-----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, G3KIA5e6jc/ren67YKG1ZuOxZhzGQDtf25iloAG69Mxrki7OmZ5GPGDlZ/8tb3M0 i3N2Biqm4bjQzh0/7V+q9A== 0000026999-96-000011.txt : 19960812 0000026999-96-000011.hdr.sgml : 19960812 ACCESSION NUMBER: 0000026999-96-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960629 FILED AS OF DATE: 19960809 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: 1934 Act SEC FILE NUMBER: 001-07352 FILM NUMBER: 96607047 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 Q3 FY96 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 June 29, 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 incorporation or organization) Number) 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 July 26, 1996: Common Stock, par value $.01 39,194,836 ---------------------------- ----------------- (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 nine months ended June 29, 1996 and July 1, 1995, condensed consolidated balance sheets as of June 29, 1996 and September 30, 1995, condensed consolidated statements of cash flows for the nine months ended June 29, 1996 and July 1, 1995, and the related notes to condensed consolidated financial statements, are incorporated herein by reference to pages 3 through 6 of the company's Third Quarter 1996 Interim Report. The Third Quarter 1996 Interim Report has been included as Exhibit 19 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 9S, 3400 Computer Drive, Westboro, MA 01580 or through the company's world wide web site at: http://www.dg.com. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Financial Condition Cash and temporary cash investments as of June 29, 1996 were $137.1 million, an increase of $19.9 million from the end of fiscal 1995. In addition, the company holds $34.9 million in marketable securities, a net decrease of $36.7 million during the current nine-month period primarily due to converting certain securities to cash and temporary cash investments. In total, cash, temporary cash investments and marketable securities decreased $16.8 million for the current nine-month period. The securities held, which supplement cash and temporary cash investments, include United States treasury bills and notes, as well as an equity security of $18.1 million recorded at fair market value and classified as available for sale. The unrealized gain on marketable securities of $16.8 million is recorded as a separate component of shareholders' equity. Net cash provided from operations for the nine months ended June 29, 1996 totaled $47.8 million; expenditures for property, plant, and equipment were $74.3 million; capitalized software development costs totaled $22.6 million; and cash provided from stock plans totaled $6.4 million. The effect of foreign currency exchange rate fluctuations on cash and temporary cash investments was a decrease of $1.5 million. Net receivables were $259.1 million, an increase of $8.0 million from $251.1 million at fiscal year-end 1995 due primarily to increased revenues. Total inventories at June 29, 1996 were $127.7 million, an increase of $3.5 million from fiscal year-end 1995 levels primarily due to an increase in end-of-quarter inventory procurements. Fixed asset dispositions for the current nine-month period totaled $11.4 million, primarily due to the sale of demonstration equipment. Management expects that sales of demonstration equipment will continue. Less than 15% of the company's total net fixed assets relate to the company's proprietary ECLIPSE MV ("MV") family of products; these assets are primarily comprised of spare parts required to support the MV service base of over 19,000 installed units worldwide as well as those MVs which are serviced by third parties. The decrease of $16.8 million in accounts payable from fiscal year-end 1995 levels was attributed mainly to the timing of payments. Other current liabilities decreased $17.6 million from fiscal year-end 1995. This decrease was primarily a result of reduced employee related accruals and the payments made relating to the previously recorded restructuring accruals. Long-term debt, including the current portion of long-term debt, decreased a total of $3.0 million from fiscal 1995 year-end as a result of the company reacquiring a portion of its 8 3/8% Sinking Fund Debentures due in 2002. During fiscal years 1995 and 1994, the company recorded restructuring charges of $43 million and $35 million, respectively. No additional charges or material changes in estimates to prior provisions were recorded during the first nine-month period of fiscal 1996. The following table sets forth the company's restructuring activities for the nine-month period ended June 29, 1996. All charges, excluding asset writedowns and certain other charges, are cash in nature and funded from operations. NINE MONTHS ENDED SEPT. 30, 1995 JUNE 29, 1996 JUNE 29, 1996 (in millions) BALANCE CHARGES BALANCE - ---------------------------------------------------------------------------- Provisions related terminated employees $13.9 $(10.0) $ 3.9 Provisions for leases 17.4 (6.7) 10.7 Writedown of assets to be sold or discarded and other 5.6 (4.3) 1.3 Total ---- ------- ----- $36.9 $(21.0) $15.9 ===== ====== ===== During the first nine months of the current year the company substantially completed the employee terminations related to the 1995 restructuring charges. The remaining reserves at June 29, 1996 are for the remaining severance payments due to employees impacted by the restructuring actions. The charges and remaining provisions for leases are for the closure of various domestic branch sales offices and excess vacant rental properties, primarily located in Europe. Results of Operations Total revenues for the quarter ended June 29, 1996 increased 15% to $323.2 million from the same quarter of the previous year. Domestic revenues, excluding U.S. direct export sales, were $197.8 million for the current quarter, a 27% increase from $156.3 million for the comparable period of fiscal 1995. Domestic revenues represented 61% of total revenues for the current quarter and 56% of total revenues for the third quarter of fiscal 1995. European revenues, including U.S. direct export sales into the European marketplace, were $78.3 million, a slight decrease from $79.2 million for the comparable period in fiscal 1995. European revenues represented 24% and 28% of total revenues in the current and prior-year periods, respectively. Other international revenues, including U.S. direct export sales, were $47.1 million for the current quarter, a 5% increase from $45 million for the comparable period in fiscal 1995. Other international revenues represented 15% of total revenues for the current quarter and 16% for the comparable prior-year period. Total domestic revenues of $581.4 million for the nine months ended June 29, 1996 increased 28% from $455.2 million for the first nine-month period of fiscal 1995. Domestic revenues were 59% of total revenues for the current nine-month period and 54% of total revenues for the comparable prior-year period. European revenues, including U.S. direct export sales into the European marketplace, were $270.9 million, an increase of 7% from $254.2 million for the comparable period in fiscal 1995. This increase is primarily a result of increased U.S. direct export sales. European revenues represented 27% and 30% of total revenues in the current nine-month and prior-year periods, respectively. Other international revenues, including U.S. direct export sales, were $133.7 million for the current nine-month period, a 2% decrease from $137.1 million for the comparable prior-year period. Other international revenues represented 14% and 16% of total revenues for the current nine-month period and the comparable prior-year period, respectively. Product revenues of $224.1 million for the current quarter ended June 29, 1996 increased 25% from the comparable prior-year period. Revenues of $112.2 million from the company's AViiON family of open systems server products increased 22% from the comparable period of the prior year. In the current quarter, the company experienced continued revenue growth of 54% in its Intel-based AViiON systems while experiencing a decline of 20% in the Motorola-based AViiON systems revenue as compared to the previous quarter. The company expects the Motorola-based AViiON systems revenue will continue to decline. Product revenues from the company's Open CLARiiON storage systems increased 39% from the comparable prior-year period and accounted for 35% of total product revenues in the current quarter. Open CLARiiON product revenues in the third quarter of fiscal year 1996 decreased 19% compared with the second quarter of the current 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 and for the current quarter, a significant portion of the company's Open CLARiiON product revenues were to a single OEM. The company believes the reduction of inventory levels of this customer during the recent quarter impacted Open CLARiiON product revenues. Open CLARiiON product revenues in any quarter may not be indicative of future Open CLARiiON product revenues. Proprietary MV system revenues declined $2.1 million from the same period in the prior-year and currently represent 4% of total product revenues compared to less than 7% for the comparable prior-year period. The company expects to see a continued decline in its proprietary MV product line as it completes its transition to Open systems. Product revenues from personal computers and peripheral equipment increased $3.9 million from the same period in the prior-year and represent 11% of total product revenues in both the current and comparable prior-year periods. Domestic product revenues, which were $140.6 million for the current quarter, increased 42% from $99.1 million for the comparable period in fiscal 1995. Domestic product revenues were 63% of total product revenues for the current quarter and 55% of total product revenues in the comparable prior-year period. The increase in domestic product revenues was primarily a result of increased Open CLARiiON shipments as well as increased shipments of the company's Intel-based AViiON systems. European product revenues were $47.8 million for the current quarter, a 3% increase from $46.4 million in the comparable prior-year period. European product revenues represented 21% of total product revenues for the current quarter and 26% for the comparable prior-year period. Other international product revenues were $35.7 million for the current quarter, an increase of 4% from $34.2 million for the comparable period in fiscal 1995. Other international product revenues represented 16% of total product revenues in the current quarter and 19% of total product revenues in the comparable prior-year period. Product revenues of $688.4 million for the nine months ended June 29, 1996 increased 26% from $544.9 million for the first nine-month period of fiscal 1995. Domestic product revenues of $410.3 million for the first nine-month period of the current year increased 44% from $284.9 million for the first nine-month period of fiscal 1995. Domestic product revenues represented 59% of total product revenues in the current nine-month period and 52% of total product revenues in the prior-year period. European product revenues of $176.4 million for the first nine-month period of the current year increased 13% from $156.5 million for the first nine-month period of fiscal 1995. European product revenues represented 26% of total product revenues in the current nine-month period and 29% of total product revenues in the prior-year period. Other international product revenues were $101.7 million for the current nine-month period, compared with $103.5 million for the comparable period in fiscal 1995. Other international product revenues represented 15% and 19% of total product revenues for the current nine-month and prior-year periods, respectively. Service revenues for the current quarter were $99.1 million, a slight decrease from $100.8 million in the comparable period of fiscal 1995. Domestic service revenues for the current quarter were $57.1 million, relatively unchanged from $57.2 million in the comparable prior-year period. European service revenues were $30.5 million, a 7% decrease from $32.8 million for the comparable prior-year period. Other international service revenues for the current quarter were $11.5 million, a 6% increase from $10.8 million for the comparable prior-year period. Service revenues for the current nine-month period were $297.6 million, compared to $301.6 million for the first nine-month period of fiscal 1995, reflecting a modest decline in service revenues as the mix of installed base service contracts changes from proprietary to open systems. For the current nine-month period, domestic service revenues were $171.0 million, a slight increase from $170.2 million in the first nine-month period of fiscal 1995. European service revenues for the current nine-month period were $94.5 million, a decrease from $97.7 million reported for the first nine-month period of fiscal 1995. Other international service revenues were $32.1 million for the current nine-month period, a decrease from $33.7 million reported for the first nine-month period of fiscal 1995. Cost of revenues decreased to 65% of total revenues for the current quarter compared with 68% for the comparable period in fiscal 1995. For the current nine-month period ended June 29, 1996, cost of revenues increased slightly to 67% compared with 66% for the comparable prior year period. Cost of product revenues decreased to 66% of product revenues for the current quarter and 67% for the current nine-month period, compared with 70% and 68% of product revenues, respectively, for the same periods of the prior year. The decrease in the cost of product revenues was the result of increasing volumes of higher margin Intel-based AViiON systems, manufacturing cost reductions and lower component pricing. The benefits of component price reductions may be temporary as market pressures impact the company's product pricing. Cost of service revenues was 65% of service revenues for both the current quarter and current nine-month period, compared with approximately 64% for the same periods in fiscal 1995. The company continues to see a shift in service revenues towards increased professional service sales, which yield a lower margin than traditional maintenance contract revenues. Research and development expenses for the current quarter were $25.8 million, a 13% increase from $22.8 million for the third quarter of fiscal 1995. Research and development expenses represented 8% of total revenues for both the current quarter and the comparable prior year period. Research and development expenses for the current nine-month period were $71.4 million, a 12% increase from $64.1 million for the same period of the prior-year. 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 nine-month period, gross expenditures on research and development and software development before capitalization, were $94.0 million, an increase of 11% from $84.7 million for the comparable prior-year period. The increase in research and development expenditures is being driven by investment in the next generation of CLARiiON products, the company's Non Uniform Memory Access (NUMA) architecture for high-end servers and products for the internet. Selling, general, and administrative expenses for the current quarter were $76.6 million, a decrease of 9% from $84.3 million for the comparable quarter of fiscal 1995. Selling, general, and administrative expenses represented 24% and 30% of total revenues in the current quarter and in the comparable prior-year period, respectively. Selling, general, and administrative expenses for the current nine-month period were $231.9 million, a decrease of 10% from $257.4 million for the comparable prior-year period. The decrease in expenses was a result of ongoing cost reductions that the company had undertaken to maintain its competitive position. At June 29, 1996 the number of employees totaled 4,875, a reduction of approximately 155 and 305 employees from September 30, 1995 and July 1, 1995, respectively. Interest income for the current quarter was $1.8 million, a 35% decrease from $2.8 million for the comparable period of fiscal 1995, due primarily to lower levels of invested cash. Interest expense for the current quarter was $3.3 million, a slight decrease from $3.4 million for the comparable period of fiscal 1995. The income tax provision for the current quarter was $1.0 million compared to $0.5 million for the comparable prior-year period. The current year provision relates primarily to foreign and state taxes. 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 this Quarterly Report on Form 10-Q for the third fiscal quarter, which ended June 29, 1996. PART II -- OTHER INFORMATION Item 1. Legal Proceedings. The company's patent infringement suit against IBM Corporation, 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 infringed certain of the company's patents. 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. The company believes its claims are valid, but it cannot predict the outcome of either litigation. Item 2. Changes in Securities. On December 6, 1995, the company's Board of Directors extended the term of the company's Stockholders Rights Plan (the "Plan") to October 19, 2001. Also, the Plan was amended to confirm The Bank of New York as the "Rights Agent" under the Plan, replacing Morgan Shareholders Services Trust Company. Subsequently, the company and The Bank of New York executed a "Rights Agreement, dated as of October 3, 1986 and Renewed and Restated as of October 19, 1996" dated June 11, 1996 to record these changes, which was filed on June 27, 1996 as Exhibit 1 to Form 8-A/A. A copy of the Renewed and Restated Rights Agreement, as filed with said Form 8-A/A, is incorporated herein by reference. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits: 4 (b) Rights Agreement, dated as of October 3, 1986 and Renewed and Restated as of October 19, 1996 between the company and The Bank of New York, as Rights Agent, previously filed as Exhibit 1 to the company's Form 8-A/A dated June 11, 1996, which is incorporated herein by reference. 11. Computation of primary and fully diluted earnings per share. 19. Third Quarter 1996 Interim Report of Data General Corporation. (b) No reports on Form 8-K were filed during the current quarter ended June 29, 1996. 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: August 8, 1996 EXHIBITS Index to Exhibits. 11. Computation of primary and fully diluted earnings per share. 19. Third Quarter 1996 Report of Data General Corporation. EX-11 2 Q3 FY96 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 Nine Months Ended ------------------- ----------------- June 29, July 1, June 29, July 1, 1996 1995 1996 1995 ------- ------- ------- ------- Primary earnings per share: Net income (loss) . . . . . . . $ 7,141 $ (61,384) $ 18,184 $ (48,239) ======= ========= ======== ========= Weighted average shares outstanding . . . . . . . . . . 39,045 37,192 38,563 36,883 Incremental shares from use of treasury stock method for stock options. . . . . . . . . . . . 2,469 -- 2,497 554 -------- ---------- -------- --------- Common and common equivalent shares, where applicable . . . 41,514 37,192 41,060 37,437 ====== ====== ====== ====== Net income (loss) per share . $0.17 $(1.65) $0.44 $(1.29) ===== ====== ===== ====== Earnings per share assuming full dilution: (a) Net income (loss) . . . . . . $ 7,141 $ (61,384) $ 18,184 $ (48,239) ======= ========== ======== ========= Weighted average shares outstanding . . . . . . . . . 39,045 37,192 38,563 36,883 Incremental shares from use of treasury stock method for stock options . . . . . . . . . . . 2,501 -- 2,647 578 ------ ------ ------ ------ Common and common equivalent shares assuming full dilution, where applicable . . . . . . . 41,546 37,192 41,210 37,461 ====== ====== ====== ====== Net income (loss) per share . $0.17 $(1.65) $0.44 $(1.29) ===== ====== ===== ====== (a) For the quarters and nine-month periods ended June 29, 1996 and July 1, 1995, 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 quarter ended July 1, 1995, 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-19 3 THIRD QUARTER 1996 INTERIM REPORT OF DATA GENERAL CORPORATION EXHIBIT 19 TO OUR STOCKHOLDERS, CUSTOMERS, AND EMPLOYEES: Data General Corporation reported net income of $7.1 million, or $.17 per share, on revenues of $323.2 million for its third quarter of fiscal 1996, which ended June 29. The third quarter revenues were 15 percent higher than last year's comparable quarter revenues of $280.5 million. For the third quarter of 1995, the company reported a net loss of $61.4 million, or $1.65 per share. The third quarter 1995 results included a restructuring charge of $43.0 million. Product revenues for the quarter increased 25 percent over the third quarter of last year, as both of our major businesses, the AViiON server and CLARiiON storage lines, posted significant increases. We are most encouraged that during the third quarter, which has historically been difficult for us, we achieved profitability for the fourth consecutive quarter. Particularly satisfying was the growth from our Intel based server line, which in the third quarter represented 37 percent of all AViiON revenues. Overall AViiON revenues were up 22 percent over last year's comparable quarter. We believe we are well positioned now that we have begun a new product cycle of enterprise servers based on the Intel Pentium Pro processor. As the result of the increased revenue and a shift in overall product mix, margins improved over the prior year quarter. Earlier this month Data General announced that volume shipment of AViiON systems based on Intel's Standard High Volume (SHV) motherboards has begun. In recent tests, the new servers outperformed RISC-based systems from IBM, Hewlett-Packard and Digital Equipment in the SPECint_rate_95 benchmark and produced the best Transaction Processing Council Benchmark C (TPC-C) performance per CPU to date. With their performance, scalability, and high availability features, our new AV 4900 and 5900 servers are the first true enterprise-level servers to use Intel's Pentium Pro SHV motherboards. The Intel SHV motherboard used in these systems is the basic building block we will use to make powerful high-end, multi-processor AViiON systems based on state-of-the-art NUMA (Non Uniform Memory Access) technology, which we plan to introduce late this year. To further strengthen our position as the industry leader in NUMA technology, Data General established the NUMALiiNE Business Unit in June. The new unit, under Vice President Phil Gerskovich, has been chartered to develop OEM relationships and a worldwide distribution network for our NUMA technology. Several leading international companies, including ICL in the United Kingdom, Dansk Data Elektronik in Denmark, and Daewoo Telecom in Korea have already announced plans to integrate Data General's NUMALiiNE technology into their high-end systems. Revenues for our CLARiiON storage line were 39 percent higher than last year's third quarter. CLARiiON continues to be the industry leader in providing advanced high availability and data integrity storage capabilities for enterprise computing. Later this year we plan to enhance our current line and introduce a family of products based on fibre channel technology. During the third quarter Data General shipped its 25,000th CLARiiON disk array with the milestone system going to Hewlett-Packard. In addition to the NUMALiiNE Business Unit, we also announced during the quarter the formation of the THiiN Line Business Unit, under the direction of Senior Vice President Tom West. The THiiN Line unit will develop and market internet appliances, such as "thin servers", which are designed for fast information access on the internet. Revenues for the first three quarters of 1996 totaled $986 million, an increase of 16 percent over the $846.5 million in revenues reported for the first nine months of fiscal 1995. For the nine-month period, Data General reported net income of $18.2 million, or $.44 per share. For the same period last year Data General reported a net loss of $48.2 million, or $1.29 per share. The 1995 figures included a one-time, pre-tax gain of $44.5 million resulting from the settlement of a software copyright and infringement and trade secret lawsuit against Northrop Grumman Corporation, as well as the $43.0 million restructuring charge. Data General's financial position continues to be strong with cash and marketable securities of $172 million at the end of the third quarter. Data General is well positioned with the technology leadership we have established with our AViiON server and CLARiiON storage lines, 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 August 8, 1996 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 Quarterly Report on Form 10-Q for the third fiscal quarter, which ended June 29, 1996. AViiON and CLARiiON are registered trademarks, and NUMALiiNE and THiiN are trademarks of Data General Corporation. All other brand and product names referenced herein are trademarks or registered trademarks of their respective companies. DATA GENERAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Quarter Ended Nine Months Ended ---------------- ----------------- June 29, July 1, June 29, July 1, in thousands, except net income (loss) per share 1996 1995 1996 1995 - ---------------------------------------------------------------------------- Revenues: Product . . . . . . . . . . . . .$224,083 $179,708 $688,444 $544,931 Service . . . . . . . . . . . . . 99,136 100,786 297,579 301,559 -------- -------- -------- -------- Total revenues. . . . . . . . . . 323,219 280,494 986,023 846,490 -------- -------- -------- -------- Costs and expenses: Cost of product revenues . . . . . 147,232 126,491 463,928 368,222 Cost of service revenues . . . . . 64,036 64,191 193,215 193,160 Research and development . . . . . 25,801 22,807 71,433 64,059 Selling, general, and administrative . . . . . . . . . . 76,563 84,268 231,927 257,356 Restructure charge . . . . . . . . - 43,000 - 43,000 ------- ------- ------- ------- Total costs and expenses. . . . . 313,632 340,757 960,503 925,797 ------- ------- ------- ------- Income (loss) from operations . . . 9,587 (60,263) 25,520 (79,307) Interest income . . . . . . . . . . 1,833 2,811 5,759 7,584 Interest expense. . . . . . . . . . 3,279 3,427 10,095 10,483 Other income, net . . . . . . . . . - - - 41,972 ------- ------- ------ ------ Income (loss) before income taxes. . 8,141 (60,879) 21,184 (40,234) Income tax provisions . . . . . . . 1,000 505 3,000 8,005 ------- ------- ------ ------ Net income (loss) . . . . . . . . . $7,141 $(61,384) $18,184 $(48,239) ======= ======= ====== ====== Net income (loss) per share . . . . $0.17 $(1.65) $0.44 $(1.29) ===== ====== ===== ====== Weighted average shares outstanding, including common stock equivalents, where applicable. . . . . . . . . . 41,514 37,192 41,060 37,437 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) June 29, Sept. 30, dollars in thousands 1996 1995 - ---------------------------------------------------------------------------- Assets Current Assets: Cash and temporary cash investments. . . . . . . . $137,103 $117,201 Marketable securities. . . . . . . . . . . . . . . 34,915 71,617 Receivables, net . . . . . . . . . . . . . . . . . 259,083 251,123 Inventories. . . . . . . . . . . . . . . . . . . . 127,654 124,145 Other current assets . . . . . . . . . . . . . . . 27,410 27,399 -------- -------- Total current assets . . . . . . . . . . . . . . 586,165 591,485 Property, plant, and equipment, net . . . . . . . . 176,814 174,914 Other assets . . . . . . . . . . . . . . . . . . . 68,468 65,619 -------- -------- $831,447 $832,018 ======== ======== Liabilities and stockholders' equity Current liabilities: Notes payable. . . . . . . . . . . . . . . . . . . $ 1,941 $ 2,033 Accounts payable . . . . . . . . . . . . . . . . . 99,512 116,313 Other current liabilities. . . . . . . . . . . . . 234,300 251,880 ------- ------- Total current liabilities. . . . . . . . . . . . 335,753 370,226 ------- ------- Long-term debt . . . . . . . . . . . . . . . . . . . 151,889 153,457 ------- ------- Other liabilities . . . . . . . . . . . . . . . . . 22,188 28,791 ------- ------- Stockholders' equity: Common stock: Outstanding - 39,187,000 shares at Jun. 29, 1996 and 37,933,000 shares at Sept. 30, 1995 (net of deferred compensation of $8,489 at Jun. 29, 1996 and $9,588 at Sept. 30, 1995). . . . . . . . . . 456,168 446,762 Accumulated deficit. . . . . . . . . . . . . . . . (145,442) (163,626) Unrealized gains on marketable securities. . . . . . 16,766 - Cumulative translation adjustment. . . . . . . . . . (5,875) (3,592) ------- ------- Total stockholders' equity. . . . . . . . . . . . 321,617 279,544 ------- ------- $831,447 $832,018 ======== ======== 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) Nine Months Ended ----------------- June 29, July 1, in thousands 1996 1995 - ---------------------------------------------------------------------------- Cash flows from operating activities: Net income (loss) . . . . . . . . . . . . . . . . . . $ 18,184 $(48,239) Adjustments to reconcile net income (loss) to net cash provided from operating activities: Depreciation. . . . . . . . . . . . . . . . . . . . . . 60,141 55,759 Amortization of capitalized software development costs. . . . . . . . . . . . . . . . . . . . . . . . . . 14,647 13,178 Other non-cash items, net. . . . . . . . . . . . . . . . 9,787 16,612 Change in operating assets and liabilities. . . . . . . (54,916) 46,118 ------- ------ Net cash provided from operating activities. . . . . . . 47,843 83,428 ------- ------ Cash flows from investing activities: Expenditures for property, plant, and equipment. . . . . .(74,268) (73,943) Net proceeds from the sales (purchases) of marketable securities. . . . . . . . . . . . . . . . . . 56,460 (44,877) Capitalized software development costs. . . . . . . . . . (22,603) (20,625) Other. . . . . . . . . . . . . . . . . . . . . . . . . . . 10,599 (600) ------ ------ Net cash used by investing activities. . . . . . . . . (29,812) (140,045) ------ ------- Cash flows from financing activities: Cash provided from stock plans. . . . . . . . . . . . . . 6,364 3,955 Repayment of long-term debt.. . . . . . . . . . . . . . . (3,000) (2,700) ----- ----- Net cash provided from financing activities.. . . . . . . 3,364 1,255 ----- ----- Effect of foreign currency rate fluctuations on cash and temporary cash investments. . . . . . . . . . .(1,493) 2,512 ----- ----- Increase (decrease) in cash and temporary cash investments. 19,902 (52,850) Cash and temporary cash investments - beginning of period. 117,201 142,448 ------- ------- Cash and temporary cash investments - end of period. . . $137,103 $ 89,598 ======== ======== Supplemental disclosure of cash flow information: Interest paid. . . . . . . . . . . . . . . . . . . . . $ 11,095 $ 11,355 Income taxes paid. . . . . . . . . . . . . . . . . . . .$ 1,679 $ 1,308 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 June 29, Sept. 30, in thousands 1996 1995 - ----------------------------------------------------------------------------- Inventories: Raw materials. . . . . . . . . . . . . . . . . $ 6,740 $ 9,173 Work in process. . . . . . . . . . . . . . . . . .47,761 28,309 Finished systems. . . . . . . . . . . . . . . . . 40,618 51,199 Field engineering parts and components. . . . . . . . . . . . . . . . . 32,535 35,464 -------- -------- $127,654 $124,145 ======== ======== Property, plant, and equipment: Property, plant, and equipment. . . . . . . . . . . . . . . . . . $654,234 $635,000 Accumulated depreciation. . . . . . . . . . . . . . . . . (477,420) (460,086) -------- -------- $176,814 $174,914 ======== ======== Note 2. Accounting Policies In March 1996, a certain 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 Statement of Financial Accounting Standards ("SFAS") No. 115, this security is now considered to be readily marketable and is accounted for at fair market value. The security is classified as available for sale with the corresponding unrealized holding gain included as a separate component of shareholders' equity. 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 1995 Annual Report. The results of operations for the quarter ended June 29, 1996 are not necessarily indicative of the results of the entire fiscal year. EX-27 4 ART.5 FDS FOR 3RD QUARTER 10-Q
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE Q3 FY96 CONDENSED CONSOLIDATED BALANCE SHEET AND CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS SEP-28-1996 JUN-29-1996 137,103 34,915 259,083 0 127,654 586,165 654,234 477,420 831,447 335,753 151,889 456,168 0 0 (134,551) 831,447 688,444 986,023 463,928 960,503 0 0 10,095 21,184 3,000 18,184 0 0 0 18,184 0.44 0.44
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