Conference 7.286::digital

    I questioned this as well, seeing our indirect business go from 33% to
    45%.
    
    Mike

>>    Why is "COST OF PRODUCT SALES" up when more DEC products than ever were
>>    sold via outside channels? Why is "COST OF PRODUCT SALES" up when 1/3
>>    of our sales force met with layoffs? Why are "SELLING, GENERAL & ADMIN."
>>    and "SERVICE & OTHER EXPENSE" up when viewed in light of Digital's
>>    cost cutting measures?

"COST OF PRODUCT SALES" is NOT the cost of DEC's sales force.  This is the cost
(raw materials, etc) of manufacturing products.  The sales force (and all other
employees, for that matter) are included in the SG&A line.

However, your questions are valid.  Why do product revenues (Q4 -> Q4) increase
about $139M while the "COST OF PRODUCT SALES" increase almost $400M??  And why
is SG&A UP????

    I agree with you that these costs are out of kilter. 
    
    However, it seems to me that the $380M writeoff was added to SG&A 
    (perhaps in the general category) because it does not appear anywhere else.
    If this true, then SG&A actually decreased a tiny bit.
    
    The cost of product sales went way up. It could be a reflection of
    faster shift to lower margin products and according to the announcement
    a one time cost of plant closings. I don't know how the last statement
    translate into Cost of product sales except to guess that products were
    produced but scraped at the shuttered plans. 
    
    Lastly, FY94 prior to Q4 had relatively little reduction in employee
    count so costs did not go down much while product margins shrank 
    an incredible 13%. Perhaps because we are giving away software for
    free.
          
    Shareholders shouldn't be expecting any significant improvements 
    before Q1 CY95.

   I too thought that all the TFSO's should have brought SG&A down (or
   at least hold steady).  Yet it seems to go up with the more people we
   dump.
   
   Reminds me of...If a wire will not reach from point A to point B,
   someone will try to fix the problem by cutting the wire.

>"COST OF PRODUCT SALES" is NOT the cost of DEC's sales force.  This is the cost
>(raw materials, etc) of manufacturing products.  The sales force (and all other
>employees, for that matter) are included in the SG&A line.

What happens when you build more product?  Volumes are ramping up, n'est pas?

MS

    
    The main problem is that our systems are MUCH lower mark up these days
    and thats why our gross margin is at 25%... YIKES...  Some of the VAX 
    products that we are pushing folks from had a gross margin of 80% 
    last year.  We have cut VAX prices (not the cost) in addition all the
    Alpha systems and PC's are much much lower margin out of the shoot.
    
    No easy solutions.
    
    Jon
    

    OK, understand now what 'cost of product sales' and 'SG&A' are. But
    what is counted in 'service & other expense'? Should'nt any write-off
    be listed there?
    
    Trying to understand with these results in hand, how the reorg could
    work,
    Henny

    the allowances attributed to the Momentous Software Program (giveaway)
    had to be tremendous...in just my little corner of the world, my
    bookings gave away 100s of 1000s of free software...where does these
    allowances show up?  I would guess SG&A.

>   where does these allowances show up?  I would guess SG&A.
    
    Someone knowledgable sounding :-) in the digital_investing conference
    stated that discounts and allowances are shown in the product sales
    line, i.e. product sales is nett of discounts and allowances

    Just a couple of thoughts.
    
    With respect to allowances, they and discounts (the two are different)
    are buried in the Revenue number. (Product sales.)  They do not appear
    as a separate line item.  Therefore, if we are charging less for our
    products and the costs remain the same, the two items apear out of
    sync.  On a related notion, I believe that with respect to software,
    the "product cost" hitting the P&L does not reflect the actual
    incremenal cost of producing the software.  Unlike the manufacture of
    product involving the conversion of raw materials into a finished
    product, some software sales cosisit of shipping a piece of paper
    giving the customer the right to use SW they already have on another
    system. (This statement is not intended to devalue SW, just help
    explain the financial aspects.)
    
    Second, although we have TFSO'd a lot of folks, many of them are back
    on the job as contractors, so the "virtual" headcount has not dropped
    as much as the count of TFSO'd employees, and the cost is still there.
    
    Jim

    re: .10
    
    >>> With respect to allowances, they and discounts (the two are
    >>> different) are buried in the Revenue number. (Product sales.)  
    >>> They do not appear as a separate line item.  Therefore, if we 
    >>> are charging less for our products and the costs remain the 
    >>> same, the two items apear out of sync.  
    
    Yes, that would explain why the ratio continues poor and why we're in
    trouble, the ratio isn't the only problem.  Costs didn't remain the
    same, costs went up, and there doesn't seem to be any reason for it. 
    
    --bonnie 

    Why is SG&A up?
    
    If they broke out the element in that line item "Resume Paper and Copy
    Machine Electricity Costs" the number would have probably been 12-15%
    lower than last quarter.
    
    

    There is another good reason for our cost of sales going up that has to
    do with the amount of materials required to make our hardware products.
    If you'll notice, our account receivables jumped by 400 million and the
    number of days outstanding dropped by 15.  These are excellent numbers.
    What it means (if I understand it), is that we shipped at least whatever
    fraction of 400 million dollars worth that is hardware more than last
    quarter, yet haven't received payment for it.  So the cost of making and
    shipping the product gets added to cost of sales, yet we don't get to
    add it to our product revenue numbers until payment is received.
    Ultimately I hope we can get the number of days outstanding down to 60
    or so which I believe is the industry average.  Kudos to the people who
    grabbed this runaway train and are wrestling it under control again.

	Cheers,
	--Dave

    
    
    >Second, although we have TFSO'd a lot of folks, many of them are back
    >on the job as contractors, so the "virtual" headcount has not dropped
    >as much as the count of TFSO'd employees, and the cost is still there.
    
    
    	The 9,200 employee headcount reduction claimed is real, not
    'virtual'. The number includes contractors and temporary employees, in
    the 'Other' catagory. (That's my understanding anyway, I'm sure I'll
    be corrected if I'm wrong!) The number represents a net decline from the
    3rd quarter statement and the 4th, including a decline of 1,300 'other'
    employees.
    
    	3rd quarter employment #s:	Regular: 85,700
    					Other:    6,300
    					===============
    					Total:   92,000
    
    	4th:				Regular: 77,800
    					Other:    5,000
    					===============
    					         82,800
    
            

    
    In Q4 we took 1.2 B charge, that is supposed to payback next year as a
    1.85 B cost reduction.

    What happened to the last 1 B restructuring charge, did it result in
    over 1 B cost reduction ?

    It really burns me that the bean counters of the world continue to
    whine about the "massive give-aways" asociated with the Momentous
    Software Upgrade Program in Q4. This was probably the most successful
    program that we had all of last year and the only one that generated
    the kinds of big system (i.e. VAX7000's) sales. And yet the whining
    about leaving all that money on the table or giving away the store
    continues.
    
    Hey! Wake up. There was no one coming into the store before this
    program. We were (and are again) so out of touch with the rest of the
    world with our price/performance strucuture that the customers were
    staying away in droves. In order to sell anything, you have to have a
    product that someone is willing to pay some amount of money for. We
    didn't have that, without the Momentous Program. sure we made less that
    if the customer was willing to pay full boat for everything...but, no
    one was willing to pay that. 
    
    SO...let's see fi we can get this straight. Zero customers times full 
    price IS LESS THAN (<) many customers at a highly discounted price. 
    Did we make a profit on the deals? Is there a profit margin left on a 
    big VAX? I suspect that we did. What "profit" would we ave made off the
    alternative? Let's see zero times x-margin = ?
    
    I suggest that to level the plying field and satisfy the folks who were
    whining that we gave away their high-margin SW that this quarter we
    give away the hardware and charge full price for the SW. Since it is
    higher margin, we'll make out great. At least the whining will come
    from a different direction.
    
    All of this, of course comes from the perspective of one of those sales
    slimes who BP rercently put on notice for their undisciplined Q4 price
    cutting and allowance practices. HE is going to stop that immediately!
    I'm sure our customers are looking forward to that. 
    
    Rantings from the sticks. ;^|  

    re: .13
    
    Okay, that makes sense -- obviously we have to pay for our materials,
    and if we've made something with the materials and sold that something,
    but haven't been paid for that something, we've got some expenses that
    we have to carry.  But I think I'm still missing something.  If we cut
    on how long it takes to get paid (that's what days outstanding means,
    right?) shouldn't cost of sales have gone down?  Or is it only the
    amount that's outstanding when they close the books that makes a
    difference? 
    
    And what line item do expenses like advertising come out of?
    
    --bonnie

    The economics of the PC industry are driving our P & L statement from
    one that looks like the minicomputer business to one that looks like
    the PC business.  In the PC business only one thing counts, volume! 
    The highest volume supplier will dominate the product catagory, will
    have the best channels coverage and will make the most money.  It's a
    chicken and egg problem.  To become the biggest, you need the best
    channels coverage and customer mind share.  To get mind share and
    channels, its better to be the biggest in the product catagory.  To
    become the biggest, most companies work on very small margins.  
    
    PC pricing has completely changed the way customers look at value. 
    "Value Pricing" has been overthrown by cost plus pricing.  If your
    product is off the price-value curve, you're going to be out of the
    business.
    
    The effect of PC industry pricing on the P & L is dramatic.  "Cost of
    Goods Sold" (the cost of making and delivering the stuff) is in the
    60% range.  Dealers and resellers get half of what they would in the
    minicomputer business.  Selling, administration, engineering and profit 
    divide up the rest.  
    
    As we shift closer to the PC model, we're going to see changes in how
    the money flows:
    
      The per unit cost of engineering, marketing and overhead will drop
      dramatically.  If the product isn't very high volume, we won't be able 
      to afford to design it.
    
      More goods will go through indirect distribution.  Distributors can
      take an order, deliver it the next day and make a profit with a gross
      margin of less than 10%.  But don't expect them to generate demand.
      We have to do that.
    
      Accounts receivables will drop because distributors are expected to pay
      quicker and they don't sit on the invoice waiting for missing parts and
      installation.
    
      "Obsolescent inventory" will become the dirtiest words in the
      language. We'll end-of-life products and mean it. We'll run inventory 
      clearance sales.  
    
    The change is going to continue to be messy, but it won't be all bad.
    We'll have to stop announcing half done products (like workstations
    without bus cards, operating systems and applications).  We'll have to
    learn to design to a cost target.  We'll have to get products into high
    volume quicker.
      
    Other notes in this conference have lamented our dreadful order
    fulfillment system.  In a sense moving volume products to indirect
    channels is a way to out-source it.  
    
    I have a major concern about one thing.  Moving product in large
    volumes through indirect channels means creating brand preference and
    consumer demand.  Demand-pull marketing is definitely not a Digital
    strength.  Witness the "Infinity-like" "Imagine" ad campaign.
    
    
    
                      
    
    Inventory will drop, because we don't carry as much finished goods. 
    
    Distribution costs will drop when we get the indirect channels to buy
    in truckloads straight from the factory.  
    
    
    
      
    

Re: .16, giving away software to sell hardware

Perhaps some of the "whining" comes from software engineers who have seen
software products or entire product suites cancelled or sold and the associated
engineers terminated because they "weren't profitable".

Yes, once the engineering is done, it only costs us $5 to stamp a CDROM, but
what about paying for future enhancements and maintenance work?  All those
expenses must come out of license sales; not a dime of the money coming in for
"software support" goes to the engineering groups developing products so they
can work on bug fixes and develop future versions; all those costs have to be
covered by new license sales.  If new license sales revenue is adversely
affected, the survival of software products is put at risk.

If the hardware is so overpriced that you have to give away software to make
the system attractive, the hardware cost structure needs close scrutiny, and
giving away the software is only a short-term band-aid solution.

    .13 is wrong on revenue recognition. We record revenue when we ship.
    When we get paid has nothing to do with revenue. That's the difference
    between revenue and cash.

 re: <<< Note 3271.19 by SSDEVO::PARRIS "RAID-5 vs. RAID-1: n+1 << 2n, in $$$" >>>
                      -< Consider the long-term effects >-


>..., it only costs us $5 to stamp a CDROM, but
    
    how come it "only" costs us $5 when the rest of the world can get it
    for $1?????
    
    tony

    re.13 and others...
    
    Basic Accounting for a sale is:
    
    	Debit Accounts Recievable	$100
    	  Credit Sales				$ 100
    
    	Debit Cost of Goods		  $75
    	  Credit Inventory			$75
    
    When you get paid:
    
    	Debit Cash			$100
    	  Credit Accounts Recievalbe		$100
    
    
    The "when you get paid" has no bearing on the Income Statement portion
    of the financials; only the Balance Sheet.
    
    Increasing Cost of Goods Sold ( as a % of Revenue ) simply means "it
    costs more to produce the product".
    
    Increases in Accounts Rec dis-porportional to Revenue means customers
    are taking longer to pay.
    
    Believe it or not, Accounting is nothing more than a series of matching
    debits and credits (pluses and minuses).
    
    Regards,
    
    Marty " Beancounter in an earlier life "

    Look, let's get our buckets straight. 
    
    Cost of product includes just that.  Maybe not allowances - they
    decrease revenue.  Cost of product does not relate to receivables -
    when a product is built, the cost is incurred, along with WIP etc. 
    Revenue is recognized when the product is shipped.  A/R appears on the
    balance sheet, not on the income statement.
    
    SG$A is the cost to sell the product.  To me a rise in SG&A of $200
    million is inexplicable.  With far fewer people selling and supporting
    sales this year than last, why are costs up???  I hear we were too
    generous with the incentive compensation ( IMHO we can't be too
    generous), but I can't believe that this is the cause.  Take out the
    $200 million rise in SG&A and we don't have an operating loss.  I'll
    bet some of our smartest people are working on this.
    
    
    Don R.

>    SG$A is the cost to sell the product.  To me a rise in SG&A of $200
>    million is inexplicable.  With far fewer people selling and supporting
>    sales this year than last, why are costs up???  I hear we were too
>    generous with the incentive compensation ( IMHO we can't be too
>    generous), but I can't believe that this is the cause.  Take out the
>    $200 million rise in SG&A and we don't have an operating loss.  I'll
>    bet some of our smartest people are working on this.

The SG&A contained the $380M asset writedown.  Without it, SG&A decreased 
16% from the previous year.  My reading of the % changes from the previous
year is therefore...

product sales 		+6.6%
cost of prod sales	+30%

service rev.		-7%
service expense		+2%

research & engineering	-8%
sg&a (without $380M)	-16%

so progress has been made, but the shift to lower margin products is 
happening very fast.  The only way to fix this is to lower manufacturing,
engineering, selling, overhead costs, or *increase* sales substantially 
while keeping other costs the same. (I guess it's easy to cut but hard to
grow)  Service costs probably have to be kept in line if our MCS revenue
will decline due to 3 year warranties and lower service margins.

A tough time ahead, but the product sales are trending up.  We've got the
most price, performance and price/performance competitive systems in the 
UNIX workstation and midrange industry.  Hope the volumes continue to kick
up...

    re: .17 --
    
    Bonnie, advertising, marketing, etc., go into the SG&A line (cost of
    sales) except, I would imagine, for MCS-type advertising (of which 
    there hasn't been enough!), which probably goes to the "Service and 
    Other Expense" line, along with MCS parts consumed,  parts shipping, 
    MCS car plans, etc., etc., etc.  (I'm using an ex-bookkeeper's 
    knowledge/experience to guess on the Service line...)
    
    M.

    There is no set rule for what goes into an SGA line.
    
    The only fact is that our auditors said it is O:K.
    
    It is possible to get a more detailed balance sheet and income
    statement for public companies.
    
    

    re: .22, .25
    
    Thanks for the solid info.  Right now I wish I had taken accounting
    101... :) :) :)  
    
    I still don't understand what that non-capital asset writedown is,
    though.  
    
    --bonnie

    Several notes:
    .13  Revenue recognition is at shiplog and not invoice collection.
         DSO and Revenue are related ( ZIP REV will lead to ZIP DSO)
         BUT; they are separate discussions.
    
    .14  Payback from downsizing will lag the actual downsizing timeframes.
         With very little downsizing in both Q2 & Q3 ,I sugest that "we"
         were surprised at both QTRS financial results and not just the
         Q3 numbers. With a 9200 population decrease in Q4 (mostly QTR
         end less 4 weeks ) the payback in S G & A should "hit" in Q1.
       
         Also see YR/YR results vs QTR/QTR. SG &A is down for the year
         but way up QTR/QTR. Something "hit" SG & A in Q4 and as "TAMER"
         suggests it is likely the $380 one time charge. Backing this out
         would cause a positive trend for SG & A per expectations.
    
    .15 The $1.85b is an ANNUALIZED figure. My quess is that the $1.2b
        will return some $1.1-1.2 within the fiscal year. 
    

   Re .13
    
    	 "the cost of making and shipping product gets added but...."
    
    The first half of this statement is correct, but the second half is not
    how it works.   
    
    If we are showing Accounts Receivable, that means that we have counted
    the revenue related to the goods/services delivered, whether or not we
    have received the cash.   This is called Accrual Basis accounting 
    (as opposed to Cash Basis which is not allowed for corporations either
    by the accounting profession or the IRS).  
    
    

Note that one implication of higher volumes on engineering is that
early defect detection and manufacturing cost considerations become
much more important as a part of the whole.

RE: Software cost

You might take a look at MR4SRV::MARKETING note 250.1.

    If $400M in receivables were sold, as has been rumored, what would
    be the effect on Q4 results?
        
      Say we got 70 cents on the dollar?  Would receivables go down
      by $571M, cash up by $400M, and SG&A up by $171M?
    
    Sheldon

    Is this a test?  I had a real hard time with accounting, and this
    sounds like a question they would use.
    
    Now, if George leaves Chicago traveling West at 45 miles/hour, and
    Sandy is in Dallas going Northwest at 55 Miles/hour, what time is it in
    Los Angeles?

    re: .32  can't resist ...
    
    >Now, if George leaves Chicago traveling West at 45 miles/hour, and
    >Sandy is in Dallas going Northwest at 55 Miles/hour, what time is it
    >in Los Angeles?
    
    Time to loot George and Sandy's condo?   ;^)
    
    Steve

    Re: several back on the Grand Software Giveaway issue . . .
    
    My Micro Econ 101, 201, 301, 401 . . . are getting VERY old now, but in 
    those days it was advised to look at Variable Costs when deciding on 
    whether a deal is worth doing.
    
    Basically, the argument went, if you can cover the additional costs
    which you will encur doing the business (aka Variable Costs), and have
    some left over to contribute to costs you are/have already encurred
    (aka Sunk/Fixed Costs), then GO FOR IT.
    
    I understand that is a rather simplified picture of a complex, product
    line driven environment.  However, I'm sure the Shareholders expect
    Digital/DEC/whatever to make money.  While Product Lines and Margin %
    are important, these are all really dedicated to making a:
    
    
    
                             BOTTOM LINE NET PROFIT
    
    
    Bill

    See .7
    
    Still have seen no explanation about the 'Service and Other Expense'.
    What is that?

    RE:  Services not giving $$$ to engineering - this is not true.  The
    services organization funds engineering large dollar amounts to
    do bug fixes, maintenance updates, etc.  This is done on a 
    VP level, and goes into the annual engineering budget, so most
    groups are unaware that that this transfer of $$$ takes palce.

    .16
    Don't know about your area of the woods, but we had business coming out
    of our ears before the Mom Sftr Giveaway.  With that program, it was
    not uncommon for us to giveaway more sftr than what we sold in hdwr...I
    heard someone say they wished we could cert the free sftr and giveaway
    the hdwr
    
    nice broad brush you have...

    re previous; 'writedown of non capital asset'
    
    I think this is write-off of 'goodwill' from previous transaction.
    'Goodwill' is when you pay someone more for something than *they* are
    carrying it in their books at the time. So the purchaser carries
    Goodwill.
    
    Now, if in the future, your purchase looks like it had been a bad idea
    (or if you are closing it or selling it to someone who will only give
    you *less* than you have it in your books), you must write this off.
    
    At least, that's what I remember from my 10yrs ago accounting course.
    
    Goodwill usually relates to a purchase where the purchaser sees
    significant potential syncergy, so pays over the odds, or where there
    is a 'brand' involved. The 'Goodwill' associated with something like
    Coca Cola (if you could buy the company) would be quite high I guess.
    
    AW

    re: .39
    
    Because if we hadn't shrank by 50,000 people, we would have lost
    billions last quarter, not millions.  And there aren't billions left
    to lose.
    
    Digital is in the grip of something beyond its control.  IBM is too,
    but so far has managed to outrun it by laying off people faster
    than Digital.  We're facing competition that has drastically shrank
    the margins we receive on our products.  This is serious trouble 
    for this company, which, over the course of 35 years, had come to 
    expect high margins as a birthright.  And allowed costs to grow
    accordingly,
    
    From the DVN it sounded like Palmer was admitting that the industry
    oriented strategy of last October was a mistake, but it's still and
    always will be up to the Board to decide who will lead Digital.
    (Assuming we avoid the receivers.)
    
    While I'm not pleased with our current situation (I'm part of Enrico's
    thirty-thousand people facing fifteen-thousand layoffs), I also don't
    view our current position as an easily avoidable snafu created solely
    through incompetence.
    
    BTW, I've yet to see an alternate plan expressed in this notes
    conference that's viable and has Digital profitable under the new
    industry margins.

Pretty obvious, isn't it?  (Though the basics are there for anyone in the 
industry to figure out, the finer details and how to get us out of it are not.)

Many of the markets we're competing in are moving *towards* (I disagree with 
those who claim that most everything we sell is a commodity) more of our 
products and services being commodity-like.  This started 5-10 years ago, while
our management was resting on the laurels of a half-million VAXes sold.  We were
too slow to realize the shift as it happened.

Three or four years ago we started seeing the results of ignoring the market 
trends and started moving, though (evidently) way too slowly, to do something
about it.  (Examples: Tandy PCs, MIPSco ULTRIX subservient to VAX/VMS in every
way, continued investment in DECwrite-like products priced order(s) of magnitude
higher than comparable PC-based products, failure to port some of our 
competitive/leadership products of Digital-hardware-base, failure to market in a
marketing-intensive business.)

The faster the trends (and losses) accelerated, the faster we changed (or 
changed directions), never a giving anything new a chance to work.  But, our
change was never enough.  The markets were changing way faster than we could 
adjust, and we never admitted that we needed to re-engineer the business.

Just my take on it,

Bruce

    re  3271.39
    see 3271.18
    
    The volume leader in a product catagory wins and makes the most money.
    
    We (DIGITAL) haven't adopted a high volume mind set easily or well.  We
    still carry the boutique, custom manufacturing, high margin minicomputer 
    mind set.  
    
    For example, the DEC 2100 looks like a great product.  The ads read like 
    we're selling it as a minicomputer.  The ad tries to position the product
    into many markets instead of focusing on one. It talks about the things we 
    value (feeds and speeds) rather than the problem the customer wants to fix.
    
    I'd like to see a DECserver 2100 ad with the headline "The Last PC
    server you'll ever have to buy". The ad would focus on a single market
    (the biggest one).  Text would focus on it's infinite upgradability and 
    the fact that it costs less than a car.  Maybe I'm wrong and this is not
    be THE hot button of the person that buys PC servers, but it wouldn't take
    much to find out what THE hot button is.  Then we press it over and
    over.  One short, simple message, again and again and again.    
    
    
    
    

.39>Why, after 4 years of cutting people, facilities, and expenses, after
.39>giving little-to-no raises, after freezing salaries, and after taking
.39>billions of dollars of restructuring charges designed to save money...
.39>why after all this are we still losing money to the tune of hundreds of
.39>millions of dollars per quarter? Profit-wise, it seems we're no better
.39>off today than we were a few years ago when we employed 50,000 more people.
    
    Severe accounting errors/turmoil? Makes me suspicious that upper 
    management was surprised by the Q3 results. Don't corporation of this
    size use computer based accounting systems with pretty reliable input
    data? I've visited customer's of ours who ran a balance every week just
    to see where they stand in critical times.
    
    Guenther

    re: .43
    >                                           Don't corporation of this
    >size use computer based accounting systems with pretty reliable input
    >data? 
    
    Many do...  But reliable input data requires structure, discipline, and
    commitment.  None of which are virtues that Digital AS A CORPORATION
    has ever held in high esteem (except conceptually).
    
    /Butch

    >>                                           Don't corporation of this
    >>size use computer based accounting systems with pretty reliable input
    >>data? 
    >
    >Many do...  But reliable input data requires structure, discipline, and
    >commitment. 
    
    	Like they said in CS101 -- GIGO.

I was glad to see some self-confessed former bean-counters come
to our rescue in clarifying the confusion between "revenue earned"
and "payments received".  (See .22, .29, etc.)

Now, I think it's time to clarify, just a little, which expense
lines contain salary expenses.  (See .2)

I'm no bean counter, but I think the following is true:

Which expense line your salary goes into depends on what you do
for Digital.  some cases (at least) ought to be pretty easy to
figure out:

If you assemble equipment to be sold to customers, your salary
is included in "Cost of Product Sales". (Meaning, according to 
other notes, the cost of the product, not the cost of the sales).  

If you repair broken equipment for paying customers, your salary
is included in "Service and Other Expense".  

If you sell products and services to customers, your salary
is included in "SG&A Expense".  That takes care of "S", but not
"G&A".

Last, but not least, if you design the processor that comes after Alpha
(Beta?) your salary goes into "Research & Engineering Expense".

Many employees do a little of this and a little of that.  In such cases,
it's necessary to apportion the salary costs between two different
lines.  That's one of many reasons for that blizzard of JVs between
cost centers that seems like such a game to us non bean counters.

In addition to your gross pay, there's benefits and payroll taxes to
consider.  These add up to a significant fraction of the total cost
of an employee.

Each of the numbers in the quarterly summary is intended to indicate
something meaningful.  For example "Cost of Product Sales" is the total
amount Digital spent making widgets in Q4.  This includes some salaries,
raw materials, and some other costs of manufacturing.  Those widgets 
either got sold, or were given away, or piled up in inventory, or got
allocated for internal use.

Could anyone who *is* trained in accounting confirm, extend, or revise
these comments?  I'm sure we'd all be the wiser for it.

Dave (who eats beans, but can't tell you how many)
    
                                                        

    RE -1:, Dave, I pronounce your explanation purty damn good!  No need to
    revise or edit.  Just a small extention... the G&A is the sinkhole
    where VPs, Mgrs, and all other indirect labor (not covered by your
    other categories) as well as other indirect expenses (facilities,
    administrative costs/purchases, etc.) get bucketed.
    
    	Jack C. (Finance, but please, not a bean counter...!)

Re .46
Thanks Dave, for your explanation which a layman like me can understand about
how expenses/costs are allocated.

A question I have regarding the financial reporting is now that Digital
has organized by divisions and business usints with profit and loss
responsibility & accountablity, will we be reporting financial results by
these divisions and business units? Unless and untill we start doing that I
don't see how accountability can be truly esablished.

Avinash

    Re:  .47
    
    That's a really interesting point about making the business units
    real.
    
    Actually, I don't blame 'em for leaving that kind of breakdown
    out of the Q4 summary.  But it would be great to see a breakdown
    by business in the annual Report!
    
    I wonder if that's widely done in other companies....
    
    Dave

    Re: .47 & .49:  Yes, there will be separate P&Ls for each BU.  My guess
    is that they will be reported as such in the Company's financial
    statements.  It is fairly common in other companies, particularly those
    with disparate lines of business (ie: conglomerates).  It's usually
    called out as revenue or % of numbers by "business segment" or "line of
    business" or some other similar moniker.

    Re: .51
    
    You might be amazed at what the people who run a company are required
    to tell the people who own it.
    
    Dave

    Re: .47
    
    >>Finance, but please, not a bean counter...!
    
    For some reason, it took me YEARS to understand the difference
    between Finance and Accounting.
    
    I don't know why it was so tough for me... When I was only seven
    years old I could have told you the difference between a windshield
    and a rear-view mirror!
    
    Dave
    

Hey, excellent analogy! Now *I* understand the difference!