Exhibit 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
Words such as "anticipates," "expects" and "believes" in the Letter to
Stockholders and the following discussion identify forward-looking statements.
These statements, and the Company's future results, are subject to certain risks
and uncertainties that could cause actual results to differ materially from
those expected. These risks and uncertainties are discussed in the section below
entitled "Factors That May Affect Future Operating Results" and in the Company's
reports filed with the Securities and Exchange Commission, including its Report
on Form 10-K for the fiscal year ended December 27, 1996 under the caption
"Business".
RESULTS OF OPERATIONS
1996 COMPARED TO 1995
Revenues
Total revenues increased 8% or $115 million from 1995 to 1996, as increases in
services revenues more than offset declines in equipment sales. Equipment sales
decreased 33% or $265 million from 1995 to 1996 and were 33% and 53% of total
revenues in 1996 and 1995, respectively. This decrease reflected the Company's
transition to new products in its principal hardware lines during 1996.
Processor equipment sales decreased 44% due to significant declines in both
pricing and volumes for the ECL-technology 5995M processor as it approached the
end of its product life cycle. This decrease was partially offset by revenues
from the Company's new CMOS-technology Millennium mainframe system, which first
went into volume production in the fourth quarter of 1996. Revenues from storage
equipment sales decreased 5% in 1996 compared to 1995 due to year-to-year
pricing declines, which more than offset increased volumes in the second half of
1996 from a new generation of Amdahl storage products for the IBM System/390-
compatible and open systems markets. Equipment sales of high-performance
servers, most of which were acquired under original equipment manufacturer (OEM)
arrangements with Sun Microsystems, increased 26% or $20 million year-to-year.
Service, software and other revenues increased 53% or $380 million from
1995 to 1996 and were 67% and 47% of total revenues in 1996 and 1995,
respectively. Professional services revenues increased $418 million principally
due to the acquisitions of DMR Group Inc. (DMR) in the fourth quarter of 1995
and Trecom Business Systems, Inc. (Trecom) in the second quarter of 1996.
Maintenance revenues decreased $40 million or 8% from a combination of price
declines and the gradual reduction of the installed base of certain older
technology mainframe systems. Software and implementation services revenues
declined $3 million reflecting nonrecurring sales of certain software to Fujitsu
in 1995 (see Note 2 to the Consolidated Financial Statements).
Approximately 51% of the Company's revenues came from outside the
United States in 1996 and was recorded in local currency (see Note 9 to the
Consolidated Financial Statements). 1996 revenues were favorably impacted by
approximately $13 million from a weaker U.S. dollar, as international revenues
denominated in foreign currencies translated into more dollars in 1996, when
compared to 1995. The Company uses a variety of financial hedging instruments to
minimize currency risk from international revenue transactions (see Note 5 to
the Consolidated Financial Statements).
Gross Margins
Total gross margin as a percentage of revenues decreased from 37% in 1995 to 16%
in 1996. Gross margin on equipment sales as a percentage of equipment sales
revenues decreased from 33% in 1995 to a negative 4% in 1996 due to severe 5995M
price declines, which resulted in a charge of $130 million to cost of equipment
sales in the second quarter of 1996 to reduce 5995M inventories and leased
systems to estimated market values. The Company took a similar charge of $26
million in the fourth quarter of 1995. Gross margins on storage product sales
improved by $3 million in 1996 over 1995 despite lower revenues year-to-year,
largely because the new generation of storage products shipped in the second
half of 1996 had significantly lower unit costs than the previous generation
products. Gross margins on service, software and other revenues as a percentage
of related revenues decreased from 41% in 1995 to 25% in 1996, reflecting the
shift to professional services which generate lower gross margins as a percent
of sales than maintenance services.
24 Amdahl Corporation
Operating Expenses
In the second quarter of 1996, related to the acquisition of Trecom, Amdahl
recorded a charge to operating expenses of $21 million to write off purchased
in-process engineering and development expenses (see Note 3 to the Consolidated
Financial Statements). A similar charge of $27 million was recorded in the
fourth quarter of 1995 relating to the acquisition of DMR (see Note 3 to the
Consolidated Financial Statements). In the fourth quarter of 1996 the Company
also recorded a $40-million restructuring charge to cover the planned costs of
reducing certain sectors of its workforce and facilities. Operating expenses in
1996 and 1995, excluding these charges, were 32% and 34% of revenues,
respectively.
Excluding the charges for purchased in-process engineering and
development expenses associated with the acquisitions of Trecom and DMR,
engineering and development expenses decreased $24 million or 16% when compared
to 1995, primarily due to agreements with Fujitsu for the joint development of
the next generation of IBM-compatible processor and storage systems (see Note 2
to the Consolidated Financial Statements). 1996 marketing, general and
administrative expenses increased $32 million or 9% when compared to 1995. The
increase resulted primarily from the acquisitions of DMR and Trecom, and
included $8 million for amortization of excess costs over net assets (goodwill).
Interest Income/Expense and Income Taxes
Net interest income decreased $23 million or 55% from 1995, reflecting lower
average cash balances in 1996 compared to 1995. This decline was largely caused
by the cash payments made to acquire DMR and Trecom, plus the net cash outflow
needed to fund 1996 operations.
The effective annual income tax rate was a negative 4% in 1996,
compared to 43% in 1995. The 1996 tax rate included a provision for taxes
currently payable in foreign, state and local jurisdictions. The tax provision
did not reflect a tax benefit for the loss incurred during the year. A valuation
allowance was recorded in 1996 to reduce the deferred tax assets of the Company
to an amount realizable based on taxes paid for prior years without relying on
future income.
RESULTS OF OPERATIONS
1995 COMPARED TO 1994
Revenues
Total revenues decreased 7% from 1994 to 1995, and equipment sales decreased 23%
or $247 million from 1994 to 1995 and were 53% and 64% of total revenues in 1995
and 1994, respectively. Processor equipment sales decreased 22% due to a higher
percentage of sales of 5995M processor upgrades than in 1994 and a significant
decline in pricing experienced in the fourth quarter of 1995. Overall, 5995M
prices declined 32% in 1995. Equipment sales of the older lines of mainframe
computers also decreased. Revenues from storage product equipment sales
decreased 59% in 1995 when compared to 1994 as a result of pricing and volume
declines associated with delays in the introduction of new storage products.
Equipment sales of high-performance servers acquired under OEM arrangements with
Sun Microsystems, which were 10% and 3% of total equipment sales revenues in
1995 and 1994, respectively, increased 186% or $50 million from 1994 to 1995.
Service, software and other revenues increased 21% or $124 million from
1994 to 1995 and were 47% and 36% of total revenues in 1995 and 1994,
respectively. The increase in revenues consisted of increased professional
services revenues of $77 million, increased maintenance revenues of $26 million
from a larger customer installed base, and increased software and implementation
services revenues of $33 million, of which $15 million was of a nonrecurring
nature (see Note 2 to the Consolidated Financial Statements). This was offset by
a decrease in operating lease revenues of $12 million. DMR, which the Company
acquired in November 1995, contributed $35 million to services revenues (see
Note 3 to the Consolidated Financial Statements).
1995 revenues were favorably impacted by approximately $36 million by a
weakened U.S. dollar, as international revenues denominated in foreign
currencies translated into more dollars in 1995, when compared to 1994.
25 Amdahl Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Gross Margins
Gross margin as a percentage of revenues increased from 36% in 1994 to 37% in
1995. Gross margin on equipment sales as a percentage of equipment sales
revenues increased from 32% in 1994 to 33% in 1995, due in part to lower
manufacturing costs and a higher percentage of sales of 5995M processor
upgrades, which yield better gross margins than sales of complete new systems.
However, as a result of the severe 5995M price declines experienced in the
fourth quarter of 1995, the Company charged cost of equipment sales for $26
million to reduce 5995M inventories to market value. In addition, gross margins
on storage product sales were adversely affected by significant pricing
declines. Gross margins on service, software and other revenues as a percentage
of revenues decreased from 44% in 1994 to 41% in 1995, due primarily to lower
gross margins on services revenues and revenues from the new MultiVendor
Enterprise Services business.
Operating Expenses
In the fourth quarter of 1995 the Company recorded a charge to operating
expenses of $27 million to write off purchased in-process engineering and
development expenses associated with the acquisition of DMR that had no
alternative future use (see Note 3 to the Consolidated Financial Statements).
Operating expenses in 1995 and 1994, excluding these charges, were 34% and 32%
of revenues, respectively.
Excluding the charge for purchased engineering and development
expenses, engineering and development expenses decreased $54 million or 26% when
compared to 1994, primarily due to the agreement with Fujitsu for the joint
development of the next generation of IBM-compatible systems. 1995 marketing,
general and administrative expenses increased $43 million or 13% when compared
to 1994 due to increased marketing efforts directed toward the Company's newer
lines of business.
Interest Income/Expense and Income Taxes
Net interest income increased $24 million or 150% from 1994 to 1995 due to
increased interest income from higher average cash and investment levels.
The effective annual income tax rate increased from 7% in 1994 to 43%
in 1995, due to the write off of purchased engineering and development discussed
above and the current mix of international and domestic income, which limited
the Company's utilization of net operating loss carryforwards and deferred tax
assets in 1995 when compared to 1994.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
During the latter part of 1996 Amdahl completed the introduction of its
principal new hardware products, the Millennium CMOS-based mainframe systems and
Spectris storage systems, for the IBM System/390-compatible market. Although
based on limited experience, since the Millennium systems did not begin to ship
in volume until late in the fourth quarter of 1996, many initial shipments were
of smaller configurations as customers tended to add incremental computing
capacity rather than replace entire older bipolar mainframes. These systems were
also subject to the competitive pricing pressures characteristic of the
System/390 market. A continuation of these factors, coupled with IBM's announced
intention to deliver more powerful CMOS systems in mid-1997, could adversely
affect the level of growth in this segment of the Company's business over the
near term. Moreover, the Company no longer has available for marketing any
significant number of its older 5995M mainframe systems, which contributed
significantly to fourth-quarter results in 1996. Also, in light of the
transition from older technology systems to CMOS-based mainframes, the Company
expects traditional hardware maintenance revenues to continue to decline from
historic levels.
Sales of the Spectris storage systems have been subject to extreme
pricing pressures since their introduction in volume in the third quarter of
1996. As a consequence, the Company is required to offer product enhancements on
an ongoing basis in order to remain competitive in this market. Any delays in
its current development schedules would adversely impact Amdahl's competitive
position.
While the Company's consulting and professional services business
exhibited strong growth during 1996, its continued growth will depend in
considerable part on the ability to recruit and retain sufficient skilled
26 Amdahl Corporation
personnel to meet ongoing customer demand for applications development and
maintenance projects, particularly those related to the year-2000 date
conversion problem. Significant competition exists in the marketplace for such
personnel and failure by the Company to achieve its planned hiring goals would
adversely affect future rates of growth. Also, while Amdahl believes that
year-2000 projects represent a significant business opportunity for the Company,
it will be difficult to ascertain their level of success until the Company has
gained a greater level of experience in this area.
Amdahl has a continuing requirement to improve the performance and
profitability of its other product lines, and to review and consider adjustments
to its overall business model. At the present time the Company is unable to
assess the impact of such adjustments, if any, on future operating results.
In general, Amdahl's business is subject to the inherent risks and
uncertainties characteristic of high-technology industries. The introduction of
new hardware products is always subject to technological risks which can have a
significant impact on product reliability and performance, as well as on the
timing of when such products become available, notwithstanding planned or
announced introduction dates. Moreover, the ability to deliver new products with
their attendant functional capabilities can also impact product acceptance.
Development of major software systems is quite commonly subject to schedule
delays and it is not uncommon for product deficiencies and reliability problems
to be recognized after product delivery to a number of installations. Product
reliability problems, in the case of both hardware and software systems, can
place added burdens on existing support staff and can also adversely impact the
completion of follow-on projects. Consulting and professional services are often
performed under fixed-price contracts which demand a high degree of accuracy in
assessing the scope of customer projects. Organizations which grow through
acquisitions or joint venturing arrangements with other companies may be unable
to realize expected synergies which can adversely affect planned financial
performance. Finally, the market for the Company's products and services can be
subject to sudden and unexpected changes in demand due to actions of the
Company's competitors as well as changes in general economic conditions which
can often cause customers to defer or cancel major product acquisitions or
project expenditures.
FINANCIAL CONDITION
December 27, 1996 Compared to December 29, 1995
The Company's net cash position (cash and short-term investments net of
short-term and long-term debt, excluding capitalized lease obligations)
decreased by $252 million from December 29, 1995 to December 27, 1996. Cash,
cash equivalents and short-term investments decreased $235 million, reflecting
$102 million used to fund 1996 operating activities, $72 million used to
purchase capital assets (net of $32 million in proceeds from the sale of retired
assets), and $68 million used for the initial payment for the acquisition of
Trecom (see Note 3 to the Consolidated Financial Statements).
Receivables increased $179 million, primarily due to higher revenues in
the fourth quarter of 1996 plus a slower overall collection period due to higher
levels of professional services revenues, which have an inherently slower
collection cycle than the Company's traditional hardware businesses. Inventories
decreased $146 million, reflecting significant reductions in processor
inventories from end-of-life 5995M sales activity and a writedown of 5995M
assets to market value in the second quarter of 1996. The reductions in 5995M
inventories were partially offset by $34 million in Millennium inventories at
year-end 1996.
The cost of property and equipment decreased $80 million because
retirements of buildings, leasehold improvements, and capitalized equipment
exceeded the purchase of new property and equipment in 1996. New capital
spending for leased systems, capitalized spares and other property and equipment
was approximately equal to depreciation in 1996 except for the acquisition of
Trecom. The acquisition of Trecom added $8 million in property and equipment
cost and $2 million in accumulated depreciation at December 27, 1996. Overall,
the net value of property and equipment decreased $28 million in 1996 due to
asset disposals and a $25-million charge in the second quarter of 1996 to reduce
certain leased systems to market value.
At December 27, 1996 the excess of cost over net assets acquired
(goodwill), net of accumulated amortization, was $201 million, which included an
increase of $95 million from the acquisition of Trecom in the second quarter of
1996 (see Note 3 to the Consolidated Financial Statements).
27 Amdahl Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
The cash, cash equivalents and short-term investments balances as of
December 27, 1996 included approximately $171 million currently invested outside
the United States. Repatriation of these investments and cash would give rise to
federal taxable income for the year of transfer (the accrued taxes for which
have been provided). See Note 12 to the Consolidated Financial Statements
regarding foreign subsidiaries' earnings on which taxes have not been provided.
The Company's valuation allowance against worldwide operating losses,
deferred tax assets and tax credit carryforwards which may expire before the
Company can utilize them increased from $89 million at December 29, 1995 to $208
million at December 27, 1996. The Company believes sufficient uncertainty exists
regarding the realizability of these items and accordingly has continued to
provide a valuation allowance for them.
Accounts payable to vendors other than Fujitsu increased $30 million,
due in part to accounts payable assumed upon the acquisition of Trecom ($19
million at December 27, 1996). Accounts payable to Fujitsu increased $39
million, primarily due to increased purchases associated with the new Millennium
processor and Spectris storage products.
Accrued liabilities increased $110 million due in part to a $64 million
liability for the acquisition of Trecom which is payable in the second quarter
of 1997 (see Note 3 to the Consolidated Financial Statements). Accrued
restructuring costs decreased from $55 million at December 29, 1995 to $43
million at December 27, 1996, as current year charges of $52 million were
partially offset by an additional $40-million reserve established in the fourth
quarter of 1996 (see Note 8 to the Consolidated Financial Statements).
Excluding capitalized lease obligations, Amdahl had no long-term debt
at December 27, 1996 compared to $80 million at December 29, 1995. The decrease
resulted from a reclassification to current debt of $80 million outstanding
under a Fujitsu loan agreement, since the debt amount was payable in January
1997. Subsequent to December 27, 1996, Amdahl renegotiated the terms of this
loan and it is now payable in January 1998 (see Note 2 to the Consolidated
Financial Statements).
Liquidity
The nature of the information-technology industry, combined with the current
economic environment, makes it very difficult for the Company to predict future
liquidity requirements with certainty. However, the Company believes that
existing cash will be adequate to finance continuing operations, investments in
property and equipment, inventories and spare parts, expenditures for the
development of new products and repayment of the remaining liability for the
acquisition of Trecom, at least through 1997. Over the longer term, Amdahl must
successfully execute its plans to generate significant positive cash flows if it
is to sustain adequate liquidity without impairing growth or requiring the
infusion of additional funds, either from external sources of cash or from the
sale of business assets. Additionally, a major expansion of the business such as
would occur with the acquisition of a major new subsidiary might also require
recourse to external funding, which could include additional debt or equity
capital.
In the first quarter of 1996 the Board of Directors authorized the
Company to buy back up to $100 million of the Company's common stock. As of
December 27, 1996, no common shares had been repurchased under this program and
Amdahl will not consider a repurchase of stock until the Company has
demonstrated sustained positive cash flows.
The Company has no significant commitments with vendors other than
Fujitsu (see Note 2 to the Consolidated Financial Statements).
28 Amdahl Corporation
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO AMDAHL CORPORATION:
We have audited the accompanying consolidated balance sheets of Amdahl
Corporation (a Delaware corporation) and subsidiaries as of December 27, 1996
and December 29, 1995, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 27, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Amdahl Corporation and
subsidiaries as of December 27, 1996 and December 29, 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended December 27, 1996 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
San Jose, California
January 28, 1997
29 Amdahl Corporation
CONSOLIDATED BALANCE SHEETS
December 27, 1996 and December 29, 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 134,646 $ 192,980
Restricted cash 57,126 --
Short-term investments 210,671 444,006
Receivables, net of allowances of $10,185 in 1996
and $5,964 in 1995 498,851 319,777
Inventories 128,755 274,813
Prepaid expenses and deferred tax assets 86,360 69,115
- ------------------------------------------------------------------------------------------------------------------------------------
Total current assets 1,116,409 1,300,691
- ------------------------------------------------------------------------------------------------------------------------------------
Long-term receivables and other assets 33,647 28,083
- ------------------------------------------------------------------------------------------------------------------------------------
Property and equipment:
Leased systems 41,582 37,937
System spares 368,209 379,797
Production and data processing equipment 318,527 327,051
Office furniture, equipment and improvements 140,050 173,691
Land and buildings 82,318 111,715
- ------------------------------------------------------------------------------------------------------------------------------------
950,686 1,030,191
Less - accumulated depreciation and amortization 705,723 757,523
- ------------------------------------------------------------------------------------------------------------------------------------
Property and equipment, net 244,963 272,668
- ------------------------------------------------------------------------------------------------------------------------------------
Excess of cost over net assets acquired,
net of accumulated amortization of $8,368 in 1996
and $692 in 1995 201,385 106,756
- ------------------------------------------------------------------------------------------------------------------------------------
$ 1,596,404 $1,708,198
====================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and short-term debt $ 45,053 $ 22,026
Short-term debt - stockholder (Fujitsu Limited) 80,000 --
Accounts payable 141,697 111,871
Accounts payable - stockholder (Fujitsu Limited) 68,625 29,152
Accrued liabilities 541,743 431,600
- ------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 877,118 594,649
- ------------------------------------------------------------------------------------------------------------------------------------
Long-term debt - stockholder (Fujitsu Limited) -- 80,000
Long-term debt and liabilities 43,663 51,152
- ------------------------------------------------------------------------------------------------------------------------------------
Deferred income taxes 62,375 48,573
- ------------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock, $.05 par value
Authorized - 200,000,000 shares
Outstanding - 121,753,000 shares in 1996
and 119,259,000 shares in 1995 6,088 5,963
Additional paid-in capital 555,690 542,269
Retained earnings 44,313 370,995
Cumulative translation adjustments 9,300 10,932
Unrealized holding gains (losses) on
available-for-sale securities (2,143) 3,665
- ------------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 613,248 933,824
- ------------------------------------------------------------------------------------------------------------------------------------
$ 1,596,404 $1,708,198
====================================================================================================================================
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
30 Amdahl Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Years Ended December 27, 1996 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands,
except per common share amounts)
REVENUES
Equipment sales $ 538,934 $ 803,567 $ 1,050,236
Service, software and other 1,092,615 712,821 588,377
- ------------------------------------------------------------------------------------------------------------------------------------
1,631,549 1,516,388 1,638,613
- ------------------------------------------------------------------------------------------------------------------------------------
COST OF REVENUES
Equipment sales 559,229 540,541 716,144
Service, software and other 815,257 419,046 327,420
- ------------------------------------------------------------------------------------------------------------------------------------
1,374,486 959,587 1,043,564
- ------------------------------------------------------------------------------------------------------------------------------------
Gross margin 257,063 556,801 595,049
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Engineering and development 125,825 149,610 203,241
Marketing, general and administrative 402,484 370,771 327,917
Purchased in-process engineering
and development 20,700 27,296 --
Restructuring costs 40,000 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
589,009 547,677 531,158
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations (331,946) 9,124 63,891
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST
Income 28,996 51,334 26,305
Expense (10,732) (10,481) (9,942)
- ------------------------------------------------------------------------------------------------------------------------------------
18,264 40,853 16,363
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) before provision
for income taxes (313,682) 49,977 80,254
PROVISION FOR INCOME TAXES 13,000 21,450 5,450
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (326,682) $ 28,527 $ 74,804
====================================================================================================================================
EARNINGS (LOSS) PER COMMON SHARE $ (2.71) $ .24 $ .63
Average outstanding shares
and equivalents 120,510,000 120,383,000 118,909,000
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
31 Amdahl Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Years Ended December 27, 1996 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except note data)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR $ 192,980 $ 358,006 $ 149,484
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) (326,682) 28,527 74,804
Adjustments to reconcile net income
(loss) to net cash provided by
(used for) operating activities:
Depreciation and amortization 104,980 108,552 132,864
Write-down of inventories and
leased systems to market 130,000 26,000 --
Purchased in-process engineering
and development 20,700 27,296 --
Restructuring charges 40,000 -- --
Deferred income tax provision 13,816 (3,201) (7,083)
Gain on sales of assets (559) (343) (8,524)
Change in assets and liabilities net of effects of business acquisitions:
(Increase) decrease in receivables (141,335) 33,771 (2,384)
Decrease in inventories 22,211 4,391 271,872
Increase in prepaid expenses and
deferred tax assets (11,059) (12,157) (1,781)
(Increase) decrease in long-term
receivables and other assets (9,065) 10,981 9,992
Increase (decrease) in accounts payable 66,776 (13,407) 68,964
Decrease in accrued liabilities (11,834) (113,955) (49,774)
Increase (decrease) in long-term
liabilities 283 (11,853) (2,287)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) operating
activities (101,768) 84,602 486,663
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of available-for-sale
short-term investments (178,664) (376,503) (47,016)
Purchases of held-to-maturity
short-term investments -- (287,067) (519,684)
Proceeds from sales of available-for-sale
short-term investments 60,440 107,411 40,677
Proceeds from maturities of short-term
investments 287,917 458,116 286,075
Payments for business acquisitions,
net of cash acquired (68,204) (136,692) --
Capital expenditures:
Leased systems (38,222) (27,156) (18,200)
System spares (20,464) (16,559) (8,584)
Other property and equipment (44,627) (38,159) (40,841)
Proceeds from property and
equipment sales 31,716 30,158 62,352
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for)
investing activities 29,892 (286,451) (245,221)
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in notes payable and
short-term borrowings 3,669 11,070 2,521
Long-term borrowings -- -- 80,000
Repayments of borrowings under
revolving credit agreement (1,665) -- (130,000)
Sale of common stock and exercise of options 13,546 22,544 12,064
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for)
financing activities 15,550 33,614 (35,415)
- ------------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (2,008) 3,209 2,495
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents (58,334) (165,026) 208,522
- ------------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 134,646 $ 192,980 $ 358,006
====================================================================================================================================
<FN>
Non-cash investing and financing activities: transfers of Amdahl-manufactured systems from net property and equipment to inventories
were $16,290,000 in 1996, $17,423,000 in 1995, and $46,225,000 in 1994.
The accompanying notes are an integral part of these financial statements.
</FN>
32 Amdahl Corporation
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Three Years Ended December 27, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Unrealized
Additional Cumulative Holding
Common Paid-in Retained Translation Gains
Stock Capital Earnings Adjustments (Losses) Total
BALANCE AT
DECEMBER 31, 1993 $ 5,729 $ 507,895 $ 267,664 $ 8,918 $ -- $ 790,206
Sale of 2,057,964 shares,
net of repurchases,
of common stock under
employee stock
benefit plans 103 9,513 -- -- -- 9,616
Income tax benefit
arising from employee
stock option plans -- 2,448 -- -- -- 2,448
Net income -- -- 74,804 -- -- 74,804
Translation adjustments -- -- -- (57) -- (57)
Unrealized holding
losses on available
-for-sale securities -- -- -- -- (762) (762)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 30, 1994 5,832 519,856 342,468 8,861 (762) 876,255
Sale of 2,622,920 shares,
net of repurchases,
of common stock under
employee stock
benefit plans 131 17,513 -- -- -- 17,644
Income tax benefit
arising from employee
stock option plans -- 4,900 -- -- -- 4,900
Net income -- -- 28,527 -- -- 28,527
Translation adjustments -- -- -- 2,071 -- 2,071
Unrealized holding
gains on available
-for-sale securities -- -- -- -- 4,427 4,427
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 29, 1995 5,963 542,269 370,995 10,932 3,665 933,824
Sale of 2,494,398 shares,
net of repurchases,
of common stock under
employee stock
benefit plans 125 13,421 -- -- -- 13,546
Net loss -- -- (326,682) -- -- (326,682)
Translation adjustments -- -- -- (1,632) -- (1,632)
Unrealized holding
losses on available
-for-sale securities -- -- -- -- (5,808) (5,808)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 27, 1996 $ 6,088 $ 555,690 $ 44,313 $ 9,300 $ (2,143) $ 613,248
====================================================================================================================================
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
33 Amdahl Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF ACCOUNTING PRACTICES
Amdahl Corporation and subsidiaries (the Company or Amdahl) is a multinational
company that provides large-scale, high-performance, general-purpose computer
systems, storage, software and communications products, and client-server
hardware systems for the open systems marketplace. The Company also provides
equipment maintenance, consulting and professional services. See Note 9 for
information on revenues by classes of products and services and by geographic
area. The Company's markets are worldwide and include the communications,
banking, finance and insurance, services and government industries.
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 components of results of operations during the reporting period.
These estimates include, but are not limited to, inventory reserves,
amortization of intangible assets, restructuring reserves and income tax assets
and liabilities. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned and majority-owned subsidiaries. Intercompany accounts and
transactions have been eliminated.
Fiscal Year
The Company's fiscal year ends on the last Friday in December.
Translation of Foreign Currencies
The financial position and results of operations of the Company's non-U.S.
subsidiaries are measured using local currency as the functional currency.
Accordingly, all assets and liabilities are translated into U.S. dollars at
current exchange rates as of the respective balance sheet date. Revenue and
expense items are translated at the average exchange rates prevailing during the
period. Cumulative translation gains and losses are reported as a separate
component of stockholders' equity.
Gains from foreign exchange transactions were $348,000, $247,000 and
$81,000 in 1996, 1995 and 1994, respectively, and were included in marketing,
general and administrative expenses.
Revenues
Revenues from equipment sales and sales-type leases are generally recognized
when the equipment has been shipped, installed and financing arrangements have
been completed. Revenues from operating leases are recognized over the term of
the respective contracts.
Service for Amdahl products is provided under service and parts
warranty or separate maintenance agreements. The large-scale computer systems
normally carry a one-year service and parts warranty, and the storage and other
products usually have shorter warranty periods. Where material, a portion of
equipment sales revenue is deferred and recognized over the warranty period as
service is provided. Following the warranty period, Amdahl provides maintenance
service under separate contracts which typically can be terminated by the
customer on ninety days notice. Revenues from maintenance contracts are
recognized over the term of the respective contracts as service is provided.
Revenues from consulting and professional services are generally
recognized as the service is performed or on the percentage-of-completion method
of accounting, depending on the nature of the project.
The Company accounts for software revenues in accordance with the
American Institute of Certified Public Accountants' Statement of Position 91-1,
Software Revenue Recognition. Revenues earned under software license agreements
with end users are generally recognized when the software has been shipped,
payment is due within one year, collectibility is probable, and there are no
significant obligations remaining.
34 Amdahl Corporation
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Systems in process and finished goods include material, labor and manufacturing
overhead. Year-end inventories consisted of the following:
1996 1995
- --------------------------------------------------------------------------------
(In thousands)
Purchased materials $ 30,766 $ 18,879
Systems in process 26,407 168,322
Finished goods 71,582 87,612
- --------------------------------------------------------------------------------
$128,755 $274,813
================================================================================
Inventories contained components and assemblies in excess of the
Company's current estimated requirements and were fully reserved at December 27,
1996 and December 29, 1995. Also as a result of severe price declines, the
Company charged cost of equipment sales for $105 million in 1996 and $26 million
in 1995 to reduce 5995M inventories to estimated market value. Due to
competitive pressures, it is reasonably possible that these estimates could
change in the near term.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are
computed using the straight-line method over estimated useful lives (or, for
leasehold improvements and assets recorded under capital lease obligations, over
the remaining lease terms or estimated useful lives, whichever is shorter) as
follows:
Years
- --------------------------------------------------------------------------------
System spares 5
Production and data processing equipment 3-15
Office furniture, equipment and improvements 3-20
Buildings 20-40
Intangible Assets
Excess of cost over net assets acquired (goodwill) is amortized by the
straight-line method over twenty-five years. The realizability of goodwill is
evaluated periodically as events or circumstances indicate a possible inability
to recover its carrying amount. Such evaluation is based on various analyses,
including cash flow and profitability projections that incorporate, as
applicable, the impact on existing lines of business. The analyses involve a
significant level of management judgment in order to evaluate the ability of an
acquired business to perform within projections.
Certain software development costs have been capitalized and amortized
over the life of the product. At December 27, 1996 and December 29, 1995
software development costs that had been capitalized were immaterial.
Long-Lived Assets
Effective December 1995 the Company adopted the provisions of Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of. This statement
requires that long-lived assets and certain identifiable intangibles to be held
and used or disposed of by an entity be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. During 1996 the Company determined that no impairment loss
needed to be recognized for applicable assets of continuing operations.
Earnings (Loss) Per Common Share
Earnings (loss) per common share have been computed based on the weighted
average number of common and common equivalent shares outstanding. Common
equivalent shares result from the assumed exercise of stock options which would
have a dilutive effect in years where there are earnings. Primary and fully
diluted earnings per common share amounts are substantially the same.
35 Amdahl Corporation
NOTES TO CONSOLIDATED STATEMENTS (continued)
NOTE 2 RELATIONSHIP WITH FUJITSU LIMITED
At December 27, 1996 Fujitsu Limited (Fujitsu) owned approximately 43% of the
Company's outstanding stock. The Company has entered into various transactions
with Fujitsu, as follows:
A. Amdahl purchases under contracts with Fujitsu certain finished
products, certain subassemblies and substantially all of its large-scale
integrated semiconductor components and high-density printed circuit boards. The
Company's primary products are manufactured by Fujitsu to Amdahl specifications.
The cost of computer equipment, subassemblies and spare parts purchased from
Fujitsu and the amount included in cost of revenues for equipment sales were as
follows:
Cost of
Purchases Revenues
- --------------------------------------------------------------------------------
(In thousands)
1996 $160,092 $326,380
1995 $282,913 $275,707
1994 $218,925 $374,224
Amdahl was committed to purchase manufacturing material and other
equipment from Fujitsu totaling approximately $34,000,000 at December 27, 1996.
Prices for these manufacturing materials and other equipment are subject to
adjustment if the U.S. dollar-Japanese yen exchange rate fluctuates outside of
specified ranges. The Company has entered into hedging arrangements designed to
protect against currency exchange risks associated with anticipated product
purchases from Fujitsu in 1997.
B. Under joint development efforts, Fujitsu supplies Amdahl with
services and material related to the Company's development of current and future
products, which resulted in charges to engineering and development expense of
$7,371,000 in 1996, $2,399,000 in 1995, and $6,443,000 in 1994.
In 1996 Fujitsu entered into an agreement to reimburse Amdahl for
certain specific engineering development activities performed by Amdahl from
time to time related to products which are being jointly developed by Amdahl and
Fujitsu. In connection with these development efforts, Amdahl recorded
$24,000,000 as an offset to engineering and development expense in 1996. No such
reimbursements occurred in 1995 and 1994.
Amdahl and Fujitsu have an agreement pursuant to which Amdahl and
Fujitsu participate in the joint development of the Company's next generation of
IBM-compatible systems. Under the agreement, Fujitsu has primary responsibility
for the design and manufacture of these systems.
C. Fujitsu markets Amdahl's computer equipment in Brazil, Japan, Malaysia
and Spain under distributorship arrangements. Sales in 1996, 1995 and 1994 by
the Company of computer systems and complementary storage products to Fujitsu
contributed $23,325,000, $37,290,000 and $38,682,000 to equipment sales and
$4,793,000, $17,190,000 and $14,405,000 to gross margin, respectively.
In 1995 the Company entered into a contract-manufacturing agreement
with HaL Computer Systems, Inc. (HaL), a wholly-owned subsidiary of Fujitsu,
whereby Amdahl agreed to manufacture high-end open system workstations for HaL.
The Company also performed circuit board assembly for Ross Technology, Inc., a
majority-owned subsidiary of Fujitsu. In 1996 and 1995 these agreements
contributed $5,629,000 and $9,375,000 to equipment sales and ($2,210,000) and
$1,035,000 to gross margin, respectively. Both of these agreements were
completed by the end of 1996.
In the fourth quarter of 1995 Fujitsu agreed to pay Amdahl $14,800,000
for the right and license to use certain software diagnostic tools developed by
Amdahl and $1,000,000 for the right to market certain storage products in Japan.
These amounts were recognized in the fourth quarter of 1995 as software revenue
and equipment sales revenue, respectively. In 1996 Fujitsu paid the company
$2,000,000 for the right to market Millennium processors in Japan. This amount
was recognized in the third quarter of 1996 as equipment sales revenue.
36 Amdahl Corporation
At December 27, 1996 and December 29, 1995 receivables included
$43,906,000 and $35,795,000, respectively, from Fujitsu.
D. In January 1994 the Company entered into an agreement with Fujitsu
under which Fujitsu agreed to provide loans to the Company in an aggregate
amount not to exceed $100,000,000. Such loans bear interest at a rate based upon
the London Interbank Offered Rate (6.78% as of December 27, 1996). As of
December 27, 1996 and December 29, 1995, $80,000,000 in principal was
outstanding under this agreement (see Note 7). Subsequent to December 27, 1996
Amdahl renegotiated the terms of this loan and it is now payable in January 1998
and cannot exceed $80,000,000. Interest expense associated with the loan was
$5,680,000 in 1996, $5,745,000 in 1995 and $4,238,000 in 1994, of which $919,000
and $958,000 was payable and was included in accrued liabilities at December 27,
1996 and December 29, 1995, respectively.
NOTE 3 ACQUISITIONS
Trecom Business Systems, Inc.
On April 22, 1996 the Company acquired all of the outstanding shares of Trecom
Business Systems, Inc. (Trecom), a provider of information technology services.
Under the merger agreement between the Company and Trecom, approximately $66
million of the purchase price was paid in April 1996 and approximately $65
million is payable without interest in April 1997. The Company has pledged cash
with a custodian as security for approximately $57 million of the April 1997
payment. This amount was classified as restricted cash on the Company's balance
sheet at December 27, 1996. Additionally, up to $2 million was payable in the
event that Trecom achieves certain financial goals during the one year period
ending March 31, 1997 (the contingent payment). The present value of the
aggregate purchase price at the acquisition date, including acquisition costs
and payment to the shareholders, and excluding the contingent payment, was
approximately $130 million. In April 1996, the Company also paid down $15
million of Trecom's debt. The Company funded the April 1996 payments and intends
to fund the April 1997 payment with existing cash.
The acquisition was accounted for using the purchase method of accounting.
Accordingly, the results of Trecom's operations have been combined with those of
the Company since the date of acquisition. In addition, a portion of the
purchase price was allocated to the net assets acquired based on their estimated
fair values. The fair value of tangible assets acquired and liabilities assumed
was $49 million and $34 million, respectively. In addition, $20,700,000 of the
purchase price was allocated to in-process engineering and development projects
that had not reached technological feasibility and had no probable alternative
future uses, which the Company expensed at the date of acquisition. The balance
of the purchase price, $94 million, was recorded as excess of cost over net
assets acquired (goodwill) and is being amortized over twenty-five years on a
straight-line basis.
During the third quarter of 1996 Trecom achieved certain financial
goals resulting in an additional payment of $1,200,000 to Trecom shareholders.
These payments have been allocated to costs in excess of net assets acquired.
Due to the uncertainty of meeting the remaining performance targets, the
remaining $800,000 was not recorded as a liability in these financial
statements.
The following table reflects unaudited pro forma combined results of
operations of the Company and Trecom on the basis that the acquisition had taken
place at the beginning of the fiscal year for each of the periods presented:
1996 1995
- ----------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per common share amounts)
Revenues $1,668,896 $1,655,723
Net income (loss) $(333,378) $26,967
Net income (loss) per common share $(2.77) $.22
Shares used in computation 120,510,000 120,383,000
37 Amdahl Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DMR Group Inc.
On November 15, 1995 the Company acquired all of the outstanding shares of DMR
Group Inc. (DMR), a multinational information technology consulting company, for
$140 million. The acquisition was funded with existing cash.
The acquisition was accounted for using the purchase method of
accounting. Accordingly, results of DMR's operations have been combined with
those of the Company since the date of acquisition. In addition, a portion of
the purchase price was allocated to the net assets acquired based on their
estimated fair values. The fair value of tangible assets acquired and
liabilities assumed was $60 million and $55 million, respectively. In addition,
$27,296,000 of the purchase price was allocated to in-process engineering and
development projects that had not reached technological feasibility and had no
probable alternative future uses, which the Company expensed at the date of
acquisition. The balance of the purchase price, $108 million, was recorded as
excess of cost over net assets acquired (goodwill) and is being amortized over
twenty-five years on a straight-line basis.
During 1996 the DMR opening balance sheet reserves were increased by
$5,395,000 and additional acquisition costs of $2,145,000 were incurred. As a
result, the goodwill was increased by $7,540,000.
The following table reflects unaudited pro forma combined results of
operations of the Company and DMR on the basis that the acquisition had taken
place and the related charge, noted above, was recorded at the beginning of the
fiscal year for each of the periods presented:
1995 1994
- --------------------------------------------------------------------------------
(Dollars in thousands, except per common share amounts)
Revenues $ 1,693,912 $ 1,857,880
Net income $ 20,783 $ 38,777
Net income per common share $ .17 $ .33
Shares used in computation 120,383,000 118,909,000
In management's opinion, the unaudited pro forma combined results of
operations are not indicative of the actual results that would have occurred had
the acquisitions been consummated at the beginning of the years presented or of
future operations of the combined companies under the ownership and management
of the Company.
NOTE 4 EQUIPMENT LEASING AND THIRD PARTY TRANSACTIONS
The Company is the lessor of equipment under operating leases for periods
generally less than four years. Certain operating leases contain provisions for
early termination with a penalty or with conversion to another system. The cost
of leased systems is depreciated to a zero value on a straight-line basis over
two to four years. Accumulated depreciation on leased systems was $21,629,000 at
December 27, 1996 and $12,462,000 at December 29, 1995. In 1996 the Company
charged leased systems cost of sales for $24,700,000 to reduce the cost of
certain 5995M leased systems to market value. The Company also leases equipment
to customers under sales-type leases as defined in Statement of Financial
Accounting Standards No. 13, Accounting for Leases. The current portion of the
net investment in sales-type leases is included in receivables and the long-term
portion is included in long-term receivables and other assets. The components of
the net investment in sales-type leases were as follows:
1996 1995
- --------------------------------------------------------------------------------
(In thousands)
Minimum rentals receivable $ 16,577 $ 8,020
Estimated residual values of
leased equipment (unguaranteed) 839 2,500
Less unearned interest income (3,975) (1,116)
- --------------------------------------------------------------------------------
Net investment in sales-type leases $ 13,441 $ 9,404
================================================================================
38 Amdahl Corporation
Minimum rentals receivable under existing leases as of December 27,
1996 were as follows:
Sales-Type Operating
- --------------------------------------------------------------------------------
(In thousands)
1997 $ 6,585 $14,217
1998 5,488 9,519
1999 2,382 1,062
2000 1,769 --
2001 353 --
Thereafter -- --
- --------------------------------------------------------------------------------
$16,577 $24,798
================================================================================
In addition, during the periods presented, the Company sold certain
equipment subject to operating leases and financed certain sales-type equipment
leases and installment contracts with financing institutions (Third Parties).
The Company sometimes agrees to perform certain services and obligations with
respect to the equipment and related leases, such as general lease
administration, invoicing and collection of rentals, payment of insurance and
personal property taxes, maintenance services and non-priority remarketing of
equipment that comes off lease. For these services and obligations, the Company
generally receives its normal maintenance charges and a remarketing and
administration fee. Many of the agreements with Third Parties provide the
Company with residual rights in revenues, if any, derived from the equipment
after the Third Parties have received a designated return. Equipment sales
revenues arising from these transactions with Third Parties were approximately
$42,000,000, $48,000,000 and $71,000,000 in 1996, 1995 and 1994, respectively.
NOTE 5 FINANCIAL INSTRUMENTS
The Company invests in a variety of financial instruments but does not hold or
issue financial instruments for trading purposes.
Off-Balance Sheet Financial Instruments
The Company hedges certain portions of its exposure to foreign currency
fluctuations through a variety of strategies and financial instruments,
including the use of forward foreign exchange contracts and currency swap
agreements. These contracts and swaps generally have maturities that do not
exceed three months and two years, respectively. At December 27, 1996 and
December 29, 1995 the Company had approximately $187,000,000 and $57,000,000,
respectively, in notional principal of forward foreign exchange contracts
outstanding. The Company had $20,000,000 of currency swap agreements outstanding
at December 27, 1996 and December 29, 1995. The gains and losses associated with
currency rate changes on forward foreign exchange contracts and currency swap
agreements are recorded currently in income as they offset corresponding gains
and losses on the foreign currency-denominated assets and liabilities being
hedged. Therefore, the carrying value of forward foreign exchange contracts and
currency swap agreements approximates their fair value, which was immaterial at
December 27, 1996 and December 29, 1995.
The Company enters into foreign currency options to protect against
currency exchange risks associated with its probable anticipated, but not firmly
committed, non-U.S. intercompany sales and with both inventory purchase
commitments and probable anticipated inventory purchases from Fujitsu. Realized
and unrealized gains and losses on such contracts and the associated cash flows
that qualify as hedges are reported as components of the related transactions.
These option contracts generally have maturities that do not exceed one year. At
December 27, 1996 and December 29, 1995 the Company had approximately
$129,000,000 and $80,000,000 in notional principal of purchased option contracts
outstanding, respectively. The net income effect deferred on foreign currency
option contracts represents the amount by which the carrying value of the option
contracts exceeded their fair value and was immaterial as of December 27, 1996
and December 29, 1995.
39 Amdahl Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company enters into interest rate swap agreements to extend the
effective duration of a portion of the Company's investments in
available-for-sale debt securities and accrues the differential to be paid or
received under the agreements as interest rates change over the life of the
contracts. These agreements generally have maturities that do not exceed three
years. Notional principal outstanding under these agreements was zero as of
December 27, 1996 and approximately $12,000,000 as of December 29, 1995. The
fair value of interest rate swaps is the estimated amount that the Company would
receive or pay to terminate the swap agreements at the reporting date, taking
into account current interest rates. The fair value of interest rate swaps at
December 27, 1996 and December 29, 1995 was immaterial.
Balance Sheet Financial Instruments
Substantially all cash equivalents consist of investments in major bank time
deposits, certificates of deposit and commercial paper with initial maturities
of three months or less. Substantially all short-term investments consist of
major bank time deposits, certificates of deposit, commercial paper and U.S.
government securities which the Company intends to hold between three and twelve
months.
In November 1995 the Financial Accounting Standards Board issued a
Special Report, A Guide to Implementation of Statement 115 on Accounting for
Certain Investments in Debt and Equity Securities (Special Report). Concurrent
with the issue of the Special Report the Company reassessed the appropriateness
of the classifications of its securities investments and reclassified all of its
held-to-maturity securities to the available-for-sale category. Amortized cost
of the securities transferred was $161,033,000 and the related unrealized gain
was $225,000.
At December 27, 1996 the Company's available-for-sale securities had
contractual maturities of overnight to fifteen years and the average maturity
was one year. The fair value of available-for-sale securities was determined
based on quoted market prices at the reporting date for those instruments. At
December 27, 1996 and December 29, 1995 the amortized cost basis, aggregate fair
value and gross unrealized holding gains and losses by major security type were
as follows:
Amortized Aggregate Unrealized
1996 Cost Fair Value Gains (Losses)
- --------------------------------------------------------------------------------
(In thousands)
Available-for-Sale Securities
Equity securities $ 2,152 $ 985 $(1,167)
Debt securities issued
by U.S. Treasury and
other U.S. government
agencies 195,134 194,402 (732)
Debt securities issued
by foreign governments 71,718 71,888 170
Corporate debt securities 50,899 50,562 (337)
Mortgage-backed securities 15,706 15,629 (77)
- --------------------------------------------------------------------------------
Total investments in debt
and equity securities $335,609 $333,466 $(2,143)
================================================================================
40 Amdahl Corporation
Amortized Aggregate Unrealized
1995 Cost Fair Value Gains
- --------------------------------------------------------------------------------
(In thousands)
Available-for-Sale Securities
Equity securities $ 2,582 $ 2,894 $ 312
Debt securities issued
by U.S. Treasury and
other U.S. government
agencies 222,036 223,553 1,517
Debt securities issued
by foreign governments 1,821 2,020 199
Corporate debt securities 283,877 285,285 1,408
Mortgage-backed securities 17,096 17,325 229
- --------------------------------------------------------------------------------
Total investments in debt
and equity securities $527,412 $531,077 $3,665
================================================================================
In 1996, 1995 and 1994 proceeds from sales of available-for-sale
securities were $60,440,000, $107,411,000 and $40,677,000, respectively. Gross
realized gains of $3,264,000 and $832,000 in 1996 and 1995, respectively, and
gross realized losses of $2,171,000 in 1994 were recognized on those sales and
were included in marketing, general and administrative expenses. The Company
used specific identification as the cost basis in computing realized gains and
losses.
At December 27, 1996 and December 29, 1995 the carrying value of notes
payable, short-term debt and long-term debt approximated fair value because of
the variable interest rate nature of these instruments.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of temporary cash investments and trade
receivables. The Company has cash investment policies that limit the amount of
credit exposure to any one financial institution and restrict placement of these
investments to financial institutions evaluated as highly creditworthy.
Concentrations of credit risk with respect to trade receivables are limited due
to the large number of customers comprising the Company's customer base and
their dispersion across many different industries and geographies.
NOTE 6 ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
1996 1995
- --------------------------------------------------------------------------------
(In thousands)
Payroll and vacation $138,472 $125,482
Restructuring costs (Note 8) 43,311 55,110
Income taxes 54,986 38,085
Deferred income 106,778 95,968
Acquisition price payable (Note 3) 64,174 --
Other 134,022 116,955
- --------------------------------------------------------------------------------
$541,743 $431,600
================================================================================
41 Amdahl Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 7 LONG-TERM DEBT AND LIABILITIES AND BANK CREDIT
AGREEMENTS
Long-term debt and liabilities consisted of the following:
1996 1995
- --------------------------------------------------------------------------------
(In thousands)
Long-term debt - stockholder
(Fujitsu) (Note 2) $ 80,000 $ 80,000
Bank loans at DMR 749 7,444
Capitalized lease obligations (Note 13) 17,988 19,856
Long-term liabilities 27,252 26,970
- --------------------------------------------------------------------------------
125,989 134,270
Less current maturities 82,326 3,118
- --------------------------------------------------------------------------------
Long-term debt and liabilities $ 43,663 $131,152
================================================================================
Bank loans at DMR primarily consist of installment loans and have
maturity dates ranging from 1997 to 1999. Bank loans at DMR on December 29, 1995
primarily consisted of the outstanding balance on a $14,700,000 revolving term
line of credit having an original maturity of five years and bearing interest at
a rate based upon the Canadian Bankers' Acceptance Rate. In 1996 the revolving
term line of credit was refinanced to short-term borrowings and was included in
the short-term debt balance.
The Company has credit agreements with a number of banks providing for
short-term borrowings in U.S. dollars and various foreign currencies at varying
interest rates. At December 27, 1996 and December 29, 1995, $42,727,000 and
$18,908,000, respectively, were outstanding under these agreements.
Interest paid on all borrowings was $10,731,000, $10,460,000 and
$9,098,000 in 1996, 1995 and 1994, respectively.
Long-term liabilities included deferred equipment maintenance revenues
and long-term amounts accrued under the Executive Incentive Performance Plan.
NOTE 8 RESTRUCTURING OF OPERATIONS
In the fourth quarter of 1996, the Company recorded a restructuring charge based
on an evaluation of the competitive conditions in the markets for large-scale
computing systems, consulting services and software. The Company looked at
future costs in line with anticipated levels of business in 1997 and beyond, and
determined that a restructuring charge of $40 million was required to cover the
costs of reducing certain sectors of its workforce and facilities to levels more
appropriate to current business requirements.
At December 27, 1996, $43.3 million of restructuring charges remained in
accrued liabilities. The balance was comprised of $34.4 million for the
reduction of approximately 300 employees to be completed in 1997, $7.5 million
for closing excess facilities and $1.4 million for other non-cash write-downs of
recorded assets, of which $41.9 million represents estimated future cash
outflows. A summary of the restructuring activity is presented below:
- --------------------------------------------------------------------------------
(In thousands)
Balance at December 31, 1993* $ 180,743
1994 activity:
Non-cash write-downs of property,
equipment and inventories (11,113)
Reduction in workforce and
other cash outflows (53,460)
- --------------------------------------------------------------------------------
Balance at December 30, 1994 116,170
1995 activity:
Restructuring reserve associated
with the acquisition of DMR 2,272
Non-cash write-downs of property,
equipment and inventories (17,004)
Reduction in workforce and
other cash outflows (22,170)
- --------------------------------------------------------------------------------
Balance at December 29, 1995 79,268
1996 provision 40,000
1996 activity:
Non-cash write-downs of property,
equipment and inventories (43,191)
Reduction in workforce and
other cash outflows (32,766)
- --------------------------------------------------------------------------------
Balance at December 27, 1996 $ 43,311
================================================================================
<FN>
* Balance of restructuring accrual recorded in 1993.
</FN>
42 Amdahl Corporation
NOTE 9 MAJOR CUSTOMER, GEOGRAPHIC AREA AND PRODUCT LINE DATA
No single customer accounted for 10% or more of total revenues in 1996, 1995 or
1994. The Company's operations by geographical area for the three years ended
December 27, 1996 were as follows:
United Asia Pacific Adjustments
1996 States Canada Europe & Other & Eliminations Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
Revenues:
Customers $ 797,766 $ 166,680 $ 488,474 $ 178,629 $ -- $ 1,631,549
Intercompany 280,686 5,971 22,978 -- (309,635) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total revenues $ 1,078,452 $ 172,651 $ 511,452 $ 178,629 $ (309,635) $ 1,631,549
====================================================================================================================================
Income (loss)
from
operations $ (319,121) $ 2,733 $ 18,853 $ (2,172) $ (32,239) $ (331,946)
Interest
income, net 18,264
-----------
Loss before
income taxes $ (313,682)
===========
Identifiable
assets $ 969,039 $ 402,670 $ 1,123,018 $ 73,989 $(1,344,809) $ 1,223,907
Corporate
assets 372,497
-----------
Total assets $ 1,596,404
===========
United Asia Pacific Adjustments
1995 States Canada Europe & Other & Eliminations Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
Revenues:
Customers $ 872,153 $ 52,731 $ 455,216 $ 136,288 $ -- $ 1,516,388
Intercompany 236,477 1,016 10,998 -- (248,491) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total revenues $ 1,108,630 $ 53,747 $ 466,214 $ 136,288 $ (248,491) $ 1,516,388
====================================================================================================================================
Income (loss)
from
operations $ (24,390) $ (23,563) $ 40,309 $ 1,641 $ 15,127 $ 9,124
Interest
income, net 40,853
-----------
Income before
income taxes $ 49,977
===========
Identifiable
assets $ 666,019 $ 202,484 $ 945,553 $ 56,118 $ (738,903) $ 1,131,271
Corporate
assets 576,927
-----------
Total assets $ 1,708,198
===========
United Asia Pacific Adjustments
1994 States Canada Europe & Other & Eliminations Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
Revenues:
Customers $ 955,090 $ 62,433 $ 506,526 $ 114,564 $ -- $1,638,613
Intercompany 241,468 (88) 7,428 -- (248,808) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total revenues $1,196,558 $ 62,345 $ 513,954 $ 114,564 $ (248,808) $1,638,613
====================================================================================================================================
Income from
operations $ 49,908 $ 4,444 $ 3,256 $ 3,672 $ 2,611 $ 63,891
Interest
income, net 16,363
----------
Income before
income taxes $ 80,254
=========
Identifiable
assets $ 663,205 $ 23,051 $ 681,193 $ 32,128 $ (354,320) $1,045,257
Corporate
assets 673,778
----------
Total assets $1,719,035
==========
43 Amdahl Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company's operations are structured to achieve consolidated
objectives. As a result, significant interdependencies and overlaps exist among
the Company's operating units. Accordingly, the revenue, operating income (loss)
and identifiable assets shown for each geographic area may not be indicative of
the amounts that would have been reported if the operating units were
independent of one another.
Intercompany sales and transfers of manufacturing materials and
finished systems between areas are accounted for based on established
intercompany sales prices.
Operating income (loss) is revenue less related costs and direct and
allocated operating expenses, excluding interest and, for all areas except the
United States, the unallocated portion of corporate expenses. United States
operating income (loss) is net of corporate engineering and development and
administrative expenses. The United States' 1996 operating loss includes the
write-off of purchased in-process engineering and development recorded upon the
acquisition of Trecom (see Note 3) and the corporate restructuring charge (see
Note 8). The United States' 1996 identifiable assets included the excess of cost
over new assets acquired related to the acquisition of Trecom. Canada's 1995
loss from operations includes the write-off of purchased in-process engineering
and development. Canada's 1995 and 1996 identifiable assets include the excess
of cost over net assets acquired related to the acquisition of DMR (see Note 3).
Corporate assets include assets maintained for general purposes,
principally cash equivalents and short-term investments.
The Company operates in the large-scale computer system and related
storage and communications products segment of the data processing industry. The
Company also continues to make the transition to being a more service and
solutions oriented business. Revenues for similar classes of products or
services within this one business segment for the most recent three years are
presented below:
1996 1995* 1994*
- --------------------------------------------------------------------------------
(In millions)
Processor equipment sales** $ 363 $ 643 $ 820
Storage product equipment sales 79 83 203
Server equipment sales 97 77 27
- --------------------------------------------------------------------------------
Total equipment sales 539 803 1,050
- --------------------------------------------------------------------------------
Maintenance services revenues 435 475 449
Consulting and
professional services revenues 559 141 64
Lease revenues 23 18 30
Software and implementation
services revenues *** 76 79 46
- --------------------------------------------------------------------------------
Total service, software
and other revenues 1,093 713 589
- --------------------------------------------------------------------------------
$1,632 $1,516 $1,639
================================================================================
<FN>
* Reclassified to conform to 1996 presentation.
** Includes Systems/390-compatible mainframe processors and
certain related hardware products.
*** Includes all software revenue and services performed to implement the
software environment at customer sites (excludes application services). 1995
included $15 million of nonrecurring software sales to Fujitsu (see Note 2).
</FN>
44 Amdahl Corporation
NOTE 10 CAPITAL STOCK
There are 200,000,000 authorized shares of common stock, par value of $.05 per
share, of which 121,753,000 shares were issued and outstanding as of December
27, 1996. As of December 27, 1996 the Company had reserved shares of its common
stock for the following purposes:
Description Shares Reserved
- --------------------------------------------------------------------------------
Stock Option Plans -
Stock options outstanding 8,279,873
Stock options and restricted stock
available for grant 2,031,114
Employee Stock Purchase Plan 6,069,960
- --------------------------------------------------------------------------------
16,380,947
================================================================================
On November 1, 1996 the Board of Directors authorized, subject to
stockholder approval at the annual meeting on May 1, 1997, an increase to the
shares available for grant under the 1994 Stock Incentive Plan by 2% of the
shares of common stock outstanding on May 1, 1997. The Board of Directors also
authorized, subject to stockholder approval, ongoing annual increases to the
shares available for grant on the first trading day of each calendar year
beginning with 1998. The annual increases will be 3% of the shares of common
stock outstanding on December 31 of the immediately preceding calendar year,
provided that each annual increase will be limited so that the shares available
for future option grants and share issuances will not exceed 6,000,000 shares at
the time of each annual increase.
On May 2, 1996 the stockholders approved an increase of 5,000,000
shares in the number of shares issuable under the Employee Stock Purchase Plan.
On February 8, 1996 the Board of Directors authorized the Company to
buy back up to $100 million of the Company's common stock. No shares were
repurchased under this authorization in 1996.
There are 5,000,000 authorized shares of Preferred Stock, par value of
$1 per share. This stock, if issued, will carry liquidation preferences and
other rights, as determined by the Board of Directors. As of December 27, 1996
no Preferred Stock had been issued.
NOTE 11 EMPLOYEE STOCK OPTIONS AND BENEFIT PLANS
Under the Company's stock option plans, options generally become exercisable in
cumulative annual installments beginning one year after the date of grant, are
fully exercisable after four or five years and expire after ten or fifteen
years. Options are granted to non-employee directors under the Automatic Option
Grant Program. The Company accounts for these plans under APB Opinion No. 25,
under which no compensation cost has been recognized. Had compensation cost for
these plans been determined consistent with Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (SFAS No. 123), the
Company's net income (loss) and earnings (loss) per share would have been
adjusted to the following pro forma amounts:
1996 1995
- --------------------------------------------------------------------------------
(In thousands, except per share amounts)
Net income (loss): As Reported $(326,682) $28,527
Pro Forma $(331,997) $28,165
Earnings (loss) per share: As Reported $ (2.71) $ .24
Pro Forma $ (2.75) $ .23
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995, respectively: risk-free interest
rates of 5.6 and 6.7 percent; expected dividend yields of 0 and 0 percent;
expected lives of 4.4 and 4.5 years; and expected volatility of 37.6 and 37.6
percent.
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to fiscal 1995, the resulting pro forma compensation cost
may not be representative of that to be expected in future years.
45 Amdahl Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Under the Employee Stock Purchase Plan, the Company's employees,
subject to certain restrictions, may purchase shares of common stock at a price
per share that is the lesser of 85% of the fair market value as of the first day
or the last day of each three-month purchase period. The Company sold 755,000
shares, 619,000 shares, and 1,031,000 shares in 1996, 1995 and 1994,
respectively. The weighted average fair value of shares sold in 1996 was $10.08.
Activity in the Company's option plans excluding restricted stock is
summarized as follows:
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
Wtd Avg Wtd Avg Wtd Avg
Shares Ex Price* Shares Ex Price* Shares Ex Price*
- -------------------------------------------------------------------------------------------------------------------------
(Shares in thousands)
Options outstanding at
Beginning of year 6,875 $ 6.13 8,996 $ 5.77 10,736 $ 5.57
Granted 3,576 8.05 377 11.07 391 7.24
Exercised (1,464) 5.34 (2,032) 5.49 (935) 4.94
Expired or canceled (707) 7.43 (466) 6.01 (1,196) 5.13
- ------------------------------------------------------------------------------------------------------------------------
Options outstanding at
end of year 8,280 $ 6.98 6,875 $ 6.13 8,996 $ 5.77
- ------------------------------------------------------------------------------------------------------------------------
Exercisable at end of year 3,716 3,114 3,262
Weighted average
fair value of
options granted $ 3.51 $ 4.58
- ------------------------------------------------------------------------------------------------------------------------
<FN>
*Weighted Average Exercise Price
</FN>
The following summarizes the stock options outstanding at December 27,
1996:
Options Outstanding Options Exercisable
-------------------------------------------------------------- --------------------------------
Actual
Range of Number Weighted-Average Number
Exercise Prices Outstanding Remaining Weighted-Average Exercisable Weighted-Average
($5 increments) 12/27/96 Contractual Life Exercise Price 12/27/96 Exercise Price
- ------------------------------------------------------------------------------------------------------------------------------------
$ 2.57 - 4.81 3,760,003 6.1 $ 4.65 2,481,377 $ 4.72
$ 5.31 - 9.91 3,460,186 12.4 $ 7.80 724,825 $ 7.13
$10.06 -14.72 970,684 10.1 $ 12.14 425,829 $ 12.82
$15.00 -18.88 89,000 3.6 $ 17.18 84,200 $ 17.21
- ------------------------------------------------------------------------------------------------------------------------------------
$ 2.57 -18.88 8,279,873 9.2 $ 6.98 3,716,231 $ 6.40
====================================================================================================================================
As of December 27, 1996 the Company had 356,701 shares of restricted
common stock outstanding with certain officers and key employees under the 1994
Stock Incentive Plan. These shares carry certain restrictions on
transferability, which will lapse over periods as determined by the Board of
Directors at the time of award. The difference between the fair market value at
the date of grant and the purchase price of the shares (generally, $.05 per
share) is recorded as compensation expense ratably over the period from the date
of grant to the date the restrictions lapse.
The Company has a Capital Accumulation Plan available to all its North
American employees to which it contributes based on its profits. The Company
also has a savings plan for domestic employees whereby it matches 25% of
employee contributions up to specified limits. In addition, under the Executive
Incentive Performance Plan, amounts up to 2% of income before taxes are accrued
for selected key employees instead of their participation in the Capital
Accumulation Plan. Approximately half of the award vests over the following four
years and the remainder vests over a service period of up to twenty years. The
total cost of these plans charged to operations was $1,322,000 in 1996,
$10,303,000 in 1995 and $9,025,000 in 1994.
46 Amdahl Corporation
NOTE 12 INCOME TAXES
Income (loss) before taxes and the provision for (benefit from) income taxes
were comprised of the following:
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
Income (loss) before provision for income taxes:
Domestic $(268,098) $ 18,104 $ 65,941
Foreign (45,584) 31,873 14,313
- ------------------------------------------------------------------------------------------------------------------------------------
$(313,682) $ 49,977 $ 80,254
====================================================================================================================================
Provision for (benefit from) income taxes:
Federal-
Current $ (6,244) $ 25,804 $ 20,531
Deferred, net 6,244 (12,918) (4,895)
- ------------------------------------------------------------------------------------------------------------------------------------
-- 12,886 15,636
- ------------------------------------------------------------------------------------------------------------------------------------
State-
Current 5,390 4,328 (7,284)
Deferred, net (1,890) (2,328) 8,484
- ------------------------------------------------------------------------------------------------------------------------------------
3,500 2,000 1,200
- ------------------------------------------------------------------------------------------------------------------------------------
Foreign-
Current 11,659 6,291 (744)
Deferred, net (2,159) 273 (10,642)
- ------------------------------------------------------------------------------------------------------------------------------------
9,500 6,564 (11,386)
- ------------------------------------------------------------------------------------------------------------------------------------
Net tax provision $ 13,000 $ 21,450 $ 5,450
====================================================================================================================================
The effective income tax provision differed from the statutory federal provision
due to the following (prior year amounts have been reclassified to conform to
current-year presentation):
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
Statutory federal tax provision (benefit) $(109,789) $ 17,492 $ 28,089
State tax provisions, net of federal tax benefit 2,275 1,300 780
Foreign losses in excess of available benefits 27,163 13,132 4,199
Unutilized (utilized) deductible temporary differences 82,427 (20,055) (40,484)
Foreign subsidiaries' earnings taxed at rates in
excess of the statutory federal rate 169 235 8,750
Write-off of purchased in-process engineering
and development 7,245 9,554 --
Goodwill amortization 2,693 -- --
Other 817 (208) 4,116
- ------------------------------------------------------------------------------------------------------------------------------------
Net tax provision $ 13,000 $ 21,450 $ 5,450
====================================================================================================================================
Net effective tax rate (4%) 43% 7%
====================================================================================================================================
47 Amdahl Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Net income tax refunds of $6,104,000 and $12,340,000 were received by
the Company in 1996 and 1994, respectively, and net income taxes of $26,050,000
were paid by the Company in 1995.
The components of the net deferred tax liability at December 27, 1996
and December 29, 1995 were as follows:
1996 1995
- --------------------------------------------------------------------------------
(In thousands)
Deferred tax liabilities:
Taxes on foreign income $ (35,174) $ (18,520)
Depreciation (44,975) (26,173)
Revenue timing (3,149) (12,450)
- --------------------------------------------------------------------------------
Total deferred tax liability (83,298) (57,143)
- --------------------------------------------------------------------------------
Deferred tax assets:
Reserves 137,916 84,594
Net operating loss and credit
carryforwards 142,762 40,423
Other 7,493 20,860
- --------------------------------------------------------------------------------
288,171 145,877
Valuation allowance (207,700) (89,367)
- --------------------------------------------------------------------------------
Total deferred tax assets 80,471 56,510
- --------------------------------------------------------------------------------
Net deferred tax liability $ (2,827) $ (633)
================================================================================
No tax benefit was recorded for losses other than recoverable taxes or
future taxable income from the reversal of deferred items.
The valuation allowance at December 27, 1996 and December 29, 1995
provided reserves against worldwide operating losses, deferred tax assets, and
tax credit carryforwards which may expire before the Company can utilize them.
The Company believes sufficient uncertainty exists regarding the realizability
of these items and accordingly has continued to provide a valuation allowance
for them.
Cumulative undistributed earnings of foreign subsidiaries for which no
United States income or foreign withholding taxes have been recorded, because
such earnings are expected to be reinvested indefinitely, amounted to
$105,200,000 at December 27, 1996. The Company provides in full for United
States income taxes on the earnings of foreign subsidiaries not considered
indefinitely invested outside the United States.
At December 27, 1996 the Company had U.S. federal net operating loss
carryforwards of $136,900,000 which expire in the year 2011. State net operating
loss carryforwards approximate $347,200,000 which expire in the years 1997
through 2011. Foreign net operating loss carryforwards of $71,900,000 expire at
various dates from 1997 through 2006 and $70,700,000 can be carried forward
indefinitely.
In 1994 the Internal Revenue Service (IRS) issued a notice of deficiency to
the Company for disputed items related to the 1983 through 1986 tax years, the
most significant of which related to the treatment of system spares. In the
fourth quarter of 1996 the Company was notified that the IRS was no longer
contesting the Company's treatment of system spares. The remaining disputed
items are immaterial.
The IRS field audit of the Company's 1987 through 1990 tax years is in
process. In the opinion of management, the final resolution of the matters
raised by the IRS field audit will not result in any material adverse impact to
the Company's results of operations or financial position. It is reasonably
possible that the Company's estimate of the final impact of these matters will
change in the near term upon the completion of the IRS field audit.
48 Amdahl Corporation
NOTE 13 LEASE COMMITMENTS
The Company leases a substantial portion of its principal facilities under
capital lease agreements extending through the year 2008. Capitalized facilities
leases totaling $18,571,000 and $32,995,000 with accumulated amortization of
$17,408,000 and $24,176,000 were included in the land and buildings
classification on the balance sheets at December 27, 1996 and December 29, 1995,
respectively. The lease agreements provide for renewal options extending the
lease terms beyond the initial terms in five-year increments. The Company also
leases certain equipment and sales and service facilities under operating
leases. The minimum lease commitments as of December 27, 1996 were as follows:
Capital Operating
Leases Leases
- --------------------------------------------------------------------------------
(In thousands)
1997 $ 3,717 $ 38,547
1998 3,390 30,742
1999 2,624 23,539
2000 2,626 16,864
2001 2,626 12,935
After 2001 15,760 19,539
- --------------------------------------------------------------------------------
Total minimum lease commitments 30,743 $142,166
========
Less imputed interest (9.25% to 13.74%) (12,755)
- ----------------------------------------------------------
Present value of minimum lease
commitments (Note 7) $17,988
=========================================================
Minimum obligations have not been reduced by minimum rentals of
$6,020,000 and $ 20,691,000 receivable in the future under noncancelable
subleases of capital leases and operating leases, respectively, as of December
27, 1996.
Rental expense charged to income was as follows:
1996 1995 1994
- --------------------------------------------------------------------------------
(In thousands)
Minimum rent $ 46,108 $ 37,701 $ 38,768
Less sublease rent (463) (6,276) (4,073)
- --------------------------------------------------------------------------------
Total $ 45,645 $ 31,425 $ 34,695
================================================================================
49 Amdahl Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 14 SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)
First Second Third Fourth Year
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per common share
amounts and note data)
FISCAL QUARTER AND YEAR 1996
Revenues $ 317,028 $ 382,854 $ 439,819 $ 491,848 $ 1,631,549
Gross margin $ 72,582 $ (76,894) $ 123,449 $ 137,926 $ 257,063
(Loss) before taxes $ (48,153) $ (228,436) $ (4,201) $ (32,892) $ (313,682)
Net (loss) $ (38,523) $ (249,436) $ (4,833) $ (33,890) $ (326,682)
Net (loss) per common share $ (.32) $ (2.07) $ (.04) $ (.28) $ (2.71)
FISCAL QUARTER AND YEAR 1995
Revenues $ 371,526 $ 378,666 $ 350,016 $ 416,180 $ 1,516,388
Gross margin $ 145,315 $ 148,271 $ 142,469 $ 120,746 $ 556,801
Income (loss) before taxes $ 26,394 $ 33,642 $ 25,707 $ (35,766) $ 49,977
Net income (loss) $ 20,594 $ 26,242 $ 20,057 $ (38,366) $ 28,527
Net income (loss)
per common share $ .17 $ .22 $ .17 $ (.32) $ .24
<FN>
Notes: Second-quarter 1996 results of operations included charges of $20,700,000 or $.17 per share to write off in-process
engineering and development at Trecom Business Systems, Inc., and $130,000,000 or $1.08 per share to reduce 5995M assets to
estimated market value. Fourth-quarter 1996 results of operations included a restructuring charge of $40,000,000 or $.33 per share.
Fourth-quarter 1995 results of operations included charges of $27,296,000 or $.23 per share to write off in-process engineering and
development at DMR Group Inc. and $26,000,000 or $.22 per share to reduce inventories to estimated market value.
</FN>
- --------------------------------------------------------------------------------
COMMON STOCK DIVIDENDS AND PRICE RANGE (UNAUDITED)
Dividends
Dividends declared per share for the most recent five years were $.05 in 1993
and $.10 in 1992. No dividends were declared or paid in 1996, 1995 or 1994.
Payment of future dividends will be dependent upon the Company's earnings,
capital requirements, financial condition and other factors.
Market Price
The common stock is listed on both the American and London Stock Exchanges. The
following table sets forth, for the periods indicated, the range of high and low
sale prices on the American Stock Exchange Composite Transactions, as reported
by The Wall Street Journal:
1996 High Low
- --------------------------------------------------------------------------------
First Quarter $ 9 3/8 $6 3/4
Second Quarter $13 1/2 $8 7/16
Third Quarter $10 7/8 $8 1/8
Fourth Quarter $14 $8 11/16
1995 High Low
- --------------------------------------------------------------------------------
First Quarter $12 1/4 $ 9 7/8
Second Quarter $13 5/8 $10 1/2
Third Quarters $11 3/4 $ 8 5/8
Fourth Quarter $10 3/4 $ 8 1/8
At December 27, 1996 there were approximately 15,000 holders of record of
Amdahl common stock.
- -------------------------------------------------------
Amdahl and UTS are registered trademarks and Millennium, Spectris, LVS 4000, LVS
4500, LVS 4100, EnVista, A+ Software, A+Edition, and A+FailSafe are trademarks
of Amdahl Corporation. ObjectStar and CrossView are registered trademarks and
Antares Alliance and EdgeworX are trademarks of Antares Alliance Group. Sun, Sun
Microsystems, Solaris, and Ultra Enterprise are trademarks or registered
trademarks of Sun Microsystems. UltraSPARC is a trademark of SPARC
International, licensed exclusively to Sun Microsystems, Inc. SPARC is a
registered trademark of SPARC International. Products bearing SPARC trademarks
are based upon an architecture developed by Sun Microsystems, Inc. Microsoft,
Windows NT, and Visual Basic are trademarks or registered trademarks of
Microsoft Corporation. IBM, System/390, ESCON, CICS, and Parallel Sysplex are
trademarks or registered trademarks of IBM. UNIX is a registered trademark in
the U.S. and other countries, licensed exclusively through X/Open Company
Limited. Intel and Pentium are registered trademarks of Intel Corporation. All
other trademarks and product names are the property of their respective owners.
50 Amdahl Corporation