-----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, VsuRbTSUod9CVALp5BffukSFgFi+mJgaG0GOCc1+VGBj9aa5qE/o9SQpranllCxS 4pZ6iD9Lg5uZQoxLlpNL0g== 0000026999-97-000066.txt : 19970811 0000026999-97-000066.hdr.sgml : 19970811 ACCESSION NUMBER: 0000026999-97-000066 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970628 FILED AS OF DATE: 19970808 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: 97653673 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 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 June 28, 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 July 25, 1997: Common Stock, par value $.01 41,348,441 ---------------------------- ---------- (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 Nine Months Ended Jun. 28, Jun. 29, Jun. 28, Jun. 29, in thousands, except net income per share 1997 1996 1997 1996 - ------------------------------------------------------------------------------------------------------------------------- Revenues: Product ................................. $ 294,170 $ 224,083 $ 835,992 $ 688,444 Service ................................. 97,087 99,136 293,098 297,579 ------- ------- --------- ------- Total revenues .................... 391,257 323,219 1,129,090 986,023 ------- ------- --------- ------- Costs and expenses: Cost of product revenues ................ 199,422 147,232 563,178 463,928 Cost of service revenues ................ 61,392 64,036 187,967 193,215 Research and development ................ 27,783 25,801 81,065 71,433 Selling, general, and administrative .... 85,531 76,563 251,584 231,927 ------- ------- --------- ------- Total costs and expenses .......... 374,128 313,632 1,083,794 960,503 ------- ------- --------- ------- Income from operations ....................... 17,129 9,587 45,296 25,520 Interest Income .............................. 2,695 1,833 6,268 5,759 Interest expense ............................. 4,479 3,279 10,823 10,095 ----- ----- ------ ------ Income before income taxes ................... 15,345 8,141 40,741 21,184 Income tax provisions ........................ 600 1,000 1,800 3,000 ------ ----- ------ ------ Net income ................................... $ 14,745 $ 7,141 $ 38,941 $ 18,184 ======== ======= ======== ======== Net income per share ......................... $ 0.34 $ 0.17 $ 0.91 $ 0.44 ======== ======= ======== ======== Weighted average shares outstanding, including common stock equivalents, where applicable ... 43,576 41,514 42,858 41,060 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) Jun. 28, Sept. 28, dollars in thousands 1997 1996 - ---------------------------------------------------------------------------------------- Assets Current Assets: Cash and temporary cash investments .................. $ 310,789 $ 178,997 Marketable securities ................................ 25,381 25,624 Receivables, net ..................................... 256,977 257,815 Inventories .......................................... 163,387 129,783 Other current assets ................................. 25,736 24,593 ----------- ----------- Total current assets ............................ 782,270 616,812 Property, plant, and equipment, net ....................... 175,304 167,672 Other assets .............................................. 92,606 75,959 ----------- ----------- $ 1,050,180 $ 860,443 =========== =========== Liabilities and stockholders' equity Current liabilities: Notes payable ........................................ $ -- $ 1,943 Accounts payable ..................................... 114,267 121,625 Other current liabilities ............................ 215,434 242,616 ----------- ----------- Total current liabilities ................................. 329,701 366,184 ----------- ----------- Long-term debt ............................................ 337,750 149,971 ----------- ----------- Other liabilities ......................................... 14,463 15,224 ----------- ----------- Stockholders' equity: Common stock: Outstanding - 40,877,000 shares at Jun. 28, 1997 and 39,601,000 shares at Sept. 28, 1996 (net of deferred compensation of $14,591 at June 28, 1997 and $7,812 at Sept. 28, 1996) .................. 472,178 460,312 Accumulated deficit ....................................... (96,540) (135,481) Unrealized gains on marketable securities ................. 2,637 9,708 Cumulative translation adjustment ......................... (10,009) (5,475) ------------ ------------ Total stockholders' equity ..................... 368,266 329,064 ------------ ------------ $ 1,050,180 $ 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)
Nine Months Ended Jun. 28, Jun. 29, in thousands 1997 1996 - ---------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income ..................................................... $ 38,941 $ 18,184 Adjustments to reconcile net income to net cash provided from operating activities: Depreciation ............................................. 60,331 61,736 Amortization of capitalized software development costs ... 14,633 14,647 Other non-cash items, net ................................ 12,721 3,044 Change in operating assets and liabilities ............... (62,647) (49,768) --------- --------- Net cash provided from operating activities .............. 63,979 47,843 --------- --------- Cash flows from investing activities: Expenditures for property, plant, and equipment ................ (82,629) (74,268) Net proceeds from the sales (purchases) of marketable securities (6,828) 56,460 Capitalized software development costs ......................... (25,942) (22,603) Other .......................................................... -- 10,599 --------- --------- Net cash used by investing activities .................... (115,399) (29,812) --------- --------- Cash flows from financing activities: Cash provided from stock plans ................................. 8,099 6,364 Decrease in notes payable ...................................... (1,794) -- Net proceeds from issuance of long term debt ................... 207,218 -- Repayment of long-term debt .................................... (26,901) (3,000) --------- --------- Net cash provided from financing activities .............. 186,622 3,364 --------- --------- Effect of foreign currency rate fluctuations on cash and temporary cash investments ............................. (3,410) (1,493) --------- --------- Increase in cash and temporary cash investments ..................... 131,792 19,902 Cash and temporary cash investments - beginning of period ........... 178,997 117,201 --------- --------- Cash and temporary cash investments - end of period ................. $ 310,789 $ 137,103 ========= ========= Supplemental disclosure of cash flow information: Interest paid .................................................. $ 11,420 $ 11,095 Income taxes paid .............................................. $ 5,590 $ 1,679 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 Jun. 28, Sept. 28, in thousands 1997 1996 - -------------------------------------------------------------------------------- Inventories: Raw materials............................... $ 12,954 $ 4,560 Work in process............................. 78,303 50,769 Finished systems............................ 44,671 43,710 Field engineering parts and components...... 27,459 30,744 --------- --------- $ 163,387 129,783 ========= ========= Property, plant, and equipment: Property, plant, and equipment............... $ 647,031 $ 638,972 Accumulated depreciation..................... (471,727) (471,300) --------- --------- $ 175,304 $ 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 ----------------------------------------------------------------------------------------- June 28, 1997 June 29, 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 $14,745 40,625 $ .36 $ 7,141 39,045 $ .18 ======= ====== Effect of Dilutive Securities Stock Options -- 2,951 -- 2,469 ------- ------ ------- ------ Diluted Earnings Per Share Net income available to common stockholders and assumed conversions $14,745 43,576 $ .34 $ 7,141 41,514 $ .17 ======= ====== ======= ======= ====== =======
Nine Months Ended ----------------------------------------------------------------------------------------- June 28, 1997 June 29, 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 $38,941 40,155 $ .97 $18,184 38,563 $ .47 ------- ------- Effect of Dilutive Securities Stock Options -- 2,703 -- 2,497 ------- ------ ------- ------ Diluted Earnings Per Share Net income available to common stockholders and assumed conversions $38,941 42,858 $ .91 $18,184 41,060 $ .44 ======= ====== ======= ======= ====== =======
For the quarters and nine-month periods ended June 28, 1997 and June 29, 1996, the assumed conversion of convertible debentures, giving effect to the incremental shares and the adjustment to reduce interest expense, is anti-dilutive and has therefore been excluded from the computation. 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 June 28, 1997 are not necessarily indicative of the results of the entire fiscal year. Note 4. Long-term Debt On May 21,1997, the Company sold $212.8 million of its 6% Convertible Subordinated Notes due 2004. The 6% Convertible Subordinated Notes are convertible at the option of the holder, at any time after 90 days following the original issuance and prior to maturity, into shares of Common Stock of the Company at a conversion price of $26.194 per share, subject to adjustment for certain events. The notes are subordinated to all Senior Indebtedness (as defined in the indenture under which the notes were issued). The notes are not redeemable by the Company prior to May 18, 2000. At any time on or after May 18, 2000, the Company may redeem the notes at decreasing redemption prices, and may be redeemed at the option of the holder if there is a Fundamental Change (as defined in the indenture) in the Company's operation. The indenture does not contain any financial covenants or any restrictions on the payment of dividends or the repurchase of the Company's securities. Deferred debt issuance costs at June 28, 1997 of $5.5 million are being amortized to interest expense over the life of the notes. Approximately $23 million of the net proceeds from the issuance of 6% Convertible Subordinated Notes was used for the early retirement of the Company's remaining 8 3/8% Sinking Fund Debentures due 2002. On July 18, 1997, the Company announced that it will redeem all $125 million of its 7 3/4% Convertible Subordinated Debentures due 2001. The redemption will be effective August 18, 1997. The debentures will be redeemed at a price of 103.1% of the principal face value plus accrued interest through August 18, 1997. Alternatively, the debentures may be converted into Common Stock of Data General at a conversion price of $19.20 anytime before the close of business on August 18, 1997. Coordination of the redemption will be handled by State Street Bank and Trust Company, Trustee of the debentures. Note 5. Letter of Credit and Reimbursment On May 19, 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 are $4.7 million letters of credit secured by this facility at June 28, 1997. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Financial Condition Cash and temporary cash investments as of June 28, 1997 were $310.8 million, an increase of $131.8 million from the end of fiscal 1996. At the same date, the Company held $25.4 million in marketable securities, a net decrease of $.2 million during the current nine-month period. In total, cash and temporary cash investments along with marketable securities increased $131.6 million for the current nine-month period. The increase was mainly attributable to the net proceeds received from the issuance of 6% Convertible Subordinated Notes due 2004, which was partly offset by the retirement of $26.9 million of the 8 3/8% Sinking Fund Debentures and the purchases of inventory required for the growth of the Company's server and storage businesses. The marketable securities held, which supplement cash and temporary cash investments, include United States treasury bills and notes, as well as an equity security recorded at the fair market value of $3.8 million and classified as available-for-sale. The unrealized gain on marketable securities of $2.6 million is recorded as a separate component of shareholders' equity. Net cash provided from operations for the nine months ended June 28, 1997 totaled $64 million; expenditures for property, plant, and equipment were $82.6 million; capitalized software development costs totaled $25.9 million; and cash provided from stock plans totaled $8.1 million. The effect of foreign currency exchange rate fluctuations on cash and temporary cash investments was a decrease of $3.4 million. Net receivables were $257 million, a decrease of $ .8 million from $257.8 million at fiscal year-end 1996. Revenues for the current quarter ended June 28, 1997 were higher than those of the quarter ended September 28, 1996; however, the days sales outstanding decreased from 70 days to 60 days due to increased cash collections from customers. Total inventories at June 28, 1997 were $163.4 million, an increase of $33.6 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 $7 million for the current nine-month period. Management expects that sales of demonstration equipment will continue. During the current nine-month period, the Company paid $1.9 million to retire notes payable that had consisted of borrowings by Data General France SAS. The decrease of $7.3 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 $25.3 million from fiscal year-end 1996. This decrease was primarily a result of payments made relating to previously recorded restructuring accruals and state income taxes, as well as reduced employee-related accruals. Long-term debt, including the current portion of long-term debt, increased $185.9 million from fiscal 1996 year-end as a result of the Company issuing $212.8 million 6% Convertible Subordinated Notes due 2004, which was partially offset by retiring $26.9 million of the 8 3/8% Sinking Fund Debentures due 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 nine-month period of fiscal 1997. The following table sets forth the Company's restructuring activities for the nine-month period ended June 28, 1997. All charges, excluding asset writedowns and certain other charges, are cash in nature and are funded from operations.
Nine Months Ended Sept. 28, 1996 Jun. 28, 1997 Jun. 28, 1997 in millions Balance Charges Balance - ------------------------------------------------------------------------------------------------------------------------------------ Provisions related to terminated employees $ 2.5 $ 1.4 $ 1.1 Provisions for leases 10.0 3.4 6.6 Writedown of assets to be sold or discarded and other 2.0 .7 1.3 ----- ----- ----- Total $14.5 $ 5.5 $ 9.0 ===== ===== =====
The employee terminations related to the 1995 restructuring charges were substantially completed during fiscal 1996. The remaining reserves at June 28, 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. On July 18, 1997, the Company announced that it will redeem all $125 million of its 7 3/4% Convertible subordinated Debentures due 2001. The redemption will be effective August 18, 1997. The debentures will be redeemed at a price of 103.1% of the principal face value plus accrued interest through August 18, 1997. Alternatively, the debentures may be converted into Common Stock of Data General at a conversion price of $19.20 anytime before the close of business on August 18, 1997. Results of Operations The Company reported net income of $14.7 million for the current quarter ended June 28, 1997, an increase of 107% from $7.1 million for the comparable prior-year period. Net income was $38.9 million for the nine months ended June 28, 1997, an increase of 114% from $18.2 million for the first nine-month period of fiscal 1996.
Revenues (in millions) - ------------------------------------------------------------------------------------------------------------------------------------ Quarter ended Nine months ended --------------------------------------------- ---------------------------------------------------- 6/28/97 Change 6/29/96 6/28/97 Change 6/29/96 --------------------------------------------- ---------------------------------------------------- Product $294.2 31% $224.1 $836.0 21% $688.4 % of Total Revenues 75% 69% 74% 70% Service 97.1 (2%) 99.1 293.1 (2%) 297.6 % of Total Revenues 25% 31% 26% 30% Total Revenues $391.3 21% $323.2 $1,129.1 15% $ 986.0 - ------------------------------------------------------------------------------------------------------------------------------------
In the fiscal quarter ended June 28, 1997, product revenues of $131.7 million from the Company's AViiON family of open systems server products represented an increase of 17% from the comparable period of the prior year. In the current quarter, revenues from the Company's Intel-based AViiON systems increased 89%, while revenues from the Motorola-based AViiON systems declined by 30% with the comparable period of the prior year. The Company anticipates that the percentage of server product revenues generated by the Intel-based AViiON products will continue to increase in fiscal 1997, while the Motorola-based AViiON system revenues are expected to continue to decline in the future. Product revenues from the Company's CLARiiON storage systems increased 77% from the comparable prior-year period and accounted for 47% 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 decreased $5.4 million from the same period in the prior year and currently represent 6% of total product revenues compared to 11% for the comparable prior-year period. Proprietary MV revenues declined $3.6 million from the same period in the prior year and currently represent 2% of total product revenues compared to 4% for the comparable prior-year period. For the nine months ended June 28, 1997, product revenues of $380.1 million from the Company's AViiON family of open systems server products increased 14% from $334.2 million for the first nine-month period of fiscal 1996. For the nine months ended June 28, 1997, the Company's Intel-based AViiON revenues increased 148%, while product revenues from the Motorola-based AViiON systems declined by 36% as compared with the first nine-month period of fiscal 1996. Product revenues from the Company's CLARiiON storage systems increased 37% for the comparable nine-month period in fiscal 1996. Product revenues from personal computer and peripheral equipment increased $9.1 million from the comparable nine-month period in the prior year and represent 8% of total product revenues for both the current nine-month period and the comparable prior-year period. Proprietary MV system revenues declined $9 million from the comparable period in the prior year, and represent 2% of total product revenues for the current nine-month period as 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 Nine months ended 6/28/97 - 6/29/96 ----------------------------------------------------- ---------------------------------------- 6/28/97 6/29/96 6/28/97 6/29/96 Quarter ended Nine months ended ------------------------------------------------------ ---------------------------------------- Domestic Product 68% 63% 64% 59% 42% 31% Service 59% 58% 58% 57% 1% (1%) Total Revenues 65% 61% 63% 59% 30% 22% Europe Product 20% 21% 22% 26% 24% 4% Service 30% 31% 32% 32% (4%) (2%) Total Revenues 23% 24% 24% 27% 13% 2% Other International Product 12% 16% 14% 15% 1% 13% Service 11% 11% 10% 11% (11%) (4%) Total Revenues 12% 15% 13% 14% (2%) 9% - ------------------------------------------------------------------------------------------------------------------------------------
In the current quarter ended June 28, 1997, the increase in domestic product revenues was primarily a result of increased shipments of CLARiiON and the Company's Intel-based AViiON systems, which was partly offset by the decrease in Motorola-based AViiON system, MV, personal computer and peripheral equipment revenues. The increase in European product revenues, including U.S. direct export sales, for the quarter ended June 28, 1997 was mainly attributable to the increase in CLARiiON and Intel-based AViiON revenues. The increase in other international product revenues, including U.S. direct export sales, for the current quarter was attributable to the increase in Intel-based AViiON revenues. In the service business, the Company experienced a 3% decline in contract maintenance revenues in the current quarter ended June 28, 1997 as compared with the quarter ended June 29, 1996, which was partly offset by an 1% growth in professional service revenues during the same period. In Europe, the decrease in service revenues for the current quarter was mainly attributable to the effect of foreign exchange due to a stronger U.S. dollar. The increase in domestic product revenues for the nine-month period ended June 28, 1997 was 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 increase was partly offset by the decrease in Motorola-based AViiON system and MV revenues. The increase in European product revenues, including U.S. direct export sales, for the nine-month period ended June 28, 1997, was mainly attributable to the increase in Intel-based AViiON and personal computer and peripheral equipment product revenues, which was partly offset by a decrease in MV revenues. The increase in other international product revenues, including U.S. direct export sales, for the nine-month period ended June 28, 1997 was primarily due to the increase in revenues from the CLARiiON and Intel-based AViiON product lines, which was partly offset by decreased personal computer and peripheral equipment revenues. For the current nine-month period, total revenues in the European marketplace were also negatively impacted by approximately 3% due to a stronger U.S. dollar as compared to the nine-month period ended June 29, 1996.
Cost of Revenues (in millions) - ------------------------------------------------------------------------------------------------------------------------------------ Quarter ended Nine months ended ---------------------------------------------- ---------------------------------------------- 6/28/97 Change 6/29/96 6/28/97 Change 6/29/96 ---------------------------------------------- ----------------------------------------------- Product $199.4 35% $147.2 $563.2 21% $463.9 % of Product Revenues 68% 66% 67% 67% Service 61.4 (4%) 64.0 188.0 (3%) 193.2 % of Service Revenues 63% 65% 64% 65% Total Cost of Revenues $260.8 23% $211.2 $751.2 14% $657.1 % of Total Revenues 67% 65% 67% 67% - ------------------------------------------------------------------------------------------------------------------------------------
The increase in the product cost as a percentage of product revenues for the quarter ended June 28, 1997 was primarily caused by the increased proportion of CLARiiON revenues in the Company's product revenue mix. Generally, CLARiiON revenues yield a lower product margin than the Company's AViiON revenues. The product cost as a percentage of product revenues for the nine months ended June 28, 1997 was relatively unchanged compared to the same period in the prior year.
Operating Expenses (in millions) - ------------------------------------------------------------------------------------------------------------------------------------ Quarter ended Nine months ended -------------------------------------- ----------------------------------------- 6/28/97 Change 6/29/96 6/28/97 Change 6/29/96 -------------------------------------- ----------------------------------------- Research & Development $27.8 8% $25.8 $81.1 14% $71.4 % of Total Revenues 7% 8% 7% 7% Selling, general & administrative $85.5 12% $76.6 $251.6 8% $231.9 % of Total Revenues 22% 24% 22% 24% - ------------------------------------------------------------------------------------------------------------------------------------
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 $107 million, an increase of 14% from $94 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 June 28, 1997 the number of employees totaled 5,064, a net increase of 201 and 189 employees from September 28, 1996 and June 29, 1996, respectively. Interest income for the current quarter was $2.7 million, a 47% increase from $1.8 million for the comparable period of fiscal 1996, due to higher levels of invested cash. Interest expense for the current quarter was $4.5 million, a 37% increase from $3.3 million for the comparable period of fiscal 1996 due to the interest expense related to the 6% Convertible Subordinated Notes due 2004 which were issued during the fiscal quarter ended June 28, 1997. 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 third fiscal quarter of 1997, which ended June 28, 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. In July 1997, IBM answered the Company's complaint, denied the Company's infringement claims and counterclaimed against the Company, alleging that the Company's CLARiiON computer systems infringe one IBM patent. The Company believes its claims are valid, but it cannot predict the outcome of either litigation. Item 2. Changes in Securities On May 21, 1997, the Company sold an aggregate of $212,750,000 principal amount of 6% Convertible Subordinated Notes (the "Notes") through a private offering to qualified institutional buyers and to certain institutional accredited investors. The initial purchasers were Morgan Stanley & Co. Incorporated and Dillon, Read & Co. Inc. The aggregate of the discounts and commissions of the offering was $5,318,750. The Notes were sold in reliance on Rule 144A under the Securities Act to "qualified institutional buyers", and Rule 501(a)(1), (2), (3) or (7) under the Securities Act to a limited number of other "accredited investors". The Notes are convertible into Common Stock of the Company at any time after 90 days following the original issuance thereof and prior to maturity, unless previously redeemed, at a conversion price of $26.194 per share, subject to adjustment in certain events. The Company has filed a Registration Statement on Form S-3 with the Securities and Exchange Commission under the Securities Act, which became effective July 10, 1997, and which permits the resale, on a registered basis, of the Notes and of the shares of Common Stock issuable upon conversion of the Notes from time to time by the selling securityholders. The shares of Common Stock issuable upon conversion of the notes have been approved for listing on the New York Stock Exchange upon official notice of issuance. Approximately $23 million of the net proceeds from the issuance of 6% Convertible Subordinated Notes was used for the early retirement of the Company's remaining 8 3/8% Sinking Fund Debentures due 2002. On July 18, 1997, the Company announced that it will redeem all $125 million of its 7 3/4% Convertible Subordinated Debentures due 2001. The redemption will be effective August 18, 1997. The debentures will be redeemed at a price of 103.1% of the principal face value plus accrued interest through August 18, 1997. Alternatively, the debentures may be converted into Common Stock of Data General at a conversion price of $19.20 anytime before the close of business on August 19, 1997. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits: 10. (dd) Amendment dated May 19, 1997 to Letter of Credit and Reimbursement Agreement 11. Computation of primary and fully diluted earnings per share. (b) Reports on Form 8-K The Company filed a report on Form 8-K on May 15, 1997, which included a copy of a press release regarding the sale of $212.8 million of 6% Convertible Subordinated Notes due 2004 and the retirement of $23 million of 8 3/8% Sinking Fund Debentures due 2002. The Company filed a report on Form 8-K on July 21, 1997, which included a copy of a press release regarding the retirement of $125 million of 7 3/4% Convertible Subordinated Debentures due 2001. 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: August 8, 1997 EXHIBITS Index to Exhibits. 10. (dd) Amendment dated May 19, 1997 to letter of Credit and Reimbursement Aggreeement 11. Computation of primary and fully diluted earnings per share. EX-10 2 AMENDMENT NO.TO LETTER OF CREDIT FACILITY EXHIBIT 10 (dd) AMENDMENT NO. 5 TO LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT THIS AMENDMENT NO. 5 TO LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT (this "Agreement") is made and entered into as of this 19th day of May, 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, as further amended by Amendment No. 3 to Letter of Credit and Reimbursement Agreement dated as of December 11, 1996, and as further amended by Amendment No. 4 to Letter of Credit and Reimbursement Agreement dated as of April 18, 1997 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, Section 7.05 of the Credit Agreement is hereby amended by deleting the dollar figure "$200,000,000" in clause (v) thereof and inserting in replacement thereof the dollar figure "$250,000,000". 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 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 Q3 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 Nine Months Ended ---------------------- ------------------------ Jun. 28, Jun. 29, Jun. 28, Jun. 29, 1997 1996 1997 1996 -------- -------- -------- -------- Primary earnings per share: Net income............................................................ $14,745 $ 7,141 $38,941 $18,184 ======= ======= ======= ======= Weighted average shares outstanding................................... 40,625 39,045 40,155 38,563 Incremental shares from use of treasury stock method for stock options...................................... 2,951 2,469 2,703 2,497 ------- ------- ------- ------- Common and common equivalent shares, where applicable............................................ 43,576 41,514 42,858 41,060 ======= ======= ======= ======= Net income per share.................................................. $.34 $.17 $.91 $.44 ======= ======= ======= ======= Earnings per share assuming full dilution: (a) Net income............................................................ $14,745 $ 7,141 $38,941 $18,184 ======= ======= ======= ======= Weighted average shares outstanding................................... 40,625 39,045 40,155 38,563 Incremental shares from use of treasury stock method for stock options...................................... 3,387 2,501 2,902 2,647 ------- ------- ------- ------- Common and common equivalent shares, assuming full dilution, where applicable............................ 44,012 41,546 43,057 41,210 ======= ======= ======= ======= Net income per share.................................................. $.34 $.17 $.91 $.44 ======= ======= ======= ======= (a) For the quarters and nine-month periods ended June 28, 1997 and June 29, 1996, the assumed conversion of convertible debentures, giving effect to the incremental shares and the adjustment to reduce interest expense, is anti-dilutive and has therefore been excluded from the computation.
EX-27 4 ART.5 FOR 3RD QUARTER 1997 10-Q
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE Q3 FY97 CONDENSED CONSOLIDATED BALANCE SHEET AND CONDENSED CONSOLIDATED STATEMENT OF OPERATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS SEP-27-1997 JUN-28-1997 310,789 25,381 256,977 0 163,387 782,270 647,031 471,727 1,050,180 329,701 337,750 0 0 472,178 (103,912) 1,050,180 835,992 1,129,090 563,178 751,145 332,649 0 10,823 40,741 1,800 38,941 0 0 0 38,941 .91 .91
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