From: R.KITTREDGE@md-b.prime.com
Newsgroups: comp.sys.prime
Subject: (none)
Date: 14 Aug 92 20:31:05 GMT
Article-I.D.: usenet.9208142036.AA09181
Reply-To: Info-Prime@Blx-A.Prime.COM


              HIGHLIGHTS FROM MANAGEMENT'S DISCUSSION/FOOTNOTES 
PROPOSED RECAPITALIZATION:
          As widely reported, on 6/5/92, the company's wholly-owned
subsidiary, Prime Computer Inc. filed a registration statement for a public
offering of at least $300 million of common stock and $175 million of senior
subordinated notes due 1999.  Proceeds from the offerings will be used to
retire the company's term loan and zero coupon notes, and a portion of the
senior subordinated notes held by Shearson Lehman Brothers Holdings Inc.  The
additional senior subordinated notes held by Shearson will be exchanged for
common stock at the IPO price. 
          Upon consummation of the recapitalization, the company's ownership
of Prime will be reduced to 33% from 100%, and the company will no longer
consolidate the results of Prime.  In connection with the recap, J.H. Whitney
& Co. will forgive the remaining $17 million of an accrued transaction fee
payable by the company, and the company will record various fees related to
the recap of approximately $17 million. 
          As widely reported, on 7/7/92 certain holders of the senior
subordinated debentures, representing 72% of the outstanding senior
subordinated debentures, alleged that the recapitalization breaches a
provision of the indenture governing those debentures that prohibits a sale of
all or substantially all of its assets.  The debentureholders assert that, if
consummated as proposed, the recapitalization would constitute a fraudulent
conveyance and a breach of fiduciary duties, and would trigger certain cross-
defaults resulting in the acceleration of principal and interest payable. 
          The company believes that these allegations are erroneous, and
accordingly commenced an action on 7/10/92 seeking a declaratory judgement
that (i) the recap would not breach the company's obligations under the
indenture, (ii) it would not constitute a fraudulent conveyance and (iii) the
directors of DR Holdings and Prime acted properly with respect to the proposed
recap. 
          On 7/17/92, the defendants in the declaratory judgement proceeding,
along with Kemper Financial Services Inc. and nine funds managed by the Putnam
Management Co. Inc. filed a counterclaim which, among other things, (i) added
Whitney and certain affiliates, Shearson and Prudential Insurance Co. of
America as counterclaim defendants, and (ii) added allegations that (a) the
recap would breach a provision of such indenture by impairing the rights of
debentureholders to receive payments of principal and interest when due and
(b) the company has admitted in writing its inability pay its debt as they
come due, which would cause an acceleration of payment of principal and
interest under the indenture. 
          On 7/31/92, the parties entered into agreements pursuant to which
the company agreed, subject to the approval of its board, to file for
bankruptcy within seven days following the consummation of the offerings.  The
company believes that the filing will not affect Prime's financial condition
or results of operations.  Prime has agreed that it will not, prior to the
first anniversary of the closing of the offering, join in a plan of
reorganization of the company which could result in the distribution of Prime
common stock to senior subordinated debentureholders. 
          Other agreements entered into in connection with the settlement and
dismissal of the allegations include a one-year lock-up restriction on the
Prime common stock and the payment by Prime of certain fees and expenses to
Kemper and Shearson. 
LIQUIDITY AND CAPITAL RESOURCES:
          Upon completion of the recap, the company's only assets will be the
shares of common stock that it owns, warrants to be received from Shearson
and approximately $3 million in cash.  According to the filing, it is
anticipated that shares of common stock owned by the company will not be
distributed to creditors or sold until after the first anniversary of the
closing of the offering, pursuant to the one-year lock-up restriction on the
transferability of such shares imposed in connection with the offering. 
          Also expected to delay the distribution of the common shares are the
limitations on the registration rights to be granted by the company with
respect to such shares and the length of time that is likely to be needed to
obtain confirmation of a plan of reorganization, which will not be a
"prepackaged" plan.  Kemper Financial Services Inc. and nine funds managed by
it and The Putnam Management Co. Inc. and nine funds managed by it, have
agreed to the one-year lock-up restriction and have further agreed not to
sell common stock in short sales prior to the termination of releases of such
lock-up restriction. 
          In an attempt to arrange Debtor-In-Possession (DIP) financing, the
company has discussed with Shearson the possibility of Shearson providing up
to $15 million of DIP financing to the company in the event following its
anticipated bankruptcy filing if such financing is not obtainable from other
lenders.  Shearson has not committed to such financing and no agreement on the
terms and conditions of such financing has been reached, but the company said
it expects to continue the discussions.  DR Holdings added that one other
institution has expressed interest in "pursuing discussions" with the company
regarding such DIP financing. 
          The company warned that if the proposed recapitalization is not
consummated, it will seek to amend certain financial covenants contained in
its existing financing agreements, which the company believes that it is
probable that it would not be able to satisfy for the next twelve months.  DR
Holdings said that no assurance can be given with respect to obtaining any
such required covenant relief. 
          Prior to the proposed recap, the company expects to rely on cash
generated from operations supplemented by borrowings under the revolver and
other financing instrument to fund its cash requirements, including debt
service, for the remainder of 1992. 
          For short-term liquidity purposes, the company has a $125 million
revolving credit facility available until 3/31/94.  Subject to certain
borrowing base requirements, availability under the revolver was limited to
$57 million at quarter end.  At 6/28/92, the company had no borrowings
outstanding under the revolver. 
         The company's $355 million term loan would be fully repaid upon the
consummation of the proposed recapitalization.  The company is currently in
compliance with covenants under its bank credit agreement that require it to
meet minimum levels of net worth and other financial ratio tests. 
          Upon consummation of the proposed recapitalization, the zero coupon
notes would be fully repaid.  According to the filing, the company was able to
meet its tangible net worth requirement or some of the other financial
covenants contained in the amended bank credit agreement during the quarter. 
          The company spent $34.6 million for property, plant and equipment
for the first six-months of 1992, down from 1991 spending of $50.6 million.
DR Holdings attributes the drop in spending to continued tight control and
approval over the capital expenditure process. 
          DR Holdings said it will continue to invest in capital assets as
required to grow the business units, but expects that capital expenditures in
the future will be below the levels of prior years.  This reduction is the
result of continued tight controls, improvement realized in the logistics
operations, the company's intention to only approve expenditures focuses in
areas anticipated to generate sufficient returns or investments and the
reduction in expenditures associated with the discontinuance of Computer
Systems Business Unit. 
LONG-TERM DEBT:
         The company's notes payable and long-term debt consisted of the
following ($ in thousands):
                                            6/28/92        12/31/91
                                         ----------      ----------
Notes payable:
     Notes payable to banks                    $132          $1,475
     Revolving credit facility                  ---             ---
                                         ----------      ----------
     Total notes payable                       $132          $1,475
                                         ==========      ==========
Convertible subordinated debentures:
    5.75% convertible subordinated
         debentures, due 2012, net of
         unamortized discount of $873
         and $884, respectively          $    3,517      $    3,615
    8% convertible subordinated
         debentures, due 2009, net of
         unamortized discount of $14,109
         and $14,283, respectively           41,165          40,817
Acquisition financing:
    Term loan, less current portion of
         $80,000 and $55,000                137,330         187,330
    Zero Coupon Notes                        94,062          88,392
    Senior subordinated notes               552,408         512,310 
    15.5% senior subordinated debentures,
         due 2002, net of unamortized
         discount of $47,462 and $49,694,
         respectively                       343,883         313,395
    13% junior subordinated debentures,
         due 1999, net of unamortized
         discount of $5,819 and $6,214,
         respectively                       106,681         106,286
     Other long-term debt, less
         current portion of $5,891 &
         $6,698, respectively                13,605          14,064
                                         ----------      ----------
              Total long-term debt       $1,292,651      $1,266,209
                                         ==========      ========== 
OPERATING RESULTS: 
($ in thousands)                            Three Months Ended
                                            6/28/92    6/30/91
                                           --------   --------
CAD/CAM revenue:
 Product                                   $142,578   $156,800
 Services and other                          74,944     71,900
                                           --------   --------
 Total CAD/CAM revenue                      217,522    228,700
Other services revenue                       74,004     79,500
                                           --------   --------
    Total revenue                          $291,526   $308,200
                                           ========   ======== 
          The company discontinued its Computer Systems Business Unit in the
second quarter of 1992. 
          Product revenue fell during the quarter despite a favorable foreign
exchange, and domestic and international CAD/CAM product revenue fell 1% and
11%, respectively.  The continuing recessionary environment in the U.S.,
Western Europe and Japan, and the delayed release of CADDS have resulted in
customers delaying product purchases.  These factors, combined with the
company's unbundling strategy have contributed to a 20% drop in hardware
revenue.  Software revenue, however, rose 5% over last year, despite the
recessionary environment. 
          CAD/CAM product gross profit margins, including purchase accounting
amortization, were 51% for the current quarter as compared to 50% for the
corresponding quarter of 1991.  Excluding purchase accounting amortization,
CAD/CAM product gross profit margins were 53% as compared to 54% last year.
The latter overall product margin was positively affected by the increase in
the percentage of higher margin software revenue as a percentage of total
product revenue, due primarily to the 19% decrease in hardware revenue, and
was offset by a drop in hardware margins. 
          CAD/CAM services and other margins, including purchase accounting
amortization, were 37% as compared to 27% for last year's corresponding
quarter.  Of this increase, 5% was attributable to reduced purchase accounting
amortization of asset write-ups primarily related to field spares and customer
service contracts.  Excluding this purchase accounting amortization, service
and other margins were 37% and 32%.  The company attributes this increase to
savings from workforce reduction and elimination of excess facilities, the
implementation of various cost control programs and the consolidation of spare
parts logistic operations. 
          Other services revenue declined during the quarter due to a drop in
computer systems business unit related hardware and software maintenance
revenue of $10.8 million, or 21%, and a decline in 50 series product revenue
of $22.9 million or 51%.  The decline was partially offset by new service
offerings.  Maintenance revenue derived from the computer systems business
unit installed customer base is expected to continue to decline as a result of
the discontinuance of this business unit. 
          Other service margins, including purchase accounting amortization,
were 29%, up from 26% posted last year.  The entire margin increase was
attributable to reduced purchase accounting amortization of asset write-ups
primarily related to field spares and customer service contracts. 
          Selling, general and administrative expenses decreased 10% to $65.7
million during the quarter as a result of reduced purchase accounting
amortization associated with fixed asset write-ups.  Augmenting the decline
were the benefits associated with headcount reductions and facility
consolidations and various cost containment programs. 
          Research, development and engineering expense decreased from $23.2
million to $20.8 million during the quarter.  Reduced purchase accounting
amortization associated with fixed asset write-ups accounted for $1.5 million
of the drop, with the remaining decline coming from headcount reductions
associated with the elimination of managerial positions and the consolidation
of facilities. 
          Discontinued Operations:  Prime Computer's board has decided to
focus Prime on its CAD/CAM and services businesses, and, as a result, Prime
established a formal plan to discontinue the Computer System Business Unit
effective in the current quarter. 
          As part of this plan, Prime was involved in several discussions with
third parties and a management led group to acquire the business unit from
Prime.  Prime, however, was unable to reach final agreement with any of these
parties.  As a result, Prime discontinued all operations of the business unit.
Prime plans to eliminate the majority of the business unit's existing
workforce and close the related facilities during the third and fourth
quarters of 1992. 
          Prime is currently reviewing alternatives for disposal of the
remaining assets.  As a result of adopting and implementing the plan, Prime
recorded a pre-tax loss of $92.2 million in the current quarter, consisting of
a $17 millon loss from operations and the discontinued business unit and a
$75.2 million charge related to the disposal of the business unit.  The
company said it does not expect to incur any additional losses from operations
related the Computer Systems Business Unit after the second quarter of 1992. 
OTHER LEGAL PROCEEDINGS:
          On 7/13/92, the company petitioned the Supreme Court for a writ of 
certiorari in a case brought against Prime by Virtual Maintenance Inc.  With
the petition, the company requests that the court review the ruling or vacate
the ruling and remand the case for reconsideration in light of a 7/8/92
Supreme Court ruling on another case. 
          On 4/22/92, a District Court had issued an order reversing the award
of damages, vacating the injunction, entering judgement in favor of the
company and releasing the company from its obligation to maintain a bond for
$25 million. 
          Separately, Prime said it reached a settlement agreement with
Carling Park Trust pursuant to which Prime will pay the owners a lease
termination payment.  Upon the payment of approximately $11.3 million, all of
Prime's obligations under the lease will terminate, effective upon the owner's
sale of the lease premises which is expected to take place in October 1992. 
INVENTORIES:
         The company's inventories consisted of the following ($ in
thousands):
                                            6/28/92        12/31/91
                                            -------        --------
    Raw materials                           $   ---        $  2,005
    Work-in-process                             ---           1,092
    Finished goods                           15,409          24,505
                                            -------        --------
         Total inventories                  $15,409        $ 27,602
                                            =======        ======== 
08/14/92 15:18
==========================================================================

08/14 IPO Scorecard: Update On Selected Initial Stock Offers 
  
 Company          (Symbol) Offer   Current   Percent   Date
                            Price   Price     Change  Priced

  Computervision   (CVN)    12      12  unch            8/14
  Amer Residential (AMRS)   13      13.25     up  1.9   8/13
  Tops Appliance   (TOPS)   14      12.25     dn 12.5   8/10
  Banyan Systems   (BNYN)   10.50   13  up 23.8         8/7
  Omega Healthcare (OHI)    21      21  unch            8/6
  Tadiran Ltd.     (TAD)    14.50   15.25     up  7.5   8/5
  Creative Tech    (CREAF)  12      11.75     dn  2.1   8/3
  Fleet Mortgage   (FLG)    23      21.125    dn  8.2   7/31
  Enron Liquids    (ENP)    23      25.625    up 11.4   7/29
  Ampex Inc.       (AMPX)    6       6.5      up  8.3   7/16
  Eagle Hardware   (EAGL)   14      16  up 14.3         7/15
  Equitable Cos.   (EQ)      9       8.625    dn  4.2   7/15
  China Fund Inc.  (CHN)    15      14.125    dn  5.8   7/10
  N. Amer Mortgage (NAC)    11.5    14.875    up 29.3   7/8
  Bradlees Inc.    (BLE)    14      11.875    dn 15.2   7/1
  Rexnord Corp.    (REX)    17      17.125    up  1     7/1
  Allied Capital   (ALCC)   15      16  up  6.7         6/30
  Microtouch       (MTSI)   13.5    17.25     up 27.8   6/30
  Ultramar Corp.   (ULR)    15      17  up 13.3         6/26
  Authentic Fitness(ASM)    14      16  up 14.3         6/25
  Starbucks Corp.  (SBUX)   17      24.875    up 46.3   6/25
  South West Fedl  (SWBI)   10      14  up 40           6/24
  Cone Mills Corp. (COE)    10      14.125    up 41.3   6/17
  Riverwood Intl   (RVW)    14.25   15.5      up  8.8   6/16
  Arrow Intl       (ARRO)   18      23.125    up 28.5   6/8
  Bed Bath         (BBBY)   17      20  up 17.6         6/4
  Network Computing(NCDI)   12      12.375    up  3.1   6/4
  Hook Superx      (HSX)    13      11.75     dn  9.6   6/3
  Franklin Quest   (FNQ)    15.5    19.375    up 25     6/2
  Rival Co.        (RIVL)   10.5    11.375    up  8.3   6/1
Newsgroups: comp.sys.prime