-----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, J4XmuvoqjTXpW66jpLqtvRJ7gajIBTLFUruRhPLIQVki+/i/8G7TG/h2/asJYmdi oDs+ORp6vHGwNMCPIZbbBw== 0000026999-98-000006.txt : 19980206 0000026999-98-000006.hdr.sgml : 19980206 ACCESSION NUMBER: 0000026999-98-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19971227 FILED AS OF DATE: 19980205 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-Q SEC ACT: SEC FILE NUMBER: 001-07352 FILM NUMBER: 98522174 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-Q 1 Q1 FY98 FORM 10-Q ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------- FORM 10-Q (Mark one) [ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended December 27, 1997 ----------------- 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 -------------- Former name, former address and former fiscal year if changed since last report: Not Applicable ------------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Number of shares outstanding of each of the registrant's classes of common stock, as of January 23, 1998: Common Stock, par value $.01 48,704,757 ---------------------------- ------------------ (Title of each class) (Number of shares) ================================================================================ PART I -- FINANCIAL INFORMATION Item 1. Financial Statements. DATA GENERAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Quarter Ended -------------------- Dec. 27, Dec. 28, in thousands, except per share amounts 1997 1996 - -------------------------------------------------------------------------------- Revenues Product ............................................ $267,177 $249,800 Service ............................................ 98,098 98,653 -------- -------- Total revenues ................................ 365,275 348,453 -------- -------- Costs and expenses Cost of product revenues ........................... 189,171 165,062 Cost of service revenues ........................... 60,176 64,408 Research and development ........................... 27,448 26,238 Selling, general, and administrative ............... 84,371 80,509 -------- -------- Total costs and expenses ...................... 361,166 336,217 -------- -------- Income from operations ................................. 4,109 12,236 Interest Income ........................................ 3,509 1,982 Interest expense ....................................... 3,620 3,203 -------- -------- Income before income taxes ............................. 3,998 11,015 Income tax provisions .................................. 500 600 -------- -------- Net income ............................................. $ 3,498 $ 10,415 ======== ======== Basic net income per share Net income per share ............................... $ 0.07 $ 0.26 ======== ======== Weighted average shares outstanding................. 48,640 39,694 ======== ======== Net income per share assuming dilution Net income per share ............................... $ 0.07 $ 0.25 ======== ======== Weighted average shares outstanding, including common stock equivalents, where applicable ......... 50,676 42,087 ======== ======== No cash dividends have been declared or paid since inception. The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
1 DATA GENERAL CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) Dec.28, Sept. 27, dollars in thousands 1997 1997 - ---------------------------------------------------------------------------------------- Assets Current Assets Cash and temporary cash investments .................. $ 141,347 $ 216,814 Marketable securities ................................ 156,624 151,455 Receivables, net ..................................... 303,826 296,375 Inventories .......................................... 186,131 166,008 Other current assets ................................. 32,696 27,584 ----------- ----------- Total current assets ..................................... 820,624 858,236 Property, plant, and equipment, net ...................... 188,111 180,410 Other assets ............................................. 103,447 96,222 ----------- ----------- $ 1,112,182 $ 1,134,868 =========== =========== Liabilities and stockholders' equity Current liabilities Accounts payable ..................................... $ 158,649 $ 154,624 Other current liabilities ............................ 207,068 237,198 ----------- ----------- Total current liabilities ................................ 365,717 391,822 ----------- ----------- Long-term debt ........................................... 212,750 212,750 ----------- ----------- Other liabilities ........................................ 9,075 11,516 ----------- ----------- Stockholders' equity Common stock Outstanding - 48,701,000 shares at Dec. 27, 1997 and 48,588,000 shares at Sept. 27, 1997 (net of deferred compensation of $16,874 at Dec. 27, 1997 and $14,157 at Sept. 27, 1997) .................. 609,194 607,130 Accumulated deficit ...................................... (76,083) (79,581) Unrealized gains on marketable securities ................ 3,487 2,812 Cumulative translation adjustment ........................ (11,958) (11,581) ----------- ----------- Total stockholders' equity ...................... 524,640 518,780 ----------- ----------- $ 1,112,182 $ 1,134,868 =========== =========== The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
2 DATA GENERAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Quarter Ended ------------------------ Dec. 27, Dec. 28, in thousands 1997 1996 - ---------------------------------------------------------------------------------------------- Cash flows from operating activities Net income ..................................................... $ 3,498 $ 10,415 Adjustments to reconcile net income to net cash provided from operating activities Depreciation .............................................. 19,756 20,042 Amortization of capitalized software development costs .... 6,403 5,057 Other non-cash items, net ................................. 184 831 Change in operating assets and liabilities ................ (58,744) (20,638) --------- --------- Net cash (used by) provided from operating activities ..... (28,903) 15,707 --------- --------- Cash flows from investing activities Expenditures for property, plant, and equipment ................ (31,361) (23,994) Net proceeds from the sales (purchases) of marketable securities (4,494) (63,450) Capitalized software development costs ......................... (10,702) (8,160) --------- --------- Net cash used by investing activities ..................... (46,557) (95,604) --------- --------- Cash flows from financing activities Cash provided from stock plans ................................. 606 774 Repayment of long-term debt .................................... -- (3,900) --------- --------- Net cash provided from (used by) financing activities ..... 606 (3,126) --------- --------- Effect of foreign currency rate fluctuations on cash and temporary cash investments ............................ (613) (83) --------- --------- Decrease in cash and temporary cash investments .................... (75,467) (83,106) Cash and temporary cash investments - beginning of period .......... 216,814 178,997 --------- --------- Cash and temporary cash investments - end of period ................ $ 141,347 $ 95,891 ========= ========= Supplemental disclosure of cash flow information Interest paid .................................................. $ 6,437 $ 4,961 Income taxes paid .............................................. $ 263 $ 246 The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
3 DATA GENERAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1. Consolidated Balance Sheet Details
Dec. 27, Sept. 27, in thousands 1997 1997 - -------------------------------------------------------------------------------- Inventories Raw materials ................................ $ 23,003 $ 16,169 Work in process .............................. 87,970 78,335 Finished systems ............................. 46,715 44,349 Field engineering parts and components ....... 28,443 27,155 --------- --------- $ 186,131 166,008 ========= ========= Property, plant, and equipment Property, plant, and equipment ............... $ 674,707 $ 657,351 Accumulated depreciation ..................... (486,596) (476,941) --------- --------- $ 188,111 $ 180,410 ========= =========
Note 2. Accounting Policies In the first quarter of fiscal 1998, the Company adopted Statement of Financial Accounting Standards No. 128 ("SFAS 128") "Earnings per Share". The following data show the amounts used in computing earnings per share and the effect on income and the weighted average number of shares of dilutive potential common stock.
Quarter Ended ------------------------------------------------------------------------- Dec. 27, 1997 Dec 28, 1996 ----------------------------------- ----------------------------------- Income Shares Per-Share Income Shares Per-Share in thousands, except per share amounts (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ----------- ------------- --------- ----------- ------------- --------- Basic Earnings Per Share Net income available to common stockholders $ 3,498 48,640 $ .07 $10,415 39,694 $ .26 ===== ===== Effect of Dilutive Securities Stock Options -- 2,036 -- 2,393 ------- ------ ------ ------ Diluted Earnings Per Share Net income available to common stockholders and assumed conversions $ 3,498 50,676 $ .07 $10,415 42,087 $ .26 ======= ====== ===== ======= ====== ===== For the quarters ended December 27, 1997 and December 28, 1997, the assumed conversion of convertible debentures, giving effect to the incremental shares and the adjustment to reduce interest expense, is anti-dilutive and has therefore been excluded from the computation.
4 Note 3. Basis of Presentation and Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation. The Company's accounting policies are described in the Notes to Consolidated Financial Statements in the Company's 1997 Annual Report. The results of operations for the quarter ended December 27, 1997 are not necessarily indicative of the results of the entire fiscal year. 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Financial Condition Cash and temporary cash investments as of December 27, 1997 were $141.3 million, a decrease of $75.5 million from the end of fiscal 1997. At the same date, the Company held $156.6 million in marketable securities, a net increase of $5.2 million during the current three-month period. In total, cash and temporary cash investments along with marketable securities decreased $70.3 million for the current three-month period. The decrease was mainly attributable to the purchases of inventory required for the growth of the Company's server and storage businesses and payments reducing employee-related accruals. The marketable securities held, which supplement cash and temporary cash investments, include United States treasury bills and notes, notes issued by U.S. government agencies, and certificates of deposit, as well as equity securities recorded at the fair market value of $4.8 million and classified as available-for-sale. The unrealized gain on marketable securities of $3.5 million is recorded as a separate component of stockholders' equity. Net cash used by operations for the three months ended December 27, 1997 totaled $28.9 million; expenditures for property, plant, and equipment were $31.4 million; capitalized software development costs totaled $10.7 million; and cash provided from stock plans totaled $.6 million. The effect of foreign currency exchange rate fluctuations on cash and temporary cash investments was a decrease of $.6 million. Net receivables were $303.8 million, an increase of $7.4 million from $296.4 million at September 27, 1997. Total inventories at December 27, 1997 were $186.1 million, an increase of $20.1 million from September 27, 1997, primarily as a result of end-of-quarter procurement required to support both the server and storage businesses. Net property, plant, and equipment increased $7.7 million from September 27, 1997, principally due to the purchases of equipment and capital expenditures for developing both operating and financial systems to support the future growth of the Company. Fixed asset dispositions related to the sale of demonstration equipment totaled $1.5 million for the current three-month period. Management expects that sales of demonstration equipment will continue. The increase of $4 million in accounts payable from September 27, 1997 levels was attributed mainly to end-of-quarter inventory procurement. Other current liabilities decreased $30.1 million from September 27, 1997. This decrease was primarily a result of payments reducing employee-related accruals and interest paid on the 6% Convertible Subordinated Notes due 2004. Long-term debt of $212.8 million remained unchanged from September 27, 1997. During fiscal year 1995, the Company recorded restructuring charges of $43 million. No material changes in estimates to prior provisions or additional charges were recorded during the first three-month period of fiscal 1998. All charges, excluding asset writedowns and certain other charges, are cash in nature and are funded from operations. The remaining reserves of $6.5 million at December 27, 1997 are for the closure of various domestic branch sales offices and excess vacant rental properties, primarily located in Europe, and for the remaining severance payments due to employees impacted by the restructuring actions. 6 Results of Operations The Company reported net income of $3.5 million for the current quarter ended December 27, 1997, a decrease of 66% from $10.4 million for the comparable prior-year period. Revenues (in millions) - -------------------------------------------------------------------------------- Quarter ended ----------------------------------------------- 12/27/97 Change 12/28/96 -------- ------ -------- Product $267.2 7% $249.8 % of Total Revenues 73% 72% Service 98.1 (1%) 98.7 % of Total Revenues 27% 28% Total $365.3 5% $348.5 - -------------------------------------------------------------------------------- In the fiscal quarter ended December 27, 1997, product revenues of $133.3 million from the Company's AViiON family of open systems server products represented an increase of 10% from the comparable period of the prior year. In the current quarter, revenues from the Company's Intel-based AViiON systems increased nearly 70%, while revenues from the Motorola-based AViiON systems declined by 57% with the comparable period of the prior year. The Company anticipates that the percentage of server product revenues generated by the Intel-based AViiON products will continue to increase in fiscal 1998, while the Motorola-based AViiON system revenues are expected to continue to decline. Product revenues from the Company's CLARiiON storage systems increased 1% from the comparable prior-year period and accounted for 39% of total product revenues in the current quarter. CLARiiON is sold primarily through the Company's Original Equipment Manufacturer and distributor channels; thus sales in any given period are subject to sales cycles and inventory levels of the Company's customers. CLARiiON product revenues have been concentrated in a limited number of customers, with a significant portion of the Company's CLARiiON product sales to a single OEM. Product revenues from personal computers and other equipment increased 1% from the same period in the prior year and represented 9% of total product revenues compared to 10% for the comparable prior-year period. In fiscal 1996, the Company formed the VALiiANT Business Unit, a contract manufacturing operation, to take advantage of the Company's world class manufacturing expertise and facility. The VALiiANT product revenues for the quarter ended December 27, 1997 represented 2% of total product revenues. 7 Revenues by Geographic Marketplace - -------------------------------------------------------------------------------- Percentage of Percentage Change of Consolidated Revenues $ of Revenues --------------------------------- -------------------- Quarter ended 12/27/97 - 12/28/96 --------------------------------- -------------------- 12/27/97 12/28/96 Quarter ended --------------------------------- -------------------- Domestic -------- Product 60% 60% 6% Service 61% 57% 5% Total 60% 59% 6% Europe ------ Product 24% 25% 5% Service 30% 32% (7%) Total 26% 27% 1% Other International ------------------- Product 16% 15% 14% Service 9% 11% (11%) Total 14% 14% 9% ------------------------------------------------------------------------------ In the current quarter ended December 27, 1997, the increase in domestic product revenues was primarily a result of increased shipments of CLARiiON and the Company's Intel-based AViiON systems, which was partly offset by the decrease in Motorola-based AViiON systems, and personal computer and other equipment product revenues. The increase in European product revenues, including U.S. direct export sales, for the quarter ended December 27, 1997 was mainly attributable to the increase in personal computer and other equipment product revenues and Intel-based AViiON product revenues partially offset by decreases in CLARiiON product revenues. The increase in other international product revenues, including U.S. direct export sales, for the current quarter was primarily attributable to the increase in CLARiiON product revenues and Intel-based AViiON product revenues. In the service business, the Company experienced a 3% decline in contract maintenance revenues in the current quarter ended December 27, 1997 as compared with the quarter ended December 28, 1996, which was mostly offset by a 10% growth in professional service revenues during the same period. For the current three-month period, total revenues in the European marketplace were also negatively impacted by approximately 5% due to a stronger U.S. dollar as compared to the three-month period ended December 28, 1996. 8 Cost of Revenues (in millions) - -------------------------------------------------------------------------------- Quarter ended ---------------------------------------------------- 12/27/97 Change 12/28/96 ---------------------------------------------------- Product $189.2 15% $165.1 % of Product Revenues 71% 66% Service 60.2 (7%) 64.4 % of Service Revenues 61% 65% Total Cost of Revenues $249.4 9% $229.5 % of Total Revenues 68% 66% - -------------------------------------------------------------------------------- The increase in the product cost as a percentage of product revenues for the quarter ended December 27, 1997 was primarily caused by competitive pricing pressures and a shift in product mix. The decrease in the service cost as a percentage of service revenues for the quarter ended December 27, 1997 was the result of continued improvements in spare parts inventory management and improved gross margins in the professional services business. Operating Expenses (in millions) - -------------------------------------------------------------------------------- Quarter ended ------------------------------------------- 12/27/97 Change 12/28/96 ------------------------------------------- Research & Development $27.4 5% $26.2 % of Total Revenues 8% 8% Selling, general, & administrative $84.4 5% $80.5 % of Total Revenues 23% 23% - -------------------------------------------------------------------------------- The Company continued to focus its research and development efforts on its core business technology: multi-user computer systems, servers, and mass storage devices. In the current three-month period, gross expenditures on research and development and software development before capitalization were $38.1 million, an increase of 11% from $34.4 million for the comparable prior-year period. The increase in research and development expenditures was driven by investment in the next generation of CLARiiON fibre products, in the Company's Non-Uniform Memory Access (NUMA) architecture for high-end servers, and in THiiN Line products for the Internet. 9 The increase in selling, general, and administrative expenses was the result of increased sales and marketing efforts in the server and storage businesses. Management believes that in the future, increases of selling, general, and administrative expenses will be required to support business growth. However, the Company's objective is to have the ratio of these expenses as a proportion of total revenues decline. At December 27, 1997 the number of employees totaled 5,086, a net decrease of 37 employees from September 27, 1997 and a net increase of 202 employees from December 28, 1996. Interest income for the current quarter was $3.5 million, a 75% increase from $2 million for the comparable period of fiscal 1997, due to higher levels of invested cash. Interest expense for the current quarter was $3.6 million, a 13% increase from $3.2 million for the comparable period of fiscal 1997 due to the interest expense related to the 6% Convertible Subordinated Notes due 2004 which were issued during the third fiscal quarter of 1997. The income tax provision for the current quarter was $.5 million compared to $.6 million for the comparable prior-year period. The current year tax provision relates primarily to foreign, state, and federal alternative minimum taxes. The Company has a valuation allowance which offsets substantially all deferred tax assets as of December 27, 1997 and December 28, 1996. The amount of the deferred tax assets considered realizable is subject to change based on estimates of future income during the carryforward period. The Company will assess the need for the valuation allowance at each balance sheet date based on all available evidence and may adjust the level of the valuation allowance within the next year. 10 Statements concerning the Company's business outlook or future economic performance; anticipated profitability, revenues, expenses or other financial items; product or service line growth, plans or objectives; and statements concerning assumptions made or expectations as to any future events, conditions, performance or other matters, are "forward-looking statements", as that term is defined under the Federal Securities Laws. Forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from those stated in such statements. Such risks, uncertainties and factors include, but are not limited to, fluctuations in customer demand, order patterns and inventory levels, changes and delays in product development plans and schedules, customer acceptance of new products, changes in pricing or other actions by competitors, general economic conditions, as well as other risks detailed in the Company's filings with the Securities and Exchange Commission, including Data General's Report on Form 10-K for the 1997 fiscal year ended September 27, 1997 and this Quarterly Report on Form 10-Q for the first fiscal quarter of 1998, which ended December 27, 1997. 11 PART II -- OTHER INFORMATION Item 1. Legal Proceedings. The Company has been engaged in patent infringement litigation against IBM Corporation since November 1994. Two lawsuits, both in the discovery stages, are pending in the United States District Court for the District of Massachusetts in Worcester. The Company alleges that several IBM products including the AS/400 midrange systems and the AS/400 RISC-based computer product line infringe various Company's patents. Both suits seek compensatory damages and, where appropriate, injunctive relief. IBM has answered both complaints, has denied the Company's infringement claims and has interposed counterclaims alleging that the Company's CLARiiON storage products infringe IBM patents. Although the Company believes its claims are valid, it cannot predict the outcome of the litigation. In the opinion of management, based on preliminary evaluation of the IBM patents covered in the counterclaims and subject to the risks of litigation, the counterclaims are without merit, the Company will prevail thereon and the counterclaims will not have a material adverse impact on the results of operations or the financial position of the Company. The Company and certain of its subsidiaries are involved in various other patent infringement, contractual, and proprietary rights suits. In the opinion of management, the conclusion of these suits will not have a material adverse effect on the financial position or results of operations and cash flows of the Company and its subsidiaries. Item 4. Submission of Matters to a Vote of Security-Holders (a) The Annual Meeting of Stockholders of Data General Corporation was held January 28, 1998. (b) During the meeting, stockholders elected the following as directors of Data General: Frederick R. Adler Ferdinand Colloredo-Mansfeld Jeffrey M. Cunningham Ronald L. Skates W. Nicholas Thorndike Donald H. Trautlein Richard L. Tucker The directors were elected by the following voting breakdowns: Director Votes For Votes Withheld Adler 42,756,548 233,424 Colloredo-Mansfeld 42,796,720 193,252 Cunningham 42,797,175 192,797 Skates 42,779,746 210,226 Thorndike 42,797,431 192,541 Trautlein 42,779,917 210,055 Tucker 42,796,187 193,785 12 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits: 10. (hh)Deferred Compensation Plan dated January 1, 1998, previously filed as Exhibit 4.1 to the Company's Registration Statement on Form S-8, Registration Number 333-45153, which is incorporated herein by reference. (ii)Grant of Common Stock to Non-Employee Directors dated November 5, 1997, previously filed as Exhibit 4.2 to the Company's Registration Statement on Form S-8, Registration Number 333-45153, which is incorporated herein by reference. (jj)Summary of 1998 Fiscal Year Bonus Opportunity for Chief Executive Officer. (kk) Summary of Retention Bonus for Chief Executive Officer. (ll)Form of Amendment dated November 5, 1997 to various Indemnity Agreements between the Company and its officers and directors. (mm)Form of Amendment dated November 5, 1997 to various Employment Agreements between the Company and its full-time officers. 11. Computation of basic and diluted earnings per share. (b) No reports on Form 8-K were filed during the current quarter ended December 27, 1997. 13 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DATA GENERAL CORPORATION (Registrant) /s/ Arthur W. DeMelle -------------------------------------------- Arthur W. DeMelle Senior Vice President Chief Financial Officer Dated: February 5, 1998 14 EXHIBITS Index to Exhibits. 10. (hh)Deferred Compensation Plan dated January 1, 1998, previously filed as Exhibit 4.1 to the Company's Registration Statement on Form S-8, Registration Number 333-45153, which is incorporated herein by reference. (ii)Grant of Common Stock to Non-Employee Directors dated November 5, 1997, previously filed as Exhibit 4.2 to the Company's Registration Statement on Form S-8, Registration Number 333-45153, which is incorporated herein by reference. (jj)Summary of 1998 Fiscal Year Bonus Opportunity for Chief Executive Officer. (kk)Summary of Retention Bonus for Chief Executive Officer. (ll)Form of Amendment dated November 5, 1997 to various Indemnity Agreements between the Company and its officers and directors. (mm)Form of Amendment dated November 5, 1997 to various Employment Agreements between the Company and its full-time officers. 11. Computation of basic and diluted earnings per share. 15 EX-10 2 SUMMARY OF 1998 FISCAL YR BONUS OPPORTUNITY EXHIBIT 10 (jj) Summary of Fiscal Year 1998 Cash Bonus Opportunity for the President and Chief Executive Officer The Company provided Ronald L. Skates, President and Chief Executive Officer of the Company, a bonus opportunity by which Mr. Skates would be entitled to earn a cash bonus for the 1998 fiscal year based on the Company's performance as measured against specified goals relating to earnings-per-share (with a maximum of 300% of base salary), or, if greater, a cash bonus equal to 1.5% of the increase in the Company's market capitalization during the fiscal year, based on the 30-day average price of the Company's Common Stock as of the end of the 1998 fiscal year compared against the 30-day average price of the Company's Common Stock as of the end of the 1997 fiscal year (subject to a maximum of $3.5 million, except in the event of a change of control). The Board also reserved the right to adjust this bonus in the event of extraordinary transactions and to award other bonuses. EX-10 3 SUMMARY OF RETENTION BONUS FOR CEO EXHIBIT 10 (kk) Summary of Fiscal Years 1998 - 2000 Retention Bonus for the President and Chief Executive Officer In September 1997, the Company provided Mr. Skates a restricted $7,000,000 bonus as an incentive to remain in the employment of the Company as its Chief Executive Officer for an additional three years. This bonus will become earned and vested and its restrictions will lapse over the three-year period commencing on September 28, 1997 and ending September 30, 2000. The bonus will become fully vested and free of restrictions upon a change in control of the Company, or upon termination of Mr. Skates's employment by the Company. If Mr. Skates terminates his employment with the Company voluntarily prior to October 1, 2000, he will be obligated to repay the Company on the day of such termination any unvested amounts paid to him under this bonus. EX-10 4 AMENDMENT TO INDEMNITY AGREEMENT EXHIBIT 10 (ll) AMENDMENT TO INDEMNITY AGREEMENT (Dated as of November 5, 1997) This Amendment to Indemnity Agreement is dated as of November 5, 1997 and entered into between Data General Corporation (the "Company") and _____________________________ (the "Indemnitee"). Reference is made to that Indemnity Agreement dated ______________________ between the Indemnitee and the Company (the "Agreement"). Whereas the parties, for good and sufficient consideration, the receipt and sufficiency of which is hereby confirmed, wish to amend the Agreement; Now, therefore, the parties agree that the first sentence of Section 7 of the Agreement shall be, and is hereby amended, to read as follows: "Upon written request by Indemnitee for indemnification pursuant to Section 3 or 4 hereof, the entitlement of the Indemnitee to indemnification pursuant to the terms of this Agreement shall be determined by the following person or persons who shall be empowered to make such determination: (a) the Board of Directors of the Company by a majority vote of Disinterested Directors (as hereinafter defined), even though less than a quorum; (b) a committee of Disinterested Directors designated by majority vote of Disinterested Directors, even though less than a quorum; or (c) if there are no Disinterested Directors, or if such Disinterested Directors so direct, by Independent Counsel (as hereinafter defined) in a written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee." Except as hereby amended, the Agreement is hereby ratified and confirmed. IN WITNESS WHEREOF, the parties have executed this Amendment effective as of November 5, 1997. DATA GENERAL CORPORATION By: ________________________ ________________________ Arthur W. DeMelle ________________________ Senior Vice President and Chief Financial Officer EX-10 5 AMENDMENT TO EMPLOYMENT AGREEMENT EXHIBIT 10 (mm) AMENDMENT TO EMPLOYMENT AGREEMENT (Dated as of November 5, 1997) This Amendment to Employment Agreement is dated as of November 5, 1997 and entered into between Data General Corporation (the "Company") and ______________________ (the "Executive"). Reference is made to that Employment Agreement dated ______________________ between the Executive and the Company (the "Employment Agreement"). Whereas the parties, for good and sufficient consideration, the receipt and sufficiency of which is hereby confirmed, wish to amend the Employment Agreement to clarify the meaning of certain terms used therein; Now, therefore, the parties agree as follows: 1. Subsection 4(b) (ii) of the Employment Agreement is hereby amended by so that it reads in its entirety as follows: (ii) Annual Bonus. In addition to Annual Base Salary, the Executive shall be awarded, for each fiscal year beginning or ending during the Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal to the greater of (x) the highest Annual Bonus (annualized for any fiscal year consisting of less than twelve full months or with respect to which the Executive has been employed by the Company for less than twelve full months) paid or payable to the Executive by the Company and its affiliated companies in respect of the three fiscal years immediately preceding the fiscal year in which the Effective Date occurs (the "Recent Annual Bonus"), or (y) 30% of the Executive's Annual Base Salary. Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. The term "Annual Bonus" as used in this Subsection 4(b) and in Subsection 6(d) shall include all amounts paid as a bonus to the Executive with regard to the applicable fiscal year. 2. The first sentence of Subsection 6(a)(ii)(x)(B) of the Employment Agreement (beginning, "If the Executive's employment ...") is hereby amended so that such sentence reads as follows: If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than the following obligations: (i) payment of the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (ii) payment of the product of (x) the greater of (A) the Annual Bonus paid or payable but for any deferral (and annualized for any fiscal year consisting of less than twelve full months or for which the Executive has been employed for less than twelve full months) to the Executive for the most recently completed fiscal year during the Employment Period, if any, and (B) the highest Annual Bonus (annualized for any fiscal year consisting of less than twelve full months or with respect to which the Executive has been employed by the Company for less than twelve full months) paid or payable to the Executive by the Company and its affiliated companies in respect of the three fiscal years immediately preceding the fiscal year in which the Effective Date occurs (such greater amount hereafter referred to as the "Highest Annual Bonus") and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (iii) payment of any compensation previously deferred by the Executive (together with any accrued interest thereon) and not yet paid by the Company and any accrued vacation pay not yet paid by the Company (the amounts described in paragraphs (i), (ii) and (iii) are hereafter referred to as "Accrued Obligations"). Except as hereby amended, the Employment Agreement is hereby ratified and confirmed. IN WITNESS WHEREOF, the parties have executed this Amendment effective as of November 5, 1997. DATA GENERAL CORPORATION By: ________________________ ________________________ Arthur W. DeMelle ________________________ Senior Vice President and Chief Financial Officer EX-11 6 COMPUTATION OF BASIC AND DILUTED EPS EXHIBIT 11 DATA GENERAL CORPORATION COMPUTATION OF BASIC AND DILUTED EARNINGS PER SHARE (Unaudited) (In thousands except per share amounts)
Quarter Ended --------------------- Dec. 27, Dec. 28, 1997 1996 ------- ------- Basic earnings per share: Net income ......................................... $ 3,498 $10,415 ======= ======= Weighted average shares outstanding ................ 48,640 39,694 ======= ======= Net income per share ............................... $ .07 $ .26 ======= ======= Earnings per share assuming dilution: (a) Net income ......................................... $ 3,498 $10,415 ======= ======= Weighted average shares outstanding ................ 48,640 39,694 Incremental shares from use of treasury stock method for stock options ................... 2,036 2,393 ------- ------- Common and common equivalent shares, assuming full dilution, where applicable ......... 50,676 42,087 ======= ======= Net income per share ............................... $ .07 $ .25 ======= ======= - -------------------------------------------------------------------------------- (a) For the quarters ended December 27, 1997 and December 28, 1996, the assumed conversion of convertible debentures, giving effect to the incremental shares and the adjustment to reduce interest expense, is anti-dilutive and has therefore been excluded from the computation.
16 EX-27 7 ART.5 FDS FOR 1ST QUARTER 1998 10-Q
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE Q1 FY98 CONDENSED CONSOLIDATED BALANCE SHEET AND CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS SEP-26-1998 DEC-27-1997 141,347 156,624 303,826 0 186,131 820,624 674,707 486,596 1,112,182 365,717 212,750 0 0 609,194 (84,554) 1,112,182 267,177 365,275 189,171 249,347 111,819 0 3,620 3,998 500 3,498 0 0 0 3,498 0.07 0.07
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