-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, sY2LFyUeIriNNqG9swfzidoZvZ0YYjKqD/zlEFyj6qe4rvQc2DIqzi/OGROe7Rkl laCnSKyFsVECkUgJqWrgkg== 0000026999-94-000009.txt : 19940614 0000026999-94-000009.hdr.sgml : 19940614 ACCESSION NUMBER: 0000026999-94-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940326 FILED AS OF DATE: 19940506 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DATA GENERAL CORP CENTRAL INDEX KEY: 0000026999 STANDARD INDUSTRIAL CLASSIFICATION: 3570 IRS NUMBER: 042436397 STATE OF INCORPORATION: DE FISCAL YEAR END: 0925 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07352 FILM NUMBER: 94526519 BUSINESS ADDRESS: STREET 1: 4400 COMPUTER DR CITY: WESTBORO STATE: MA ZIP: 01580 BUSINESS PHONE: 5088985000 10-Q 1 Q2 FY94 10Q 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 March 26, 1994 OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission File Number 1-7352 Data General Corporation (Exact name of registrant as specified in its charter) Delaware 04-2436397 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 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 shor- ter 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 April 22, 1994: Common Stock, par value $.01 35,891,125 (Title of each class) (Number of shares) PART I -- FINANCIAL INFORMATION Item 1. Financial Statements. The condensed consolidated financial statements of Data General Corporation (the "company"), consisting of condensed consolidated statements of operations for the three and six months ended March 26, 1994 and March 27, 1993, condensed consolidated balance sheets as of March 26, 1994 and September 25, 1993, condensed consolidated statements of cash flows for the six months ended March 26, 1994 and March 27, 1993, and related notes to condensed consolidated financial statements, are incorporated herein by reference to pages 3 through 6 of the company's Second Quarter 1994 Interim Report. The Second Quarter 1994 Interim Report has been included as Exhibit 20 to copies of this Report filed with the Securities and Exchange Commission. Copies of the Interim Report may be obtained by written request to the company, Attn: Investor Relations, MS A-235, 4400 Computer Drive, Westboro, MA 01580. During the first quarter of fiscal 1994, the company adopted Statement of Financial Accounting Standards ("SFAS") 109, "Accounting for Income Taxes". See Item 1. "Financial Statements" to the company's Form 10-Q for the quarter ended December 25, 1993. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Financial Condition Cash and temporary cash investments as of March 26, 1994 were $128.8 million, an increase of $9.2 million from the end of fiscal 1993. In addition, the company holds $61.4 million in marketable securities, a net decrease of $11.0 million during the current six-month period. These securities, which supplemented cash and temporary cash investments, are primarily invested in United States Treasury bills and notes. Net cash provided from operations for the six months ended March 26, 1994 totaled $48.7 million, expenditures for property, plant, and equipment were $47.7 million, capitalized software development costs totaled $9.0 million, and cash provided from stock plans totaled $3.6 million. Net proceeds from the sale of an investment totaled $5.8 million and the company also made a $2.0 million investment in an unaffiliated entity during the current six-month period. The company repaid $1.2 million of long-term debt in the current six-month period. The effect of foreign currency rate fluctuations on cash and temporary cash investments was immaterial. Net receivables decreased $15.6 million from fiscal year-end 1993, primarily as a result of more focused collection efforts in the European marketplace. Total inventories at March 26, 1994 increased $8.2 million from year-end 1993 levels, primarily due to increased inventory procurement. Accounts payable increased $23.5 million from fiscal year-end 1993, primarily due to the timing of quarter-end inventory procurements and an increase in overall inventory levels. Fixed asset dispositions for the first six-month period totaled $8.5 million, primarily as a result of sales of demonstration equipment to end-users and approximately a $4.0 million writedown of net book value of fixed assets to their realizable value associated with consolidating certain activities in the European marketplace. The writedown as a result of the consolidation activities is included in the fiscal 1994 restructuring charge. Management expects that sales of demonstration equipment will continue in the future. Other current liabilities increased $24.9 million from fiscal year-end 1993 due primarily to the $35 million restructure charge taken in the current quarter offset by payments made relating to previously recorded restructuring accruals. Other liabilities increased $4.1 million from fiscal year-end 1993, primarily as a result of normal accruals recorded for the company's pension plans. Effective December 30, 1993, the company replaced the $70 million revolving credit facility with an unsecured $40 million revolving credit facility and an unsecured $30 million letter of credit facility with the same group of banks as the original credit facility. The revolving credit facility has a duration of one year; the letter of credit facility has a duration of 364 days and provides for automatic renewal on a daily basis. The facilities include 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 each facility is 1.5% per annum above the London Interbank Offered Rate (LIBOR). Commitment fees paid on available funds are not material and there were $12.4 million of letters of credit secured by the letter of credit facility at March 26, 1994. There were no borrowings under the revolving credit facility as of March 26, 1994. Results of Operations Total revenues for the quarter ended March 26, 1994 increased 6% from the same quarter of the previous year. Domestic revenues, excluding U.S. direct export sales, were $161.0 million for the cur- rent quarter, a 15% increase from $140.4 million for the comparable period of fiscal 1993. Domestic revenues were 57% of total revenues in the current quarter, compared with 53% of total revenues for the second quarter of fiscal 1993. International revenues are now being presented in two geographic segments, a change from previous filings. The European segment is comprised solely of revenues from the European marketplace. All other international revenues, including U.S. direct export sales, will be referred to as "other international". European revenues were $77.1 million for the current quarter, an 8% decrease from $83.4 million for the comparable period in fiscal 1993. European revenues represented 27% of total revenues in the current quarter and 31% of total revenues in the prior-year period. Other international revenues were $44.8 million for the current quarter, a 3% increase from $43.7 million for the comparable period in fiscal 1993. Other international revenues represented 16% of total revenues in both the current quarter and prior-year period. The increase in total revenues for the current quarter was primarily due to the increase in demand for the company's AViiON products and CLARiiON products sold for use with other vendor's hardware (Open CLARiiON), along with an increase in demand for personal computers and related equipment. The increase in these product sales more than offset the continuing decrease in sales of proprietary MV products and a decrease resulting from the strengthening of the U.S. dollar in relation to foreign currencies. Domestic revenues of $309.1 million for the six months ended March 26, 1994 increased 7% from $287.9 million for the first six-month period of fiscal 1993. Domestic revenues were 57% of total revenues in the current six-month period and 53% of the total revenues for the comparable prior-year period. European revenues were $145.4 million for the first six-month period of the current year, compared with $175.0 million for the first six-month period of fiscal 1993. European revenues represented 27% of total revenues in the current six-month period and 32% of total revenues in the prior-year period. Other international revenues were $89.7 million for the current six-month period, compared with $84.2 million for the comparable period in fiscal 1993. Other international revenues represented 16% of total revenues in the current six-month period and 15% of total revenues in the prior-year period. Product revenues for the current quarter increased 10% from the comparable prior-year period. Revenues from the company's AViiON family of open systems products grew 25% during the current quarter when compared with the second quarter of fiscal 1993. The company's new line of Open CLARiiON mass storage systems produced significant revenue growth compared to the second quarter of fiscal 1993 and comprised 7% of total product revenues in the current quarter. The company is making a consorted effort to expand distribution channels for these products. Proprietary MV system revenues declined 48% from the same period in the prior year. Revenues from personal computers and other low margin equipment increased 27% over the same quarter of the prior year. It is anticipated that revenues from the MV proprietary product line will contribute a less significant percentage of the company's overall revenues in future quarters. Domestic product revenues, which were $103.5 million for the current quarter, increased 24% from $83.6 million for the comparable period in fiscal 1993. Domestic product revenues were 56% of total product revenues in the current quarter and 50% of total product revenues in the comparable prior-year period. The increase in domestic product revenues was due to the increase in demand for the company's newest generation of AViiON products and increases in both personal computer and Open CLARiiON equipment sales. European product revenues were $47.3 million for the current quarter, an 8% decrease from $51.4 million for the comparable period in fiscal 1993. European product revenues represented 26% of total product revenues in the current quarter and 31% in the comparable prior-year period. Other international product revenues were $33.5 million for the current quarter, a 3% increase from $32.4 million for the comparable period in fiscal 1993. Other international product revenues represented 18% of total product revenues in the current quarter and 19% in the comparable prior-year period. For the current six-month period, domestic product revenues were $195.2 million compared with $174.8 for the comparable six-month period of fiscal 1993. Domestic product revenues were 56% of total product revenues in the current six-month period and 51% of total product revenues in the comparable prior-year period. European product revenues were $85.6 million for the current six-month period compared with $106.7 million for the first six-month period of fiscal 1993. European product revenues were 25% of total product revenues in the current six-month period and 31% of total product revenues in the comparable prior-year period. Other international product revenues were $67.3 million for the current six-month period compared with $61.5 million for the first six-month period of fiscal 1993. Other international product revenues were 19% of total product revenues in the current six-month period and 18% of total product revenues in the comparable prior-year period. The decrease in European product revenues was primarily due to generally weak economic conditions, the impact of transitioning from the company's traditional proprietary product line to open systems technology, and the strengthening of the U.S. dollar in relation to foreign currencies. Service revenues for the current quarter decreased 2% from the comparable period of fiscal 1993. Domestic service revenues for the current quarter were $57.5 million, a slight increase from $56.8 million for the second quarter of fiscal 1993. European service revenues for the current quarter were $29.9 million, a 7% decrease from $32.1 million for the prior-year period. Other international service revenues for the current quarter and prior-year period were $11.3 million. For the current six-month period, domestic service revenues were $113.9 million, relatively unchanged from the $113.1 million in the first six-month period of fiscal 1993. European service revenues for the current six-month period were $59.8 million, a 12% decrease from $68.3 million reported for the first six-month period of fiscal 1993. Other international service revenues were $22.5 million for the current six-month period, relatively unchanged from the $22.7 million reported for the first six-month period of fiscal 1993. The decrease in European service revenues resulted primarily from the strengthening of the U.S. dollar in relation to European currencies in the current six-month period when compared to the same prior-year period. A decrease in hardware maintenance service revenues, which is the direct result of lower prices on service contracts for AViiON systems, has been partially offset by increased revenues from systems integration and consulting activities. Cost of product revenues were 67% of product revenues for both the current quarter and current six month period ended March 26, 1994, compared with 61% and 60%, respectively, for the same periods of the prior year. Competitive pricing pressures worldwide and the continued transition to the lower margin AViiON family of open systems and Open CLARiiON family of mass storage systems more than offset the benefits resulting from the company's continuing cost reduction and restructuring programs. Cost of service revenues for the current quarter and first six-month period represented 64% and 62% of service revenues, respectively, compared with 58% of service revenues for the same periods of fiscal 1993. The increase in cost of service revenues as a percentage of total service revenues was primarily a result of the increase in revenues from systems integration activities which yield a lower margin than traditional service contract revenues. Research and development expenses for the current quarter de- creased 12% from the second quarter of fiscal 1993 to $22.7 million, and represented 8% of total revenues in the current quarter. For the current six-month period, research and development expenses were 9% of total revenue, decreasing 11% to $46.2 million from the comparable prior-year period. The decrease results primarily from the company continuing to focus its research and development efforts on its core business technology, multi-user computer systems, servers, and mass storage devices. In addition, a change in product mix to open systems architecture has increased the use of industry-standard components purchased from third parties, which has somewhat reduced the requirement for research and development in hardware. The company is also dedicating a higher proportion of its resources to software development. Selling, general, and administrative expenses for the current quarter and the first six-month period remained relatively flat when compared to the prior-year periods, and represented 31% and 32%, respectively, of total revenues in the current quarter and six-month period and 32% of total revenues for the comparable prior-year periods. While the company has made significant progress towards becoming a supplier of open systems products and services, the company continues to have a cost structure that is out of line with an open systems business model. As a result, the company has identified additional cost reduction steps which include the continuing realignment of the company's worldwide sales and service organizations. Therefore, income from operations for the current quarter includes a $35 million charge for estimated costs associated with the worldwide workforce reduction and approximately a $4.0 million writedown of net book value of fixed assets associated with consolidating certain activities in the European marketplace. The provision relating to the workforce reduction is primarily for salary and benefit continuation and outplacement service. At March 26, 1994 the number of employees totaled 6,245, a reduction of 590 employees from March 27, 1993. The company expects that by the end of fiscal 1994, the number of employees will be between 5,500 and 5,700. There have been no material changes in the company's previously announced restructuring actions or the estimates accrued at September 25, 1993. Interest income for the current quarter and the first six-month period decreased 38% and 36%, respectively, from the comparable periods of fiscal 1993, primarily due to lower average levels of invested cash and reduced interest rates on invested funds. Interest expense for the current quarter and the first six-month period decreased 2% and 5%, respectively, from the comparable periods of fiscal 1993 primarily due to the retirement of two separate industrial revenue bonds. Other income of $2.4 million resulted from the sale of an investment held by the company in an unaffiliated entity. The income tax provision for the current quarter and first six-month period was $0.5 million and $1.1 million respectively, compared with $1.4 million and $3.2 million for the same prior-year periods. The provisions resulted primarily from foreign and state taxes. In November 1992, the Financial Accounting Standards Board ("FASB") issued SFAS 112, "Employers' Accounting for Post-Employment Benefits". In May 1993, the FASB issued SFAS 114 and 115, "Accounting by Creditors for Impairment of a Loan" and "Accounting for Certain Investments in Debt and Equity Securities", respectively. SFAS 112 and SFAS 115 are effective for fiscal years beginning after December 15, 1993. SFAS 114 is effective for fiscal years commencing after December 15, 1994. The company will implement these statements as required. The future adoption of SFAS 112, SFAS 114 and SFAS 115 are not expected to have a material effect on the company's consolidated financial position or results of operations. The revenue improvement during the current quarter reinforces management's belief in the company's product and marketing strategy. Management expects revenues from the MV proprietary product line to contribute a less significant percentage of the company's overall revenues in future quarters. In light of the significant change in industry trends from proprietary to open systems technology, the company remains very cautious for the remainder of fiscal 1994. PART II -- OTHER INFORMATION Item 1. Legal Proceedings In a previously reported action, in the U.S. District Court for the District of Massachusetts, a jury, on January 28, 1993, awarded the company $52.3 million in damages and related interest from Grumman Systems Support Corporation ("Grumman") for infringing the company's copyrights and misappropriating trade secrets relating to the company's proprietary MV/ADEX diagnostic software. The award includes approximately $15.9 million in pre-judgment interest. On May 13, 1993, Grumman's motion for judgment notwithstanding the verdict and/or for a new trial was rejected. Grumman has appealed and on December 8, 1993, the appeal was argued to the United States First Circuit Court of Appeals. The appeal remains undecided. The company will not recognize the award in its financial statements until it is received or assured. The company has deferred legal costs incurred subsequent to the jury verdict in order to match these costs with the award when recognized. Item 4. Submission of Matters to a Vote of Security-Holders (a) The Annual Meeting of Stockholders of Data General Corporation was held January 26, 1994. (b) During the meeting, stockholders elected the following as directors of Data General: Frederick R. Adler Ferdinand Colloredo-Mansfeld John G. McElwee Ronald L. Skates Donald H. Trautlein The directors were elected by the following voting breakdowns: Director Votes For Votes Withheld Adler 28,641,442 478,987 Colloredo-Mansfeld 28,656,887 463,542 McElwee 28,638,678 481,751 Skates 28,654,661 465,768 Trautlein 28,641,721 478,708 (c) By 26,992,438 affirmative votes, with 5,476,423 voted for by proxies of unmarked proxy cards, (1,398,271 against and 729,720 abstained), the stockholders approved a proposal to increase the number of shares of common stock that may be issued through the Employee Qualified Stock Purchase Plan to 8,600,000 shares from 6,600,000 shares. (d) By 25,064,119 affirmative votes, with 5,476,423 voted for by proxies of unmarked proxy cards, (3,200,898 against and 855,412 abstained), the stockholders approved a proposal to adopt the 1994 Non-Employee Director Stock Option Plan which grants the option to purchase shares of Common Stock of the company to each non-employee director. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits: 11. Computation of primary and fully diluted earnings per share. 20. Second Quarter 1994 Interim Report of Data General Corpora- tion. (b) No reports on Form 8-K were filed during the current quarter ended March 26, 1994. 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 Vice President Chief Financial Officer Chief Accounting Officer Dated: May 4, 1994 EXHIBITS Index to Exhibits. 11. Computation of primary and fully diluted earnings per share. 20. Second Quarter 1994 Interim Report of Data General Corporation. EX-11 2 Q2 FY94 EARNINGS PER SHARE EXHIBIT 11 DATA GENERAL CORPORATION COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE (Unaudited) (In thousands except per share amounts) Quarter Ended Six Months Ended March 26, March 27, March 26, March 27, 1994 1993 1994 1993 Primary earnings per share: Net loss. . . . . . . . . . . . $(47,989) $(7,581) $(69,080) $(6,822) Weighted average shares outstanding . . . . . . . . . 35,649 34,302 35,491 34,028 Incremental shares from use of treasury stock method for stock options . . . . . . . . . . . -- -- -- 817 Common and common equivalent shares, where applicable. . . 35,649 34,302 35,491 34,845 Net loss per share. . . . . . . $(1.35) $(0.22) $(1.95) $(0.20) Earnings per share assuming full dilution:(a) Net loss . . . . . . . . . . . $(47,989) $(7,581) $(69,080) $(6,822) Weighted average shares outstanding . . . . . . . . . 35,649 34,302 35,491 34,028 Incremental shares from use of treasury stock method for stock options . . . . . . . . . . . -- -- -- 817 Common and common equivalent shares assuming full dilution 35,649 34,302 35,491 34,845 Net loss per share. . . . . . . $(1.35) $(0.22) $(1.95) $(0.20) (a) For the quarters and six-month periods ended March 26, 1994 and March 27, 1993, the assumed conversion of convertible debentures, giving effect to the incremental shares and the adjustment to reduce interest expense, was anti- dilutive and has therefore been excluded from the computation. EX-20 3 Q2 FY94 INTERIM TO OUR STOCKHOLDERS, CUSTOMERS AND EMPLOYEES: CUSTOMERS AND EMPLOYEES: Data General reported a net loss of $48.0 million, or $1.35 per share, including a restructuring charge of $35.0 million, for its second quarter of fiscal 1994, which ended March 26, 1994. For the second quarter last year, the company reported a net loss of $7.6 million, or $.22 per share. Revenues for the second quarter were $282.9 million, an increase of 8.0 percent over the first fiscal quarter. For the comparable quarter last year the company reported revenues of $267.4 million. We are encouraged that our total revenues increased year over year as well as compared to the prior quarter. Our AViiON(R) product line provided strong revenue growth. Additionally, in Europe, while certain geographies continue to be under severe economic and competitive pressure, total revenues recovered somewhat from the disappointing levels of the first quarter. We are also now starting to see a solid and growing revenue contribution from our CLARiiON(TM) storage line. Revenues from sales of our proprietary systems represented just 14 percent of our total product revenues during the quarter. During the same quarter a year ago, revenues from the sales of proprietary systems were 29 percent of total product revenues. While we have made significant progress toward becoming a supplier of open systems products and services, we continue to have a cost structure that is out of line with an open systems business model. We have, therefore, identified additional cost reduction steps which include further worldwide workforce reductions. Assuming we can continue to grow revenues, the cost actions we have initiated will help us achieve our objective of returning to profitability. We expect that by the end of the fiscal 1994 the number of employees will be between 5,500 and 5,700. At the beginning of fiscal 1994, the number was 6,550. We continue to focus on balance sheet management. Data General's financial position remains strong with cash and marketable securities of $190.2 million at the end of the second quarter, an increase of $22.2 million from the first quarter. We are pleased with the recognition and acceptance that our AViiON family continues to receive. AViiON received another honor recently when the product line was rated number one in customer satisfaction for the second consecutive year in a survey of RISC-based server users conducted by Computerworld, a leading industry publication. Approximately 75 percent of AViiON revenues during the quarter were produced by the newest generation of systems, particularly our high-end AV 9500 and AV 8500 systems. We expect that percentage will increase this quarter as we begin shipping our most powerful AViiON, the 16-processor AV 9500. In just five years, the company has established an installed base of 25,000 AViiON systems, with a total value of about $1.25 billion. During the quarter, we strengthened the AViiON line with the announcement of a new clustered capability, AV Clusters, that allows 24-hours-per day, 365-days- per year access to data. We call this Global Availability. In addition, our CLARiiON Business Unit announced several new reseller agreements during the quarter, including stategic partnerships with Memorex Telex N.V. and Amdahl Corporation, for CLARiiON storage systems. The Memorex agreement extends CLARiiON's market penetration into the IBM AS/400 customer base while the Amdahl agreement expands CLARiiON's position in the Sun Microsystem SPARCserver marketplace. We also extended the CLARiiON line to support both NT and Netware-based servers. CLARiiON can now support the industry's broadest range of systems, from networked PCs to mainframes. For the first six months of fiscal 1994, Data General reported a net loss of $69.1 million, or $1.95 per share, including the restructuring charge. For the same period last year, the company reported a net loss of $6.8 million, or $.20 per share. Revenues for the first two quarters of 1994 totaled $544.1 million, essentially the same as the comparable period last year. The revenue improvement during the second quarter reinforces our belief in our product and marketing strategy. We are cautious for the short-term, particularly as the third quarter has traditionally been a weak quarter for us. But looking beyond that, our proven ability to grow revenues with world-class products and services for the open system market, together with aggressive management of our cost structure, should result in meeting our objective of returning to profitability. Respectfully submitted, (signature) Ronald L. Skates President and Chief Executive Officer May 2, 1994 DATA GENERAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Quarter Ended Six Months Ended in thousands, except Mar. 26, Mar. 27, Mar. 26, Mar. 27, net loss per share 1994 1993 1994 1993 Revenues: Product . . . . . . . . . . . . $184,335 $167,341 $348,032 $342,990 Service . . . . . . . . . . . . 98,592 100,117 196,122 204,108 Total revenues. . . . . . . . 282,927 267,458 544,154 547,098 Costs and expenses: Cost of product revenues. . . . 122,814 102,238 234,417 205,979 Cost of service revenues. . . . 62,970 58,126 120,526 117,734 Research and development. . . . 22,720 25,941 46,236 51,853 Selling, general, and administrative . . . . . . . . 87,037 85,847 174,060 172,073 Restructure charge. . . . . . . 35,000 -- 35,000 -- Total costs and expenses. . . 330,541 272,152 610,239 547,639 Loss from operations. . . . . . . (47,614) (4,694) (66,085) (541) Interest income . . . . . . . . . 1,317 2,126 2,771 4,298 Interest expense. . . . . . . . . 3,545 3,613 7,019 7,379 Other income. . . . . . . . . . . 2,353 -- 2,353 -- Loss before income taxes. . . . . (47,489) (6,181) (67,980) (3,622) Income tax provision. . . . . . . 500 1,400 1,100 3,200 Net loss. . . . . . . . . . . . . $(47,989) $ (7,581) $(69,080) $ (6,822) Net loss per share. . . . . . . . $(1.35) $(0.22) $(1.95) $(0.20) Weighted average shares outstand- ing, including common stock equivalents where applicable. . 35,649 34,302 35,491 34,845 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. DATA GENERAL CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) Mar. 26, Sept. 25, dollars in thousands 1994 1993 Assets Current assets: Cash and temporary cash investments . . . . . . . . . . $128,781 $119,560 Marketable securities . . . . . . . . . . . . . . . . . 61,385 72,395 Receivables, net. . . . . . . . . . . . . . . . . . . . 269,867 285,481 Inventories . . . . . . . . . . . . . . . . . . . . . . 110,014 101,827 Other current assets. . . . . . . . . . . . . . . . . . 35,320 32,397 Total current assets. . . . . . . . . . . . . . . . . 605,367 611,660 Property, plant, and equipment, net . . . . . . . . . . . 175,859 177,551 Other assets. . . . . . . . . . . . . . . . . . . . . . . 73,482 77,118 $854,708 $866,329 Liabilities and stockholders' equity Current liabilities: Notes payable . . . . . . . . . . . . . . . . . . . . . $ 2,272 $ 2,267 Accounts payable. . . . . . . . . . . . . . . . . . . . 109,042 85,571 Other current liabilities . . . . . . . . . . . . . . . 239,945 215,070 Total current liabilities . . . . . . . . . . . . . . 351,259 302,908 Long-term debt. . . . . . . . . . . . . . . . . . . . . . 158,357 158,352 Other liabilities . . . . . . . . . . . . . . . . . . . . 32,141 27,992 Stockholders' equity: Common stock: Outstanding -- 35,869,000 shares at Mar. 26, 1994 and 35,267,000 shares at Sept. 25, 1993 (net of deferred compensation of $10,634 at Mar. 26, 1994 and $11,619 at Sept. 25, 1993). . . . . . . . . . . . 428,793 422,589 Accumulated deficit . . . . . . . . . . . . . . . . . . (98,310) (29,230) Cumulative translation adjustment . . . . . . . . . . . (17,532) (16,282) Total stockholders' equity. . . . . . . . . . . . . . 312,951 377,077 $854,708 $866,329 The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements. DATA GENERAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended Mar. 26, Mar. 27, in thousands 1994 1993 Cash flows from operating activities: Net loss. . . . . . . . . . . . . . . . . . . . . . . .$(69,080) $ (6,822) Adjustments to reconcile net loss to net cash provided from (used by) operating activities: Depreciation. . . . . . . . . . . . . . . . . . . . . 40,252 41,725 Amortization of capitalized software development costs 8,959 7,892 Other non-cash items, net . . . . . . . . . . . . . . 17,004 17,866 Change in operating assets and liabilities. . . . . . 51,546 (18,951) Net cash provided from operating activities . . . . . 48,681 41,710 Cash flows from investing activities: Expenditures for property, plant, and equipment . . . . (47,714) (51,195) Net proceeds from (purchases of) marketable securities. 11,010 (5,897) Capitalized software development costs. . . . . . . . . (9,000) (10,658) Net proceeds from (purchases of) investments. . . . . . 3,793 -- Net cash used by investing activities . . . . . . . . (41,911) (67,750) Cash flows from financing activities: Cash provided from stock plans. . . . . . . . . . . . . 3,629 5,845 Increase in notes payable . . . . . . . . . . . . . . . -- 47 Repayment of long-term debt . . . . . . . . . . . . . . (1,234) -- Net cash provided from financing activities . . . . . 2,395 5,892 Effect of foreign currency rate fluctuations on cash and temporary cash investments. . . . . . . . . 56 (5,824) Increase (decrease) in cash and temporary cash investments. . . . . . . . . . . . . . . 9,221 (25,972) Cash and temporary cash investments - beginning of period 119,560 139,445 Cash and temporary cash investments - end of period . . .$128,781 $113,473 Supplemental disclosure of cash flow information: Interest paid . . . . . . . . . . . . . . . . . . . . .$ 6,513 $ 6,615 Income taxes paid . . . . . . . . . . . . . . . . . . .$ 1,232 $ 1,501 Certain prior year amounts have been reclassified to conform to current year presentation. The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements. DATA GENERAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1. Consolidated Balance Sheet Details Mar. 26, Sept. 25, in thousands 1994 1993 Inventories: Raw materials . . . . . . . . . . . . . . . . . . . . . $ 8,084 $ 6,665 Work in process . . . . . . . . . . . . . . . . . . . . 31,408 27,778 Finished systems. . . . . . . . . . . . . . . . . . . . 33,995 31,566 Field engineering parts and components. . . . . . . . . 36,527 35,818 $110,014 $101,827 Property, plant, and equipment: Property, plant, and equipment. . . . . . . . . . . . . $674,445 $659,439 Accumulated depreciation. . . . . . . . . . . . . . . . (498,586) (481,888) $175,859 $177,551 Note 2. Restructuring Loss from operations for the current quarter includes a $35 million provision for estimated expenses resulting from costs associated with a worldwide workforce reduction and the writedown of net book value of fixed assets resulting from the consolidation of certain activities in the European marketplace. The provision relating to the workforce reduction is primarily for salary and benefit continuation and outplacement service. Note 3. Income Taxes In the first quarter of fiscal 1994, the company adopted Statement of Financial Accounting Standards ("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. In estimating future tax consequences, SFAS 109 generally considers all expected future events other than enactments of changes in the tax law or rates. Previously, the company used the SFAS 96 asset and liability approach that gave no recognition to future events other than the recovery of assets and settlement of liabilities at their carrying amounts. The implementation of SFAS 109 did not have a material effect on either the company's consolidated financial position or results of operations. The company has a valuation allowance which offsets, in all material respects, gross deferred tax assets existing as of March 26, 1994. Note 4. Litigation In a previously reported action, in the U.S. District Court for the District of Massachusetts, a jury, on January 28, 1993, awarded the company $52.3 million in damages and related interest from Grumman Systems Support Corporation ("Grumman") for infringing the company's copyrights and misappropriating trade secrets relating to the company's proprietary MV/ADEX diagnostic software. The award includes approximately $15.9 million in pre-judgment interest. On May 13, 1993, Grumman's motion for judgment notwithstanding the verdict and/or for a new trial was rejected. Grumman has appealed and on December 8, 1993, argued its case to the United States First Circuit Court of Appeals. The company will not recognize the award in its financial statements until it is received or assured. The company has deferred legal costs incurred subsequent to the jury verdict in order to match these costs with the award when recognized. Note 5. Basis of Presentation In the opinion of management, the accompanying unaudited condensed consol- idated financial statements reflect all adjustments, consisting of normal re- curring 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 1993 Annual Report. The results of operations for the quarter ended March 26, 1994, are not necessarily indicative of the results for the entire fiscal year. -----END PRIVACY-ENHANCED MESSAGE-----