-----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, V1djqikkucVFsKEWrttKB08HsPMCBe8nM2WhIEHvrummPEHdQop/mfGgsqI9Nxjj j8O4dmvLh2L/0x6BFg9xOA== 0000026999-99-000003.txt : 19990507 0000026999-99-000003.hdr.sgml : 19990507 ACCESSION NUMBER: 0000026999-99-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990327 FILED AS OF DATE: 19990506 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DATA GENERAL CORP CENTRAL INDEX KEY: 0000026999 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER & OFFICE EQUIPMENT [3570] IRS NUMBER: 042436397 STATE OF INCORPORATION: DE FISCAL YEAR END: 0925 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07352 FILM NUMBER: 99611921 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 FY99 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 27, 1999 -------------- 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 23, 1999: Common Stock, par value $.01 50,607,446 - ---------------------------- ------------------- (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. 27, Mar. 28, Mar. 27, Mar. 28, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 1999 1998 1999 1998 - ---------------------------------------------------------------------------------------------------------------------- REVENUES: Product................................................. $257,679 $263,744 $526,515 $530,921 Service................................................. 97,671 98,066 194,424 196,164 --------- -------- -------- -------- Total revenues..................................... 355,350 361,810 720,939 727,085 --------- -------- -------- -------- COSTS AND EXPENSES: Cost of product revenues................................ 177,116 190,698 361,333 379,869 Cost of service revenues................................ 61,366 63,114 122,197 123,290 Research and development................................ 28,646 28,945 57,519 56,393 Selling, general, and administrative.................... 86,317 85,083 172,792 169,454 --------- -------- -------- -------- Total costs and expenses........................... 353,445 367,840 713,841 729,006 --------- -------- -------- -------- Income (loss) from operations............................... 1,905 (6,030) 7,098 (1,921) Interest income............................................. 3,026 3,382 6,045 6,891 Interest expense............................................ 3,524 3,595 7,300 7,215 Other income................................................ 642 2,240 6,014 2,240 --------- -------- -------- -------- Income (loss) before income taxes........................... 2,049 (4,003) 11,857 (5) Provision (benefit) for income taxes........................ 400 500 (6,300) 1,000 --------- -------- -------- -------- Net income (loss)........................................... $ 1,649 $ (4,503) $ 18,157 $ (1,005) ========= ======== ======== ======== BASIC NET INCOME (LOSS) PER SHARE Net income (loss) per share............................. $0.03 $(0.09) $0.36 $(0.02) ===== ====== ===== ====== Weighted average shares outstanding..................... 50,325 48,887 50,063 48,763 ====== ====== ====== ====== DILUTED NET INCOME (LOSS) PER SHARE: Net income (loss) per share............................. $0.03 $(0.09) $0.35 $(0.02) ===== ====== ===== ====== Weighted average shares outstanding, including common stock equivalents, where applicable.............. 51,631 48,887 51,433 48,763 ====== ====== ====== ====== 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. 27, Sept. 26, DOLLARS IN THOUSANDS, EXCEPT PAR VALUE 1999 1998 - ------------------------------------------------------------------------------------------------------------------------- ASSETS Current assets Cash and temporary cash investments............................................ $ 137,678 $ 158,220 Marketable securities.......................................................... 152,587 160,354 Receivables, net............................................................... 293,271 307,428 Inventories.................................................................... 128,907 141,639 Other current assets........................................................... 30,702 28,320 ---------- ---------- Total current assets...................................................... 743,145 795,961 Property, plant, and equipment, net................................................ 194,179 180,454 Other assets....................................................................... 95,238 88,649 ---------- ---------- Total assets.............................................................. $1,032,562 $1,065,064 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable............................................................... $ 119,786 $ 160,940 Other current liabilities...................................................... 263,067 269,774 ---------- ---------- Total current liabilities................................................. 382,853 430,714 ---------- ---------- Long-term debt..................................................................... 212,750 212,750 ---------- ---------- Other liabilities.................................................................. 26,324 36,645 ---------- ---------- Stockholders' equity Common stock, $0.01 par value Outstanding - 50,586,000 shares at Mar. 27, 1999 and 49,689,000 shares at Sept. 26, 1998 (net of deferred compensation of $17,332 at Mar. 27, 1999 and $15,444 at Sept. 26, 1998)............................................ 636,868 626,137 Accumulated deficit................................................................ (213,819) (231,976) Unrealized gains on marketable securities.......................................... 7,518 8,513 Equity adjustment for minimum pension liability.................................... (6,252) (6,252) Cumulative translation adjustment.................................................. (13,680) (11,467) ---------- ---------- Total stockholders' equity................................................ 410,635 384,955 ---------- ---------- Total liabilities and stockholders' equity................................ $1,032,562 $1,065,064 ========== ========== 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. 27, Mar. 28, IN THOUSANDS 1999 1998 - ------------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss).................................................................. $ 18,157 $ (1,005) Adjustments to reconcile net income (loss) to net cash provided from operating activities Depreciation.................................................................. 38,194 38,442 Amortization of capitalized software development costs........................ 8,787 12,565 Gain on sale of marketable securities......................................... (6,014) (2,240) Other non-cash items, net..................................................... (6,049) 2,693 Change in operating assets and liabilities.................................... (11,559) (42,021) -------- -------- Net cash provided from operating activities................................... 41,516 8,434 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Expenditures for property, plant, and equipment.................................... (63,357) (66,149) Net proceeds from the purchases and sales of marketable securities................. 12,787 22,003 Capitalized software development costs............................................. (16,498) (21,290) -------- -------- Net cash used by investing activities......................................... (67,068) (65,436) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Cash provided from stock plans..................................................... 7,301 5,212 -------- -------- Net cash provided from financing activities................................... 7,301 5,212 -------- -------- Effect of foreign currency rate fluctuations on cash and temporary cash investments................................................ (2,291) (1,108) -------- -------- Decrease in cash and temporary cash investments........................................ (20,542) (52,898) Cash and temporary cash investments - beginning of period.............................. 158,220 216,814 -------- -------- Cash and temporary cash investments - end of period.................................... $137,678 $163,916 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest paid...................................................................... $ 6,807 $ 6,646 Income taxes paid.................................................................. $ 4,458 $ 908 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. 27, Sept. 26, in thousands 1999 1998 - ------------------------------------------------------------------------------------------------------------------------- Inventories Raw materials...................................................................... $ 5,987 $ 1,420 Work in process.................................................................... 58,206 64,200 Finished systems................................................................... 40,954 50,632 Field engineering parts and components............................................. 23,760 25,387 --------- --------- $ 128,907 $ 141,639 ========= ========= Property, plant, and equipment Property, plant, and equipment..................................................... $ 657,101 $ 641,612 Accumulated depreciation........................................................... (462,922) (461,158) --------- --------- $ 194,179 $ 180,454 ========= =========
Note 2. Accounting Policies In the first quarter of fiscal 1998, the Company adopted Statement of Financial Accounting Standards No. 128 ("SFAS 128") "Earnings per Share." The following data show the amounts used in computing earnings per share and the effect on income and the weighted average number of shares of potentially dilutive common stock. Quarter Ended ----------------------------------------------------------------------------------- Mar. 27, 1999 Mar. 28, 1998 ---------------------------------------- ---------------------------------------- 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 (loss) available to common stockholders $1,649 50,325 $0.03 $(4,503) 48,887 $(0.09) ===== ====== Effect of Dilutive Securities Stock options -- 1,306 -- -- ------- ------ ------- ------ Diluted Earnings Per Share Net income (loss) available to common stockholders and assumed conversions $1,649 51,631 $0.03 $(4,503) 48,887 $(0.09) ====== ====== ===== ======= ====== ======
Six Months Ended --------------------------------------------------------------------------------- Mar. 27, 1999 Mar. 28, 1998 ---------------------------------------- -------------------------------------- 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 (loss) available to common stockholders $18,157 50,063 $0.36 $(1,005) 48,763 $(0.02) ===== ====== Effect of Dilutive Securities Stock options -- 1,370 -- -- -------- ------ -------- ------- Diluted Earnings Per Share Net income (loss) available to common stockholders and assumed conversions $18,157 51,433 $0.35 $(1,005) 48,763 $(0.02) ======= ====== ===== ======= ====== ====== For the quarter and six-month periods ended March 27, 1999 and March 28, 1998, the assumed conversion of the 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. For the quarter and six-month period ended March 28, 1998, the assumed exercise of stock options, giving effect to the incremental shares, is anti-dilutive and has been therefore 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 1998 Annual Report. The results of operations for the quarter ended March 27, 1999 are not necessarily indicative of the results of the entire fiscal year. Note 4. Restructuring Charge During fiscal year 1998, the Company approved and implemented a restructuring program designed to strengthen the Company's focus on storage and enterprise computing solutions and reduce costs in non-strategic areas. The restructuring was adopted in response to the increasing price competition within the computer hardware industry. Accordingly, during fiscal year 1998, the Company recorded a charge of approximately $135 million related to the restructuring program and certain asset write-downs resulting from the plan. A summary of the related accrued liability balance at March 27, 1999 is as follows: - ----------------------------------------------------------------------------------------------------------------------- Less: Fiscal Year 1999 Sept. 26, 1998 Cash Payments and Mar. 27, 1999 in millions Balance Asset Write-downs Balance - ----------------------------------------------------------------------------------------------------------------------- Employee termination benefits $ 27.0 $ 10.1 $ 16.9 Asset write-downs 6.7 5.0 1.7 Lease abandonments 10.6 1.4 9.2 Other exit costs 3.7 2.0 1.7 ------ ------ ------ Total $ 48.0 $ 18.5 $ 29.5 ====== ====== ====== - --------------------------------------------------------------------------------------------------------------------------
The provision included severance benefits for approximately 480 employees, of which approximately 65% were based in the United States and the remainder in Europe and Asia/Pacific. Of the 480 employees identified, approximately 422 were terminated as of March 27, 1999. The remaining terminations are expected to be complete by the end of the fiscal year. Asset write-downs are composed primarily of fixed assets, including leasehold improvements and demonstration equipment which are being disposed of in connection with the restructuring program. The provision for lease abandonments relates to vacated lease properties, mainly in Europe and Asia, and includes a change in estimate of $1.3 million for lease abandonment costs accrued in prior years. There were no material changes in estimates to prior provisions or additional charges recorded during the six-month period ended March 27, 1999. Note 5. Comprehensive Income In the first quarter of fiscal 1999, the Company adopted SFAS Number 130, "Reporting Comprehensive Income." This statement establishes standards for reporting and displaying comprehensive income and its components in a full set of general purpose financial statements. This statement requires the classification of items of comprehensive income by their nature in a financial statement and the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of the balance sheet. The Company's total comprehensive income is as follows: Quarter Ended Six-Months Ended --------------------------- ------------------------- Mar. 27, Mar. 28, Mar. 27, Mar. 28 in thousands 1999 1998 1999 1998 - ----------------------------------------------------------------------------------------------------------- Net income (loss) ........................... $ 1,649 $ (4,503) $ 18,157 $(1,005) Other comprehensive income (expense): Unrealized gains (losses) on marketable securities................. (1,758) 7,527 (995) 8,202 Cumulative translation adjustment........ (1,601) (72) (2,213) (449) ------- -------- -------- ------- Total other comprehensive income (loss)...... (3,359) 7,455 (3,208) 7,753 ------- -------- -------- ------- Total comprehensive income (loss)............ $(1,710) $ 2,952 $ 14,949 $ 6,748 ======= ======== ======== =======
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Results of Operations The Company reported net income of $1.7 million for the current quarter ended March 27, 1999, compared with a net loss of $4.5 million for the same period of the prior year. The net income was $18.2 million for the six-months ended March 27, 1999, compared with a net loss of $1.0 million for the comparable six-month period ended March 28, 1998. The net income for the current six-month period includes a gain of $7.5 million resulting from a settlement with the Internal Revenue Service related to taxes paid during the Company's 1983 through 1991 fiscal years and an additional gain of $6.0 million resulting from sales of an investment. Revenues (in millions) - ---------------------------------------------------------------------------------------------------------------------- Quarter ended Six-months ended ------------------------------------------------------------------------------------ 3/27/99 Change 3/28/98 3/27/99 Change 3/28/98 ------- ------ ------- ------- ------ ------- Product $257.7 (2%) $263.7 $526.5 (1%) $530.9 % of Total Revenues 73% 73% 73% 73% Service 97.6 (1%) 98.1 194.4 (1%) 196.2 % of Total Revenues 27% 27% 27% 27% Total $355.3 (2%) $361.8 $720.9 (1%) $727.1 - ----------------------------------------------------------------------------------------------------------------------
In the fiscal quarter ended March 27, 1999, product revenues were $135.0 million from the Company's AViiON family of open systems server products compared with product revenues of $133.5 million in the comparable period of the prior year. In the current quarter, revenues from the Company's Intel processor-based AViiON systems increased 12% to $125.9 million while revenues from the Motorola processor-based AViiON systems declined by 56% compared with the same period of the prior year. The Company anticipates that the percentage of server product revenues generated by the Intel processor-based AViiON products will continue to increase in fiscal 1999, while the Motorola processor-based AViiON system revenues are expected to continue to decline. Revenues from AViiON systems running the Microsoft Windows NT operating system increased by approximately 13% as compared to the same quarter in fiscal 1998. Product revenues from the Company's CLARiiON storage systems increased 12% to $103.0 million from the comparable prior-year period despite a decline in revenues from CLARiiON's largest OEM customer by nearly 50%. Excluding revenues from this customer, CLARiiON revenues grew approximately 50% from the same period of the prior-year. CLARiiON revenues accounted for 40% of total product revenues in the current quarter. Within the CLARiiON family of storage systems, full fibre channel revenues represented approximately 59% of total CLARiiON revenues. The Company anticipates that the percentage of revenues from full fibre channel products will continue to increase while the percentage of revenues from SCSI-based products will decline. CLARiiON is sold primarily through the Company's original equipment manufacturer (OEM) and distributor channels; thus sales in any given period are subject to sales cycles and inventory levels of the Company's customers. CLARiiON product revenues have been concentrated in a limited number of customers. Product revenues from personal computers and other equipment decreased 28% from the same period in the prior year and represented 7% of total product revenues compared to 9% for the comparable prior-year period. Product revenues from VALiiANT, the Company's contract manufacturing operation decreased by nearly $12 million from the comparable quarter in fiscal 1998 as certain contracts have expired. VALiiANT revenues represented less than 1% of total product revenues for the quarter ended March 27, 1999. For the six-months ended March 27, 1999, product revenues were $272.7 million from the Company's AViiON family of open systems server products compared with product revenues of $266.8 million in the comparable period of the prior year. In the current six-month period, revenues from the Company's Intel processor-based AViiON systems increased 14% to $252.6 million while revenues from the Motorola processor-based AViiON systems declined by 56% compared with the same six-month period of the prior year. Revenues from AViiON systems running the Microsoft NT operating system increased by approximately 24% from the comparable period of the prior year. Product revenues from the Company's CLARiiON storage systems increased 11% to $216.7 million from the comparable prior-year period and accounted for 41% of total product revenues in the current six-month period. Within the CLARiiON family of storage systems, full fibre channel revenues increased nearly five times from the comparable six-month period of the prior year and represented approximately 53% of total CLARiiON revenues in the current six-month period. Product revenues from personal computers and other equipment decreased 30% from the same six-month period in the prior year and represented 7% of total product revenues compared to 9% for the comparable prior-year period. Revenues by Geographic Marketplace - -------------------------------------------------------------------------------------------------------------------------- Percentage of Percentage Change of Consolidated Revenues $ of Revenues --------------------------------------------------------------------------------------------- Quarter ended Six-months ended 3/27/99 - 3/28/98 --------------------------------------------------------------------------------------------- 3/27/99 3/28/98 3/27/99 3/28/98 Quarter ended Six-months ended --------------------------------------------------------------------------------------------- Domestic Product 62% 59% 61% 60% 1% 1% Service 60% 59% 59% 60% - (3%) Total 61% 59% 60% 60% 1% - Europe Product 24% 25% 25% 24% (5%) - Service 31% 31% 32% 31% - 5% Total 27% 27% 27% 26% (3%) 1% Other International Product 14% 16% 14% 16% (12%) (8%) Service 9% 10% 9% 9% (3%) (7%) Total 12% 14% 13% 14% (10%) (8%) - --------------------------------------------------------------------------------------------------------------------------
The increase in domestic product revenues for the current quarter and six-month period ended March 28, 1999 was primarily a result of increased shipments of CLARiiON and Intel processor-based AViiON systems, which was partly offset by decreased shipments of Motorola processor-based AViiON systems and VALiiANT products. The decrease in European product revenues, including U.S direct export sales, for the current quarter was due to decreased shipments of Motorola processor-based AViiON systems and personal computers and other equipment, offset, in part, by increases in Intel processor-based AViiON systems and CLARiiON. Other international product revenues, including U.S. direct export sales, for the current quarter and six-month period ended March 27, 1999 decreased 12% and 8%, respectively, as compared with the same fiscal periods in 1998. The decreases for the three-month and six-month periods ended March 27, 1999, are attributable to decreased shipments from CLARiiON offset, in part, by increases in Intel processor-based AViiON systems. In the service business, the Company experienced a 4% decrease in contract maintenance revenues in the current quarter ended March 27, 1999 as compared with the same period in fiscal 1998 due to a decline in the contract maintenance service base. This decrease was offset, in part, by a 10% increase in professional services revenues in the current quarter ended March 27, 1999 as compared with the quarter ended March 28, 1998. Professional services revenues represented approximately 27% of total service revenues in the current quarter. For the six-month period the Company experienced a 3% decrease in contract maintenance revenues offset, in part, by a 6% increase in professional services revenue. Professional services revenues represented 26% of total service revenues in the current six-month period. The effect of foreign exchange on international revenues was negligible for the current quarter. Cost of Revenues (in millions) - ----------------------------------------------------------------------------------------------------------------------- Quarter ended Six-months ended ------------------------------------------------------------------------------------------- 3/27/99 Change 3/28/98 3/27/99 Change 3/28/98 ------------------------------------------------------------------------------------------- Product $177.1 (7%) $190.7 $361.3 (5%) $379.9 % of Product Revenues 69% 72% 69% 72% Service 61.4 (3%) 63.1 122.2 (1%) 123.3 % of Service Revenues 63% 64% 63% 63% Total Cost of Revenues $238.5 (6%) $253.8 $483.5 (4%) $503.2 % of Total Revenues 67% 70% 67% 69% - -----------------------------------------------------------------------------------------------------------------------
The decrease in the product cost as a percentage of product revenues from the comparable prior-year periods was primarily the result of the shift in product mix to high-end NUMA technology based AViiON servers. The decrease in the service cost as a percentage of service revenues for the current quarter ended March 27, 1999 as compared to the same period of the prior year, is a result of the reduction in labor costs associated with the Company's restructuring program and improved spare parts management. Operating Expenses (in millions) - ------------------------------------------------------------------------------------------------------------------------ Quarter ended Six-months ended ---------------------------------------------------------------------------- 3/27/99 Change 3/28/98 3/27/99 Change 3/28/98 ---------------------------------------------------------------------------- Research & Development $28.6 (1%) $28.9 $57.5 2% $56.4 % of Total Revenues 8% 8% 8% 8% Selling, general & administrative $86.3 1% $85.1 $172.8 2% $169.5 % of Total Revenues 24% 24% 24% 23% - ------------------------------------------------------------------------------------------------------------------------
The Company continues to focus its research and development efforts on its core business technology: multi-user computer systems and mass storage devices. In the current six-month period, gross expenditures on research and development and software development before capitalization were $74.0 million, a decrease of 5% from $77.6 million for the comparable prior-year period. Gross expenditures on research and development before capitalization for the quarter ended March 27, 1999 were $37.1 million, a decrease of 6% from $39.5 million expended during the quarter ended March 28, 1998. For both the three-month and six-month periods ended March 27, 1999, continued increases in research and development expenditures in CLARiiON fibre channel products and NUMA technology, were offset, in part, by savings associated from the Company's restructuring program implemented in fiscal year 1998. For the current six-month period ended March 27, 1999, selling, general, and administrative expenses increased by 2% over the comparable prior-year quarter. The increase is a result of increased sales marketing efforts in the storage business, partially offset by savings in the server business resulting from the Company's fiscal 1998 restructuring program. Selling, general and administrative expenses were $86.3 million for the three-month period ended March 27, 1999, an increase of 1% as compared to the $85.1 million for the three-month period ended March 28, 1998. During fiscal year 1998, the Company approved and implemented a restructuring program designed to strengthen the Company's focus on storage and enterprise computing solutions and reduce costs in non-strategic areas. The restructuring was adopted in response to the increasing price competition within the computer hardware industry. Accordingly, during fiscal year 1998, the Company recorded a charge of approximately $135 million related to the restructuring program and certain asset write-downs resulting from the plan. A summary of the related accrued liability balance at March 27, 1999 is as follows: - ------------------------------------------------------------------------------------------------------------------------ Less: Fiscal Year 1999 Sept. 26, 1998 Cash Payments and Mar. 27, 1999 in millions Balance Asset Write-downs Balance - ------------------------------------------------------------------------------------------------------------------------ Employee termination benefits $ 27.0 $ 10.1 $ 16.9 Asset write-downs 6.7 5.0 1.7 Lease abandonments 10.6 1.4 9.2 Other exit costs 3.7 2.0 1.7 ------ ------ ------ Total $ 48.0 $ 18.5 $ 29.5 ====== ====== ====== - --------------------------------------------------------------------------------------------------------------------------
The provision included severance benefits for approximately 480 employees, of which approximately 65% were based in the United States and the remainder in Europe and Asia/Pacific. Of the 480 employees identified, approximately 422 were terminated as of March 27, 1999. The remaining terminations are expected to be complete by the end of the fiscal year. Asset write-downs are composed primarily of fixed assets, including leasehold improvements and demonstration equipment which are being disposed of in connection with the restructuring program. The provision for lease abandonments relates to vacated lease properties, mainly in Europe and Asia, and includes a change in estimate of $1.3 million for lease abandonment costs accrued in prior years. There were no material changes in estimates to prior provisions or additional charges recorded during the six-month period ended March 27, 1999. During fiscal year 1995, the Company recorded a restructuring charge of $43 million. As of March 27, 1999 the remaining reserves of $2.6 million from the 1995 restructuring charge are for excess vacant rental properties, primarily located in Europe. At March 27, 1999, the number of employees totaled approximately 4,800, which is an increase of approximately 100 employees from the number of employees at September 26, 1998 and a reduction of approximately 300 employees from March 28, 1998. Interest income for the current quarter was $3.0 million, an 11% decrease from $3.4 million for the comparable period of fiscal 1998, due to lower interest yields and levels of invested cash. Interest expense for the current quarter was $3.5 million, a 2% decrease from $3.6 million for the comparable period of fiscal 1998, and relates primarily to interest on the Company's 6% Convertible Subordinated Notes due 2004. Other income for the current quarter includes a gain of $0.6 million from the sale of an equity investment in a non-affiliated company. Interest income, interest expense and other income were $6.0 million, $7.3 million and $6.0 million, respectively, for the six-month period ended March 27, 1999 as compared to $6.9 million, $7.2 million and $2.2 million, respectively, for the comparable period of the prior year. Other income consists of gains on sales of equity investments in non-affiliated companies in both years. The current quarter income tax expense of $0.4 million relates primarily to foreign and state income taxes, as well as federal alternative minimum taxes. The Company has a valuation allowance which offsets substantially all deferred tax assets as of March 27, 1999 and March 28, 1998. The amount of the deferred tax assets considered realizable is subject to change based on estimates of future income during the carryforward period. The Company will assess the need for the valuation allowance at each balance sheet date based on all available evidence and may adjust the level of the valuation allowance, if appropriate. The income tax benefit for the six-month period ended March 27, 1999 of $6.3 million includes a gain of $7.5 million resulting from a settlement with the Internal Revenue Service for taxes paid during the Company's 1983 through 1991 fiscal years. Financial Condition Cash and temporary cash investments as of March 27, 1999 were $137.7 million, a decrease of $20.5 million from the end of fiscal 1998. At the same date, the Company held $152.6 million in marketable securities, a net decrease of $7.8 million from the end of fiscal 1998. In total, cash and temporary cash investments along with marketable securities decreased $28.3 million for the current six-month period. The decrease was mainly attributable to the purchases of equipment required for the Company's server and storage businesses, payments reducing employee and vendor related accruals, and payments related to the restructuring program implemented in June 1998. The marketable securities held, which supplement cash and temporary cash investments, include United States treasury bills and notes, notes issued by U.S. government agencies, commercial paper and certificates of deposit, as well as equity securities recorded at their fair market value of $8.8 million and are classified as available-for-sale. The unrealized gain on marketable securities of $7.5 million as of March 27, 1999 is recorded as a separate component of stockholders' equity. During the current three-month and six-month periods ended March 27, 1999, the Company recorded gains of $0.6 million and $6.0 million, respectively on the sale of an investment in marketable securities. Net cash provided from operations for the six-months ended March 27, 1999 totaled $41.5 million; expenditures for property, plant, and equipment totaled $63.4 million; capitalized software development costs totaled $16.5 million. Cash provided from stock plans totaled $7.3 million during the current six-month period ended March 27, 1999. The effect of foreign currency exchange rate fluctuations on cash and temporary cash investments was a decrease of $2.3 million. Net receivables as of March 27, 1999 were $293.3 million, a decrease of $14.1 million from $307.4 million as of September 26, 1998. The decrease is primarily attributable to a decline in revenues. Inventories as of March 27, 1999 were $128.9 million, a decrease of $12.7 million from September 26, 1998, primarily as a result of the reduction in inventory levels related to improved supply management. Net property, plant, and equipment increased $13.7 million from September 26, 1998 to $194.2 million primarily due to the purchases of equipment and capital expenditures for developing both operating and financial systems and to support the new product initiatives in the server and storage businesses. Fixed asset dispositions related to the sale of demonstration equipment totaled $3.2 million for the current six-month period. Management expects that sales of demonstration equipment will continue. The increase of $6.6 million in other assets from September 26, 1998 to $95.2 million at March 27, 1999 was attributed mainly to the capitalization of software development costs net of related amortization. The decrease of $41.2 million in accounts payable from September 26, 1998 levels was attributed mainly to the timing of payments related to purchases of material and an increase in the value of unmatured foreign exchange contracts. Other current and other liabilities decreased by approximately $17.0 million from September 26, 1998 to $289.4 million. The decrease from September 26, 1998 was primarily related to funding of the Company's domestic pension plan and payments related to the Company's restructuring program. Long-term debt of $212.8 million remained unchanged from September 26, 1998. Year 2000 Information and Readiness Disclosure The "Year 2000 issue" arises because many computer hardware and software systems use only two digits to represent the year. As a result, these systems and programs may not correctly handle dates beyond 1999, resulting in errors in information or program or systems failures. Assessments of the potential effects of the Year 2000 issues vary markedly among different companies, governments, consultants, economists, and commentators. It is not possible to accurately predict what the actual impact may be. In this context, the Company offers the following statements concerning the Year 2000 issues. All statements made and referred to here are Year 2000 readiness disclosures under the U.S. Year 2000 Information and Readiness Disclosure Act. To better address the Year 2000 issue in a comprehensive and coordinated manner, across all of Data General's operations worldwide, the Company has created a cross-functional corporate Year 2000 project team, reporting and responsible to the senior management of the Company. A project plan has been adopted and is guiding the Company's efforts to assess and address Year 2000 issues pertaining to each of the identified functional areas of the company's operations. 1. Product Readiness and Customer Communications The Company is communicating with its customers concerning the Year 2000 issue. The primary means of communication are the Data General and CLARiiON Year 2000 Internet web sites at http://www.dg.com/year2000 and http://www.clariion.com/corporat/yr2000readiness.html, where Year 2000 readiness disclosures concerning various products and the Company's Year 2000 program are made available to customers and the general public. The Company has assessed the Year 2000 readiness of Data General's AViiON computer systems and CLARiiON storage products, as well as of Data General Pentium processor-based and later generation personal computers. Based on these efforts as of March 27, 1999, the Company has determined that Data General's AViiON computer systems and CLARiiON storage products are either Year 2000 Ready or may be made so by means of Year 2000 updates or patches available from the Company. As well, the Company offers a Year 2000 support strategy for the current releases of Data General's DG/UX operating system software, the details of which are available on the Data General Year 2000 web site. Most other active Data General and CLARiiON-branded products, including many 32-bit ECLIPSE MV computer systems, have also been evaluated for Year 2000 readiness. Consistent with industry practices, inquiries concerning Year 2000 readiness of third-party products resold by Data General are being referred to the third-party suppliers of such products. The Company has determined not to test certain products for Year 2000 Readiness. As well, some Data General products have been determined to not be Year 2000 Ready. For the most current information concerning products' Year 2000 readiness, customers are directed to the Data General Year 2000 web sites, since the Company is making no statement regarding Year 2000 readiness for any product except as noted on the Company's Year 2000 web sites. 2. Data General's Internal Systems, Manufacturing Processes, and Facilities Data General has been preparing for Year 2000 since mid-1996, and has established teams to coordinate solutions to the Year 2000 issue for its own internal information systems and applications across the Company's operations worldwide. Generally, the Company has structured the Year 2000 project in four phases: inventory and assessment; remediation and/or avoidance; compliance confirmation; and (as and when appropriate) contingency planning. As of December 31, 1998, Data General had substantially completed the assessment and inventory phase of its Year 2000 project relative to the Company's key information system and applications. As of March 27, 1999, approximately 60% of the Company's key business systems have been qualified by the Company as Year 2000 Ready. Data General continues to address known Year 2000 issues, and is committed to making its key internal information systems Year 2000 Ready in time to meet the Company's critical business requirements. Based on existing plans and schedules, and subject to the possibility of delays, the Company plans to have substantially all of its key business systems Year 2000 Ready by September 30, 1999. Although Data General's Year 2000 project relative to its critical information management systems is still in process, the Company believes that the impact of the Year 2000 issues on its core business systems and applications should not have a material adverse impact on future results. The Company has assessed the Year 2000 issue as related to its manufacturing facilities and processes. Projects are underway to address those Year 2000 issues which have been identified. The Company is not aware at March 27, 1999, of any material Year 2000 concerns with respect to its manufacturing facilities and processes. The Company is also continuing its assessment of the possible impact of Year 2000 issues on the operations of its offices and facilities (including such matters as security systems, PBX and voicemail systems, and heating and air-conditioning systems). Projects are underway to address those Year 2000 issues which have been identified. The Company is not aware at March 27, 1999, of any material Year 2000 concerns with respect to the operation of its offices and facilities. The Company is also seeking to assess the Year 2000 risks arising from external factors, such as potential interruptions of telecommunications or transportation services, or utilities. The likelihood and extent of widespread or persistent interruptions to such infrastructure services will generally be difficult to predict. As better information becomes available, the Company will be developing contingency plans intended to support the continued operation of the Company's critical functions in the event of interruptions to infrastructure services. 3. Data General's Suppliers The Company's procurement organizations are seeking to monitor the Year 2000 readiness of the Company's key suppliers. The Company is assessing the responses to Year 2000 readiness questionnaires sent in December 1998, to an extensive list of suppliers, including those suppliers which the Company considers most critical to its operations. The Company is following up with these suppliers where appropriate. Since the Company's suppliers' Year 2000 preparations and assessments are ongoing, Data General's efforts to monitor the Year 2000 readiness of key suppliers will be continuing. If Year 2000 readiness issues are identified, the Company intends to take reasonable actions as needed to address the Company's business requirements. Since determining the Year 2000 readiness of suppliers depends upon their cooperation and upon their disclosure of often imprecise or estimated information, it is likely that the Company's inquiries will not be entirely successful, and it remains possible that the actual outcomes may deviate from the suppliers' assurances to the Company. It is possible that notwithstanding the Company's efforts, interruptions of key components or services could have an adverse impact on the Company's operations and future results. The Company is evaluating contingency plans to mitigate or avoid potential interruptions to normal business operations. It is likely, however, that not every potential Year 2000 exposure will be avoided; for example alternative sources of supply for single-sourced components may not always be readily available. A measure of reasonable business risk will be undertaken relative to the Year 2000 problem, both by Data General and by other companies. 4. Risks of Claims There may be a potential for claims against the Company arising from products and services that were not Year 2000 Ready. Because the Company is in the business of selling computer system products, the Company's risk of being subjected to lawsuits relating to Year 2000 issues with its products is likely to be greater than that of companies in other industries. Although the Company believes that it has valid defenses to Year 2000 claims which may be brought against it by its customers, the outcomes of Year 2000 claims and the impact of such claims on the Company cannot be determined at this time. The actual outcomes will depend on the facts and circumstances of each situation and on an evolving state of law as Year 2000 claims are addressed by legal systems worldwide. 5. Costs associated with the Year 2000 Project The cost of addressing Year 2000 issues is funded through operating cash flows. The Company does not expect the amounts to have a material effect on its financial position or results of operations. The Company has incurred costs of approximately $3 million directly associated with Year 2000 projects to date as of March 27, 1999. 6. Certain Additional Risk Factors It is unknown how the Company's sales may be impacted by Year 2000 issues. As the Company's customers focus on preparing their businesses for Year 2000, capital budgets in the near term may be redirected toward remediation efforts, potentially delaying the purchase or implementation of new systems, thereby creating less demand for the Company's products and services. As well, customers' procurement efforts may be temporarily delayed as a result of Year 2000 readiness testing within customers' operations. Alternatively, sales of Year 2000 Ready Data General products could be increased, as Year 2000 Ready products replace older products. Service revenues could be reduced if customers discontinue support of products which are not Year 2000 Ready, or perhaps increased as customers purchase new, Year 2000 Ready systems. As well, the Company's sales during 1999 could be affected by the customers' perceptions of Data General's own state of Year 2000 readiness. All these factors could affect the Company's future revenues. Overriding any preparations taken by the Company, the Year 2000 issue presents risks and uncertainties that could affect the Company; these include unexpected Year 2000 issues, or unexpected problems arising from plans implemented to anticipate Year 2000 problems; interruptions to power, water or telecommunications utility services; potential unavailability of skilled or critical personnel; delays or interruptions in transportation systems; and potential governments' responses to Year 2000 emergencies, among others. Further, there can be no assurance that there will not be delays in, or increased costs associated with, the Company's Year 2000 readiness efforts, or that the Company's suppliers and other parties will adequately prepare for the Year 2000. Notwithstanding the Company's diligent efforts, one can anticipate that Data General will not be able in all cases to identify and avoid every possible Year 2000 impact. As of March 27, 1999, the Company is working to assess and evaluate likely Year 2000 problem scenarios and to evaluate Year 2000 contingency plans in appropriate cases. The Company expects that this contingency planning effort will continue throughout 1999 as the Company completes its preparations for the Year 2000 and learns more about the Year 2000 preparations and vulnerabilities of third parties. The nature of the uncertainties surrounding the Year 2000 issue is such that it remains possible that Year 2000 issues could have a material adverse impact on the Company's operations and financial results. While the Company does not currently expect that this will be the case and continues to aggressively pursue its preparations for Year 2000, the Company can offer no assurance whether or to what extent the Company may be affected by matters which it has not anticipated or by matters outside of the Company's control. The Company recognizes the need to continue its analysis, assessment, monitoring, and planning for the various Year 2000 issues, across its businesses worldwide, and to address Year 2000 issues as they are identified. Within that uncertain context, however, and subject to the various factors discussed above, the Company believes as of March 27, 1999, the impact of Year 2000 issues on its business should not have a material adverse effect on the Company's financial position or results of operations. Market Risk The Company is exposed to market risk primarily in its cash and foreign currency transactions. Because a substantial portion of the Company's operations and revenue occur outside the United States, the Company's results can be significantly impacted by changes in foreign currency exchange rates. The Company manages its foreign currency risk through the use of forward foreign currency contracts. The Company does not hold or enter into derivative financial instruments for trading purposes. At inception, the forward foreign currency contracts are designated as hedges of intercompany accounts receivable and foreign sales which are firmly committed or forecasted. These contracts generally mature within three-months. Market value gains and losses on these contracts are included in the cost of product revenues and generally offset exchange gains or losses on the related transactions. As of March 27, 1999, the Company had entered into forward foreign currency contracts to purchase $30.4 million and sell $84.0 million in various foreign currencies with maturity dates on March 29 and March 30, 1999. The effect of foreign exchange rate movements from March 27, 1999 until maturity did not have a significant adverse or beneficial effect on the Company's financial position or results of operations. Euro Conversion On January 1, 1999, 11 of the 15 members of the European Union established fixed conversion rates between their existing currencies and the "euro." The euro will trade on currency exchanges and the legacy currencies will remain legal tender for a transition period between January 1, 1999 and January 1, 2002. During the transition period, public and private companies may pay for goods and services using the euro or the participating country's legacy currency. The participating countries will issue sovereign debt exclusively in euros, and will redenominate outstanding sovereign debt. Participating countries no longer control their own monetary policies by directing independent interest rates for their legacy currencies. Instead, the authority to direct monetary policy, including money supply and official interest rates will be exercised by the new European Central Bank. The Company has established plans and has begun developing the necessary modifications for the technical adaptation of its internal information technology and other systems to accommodate euro-denominated transactions. The Company is also assessing the business implications of the conversion to the euro, including long-term competitive implications and the effect of market risk with respect to financial instruments. The Company is currently unable to determine the ultimate financial impact of these matters, if any, on its results of operations, financial condition or cash flows. However, the Company will continue to assess the impact of euro conversion issues as the applicable accounting, tax, legal, and regulatory guidance evolves. Statements concerning the Company's business outlook or future economic performance; Year 2000 readiness; currency market risk; Euro conversion issues; 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 1998 fiscal year-ended September 26, 1998 and this Quarterly Report on Form 10-Q for the second fiscal quarter of 1999, which ended March 27, 1999. PART II -- OTHER INFORMATION Item 1. Legal Proceedings. The Company has been engaged in patent infringement litigation against IBM Corporation since November 1994. Two lawsuits, both in the discovery stages, are pending in the United States District Court for the District of Massachusetts in Worcester. The Company alleges that several IBM products including the AS/400 midrange systems and the AS/400 RISC-based computer product line infringe various Company patents. Both suits seek compensatory damages and, where appropriate, injunctive relief. IBM has answered both complaints, has denied the Company's infringement claims and has interposed counterclaims alleging that the Company's AViiON and CLARiiON computer systems infringe IBM patents. Although the Company believes its claims are valid, it cannot predict the outcome of the litigation. In the opinion of management, based on preliminary evaluation of the IBM patents covered in the counterclaims and subject to the risks of litigation, the counterclaims are without merit, the Company will prevail thereon and the counterclaims will not have a material adverse impact on the results of operations or the financial position of the Company. The Company and certain of its subsidiaries are involved in various other patent infringement, contractual, and proprietary rights suits. In the opinion of management, the conclusion of these suits will not have a material adverse effect on the financial position or results of operations and cash flows of the Company and its subsidiaries. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits: 3. (c) By-Laws of the Company, as amended through November 4, 1998, previously filed as Exhibit 3(c) to the Company's Quarterly Report on Form 10-Q for the quarter ended December 26, 1998, which is incorporated herein by reference. 3. (e) Amendment to Certificate of Incorporation of the Company, filed January 28, 1999, previously filed as Exhibit 3(e) to the Company's Quarterly Report on Form 10-Q for the quarter ended December 26, 1998, which is incorporated herein by reference. 10. (w) Employee Qualified Stock Purchase Plan, as amended. 10. (jj) 1998 Employee Stock Option Plan, previously filed as Exhibit 4.1 to the Company's Registration Statement on Form S-8, Registration Number 333-69559, which is incorporated herein by reference. 10. (kk) Form of (Key Executive) 1998 Employee Stock Option Agreement, previously filed as Exhibit 10(kk) to the Company's Quarterly Report on Form 10-Q for the quarter ended December 26, 1998, which is incorporated herein by reference. 10. (ll) Form of Amendment to Employment Agreements between the Company and its key executives previously filed as Exhibit 10(ll) to the Company's Quarterly Report on Form 10-Q for the quarter ended December, 26, 1998, which is incorporated herein by reference. 10. (mm) 1998 Non-Employee Director Stock Option Plan, previously filed as Exhibit 4.2 to the Company's Registration Statement on Form S-8, Registration Number 333-69559, which is incorporated herein by reference. 10. (nn) Form of 1998 Non-Employee Director Stock Option Agreement, previously filed as Exhibit 10(nn) to the Company's Quarterly Report on Form 10-Q for the quarter ended December 26, 1998, which is incorporated herein by reference. 10. (oo) Summary of 1999 Fiscal Year Bonus Opportunity for Chief Executive Officer, previously filed as Exhibit 10(oo) to the Company's Quarterly Report on Form 10-Q for the quarter ended December 26, 1998, which is incorporated herein by reference. 10. (pp) Amendment to Supplemental Pension and Retiree Medical Agreement dated December 2, 1998, between the Company and its President and Chief Executive Officer, previously filed as Exhibit 10(pp) to the Company's Quarterly Report on Form 10-Q for the quarter ended December 26, 1998, which is incorporated herein by reference. 11. Computation of basic and diluted earnings per share. (b) No reports on Form 8-K were filed during the current quarter ended March 27, 1999. 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/ John J. Gavin Jr. -------------------------------------------- John J. Gavin Jr. Chief Financial Officer, Vice President, and and Corporate Controller Dated: May 6, 1999 EXHIBITS Index to Exhibits. 3. (c) By-Laws of the Company, as amended through November 4, 1998, previously filed as Exhibit 3(c) to the Company's Quarterly Report on Form 10-Q for the quarter ended December 26, 1998, which is incorporated herein by reference. 3. (e) Amendment to Certificate of Incorporation of the Company, filed January 28, 1999, previously filed as Exhibit 3(e) to the Company's Quarterly Report on Form 10-Q for the quarter ended December 26, 1998, which is incorporated herein by reference. 10. (w) Employee Qualified Stock Purchase Plan, as amended. 10. (jj) 1998 Employee Stock Option Plan, previously filed as Exhibit 4.1 to the Company's Registration Statement on Form S-8, Registration Number 333-69559, which is incorporated herein by reference. 10. (kk) Form of (Key Executive) 1998 Employee Stock Option Agreement, previously filed as Exhibit 10(kk) to the Company's Quarterly Report on Form 10-Q for the quarter ended December 26, 1998, which is incorporated herein by reference. 10. (ll) Form of Amendment to Employment Agreements between the Company and its key executives previously filed as Exhibit 10(ll) to the Company's Quarterly Report on Form 10-Q for the quarter ended December, 26, 1998, which is incorporated herein by reference. 10. (mm) 1998 Non-Employee Director Stock Option Plan, previously filed as Exhibit 4.2 to the Company's Registration Statement on Form S-8, Registration Number 333-69559, which is incorporated herein by reference. 10. (nn) Form of 1998 Non-Employee Director Stock Option Agreement, previously filed as Exhibit 10(nn) to the Company's Quarterly Report on Form 10-Q for the quarter ended December 26, 1998, which is incorporated herein by reference. 10. (oo) Summary of 1999 Fiscal Year Bonus Opportunity for Chief Executive Officer, previously filed as Exhibit 10(oo) to the Company's Quarterly Report on Form 10-Q for the quarter ended December 26, 1998, which is incorporated herein by reference. 10. (pp) Amendment to Supplemental Pension and Retiree Medical Agreement dated December 2, 1998, between the Company and its President and Chief Executive Officer, previously filed as Exhibit 10(pp) to the Company's Quarterly Report on Form 10-Q for the quarter ended December 26, 1998, which is incorporated herein by reference. 11. Computation of basic and diluted earnings per share. EX-10 2 EMPLOYEE QUALIFIED STOCK PURCHASE PLAN EXHIBIT 10(w) DATA GENERAL CORPORATION EMPLOYEE QUALIFIED STOCK PURCHASE PLAN 1. Purpose This Employee Qualified Stock Purchase Plan (the "Plan") is intended as an incentive and to encourage stock ownership by all eligible employees of Data General Corporation (the "Company") and all participating subsidiaries so that they may share in the fortunes of the Company by acquiring or increasing their proprietary interest in the Company. The Plan is designed to encourage eligible employees to remain in the employ of the Company. It is intended that options issued pursuant to this Plan shall constitute options issued pursuant to an "employee stock purchase plan" within the meaning of Section 423 of the Internal Revenue Code of 1986 (the "Code"). 2. Eligible Employees All employees of the Company or any of its participating subsidiaries who have completed ninety days' employment with the Company or any of its subsidiaries shall be eligible to receive options under this Plan to purchase the Company's Common Stock (except employees in countries whose laws make participation impractical). Persons who have been so employed for ninety days or more on the February 1 next following the date this Plan is approved by the stockholders of the Company shall receive their options as of such February 1. Persons who attain the status of employment for ninety days or more after the date on which the initial options are granted under this Plan shall be granted options on the next date on which options are granted to all participating employees. In no event may an employee be granted an option if such employee, immediately after the option is granted, owns stock possessing 5 percent or more of the total combined voting power or value of all classes of stock of the Company or of its parent corporation or subsidiary corporation, as the terms "parent corporation" and "subsidiary corporation" are defined in Section 425(e) and (f) of the Code. For purposes of determining stock ownership under this paragraph, the rules of Section 425(d) of the Code shall apply and stock which the employee may purchase under outstanding options shall be treated as stock owned by the employee. For purposes of this Article 2, the term employee shall not include an employee whose customary employment is 20 hours or less per week or is for not more than 5 months in any calendar year. 3. Stock Subject to the Plan The stock subject to the options shall be shares of the Company's authorized but unissued shares of Common Stock of the Company or shares of Common Stock reacquired by the Company, including shares purchased in the open market. The aggregate number of shares which may be issued pursuant to this Plan is 11,100,000, subject to increase or decrease by reason of stock split-ups, reclassifications, stock dividends, changes in par value and the like. 4. Payment Periods and Stock Options The six-month periods, August 1 to January 31 and February 1 to July 31, are Payment Periods during which payroll deductions will be accumulated under the Plan. Each Payment Period includes only regular pay days falling within it. Twice each year, on the first business day of each Payment Period, the Company will grant to each eligible employee who is then a participant in the Plan an option to purchase on the last day of such Payment Period at the Option Price hereinafter provided for such number of shares of the Common Stock of the Company reserved for the purpose of the Plan as his or her accumulated payroll deductions on the last day of such Payment Period will pay for at such Option Price; provided and on condition that such employee remains eligible to participate in the Plan throughout such Payment Period. The Option Price for each Payment Period shall be the lesser of (i) 85% of the average market price of the Company's Common Stock on the first business day of the Payment Period; or (ii) 85% of the average market price of the Company's Common Stock on the last business day of the Payment Period. In the event of an increase or decrease in the number of outstanding shares of Common Stock of the Company through stock split-ups, reclassifications, stock dividends, changes in par value and the like, an appropriate adjustment shall be made in the number of shares and Option Price per share provided for under the Plan, either by a proportionate increase in the number of shares and a proportionate decrease in the Option Price per share, or by a proportionate decrease in the number of shares and a proportionate increase in the Option Price per share, as may be required to enable an eligible employee who is then a participant in the plan as to whom an option is exercised on the last day of any then current Payment Period to acquire such number of full shares as his accumulated payroll deductions on such date will pay for at the adjusted Option Price. For purposes of this Plan the term "average market price" means, if the Common Stock is listed on the New York Stock Exchange, the average of the high and low prices of the Common Stock of the Company on such exchange or such other national securities exchange as designated by the Board of Directors or, if the Common Stock is traded over-the-counter securities market, the mean between the bid and asked prices of the Common Stock. For purposes of this Plan the term "business day" as used herein means a day on which there is trading on the New York Stock Exchange or such other national securities exchange as shall be designated by the Board of Directors pursuant to the preceding paragraph. No employee shall be granted an option which permits his rights to purchase Common Stock under the Plan and any similar plans of the Company or any parent or subsidiary corporations to accrue at a rate which exceeds $25,000 of the fair market value of such stock (determined at the time such option is granted) for each calendar year in which such option is outstanding at any time. The purpose of the limitation in the preceding sentence is to comply with Section 423(b)(8) of the Code. 5. Exercise of Option Each eligible employee who continues to be a participant in the Plan on the last business day of a Payment Period shall be deemed to have exercised his option on such date and shall be deemed to have purchased from the Company such number of full shares of Common Stock reserved for the purpose of the Plan as his accumulated payroll deductions on such date will pay for at such Option Price. If a participant is not an employee on the last business day of a Payment Period, he shall not be entitled to exercise his option. 6. Unused Payroll Deductions If the participant wishes to receive a certificate representing the shares purchased pursuant to the option, only full shares of stock will be represented by the stock certificate. Any balance remaining in an employee account after a purchase will be reported to the employee and will be carried forward to the next Payment Period. 7. Authorization for Entering Plan An employee may enter the Plan by filling out, signing and delivering to the Corporate Benefits Department an Authorization: a) stating the percentage of either (i) the employee's regular base pay or (ii) the employee's Total ESPP-Eligible Compensation to be deducted regularly from the employee's pay and other compensation; b) authorizing the purchase of stock for the employee in each Payment Period in accordance with the terms of the Plan; and c) specifying the exact name in which stock purchased for such employee is to be issued as provided under Article 11 hereof. Such Authorization for any Payment Period must be received by the Corporate Benefits Department at least 10 days before the beginning date of the next succeeding Payment Period. The amounts deducted from each employee's pay and other compensation under the Plan during any Payment Period shall reflect any adjustment(s) to regular base pay or Total ESPP-Eligible Compensation of such employee paid during the Payment Period. For purposes of the foregoing, "Total ESPP-Eligible Compensation" includes regular base pay together with those other types of compensation designated by the Committee from time to time as included in "Total ESPP-Eligible Compensation". No such designation shall be made which would cause the Plan to cease to comply with the requirements of Section 423 of the Internal Revenue Code, as amended. Unless an employee files a new Authorization or withdraws from the Plan, an employee's deductions and purchases under the Authorization he or she has on file under the Plan will continue as long as the Plan remains in effect. The Company will accumulate and hold for the employee's account the amounts deducted from the employee's pay and compensation. No interest will be paid on it. 8. Amount of Payroll Deductions An employee may authorize payroll deductions by designating (1) a percentage (stated as an even 0.5% percentage amount, not less than 0.5% and not more than 10.0%), and (2) designating whether such percentage shall be applied to (i) such employee's regular base pay or (ii) such employee's Total ESPP-Eligible Compensation, provided, however, that the minimum deduction in respect of any payroll period shall be $10.00 (or such lesser amount as the Committee shall establish). 9. Change in Payroll Deductions Each employee may decrease the percentage designated by such employee under Section 8(1), above, not more than once in each Payment Period. Increases to such percentage are not permitted during any Payment Period. Each employee may increase or decrease the percentage designated by such employee under Section 8(1), above, or change such employee's election under Section 8(2), above, for the next Payment Period by filing with the Company's Corporate Benefits Department a new Authorization at least 10 days before the beginning of the next Payment Period. 10. Withdrawal from the Plan An employee may withdraw from the Plan, in whole but not in part, at any time prior to the last business day of each Payment Period by delivering a Withdrawal Notice to the Corporate Benefits Department, in which event the Company will promptly refund the entire balance of his deductions not theretofore used to purchase stock under the Plan. An employee who withdraws from the Plan is like an employee who has never entered the Plan. To re-enter, he or she must file a new Authorization at least 10 days before the beginning date of the next Payment Period which cannot, however, become effective before the beginning of the next Payment Period following his or her withdrawal. 11. Issuance of Stock Certificates for stock issued to participants will be delivered as soon as practicable after each Payment Period. Stock purchased under the Plan will be issued only in the name of the employee, or if his or her Authorization so specifies, in the name of the employee and another person of legal age as joint tenants with rights of survivorship. 12. No Transfer or Assignment of Employee's Rights An employee's rights under the Plan are his or hers alone and may not be transferred or assigned to, or availed of by, any other person. Any option granted to an employee may be exercised only by such employee. 13. Termination of Employee's Rights An employee's rights under the Plan will terminate when he ceases to be an employee because of retirement, resignation, lay-offs, discharge, death, change of status, or for any other reason. A Withdrawal Notice will be considered as having been received from the employee on the day his or her employment ceases, and all payroll deductions not used to purchase stock will be refunded. If an employee's payroll deductions are interrupted by any legal process, a Withdrawal Notice will be considered as having been received from him or her on the day the interruption occurs. 14. Termination and Amendments to Plan The plan may be terminated at any time by the Company's Board of Directors. It will terminate in any case when all or substantially all of the unissued shares of stock reserved for the purposes of the Plan have been purchased. If at any time shares of stock reserved for the purposes of the Plan remain available for purchase but not in sufficient number to satisfy all then unfilled purchase requirements, the available shares shall be apportioned among participants in proportion to their options and the Plan shall terminate. Upon such termination or any other termination of the Plan, all payroll deductions not used to purchase stock will be refunded. The Board of Directors also reserves the right to amend the Plan from time to time, in any respect provided, however, that no amendment shall be effective without prior approval of the stockholders, which would (a) except as provided in Article 3 and 4, increase the number of shares of Common Stock to be offered above or (b) change the class of employees eligible to receive options under the Plan. 15. Limitations on Sale of Stock Purchased Under the Plan The Plan is intended to provide Common Stock for investment and not for resale. The Company does not, however, intend to restrict or influence any employee in the conduct of his or her own affairs. An employee may, therefore, sell stock purchased under the Plan at any time he or she chooses; provided, however, that because of certain Federal tax requirements, each employee will agree by entering the Plan, promptly to give the Company notice of any such stock disposed of within two years after the date of the last day of the Payment Period during which the stock was purchased showing the number of such shares disposed of. The employee assumes the risk of any market fluctuations in the price of such stock. 16. Company's Payment of Expenses Related to Plan The Company will bear all costs of administering and carrying out the Plan. 17. Participating Subsidiaries The term "participating subsidiaries" shall mean any subsidiary of the Company which is designated by the Board of Directors to participate in the Plan. The Board of Directors shall have the power to make such designations before or after the Plan is approved by the stockholders. 18. Administration of the Plan The Plan shall be administered by a committee appointed by the Board of Directors of the Company (the "Committee"). The Committee shall consist of not less than three members of the Company's Board of Directors. The Board of Directors may from time to time remove members from, or add members to, the Committee. Vacancies on the Committee, howsoever caused, shall be filled by the Board of Directors. The Committee shall elect one of its members as Chairman, and shall hold meetings at such times and places as it may determine. Acts by a majority of the Committee, or acts reduced to and approved in writing by a majority of the members of the Committee, including written approvals by electronic means, shall be valid acts of the Committee. The interpretation and construction by the Committee of any provisions of the Plan or of any options granted under it shall be final unless otherwise determined by the Board of Directors. The Committee may from time to time adopt such rules and regulations for carrying out the Plan as it may deem best. No member of the Board of Directors or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any option granted under it. No member of the Committee shall be eligible to participate in the Plan while serving as a member of the Committee. 19. Optionees Not Stockholders Neither the granting of an option to an employee nor the deduction from his or her pay shall constitute such employee a stockholder of the shares covered by an option until such shares have been purchased by and issued to such employee. 20. Application of Funds The proceeds received by the Company from the sale of Common Stock pursuant to options granted under the Plan will be used for general corporate purposes. 21. Governmental Regulation The Company's obligation to sell and deliver shares of the Company's Common Stock under this Plan is subject to the approval of any governmental authority required in connection with the authorization, issuance or sale of such stock. 22. Withholding of Additional Federal Income Tax The Company, in accordance with Section 3402(a) of the Code and the Regulations and Rulings promulgated thereunder, will withhold from the wages of participating employees, in all payroll periods following and in the same calendar year as the date on which compensation is deemed received by the employee, additional income taxes in respect of the amount that is considered compensation includible in the employee's gross income. 23. Approval of Stockholders The Plan shall not take effect until approved by the holders of a majority of the outstanding shares of Common Stock of the Company, which approval must occur within the period beginning twelve months before and ending twelve months after the date the Plan is adopted by the Board of Directors. EX-11 3 COMPUTATION OF BASIC AND DILUTED EPS EXHIBIT 11 DATA GENERAL CORPORATION COMPUTATION OF BASIC AND DILUTED EARNINGS PER SHARE (Unaudited) (In thousands, except per share amounts) Quarter Ended Six-Months Ended ------------------------ -------------------------- Mar. 27, Mar. 28, Mar. 27, Mar. 28, 1999 1998 1999 1998 ------------------------ -------------------------- Basic earnings per share: Net income (loss)........................................... $1,649 $(4,503) $18,157 $(1,005) ====== ======= ======= ======= Weighted average shares outstanding......................... 50,325 48,887 50,063 48,763 ====== ======= ======= ======= Net income (loss) per share................................. $0.03 $(0.09) $0.36 $(0.02) ===== ====== ===== ====== DILUTED EARNINGS PER SHARE: (a) Net income (loss)........................................... $1,649 $(4,503) $18,157 $(1,005) ====== ======= ======= ======= Weighted average shares outstanding......................... 50,325 48,887 50,063 48,763 Incremental shares from use of treasury stock method for stock options............................ 1,306 -- 1,370 -- ------ ------- ------ ------- Common and common equivalent shares, assuming full dilution, where applicable.................. 51,631 48,887 51,433 48,763 ====== ====== ====== ====== Net income (loss) per share................................. $0.03 $(0.09) $0.35 $(0.02) ===== ====== ===== ====== (a) For the quarters and six-month periods ended March 27, 1999 and March 28, 1998, the assumed conversion of convertible debentures, giving effect to the incremental shares and the adjustment to reduce interest expense, results in anti-dilution and has therefore been excluded from the computation. For the quarter and six-month period ended March 28, 1998, the assumed exercise of stock options, giving effect to the incremental shares, is anti-dilutive and has been therefore excluded from the computation.
EX-27 4 ART. 5 FDS FOR 2ND QUARTER 1999 10-Q
5 THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE Q2 FY99 CONDENSED CONSOLIDATED BALANCE SHEET AND CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS SEP-25-1999 MAR-27-1999 137,678 152,587 293,271 0 128,907 743,145 657,101 462,922 1,032,562 382,853 212,750 0 0 636,868 (226,233) 1,032,562 257,679 355,350 177,116 238,482 114,963 0 3,524 2,049 400 1,649 0 0 0 1,649 (0.03) (0.03)
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