Conference 7.286::digital

    Clearly we are technically insolvent, or about to become so, since our
    cash reserves are spent and we're losing money. Therefore we'll be
    borrowing. Simple as that, joe.

This hit the wire this morning.  See DIGITAL_INVESTING note 84.

    technically insolvent. Well, I would say our technical force is
    bankrupt
    quite yet,... but with some more help, it could be...
    
    Tom

    It was on the cards....
    The following is an extract from a message sent out by the
    Corporate Controller re the FY92 results
    
    "Long-term Debt: $42M vs $424M for HP and $12,891M for IBM
                     (last reported positions).
                     Conservative financial structure lowers 
                     interest obligations and increases financial
                     flexibility. With $5B in net worth and virtually
                     no debt we have tremendous borrowing capacity."
    
    The document in question is very interesting and since the covering
    memo states that it may be distributed freely if anyone wants a
    copy let me know.
    
    Max  

    What was said on the business news, "Digital said it was willing to
    borrow up to one billion dollars for layoffs."

    
    	I doubt we'll see the "large" layoff until we have secured
    cash from "Wall-Street". The negative press would probably add
    1-3 percent additional risk.
    
    
    			fred deady

    re .5
    
    That's funny.  I remember hearing Palmer quoted as saying "We are
    UNwilling to borrow money to pay for layoffs".
    
    Dick

"for restructuring and completion of a plant in Hudson, Mass."

    Re -1
          I don't think so.
    
          Wall St. has always reacted favourably to DEC manpower
          reductions and analysts have been saying it should be
          done for years.
    
          If you look at the Corporate Business Model and consider
          that we are moving into the PC and low-end business in 
          general where the gross margins are pretty low you can
          see that the only way to get into a profit situation is
          to reduce the Sales, General and Admin expenses.
    
          I'm not sure how much of these are manpower related but
          from years ago I remember 50 to 60% as a basis.
    
          Therefor to take the Business Model to a profit situation
          without sacrificing too much on R&D, which in this business
          really would be suicide, requires large lay-offs and the
          financial world knows it.
    
          Therefor I think, on the contrary to the previous note, that
          a demonstration that big lay-offs were in the pipeline would
          tranquilise the financial community rather than upset them.
    
                                        Digital Business Model
                                                %  NOR
    
                                           FY 87       FY 92
    
           Gross Margin                     52%          42%
    
           Sales, General & Admin           24%          33%*
    
           R&D                              11%          13%
                                         ---------    ---------
           Operating Profit (Loss)          17%          (4%)
                                         ==========   ==========
    
     *Excluding the restructuring charge
    
    I'd really like to be proved wrong but.................
    
    Max
         

	My understanding is that the long-term debt that we have was
	acquired many years ago at such low rates that even though we could
	have paid it off years ago, it was foolish to do so. Interest
	rates are low again. We have an excellent bond rating. Not
	a bad time to borrow...

					Tom_K

    Why is it we have to pay people to leave? From where I sit, I see poor
    performers being targeted to be cut, and here we are contemplating
    borrowing millions of dollars to show them the door? What's wrong with
    that picture?
    
    Gail

    Perhaps it's not the picture that's wrong, but the perspective.
    
    Several people that I know were TFSO'd this week ... NONE of them were
    what could be considered poor performers.  In some cases, the people
    being "shown the door" are excellent performers who happened to be on the
    wrong project at the wrong time.
    
    The criteria for this lay-off varies from site to site.  Poor
    performance is the supposed criteria, but in real life things are not
    working out that way.
    
    ... Bob
    

    RE: .11
    
    >Why is it we have to pay people to leave? From where I sit, I see poor
    >performers being targeted to be cut, and here we are contemplating
    >borrowing millions of dollars to show them the door? What's wrong with
    >that picture?
    
    Maybe you're on the wrong side of the door.
    

    
    	A recent Harvard Business Review (sorry, don't remember which
    issue) had an article in it about how companies should view their
    ability to borrow money as being a financial resource.  And, as for any
    financial resource, it should be managed and used to be betterment of
    the company.  Hence, the bottom line of the article was that companies
    that philosophically refuse to take on long-term debt are doing a
    dis-service to the stockholders.  (Of course, the article also cited the
    dangers of mismanaging the debt-capability resource in the opposite
    direction -- namely taking on too much debt and watching the company
    collapse.)  It had a nice example of a company whose stock value was
    low who wanted to expand during a period of low interest rates (can you
    say "Digital"?) and ran the company through two scenarios:
    
    	1) The company issues X number of low-priced shares to raise the
    money and perform the expansion, versus,
    
    	2) The company takes on callable debt, performs the expansion and,
    after the stock price goes up, issues less-than-X number of shares to
    raise the same amount of money to pay off the debt plus accumulated
    interest.
    
    	The idea was that as long as the interest rate on the debt isn't
    bad and the planned expansion has the hoped-for positive results to the
    company's picture, scenario #2 is better since the earlier stockholder's
    equity has been diluted less due to fewer new shares being issued once
    this whole thing has been played out.  (ie. the stock will have a
    higher book value after #2 compared to #1.)
    
    	Today's WSJ had an article about the Digital announcement and while
    I forget the exact wording, basically said that Palmer is more
    aggressive about using debt than was KO.
    
    							-craig

    RE: 11.....
    	Some two years after the Separation programs started,
    	I don't think you're going to find thousands of 'Four'
    	Performers. Nor do I think that in the past 24 plus
    	months the 15K People who have been TFSO'd, SERPed 
    	or Laid Off were all 'poor performers'. 
    
    	Whenever the subject of Layoffs comes up, many people
    	figure it's to rid the company of performance problems.
    	Factually some extremely talented people have been let
    	go in these programs, some volunteered for it when that
    	was an option, others did not. What we're looking at is
    	NOT performance related solely, rather, it's reducing
    	the overall employee population. In the past two months
    	alone, I'd be willing to wager that you're going to find
    	people who received high marks for performance were let
    	go. This is due to lack of funding for programs or
    	projects among other things. Having a high performance
    	rating may not be of any value at all IF you are in the
    	WRONG PLACE AT THE WRONG TIME. It'd be nice to think
    	that this is all handled extremely well, however, there's
    	ample evidence to hand that indicates in some area's its
    	been handled very badly. So the thought process that only
    	poor performers are being let go is not correct. PEOPLE
    	are being let go for a wide range of reasons, performance
    	may or may not be a factor. We closed the two plants in 
    	Puerto Rico and most, if not all, of those folks were
    	let go, laid off, transitioned or whatever. I don't think
    	you'd find them all poor performers. It's a false sense of
    	security to think that these Layoffs are all performance
    	related solely. 
    
    - J -
     
    
    	

	I heard a report on WBUR last night that was about what
	I think folks are discussing here.

	What I got from it was that DEC has asked the SEC for authorization
	to issue up to $1 Billion in debt to finance plant construction
	and restructuring including layoffs. The DEC spokesman said that 
	this does NOT necessarily mean that DEC will exercize this option 
	or have more layoffs; just that the company will have the flexibility 
	to borrow to finance these moves if management decides to do it. The 
	spokesman also said something about DEC still having 1.3 Billion in 
	the bank.

    This isn't rocket science people, the company needs to replace the cash
    it is losing or stop operating.
    
    Cash (from other than operations) can be raised by:
    
    (1) asset sales
    (2) new stock
    (3) new debt securities
    
    We're opening Door Number 3.

>    The criteria for this lay-off varies from site to site.  Poor
>    performance is the supposed criteria, but in real life things are not
>    working out that way.
    
	The criteria at our site is pretty straightforward.  You work
	at our site, you're history.  Any questions?

   Re: .11
   
   One other reason that Digital is giving nice severence packages might
   be:
   
   	1) This isn't a layoff.  It is termination w/o cause.  These
   	   people have little chance of being hired back as Digital
   	   permanent employees.
   
   	2) I think we are beyond hacking on poor performers.  In SWS
   	   we were pretty much told the last round and the next round
     	   were going to be based on business need.  The baddies got
   	   axed two or three rounds ago.
   
   	3) A lot of these people being let go will become:
   
   		o customers
   		o CMPs
   		o consultants to Digital
   		o etc.
   
   	   I.E. someone who Digital will have to work closely with in
   	   the future for generating revenue.  
   
   	   How likely are people, who were excellent performers and
   	   axed with no severance, to recommend Digital as a vendor?
   
   Digital needs to keep the people who performed well on their good
   side.

    
    RE: .17
    
    >(2) new stock  - if current price is any indication, this is NOT an
    		      option today.  More stock in the same company drives
    		      the price down due to dilution.
    

    In issuing new stock, the stock must first be offered to current
    shareholders on a pro-rata basis, so that current ownership rights are
    not diluted.  This is called a "premptive right".
    
    If current shareholders decline to pay in more capital (as most usually
    do), then the stock is offered to the public.

    Taking on LT debt shows the confidence that the management has in our
    future. I do not believe any blue chip company ( except Digital ) is
    without manageable debt. With a better than "A" rating, we should be
    able to borrow at a lower than 8% rate, which after corporate taxes,
    will be an effective cost of capital of 5 to 6 percent. As long as we
    can make that much on invested capital, it will be a smart move. Even
    if this money is used for retrenchments, where the payback to the
    company is much higher, it will be a smart move.
    Now if only we could show a nice profit in Q1, start paying a 2 to 4
    percent dividend, get our name to become more familiar to the public,
    streamline our support systmems and prosesses, and sell sell sell we
    would be in great shape. 

Worldwide News                      LIVE WIRE                   01-Sep-1992

        Digital's shelf registration gets preliminary 'A' plus rating

  Digital received a preliminary 'A' plus rating from Standard and Poor, after 
  filing a shelf registration with the Securities and Exchange Commission. The 
  registration statement covers up to $1 billion in debt securities, which 
  could be issued from time to time to cover restructuring costs and other 
  corporate expenditures.

  According to Brad Allen, director, Investor Relations, The S & P rating 
  reflects Digital's strong financial position, its solid base of service 
  revenues, its strong reputation for hardware technology and its ranking as the
  world's third largest vendor of information technology products and services. 

  While Digital has maintained a strong, positive cash flow position, Brad 
  notes, cash outflows will occur over the next two years as a result of 
  funding operations, share repurchases and restructuring.  The restructuring 
  charges, which totaled $3 billion over the last three years, are expected to
  enable management to realign the cost structure to better reflect the lower 
  growth, lower margin environment in which Digital has to compete.