-----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, N+y2SGqvnmpnglx176yrXGHK8i2+4ofrhZgUegGeUyRne5Hc7y81Hsmfoe26MsaT DVJDZgekHUbtkzZWtdr4tg== 0000026999-97-000002.txt : 19970507 0000026999-97-000002.hdr.sgml : 19970507 ACCESSION NUMBER: 0000026999-97-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970329 FILED AS OF DATE: 19970506 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: 97596095 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 Q2 FY97 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 March 29, 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 April 25, 1997: Common Stock, par value $.01 40,487,722 ---------------------------- ---------- (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 Six Months Ended ------------------- -------------------- Mar. 29, Mar. 30, Mar. 29, Mar. 30, in thousands, except net income per share 1997 1996 1997 1996 - ------------------------------------------------------------------------------------------ Revenues: Product .................................. $292,022 $236,707 $541,822 $464,361 Service .................................. 97,358 98,488 196,011 198,443 -------- -------- -------- -------- Total revenues ...................... 389,380 335,195 737,833 662,804 Costs and expenses: Cost of product revenues ................. 198,694 159,984 363,756 316,696 Cost of service revenues ................. 62,167 64,187 126,575 129,179 Research and development ................. 27,044 23,909 53,282 45,632 Selling, general, and administrative ..... 85,544 78,198 166,053 155,365 -------- -------- -------- -------- Total costs and expenses ............ 373,449 326,278 709,666 646,872 -------- -------- -------- -------- Income from operations ....................... 15,931 8,917 28,167 15,932 Interest Income .............................. 1,591 1,782 3,573 3,926 Interest expense ............................. 3,141 3,365 6,344 6,815 -------- -------- -------- -------- Income before income taxes ................... 14,381 7,334 25,396 13,043 Income tax provisions ........................ 600 1,000 1,200 2,000 -------- -------- -------- -------- Net income ................................... $ 13,781 $ 6,334 $ 24,196 $ 11,043 ======== ======== ======== ======== Net income per share ......................... $ 0.32 $ 0.15 $ 0.57 $ 0.27 ======== ======== ======== ======== Weighted average shares outstanding, including common stock equivalents, where applicable ... 42,944 41,358 42,499 40,833 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. 29, Sept. 28, dollars in thousands 1997 1996 - ----------------------------------------------------------------------------------- Assets Current Assets: Cash and temporary cash investments ................. $ 185,740 $ 178,997 Marketable securities ............................... 7,537 25,624 Receivables, net .................................... 271,142 257,815 Inventories ......................................... 153,505 129,783 Other current assets ................................ 27,362 24,593 --------- --------- Total current assets ........................... 645,286 616,812 Property, plant, and equipment, net ..................... 170,634 167,672 Other assets ............................................ 82,994 75,959 --------- --------- $ 898,914 $ 860,443 ========= ========= Liabilities and stockholders' equity Current liabilities: Notes payable ....................................... -- 1,943 Accounts payable .................................... 153,355 121,625 Other current liabilities ........................... 229,140 242,616 --------- --------- Total current liabilities ...................... 382,495 366,184 --------- --------- Long-term debt .......................................... 148,001 149,971 --------- --------- Other liabilities ....................................... 14,876 15,224 --------- --------- Stockholders' equity: Common stock: Outstanding - 40,469,000 shares at Mar. 29, 1997 and 39,601,000 shares at Sept. 28, 1996 (net of deferred compensation of $9,801 at Mar. 29, 1997 and $7,812 at Sept. 28, 1996) .................. 467,822 460,312 Accumulated deficit ..................................... (111,285) (135,481) Unrealized gains on marketable securities ............... 6,366 9,708 Cumulative translation adjustment ....................... (9,361) (5,475) --------- --------- Total stockholders' equity ..................... 353,542 329,064 --------- --------- $ 898,914 $ 860,443 ========= ========= 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. 29, March 30, in thousands 1997 1996 - ---------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income ..................................................... $ 24,196 $ 11,043 Adjustments to reconcile net income to net cash provided from operating activities: Depreciation .............................................. 39,946 43,315 Amortization of capitalized software development costs .... 9,924 8,107 Other non-cash items, net ................................. 6,130 1,117 Change in operating assets and liabilities ................ (16,548) (23,972) --------- --------- Net cash provided from operating activities ............... 63,648 39,610 --------- --------- Cash flows from investing activities: Expenditures for property, plant, and equipment ................ (51,775) (50,670) Net proceeds from the sales (purchases) of marketable securities 14,746 26,672 Capitalized software development costs ......................... (16,508) (14,493) Other .......................................................... -- 10,599 --------- --------- Net cash provided from investing activities ............... (53,537) (27,892) --------- --------- Cash flows from financing activities: Cash provided from stock plans ................................. 5,217 5,347 Decrease in notes payable ...................................... (1,794) -- Repayment of long-term debt .................................... (3,900) (3,000) --------- --------- Net cash (used by) provided from financing activities ..... (477) 2,347 --------- --------- Effect of foreign currency rate fluctuations on cash and temporary cash investments ............................ (2,891) (877) --------- --------- Increase in cash and temporary cash investments .................... 6,743 13,188 Cash and temporary cash investments - beginning of period .......... 178,997 117,201 --------- --------- Cash and temporary cash investments - end of period ................ $ 185,740 $ 130,389 ========= ========= Supplemental disclosure of cash flow information: Interest paid .................................................. $ 6,022 $ 6,187 Income taxes paid .............................................. $ 567 $ 1,450 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. 29, Sept. 28, in thousands 1997 1996 - -------------------------------------------------------------------------------- Inventories: Raw materials ................................ $ 10,865 $ 4,560 Work in process .............................. 58,148 50,769 Finished systems ............................. 55,860 43,710 Field engineering parts and components ....... 28,632 30,744 --------- --------- $ 153,505 129,783 ========= ========= Property, plant, and equipment: Property, plant, and equipment ............... $ 636,777 $ 638,972 Accumulated depreciation ..................... (466,143) (471,300) --------- --------- $ 170,634 $ 167,672 ========= ========= Note 2. Accounting Policies In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share". SFAS 128 is effective for both interim and annual periods ending after December 15, 1997. The Company is required by the Securities and Exchange Commission to disclose proforma earnings per share ("EPS") amounts computed in accordance with the SFAS 128 in the notes to the financial statements prior to required adoption.
Quarter Ended --------------------------------------------------------------------------------- March 29, 1997 March 30, 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 $13,781 40,146 $ .34 $ 6,334 38,563 $ .16 ===== ===== Effect of Dilutive Securities Stock Options -- 2,798 -- 2,795 ------- ------ ------- ------ Diluted Earnings Per Share Net income available to common stockholders and assumed conversions $13,781 42,944 $ .32 $ 6,334 41,358 $ .15 ======= ====== ===== ======= ====== =====
Six Months Ended --------------------------------------------------------------------------------- March 29, 1997 March 30, 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 $24,196 39,938 $ .61 $11,043 38,342 $ .29 ===== ===== Effect of Dilutive Securities Stock Options -- 2,579 -- 2,511 ------- ------ ------- ------ Diluted Earnings Per Share Net income available to common stockholders and assumed conversions $24,196 42,517 $ .57 $11,043 40,853 $ .27 ======= ====== ===== ======= ====== =====
For the quarters and six-month periods ended March 29, 1997 and March 30, 1996, the assumed conversion of the 7 3/4 % Convertible Subordinated Debentures due 2001, 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. 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 1996 Annual Report. The results of operations for the quarter ended March 29, 1997 are not necessarily indicative of the results of the entire fiscal year. Note 4. Letter of Credit and Reimbursement Agreement On April 18, 1997, the company amended certain covenants of its $30 million unsecured letter of credit and reimbursement facility with a group of banks. This agreement is available to secure issuances of letters of credit. The current agreement has a duration of 364 days. The facility contains certain covenants, including restrictions on the sale or pledge of certain assets, the declaration of dividends, and the incurrence of other debt. There were $5 million letters of credit secured by this facility at March 29, 1997. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Financial Condition Cash and temporary cash investments as of March 29, 1997 were $185.7 million, an increase of $6.7 million from the end of fiscal 1996. At the same date, the Company held $7.5 million in marketable securities, a net decrease of $18.1 million during the current six-month period. The decrease was due to a reduction of the unrealized gain of an equity security and the shortening of maturities of United States treasury investments which changed their classification to cash and temporary cash investments. In total, cash and temporary cash investments along with marketable securities decreased $11.4 million for the current six-month period. The Company's marketable securities are comprised of a single equity security of $7.5 million recorded at fair market value and classified as available-for-sale. The unrealized gain on marketable securities of $6.4 million is recorded as a separate component of shareholders' equity. Net cash provided from operations for the six months ended March 29, 1997 totaled $63.6 million; expenditures for property, plant, and equipment were $51.8 million; capitalized software development costs totaled $16.5 million; and cash provided from stock plans totaled $5.2 million. The effect of foreign currency exchange rate fluctuations on cash and temporary cash investments was a decrease of $2.9 million. Net receivables were $271.2 million, an increase of $13.4 million from $257.8 million at fiscal year-end 1996 due primarily to increased revenues. Total inventories at March 29, 1997 were $153.5 million, an increase of $23.7 million from fiscal year-end 1996 primarily due to increased purchases related to the growth of the Company's CLARiiON product line. Fixed asset dispositions related to the sale of demonstration equipment totaled $3.8 million for the current six-month period. Management expects that sales of demonstration equipment will continue. During the current six-month period, the Company paid $1.8 million to retire notes payable that had consisted of borrowings by Data General France SAS. The increase of $31.8 million in accounts payable from fiscal year-end 1996 levels was attributed mainly to the timing of payments related to material purchases. Other current liabilities, excluding the current portion of long-term debt, decreased $11.6 million from fiscal year-end 1996. This decrease was primarily a result of reduced employee-related accruals and payments made relating to previously recorded restructuring accruals. Long-term debt, including the current portion of long-term debt, decreased a total of $3.9 million from fiscal 1996 year-end as a result of the Company reacquiring a portion of the 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 material changes in estimates to prior provisions or additional charges were recorded during fiscal 1996 or the first six-month period of fiscal 1997. The following table sets forth the Company's restructuring activities for the six-month period ended March 29, 1997. All charges, excluding asset writedowns and certain other charges, are cash in nature and funded from operations.
Six Months Ended Sept. 28, 1996 Mar.29, 1997 Mar. 29, 1997 in millions Balance Charges Balance - ---------------------------------------------------------------------------------------------------- Provisions related to terminated employees $ 2.5 $ 1.0 $ 1.5 Provisions for leases 10.0 2.4 7.6 Writedown of assets to be sold or discarded and other 2.0 .5 1.5 ------- ------ ------- Total $ 14.5 $ 3.9 $ 10.6 ======= ====== =======
The employee terminations related to the 1995 restructuring charges were substantially completed during fiscal 1996. The remaining reserves at March 29, 1997 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 The Company reported net income of $13.8 million for the current quarter ended March 29, 1997, an increase of 119% from $6.3 million for the comparable prior-year period. Net income was $24.2 million for the six months ended March 29, 1997, an increase of 120% from $11.0 million for the first six-month period of fiscal 1996.
Revenues (in millions) - --------------------------------------------------------------------------------------------------- Quarter ended Six months ended ---------------------------------- ----------------------------------- 3/29/97 Change 3/30/96 3/29/97 Change 3/30/96 ---------------------------------- ----------------------------------- Product $292.0 23% $236.7 $541.8 17% $464.4 % of Total Revenues 75% 71% 73% 70% Service 97.3 (1%) 98.5 196.0 (1%) 198.4 % of Total Revenues 25% 29% 27% 30% Total Revenues $389.3 16% $335.2 $737.8 11% $662.8 - --------------------------------------------------------------------------------------------------
In the current quarter ended March 29, 1997, product revenues of $126.7 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 187%, while revenues from the Motorola-based AViiON systems declined by 43% as compared with the comparable period of the prior year. The Company anticipates that the percentage of product revenues generated by the Intel-based AViiON products will continue to increase in fiscal 1997. Product revenues from the Company's CLARiiON storage systems increased 38% from the comparable prior-year period and accounted for 45% 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 Hewlett-Packard Company. Product revenues from personal computers and peripheral equipment increased $11.3 million from the same period in the prior year and currently represent 10% of total product revenues compared to 7% for the comparable prior-year period. Proprietary MV system revenues declined $3.5 million from the same period in the prior year and currently represent 2% of total product revenues compared to 3% for the comparable prior-year period. For the six months ended March 29, 1997, product revenues of $248.4 million from the Company's AViiON family of open systems server products increased 12% from $221.8 million for the first six-month period of fiscal 1996. For the current six-month period, the Company's Intel-based AViiON revenues increased 243%, while product revenues from the Motorola-based AViiON systems declined by 40% as compared with the first six-month period of fiscal 1996. Product revenues from the Company's CLARiiON storage systems increased 21% for the comparable six-month period in fiscal 1996. Product revenues from personal computer and peripheral equipment increased $14.5 million from the comparable six-month period in the prior year and represent 8% of total product revenues for the current six-month period compared to 7% for the comparable prior-year period. Proprietary MV system revenues declined $5.3 million from the comparable period in the prior year and currently represent 2% of total product revenues for the current six-month period compared to 4% for the comparable period in fiscal 1996.
Revenues by Geographic Marketplace - -------------------------------------------------------------------------------------------------------------------- Percentage of Percentage Change of Consolidated Revenues $ of Revenues ------------------------------------------------------ ------------------------------------ Quarter ended Six months ended 3/29/97 - 3/30/96 ------------------------------------------------------ ------------------------------------ 3/29/97 3/30/96 3/29/97 3/30/96 Quarter ended Six months ended ------------------------------------------------------ ------------------------------------ Domestic - -------- Product 64% 58% 62% 58% 36% 25% Service 57% 58% 57% 58% (2%) (1%) Total Revenues 63% 58% 61% 58% 25% 18% Europe - ------ Product 22% 27% 23% 28% (1%) (3%) Service 33% 32% 32% 32% -- (2%) Total Revenues 24% 28% 25% 29% -- (3%) Other International - ------------------- Product 14% 15% 15% 14% 16% 20% Service 10% 10% 11% 10% 1% (1%) Total Revenues 13% 14% 14% 13% 13% 15% - --------------------------------------------------------------------------------------------------------------------
The increase in domestic product revenues for the current quarter and six-month period ended March 29, 1997 was primarily a result of increased CLARiiON shipments, increased shipments of the Company's Intel-based AViiON systems, as well as increased personal computer and peripheral equipment shipments. The decrease in European product revenues, including U.S. direct export sales, for the current quarter and six-month period ended March 29, 1997, was mainly attributable to the decrease in CLARiiON and MV revenues, which was partly offset by an increase in AViiON and PC product revenues. The increase in other international product revenues, including U.S. direct export sales, for the current quarter and six-month period ended March 29, 1997 was primarily due to the increase in revenues from the CLARiiON product line. For the current six-month period, total revenues in the European marketplace were also negatively impacted by approximately 2% due to a stronger U.S. dollar as compared to the six-month period ended March 30, 1996.
Cost of Revenues (in millions) - ------------------------------------------------------------------------------------------------------------------ Quarter ended Six months ended ----------------------------------------- ----------------------------------------- 3/29/97 Change 3/30/96 3/29/97 Change 3/30/96 ----------------------------------------- ----------------------------------------- Product $198.7 24% $160.0 $363.8 15% $316.7 % of Product Revenues 68% 68% 67% 68% Service 62.1 (3%) 64.2 126.5 (2%) 129.2 % of Service Revenues 64% 65% 65% 65% Total Cost of Revenues $260.8 16% $224.2 $490.3 10% $445.9 % of Total Revenues 67% 67% 66% 67% - -----------------------------------------------------------------------------------------------------------------
The decrease in product cost as a percentage of product revenues for the six months ended March 29, 1997 was the result of increasing volumes of higher margin Intel-based AViiON systems, manufacturing cost reductions and higher overall production volume.
Operating Expenses (in millions) - --------------------------------------------------------------------------------------------------------------- Quarter ended Six months ended ---------------------------------- --------------------------------- 3/29/97 Change 3/30/96 3/29/97 Change 3/30/96 ---------------------------------- --------------------------------- Research & Development $27.1 13% $23.9 $ 53.3 17% $ 45.6 % of Total Revenues 7% 7% 7% 7% Selling, general & administrative $85.4 9% $78.2 $166.0 7% $155.4 % of Total Revenues 22% 23% 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 six-month period, gross expenditures on research and development and software development before capitalization were $69.8 million, an increase of 16% from $60.1 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, in the Company's Non-Uniform Memory Access (NUMA) architecture for high-end servers and in THiiN Line products for the internet. 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 may 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 continue to decline. At March 29, 1997 the number of employees totaled 4,929, a net increase of 66 employees from September 28, 1996 and a net reduction of 17 employees from March 30, 1996. Interest income for the current quarter was $1.6 million, an 11% decrease from $1.8 million for the comparable period of fiscal 1996, due to lower levels of invested cash and shorter investment maturity terms. Interest expense for the current quarter was $3.2 million, a slight decrease from $3.4 million for the comparable period of fiscal 1996. The income tax provision for the current quarter was $.6 million compared to $1.0 million for the comparable prior-year period. The current year tax provision relates primarily to foreign, state and federal alternative minimum 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 Data General's Report on Form 10-K for the 1996 fiscal year ended September 28, 1996 and this Quarterly Report on Form 10-Q for the second fiscal quarter of 1997, which ended March 29, 1997. PART II -- OTHER INFORMATION Item 1. Legal Proceedings. The Company's patent infringement suit against IBM Corporation which commenced in 1994, and IBM's countersuit against the Company, are in the discovery stage in the United States District Court in Worcester, Massachusetts. See Part II, Item 1, "Legal Proceedings" to the Company's Quarterly Report on Form 10-Q for the quarter ended December 24, 1994. The Company alleges, among other matters, that IBM's AS/400 CISC-based and System/390 computer product lines infringe certain of the Company's patents, and seeks, among other relief, compensatory damages. IBM's countersuit alleges that certain of the Company's AViiON and CLARiiON products infringe various IBM patents. The Company's second patent infringement suit against IBM Corporation which commenced in May 1996, is 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 June 29, 1996. The Company alleges, among other matters, that several IBM products, including IBM's AS/400 RISC-based computer product line, infringe certain of the Company's patents and seeks, among other relief, injunctive and compensatory damages. The Company believes its claims are valid, but it cannot predict the outcome of either litigation. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits: 10. (cc)Amendment dated April 18, 1997 to Letter of Credit and Reimbursement Agreement. 11. Computation of primary and fully diluted earnings per share. (b) No reports on Form 8-K were filed during the quarter ended March 29, 1997. 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: May 6, 1997 EXHIBITS Index to Exhibits. 10. (cc) Amendment dated April 18, 1997 to Letter of Credit and Reimbursement Agreement. 11. Computation of primary and fully diluted earnings per share. EX-10 2 AMENDMENT NO. 4 TO LETTER OF CREDIT FACILITY EXHIBIT 10 (cc) AMENDMENT NO. 4 TO LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT THIS AMENDMENT NO. 4 TO LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT (this "Agreement") is made and entered into as of this 18th day of April, 1997 among: DATA GENERAL CORPORATION, a Delaware corporation ("Borrower"), NATIONSBANK OF TEXAS, NATIONAL ASSOCIATION, a national banking association, THE BANK OF NEW YORK and FLEET NATIONAL BANK, formerly known as Fleet Bank of Massachusetts, N.A. (each individually, a "Lender" and collectively, the "Lenders"); and NATIONSBANK OF TEXAS, NATIONAL ASSOCIATION, a national banking association, in its capacity as agent for the Lenders (in such capacity, the "Agent"); W I T N E S S E T H: -------------------- WHEREAS, the Borrower, the Lenders and the Agent have entered into a Letter of Credit and Reimbursement Agreement dated as of December 21, 1994, as amended by Amendment No. 1 to Letter of Credit and Reimbursement Agreement dated as of October 5, 1995, as further amended by Amendment No. 2 to Letter of Credit and Reimbursement Agreement dated as of December 10, 1995, and as further amended by Amendment No. 3 to Letter of Credit and Reimbursement Agreement dated as of December 11, 1996, among the Borrower, the Lenders and the Agent (as amended, the "Credit Agreement") pursuant to which the Lenders agreed to issue certain letters of credit on behalf of the Borrower; and WHEREAS, the Borrower has requested that the Credit Agreement be amended in the manner set forth herein and the Agent and the Lenders are willing to agree to such amendment; NOW, THEREFORE, in consideration of the mutual covenants and the fulfillment of the conditions set forth herein, the parties hereto do hereby agree as follows: 1. Definitions. Any capitalized terms used herein without definition shall have the meaning set forth in the Credit Agreement. 2. Amendment. Subject to the terms and conditions set forth herein, the Credit Agreement is hereby amended as follows: (a) Section 1.01 of the Credit Agreement is hereby amended by inserting therein the following new defined terms in alphabetical position: "Acquisition" means the acquisition of (i) a controlling equity interest in another Person engaged in the same or similar line of business of the Borrower (including the purchase of an option, warrant or convertible or similar type security to acquire such a controlling interest at the time it becomes exercisable by the holder thereof), whether by purchase of such equity interest or upon exercise of an option or warrant for, or conversion of securities into, such equity interest, or (ii) assets of another Person engaged in the same or similar line of business of the Borrower which constitute all or substantially all of the assets of such Person or of a line or lines of business conducted by such Person. "Cost of Acquisition" means, with respect to any Acquisition, as at the date of entering into any agreement therefor, the sum of the following (without duplication): (i) the value of the capital stock, warrants or options to acquire capital stock of the Borrower or any Subsidiary to be transferred in connection therewith, (ii) any cash or other property (excluding property described in clause (i)) and the unpaid principal amount of any debt instrument given as consideration, (iii) any Indebtedness assumed by the Borrower or its Subsidiaries in connection with such Acquisition, and (iv) out of pocket transaction costs for the services and expenses of attorneys, accountants and other consultants incurred in effecting such a transaction, and other similar transaction costs so incurred. For purposes of determining the Cost of Acquisition for any transaction, (A) the capital stock of the Borrower shall be valued (I) at its market value as reported on the New York Stock Exchange with respect to shares that are freely tradeable, and (II) with respect to shares that are not freely tradeable, as determined by the Board of Directors of the Borrower and, if requested by the Agent, determined to be a reasonable valuation by the independent public accountants referred to in Section 6.01(a) hereof, (B) the capital stock of any Subsidiary shall be valued as determined by the Board of Directors of such Subsidiary and, if requested by the Agent, determined to be a reasonable valuation by the independent public accountants referred to in Section 6.01(a) hereof, and (C) with respect to any Acquisition accomplished pursuant to the exercise of options or warrants or the conversion of securities, the Cost of Acquisition shall include both the cost of acquiring such option, warrant or convertible security as well as the cost of exercise or conversion. (b) Section 7.01 of the Credit Agreement is hereby amended by deleting the ratio ".45 to 1.00" in the second line thereof and inserting in replacement thereof the ratio ".55 to 1.00". (c) Section 7.05 of the Credit Agreement is hereby amended by deleting the word "and" at the end of clause (iii) thereof, deleting the period at the end of clause (iv) thereof and inserting in replacement thereof "; " and by inserting after clause (iv) thereof new clauses (v) and (vi) which shall read as follows: (v) Indebtedness in an aggregate principal amount of up to $200,000,000 evidenced by certain convertible bonds or similar instruments issued by the Borrower; (vi) Indebtedness of a Person acquired in an Acquisition permitted under Section 7.07 hereof so long as (i) such Indebtedness is not incurred in contemplation of such Acquisition, (ii) neither the Borrower nor any Subsidiary (other than the Person being acquired or a subsidiary of the Person being acquired) is liable for or assumes such Indebtedness and such Indebtedness is, and continues after such Acquisition to be, non-recourse to the Borrower and all Subsidiaries (other than the Person acquired or a subsidiary of such Person) and (iii) the aggregate principal amount of all such Indebtedness does not exceed $10,000,000; and (vii) Indebtedness constituting part of the Cost of Acquisition of any Acquisition permitted hereunder. (d) Section 7.06(a) of the Credit Agreement is hereby amended by (A) deleting the word "and" at the end of clause (v) thereof, (B) deleting the period at the end of clause (vi) thereof and inserting in replacement thereof the words "; and", (C) inserting after clause (vi) thereof a new clause (vii) which shall read "(vii) Liens on assets acquired in an Acquisition permitted under Section 7.07 hereof so long as such Liens (i) are not incurred in contemplation of such Acquisition and (ii) do not extend to any assets other than the assets being acquired in such Acquisition." (e) Section 7.07 of the Credit Agreement is hereby amended by (A) deleting the word "and" at the end of clause (v) thereof, (B) deleting the period at the end of clause (vi) thereof and inserting in replacement thereof the words "; and", (C) inserting after clause (vi) thereof a new clause (vii) which shall read "(vii) investments in an aggregate amount not in excess of $200,000,000 in any Person or Persons engaged in the same or similar line of business as the Borrower, provided that if the amount of any individual investment exceeds $25,000,000, the Borrower shall have furnished to the Agent a certificate in the form of Exhibit E prepared on a historical pro forma basis giving effect to such investment and demonstrating that no Default or Event of Default would exist immediately after giving effect thereto" and (D) by inserting the following new paragraph after clause (vii); ; provided, however, the Borrower shall be permitted to make Acquisitions if (i) the Person to be (or whose assets are to be) acquired does not oppose such Acquisition, (ii) no Default or Event of Default shall exist immediately after giving effect to such Acquisition, and (iii) the Borrower shall have furnished to the Agent (A) if the Cost of Acquisition shall exceed $25,000,000, a certificate in the form of Exhibit E prepared on a historical pro forma basis giving effect to such Acquisition, which certificate shall demonstrate that no Default or Event of Default would exist immediately after giving effect thereto, and (B) if the Cost of Acquisition shall exceed $200,000,000, pro forma historical financial statements as of the end of the most recently completed Fiscal Year of the Borrower and most recent interim fiscal quarter, if applicable giving effect to such Acquisition. 3. Effectiveness. This Agreement shall become effective as of the date hereof upon receipt by the Agent of seven fully executed copies of this Agreement (which may be signed in counterparts). 4. Representations and Warranties. In order to induce the Agent and the Lender to enter into this Agreement, the Borrower represents and warrants to the Agent and the Lenders as follows: (a) The representations and warranties made by Borrower in Article V of the Credit Agreement are true and correct on and as of the date hereof, except to the extent that such representations and warranties expressly relate to an earlier date and except that the financial statements referred to in Section 5.01(e)(i) of the Credit Agreement shall be deemed to be those financial statements most recently delivered to the Agent and the Lenders pursuant to Section 6.01 of the Credit Agreement; (b) There has been no material adverse change in the condition, financial or otherwise, of the Borrower and its Subsidiaries, taken as a whole, since the date of the most recent financial reports of the Borrower received by the Agent and the Lenders under Section 6.01(a) of the Credit Agreement, other than changes in the ordinary course of business; (c) The business and properties of the Borrower and its Subsidiaries, taken as a whole, are not, and since the date of the most recent financial report of the Borrower and its Subsidiaries received by the Agent and the Lenders under Section 6.01(a) of the Credit Agreement, have not been, adversely affected in any substantial way as the result of any fire, explosion, earthquake, accident, strike, lockout, combination of workers, flood, embargo, riot, activities of armed forces, war or acts of God or the public enemy, or cancellation or loss of any major contracts; and (d) No event has occurred and is continuing which constitutes, and no condition exists which upon the consummation of the transaction contemplated hereby would constitute, a Default or an Event of Default on the part of the Borrower under the Credit Agreement, either immediately or with the lapse of time or the giving of notice, or both. 5. Entire Agreement. This Agreement sets forth the entire understanding and agreement of the parties hereto in relation to the subject matter hereof and supersedes any prior negotiations and agreements among the parties relative to such subject matter. 6. Full Force and Effect of Agreement. Except as hereby specifically amended, modified or supplemented, the Credit Agreement and all other Letter of Credit Documents are hereby confirmed and ratified in all respects and shall remain in full force and effect according to their respective terms. 7. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. 8. Governing Law. This Agreement shall in all respects be governed by the laws and judicial decisions of the State of New York. 9. Enforceability. Should any one or more of the provisions of this Agreement be determined to be illegal or unenforceable as to one or more of the parties hereto, all other provisions nevertheless shall remain effective and binding on the parties hereto. 10. Credit Agreement. All references in any of the Letter of Credit Documents to the Credit Agreement shall mean the Credit Agreement as amended hereby. [Signature page follows.] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their duly authorized officers, all as of the day and year first above written. BORROWER: DATA GENERAL CORPORATION By: Name: Title: LENDERS: NATIONSBANK OF TEXAS, NATIONAL ASSOCIATION By: Name: Title: THE BANK OF NEW YORK By: Name: Title: FLEET NATIONAL BANK By: Name: Title: AGENT: NATIONSBANK OF TEXAS, NATIONAL ASSOCIATION as Agent for the Lenders By: Name: Title: EX-11 3 Q2 FY97 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 ------------------- ------------------ Mar. 29, Mar. 30, Mar. 29, Mar. 30, 1997 1996 1997 1996 -------- -------- -------- -------- Primary earnings per share: Net income ................................... $13,781 $ 6,334 $24,196 $11,043 ======= ======= ======= ======= Weighted average shares outstanding .......... 40,146 38,563 39,920 38,322 Incremental shares from use of treasury stock method for stock options ............. 2,798 2,795 2,579 2,511 ------- ------- ------- ------- Common and common equivalent shares, where applicable ................... 42,944 41,358 42,499 40,833 ======= ======= ======= ======= Net income per share ......................... $ .32 $ .15 $ .57 $ .27 ======= ======= ======= ======= Earnings per share assuming full dilution: (a) Net income ................................... $13,781 $ 6,334 $24,196 $11,043 ======= ======= ======= ======= Weighted average shares outstanding .......... 40,146 38,563 39,920 38,322 Incremental shares from use of treasury stock method for stock options ............. 2,826 2,801 2,660 2,514 ------- ------- ------- ------- Common and common equivalent shares, assuming full dilution, where applicable ... 42,972 41,364 42,580 40,836 ======= ======= ======= ======= Net income per share ......................... $ .32 $ .15 $ .57 $ .27 ======= ======= ======= ======= (a) For the quarters and six-month periods ended March 29, 1997 and March 30, 1996, the assumed conversion of convertible debentures, giving effect to the incremental shares and the adjustment to reduce interest expense, results in anti-dilution and has therefore been excluded from the computation.
EX-27 4 ART.5 FDS FOR 2ND QUARTER 1997 10-Q
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE Q2 FY97 CONDENSED CONSOLIDATED BALANCE SHEET AND CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS SEP-27-1997 MAR-29-1997 185,740 7,537 271,142 0 153,505 645,286 636,777 466,143 898,914 382,495 148,001 0 0 467,822 (114,280) 898,914 541,822 737,833 363,756 490,331 219,335 0 6,344 25,396 1,200 24,196 0 0 0 24,196 0.57 0.57
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