, 1996; Vice President of the company from March 1992 to October 1996 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 54, Senior Vice President of the company since November 6, 1996; Vice President of the company from February 1989 to October 1996; President and Chief Operating Officer of Polygen Corp. from August 1986 to February 1989. William L. Wilson, Age 52, Senior Vice President of the company since November 6, 1996; Vice President of the company from March 1994 to October 1996; 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 1989 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 30; and "Number of Stockholders," "Dividend Policy," and "Stock Exchange Listing" on page 33 of the company's Annual Report to Stockholders for the fiscal year ended September 28, 1996 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 10 of the company's Annual Report to Stockholders for the fiscal year ended September 28, 1996 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 11 through 15 of the company's Annual Report to Stockholders for the fiscal year ended September 28, 1996 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 16 through 31 of the company's Annual Report to Stockholders for the fiscal year ended September 28, 1996 is incorporated herein by reference. Item 9. Changes in and Disagreements With Accountants 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 18, 1996 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 1996 Fiscal Year", "Option Exercises in the 1996 Fiscal Year and Fiscal Year-End Option Values", "Compensation Pursuant to Plans", "Employee Agreements" and "Compensation of Directors" on pages 6 through 17 of the company's Proxy Statement dated December 18, 1996 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 3 through 5 of the company's Proxy Statement dated December 18, 1996 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 . . . . . . . . . . . . . . . 10* Management's discussion and analysis of financial condition and results of operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11* Consolidated balance sheets at September 28, 1996 and September 30, 1995 . 17* For fiscal years ended September 28, 1996, September 30, 1995, and September 24, 1994: Consolidated statements of operations . . . . . . . . . . . . . 16* Consolidated statements of cash flows . . . . . . . . . . . . . 18* Consolidated statements of stockholder's equity . . . . . . . . 19* Notes to consolidated financial statements . . . . . . . . . . . . . . . 20-29* Report of independent accountants . . . . . . . . . . . . . . . . . . . . 30* Supplemental financial information . . . . . . . . . . . . . . . . . . . . 30* Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31* Report of independent accountants on financial statement schedules . . . . 21 Financial statement schedule: Schedule II - Valuation and qualifying accounts . . . . . . . . . 22 The financial statement schedule should be read in conjunction with the financial statements in the 1996 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 1996 Annual Report to Stockholders. The 1996 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) Rights Agreement Renewed and Restated as of October 19, 1996 between the company and The Bank of New York, as Rights Agent, previously filed on June 27, 1996, as Exhibit 1 to the company's Amendment to Registration Statement on Form 8-A/A, 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 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. (q) 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. (r) 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. (s) 1994 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. (t) 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. (u) 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. (v) 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. (w) 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. (x) Amendment dated October 9, 1995 to Letter of Credit and Reimbursement Agreement, changing the Consolidated Tangible Net Worth limitation, previously filed as Exhibit 10(dd) to the company's Annual Report on Form 10-K for the fiscal year ended September 30, 1995, which is incorporated herein by reference. (y) 1996 Fiscal Year Bonus Opportunity for Chief Executive Officer, previously filed as Exhibit 10(ee) to the company's Annual Report on Form 10-K for the fiscal year ended September 30, 1995, which is incorporated herein by reference. (z) Amendment dated December 10, 1995 to Letter of Credit and Reimbursement Agreement. 11. Computation of primary and fully diluted earnings per share. 13. Annual report to stockholders for the fiscal year ended September 28, 1996, 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: /s/ Ronald L. Skates -------------------------------- Ronald L. Skates President and Chief Executive Officer December 18, 1996 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 /s/ Ronald L. Skates President and Chief - ------------------------------- Ronald L. Skates Executive Officer; December 18, 1996 Director /s/ Frederick R. Adler Chairman of Executive - ------------------------------- Frederick R. Adler Committee of Board of December 18, 1996 Directors: Director /s/ Arthur W. DeMelle Senior Vice President - ------------------------------- Arthur W. DeMelle Chief Financial Officer; December 18, 1996 Chief Accounting Officer /s/Ferdinand Colloredo-Mansfeld Director December 18, 1996 - ------------------------------- Ferdinand Colloredo-Mansfeld /s/ John G. McElwee Director December 18, 1996 - ------------------------------- John G. McElwee /s/ Donald H. Trautlein Director December 18, 1996 - ------------------------------- Donald H. Trautlein /s/ Richard L. Tucker Director December 18, 1996 - ------------------------------- Richard L. Tucker /s/ W. Nicholas Thorndike Director December 18, 1996 - ------------------------------- W. Nicholas Thorndike 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 30, 1996 appearing on page 30 of the 1996 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 included 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. /s/Price Waterhouse LLP PRICE WATERHOUSE LLP Boston, Massachusetts October 30, 1996 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 28, 1996: Allowance for doubtful accounts ............. $ 14,079 $ 10,276 (a) $ (9,875) (b) $ 14,480 Valuation allowance on deferred tax asset (c) 201,255 19,827 (17,065) 204,017 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) -- 209,936 -- 209,936 - ------------------------------------------------------------------------------------------------ (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) Rights Agreement Renewed and Restated as of October 19, 1996 between the company and The Bank of New York, as Rights Agent, previously filed on June 27, 1996, as Exhibit 1 to the company's Amendment to Registration Statement on Form 8-A/A, 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 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. (q) 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. (r) 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. (s) 1994 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. (t) 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. (u) 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. (v) 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. (w) 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. (x) Amendment dated October 9, 1995 to Letter of Credit and Reimbursement Agreement, changing the Consolidated Tangible Net Worth limitation, previously filed as Exhibit 10(dd) to the company's Annual Report on Form 10-K for the fiscal year ended September 30, 1995, which is incorporated herein by reference. (y) 1996 Fiscal Year Bonus Opportunity for Chief Executive Officer, previously filed as Exhibit 10(ee) to the company's Annual Report on Form 10-K for the fiscal year ended September 30, 1995, which is incorporated herein by reference. (z) Amendment dated December 10, 1995 to Letter of Credit and Reimbursement Agreement. 11. Computation of primary and fully diluted earnings per share. 13. Annual report to stockholders for the fiscal year ended September 28, 1996, 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. 2 TO LETTER OF CREDIT EXHIBIT 10 (z) AMENDMENT NO. 2 TO LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT THIS AMENDMENT NO. 2 TO LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT (this "Agreement") is made and entered into as of this 10th day of December, 1995 among: DATA GENERAL CORPORATION, a Delaware corporation ("Borrower"), NATIONSBANK OF TEXAS, NATIONAL ASSOCIATION, a national 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 by Amendment No. 1 to Letter of Credit and Reimbursement Agreement dated as of October 5, 1995 among the Borrower, the Lenders and the Agent and as hereby amended (as amended, 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; 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 definition 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) The definitions of "Commitment Termination Date" and "Consolidated Tangible Net Worth" shall be amended and restated in their entirety to read as follows: "Commitment Termination Date" means the earliest to occur of (i) December 18, 1996 (364 days after the initial Commitment Termination Date following the Closing Date prior to amendment hereby pursuant to Amendment No. 2 to Letter of Credit and Reimbursement Agreement dated as of December 10, 1995 among all parties hereto), or (ii) the date of termination of Lenders' obligations pursuant to Section 8.01 hereof upon the occurrence of an Event of Default, or (iii) such date as the Borrower may voluntarily and permanently terminate the Letter of Credit Facility by causing all Obligations of the Borrower to NationsBank and the Lenders to be Fully Satisfied and terminating all obligations of NationsBank and the Lenders with respect to Letters of Credit and Participations; "Consolidated Net Worth" means, at any time as of which the amount thereof is to be determined, Consolidated Shareholders' Equity less the effect of any amount in the foreign exchange cumulative translation adjustment account as disclosed on the consolidated financial statements of the Borrower and its Subsidiaries referred to in Section 5.01(e)(i) hereof and to be delivered under Section 6.01 hereof, all as determined on a consolidated basis in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis; (b) Section 7.03 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: 7.03 Consolidated Net Worth. Permit at any Determination Date the Consolidated Net Worth to be less than (a) $250,000,000 as at December 31, 1995 and (b) as at each succeeding Determination Date, the sum of (i) the amount of Consolidated Net Worth required to be maintained pursuant to this Section 7.03 as at the end of the immediately preceding Fiscal Quarter, plus (ii) 50% of cumulative Consolidated Net Income calculated for the Fiscal Quarter ending on such Determination Date ("Minimum Consolidated Net Worth"); provided, however, in no event shall such Minimum Consolidated Net Worth be decreased as a result of any net loss of the Borrower and its Subsidiaries (i.e., negative Consolidated Net Income) during any Fiscal Quarter. 3. Amendment Fee. The Borrower shall pay to the Agent for the pro rata benefit of the Lenders based on their Applicable Commitment Percentages, a fee (the "Facility Fee") equal to the product of the Total Letter of Credit Commitment multiplied by 1/8 of 1% (.125%). 4. Effectiveness. This Agreement shall become effective as of the date hereof upon receipt by the Agent of (a) seven fully executed copies of this Agreement (which may be signed in counterparts) and (b) payment in full of the Facility 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 Lender to enter into this Agreement, the Borrower represents and warrants to the Agent and the Lender 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 of 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 armed forces, war or acts of God or the public enemy, or cancellation 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 the part of the Borrower under the Credit Agreement, either immediately or with the lapse of time or the giving of notice, or both. 6. Entire Agreement. This Agreement sets forth the entire understanding and agreement of the 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 the 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 their 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: EX-11 3 FY96 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. 28, Sept. 30, Sept. 24, Sept. 25, Sept. 26, 1996 1995 1994 1993 1992 ---------- --------- --------- --------- --------- Primary earnings per share: Net income (loss) ............................ $ 28,145 $(46,703) $(87,693) $(60,479) $(62,512) ======== ======== ======== ======== ======== Weighted average shares outstanding .......... 38,769 37,052 35,774 34,464 32,788 Incremental shares from use of treasury stock method for stock options ............. 2,312 814 -- 412 -- -------- -------- -------- -------- -------- Common and common equivalent shares, where applicable ................... 41,081 37,866 35,774 34,876 32,788 ======== ======== ======== ======== ======== Net income (loss) per share .................. $ 0.68 $ (1.23) $ (2.45) $ (1.73) $ (1.91) ======== ======== ======== ======== ======== Earnings per share assuming full dilution: (a) Net income (loss) ............................ $ 28,145 $(46,703) $(87,693) $(60,479) $(62,512) ======== ======== ======== ======== ======== Weighted average shares outstanding ......... 38,769 37,052 35,774 34,464 32,788 Incremental shares from use of treasury stock method for stock options ............. 2,565 907 -- 432 -- -------- -------- -------- -------- -------- Common and common equivalent shares assuming full dilution, where applicable ... 41,334 37,959 35,774 34,896 32,788 ======== ======== ======== ======== ======== Net income (loss) per share .................. $ 0.68 $ (1.23) $ (2.45) $ (1.73) $ (1.91) ======== ======== ======== ======== ======== - -------------------------------------------------------------------------- (a) For the years ended September 28, 1996, 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. For the years ended September 24, 1994 and September 26, 1992, the assumed exercise of options outstanding under the company's stock options plan using the treasury stock method, is anti-dilutive and has been excluded from the computation.
EX-13 4 FY96 ANNUAL REPORT DATA GENERAL CORPORATION 1996 ANNUAL REPORT Data General Corporation 4400 Computer Drive Westboro, Massachusetts USA 01580 http://www.dg.com email: AViiON@dg.com 1968 Data General founded; developed 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 processors and standard SMP (symmetric multiprocessing) motherboards October 1995 Introduced first AViiON systems that use Intel architecture; more than 15,000 applications available for customers June 1996 Announced formation of NUMALiiNE(TM) Business Unit to build OEM relationships and take advantage of market opportunity for systems based on NUMA (non-uniform memory access) architecture; Announced formation of THiiN(TM) Line Business Unit to develop and market Internet appliances, including thin servers, network attached storage, and information servers Data General designs advanced systems using the best commodity technologies; builds software alliances to deliver leading enterprise applications; and provides comprehensive integration services to design, implement, and support business solutions. TO OUR STOCKHOLDERS, CUSTOMERS, AND EMPLOYEES: Fiscal 1996 was a year of significant progress and positive financial results for Data General. Product revenues increased 22 percent and reached the highest level in our company's 28-year history. Total revenues increased by 14 percent to $1.32 billion. We reported increased profitability in each quarter and completed the year with net income of $28.1 million or $.68 per share. On the expense side, we reduced overall operating expenses while continuing to invest in our future. Selling, general, and administrative expenses were reduced by $25 million, or seven percent, from fiscal 1995. Research and development spending increased by $12 million, or 14 percent. Continuing investments in research and development are essential to the future of Data General. For the first half of this decade, we were focused on making a business transition from proprietary minicomputers to open systems. That transition is complete. This report describes the current state of Data General's business and discusses the direction of our company, the opportunities before us, and the new challenges we will face. FY96 Earnings Per Share: Q1 ................... $ .12 Q2 ................... $ .15 Q3 ................... $ .17 Q4 ................... $ .24 Data General Today - ------------------ Data General is a company of talented individuals who work together to develop and sell leading-edge computer systems and related technologies. We market our technologies, products, and services in multiple business environments throughout the world. Technology excellence has been the sustaining factor in Data General's success since the company's founding in 1968. Data General's principal assets, from which we have generated revenue and profits, have been our research and development efforts and the technical talents of our people. Complementing the company's technology excellence are other important assets-- multiple sales and distribution channels, customer services, and leading-edge manufacturing--which have provided the necessary fulcrums to leverage our technology into many markets. The overall combination of these capabilities should enable Data General to succeed in today's extraordinarily competitive computer systems business. AViiON Server Business - ---------------------- The AViiON family of servers forms the core of Data General's product line. At the start of fiscal 1996, we began building a new generation of AViiON servers based on the Intel processor architecture. The transition to the Intel Pentium and Pentium Pro processor platform from the Motorola platform is progressing. In the fourth quarter of fiscal 1996, Intel processor-based systems represented more than 40 percent of AViiON product revenues, and total AViiON revenues reached their highest level since the family was introduced in 1989. AViiON systems have been at the core of our product and business strategy as we transformed Data General into an open systems company. We are now implementing a plan to increase revenue growth and profits by leveraging our technology development capabilities even more than in the past. Our growth strategy has two parts: first, to bring industry-leading products to market through alternative, low-cost distribution channels as well as through our own sales force; and second, to leverage other Data General assets--the supporting assets that have traditionally complemented our research and development excellence. New products resulting from our research and development efforts generate incremental revenue. Our service and manufacturing capabilities also can be used to generate sources of revenue independent of our core research and development. Data General can build upon the strengths of these resources to seek incremental market opportunities without compromising our core systems business. Success will depend on our ability to take advantage of the many opportunities available in these areas without building bureaucracies or adding fixed costs. FY96 Intel based AViiON Revenue Growth (Millions of dollars): Q1 ............................... 14 Q2 ............................... 27 Q3 ............................... 41 Q4 ............................... 51 The CLARiiON Business Model - --------------------------- The evolution of our CLARiiON storage systems business from a subset of the AViiON product line to a stand-alone business is a clear example of this strategy at its successful best. The CLARiiON product line was built upon technology developed in traditional Data General research and development. At the outset, CLARiiON technology provided our AViiON systems with important differentiation and helped us win server business. We then achieved far greater revenues and profits by developing CLARiiON business in alternative sales channels. We formed the CLARiiON Business Unit late in 1992 and expanded sales principally through OEM (original equipment manufacturer) relationships with major systems vendors and storage suppliers. In fiscal 1996, CLARiiON Business Unit sales nearly doubled to more than $350 million. The CLARiiON OEM sales approach to the market employed the right strategy at the right time. It enabled us to grow the business rapidly without adding significant sales and marketing costs. This is the business model we plan to follow as we take other technologies developed in the systems area and turn them into new products and market leadership. Open CLARiiON Revenue Trend (Millions of dollars): FY93 ................................... 7 FY94 ................................... 51 FY95 ................................... 187 FY96 ................................... 355 NUMALiiNE Technology - -------------------- Research and development is producing a new class of AViiON systems that will be based on NUMA (non-uniform memory access) architecture. These products will constitute a major extension of the high end of our AViiON product line and will enable our customers to capitalize on their existing investments in applications written for SMP (symmetric multiprocessing) systems. We expect NUMA systems to generate AViiON revenues through traditional sales channels. However, just as with CLARiiON storage systems, NUMA systems also have revenue potential when sold through OEM relationships. We formed the NUMALiiNE Business Unit in June 1996 to leverage our NUMA OEM opportunity. We signed NUMALiiNE OEM agreements with Fujitsu/ICL, the United Kingdom's leading computer maker; Dansk Data Elektronik, Denmark's premier supplier of mid-range UNIX computer systems; Daewoo Telecom Limited, part of the Daewoo Group, one of Korea's largest companies; and Unisys Corporation, one of the largest information companies in the U.S. The small incremental sales and marketing investment we are making in the OEM channel has the potential to deliver significant returns. We are leveraging the fruits of our core business' research and development at a reasonable cost. THiiN Line Internet Appliances - ------------------------------ The Internet has become the hottest subject in computing. The implementation of Internet technology on internal networks within companies and organizations has become known as the "Intranet." While Intranets follow the client/server model that will continue to leverage traditional data processing, the Internet is defining a new form of computing driven by the need for information access. Since storage and retrieval are the key tasks in information access-driven computing, the traditional data processing architecture is not required. New products, including "network computers" and other simplified devices dedicated to viewing information, have already emerged. Beyond such "thin clients," Data General envisions the need for "network attached storage" dedicated to making information available at lightning speed, and "thin servers" dedicated to managing groups of thin clients in offices, homes, classrooms, or anywhere that groups of people need access to the Internet. To pursue this opportunity, we formed the THiiN Line Business Unit. THiiN Line products are expected to be brought to market in fiscal 1997 and will be sold mainly through alternate channels. Again, we will build upon our core research and development to generate incremental revenues and profits. VALiiANT (SM) Manufacturing - ---------------------------- An example of how we can leverage our supporting assets is our new VALiiANT Business Unit. We formed this contract manufacturing operation to take advantage of the company's world-class manufacturing expertise. Data General was the first U.S. computer company to have its worldwide manufacturing operations gain ISO 9000 certification. The VALiiANT effort does not conflict with our basic computer systems strategy; rather it reinforces our capabilities by using existing facilities to generate more revenue. If successful, this venture will provide incremental revenues and profits, while absorbing existing manufacturing overhead. VALiiANT sales and marketing efforts are independent of our normal sales channels and require minimal fixed costs. Data General is known for the scalability of our computer systems. Now we have embarked on a plan for "asset scalability." NUMALiiNE, THiiN Line, and VALiiANT are three new ways of scaling our key assets to generate new business and profitability. Customer Service and Professional Services - ------------------------------------------ Services generated nearly $400 million in revenues in fiscal 1996. Our Customer Service and Professional Services groups have developed broad expertise and skills, and they provide valuable services to our customers. Our integrated software and hardware services are focused on selected areas, including Healthcare, Imaging, the Internet, and Windows NT applications integration. Our services business provides Data General with competitive advantages in the market. However, it is not our intention to build a stand-alone systems integration business. That would require major up-front investments in a business characterized by low margins and many large players, and is in direct opposition to the "asset leverage model" we employ in our product businesses. Therefore, our strategy for serving customers is to strengthen our Professional Services organization and leverage relationships with the leading systems integrators. Special Systems is one service organization that has made consistent contributions to Data General's success over the years. It is an important technological and marketing resource for the company, and an asset which can be leveraged to provide more revenue for Data General and opportunities for our employees. The DataGenie(TM) family of handheld computers is an example of what Special Systems can do. DataGenie was developed by Special Systems to meet the unique needs of one of our strategic Healthcare solutions partners. Now it is being expanded into other markets as a commercial product, and DataGenie is becoming a profitable business venture. FY97 Marketing Directions - ------------------------- Today, Data General's primary sources of revenue are AViiON servers, CLARiiON storage systems, and customer support services. In fiscal 1997 and in future years, our current core businesses will be complemented by our NUMALiiNE and THiiN Line products, and by leveraged assets such as our VALiiANT contract manufacturing operations. In fiscal 1997, AViiON development will concentrate on traditional mainstream servers with ever increasing performance. We are committed to rapid delivery of a family of Intel processor-based AViiON servers which provide market-leading performance and competitive price/performance. These servers will offer customers the choice of our DG/UX(R) operating system, the SCO UnixWare System, and Microsoft Windows NT Server. Data General will continue to maintain and expand the DG/UX operating system, which is one of the most technically advanced UNIX operating systems in the market. We also recognize that many customers want the industry to support a standard UNIX operating system. Data General has taken a lead role in working with the Santa Cruz Operation (SCO) in supporting SCO UnixWare. While we are developing advanced NUMA features for our DG/UX operating system, we are also working with SCO on a special project to build these NUMA features into SCO UnixWare. It is increasingly clear that Microsoft Windows NT Server is a major market force. We have the technical skills to participate in this market. We have already demonstrated success in closing NT Server sales with major enterprise applications such as SAP, PeopleSoft, and Oracle Financials. Windows NT Server is becoming a leading platform for our channel sales partners throughout the world. We believe Data General can leverage sales of AViiON servers using Windows NT Server. Collectively, DG/UX, SCO UnixWare, Windows NT Server, and operating systems such as Novell NetWare and SCO Open Server, provide customers with a portfolio of tens of thousands of AViiON applications. Healthcare continues to be one of Data General's leading markets worldwide. To capitalize on this growing market opportunity and leverage our successful healthcare alliances, our healthcare sales and marketing activities have been consolidated into a worldwide Healthcare Division. Data General is also participating in the fast-growing market for secure Intranets with AViiON and CLARiiON systems. CYBERSHIELD, a unique Internet security solution, enables Data General to combine Internet, Intranet, and firewall technology in a single integrated package designed to protect data from both outside hackers and insiders who accidentally or intentionally corrupt it. Data General's CYBERSHIELD is the most secure Internet server available--the only server solution in the market with both B2- and E4-level security, the world's highest system security levels. Imaging is a growing worldwide market opportunity for Data General. Our award-winning family of AV Image(R) products provides imaging solutions targeted at efficient, affordable document management. Open CLARiiON products account for more than one-third of Data General product revenues. These sales are achieved primarily through OEMs, distributors, private labelers, and value-added resellers. CLARiiON revenue growth in fiscal 1997 and beyond will be a function of the growth in our OEM partners' server business and overall disk array market growth. In the markets where we are targeting CLARiiON products--UNIX, Windows NT Server, Novell NetWare, and departmental server environments--industry consultants are projecting strong growth over the next few years. Fibre Channel, which provides significant increases in data access speed, is one of the key technologies for enabling continued growth in the CLARiiON business. Data General demonstrated Fibre technology at the November 1996 Comdex show in Las Vegas. Fibre products are expected to be available in 1997. A Winning Culture - ----------------- We have emerged from the open systems transition as a strong company with talented people, valuable resources, and a well demonstrated entrepreneurial spirit. The EveryOne Sells program, for example, is a way in which any employee can submit qualified sales leads. In the first full year of the program, EveryOne Sells generated almost 3,000 leads and produced more than $18 million in incremental revenues. We have begun a new program--the Entrepreneurial Forum - to provide our employees with an opportunity to initiate new business ideas. Any employee anywhere in the world can present ideas at this forum. The goal is to suggest ways in which we can take an existing product, an evolving technology, or any other good idea, and leverage it into additional revenues for Data General. Our people also exhibit a strong commitment to the communities in which we live and work. In Raleigh, North Carolina, employees from our Apex manufacturing facility helped to renovate a library at an apartment complex for the elderly and disabled. Our Massachusetts employees developed a unique computer literacy program for Worcester North High School, and spent nights and weekends training the teachers, wiring the school, and installing the equipment and software. An engineer from our AViiON development group initiated a donation of servers and storage systems to his alma mater, Howard University, and personally ensured that the equipment was installed and operating in support of a newly established co-operative program at the school. Data General people demonstrate their generosity to those in need throughout the year with programs such as the "Giving Tree" at our Massachusetts facilities which provides holiday gifts to more than 400 needy families. Data General is proud to have such dedicated and generous employees. Outlook - ------- I believe the opportunities for Data General are plentiful. Market forces and standards have changed the dynamics of our business. We have the technology base and the other skill sets we need to gain leadership positions in key areas of the market. Most important, we have the people with the will to do so. Our senior management team has led the company through the transition. In recognition of their accomplishments, the Board of Directors elected William Cunningham, Arthur DeMelle, Joel Schwartz, and William Wilson senior vice presidents of the company. They join with Senior Vice President J. Thomas West, head of Advanced Development, to form a solid and experienced management team that is well prepared to lead Data General in the years ahead. Our goal is to grow revenues through direct sales and increasingly through stronger relationships with channel partners. We recognize that we cannot accomplish this goal based on technology alone. Successful sales and channel alliances are based on the ability of our sales and marketing people to nurture close working relationships and build the level of trust that is needed for such relationships. Our customers tell us that one of the reasons they choose to deal with Data General instead of our competitors is our personal commitment to their success--our availability, our flexibility, and our ability and willingness to better understand their business and their requirements. These are traits embodied in the Data General culture. Fiscal 1996 was a turning point in the history of Data General. We enter fiscal 1997 well positioned for continued revenue growth and profitability with our established AViiON server and CLARiiON storage businesses, a solid financial position, and the significant opportunities we see in the emerging areas of NUMA technology and the Internet. Respectfully submitted, Ronald L. Skates President and Chief Executive Officer FINANCIAL REVIEW 1996: FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA .............................. 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ................................................................ 11 CONSOLIDATED STATEMENTS OF OPERATIONS ..................................... 16 CONSOLIDATED BALANCE SHEETS ............................................... 17 CONSOLIDATED STATEMENTS OF CASH FLOWS ..................................... 18 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY ........................... 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ................................ 20 REPORT OF INDEPENDENT ACCOUNTANTS ......................................... 30 SUPPLEMENTAL FINANCIAL INFORMATION ........................................ 30 FACILITIES ................................................................ 31 OFFICERS, DIRECTORS, AND SENIOR MANAGEMENT ................................ 32 CORPORATE INFORMATION ..................................................... 33 Number of Employees: 1992 ......................... 7100 1993 ......................... 6500 1994 ......................... 5800 1995 ......................... 5000 1996 ......................... 4900 Revenue per Employee (Thousands of dollars): 1992 ........................ 157 1993 ........................ 166 1994 ........................ 193 1995 ........................ 232 1996 ........................ 270 Selling, General & Administrative expenses (Millions of dollars): 1992 ........................ 358 1993 ........................ 347 1994 ........................ 341 1995 ........................ 334 1996 ........................ 309 FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA DATA GENERAL CORPORATION
YEAR ENDED --------------------------------------------------------------------------- SEPT. 28, SEPT. 30, SEPT. 24, SEPT. 25, SEPT. 26, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------ Total revenues ..................... $ 1,322,250 $ 1,159,316 $ 1,120,505 $ 1,077,869 $ 1,115,947 ----------- ----------- ----------- ----------- ----------- Total cost of revenues ............. 877,692 772,047 733,114 654,718 655,047 Research and development ........... 98,022 85,886 90,826 100,172 111,336 Selling, general, and administrative 309,259 334,337 341,343 346,740 357,528 Restructuring charge ............... -- 43,000 35,000 25,000 48,000 ----------- ----------- ----------- ----------- ----------- Total costs and expenses ......... 1,284,973 1,235,270 1,200,283 1,126,630 1,171,911 ----------- ----------- ----------- ----------- ----------- Income (loss) from operations ...... 37,277 (75,954) (79,778) (48,761) (55,964) Interest expense, net .............. 5,632 4,116 8,168 6,734 3,448 Other income, net .................. -- 41,972 2,353 416 -- ----------- ----------- ----------- ----------- ----------- Income (loss) before income taxes .. 31,645 (38,098) (85,593) (55,079) (59,412) Income tax provision ............... 3,500 8,605 2,100 5,400 3,100 ----------- ----------- ----------- ----------- ----------- Net income (loss) .................. $ 28,145 $ (46,703) $ (87,693) $ (60,479) $ (62,512) =========== =========== =========== =========== =========== Primary net income (loss) per share $ 0.68 $ (1.23) $ (2.45) $ (1.73) $ (1.91) AS OF ----------------------------------------------------------------------------- SEPT. 28, SEPT. 30, SEPT. 24, SEPT. 25, SEPT. 26, DOLLARS IN THOUSANDS 1996 1995 1994 1993 1992 - ---------------------------------------------------------------------------------------------------------------- Current assets ..................... $ 616,812 $ 591,485 $ 598,076 $ 611,660 $ 671,307 Current liabilities ................ 366,184 370,226 326,865 302,908 307,172 ----------- ----------- ----------- ----------- ----------- Working capital .................... $ 250,628 $ 221,259 $ 271,211 $ 308,752 $ 364,135 =========== =========== =========== =========== =========== Total assets ....................... $ 860,443 $ 832,018 $ 821,864 $ 866,329 $ 940,454 Annual expenditures for property, plant, and equipment ............. $ 94,670 $ 96,471 $ 92,955 $ 94,968 $ 93,607 Long-term debt ..................... $ 149,971 $ 153,457 $ 156,942 $ 158,352 $ 162,258 Other liabilities .................. $ 15,224 $ 28,791 $ 29,445 $ 27,992 $ 20,988 Stockholders' equity ............... $ 329,064 $ 279,544 $ 308,612 $ 377,077 $ 450,036 Employees .......................... 4,900 5,000 5,800 6,500 7,100 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Data General Corporation RESULTS OF OPERATIONS The company reported net income of $28 million for fiscal 1996 compared with a net loss of $47 million for fiscal 1995 and a net loss of $88 million for fiscal 1994. Included in the net losses of fiscal years 1995 and 1994 are restructuring charges of $43 million and $35 million, respectively, as well as other income of $44.5 million from the settlement of litigation with Northrop Grumman Corporation in fiscal year 1995. Revenues (in millions) =============================================================================== 1996 Change 1995 Change 1994 --------------------------------------------------- Product $924 22% $757 5% $722 % of total Revenues 70% 65% 65% Service 398 (1%) 402 1% 398 % of total Revenues 30% 35% 35% Total Revenues $1,322 14% $1,159 3% $1,120 =============================================================================== Revenues in fiscal year 1996 grew 14% compared to the prior fiscal year. The growth came primarily from domestic product revenues in the Open CLARiiON line of mass storage devices and the AViiON server business. The European marketplace, while experiencing growth in Open CLARiiON, was negatively impacted by a decline in the AViiON server business, as well as the general conditions of the European economy. In fiscal 1996, revenues from the AViiON family were approximately $461 million, a 9% increase over fiscal 1995. AViiON systems revenues in fiscal 1995 decreased 10% from fiscal 1994. Since 1989, the company has established a customer base of nearly 38,000 AViiON installations, with a total value of over $2.5 billion. In fiscal 1996, the company introduced its Intel-based AViiON systems. Such systems represented more than 29% of all fiscal 1996 AViiON revenues. In fiscal 1996, the Open CLARiiON line of mass storage systems grew by 90% and represented 38% of the overall product revenues, compared to 25% of total product revenues in the previous fiscal year. Open CLARiiON is sold primarily through the company's Original Equipment Manufacturer ("OEM") and distributor channels; thus sales in any given period are subject to sales cycles and inventory levels of the company's customers. Open CLARiiON product revenues have been concentrated in a limited number of customers, with a significant portion of the company's Open CLARiiON product revenues to a single OEM. ECLIPSE MV ("MV") revenues decreased 36% during fiscal 1996 compared to a 43% decline in fiscal 1995. Proprietary revenues in fiscal 1996 represent only 4% of the company's total product revenues. In fiscal 1996, product revenues from personal computer and peripheral equipment decreased 22% from fiscal 1995, and in fiscal 1995 decreased 11% when compared with fiscal 1994. Revenues by Geographic Marketplace =============================================================================== Percentage of Percentage of Consolidated Revenues Change of $ of Revenues -------------------------------- ------------------------- 1996 1995 1994 1996-95 1995-94 -------------------------------- ------------------------- Domestic Product 61% 55% 55% 22% 5% Service 57% 56% 58% 0% (1%) Total Revenues 60% 55% 56% 23% 2% Europe Product 24% 28% 27% 4% 12% Service 32% 33% 31% (4%) 7% Total Revenues 26% 30% 28% 1% 10% Other International Product 15% 17% 18% 10% (3%) Service 11% 11% 11% 0% (2%) Total Revenues 14% 15% 16% 8% (3%) =============================================================================== In fiscal 1996, domestic marketplace revenues from the Open CLARiiON product line more than doubled and AViiON product revenues increased 22%, partly offset by a 25% decrease in ECLIPSE MV revenues and a 43% decrease in PC revenues. In the prior year, the Open CLARiiON product line revenues were more than doubled in this marketplace, offset by a 13% decrease in AViiON revenues, a 41% decrease in ECLIPSE MV revenues, and a small decrease in PC revenues. The increase in European product revenues, including U.S. direct export sales, in fiscal year 1996 was attributable to significant growth in the Open CLARiiON product line offset by a 35% decline in ECLIPSE MV revenues, 20% decrease in PC revenues and a 6% decrease in AViiON revenues. The 4% increase in product revenues in the European marketplace was partly offset by the strengthening of the U.S. dollar. The increase in other international product revenues, including U.S. direct export sales, was primarily driven by significant growth in Open CLARiiON, which more than doubled from the prior year, and a 14% increase in PC revenues in fiscal year 1996. The increase was partly offset by a 64% decrease in MV revenues, and a 6% decrease in AViiON revenues. The fiscal 1995 decrease in other international product revenues was largely due to the decrease in AViiON and MV revenues, which was partly offset by stronger revenues from the Open CLARiiON product line. In the service business, the company experienced a 2% decline in contract maintenance revenues in both fiscal years 1996 and 1995 as compared with the previous year. This decline was partially offset by modest growth in professional service revenues during the same periods. In Europe, the effect of foreign exchange accounted for less than 1% of the total 4% decrease in fiscal 1996 and 3% of the total 7% increase in fiscal 1995 service revenues. Cost of Revenues (in millions) ============================================================================== 1996 Change 1995 Change 1994 ---------------------------------------------------- Product $619 20% $514 6% $484 % of Product Revenues 67% 68% 67% Service 259 0% 258 4% 249 % of Service Revenues 65% 64% 63% Total Cost of Revenues $878 14% $772 5% $733 % of Total Revenues 66% 67% 65% ============================================================================== The primary reasons for the decrease in cost as a percentage of product revenues were the result of increased volumes of higher margin Intel-based AViiON systems, manufacturing cost reductions and lower component costs, partially offset by increased volumes of relatively lower margin Open CLARiiON revenues. The benefits of component cost reductions are likely to be temporary as market pressures impact the company's product pricing. The increase in cost of service revenues as a percentage of total service revenues was primarily a result of the continued shift in service revenues towards increased professional service sales, which yield a lower margin than traditional maintenance service contract revenues. Operating Expenses (in millions) =============================================================================== 1996 Change 1995 Change 1994 -------------------------------------------- Research & Development $98 14% $86 (5%) $91 % of Total Revenues 7% 7% 8% Selling, general, & administrative $309 (7%) $334 (2%) $341 % of Total Revenues 23% 29% 30% Restructuring charges - (100%) $43 23% $35 % of Total Revenues - 4% 3% =============================================================================== The company continued to focus its research and development efforts on its core business technology, multi-user computer systems, servers, and mass storage devices. Gross expenditures on research and development, and software development in fiscal 1996, before capitalization, increased 14% compared to fiscal 1995. The increase in the level of expenditures was primarily driven by investment in the next generation of CLARiiON products, in the company's Non Uniform Memory Access ("NUMA") architecture for high-end servers and in products for the Internet. Selling, general and administrative expenses continue to decrease due to the company's worldwide cost reduction and containment programs, which the company has implemented in response to increasingly competitive industry conditions. Results of operations for fiscal 1995 and 1994 included charges of $43 million and $35 million, respectively, for estimated costs associated with a worldwide workforce reduction along with other cost reduction programs, primarily related to real estate. The provisions relating to the workforce reduction were primarily for salary and benefit continuation and outplacement service. At the close of fiscal 1996, the number of employees was approximately 4,900, a net reduction of 100 employees from September 30, 1995. During fiscal year 1995 there was a net reduction of 800 employees from the 5,800 employed as of September 24, 1994. There have been no material changes in the company's original estimates of the costs associated with the previously announced restructuring actions. Net Income (Loss) (in millions) =============================================================================== 1996 1995 1994 ---------- ------------ ------------ Income (loss) from operations $37 ($76) ($80) Interest and other Income, net (5) 38 (6) Tax provision (4) (9) (2) ---------- ------------ ------------ Net income (loss) $28 ($47) ($88) =============================================================================== Income from operations for fiscal 1996 of $37 million was comprised of $44 million from the domestic marketplace and $3 million from Europe, partially offset by a loss from operations of $10 million from other international. The loss from operations for fiscal 1995 of $76 million was comprised of $45 million, $15 million, and $16 million from the domestic marketplace, Europe, and other international, respectively. These losses included restructuring charges of $19 million in both domestic and Europe, as well as $5 million for other international locations. These losses from operations compared with $45 million, $18 million, and $17 million in fiscal 1994, for the domestic marketplace, Europe and other international locations, respectively. Restructuring charges in fiscal 1994 were $21 million, $12 million, and $2 million in each of these areas, respectively. Interest income for fiscal 1996 decreased 23% from fiscal 1995, following a 65% increase from fiscal 1994 to fiscal 1995. The current year decrease was primarily due to lower levels of average invested cash and an overall reduction in market interest rates. The prior year increase was primarily due to higher average levels of invested funds and increasing market interest rates. Interest expense for fiscal 1996 was $13.1 million, a slight decrease from $13.8 million for fiscal 1995. Interest expense for fiscal 1995 remained relatively unchanged from fiscal 1994. 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 relative to a six-year software copyright infringement and trade secrets litigation brought by the company against Grumman Systems Support Corporation ("Grumman"). Under the terms of the settlement, Grumman paid the company $53 million and the parties dismissed the pending litigation. The current year provision for income taxes relates primarily to foreign and state taxes. The 1995 provision resulted primarily from the settlement of the Grumman lawsuit, deferred taxes on undistributed earnings for certain foreign subsidiaries, and foreign and state taxes. The company continues to have significant operating loss carryforwards and unused tax credits available to minimize future tax liabilities. Based on the weight of available evidence, the company has a valuation allowance which offsets substantially all net deferred tax assets existing as of September 28, 1996 and September 30, 1995. The amount of the deferred tax asset considered realizable is subject to change based on estimates of future taxable income during the carryforward period. The company will assess the need for the valuation allowance at each balance sheet date based on all available evidence. 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. The implementation of SFAS 112 did not have a material effect on the company's consolidated financial position or results of operations. SFAS 115 addresses accounting and reporting for investments in certain debt and equity securities. All of the company's investments in U.S. Treasury bills and notes at September 28, 1996 and September 30, 1995 have maturities of less than one year, and have been classified as "held-to-maturity". In the second quarter of fiscal 1996, an equity security held by the company as an investment and previously accounted for under the cost method, began trading on a public stock exchange, and is classified as "available-for-sale". In fiscal 1995, the company adopted SFAS 119, "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments". In March 1995, the Financial Accounting Standards Board ("FASB") issued SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". In October 1995, FASB issued SFAS 123, "Accounting for Stock-Based Compensation". In June 1996, FASB issued SFAS 125, "Accounting for Transfer and Servicing of Financial Assets and Extinguishments of Liabilities". The company will implement SFAS 123 using the proforma disclosure method described in the pronouncement in fiscal 1997. SFAS 121 and 123 are effective for fiscal years beginning after December 15, 1995. SFAS 125 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996. The company will implement these statements as required. The future adoption of SFAS 121 and 125 is not expected to have a material effect on the company's consolidated financial position or results of operations. LIQUIDITY AND CAPITAL RESOURCES Cash and temporary cash investments as of September 28, 1996 were $179 million, an increase of $62 million from fiscal 1995. At the same date, the company held $26 million in marketable securities which supplemented cash and temporary cash investments, down $46 million from the prior fiscal year. These securities include United States Treasury bills and notes, as well as an equity security of $11 million recorded at fair market value and classified as "available-for sale". Net cash provided from operations in fiscal 1996 was $105 million. Expenditures for property, plant and equipment were $95 million, capitalized software development costs totaled $31 million, and cash provided from stock plans equaled $10 million. Repayment of long-term debt during the current fiscal year was $3 million, which was for the 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 a decrease of $1 million for fiscal year 1996. Net receivables increased $7 million to $258 million at September 28, 1996, primarily as a result of increased revenues. The company's worldwide days' sales outstanding decreased three days when compared to the prior fiscal year primarily as a result of increased collection activity. Inventory levels increased $6 million during fiscal 1996, primarily as a result of increased end of year procurement. Net property, plant, and equipment decreased $7 million principally due to the sale of certain facilities and the sales of demonstration equipment. Accounts payable increased $5 million primarily attributable to the increase in end of year inventory procurements and the timing of payments related to this activity. Current and other liabilities decreased $23 million to $258 million at September 28, 1996, primarily as a result of payments made relating to the previously recorded restructuring accruals, and reduced employee related accruals. For the three-year period ending September 28, 1996, cash and temporary cash investments increased $59 million. Net cash provided from operations was $296 million, including $53 million from the Grumman litigation settlement. The sale of non-operating facilities, investments, and the sale-lease back of the company's corporate headquarters provided $41 million. Proceeds pursuant to the company's employee stock plans provided $24 million. Long-term debt decreased $9 million, primarily due to the repurchase of a portion of the company's 8 3/8% debentures due in 2002, and the repayment of Industrial Revenue Bonds applicable to the sales of the company's Portsmouth, New Hampshire and a portion of the Woodstock, Connecticut facilities. Net proceeds from maturity of marketable securities were $67 million. Expenditures for property, plant and equipment totaled $284 million and the company's investment in capitalized software development costs was $76 million. Notes payable were paid in the amount of $1 million during this three-year period. The effect of foreign exchange on this three-year period was a $5 million increase to cash. 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. At September 28, 1996, 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 during fiscal years 1996 and 1995 were not material. There were $8.0 million of letters of credit secured by this facility at September 28, 1996. At September 30, 1995, there were $8.3 million of letters of credit secured by this letter of credit facility. During fiscal years 1996 and 1995, there were no borrowings under any of these facilities. The current agreement has a duration of 364 days and expires on December 18, 1996. The company is currently in the process of negotiating amendments to this letter of credit facility which would extend its expiration date to December 17, 1997. The company believes it is important to maintain a conservative capital structure and a strong cash position. Cash is primarily 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 1997. Most of the expenditures will be for capital assets directly related to the company's open systems product sales, marketing, support and development. The writedown of net book value of property, plant, and equipment during fiscal 1996 totaled $16 million, primarily as a result of sales of demonstration equipment to end-users. Management expects that sales of demonstration equipment will continue. Net fixed assets associated with the company's proprietary ECLIPSE MV family of products represent less than 5% of the company's total net fixed assets. Such assets are primarily spare parts employed to support the company's MV service base, as well as those MVs which are serviced by third parties. Also during fiscal 1997, cash totaling $8 million is expected to be utilized to settle liabilities arising from 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. 28, SEPT. 30, SEPT. 24, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 1996 1995 1994 - -------------------------------------------------------------------------------- REVENUES Product ............................ $ 924,140 $ 757,338 $ 722,423 Service ............................ 398,110 401,978 398,082 ----------- ----------- ----------- Total revenues ................. 1,322,250 1,159,316 1,120,505 ----------- ----------- ----------- COSTS AND EXPENSES Cost of product revenues ........... 618,351 514,049 483,808 Cost of service revenues ........... 259,341 257,998 249,306 Research and development ........... 98,022 85,886 90,826 Selling, general, and administrative 309,259 334,337 341,343 Restructuring charge ............... -- 43,000 35,000 ----------- ----------- ----------- Total costs and expenses ...... 1,284,973 1,235,270 1,200,283 ----------- ----------- ----------- Income (loss) from operations ...... 37,277 (75,954) (79,778) Interest income .................... 7,440 9,710 5,881 Interest expense ................... 13,072 13,826 14,049 Other income, net .................. -- 41,972 2,353 ----------- ----------- ----------- Income (loss) before income taxes .. 31,645 (38,098) (85,593) Income tax provision ............... 3,500 8,605 2,100 ----------- ----------- ----------- Net income (loss) .................. $ 28,145 $ (46,703) $ (87,693) =========== =========== =========== PRIMARY NET INCOME (LOSS) PER SHARE: Net income (loss) per share ....... $ 0.68 $ (1.23) $ (2.45) Weighted average shares outstanding 41,081 37,866 35,774 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. 28, SEPT. 30, DOLLARS IN THOUSANDS, EXCEPT PAR VALUE 1996 1995 - ------------------------------------------------------------------------------- ASSETS Current assets: Cash and temporary cash investments ................. $ 178,997 $ 117,201 Marketable securities ............................... 25,624 71,617 Receivables, less allowances of $14,480 at Sept. 28, 1996 and $14,079 at Sept. 30, 1995 ...... 257,815 251,123 Inventories ......................................... 129,783 124,145 Other current assets ................................ 24,593 27,399 --------- --------- Total current assets .............................. 616,812 591,485 Property, plant, and equipment, net ................... 167,672 174,914 Other assets .......................................... 75,959 65,619 --------- --------- $ 860,443 $ 832,018 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable ....................................... $ 1,943 $ 2,033 Accounts payable .................................... 121,625 116,313 Other current liabilities ........................... 242,616 251,880 --------- --------- Total current liabilities ......................... 366,184 370,226 --------- --------- Long-term debt ........................................ 149,971 153,457 --------- --------- Other liabilities ..................................... 15,224 28,791 --------- --------- Commitments and Contingencies Stockholders' equity: Common stock, $.01 par value: Outstanding -- 39,601,000 shares at Sept. 28, 1996 and 37,933,000 shares at Sept. 30, 1995 (net of deferred compensation of $7,812 at Sept. 28, 1996 and $9,588 at Sept 30, 1995) ................... 460,312 446,762 Accumulated deficit ............................... (135,481) (163,626) Unrealized gains on marketable securities ......... 9,708 -- Cumulative translation adjustment ................. (5,475) (3,592) --------- --------- Total stockholders' equity ...................... 329,064 279,544 --------- --------- $ 860,443 $ 832,018 ========= ========= 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. 28, SEPT. 30, SEPT. 24, IN THOUSANDS 1996 1995 1994 - ----------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (loss) ....................................... $ 28,145 $ (46,703) $ (87,693) Adjustments to reconcile net income (loss) to net cash provided from operating activities: Depreciation .......................................... 80,489 74,804 76,957 Amortization of capitalized software development costs 19,130 17,545 21,448 Amortization of deferred compensation ................. 3,866 4,265 5,329 Increase (decrease) in other liabilities .............. (8,263) (656) 1,453 Writedown of net book value of property, plant, and equipment ........................................... 15,633 9,626 15,233 Other non-cash items, net ............................. (299) 7,232 7,061 Changes in operating assets and liabilities, net of effects from sale of facilities and other assets: (Increase) decrease in receivables .................. (9,268) 11,267 31,757 Increase in inventories ............................. (5,826) (5,743) (15,735) Decrease in other current assets .................... 2,080 3,761 3,727 Increase in accounts payable ........................ 6,627 23,897 3,837 Increase (decrease) in other current liabilities, excluding debt .................................... (27,191) 17,810 10,753 --------- --------- --------- Net cash provided from operating activities ........... 105,123 117,105 74,127 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for property, plant, and equipment ......... (94,670) (96,471) (92,955) Purchase of marketable securities ....................... (84,224) (240,507) (90,788) Proceeds from sales and maturity of marketable securities 150,080 216,755 115,318 Capitalized software development costs .................. (30,714) (27,493) (17,582) Net proceeds from sale of facilities and other assets ... 12,797 -- 28,314 Investment in equity securities ......................... (2,000) (600) (2,000) --------- --------- --------- Net cash used by investing activities ................. (48,731) (148,316) (59,693) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Cash provided from stock plans, net ..................... 9,684 7,740 6,901 Repayment of notes payable .............................. -- (607) -- Repayment of long-term debt ............................. (3,000) (3,500) (2,034) --------- --------- --------- Net cash provided from financing activities ........... 6,684 3,633 4,867 --------- --------- --------- Effect of foreign currency rate fluctuations on cash and temporary cash investments .............................. (1,280) 2,331 3,587 --------- --------- --------- Increase (decrease) in cash and temporary cash investments ............................................. 61,796 (25,247) 22,888 Cash and temporary cash investments -- beginning of the period ........................................... 117,201 142,448 119,560 --------- --------- --------- Cash and temporary cash investments -- end of the period ........................................... $ 178,997 $ 117,201 $ 142,448 ========= ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid ......................................... $ 12,797 $ 12,762 $ 13,422 Income taxes paid ..................................... $ 1,716 $ 1,696 $ 3,444 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. 28, SEPT. 30, SEPT. 24, IN THOUSANDS 1996 1995 1994 - -------------------------------------------------------------------------------- COMMON STOCK: Beginning balance ..................... $ 446,762 $ 434,757 $ 422,589 Shares issued under stock plans, net .. 9,684 7,740 6,839 Amortization of deferred compensation . 3,866 4,265 5,329 --------- --------- --------- Ending balance ........................ 460,312 446,762 434,757 --------- --------- --------- ACCUMULATED DEFICIT: Beginning balance ..................... (163,626) (116,923) (29,230) Net income (loss) for year ............ 28,145 (46,703) (87,693) --------- --------- --------- Ending balance ........................ (135,481) (163,626) (116,923) --------- --------- --------- UNREALIZED GAINS ON MARKETABLE SECURITIES: Beginning balance ..................... -- -- -- Net adjustment for year ............... 9,708 -- -- --------- --------- --------- Ending balance ........................ 9,708 -- -- --------- --------- --------- CUMULATIVE TRANSLATION ADJUSTMENT: Beginning balance ..................... (3,592) (9,222) (16,282) Net translation adjustment for year ... (1,883) 5,630 7,060 --------- --------- --------- Ending balance ........................ (5,475) (3,592) (9,222) --------- --------- --------- Total stockholders' equity ............... $ 329,064 $ 279,544 $ 308,612 ========= ========= ========= 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DATA GENERAL CORPORATION NOTE 1. NATURE OF BUSINESS Data General Corporation (the "company") 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; workstations, 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. The principal markets are the United States and Europe. NOTE 2. ACCOUNTING POLICIES FISCAL YEAR. The company's fiscal year ends on the last Saturday in September. Fiscal year 1996 consisted of 52 weeks. Fiscal years 1995 and 1994 consisted of 53 and 52 weeks, respectively. PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the accounts of Data General Corporation and its domestic and foreign subsidiaries. All significant intercompany transactions have been eliminated. USE OF ESTIMATES. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. FOREIGN CURRENCY TRANSACTIONS. 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. In fiscal 1995, the company adopted Statement of Financial Accounting Standards ("SFAS") 119, "Disclosures about Derivative Financial Instruments and Fair Value of Financial Instruments" that 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 ended September 28, 1996, September 30, 1995 and September 24, 1994, are included in the cost of product revenues. 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. TEMPORARY CASH INVESTMENTS AND MARKETABLE SECURITIES . Temporary cash investments consist of highly liquid time deposits and commercial paper with original maturities of 90 days or less. Marketable securities consist of U.S. Treasury bills and notes with original maturities of 91 to 360 days, as well as an equity security. In 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 investments in U.S. Treasury bills and notes have maturities of less than one year, and have been classified as held-to-maturity. These investments are recorded at amortized cost, which approximates market value. In March 1996, an equity security held by the company as an investment and previously accounted for under the cost method, began trading on a public stock exchange. In accordance with SFAS 115, this security is considered to be readily marketable and is classified as available-for-sale. This investment is accounted for at fair market value at September 28, 1996 which totaled $10.9 million. The unrealized gain on marketable securities of $9.7 million is recorded as a separate component of stockholders' equity at September 28, 1996. INVENTORIES. Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. Inventories consist primarily of components and subassemblies and finished products held for sale. Rapid technological change and new product introductions and enhancements could result in excess or obsolete inventory. To minimize this risk, the company evaluates inventory levels and expected usage on a periodic basis and records adjustments as required. In a few instances, the company is dependent upon certain vendors for the manufacture of significant components of its server and mass storage systems. If these vendors were to become unwilling or unable to continue to manufacture these products in required volumes, the company would have to identify and qualify acceptable alternative vendors. The inability to develop alternate sources, if required in the future, could result in delays or reductions in product shipments. With respect to sole-sourced materials, the company has not experienced any problems relative to the timeliness of product availability or quality matters. To protect against such problems, however, the company has generally implemented 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. 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 AND MAJOR CUSTOMERS. Product revenues are recognized at the time of shipment. Service revenues, including post contract 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. During the year ended September 28, 1996, revenues from an Open CLARiiON customer totaled $201 million, or approximately 15% of total revenues. The company did not have any customers with revenues exceeding 10% of the company's total revenues during fiscal 1995 and 1994. RESEARCH & DEVELOPMENT, SOFTWARE 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. On a quarterly basis, the company evaluates the recoverability of capitalized software costs. In performing its evaluation, the company must make estimates of anticipated future gross revenues as well as the remaining economic lives of the product. It is reasonably possible that the estimates of the remaining estimated economic life of these software products may be reduced. As a result, the carrying amount of the capitalized software costs for a particular software product may be reduced. Unamortized software development costs were $60.7 million at September 28, 1996 and $49.1 million at September 30, 1995. Writeoffs of certain capitalized software development costs totaled approximately $2.7 million, $1.3 million and $2.7 million for fiscal years 1996, 1995 and 1994, respectively. 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 1996, 1995 and 1994, and there were no capitalized advertising costs at September 28, 1996, September 30, 1995 and September 24, 1994. Advertising expenses for fiscal 1996, 1995, and 1994 were $12.6 million, $21.0 million, and $18.1 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 and complied with the General Agreement on Tariff and Trade Bureau (GATT) additional minimum funding requirements for the plan year beginning October 1, 1995. 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 20 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 19 years. 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. 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 1996, 1995 and 1994, these debentures are anti-dilutive and have been excluded from the calculation. OTHER RECENT PRONOUNCEMENTS. In March 1995, the Financial Accounting Standards Board ("FASB") issued SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". In October 1995, FASB issued SFAS 123, "Accounting for Stock-Based Compensation". In June 1996, FASB issued SFAS 125, "Accounting for Transfer and Servicing of Financial Assets and Extinguishments of Liabilities". The company will implement SFAS 123 using the proforma disclosure method described in the pronouncement in fiscal 1997. SFAS 121 and 123 are effective for fiscal years beginning after December 15, 1995. SFAS 125 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996. The company will implement these statements as required. The future adoption of SFAS 121 and 125 is not expected to have a material effect on the company's consolidated financial position or results of operations. NOTE 3. RESTRUCTURING During fiscal years 1995 and 1994, the company recorded restructuring provisions of $43 million and $35 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 1996 ACTIVITY Provision related to terminated employees ........... $ 12.4 $ -- $ (9.9) $ 2.5 Provisions for leases ............................... 17.4 -- (7.4) 10.0 Writedown of assets to be sold or discarded and other ............................................... 7.1 -- (5.1) 2.0 ------- ------- -------- ------- Total ............................................ $ 36.9 $ -- $ (22.4) $ 14.5 ------- ------- -------- ------- FISCAL 1995 ACTIVITY Provision related to terminated employees ........... $ 19.7 $ 23.0 $ (30.3) $ 12.4 Provisions for leases ............................... 14.0 12.9 (9.5) 17.4 Writedown of assets to be sold or discarded and other ............................................... 3.0 7.1 (3.0) 7.1 ------- ------- -------- ------- Total ............................................ $ 36.7 $ 43.0 $ (42.8) $ 36.9 ------- ------- -------- -------
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 was primarily for costs associated with 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 28, 1996, the company substantially completed the employee terminations related to the 1995 restructuring charges. The remaining reserves at September 28, 1996 are for the remaining severance payments due to employees impacted by the restructuring actions. The charges and remaining reserves for leases are for various domestic branch sales offices and excess vacant rental properties, primarily located in Europe. 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 28, 1996, the company substantially completed the employee terminations related to the 1994 restructuring charges. 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 28, 1996. NOTE 4. CONSOLIDATED BALANCE SHEET DETAILS
SEPT. 28, SEPT. 30, IN THOUSANDS 1996 1995 - -------------------------------------------------------------------------------- INVENTORIES: Raw materials .................................... $ 4,560 $ 9,173 Work in process .................................. 50,769 28,309 Finished systems ................................. 43,710 51,199 Field engineering parts and components ........... 30,744 35,464 --------- --------- Total inventories ........................... $ 129,783 $ 124,145 --------- --------- PROPERTY, PLANT AND EQUIPMENT: Land ............................................. $ 2,997 $ 3,433 Buildings and improvements ....................... 78,493 84,416 Manufacturing and design equipment ............... 91,180 95,005 Data processing, office, and other equipment ..... 374,962 356,563 Computer equipment spares ........................ 91,340 95,583 --------- --------- Total property, plant and equipment ......... 638,972 635,000 Accumulated depreciation ......................... (471,300) (460,086) --------- --------- Total property, plant and equipment, net .... $ 167,672 $ 174,914 --------- --------- OTHER CURRENT LIABILITIES Accrued employee compensation and benefits ....... $ 77,223 $ 68,247 Deferred revenues ................................ 44,621 43,185 Accrued restructuring charges .................... 14,543 36,863 Other accrued expenses ........................... 104,309 102,165 Current portion of long-term debt ................ 1,920 1,420 --------- --------- Total other current liabilities ............. $ 242,616 $ 251,880 --------- ---------
During the current fiscal year, the company sold two of the facilities that it had previously closed as a result of cost reduction programs. The company sold its Milford, Massachusetts, and the remaining portion of its Woodstock, Connecticut facilities for proceeds of $6.3 million and $.5 million, respectively. During the current fiscal year, the company retired fully depreciated computer equipment spares with an original cost of $16.0 million. NOTE 5. NOTES PAYABLE Notes payable at September 28, 1996 and September 30, 1995 consisted of borrowings by Data General France SAS of $2.0 million. The borrowings 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 4.4% and 6.9% at September 28, 1996 and September 30, 1995, respectively. The weighted average interest rate on outstanding funds was 5.5% and 7.1% during the years ended September 28, 1996 and September 30, 1995, 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 28, 1996, 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 1996 and 1995 were not material. There were $8.0 million of letters of credit secured by this facility at September 28, 1996. At September 30, 1995, there were $8.3 million of letters of credit secured by this letter of credit facility. The current facility has a duration of 364 days and expires on December 18, 1996. The company is currently in the process of negotiating amendments to this letter of credit facility which would extend its expiration date to December 17, 1997. NOTE 6. INCOME TAXES Domestic and foreign income (loss) before taxes, and details of the income tax provision (benefit) are as follows:
YEAR ENDED ----------------------------------------------- SEPT. 28, SEPT. 30, SEPT. 24, IN THOUSANDS 1996 1995 1994 - ------------------------------------------------------------------------ INCOME (LOSS) BEFORE TAXES Domestic ................. $ 32,200 $(13,336) $(54,201) Foreign .................. (555) (24,762) (31,392) -------- -------- -------- $ 31,645 $(38,098) $(85,593) -------- -------- -------- INCOME TAX PROVISION (BENEFIT): Current: Federal .................. $ 650 $ 1,000 $ -- Foreign .................. 1,076 1,175 1,896 State .................... 800 2,000 700 -------- -------- -------- Total Current ....... 2,526 4,175 2,596 -------- -------- -------- Deferred: Federal .................. 1,350 2,500 -- Foreign .................. (376) 1,930 (496) -------- -------- -------- Total Deferred ...... 974 4,430 (496) -------- -------- -------- $ 3,500 $ 8,605 $ 2,100 -------- -------- --------
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 the weight of available evidence, the company has recorded a valuation allowance that offsets substantially all net deferred tax assets as of the end of each related year. The amount of the deferred tax asset considered realizable is subject to change based on estimates of future taxable income during the carryforward period. The company will assess the need for the valuation allowance at each balance sheet date based on all available evidence. Principal components of the deferred tax assets and liabilities included on the balance sheet at September 28, 1996 and September 30, 1995 were as follows:
YEAR ENDED ------------------------ SEPT. 28, SEPT. 30, IN THOUSANDS 1996 1995 - --------------------------------------------------------------------------- DEFERRED TAX ASSETS Inventory ....................................... $ 9,040 $ 8,428 Operating expenses .............................. 58,563 44,922 Intercompany profit in inventory and fixed assets 5,693 6,666 Depreciation .................................... 4,597 8,922 Restructuring ................................... 5,817 15,129 Stock option plans .............................. 5,527 5,425 Interest on convertible debentures .............. 1,292 1,292 Net operating losses ............................ 122,684 119,579 Tax credits ..................................... 11,796 9,765 --------- --------- Gross deferred tax assets .................. 225,009 220,128 Less: Valuation allowances ...................... 204,017 201,255 --------- --------- Total deferred tax assets .................. 20,992 18,873 --------- --------- DEFERRED TAX LIABILITIES Capitalized software development costs .......... (24,280) (18,437) Other ........................................... (1,854) (4,604) --------- --------- Total deferred tax liabilities ............. (26,134) (23,041) --------- --------- Net deferred tax liabilities ............... $ (5,142) $ (4,168) --------- ---------
Reconciliation of the U.S. Federal statutory rate to the company's effective tax rate is as follows:
YEAR ENDED ------------------------------------ SEPT. 28, SEPT. 30, SEPT. 24, 1996 1995 1994 - ---------------------------------------------------------------------------- U.S. Federal statutory rate ............. 35.0% (35.0)% (35.0)% State income taxes ...................... 2.5 5.2 .8 Net domestic and foreign losses without tax benefits ........ 15.9 51.0 38.2 Net operating loss carryforwards utilized (43.0) (5.7) (2.2) Foreign income taxed at different rates . (1.5) 4.4 0.1 Alternative minimum tax ................. 2.1 2.6 -- Other ................................... 0.1 0.1 0.6 ---- ---- ---- Effective tax rate ...................... 11.1% 22.6% 2.5% ---- ---- ----
The company has U.S. Federal and foreign operating loss carryforwards of approximately $332 million and tax credit carryforwards of approximately $12 million. The operating loss carryforwards expire in the years 1997 through 2010. The tax credit carryforwards expire in the years 2000 through 2004. Provision has not been made for U.S. or additional foreign taxes on approximately $82 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 $.9 million. NOTE 7. LONG-TERM DEBT
SEPT. 28, SEPT. 30, IN THOUSANDS 1996 1995 - ----------------------------------------------------------------------------- 7 3/4% Convertible Subordinated Debentures due 2001 $ 125,000 $ 125,000 8 3/8% Sinking Fund Debentures due 2002 ........... 26,891 29,877 --------- --------- 151,891 154,877 Less: current portion ............................. (1,920) (1,420) --------- --------- $ 149,971 $ 153,457 --------- ---------
Maturities and sinking fund requirements for the next five fiscal years are as follows: 1997 -- $1,920; 1998 -- $3,500; 1999 -- $3,500; 2000 -- $3,500; 2001 -- $128,500. 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 debentures were issued). At the option of the company, the debentures 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 28, 1996 of $1.9 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 1996, the company reacquired a total of $33.1 million principal amount of debentures. Of all acquired debentures, $31.5 million principal amount was used to satisfy sinking fund requirements through fiscal 1996. Subsequent to September 28, 1996, the company reacquired an additional $3.9 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. NOTE 8. 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 debt securities, accounts receivable, notes payable, accounts payable, and accrued expenses approximate carrying value at September 28, 1996 and September 30, 1995, due to the relatively short maturity of these financial instruments. In fiscal year 1996, an equity security held by the company as an investment and previously accounted for under the cost method began trading on a public stock exchange and is classified as available-for-sale. The fair value of this marketable equity security at September 28, 1996 totaled $10.9 million. The fair value of investments and notes receivable, included in other assets, was $2.2 million and $4.6 million at September 28, 1996 and September 30, 1995, 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 28, 1996 and September 30, 1995 was $151.1 million and $142.9 million, respectively, compared to carrying values of $151.9 million and $154.9 million, respectively. The company enters into various forward contracts to limit its exposure to fluctuations in foreign currency exchange rates. As of September 28, 1996, in connection with the company's foreign exchange hedging programs, the company had entered into forward exchange contracts to purchase $67.5 million and to sell $117.4 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 28, 1996, not material in amount, approximates the original value of the forward contracts. Between the end of this fiscal year and October 1, 1996, forward exchange contracts to purchase $63 million and to sell $69.7 million in various foreign currencies matured and were settled. The remaining contracts mature at various dates through January 28, 1997. 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 $13.7 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 28, 1996 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 and sublet properties, was $32.2 million, $32.3 million, and $32.5 million for fiscal years 1996, 1995 and 1994, respectively. Future minimum rental payments under existing non-cancelable operating leases as of September 28, 1996 are as follows: FISCAL YEAR IN MILLIONS - -------------------------------------- 1997 .................... 28.8 1998 .................... 21.4 1999 .................... 16.1 2000 .................... 13.9 2001 .................... 12.2 Subsequent to 2001 ...... 44.4 ------ $ 136.8 ------ 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 $49 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 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 for the District of Massachusetts, in Worcester, Massachusetts claiming several IBM products including the AS/400 mid-range systems and System/390 mainframe line, infringe 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. In May 1996, the company commenced an additional action against IBM in the United States District Court for the District of Massachusetts, in Worcester, Massachusetts, in which the company claims that several IBM products, including IBM's current AS/400 RISC-based computer product line, infringe up to five company patents. (Four of the five patents involved in this action are also involved in the proceedings initiated by the company against IBM in November 1994, described in the previous paragraph.) The suit seeks, among other relief, injunctive and compensatory damages. 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 results of operations or the financial position of the company. The company and certain of its subsidiaries are involved in various other patent infringement, contractual, and proprietary rights suits. In the opinion of management, the conclusion of these suits will not have a material adverse effect on the financial position or results of operations and cash flows of the company and its subsidiaries. NOTE 9. STOCKHOLDERS' EQUITY The company has 100,000,000 authorized shares of common stock. As of September 28, 1996, 39,821,000 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 1996, 1,668,000 additional shares were issued. As of September 30, 1995, 38,153,000 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 28, 1996. 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 acquirer's common stock at one-half of market value under circumstances which include certain transactions by or with a potential acquirer, including "adverse persons", and mergers and certain asset sales. The Rights may be redeemed by the company under certain circumstances. NOTE 10. 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 at the beginning of each period. During fiscal 1996, options were exercised to purchase 706,000 shares at an average price of $7.89 per share. Unissued shares of common stock reserved for future issuance under this plan were 359,000 shares at September 28, 1996 and 1,065,000 shares at September 30, 1995. EMPLOYEE STOCK OPTION PLAN. This plan authorizes 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 1996 is as follows:
SHARES RESERVED FOR OPTIONS AVERAGE FUTURE GRANTS OUTSTANDING PRICE (000's) (000's) PER SHARES - -------------------------------------------------------------------------------- September 30, 1995 .................. 2,540 3,212 $ 6.38 Options granted ................ (413) 413 $ 7.02 Options exercised .............. -- (287) $ 4.85 Option canceled ................ 180 (180) $ 6.45 ----- ------ September 28, 1996 .................. 2,307 3,158 $ 6.61 ----- ------
RESTRICTED STOCK OPTION PLAN. This plan authorizes 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. Additional information concerning activity during fiscal 1996 is as follows:
SHARES RESERVED FOR OPTIONS AVERAGE FUTURE GRANTS OUTSTANDING PRICE (000's) (000's) PER SHARES - -------------------------------------------------------------------------------- September 30, 1995 .................. 311 2,230 $ 4.22 Options granted ................ (211) 211 $ 5.27 Options exercised .............. -- (671) $ 4.00 Option canceled ................ 118 (118) $ 4.37 --- ------ September 28, 1996 .................. 218 1,652 $ 4.49 --- ------
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 1996, 24,000 options were granted at an average price of $15.75 per share. At September 28, 1996, options to purchase 64,000 shares at an average price of $11.17 per share were outstanding and 86,000 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 1996, options were exercised to purchase 4,000 shares at an average price of $10.50 per share. At September 28, 1996, options to purchase 10,000 shares at an average purchase price of $2.66 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 11. BENEFIT PLANS 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. The annual cost for these plans is determined using the projected unit credit actuarial cost method which includes significant actuarial assumptions and estimates which are subject to change in the near term. 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. 28, SEPT. 30, SEPT. 24, IN THOUSANDS 1996 1995 1994 - -------------------------------------------------------------------------------- Service cost ............................... $ 7,468 $ 7,806 $ 8,608 Interest on projected benefit obligation ... 12,736 11,504 10,506 Actual return on plan assets ............... (14,362) (17,460) (3,286) Deferral of net actuarial gains (losses) and amortization of transition surplus and prior service cost .................... 2,283 7,850 (6,083) Curtailment loss, net of settlement gain ... (50) 817 533 -------- -------- -------- Net pension expense ........................ $ 8,075 $ 10,517 $ 10,278 -------- -------- --------
The funded status of the plans is as follows:
SEPT. 28, SEPT. 30, IN THOUSANDS 1996 1995 - ------------------------------------------------------------------------------------------- ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS: Vested benefit obligation .................................. $ 150,779 $ 134,251 --------- --------- Accumulated benefit obligation ............................. $ 158,683 $ 141,950 --------- --------- Projected benefit obligation ............................... $ 178,353 $ 157,666 Market value of plan assets ..................................... 150,096 125,257 --------- --------- Excess of projected benefit obligation over plan assets ......... 28,257 32,409 Unrecognized actuarial gain ..................................... 5,871 7,769 Unrecognized prior service cost ................................. (17,995) (18,166) Unrecognized transition surplus, net ............................ 7,062 7,893 --------- --------- Net pension liability included in current and other liabilities . $ 23,195 $ 29,905 --------- --------- ASSUMPTIONS USED IN COMPUTING THE FUNDED STATUS OF THE PLANS: Weighted average discount rate ............................. 8.00% 8.00% Expected long-term weighted average rate of return of assets 9.65% 9.57% Weighted average rate of increase in compensation levels ... 4.31% 4.34%
As a result of the company's restructuring and cost containment programs, pension curtailment losses of $.9 million and $.7 million were recognized in fiscal 1995 and 1994, respectively. These amounts were previously reserved as part of the fiscal 1994 and 1993 restructuring charges. The company also has foreign defined contribution pension plans. Total pension cost charged to expense for these plans was $1.6 million in fiscal 1996, $1.7 million in fiscal 1995, and $1.5 million in fiscal 1994. 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. 28, SEPT. 30, SEPT. 24, IN THOUSANDS 1996 1995 1994 - -------------------------------------------------------------------------------- Service cost .............................. $ 293 $ 308 $ 345 Interest on projected benefit obligation .. 655 657 676 Actual return on plan assets .............. (56) (150) (339) Deferral of net actuarial gains and amortization of transition surplus and prior service cost ................... 282 344 482 ------- ------- ------- Net pension expense ....................... $ 1,174 $ 1,159 $ 1,164 ------- ------- -------
The funded status of the plans is as follows:
IN THOUSANDS SEPT. 28, SEPT. 30, 1996 1995 - ------------ ---------------------------------------------------------------------------- ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION: Retirees ................................................... $ 3,989 $ 3,995 Fully eligible active plan participants .................... 1,088 1,031 Other active plan participants ............................. 3,683 3,490 ------- ------- Total accumulated postretirement benefit obligation ............. 8,760 8,516 Market value of plan assets ..................................... 66 389 ------- ------- Excess of accumulated postretirement benefit obligation over plan assets ........................................... 8,694 8,127 Unrecognized transition obligation .............................. (2,468) (2,645) Unrecognized prior service cost ................................. (791) (862) Unrecognized actuarial gain ..................................... 1,118 924 ------- ------- Net postretirement benefit liability included in current and other liabilities ........................... $ 6,553 $ 5,544 ------- ------- ASSUMPTIONS USED IN COMPUTING THE FUNDED STATUS OF THE PLANS: Weighted average discount rate ............................. 8.00% 8.00% Expected long-term weighted average rate of return of assets 10.00% 10.00%
For participants who receive full retiree medical benefits, the medical premium rates were assumed to increase at 7% for fiscal 1996 and thereafter. A 1% increase in the medical trend rate would not have a significant impact on the accumulated postretirement benefit obligation as of October 1, 1996. NOTE 12. GEOGRAPHIC SEGMENT DATA 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 IN THOUSANDS UNITED STATES EUROPE INTERNATIONAL ELIMINATIONS CONSOLIDATED - ------------------------------------------------------------------------------------------------------------------------------------ YEAR ENDED SEPTEMBER 28, 1996 Total revenues: Unaffiliated customers ................. $ 941,916 $ 263,461 $ 116,873 $ 1,322,250 Interarea transfers .................... 120,810 -- 26,497 $ (147,307) -- ----------- ----------- ----------- ----------- ----------- Total ............................. $ 1,062,726 $ 263,461 $ 143,370 $ (147,307) $ 1,322,250 ----------- ----------- ----------- ----------- ----------- Income (loss) from operations ............... $ 42,277 $ 3,054 $ (9,613) $ 1,559 $ 37,277 ----------- ----------- ----------- ----------- ----------- Identifiable assets ......................... $ 562,845 $ 177,903 $ 88,614 $ (106,897) $ 722,465 ----------- ----------- ----------- ----------- Corporate assets ............................ 137,978 ----------- Total assets ...................... $ 860,443 ----------- 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 -----------
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 $223.1 million at September 28, 1996 and $237.4 million at September 30, 1995. Cumulative retained earnings of international subsidiaries were $74.6 million at September 28, 1996 and $84.4 million at September 30, 1995. 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 28, 1996 and September 30, 1995, and the results of their operations and their cash flows for each of the three years in the period ended September 28, 1996, 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 30, 1996 SUPPLEMENTAL FINANCIAL INFORMATION DATA GENERAL CORPORATION QUARTERLY FINANCIAL DATA (UNAUDITED)
FIRST SECOND THIRD FOURTH IN MILLIONS, EXCEPT PER SHARE AMOUNTS QUARTER QUARTER QUARTER QUARTER FISCAL YEAR - ------------------------------------------------------------------------------------------------------------------- FISCAL 1996: Total revenues .................................... $ 327.6 $ 335.2 $ 323.2 $ 336.3 $ 1,322.3 Total cost of revenues ............................ 221.7 224.2 211.2 220.6 877.7 Net Income ........................................ 4.7 6.3 7.2 9.9 28.1 Net income per share .............................. $ 0.12 $ 0.15 $ 0.17 $ 0.24 $ 0.68 Net income per share assuming full dilution ....... $ 0.12 $ 0.15 $ 0.17 $ 0.24 $ 0.68 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(a) (11.1) (61.3)(b) 1.5 (46.7) Net income (loss) per share ....................... $ 0.63 $ (0.30) $ (1.65) $ 0.04 $ (1.23) Net income (loss) per share assuming full dilution $ 0.59 $ (0.30) $ (1.65) $ 0.04 $ (1.23)
(a) Includes $44.5 million gain resulting from the settlement of litigation with Northrop Grumman Corporation (see Note 8 of Notes to Consolidated Financial Statements). (b) Includes $43.0 million provision in fiscal year 1995 for estimated expenses resulting from corporate-wide restructuring and cost reduction programs (see Note 3 of Notes to Consolidated Financial Statements). STOCK PRICE RANGE The principal United States market on which the company's stock is traded is the New York Stock Exchange. The following are the high and low sales prices for the last two fiscal years.
FISCAL 1996 FISCAL 1995 ---------------------- ---------------------- HIGH LOW HIGH LOW - ----------------------------------------------------------------------------- First quarter ............... 14 3/4 9 1/4 11 1/2 9 1/8 Second quarter .............. 19 1/8 11 3/4 10 7/8 7 1/8 Third quarter ............... 17 1/8 12 1/4 10 1/8 7 Fourth quarter .............. 14 9 1/4 10 5/8 8 1/4
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' headquarters locations are listed below. FACILITY LOCATION (Approximate Square Feet) Westboro, Massachusetts corporate headquarters; administration; (512,000/Leased) product development; special systems Southboro, Massachusetts manufacturing service division; software (545,000)* reproduction; distribution center; equipment refurbishment; major unit repair; custom product manufacturing; field engineering services and logistics Apex, North Carolina assembly, test and systems integration facility (300,000) Research Triangle Park, advanced systems research and development North Carolina (174,000) Norcross, Georgia customer support center (105,000/Leased) Mississauga, Ontario sales; field engineering; administration Canada (32,000/Leased) Etobicoke, Ontario, Canada product repair center (18,000/Leased) Chihuahua, Mexico product repair center (67,000/Leased) Schwalbach, Germany sales; customer education; services (71,600/Leased) Brentford, England sales; services; administration; (120,000/Leased)** customer education Manila, Philippines power supply and transformer manufacturing; (68,000) communications products assembly and test Melbourne, Australia product repair center; logistics and (31,000/Leased) equipment refurbishment * Includes 50,000 square-feet of space leased to a third party, and 200,000 square feet available for lease. ** Includes 30,000 square-feet of sub-leased space. 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 OFFICERS, DIRECTORS AND SENIOR MANAGEMENT DATA GENERAL CORPORATION Frederick R. Adler Director, Chairman of the Executive Committee; Retired 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, Europe Ferdinand Colloredo-Mansfeld Director; Chairman of the Board, Cabot Partners Limited Partnership, Boston, Massachusetts William J. Cunningham* Senior Vice President, Manufacturing and Corporate Quality Arthur W. DeMelle* Senior Vice President; Chief Financial Officer David J. Ellenberger* Vice President, Corporate Marketing Jacob Frank Vice President and General Counsel John J. Gavin Jr.* Vice President; Controller Angelo Guadagno Vice President, Worldwide Channel 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; Treasurer John G. McElwee Director; Retired Chairman, John Hancock Mutual Life Insurance Company, Boston, Massachusetts Anthony C. Nicoletti Vice President, Asia/Pacific Edward F. Pensel Vice President, Manufacturing Operations James J. Ryan Vice President, Information Management Group Joel Schwartz* Senior 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; THiiN Line Business Unit William L. Wilson* Senior Vice President, Services and Strategic Business Opportunities * Elected during 1996 DIVISION VICE PRESIDENTS Dennis R. Balch Software Development Anthony P. DiBona U.S. Sales - Eastern Operations Michael A. Feldstein** CLARiiON Product Development and Operations Jonathan W. Lane Human Resources Raymond J. Massey U.S. Sales - Western Operations Michael I. Schneider Special Systems Robert Van Steenberg AViiON Systems Development Michael S. Worhach** Worldwide Healthcare Division William L. Zastrow Imaging Business Unit VICE PRESIDENTS John T. Anderson U.S. Channel Sales Ronald A. Edlin Professional Services Philip Gerskovich** NUMALiiNE Business Unit K. Todd Gresham** CLARiiON Sales Fidelma Hayes-Russo** NUMALiiNE Systems Development Robert C. Mara Personal Computer Business Unit Linda Mentzer** AViiON Product Management Michael P. Parise** Strategic Integrator Alliances Thomas P. Rizk Customer Support Daniel Sapir Strategic Alliances Kenneth D. Sills** CLARiiON Support and Services Paul M. Suffredini** CLARiiON Business Development Suzanne G. Sweeney Enterprise Applications ** Appointed during 1996 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 29, 1997 in the Enterprise Room, State Street Bank Building, 225 Franklin Street, Boston, Mass. NUMBER OF STOCKHOLDERS As of September 28, 1996 there were approximately 11,300 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: Request information using e-mail to AViiON@dg.com Dial our FAX-back system at 1-800-99-DGFAX (North America only) and press 411 to receive a faxed menu of publications Call Data General Corporation at 1-800-DATAGEN - -------------------------------------------------------------------------------- This report contains forward-looking statements under the captions "To Our Stockholders, Customers and Employees" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" which reflect Management's current views of future events and financial performance. These forward-looking statements involve risks and uncertainties, and are based upon many assumptions and factors, including the effects of period-to-period fluctuations, OEM inventory positions and new product development and marketing. Many of these factors are discussed in the company's Securities and Exchange Commission filings, including its annual report on Form 10-K for the year ended September 28, 1996. Any changes in such assumptions or factors could produce significantly different results. - -------------------------------------------------------------------------------- Data General An Equal Opportunity / Affirmative Action Employer Making a Commitment to Workforce Diversity AViiON, AV/Image, CLARiiON, DG/UX, and ECLIPSE are registered trademarks; DataGenie, NUMALiiNE, and THiiN Line are trademarks; and VALiiANT is a service mark 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-21 5 FY96 SUBSIDIARIES OF REGISTRANT EXHIBIT 21 Subsidiaries of Data General Corporation. The following are the company's subsidiaries as of September 28, 1996. 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 SAS .................................... 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 Computers Hungary Ltd. ........................ Hungary Data General International Manufacturing Pte., Ltd. ........ Singapore Data General International Sales Corporation ............... Delaware Data General International, Inc. ........................... 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 State or Jurisdiction of Name Organization - ---- ------------ Data General do Brasil 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 D. G. Venezula, C.A ........................................ Venezuela Data General Wholesale Pty., Ltd. .......................... Australia Datagen Investment Trust ................................... Massachusetts Datagen, Inc. .............................................. Delaware DG Argentina S.A ........................................... Argentina D G Foreign Sales Corporation, Inc. ........................ Barbados Digicom .................................................... Delaware Digital Computer Controls, Inc. ............................ Delaware Digital Computer Controls International, Inc. .............. Delaware General Risk Insurance Company Ltd. ........................ Bermuda EX-23 6 FY96 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, 33-19759, 33-53039, 33-53041, and 33-58237) of Data General Corporation of our report dated October 30, 1996 appearing in the 1996 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 21 of this Form 10-K. /s/Price Waterhouse LLP PRICE WATERHOUSE LLP Boston, Massachusetts December 18, 1996 EX-27 7 ART. 5 FDS FOR ANNUAL 10-K
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FY96 CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS SEP-28-1996 SEP-28-1996 178,997 25,624 272,295 14,480 129,783 616,812 638,972 471,300 860,443 366,184 149,971 0 0 460,312 (131,248) 860,443 924,140 1,322,250 618,351 877,692 407,281 0 13,072 31,645 3,500 28,145 0 0 0 28,145 0.68 0.68
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