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Digital reports Q4 net loss of $433 million
Strong 64-bit Alpha systems, UNIX and Windows NT revenues...
...Full year revenue of $14.6 billion highest in company history
Digital today reported a net loss of $433 million, or $2.87 per
common share, for the fourth quarter which ended June 29, 1996.
Excluding restructuring charges of $492 million, net income for the
quarter was $59 million, or $.33 per common share, compared with net
earnings of $160 million, or $1.01 per common share, in the comparable
quarter a year ago.
For the full fiscal year, the company reported a net loss of
$112 million, or $.97 per common share. Excluding restructuring
charges, net income for the fiscal year was $380 million, or $2.23 per
common share, compared with net income of $122 million, or $.59 per
common share for fiscal year 1995 -- a $258 million year-over-year
improvement.
Total operating revenue for the quarter was $3.72 billion,
essentially unchanged from a year ago. For the year, operating revenue
was $14.6 billion, up 5 percent from the $13.8 billion reported in the
1995 fiscal year. It was the highest yearly revenue ever reported by
the company.
"During the 1996 fiscal year, Digital made progress towards
growing its strategic businesses and improving its financial
performance," said Chairman Robert B. Palmer. "Our earnings per common
share improved by 278 percent over the previous fiscal year, excluding
the restructuring charge. We still have a good deal of work to do in a
number of areas, but I am confident that the foundation is there for a
stronger and more profitable Digital in fiscal 1997."
The balance sheet continued to strengthen as Digital completed
the quarter with $2 billion in cash, an increase of $437 million, or
27 percent, compared with last year.
"Digital ended the fiscal year with the highest cash level in
nearly five years," said Vincent J. Mullarkey, vice president and
chief financial officer. "We experienced improvement in asset
management across the board including solid progress in both inventory
and accounts receivable.
"The asset management improvement over the past fiscal year
gives management increased confidence in positive cash flow
generation," Mullarkey continued. "As a result, Digital has announced
a stock repurchase program for up to 10 million common shares."
Product revenue for the quarter was $2.141 billion versus
$2.132 billion in the fourth quarter of the previous year. Service
revenue was $1.578 billion, compared with the $1.618 billion reported
in the same period last year.
Palmer said the company recorded strong growth in its Alpha
systems business. Alpha system revenues grew by 34 percent over last
year's fourth quarter, driven by demand for its new mid-range 4100
AlphaServer and its high-end 8000 AlphaServer family.
Palmer said Digital's UNIX revenue grew by 33 percent over the
year ago quarter while its Windows NT revenue grew overall by more
than 100 percent. And, he said, revenue for OpenVMS on Alpha also grew
due to customer confidence in the operating system and its seamless
interoperability with Windows NT.
As previously indicated, revenue in some European markets was
down due in part to an economic slowdown. The company, however, did
well in other markets including, Japan, the United Kingdom, Italy,
Latin America and the ASEAN countries.
"In Europe, we are strengthening management, significantly
expanding our direct sales coverage and initiating a campaign to
better focus with channel partners at the country-level," Palmer said.
The company, as expected, reported that revenue in its personal
computer business was down 3 percent in the fourth quarter compared to
a year ago.
"Our Intel-based PC business is an important component of
Digital's company-wide Windows NT strategy," Palmer continued. "We are
focusing on the server business where we've been growing at a rate of
more than 25 percent while we continue to provide mobile and desktop
products to our enterprise customers as part of client/server
solutions.
"I am encouraged by the improvements we've made in reducing
channel inventory and managing costs, while recording strong growth in
our Intel-based server business," Palmer said.
Product gross margin was 34.3 percent for the fourth quarter
and 33.7 percent for the full year showing improvement of 3.1 points
and 4.6 points respectively over the corresponding periods last year.
These improvements were driven by continued cost improvements, more
competitive product offerings and a greater volume of AlphaServer
products.
Service gross margin was 30.4 percent for the fourth quarter
compared with 34.0 percent in the comparable period last year. The
reduction reflects the shift in business mix towards multivendor
service and support offerings. Management continues to be confident,
Mullarkey said, that the service gross margin is stabilizing and
should begin to improve in the short-term.
The Corporation ended the quarter with approximately 59,100
employees -- a reduction of 1,800 positions during the quarter and
2,600 positions compared with the same period last year.
Statements contained in this press release that are not
historical facts are forward-looking statements as that term is
defined in the Private Securities Litigation Reform Act of 1995. All
forward-looking statements are subject to risks and uncertainties
which could cause actual results to differ from those projected. Such
risks and uncertainties are discussed more fully in the company's
latest quarterly report on Form 10-Q and the company's other filings
with the Securities and Exchange Commission.
Consolidated Statements of Operations
(in thousands except per share data)
Three-Month Period Ended (unaudited)
June 29, 1996 July 1, 1995
Product sales..................... $ 2,141,175 $ 2,132,347
Service and other revenues........ 1,578,077 1,617,520
Total operating revenues.......... 3,719,252 3,749,867
Cost of product sales............. 1,407,800 1,467,622
Service expense and cost of other
revenues.......................... 1,099,102 1,066,945
Research and engineering
expenses.......................... 266,770 252,977
Selling, general and
administrative expenses .......... 880,184 789,725
Restructuring charges............. 492,000 -
Operating income/(loss)........... (426,604) 172,598
Net interest expense.............. 5,705 7,693
Income/(loss) before income
taxes............................. (432,309) 164,905
Provision for income taxes........ 529 5,139
Net income/(loss)................. (432,838) 159,766
Dividend on preferred stock....... 8,875 8,875
Net income/(loss) applicable
to common stock................... $ (441,713) $ 150,891
Net income/(loss) applicable
per common share (1).............. $ (2.87) $ 1.01
Weighted average common
shares outstanding................ 153,976 149,931
Twelve-Month Period Ended June 29, 1996 July 1, 1995
Product sales..................... $ 8,362,423 $ 7,616,441
Service and other revenues........ 6,200,352 6,196,621
Total operating revenues.......... 14,562,775 13,813,062
Cost of product sales............. 5,541,792 5,397,723
Service expense and cost of other
revenues.......................... 4,214,412 3,993,970
Research and engineering
expenses.......................... 1,062,253 1,040,028
Selling, general and
administrative expenses........... 3,295,865 3,272,913
Restructuring charges............. 492,000 -
Operating income/(loss)........... (43,547) 108,428
Net interest expense.............. 23,980 32,771
Income/(loss) before income
taxes and cumulative effect
of change in accounting
principle......................... (67,527) 75,657
Provision for income taxes........ 44,285 18,342
Income/(loss) before
cumulative effect of change
in accounting principle........... (111,812) 57,315
Benefit due to cumulative
effect of change in
accounting principle ............. - 64,503
Net income/(loss)................. (111,812) 121,818
Dividends on preferred stock...... 35,500 35,500
Net income/(loss) applicable
to common stock................... $ (147,312) $ 86,318
Per common share (1):
Income/(loss) before
cumulative effect of change
in accounting principle........... $ (0.97) $ 0.15
Benefit due to cumulative
effect of change in
accounting principle.............. - 0.44
Net income/(loss) applicable
per common share.................. $ (0.97) $ 0.59
Weighted average common
shares outstanding................ 152,052 146,331
Note (1): Per common share amounts are calculated based on the weighted average
number of common shares and common share equivalents outstanding during periods of
net income, after deducting applicable preferred stock dividends. Per share
amounts are calculated based only on the weighted average number of shares
outstanding during periods of net loss, after deducting applicable preferred stock
dividends.
Selected Balance Sheet Data - Q4 FY96
(in thousands except per share and employee data)
June 29, 1996
Cash and short-term investments............. $ 2,039,158
Accounts receivable, net of allowances...... 3,223,293
Inventories................................. 1,820,811
Prepaid expenses, deferred income taxes
and other current assets.................... 336,836
Total current assets........................ 7,420,098
Property, plant and equipment, net.......... 2,222,920
Other assets................................ 432,363
Total assets................................ 10,075,381
Bank loans and current portion of
long-term debt.............................. 17,896
Accounts payable............................ 903,618
Accrued restructuring costs................. 619,416
Total current liabilities................... 4,231,633
Long-term debt.............................. 999,131
Postretirement and other
postemployment benefits..................... 1,238,411
Total liabilities........................... 6,469,175
Stockholders' equity........................ $ 3,606,206
Book value per common share................. $ 20.62
Non-U.S. revenues........................QTR $ 2,472,211
66%
YTD $ 9,572,964
66%
Employee population (approximately)....... 59,100
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