DATA GENERAL CORPORATION
                               1996 ANNUAL REPORT



<PAGE>

                            Data General Corporation
                               4400 Computer Drive
                        Westboro, Massachusetts USA 01580
                                http://www.dg.com
                              email: AViiON@dg.com

1968              Data General founded; developed the NOVA, the first 
                  minicomputer based on integrated circuit technology

1968-1980         Successive generations of 16-bit minicomputers; known for high
                  performance and excellent price/performance

1980-1988         Successive generations of 32-bit minicomputers;  first machine
                  chronicled  in Pulitzer  Prize  winning book by Tracy  Kidder,
                  "The Soul of a New Machine"

1988              Announced open systems strategy based on industry-standard
                  microprocessors, operating systems, and storage components

1989              Delivered first AViiON(R)computer systems and UNIX for
                  commercial applications

1991              Delivered first RAID storage systems

1992              Introduced CLARiiON(R)disk arrays as second generation of RAID
                  systems for AViiON, ECLIPSE(R), and other computing platforms

June 1995         Announced new direction for AViiON product family; systems to
                  use Intel processors and standard SMP (symmetric
                  multiprocessing) motherboards

October 1995      Introduced first AViiON systems that use Intel architecture;
                  more than 15,000 applications available for customers

June 1996         Announced  formation   of   NUMALiiNE(TM)  Business  Unit  to
                  build  OEM   relationships   and  take   advantage  of  market
                  opportunity  for  systems  based on NUMA  (non-uniform  memory
                  access) architecture;

                  Announced formation of THiiN(TM) Line Business Unit to develop
                  and  market  Internet  appliances,   including  thin  servers,
                  network attached storage, and information servers





          Data  General designs  advanced  systems  using  the  best  commodity
          technologies;  builds software alliances to deliver leading enterprise
          applications;  and  provides  comprehensive  integration  services  to
          design, implement, and support business solutions.



<PAGE>


TO OUR STOCKHOLDERS, CUSTOMERS, AND EMPLOYEES:

Fiscal 1996 was a year of significant  progress and positive  financial  results
for Data General.  Product revenues increased 22 percent and reached the highest
level in our company's 28-year history.  Total revenues  increased by 14 percent
to $1.32  billion.  We  reported  increased  profitability  in each  quarter and
completed the year with net income of $28.1 million or $.68 per share.

On the expense side, we reduced overall  operating  expenses while continuing to
invest in our future. Selling, general, and administrative expenses were reduced
by $25 million,  or seven percent,  from fiscal 1995.  Research and  development
spending increased by $12 million, or 14 percent.

Continuing  investments in research and  development are essential to the future
of Data General.  For the first half of this decade, we were focused on making a
business  transition  from  proprietary  minicomputers  to  open  systems.  That
transition  is  complete.  This  report  describes  the  current  state  of Data
General's business and discusses the direction of our company, the opportunities
before us, and the new challenges we will face.

FY96 Earnings Per Share:
Q1 ...................   $   .12
Q2 ...................   $   .15
Q3 ...................   $   .17
Q4 ...................   $   .24

Data General Today
------------------
Data General is a company of talented  individuals  who work together to develop
and sell leading-edge computer systems and related  technologies.  We market our
technologies,   products,   and  services  in  multiple  business   environments
throughout the world.  Technology  excellence has been the sustaining  factor in
Data  General's  success since the company's  founding in 1968.  Data  General's
principal assets,  from which we have generated  revenue and profits,  have been
our research and development efforts and the technical talents of our people.

Complementing the company's  technology  excellence are other important assets--
multiple sales and distribution  channels,  customer services,  and leading-edge
manufacturing--which  have  provided  the  necessary  fulcrums to  leverage  our
technology  into many markets.  The overall  combination  of these  capabilities
should  enable Data  General to succeed in today's  extraordinarily  competitive
computer systems business.

<PAGE>

AViiON Server Business
----------------------
The AViiON family of servers forms the core of Data  General's  product line. At
the start of fiscal 1996, we began  building a new  generation of AViiON servers
based on the Intel processor  architecture.  The transition to the Intel Pentium
and Pentium Pro processor platform from the Motorola platform is progressing. In
the fourth quarter of fiscal 1996,  Intel  processor-based  systems  represented
more than 40 percent  of AViiON  product  revenues,  and total  AViiON  revenues
reached their highest level since the family was introduced in 1989.

AViiON systems have been at the core of our product and business  strategy as we
transformed Data General into an open systems company. We are now implementing a
plan to  increase  revenue  growth and  profits  by  leveraging  our  technology
development capabilities even more than in the past.

Our growth strategy has two parts: first, to bring industry-leading  products to
market through alternative,  low-cost  distribution  channels as well as through
our own sales force;  and second,  to leverage  other Data  General  assets--the
supporting  assets  that  have  traditionally   complemented  our  research  and
development excellence.

New  products  resulting  from our  research and  development  efforts  generate
incremental revenue. Our service and manufacturing capabilities also can be used
to generate sources of revenue independent of our core research and development.
Data General can build upon the strengths of these resources to seek incremental
market  opportunities  without  compromising our core systems business.  Success
will depend on our ability to take advantage of the many opportunities available
in these areas without building bureaucracies or adding fixed costs.

FY96 Intel based AViiON Revenue Growth (Millions of dollars):
Q1 ...............................   14
Q2 ...............................   27
Q3 ...............................   41
Q4 ...............................   51


The CLARiiON Business Model
---------------------------
The  evolution of our CLARiiON  storage  systems  business  from a subset of the
AViiON  product  line  to a  stand-alone  business  is a clear  example  of this
strategy  at its  successful  best.  The  CLARiiON  product  line was built upon
technology  developed in traditional Data General  research and development.  At
the outset,  CLARiiON  technology  provided our AViiON  systems  with  important
differentiation and helped us win server business.  We then achieved far greater
revenues  and  profits by  developing  CLARiiON  business in  alternative  sales
channels.  We formed the CLARiiON  Business Unit late in 1992 and expanded sales
principally  through OEM (original  equipment  manufacturer)  relationships with
major systems vendors and storage suppliers.  In fiscal 1996,  CLARiiON Business
Unit sales nearly doubled to more than $350 million.

<PAGE>

The CLARiiON OEM sales approach to the market employed the right strategy at the
right  time.  It  enabled  us  to  grow  the  business  rapidly  without  adding
significant  sales and marketing  costs.  This is the business  model we plan to
follow as we take other technologies developed in the systems area and turn them
into new products and market leadership.

Open CLARiiON Revenue Trend (Millions of dollars):
FY93 ...................................     7
FY94 ...................................    51
FY95 ...................................   187
FY96 ...................................   355


NUMALiiNE Technology
--------------------
Research and development is producing a new class of AViiON systems that will be
based on NUMA  (non-uniform  memory  access)  architecture.  These products will
constitute a major extension of the high end of our AViiON product line and will
enable our customers to capitalize on their existing investments in applications
written for SMP (symmetric  multiprocessing)  systems. We expect NUMA systems to
generate AViiON revenues through  traditional sales channels.  However,  just as
with CLARiiON  storage  systems,  NUMA systems also have revenue  potential when
sold through OEM relationships.

We formed the  NUMALiiNE  Business  Unit in June 1996 to  leverage  our NUMA OEM
opportunity.  We signed  NUMALiiNE OEM agreements with  Fujitsu/ICL,  the United
Kingdom's  leading  computer maker;  Dansk Data  Elektronik,  Denmark's  premier
supplier of mid-range UNIX computer systems; Daewoo Telecom Limited, part of the
Daewoo Group, one of Korea's largest companies;  and Unisys Corporation,  one of
the largest information companies in the U.S.

The small  incremental  sales and marketing  investment we are making in the OEM
channel has the potential to deliver significant  returns. We are leveraging the
fruits of our core business' research and development at a reasonable cost.


THiiN Line Internet Appliances
------------------------------
The Internet has become the hottest subject in computing.  The implementation of
Internet  technology on internal networks within companies and organizations has
become known as the "Intranet." While Intranets follow the  client/server  model
that will  continue to leverage  traditional  data  processing,  the Internet is
defining a new form of computing driven by the need for information access.

Since  storage  and  retrieval  are the key tasks in  information  access-driven
computing,  the traditional  data processing  architecture is not required.  New
products,  including "network  computers" and other simplified devices dedicated
to 
<PAGE>
viewing information,  have already emerged.  Beyond such "thin clients," Data
General envisions the need for "network  attached  storage"  dedicated to making
information  available  at  lightning  speed,  and "thin  servers"  dedicated to
managing groups of thin clients in offices, homes, classrooms,  or anywhere that
groups of people need access to the Internet.

To pursue this  opportunity,  we formed the THiiN Line Business Unit. THiiN Line
products  are  expected  to be brought to market in fiscal 1997 and will be sold
mainly through alternate  channels.  Again, we will build upon our core research
and development to generate incremental revenues and profits.


VALiiANT (SM)  Manufacturing
----------------------------
An example of how we can  leverage  our  supporting  assets is our new  VALiiANT
Business Unit. We formed this contract manufacturing operation to take advantage
of the company's world-class manufacturing expertise.

Data  General  was  the  first  U.S.  computer  company  to have  its  worldwide
manufacturing  operations gain ISO 9000 certification.  The VALiiANT effort does
not conflict with our basic computer systems strategy;  rather it reinforces our
capabilities  by  using  existing   facilities  to  generate  more  revenue.  If
successful,  this venture will provide incremental  revenues and profits,  while
absorbing existing manufacturing overhead.  VALiiANT sales and marketing efforts
are independent of our normal sales channels and require minimal fixed costs.

Data General is known for the scalability of our computer  systems.  Now we have
embarked on a plan for "asset scalability." NUMALiiNE,  THiiN Line, and VALiiANT
are three new ways of  scaling  our key  assets to  generate  new  business  and
profitability.


Customer Service and Professional Services
------------------------------------------
Services  generated nearly $400 million in revenues in fiscal 1996. Our Customer
Service and  Professional  Services  groups have developed  broad  expertise and
skills,  and they provide  valuable  services to our  customers.  Our integrated
software  and  hardware  services  are  focused  on  selected  areas,  including
Healthcare, Imaging, the Internet, and Windows NT applications integration.

<PAGE>

Our services business  provides Data General with competitive  advantages in the
market.  However,  it is not  our  intention  to  build  a  stand-alone  systems
integration  business.  That  would  require  major  up-front  investments  in a
business  characterized by low margins and many large players,  and is in direct
opposition to the "asset  leverage  model" we employ in our product  businesses.
Therefore,  our strategy for serving customers is to strengthen our Professional
Services  organization  and  leverage  relationships  with the  leading  systems
integrators.

Special   Systems  is  one  service   organization   that  has  made  consistent
contributions  to Data  General's  success  over the years.  It is an  important
technological and marketing resource for the company,  and an asset which can be
leveraged to provide more  revenue for Data  General and  opportunities  for our
employees.



The  DataGenie(TM)  family of handheld  computers  is an example of what Special
Systems can do.  DataGenie was  developed by Special  Systems to meet the unique
needs of one of our strategic  Healthcare  solutions  partners.  Now it is being
expanded into other markets as a commercial product, and DataGenie is becoming a
profitable business venture.


FY97 Marketing Directions
-------------------------
Today,  Data General's  primary sources of revenue are AViiON servers,  CLARiiON
storage  systems,  and customer support  services.  In fiscal 1997 and in future
years,  our current core  businesses  will be  complemented by our NUMALiiNE and
THiiN Line  products,  and by  leveraged  assets such as our  VALiiANT  contract
manufacturing operations.

In fiscal 1997,  AViiON  development will concentrate on traditional  mainstream
servers with ever increasing performance.  We are committed to rapid delivery of
a family of Intel  processor-based  AViiON servers which provide  market-leading
performance  and  competitive   price/performance.   These  servers  will  offer
customers the choice of our DG/UX(R)  operating system, the SCO UnixWare System,
and Microsoft Windows NT Server.

Data General will  continue to maintain and expand the DG/UX  operating  system,
which is one of the most  technically  advanced  UNIX  operating  systems in the
market.  We also  recognize  that many  customers want the industry to support a
standard UNIX  operating  system.  Data General has taken a lead role in working
with the Santa Cruz  Operation  (SCO) in supporting  SCO UnixWare. 

<PAGE>


While we are developing  advanced NUMA features for our DG/UX operating  system,
we are also working  with SCO on a special  project to build  these NUMA
features  into SCO UnixWare.

It is  increasingly  clear that  Microsoft  Windows NT Server is a major  market
force.  We have the  technical  skills to  participate  in this market.  We have
already  demonstrated  success in closing NT Server sales with major  enterprise
applications such as SAP, PeopleSoft,  and Oracle Financials.  Windows NT Server
is becoming a leading  platform for our channel sales  partners  throughout  the
world.  We believe  Data  General can  leverage  sales of AViiON  servers  using
Windows NT Server.

Collectively, DG/UX, SCO UnixWare, Windows NT Server, and operating systems such
as Novell  NetWare and SCO Open Server,  provide  customers  with a portfolio of
tens of thousands of AViiON applications.

Healthcare  continues to be one of Data General's leading markets worldwide.  To
capitalize  on this growing  market  opportunity  and  leverage  our  successful
healthcare  alliances,  our healthcare sales and marketing  activities have been
consolidated into a worldwide Healthcare Division.

Data  General  is also  participating  in the  fast-growing  market  for  secure
Intranets  with AViiON and  CLARiiON  systems.  CYBERSHIELD,  a unique  Internet
security  solution,  enables Data  General to combine  Internet,  Intranet,  and
firewall technology in a single integrated package designed to protect data from
both outside hackers and insiders who accidentally or intentionally  corrupt it.
Data General's  CYBERSHIELD is the most secure  Internet  server  available--the
only  server  solution in the market with both B2- and  E4-level  security,  the
world's highest system security levels.

Imaging  is a  growing  worldwide  market  opportunity  for  Data  General.  Our
award-winning family of AV Image(R) products provides imaging solutions targeted
at efficient, affordable document management.

Open CLARiiON  products  account for more than one-third of Data General product
revenues. These sales are achieved primarily through OEMs, distributors, private
labelers, and value-added resellers.  CLARiiON revenue growth in fiscal 1997 and
beyond will be a function of the growth in our OEM partners' server business and
overall disk array market growth. In the markets where we 

<PAGE>

are targeting CLARiiON  products--UNIX,  Windows NT Server,  Novell NetWare, and
departmental  server  environments--industry  consultants are projecting  strong
growth over the next few years.

Fibre Channel, which provides significant increases in data access speed, is one
of the key technologies for enabling  continued growth in the CLARiiON business.
Data General  demonstrated  Fibre technology at the November 1996 Comdex show in
Las Vegas. Fibre products are expected to be available in 1997.


A Winning Culture
-----------------
We have  emerged  from the open  systems  transition  as a strong  company  with
talented people,  valuable  resources,  and a well demonstrated  entrepreneurial
spirit.

The EveryOne  Sells  program,  for  example,  is a way in which any employee can
submit  qualified sales leads.  In the first full year of the program,  EveryOne
Sells  generated  almost  3,000  leads and  produced  more than $18  million  in
incremental revenues.

We  have  begun  a new  program--the  Entrepreneurial  Forum  - to  provide  our
employees  with an  opportunity  to initiate  new business  ideas.  Any employee
anywhere  in the world can present  ideas at this forum.  The goal is to suggest
ways in which we can take an existing product,  an evolving  technology,  or any
other good idea, and leverage it into additional revenues for Data General.

Our people also exhibit a strong  commitment to the communities in which we live
and work. In Raleigh,  North  Carolina,  employees  from our Apex  manufacturing
facility  helped to renovate a library at an  apartment  complex for the elderly
and disabled.  Our Massachusetts  employees developed a unique computer literacy
program for Worcester North High School,  and spent nights and weekends training
the teachers,  wiring the school, and installing the equipment and software.  An
engineer from our AViiON  development  group initiated a donation of servers and
storage systems to his alma mater,  Howard  University,  and personally  ensured
that the equipment was installed and operating in support of a newly established
co-operative  program at the  school.  Data  General  people  demonstrate  their
generosity  to  those in need  throughout  the year  with  programs  such as the
"Giving Tree" at our  Massachusetts  facilities  which provides holiday gifts to
more than 400 needy  families.  Data General is proud to have such dedicated and
generous employees.

<PAGE>

Outlook
-------
I believe the  opportunities  for Data General are plentiful.  Market forces and
standards have changed the dynamics of our business. We have the technology base
and the other skill sets we need to gain  leadership  positions  in key areas of
the market. Most important, we have the people with the will to do so.

Our senior  management  team has led the  company  through  the  transition.  In
recognition of their  accomplishments,  the Board of Directors  elected  William
Cunningham, Arthur  DeMelle, Joel  Schwartz,  and  William  Wilson  senior  vice
presidents of the company.  They join with Senior Vice President J. Thomas West,
head of Advanced  Development,  to form a solid and experienced  management team
that is well prepared to lead Data General in the years ahead.

Our goal is to grow  revenues  through  direct  sales and  increasingly  through
stronger  relationships  with  channel  partners.  We  recognize  that we cannot
accomplish  this goal based on technology  alone.  Successful  sales and channel
alliances are based on the ability of our sales and marketing  people to nurture
close working relationships and build the level of trust that is needed for such
relationships. Our customers tell us that one of the reasons they choose to deal
with Data General instead of our competitors is our personal commitment to their
success--our availability,  our flexibility,  and our ability and willingness to
better  understand  their  business  and their  requirements.  These are  traits
embodied in the Data General culture.

Fiscal 1996 was a turning point in the history of Data General.  We enter fiscal
1997 well  positioned for continued  revenue growth and  profitability  with our
established  AViiON server and CLARiiON  storage  businesses,  a solid financial
position, and the significant opportunities we see in the emerging areas of NUMA
technology and the Internet.

Respectfully submitted,



Ronald L. Skates
President and Chief Executive Officer

<PAGE>

FINANCIAL REVIEW 1996:

FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA ..............................   10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS ................................................................   11
CONSOLIDATED STATEMENTS OF OPERATIONS .....................................   16
CONSOLIDATED BALANCE SHEETS ...............................................   17
CONSOLIDATED STATEMENTS OF CASH FLOWS .....................................   18
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY ...........................   19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ................................   20
REPORT OF INDEPENDENT ACCOUNTANTS .........................................   30
SUPPLEMENTAL FINANCIAL INFORMATION ........................................   30
FACILITIES ................................................................   31
OFFICERS, DIRECTORS, AND SENIOR MANAGEMENT ................................   32
CORPORATE INFORMATION .....................................................   33


Number of Employees:
1992 ......................... 7100
1993 ......................... 6500
1994 ......................... 5800
1995 ......................... 5000
1996 ......................... 4900

Revenue per Employee (Thousands of dollars):
1992 ........................   157
1993 ........................   166
1994 ........................   193
1995 ........................   232
1996 ........................   270

Selling, General & Administrative expenses (Millions of dollars):
1992 ........................   358
1993 ........................   347
1994 ........................   341
1995 ........................   334
1996 ........................   309



<PAGE>

<TABLE>
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
DATA GENERAL CORPORATION
<CAPTION>
                                                                    YEAR ENDED
                                       ---------------------------------------------------------------------------
                                         SEPT. 28,     SEPT. 30,     SEPT. 24,      SEPT. 25,       SEPT. 26,
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS      1996          1995         1994           1993             1992
------------------------------------------------------------------------------------------------------------------
<S>                                    <C>           <C>            <C>            <C>            <C>        
Total revenues .....................   $ 1,322,250   $ 1,159,316    $ 1,120,505    $ 1,077,869    $ 1,115,947
                                       -----------   -----------    -----------    -----------    -----------

Total cost of revenues .............       877,692       772,047        733,114        654,718        655,047
Research and development ...........        98,022        85,886         90,826        100,172        111,336
Selling, general, and administrative       309,259       334,337        341,343        346,740        357,528
Restructuring charge ...............           --         43,000         35,000         25,000         48,000
                                       -----------   -----------    -----------    -----------    -----------

  Total costs and expenses .........     1,284,973     1,235,270      1,200,283      1,126,630      1,171,911
                                       -----------   -----------    -----------    -----------    -----------

Income (loss) from operations ......        37,277       (75,954)       (79,778)       (48,761)       (55,964)
Interest expense, net ..............         5,632         4,116          8,168          6,734          3,448
Other income, net ..................          --          41,972          2,353            416           --
                                       -----------   -----------    -----------    -----------    -----------

Income (loss) before income taxes ..        31,645       (38,098)       (85,593)       (55,079)       (59,412)
Income tax provision ...............         3,500         8,605          2,100          5,400          3,100
                                       -----------   -----------    -----------    -----------    -----------

Net income (loss) ..................   $    28,145   $   (46,703)   $   (87,693)   $   (60,479)   $   (62,512)
                                       ===========   ===========    ===========    ===========    ===========

Primary net income (loss) per share    $      0.68   $     (1.23)   $     (2.45)   $     (1.73)   $     (1.91)


<CAPTION>

                                                                        AS OF
                                   -----------------------------------------------------------------------------
                                        SEPT. 28,      SEPT. 30,      SEPT. 24,      SEPT. 25,      SEPT. 26,
DOLLARS IN THOUSANDS                       1996           1995          1994           1993            1992
----------------------------------------------------------------------------------------------------------------
<S>                                    <C>           <C>            <C>            <C>            <C>        
Current assets .....................   $   616,812   $   591,485    $   598,076    $   611,660    $   671,307
Current liabilities ................       366,184       370,226        326,865        302,908        307,172
                                       -----------   -----------    -----------    -----------    -----------

Working capital ....................   $   250,628   $   221,259    $   271,211    $   308,752    $   364,135
                                       ===========   ===========    ===========    ===========    ===========

Total assets .......................   $   860,443   $   832,018    $   821,864    $   866,329    $   940,454
Annual expenditures for property,
  plant, and equipment .............   $    94,670   $    96,471    $    92,955    $    94,968    $    93,607
Long-term debt .....................   $   149,971   $   153,457    $   156,942    $   158,352    $   162,258
Other liabilities ..................   $    15,224   $    28,791    $    29,445    $    27,992    $    20,988
Stockholders' equity ...............   $   329,064   $   279,544    $   308,612    $   377,077    $   450,036
Employees ..........................         4,900         5,000          5,800          6,500          7,100

<FN>

Results of operations are for 52-week periods except for 1995 which is a 53-week
period. The company has not declared or paid cash dividends since inception.
</FN>
</TABLE>

<PAGE>


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Data General Corporation


RESULTS OF OPERATIONS

    The company reported net income of $28 million for fiscal 1996 compared with
a net loss of $47  million  for fiscal  1995 and a net loss of $88  million  for
fiscal  1994.  Included  in the net  losses  of fiscal  years  1995 and 1994 are
restructuring charges of $43 million and $35 million,  respectively,  as well as
other income of $44.5 million from the  settlement  of litigation  with Northrop
Grumman Corporation in fiscal year 1995.

Revenues (in millions)
===============================================================================
                           1996     Change        1995      Change        1994
                           ---------------------------------------------------

Product                    $924        22%        $757          5%        $722
  % of total Revenues       70%                    65%                     65%

Service                     398       (1%)         402          1%         398
  % of total Revenues       30%                    35%                     35%

Total Revenues           $1,322        14%      $1,159          3%      $1,120
===============================================================================


 Revenues in fiscal year 1996 grew 14% compared to the prior  fiscal  year.  The
growth came primarily from domestic  product  revenues in the Open CLARiiON line
of  mass  storage  devices  and  the  AViiON  server   business.   The  European
marketplace, while experiencing growth in Open CLARiiON, was negatively impacted
by a decline in the AViiON server business, as well as the general conditions of
the European economy.

    In fiscal 1996,  revenues  from the AViiON  family were  approximately  $461
million,  a 9% increase over fiscal 1995. AViiON systems revenues in fiscal 1995
decreased  10% from fiscal  1994.  Since 1989,  the  company has  established  a
customer base of nearly 38,000 AViiON installations,  with a total value of over
$2.5 billion.  In fiscal 1996,  the company  introduced its  Intel-based  AViiON
systems.  Such  systems  represented  more than 29% of all  fiscal  1996  AViiON
revenues. In fiscal 1996, the Open CLARiiON line of mass storage systems grew by
90% and  represented  38% of the overall  product  revenues,  compared to 25% of
total  product  revenues in the  previous  fiscal  year.  Open  CLARiiON is sold
primarily  through the company's  Original  Equipment  Manufacturer  ("OEM") and
distributor channels; thus sales in any given period are subject to sales cycles
and inventory levels of the company's customers.  Open CLARiiON product revenues
have been  concentrated  in a limited  number of  customers,  with a significant
portion of the company's Open CLARiiON product revenues to a single OEM. ECLIPSE
MV ("MV") revenues decreased 36% during fiscal 1996 compared to a 43% decline in
fiscal  1995.  Proprietary  revenues  in fiscal  1996  represent  only 4% of the
company's total product revenues. In fiscal 1996, product revenues from personal
computer and peripheral  equipment decreased 22% from fiscal 1995, and in fiscal
1995 decreased 11% when compared with fiscal 1994.

<PAGE>

Revenues by Geographic Marketplace
===============================================================================
                          Percentage of                       Percentage of
                      Consolidated Revenues                     Change of $
                                                                of Revenues

                    --------------------------------  -------------------------
                      1996         1995        1994       1996-95      1995-94
                    --------------------------------  -------------------------

Domestic

Product                61%          55%         55%           22%           5%
Service                57%          56%         58%            0%         (1%)
Total Revenues         60%          55%         56%           23%           2%

Europe

Product                24%          28%         27%            4%          12%
Service                32%          33%         31%          (4%)           7%
Total Revenues         26%          30%         28%            1%          10%

Other International

Product                15%          17%         18%           10%         (3%)
Service                11%          11%         11%            0%         (2%)
Total Revenues         14%          15%         16%            8%         (3%)
===============================================================================



   In fiscal 1996, domestic  marketplace revenues from the Open CLARiiON product
line more than doubled and AViiON product  revenues  increased  22%,  partly
offset by a 25%  decrease  in  ECLIPSE  MV  revenues  and a 43%  decrease  in PC
revenues.  In the prior year, the Open CLARiiON  product line revenues were more
than doubled in this marketplace, offset by a 13% decrease in AViiON revenues, a
41% decrease in ECLIPSE MV revenues,  and a small  decrease in PC revenues.  The
increase in European  product  revenues,  including U.S. direct export sales, in
fiscal year 1996 was  attributable  to  significant  growth in the Open CLARiiON
product line offset by a 35% decline in ECLIPSE MV revenues,  20% decrease in PC
revenues  and a 6%  decrease  in AViiON  revenues.  The 4%  increase  in product
revenues in the European  marketplace was partly offset by the  strengthening of
the U.S. dollar. The increase in other international product revenues, including
U.S.  direct export sales,  was primarily  driven by significant  growth in Open
CLARiiON,  which more than doubled from the prior year, and a 14% increase in PC
revenues in fiscal year 1996.  The increase was partly  offset by a 64% decrease
in MV revenues,  and a 6% decrease in AViiON revenues.  The fiscal 1995 decrease
in other  international  product  revenues  was largely  due to the  decrease in
AViiON and MV revenues,  which was partly  offset by stronger  revenues from the
Open CLARiiON product line.

    In the service  business,  the company  experienced a 2% decline in contract
maintenance  revenues  in both fiscal  years 1996 and 1995 as compared  with the
previous  year.   This  decline  was  partially   offset  by  modest  growth  in
professional  service revenues during the same periods. In Europe, the effect of
foreign  exchange  accounted for less than 1% of the total 4% decrease in fiscal
1996 and 3% of the total 7% increase in fiscal 1995 service revenues.

Cost of Revenues  (in millions)
==============================================================================
                            1996     Change        1995    Change        1994
                          ----------------------------------------------------
Product                     $619        20%        $514        6%        $484
  % of Product Revenues      67%                    68%                   67%

Service                      259         0%         258        4%         249
  % of Service Revenues      65%                    64%                   63%

Total Cost of Revenues      $878        14%        $772        5%        $733
  % of Total Revenues        66%                    67%                   65%
==============================================================================

<PAGE>

   The primary  reasons  for the  decrease  in cost as a  percentage  of product
revenues  were the  result of  increased  volumes of higher  margin  Intel-based
AViiON  systems,  manufacturing  cost  reductions  and  lower  component  costs,
partially  offset by increased  volumes of relatively lower margin Open CLARiiON
revenues.  The benefits of component cost  reductions are likely to be temporary
as market pressures impact the company's product pricing.

   The  increase in cost of service  revenues as a percentage  of total  service
revenues  was  primarily  a result of the  continued  shift in service  revenues
towards increased  professional  service sales,  which yield a lower margin than
traditional maintenance service contract revenues.

Operating Expenses  (in millions)
===============================================================================
                                    1996    Change     1995    Change     1994
                                   --------------------------------------------
Research & Development               $98       14%      $86      (5%)      $91
  % of Total Revenues                 7%                 7%                 8%

Selling, general, & administrative  $309      (7%)     $334      (2%)     $341
  % of Total Revenues                23%                29%                30%

Restructuring charges                  -    (100%)      $43       23%      $35
  % of Total Revenues                  -                 4%                 3%
===============================================================================


   The company  continued to focus its research and  development  efforts on its
core business technology, multi-user computer systems, servers, and mass storage
devices.   Gross   expenditures  on  research  and  development,   and  software
development  in fiscal 1996,  before  capitalization,  increased 14% compared to
fiscal 1995. The increase in the level of expenditures  was primarily  driven by
investment  in the next  generation of CLARiiON  products,  in the company's Non
Uniform Memory Access ("NUMA") architecture for high-end servers and in products
for the Internet.

     Selling,  general and  administrative  expenses continue to decrease due to
the company's  worldwide  cost  reduction and  containment  programs,  which the
company  has  implemented  in  response  to  increasingly  competitive  industry
conditions.

    Results of  operations  for  fiscal  1995 and 1994  included  charges of $43
million and $35 million,  respectively,  for estimated  costs  associated with a
worldwide   workforce  reduction  along  with  other  cost  reduction  programs,
primarily  related to real  estate.  The  provisions  relating to the  workforce
reduction were primarily for salary and benefit  continuation  and  outplacement
service.  At the close of fiscal 1996, the number of employees was approximately
4,900, a net reduction of 100 employees  from September 30, 1995.  During fiscal
year 1995 there was a net reduction of 800 employees  from the 5,800 employed as
of September  24,  1994.  There have been no material  changes in the  company's
original  estimates  of the  costs  associated  with  the  previously  announced
restructuring actions.


Net Income (Loss) (in millions)
===============================================================================
                                      1996               1995             1994
                                 ----------       ------------     ------------
Income (loss) from operations          $37              ($76)            ($80)

Interest and other Income, net          (5)               38               (6)

Tax provision                           (4)               (9)              (2)
                                 ----------       ------------     ------------
Net income (loss)                      $28              ($47)            ($88)
===============================================================================

<PAGE>

     Income from  operations for fiscal 1996 of $37 million was comprised of $44
million from the  domestic  marketplace  and $3 million  from Europe,  partially
offset by a loss from  operations of $10 million from other  international.  The
loss from  operations  for  fiscal  1995 of $76  million  was  comprised  of $45
million, $15 million, and $16 million from the domestic marketplace, Europe, and
other international,  respectively.  These losses included restructuring charges
of $19  million in both  domestic  and  Europe,  as well as $5 million for other
international locations. These losses from operations compared with $45 million,
$18  million,  and $17 million in fiscal  1994,  for the  domestic  marketplace,
Europe and other international locations, respectively. Restructuring charges in
fiscal  1994 were $21  million,  $12  million,  and $2  million in each of these
areas, respectively.

     Interest income for fiscal 1996 decreased 23% from fiscal 1995, following a
65%  increase  from fiscal 1994 to fiscal 1995.  The current  year  decrease was
primarily due to lower levels of average invested cash and an overall  reduction
in market  interest  rates.  The prior year increase was primarily due to higher
average levels of invested funds and increasing market interest rates.  Interest
expense for fiscal 1996 was $13.1 million,  a slight decrease from $13.8 million
for fiscal 1995. Interest expense for fiscal 1995 remained relatively  unchanged
from fiscal 1994.

     Included in other income,  net, in the fiscal 1995  Statement of Operations
is a pretax gain, net of related legal fees and other expenses, of $44.5 million
from the settlement  with Northrop  Grumman  Corporation  relative to a six-year
software  copyright  infringement  and trade secrets  litigation  brought by the
company against Grumman Systems Support Corporation ("Grumman"). Under the terms
of the  settlement,  Grumman  paid  the  company  $53  million  and the  parties
dismissed the pending litigation.

     The current year  provision for income taxes  relates  primarily to foreign
and state taxes.  The 1995 provision  resulted  primarily from the settlement of
the  Grumman  lawsuit,  deferred  taxes on  undistributed  earnings  for certain
foreign subsidiaries, and foreign and state taxes. The company continues to have
significant  operating loss  carryforwards  and unused tax credits  available to
minimize future tax liabilities.  Based on the weight of available evidence, the
company has a valuation  allowance which offsets  substantially all net deferred
tax assets  existing as of September 28, 1996 and September 30, 1995. The amount
of the deferred tax asset  considered  realizable  is subject to change based on
estimates of future taxable income during the carryforward  period.  The company
will assess the need for the  valuation  allowance  at each  balance  sheet date
based on all available evidence.

     In the  first  quarter  of  fiscal  1995,  the  company  adopted  SFAS 112,
"Employers'  Accounting for Post-Employment  Benefits" and SFAS 115, "Accounting
for Certain  Investments in Debt and Equity  Securities".  SFAS 112 requires the
accrual of  liabilities  for the  estimated  cost of  benefits  provided  by the
employer to former or inactive employees. The implementation of SFAS 112 did not
have a material  effect on the  company's  consolidated  financial  position  or
results  of  operations.   SFAS  115  addresses  accounting  and  reporting  for
investments  in  certain  debt  and  equity  securities.  All of  the  company's
investments in U.S. Treasury bills and notes at September 28, 1996 and September
30, 1995 have  maturities  of less than one year,  and have been  classified  as
"held-to-maturity".  In the second  quarter of fiscal 1996,  an equity  security
held by the company as an investment and previously accounted for under the cost
method,  began  trading  on a  public  stock  exchange,  and  is  classified  as
"available-for-sale".  In fiscal 1995, the company adopted SFAS 119, "Disclosure
about Derivative Financial Instruments and Fair Value of Financial Instruments".

      In March 1995, the Financial  Accounting  Standards  Board ("FASB") issued
SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed  Of". In October 1995,  FASB issued SFAS 123,  "Accounting
for Stock-Based  Compensation".  In June 1996, FASB issued SFAS 125, "Accounting
for  Transfer  and  Servicing  of  Financial  Assets  and   Extinguishments   of
Liabilities".  The company will implement SFAS 123 using the proforma disclosure
method  described  in the  pronouncement  in fiscal  1997.  SFAS 121 and 123 are
effective  for fiscal years  beginning  after  December  15,  1995.  SFAS 125 is
effective for transfers and servicing of financial assets and extinguishments of
liabilities  occurring after December 31, 1996. The company will implement these
statements as required.  The future adoption of SFAS 121 and 125 is not expected
to have a material effect on the company's  consolidated  financial  position or
results of operations.


LIQUIDITY AND CAPITAL RESOURCES

     Cash and  temporary  cash  investments  as of September  28, 1996 were $179
million,  an increase of $62 million  from fiscal  1995.  At the same date,  the
company held $26 million in marketable  securities which  supplemented  cash and
temporary cash  investments,  down $46 million from the prior fiscal year. These
securities  include United States Treasury bills and notes, as well as an equity
security  of $11  million  recorded  at fair  market  value  and  classified  as
"available-for  sale". Net cash provided from operations in fiscal 1996 was $105
million.  Expenditures  for  property,  plant and  equipment  were $95  million,
capitalized  software  development costs totaled $31

<PAGE>

million,  and cash provided  from stock plans equaled $10 million.  Repayment of
long-term debt during the current fiscal year was $3 million,  which was for the
repurchase  of the  company's 8 3/8%  debentures  due in 2002 to satisfy  future
sinking  fund  requirements.  The effect of  currency  fluctuations  on cash and
temporary cash investments was a decrease of $1 million for fiscal year 1996.

     Net receivables increased $7 million to $258 million at September 28, 1996,
primarily as a result of increased revenues. The company's worldwide days' sales
outstanding  decreased  three  days  when  compared  to the  prior  fiscal  year
primarily  as a  result  of  increased  collection  activity.  Inventory  levels
increased $6 million during fiscal 1996,  primarily as a result of increased end
of year  procurement.  Net property,  plant, and equipment  decreased $7 million
principally due to the sale of certain facilities and the sales of demonstration
equipment.  Accounts payable increased $5 million primarily  attributable to the
increase  in end of year  inventory  procurements  and the  timing  of  payments
related to this activity. Current and other liabilities decreased $23 million to
$258 million at  September  28,  1996,  primarily  as a result of payments  made
relating to the previously recorded restructuring accruals, and reduced employee
related accruals.

     For the  three-year  period ending  September 28, 1996,  cash and temporary
cash  investments  increased $59 million.  Net cash provided from operations was
$296 million,  including $53 million from the Grumman litigation settlement. The
sale of non-operating  facilities,  investments,  and the sale-lease back of the
company's corporate headquarters provided $41 million.  Proceeds pursuant to the
company's employee stock plans provided $24 million. Long-term debt decreased $9
million,  primarily  due to the  repurchase of a portion of the company's 8 3/8%
debentures due in 2002, and the repayment of Industrial Revenue Bonds applicable
to the sales of the  company's  Portsmouth,  New  Hampshire and a portion of the
Woodstock,  Connecticut  facilities.  Net proceeds  from  maturity of marketable
securities  were $67 million.  Expenditures  for  property,  plant and equipment
totaled  $284  million and the  company's  investment  in  capitalized  software
development  costs was $76 million.  Notes payable were paid in the amount of $1
million during this three-year  period.  The effect of foreign  exchange on this
three-year period was a $5 million increase to cash.

     Operations  have generally  been the primary source of the company's  cash.
Cash provided from operations has been augmented by proceeds from sales of stock
under  the  company's   stock  plans,   from  sales  of  facilities   and  other
non-operating assets, and the settlement of the Grumman litigation.  The company
has not paid cash dividends  since its inception in order to reinvest  available
cash in operations.

     At September 28, 1996,  the company has a $30 million  unsecured  letter of
credit and  reimbursement  facility  with a group of banks.  This  agreement  is
available  to secure the issuance of letters of credit.  The  facility  contains
certain  covenants,  including  restrictions  on the sale or pledge  of  certain
assets,  the  declaration  of dividends and the  incurrence  of other debt.  The
interest rate for borrowings under the current letter of credit facility is 2.0%
per annum above a base rate. The base rate is equal to the greater of prime rate
or the Federal Funds Effective Rate plus .5%.  Commitment fees paid on available
funds  during  fiscal  years  1996 and 1995 were not  material.  There were $8.0
million of letters of credit  secured by this facility at September 28, 1996. At
September 30, 1995, there were $8.3 million of letters of credit secured by this
letter of credit  facility.  During  fiscal  years 1996 and 1995,  there were no
borrowings under any of these  facilities.  The current agreement has a duration
of 364 days and expires on December  18,  1996.  The company is currently in the
process of negotiating  amendments to this letter of credit facility which would
extend its expiration date to December 17, 1997.

     The company  believes it is  important to maintain a  conservative  capital
structure  and a strong  cash  position.  Cash is  primarily  invested in liquid
temporary  investments pending its utilization.  The company's investment policy
is to minimize risk while maximizing return on cash, and to keep uninvested cash
at a minimum. Cash is generally centralized domestically,  although some cash is
also held at  various  subsidiaries  around  the world to meet  local  operating
funding requirements. All cash is freely remittable to the United States.

     Although the actual level of spending  will be  influenced by many factors,
the company anticipates that expenditures for property, plant and equipment will
continue to be the primary  non-operating  use of cash during  fiscal year 1997.
Most of the  expenditures  will be for capital  assets  directly  related to the
company's open systems product sales,  marketing,  support and development.  The
writedown of net book value of property, plant, and equipment during fiscal 1996
totaled $16 million,  primarily as a result of sales of demonstration  equipment
to end-users.  Management  expects that sales of  demonstration  equipment  will
continue.  Net fixed assets associated with the company's proprietary ECLIPSE MV
family  of  products  represent  less than 5% of the  company's  total net fixed
assets.  Such assets are primarily spare parts employed to support the company's
MV service base, as well as those MVs which are serviced by third parties.  Also
during  fiscal  1997,  cash  totaling  $8 million is  expected to be utilized to
settle liabilities arising from the company's restructuring programs.

     The company believes it has sufficient resources to provide for its current
operations and to continue to invest in the future.


<PAGE>

<TABLE>

CONSOLIDATED STATEMENTS OF OPERATIONS
DATA GENERAL CORPORATION
<CAPTION>


                                                       YEAR ENDED
                                        ----------------------------------------
                                         SEPT. 28,      SEPT. 30,     SEPT. 24,
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS      1996          1995          1994
--------------------------------------------------------------------------------
<S>                                    <C>           <C>            <C>
REVENUES
Product ............................   $   924,140   $   757,338    $   722,423
Service ............................       398,110       401,978        398,082
                                       -----------   -----------    -----------
    Total revenues .................     1,322,250     1,159,316      1,120,505
                                       -----------   -----------    -----------
COSTS AND EXPENSES
Cost of product revenues ...........       618,351       514,049        483,808
Cost of service revenues ...........       259,341       257,998        249,306
Research and development ...........        98,022        85,886         90,826
Selling, general, and administrative       309,259       334,337        341,343
Restructuring charge ...............          --          43,000         35,000
                                       -----------   -----------    -----------

     Total costs and expenses ......     1,284,973     1,235,270      1,200,283
                                       -----------   -----------    -----------

Income (loss) from operations ......        37,277       (75,954)       (79,778)
Interest income ....................         7,440         9,710          5,881
Interest expense ...................        13,072        13,826         14,049
Other income, net ..................          --          41,972          2,353
                                       -----------   -----------    -----------

Income (loss) before income taxes ..        31,645       (38,098)       (85,593)
Income tax provision ...............         3,500         8,605          2,100
                                       -----------   -----------    -----------

Net income (loss) ..................   $    28,145   $   (46,703)   $   (87,693)
                                       ===========   ===========    ===========

PRIMARY NET INCOME (LOSS) PER SHARE:
  Net income (loss) per share .......  $      0.68   $     (1.23)   $     (2.45)
  Weighted average shares outstanding       41,081        37,866         35,774

<FN>

Results of operations  are for 52-week  periods  except for 1995 which is a
53-week period. The accompanying Notes to Consolidated  Financial Statements are
an integral part of these financial statements.

</FN>
</TABLE>


<PAGE>

<TABLE>

CONSOLIDATED BALANCE SHEETS
DATA GENERAL CORPORATION
<CAPTION>

                                                         SEPT. 28,    SEPT. 30,
DOLLARS IN THOUSANDS, EXCEPT PAR VALUE                      1996        1995
-------------------------------------------------------------------------------
<S>                                                      <C>          <C>
ASSETS
Current assets:
  Cash and temporary cash investments .................   $ 178,997    $ 117,201
  Marketable securities ...............................      25,624       71,617
  Receivables, less allowances of $14,480 at
    Sept. 28, 1996 and $14,079 at Sept. 30, 1995 ......     257,815      251,123
  Inventories .........................................     129,783      124,145
  Other current assets ................................      24,593       27,399
                                                          ---------    ---------

    Total current assets ..............................     616,812      591,485

Property, plant, and equipment, net ...................     167,672      174,914
Other assets ..........................................      75,959       65,619
                                                          ---------    ---------
                                                          $ 860,443    $ 832,018
                                                          =========    =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Notes payable .......................................   $   1,943    $   2,033
  Accounts payable ....................................     121,625      116,313
  Other current liabilities ...........................     242,616      251,880
                                                          ---------    ---------

    Total current liabilities .........................     366,184      370,226
                                                          ---------    ---------

Long-term debt ........................................     149,971      153,457
                                                          ---------    ---------

Other liabilities .....................................      15,224       28,791
                                                          ---------    ---------

Commitments and Contingencies

Stockholders' equity:
    Common stock, $.01 par value:
    Outstanding -- 39,601,000 shares at Sept. 28, 1996
      and 37,933,000 shares at Sept. 30, 1995 (net of
      deferred compensation of $7,812 at Sept. 28, 1996
      and $9,588 at Sept  30, 1995) ...................     460,312      446,762
    Accumulated deficit ...............................    (135,481)    (163,626)
    Unrealized gains on marketable securities .........       9,708         --
    Cumulative translation adjustment .................      (5,475)      (3,592)
                                                          ---------    ---------

      Total stockholders' equity ......................     329,064      279,544
                                                          ---------    ---------
                                                          $ 860,443    $ 832,018
                                                          =========    =========
<FN>


The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
</FN>
</TABLE>


<PAGE>

<TABLE>

CONSOLIDATED STATEMENTS OF CASH FLOWS
DATA GENERAL CORPORATION
<CAPTION>


                                                                            YEAR ENDED
                                                         --------------------------------------------
                                                              SEPT. 28,      SEPT. 30,    SEPT. 24,
IN THOUSANDS                                                     1996          1995          1994
-----------------------------------------------------------------------------------------------------
<S>                                                           <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net Income (loss) .......................................   $  28,145    $ (46,703)   $ (87,693)
  Adjustments to reconcile net income (loss) to net cash 
    provided from operating activities:
    Depreciation ..........................................      80,489       74,804       76,957
    Amortization of capitalized software development costs       19,130       17,545       21,448
    Amortization of deferred compensation .................       3,866        4,265        5,329
    Increase (decrease) in other liabilities ..............      (8,263)        (656)       1,453
    Writedown of net book value of property, plant, and
      equipment ...........................................      15,633        9,626       15,233
    Other non-cash items, net .............................        (299)       7,232        7,061
    Changes in  operating  assets and  liabilities,  net of
      effects from sale of facilities and other assets:
      (Increase) decrease in receivables ..................      (9,268)      11,267       31,757
      Increase in inventories .............................      (5,826)      (5,743)     (15,735)
      Decrease in other current assets ....................       2,080        3,761        3,727
      Increase in accounts payable ........................       6,627       23,897        3,837
      Increase (decrease) in other current liabilities,
        excluding debt ....................................     (27,191)      17,810       10,753
                                                              ---------    ---------    ---------

    Net cash provided from operating activities ...........     105,123      117,105       74,127
                                                              ---------    ---------    ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Expenditures for property, plant, and equipment .........     (94,670)     (96,471)     (92,955)
  Purchase of marketable securities .......................     (84,224)    (240,507)     (90,788)
  Proceeds from sales and maturity of marketable securities     150,080      216,755      115,318
  Capitalized software development costs ..................     (30,714)     (27,493)     (17,582)
  Net proceeds from sale of facilities and other assets ...      12,797         --         28,314
  Investment in equity securities .........................      (2,000)        (600)      (2,000)
                                                              ---------    ---------    ---------

    Net cash used by investing activities .................     (48,731)    (148,316)     (59,693)
                                                              ---------    ---------    ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Cash provided from stock plans, net .....................       9,684        7,740        6,901
  Repayment of notes payable ..............................        --           (607)        --
  Repayment of long-term debt .............................      (3,000)      (3,500)      (2,034)
                                                              ---------    ---------    ---------

    Net cash provided from financing activities ...........       6,684        3,633        4,867
                                                              ---------    ---------    ---------

Effect of foreign currency rate fluctuations on cash and
  temporary cash investments ..............................      (1,280)       2,331        3,587
                                                              ---------    ---------    ---------

Increase (decrease) in cash and temporary cash
  investments .............................................      61,796      (25,247)      22,888
Cash and temporary cash investments -- beginning
  of the period ...........................................     117,201      142,448      119,560
                                                              ---------    ---------    ---------
Cash and temporary cash investments -- end
  of the period ...........................................   $ 178,997    $ 117,201    $ 142,448
                                                              =========    =========    =========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
    Interest paid .........................................   $  12,797    $  12,762    $  13,422
    Income taxes paid .....................................   $   1,716    $   1,696    $   3,444

<FN>

Results of operations  are for 52-week  periods  except for 1995 which is a
53-week period. The accompanying Notes to Consolidated  Financial Statements are
an integral part of these financial statements.
</FN>
</TABLE>


<PAGE>


<TABLE>

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
DATA GENERAL CORPORATION
<CAPTION>


                                                            YEAR ENDED
                                      ------------------------------------------
                                            SEPT. 28,     SEPT. 30,    SEPT. 24,
IN THOUSANDS                                  1996           1995        1994
--------------------------------------------------------------------------------

<S>                                         <C>          <C>          <C>
COMMON STOCK:
   Beginning balance .....................  $ 446,762    $ 434,757    $ 422,589
   Shares issued under stock plans, net ..      9,684        7,740        6,839
   Amortization of deferred compensation .      3,866        4,265        5,329
                                            ---------    ---------    ---------

   Ending balance ........................    460,312      446,762      434,757
                                            ---------    ---------    ---------

ACCUMULATED DEFICIT:

   Beginning balance .....................   (163,626)    (116,923)     (29,230)
   Net income (loss) for year ............     28,145      (46,703)     (87,693)
                                            ---------    ---------    ---------

   Ending balance ........................   (135,481)    (163,626)    (116,923)
                                            ---------    ---------    ---------

UNREALIZED GAINS ON MARKETABLE SECURITIES:

   Beginning balance .....................       --           --           --
   Net adjustment for year ...............      9,708         --           --
                                            ---------    ---------    ---------

   Ending balance ........................      9,708         --           --
                                            ---------    ---------    ---------

CUMULATIVE TRANSLATION ADJUSTMENT:

   Beginning balance .....................     (3,592)      (9,222)     (16,282)
   Net translation adjustment for year ...     (1,883)       5,630        7,060
                                            ---------    ---------    ---------

   Ending balance ........................     (5,475)      (3,592)      (9,222)
                                            ---------    ---------    ---------

Total stockholders' equity ...............  $ 329,064    $ 279,544    $ 308,612
                                            =========    =========    =========

<FN>

Results of operations  are for 52-week  periods  except for 1995 which is a
53-week period. The accompanying Notes to Consolidated  Financial Statements are
an integral part of these financial statements.
</FN>
</TABLE>
 

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DATA GENERAL CORPORATION

NOTE 1.  NATURE OF BUSINESS

Data  General  Corporation  (the  "company")  designs,  manufactures,  sells and
supports a broad range of multi-user computer systems, servers, and mass storage
devices. The company's range of products and services includes database servers;
communications  and  networking  servers;  workstations,  desktop  and  portable
systems; mass storage devices; more than 15,000 application solutions offered in
conjunction with various  third-party firms; and a worldwide service and support
network. The principal markets are the United States and Europe.



NOTE 2.  ACCOUNTING POLICIES

FISCAL YEAR.  The company's  fiscal year ends on the last Saturday in September.
Fiscal year 1996 consisted of 52 weeks.  Fiscal years 1995 and 1994 consisted of
53 and 52 weeks, respectively.

PRINCIPLES OF CONSOLIDATION.  The consolidated  financial statements include the
accounts of Data General Corporation and its domestic and foreign  subsidiaries.
All significant intercompany transactions have been eliminated.

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 reported  amounts of revenues and expenses  during the reporting
period. Actual results could differ from those estimates.

FOREIGN  CURRENCY  TRANSACTIONS.  The  functional  currencies  for the company's
operations in Australia,  Canada,  Europe,  Japan, and New Zealand are the local
currencies.  Assets and liabilities of these operations are translated into U.S.
dollars  at  exchange  rates in effect at the  balance  sheet  date.  Income and
expense  items  are  translated  at  average  exchange  rates  for  the  period.
Translation  adjustments are reported as a separate  component of  stockholders'
equity.

For the company's other foreign operations, the U.S. dollar is the
functional  currency.  Assets and liabilities of these operations are remeasured
into U.S. dollars at exchange rates in effect at the balance sheet date,  except
for  inventories  and property,  plant,  and equipment,  which are remeasured at
historical  exchange  rates.  Income and expense items are remeasured at average
rates  for the  period,  except  for cost of sales and  depreciation,  which are
remeasured  at  historical  exchange  rates.  Gains and  losses  resulting  from
remeasurement,   not  material  in  amount,  are  included  in  the  results  of
operations.

The company enters into foreign  exchange  contracts as a hedge against exposure
to  fluctuations  in  exchange  rates   associated  with  certain   transactions
denominated in foreign currencies, principally intercompany accounts receivable.
Market  value  gains or losses on these  contracts  are  included in the cost of
product  revenues and generally  offset  exchange gains or losses on the related
transactions.  In fiscal  1995,  the  company  adopted  Statement  of  Financial
Accounting  Standards  ("SFAS") 119,  "Disclosures  about  Derivative  Financial
Instruments  and Fair Value of  Financial  Instruments"  that  requires  certain
additional  disclosure regarding the amounts,  nature,  terms, purpose, and fair
values of the company's derivative financial instruments.

Foreign exchange  transaction  gains and losses,  not material in amount for the
periods ended September 28, 1996, September 30, 1995 and September 24, 1994, are
included in the cost of product revenues.

Cash flows from foreign  exchange  contracts that are accounted for as hedges of
identifiable  foreign  exchange  transactions  are classified as cash flows from
operating  activities in accordance  with the nature of the  transactions  being
hedged.

TEMPORARY  CASH   INVESTMENTS   AND  MARKETABLE   SECURITIES  .  Temporary  cash
investments  consist of highly  liquid time deposits and  commercial  paper with
original  maturities of 90 days or less.  Marketable  securities consist of U.S.
Treasury bills and notes with original  maturities of 91 to 360 days, as well as
an equity security.

In  fiscal  1995,  the  company  adopted  SFAS  115,   "Accounting  for  Certain
Investments in Debt and Equity  Securities".  SFAS 115 addresses  accounting and
reporting  for  investments  in certain debt and equity  securities.  Under this
standard, the company is required to classify its marketable securities into one
or  more   of  the   following   categories:   held-to-maturity,   trading,   or
available-for-sale.

All of  the  company's  investments  in  U.S.  Treasury  bills  and  notes  have
maturities of less than one year, and have been classified as  held-to-maturity.
These  investments are recorded at amortized  cost,  which  approximates  market
value.  In March 1996,  an equity  security held by the company as an investment
and  previously  accounted for under the cost method,  began trading on a public
stock  exchange.  In accordance with SFAS 115, this security is considered to be
readily marketable and is classified as  available-for-sale.  This investment is
accounted  for at fair market value at September  28, 1996 which  totaled  $10.9
million.  The  unrealized  gain on  marketable  securities  of $9.7  million  is
recorded as a separate component of stockholders' equity at September 28, 1996.

INVENTORIES.  Inventories  are  stated at the lower of cost or  market.  Cost is
determined using the first-in,  first-out method.  Inventories consist primarily
of components  and  subassemblies  and finished  products  held for sale.  Rapid
technological change and new product introductions and enhancements could result
in excess or obsolete  inventory.  To minimize this risk, the company  evaluates
inventory levels and expected usage on a periodic basis and records  adjustments
as required.

In a few  instances,  the  company is  dependent  upon  certain  vendors for the
manufacture of significant components of its server and mass storage systems. If
these  vendors  were to become  unwilling  or unable to continue to  manufacture
these  products in required  volumes,  the  company  would have to identify  and
qualify  acceptable  alternative  vendors.  The  inability to develop  alternate
sources,  if required in the future,  could  result in delays or  reductions  in
product shipments.  With respect to sole-sourced materials,  the company has not
experienced any problems  relative to the timeliness of product  availability or
quality  matters.  To protect  against such problems,  however,  the company has
generally implemented special inventory plans for these components.  These plans
are designed to ensure that,  if the  sole-sourced  supplier were unable to meet
the company's  requirements,  there would be sufficient  inventory  available to
cover the time  required to  re-engineer  the product or develop an  alternative
source of supply.

<PAGE>

PROPERTY,  PLANT,  AND EQUIPMENT.  Property,  plant,  and equipment is stated at
cost,  less  accumulated  depreciation.   Depreciation  is  computed  using  the
straight-line  method,  based on the  following  estimated  useful  lives:  land
improvements,  10-12 years;  buildings  and building  improvements,  3-25 years;
equipment,  3-10 years. Included in property,  plant, and equipment are computer
equipment  spares which are not available  for resale.  These spares are used to
support  systems  the  company  has  sold or is  using  internally.  Spares  are
depreciated over a 3 year estimated useful life.

REVENUE RECOGNITION AND MAJOR CUSTOMERS.  Product revenues are recognized at the
time of shipment.  Service  revenues,  including post contract customer support,
are recognized  ratably over applicable  contractual  periods or as services are
performed.  The costs of these  service  revenues  are  charged to expense  when
incurred.

During  the year  ended  September  28,  1996,  revenues  from an Open  CLARiiON
customer  totaled $201 million,  or  approximately  15% of total  revenues.  The
company did not have any customers with revenues  exceeding 10% of the company's
total revenues during fiscal 1995 and 1994.

RESEARCH & DEVELOPMENT,  SOFTWARE  DEVELOPMENT,  AND WARRANTY  COSTS.  Research,
engineering,  and product  development costs are expensed as incurred.  Software
development  costs  incurred  after  reaching   technological   feasibility  are
capitalized  and  amortized  to cost of  product  revenues  over a period not to
exceed  4 years  for  operating  system  software  and 3 years  for  application
software,  which  approximates  the estimated  economic  lives of these software
products.  On a quarterly basis,  the company  evaluates the  recoverability  of
capitalized software costs. In performing its evaluation,  the company must make
estimates of anticipated future gross revenues as well as the remaining economic
lives of the  product.  It is  reasonably  possible  that the  estimates  of the
remaining  estimated economic life of these software products may be reduced. As
a result, the carrying amount of the capitalized software costs for a particular
software product may be reduced.  Unamortized  software  development  costs were
$60.7  million at September  28, 1996 and $49.1  million at September  30, 1995.
Writeoffs   of  certain   capitalized   software   development   costs   totaled
approximately $2.7 million, $1.3 million and $2.7 million for fiscal years 1996,
1995 and 1994,  respectively.  Estimated direct on-line  diagnostic  support and
warranty costs are accrued at the time of product shipment.

ADVERTISING.  Advertising  costs are charged to operations  when  incurred.  The
company has not incurred any costs associated with  direct-response  advertising
during  fiscal  years  1996,  1995  and  1994,  and  there  were no  capitalized
advertising  costs at September  28, 1996,  September 30, 1995 and September 24,
1994.  Advertising  expenses for fiscal 1996, 1995, and 1994 were $12.6 million,
$21.0 million, and $18.1 million, respectively.

RETIREMENT/POST-EMPLOYMENT BENEFITS. Net pension cost for the company's domestic
defined  benefit  pension plan is funded as accrued,  to the extent that current
pension cost is deductible  for U.S.  Federal tax purposes and complied with the
General Agreement on Tariff and Trade Bureau (GATT)  additional  minimum funding
requirements for the plan year beginning  October 1, 1995. The plan's transition
surplus  is  amortized  over 19  years.  Net  pension  cost  for  the  company's
international  defined benefit pension plans is generally funded as accrued. The
net  transition  surplus or obligation for these plans is amortized over periods
ranging from 15 to 20 years.

Net  postretirement  benefit  costs for the  company's  domestic  postretirement
benefits plan are generally  funded as accrued,  to the extent that current cost
is deductible for U.S. Federal tax purposes.  The net transition  obligation for
the plan is amortized over 19 years.


INCOME TAXES.  In fiscal 1994,  the company  adopted SFAS 109,  "Accounting  for
Income  Taxes".  SFAS 109 is an asset and  liability  approach that requires the
recognition of deferred tax assets and  liabilities  for the expected future tax
consequences  of events that have been  recognized  in the  company's  financial
statements or tax returns. Deferred tax expense represents the change in the net
deferred tax asset or liability balance.  In estimating future tax consequences,
SFAS 109 generally considers all expected future events other than enactments of
changes in the tax law or rates.

EARNINGS  PER  SHARE.  Primary  net  income  (loss)  per share is based upon the
weighted average number of common shares outstanding,  including dilutive common
stock equivalents.  Common stock equivalents represent the net additional shares
resulting from the assumed exercise of options  outstanding  under the company's
stock option plans,  using the "treasury  stock"  method.  Net income (loss) per
share assuming full dilution is based upon the weighted average number of common
shares  outstanding,  including  dilutive  common stock  equivalents and assumed
conversion  of the  company's 7 3/4%  Convertible  Subordinated  Debentures,  if
dilutive. For fiscal 1996, 1995 and 1994, these debentures are anti-dilutive and
have been excluded from the calculation.

OTHER RECENT  PRONOUNCEMENTS.  In March 1995, the Financial Accounting Standards
Board  ("FASB")  issued SFAS 121,  "Accounting  for the Impairment of Long-Lived
Assets and for  Long-Lived  Assets to Be  Disposed  Of". In October  1995,  FASB
issued SFAS 123, "Accounting for Stock-Based  Compensation".  In June 1996, FASB
issued SFAS 125,  "Accounting for Transfer and Servicing of Financial Assets and
Extinguishments  of Liabilities".  The company will implement SFAS 123 using the
proforma  disclosure  method described in the pronouncement in fiscal 1997. SFAS
121 and 123 are effective for fiscal years  beginning  after  December 15, 1995.
SFAS 125 is effective  for  transfers  and  servicing  of  financial  assets and
extinguishments  of liabilities  occurring  after December 31, 1996. The company
will implement these statements as required. The future adoption of SFAS 121 and
125 is not  expected  to have a material  effect on the  company's  consolidated
financial position or results of operations.


<PAGE>

NOTE 3.  RESTRUCTURING


During fiscal years 1995 and 1994, the company recorded restructuring provisions
of $43 million and $35 million,  respectively.  The amounts  accrued and charged
against the established provisions were as follows:
<TABLE>

<CAPTION>


                                                                        CURRENT         CURRENT
                                                        BEGINNING       YEAR            YEAR           ENDING
IN MILLIONS                                             BALANCE         PROVISION       CHARGES        BALANCE
--------------------------------------------------------------------------------------------------------------

<S>                                                    <C>             <C>             <C>              <C>
FISCAL 1996 ACTIVITY
Provision related to terminated employees ...........  $  12.4         $   --          $  (9.9)         $   2.5
Provisions for leases ...............................     17.4             --             (7.4)            10.0
Writedown of assets to be sold or discarded and
other ...............................................      7.1             --             (5.1)             2.0
                                                       -------         -------         --------         -------
   Total ............................................  $  36.9         $   --          $ (22.4)         $  14.5
                                                       -------         -------         --------         -------

FISCAL 1995 ACTIVITY
Provision related to terminated employees ...........  $  19.7         $  23.0         $ (30.3)         $  12.4
Provisions for leases ...............................     14.0            12.9            (9.5)            17.4
Writedown of assets to be sold or discarded and
other ...............................................      3.0             7.1            (3.0)             7.1
                                                       -------         -------         --------         -------
   Total ............................................  $  36.7         $  43.0         $ (42.8)         $  36.9
                                                       -------         -------         --------         -------
</TABLE>


The  1995  restructuring  charge  included  provisions  for the  termination  of
approximately  520 employees as part of the company's  continuing cost reduction
programs and  realignment  of the company's  various sales,  manufacturing,  and
administrative  operations.  The fiscal 1995  provision for leases was primarily
for costs  associated with vacated leased  properties,  mainly in Western Europe
and  Australia,  as  a  result  of  the  company's  ongoing  centralization  and
downsizing of its international  operations.  At September 28, 1996, the company
substantially   completed  the  employee   terminations   related  to  the  1995
restructuring  charges. The remaining reserves at September 28, 1996 are for the
remaining  severance  payments  due to employees  impacted by the  restructuring
actions.  The charges and remaining reserves for leases are for various domestic
branch sales offices and excess vacant rental  properties,  primarily located in
Europe.

The  1994  restructuring  charge  included  provisions  for the  termination  of
approximately  570  employees  as  part  of the  realignment  of  the  company's
worldwide  sales and service  organizations.  At September 28, 1996, the company
substantially   completed  the  employee   terminations   related  to  the  1994
restructuring  charges.  The 1994 provision for leases relates  primarily to the
closure of various  domestic branch sales offices and excess vacant  properties,
located  primarily  in the United  Kingdom.  The  writedown  of fixed assets was
primarily  associated  with  consolidating  certain  activities  in the European
marketplace.  The fiscal 1993 restructuring actions were substantially concluded
prior to fiscal 1995. All charges,  excluding asset writedowns,  are principally
cash in nature.  There have been no material changes in the company's previously
announced restructuring actions or the estimates accrued at September 28, 1996.



NOTE 4.  CONSOLIDATED BALANCE SHEET DETAILS

<TABLE>
<CAPTION>

                                                         SEPT. 28,     SEPT. 30,
IN THOUSANDS                                               1996          1995
--------------------------------------------------------------------------------
<S>                                                    <C>            <C>
INVENTORIES:
Raw materials ....................................     $   4,560      $   9,173
Work in process ..................................        50,769         28,309
Finished systems .................................        43,710         51,199
Field engineering parts and components ...........        30,744         35,464
                                                       ---------      ---------
     Total inventories ...........................     $ 129,783      $ 124,145
                                                       ---------      ---------

PROPERTY, PLANT AND EQUIPMENT:
Land .............................................     $   2,997      $   3,433
Buildings and improvements .......................        78,493         84,416
Manufacturing and design equipment ...............        91,180         95,005
Data processing, office, and other equipment .....       374,962        356,563
Computer equipment spares ........................        91,340         95,583
                                                       ---------      ---------
     Total property, plant and equipment .........       638,972        635,000
Accumulated depreciation .........................      (471,300)      (460,086)
                                                       ---------      ---------
     Total property, plant and equipment, net ....     $ 167,672      $ 174,914
                                                       ---------      ---------

OTHER CURRENT LIABILITIES
Accrued employee compensation and benefits .......     $  77,223      $  68,247
Deferred revenues ................................        44,621         43,185
Accrued restructuring charges ....................        14,543         36,863
Other accrued expenses ...........................       104,309        102,165
Current portion of long-term debt ................         1,920          1,420
                                                       ---------      ---------
     Total other current liabilities .............     $ 242,616      $ 251,880
                                                       ---------      ---------
</TABLE>


During the current fiscal year,  the company sold two of the facilities  that it
had previously closed as a result of cost reduction  programs.  The company sold
its  Milford,  Massachusetts,  and  the  remaining  portion  of  its  Woodstock,
Connecticut   facilities   for   proceeds  of  $6.3  million  and  $.5  million,
respectively.

During the current fiscal year, the company retired fully  depreciated  computer
equipment spares with an original cost of $16.0 million.



NOTE 5.  NOTES PAYABLE

Notes  payable at  September  28,  1996 and  September  30,  1995  consisted  of
borrowings  by Data  General  France SAS of $2.0  million.  The  borrowings  are
unsecured, and involve no commitment fees or compensating balances. The interest
rate on the borrowings is .5% per annum above the Paris  Interbank  Offered Rate
(PIBOR),  and was 4.4% and 6.9% at September  28, 1996 and  September  30, 1995,
respectively.  The weighted average interest rate on outstanding  funds was 5.5%
and 7.1%  during the years ended  September  28, 1996 and  September  30,  1995,
respectively.  The weighted  average interest rate during the period is based on
borrowings  outstanding  at the  end of  each  of the  company's  twelve  fiscal
periods.

<PAGE>
At September 28, 1996, the company has a $30 million  unsecured letter of credit
and reimbursement facility with a group of banks. This agreement is available to
secure issuance of letters of credit.  The facility contains certain  covenants,
including  restrictions on the sale or pledge of certain assets, the declaration
of dividends and the  incurrence of other debt. The interest rate for borrowings
under the current letter of credit facility is 2.0% per annum above a base rate.
The base  rate is equal  to the  greater  of  prime  rate or the  Federal  Funds
Effective Rate plus .5%.  Commitment  fees paid on available funds during fiscal
year 1996 and 1995 were not  material.  There  were $8.0  million  of letters of
credit  secured by this  facility at September  28, 1996. At September 30, 1995,
there were $8.3  million of letters of credit  secured by this  letter of credit
facility.  The  current  facility  has a  duration  of 364 days and  expires  on
December  18,  1996.  The company is  currently  in the  process of  negotiating
amendments to this letter of credit  facility  which would extend its expiration
date to December 17, 1997.



NOTE 6.  INCOME TAXES

Domestic and foreign  income (loss) before taxes,  and details of the income tax
provision (benefit) are as follows:
<TABLE>
<CAPTION>

                                              YEAR ENDED
                         -----------------------------------------------
                                  SEPT. 28,    SEPT. 30,  SEPT. 24,   
IN THOUSANDS                         1996        1995       1994
------------------------------------------------------------------------
<S>                               <C>         <C>         <C>      
INCOME (LOSS) BEFORE TAXES
     Domestic .................   $ 32,200    $(13,336)   $(54,201)
     Foreign ..................       (555)    (24,762)    (31,392)
                                  --------    --------    --------
                                  $ 31,645    $(38,098)   $(85,593)
                                  --------    --------    --------

INCOME TAX PROVISION (BENEFIT):
Current:
     Federal ..................   $    650    $  1,000    $     --
     Foreign ..................      1,076       1,175       1,896
     State ....................        800       2,000         700
                                  --------    --------    --------
          Total Current .......      2,526       4,175       2,596
                                  --------    --------    --------
Deferred:
     Federal ..................      1,350       2,500          --
     Foreign ..................       (376)      1,930        (496)
                                  --------    --------    --------
          Total Deferred ......        974       4,430        (496)
                                  --------    --------    --------
                                  $  3,500    $  8,605    $  2,100
                                  --------    --------    --------
</TABLE>

Deferred  income taxes reflect the tax impact of temporary  differences  between
the amount of assets and liabilities for financial  reporting  purposes and such
amounts as measured  by tax laws and  regulations.  Under SFAS 109,  the benefit
associated with future deductible  temporary  differences is recognized if it is
more likely  than not that a benefit  will be  realized.  Based on the weight of
available evidence,  the company has recorded a valuation allowance that offsets
substantially  all net deferred  tax assets as of the end of each related  year.
The amount of the deferred tax asset considered  realizable is subject to change
based on estimates of future taxable income during the carryforward  period. The
company will assess the need for the  valuation  allowance at each balance sheet
date based on all available evidence.  Principal  components of the deferred tax
assets and  liabilities  included on the balance sheet at September 28, 1996 and
September 30, 1995 were as follows:

<TABLE>
<CAPTION>

                                                           YEAR ENDED        
                                                   ------------------------
                                                     SEPT. 28,    SEPT. 30,
IN THOUSANDS                                            1996         1995
---------------------------------------------------------------------------
<S>                                                 <C>          <C>      
DEFERRED TAX ASSETS
Inventory .......................................   $   9,040    $   8,428
Operating expenses ..............................      58,563       44,922
Intercompany profit in inventory and fixed assets       5,693        6,666
Depreciation ....................................       4,597        8,922
Restructuring ...................................       5,817       15,129
Stock option plans ..............................       5,527        5,425
Interest on convertible debentures ..............       1,292        1,292
Net operating losses ............................     122,684      119,579
Tax credits .....................................      11,796        9,765
                                                    ---------    ---------
     Gross deferred tax assets ..................     225,009      220,128
Less: Valuation allowances ......................     204,017      201,255
                                                    ---------    ---------
     Total deferred tax assets ..................      20,992       18,873
                                                    ---------    ---------

DEFERRED TAX LIABILITIES
Capitalized software development costs ..........     (24,280)     (18,437)
Other ...........................................      (1,854)      (4,604)
                                                    ---------    ---------
     Total deferred tax liabilities .............     (26,134)     (23,041)
                                                    ---------    ---------
     Net deferred tax liabilities ...............   $  (5,142)   $  (4,168)
                                                    ---------    ---------
</TABLE>



Reconciliation of the U.S. Federal statutory rate to the company's effective tax
rate is as follows:

<TABLE>
<CAPTION>

                                                   YEAR ENDED
                                        ------------------------------------
                                          SEPT. 28, SEPT. 30, SEPT. 24,
                                              1996     1995      1994  
----------------------------------------------------------------------------
<S>                                           <C>     <C>      <C>    
U.S. Federal statutory rate .............     35.0%   (35.0)%  (35.0)%
State income taxes ......................      2.5      5.2       .8
Net domestic and foreign
     losses without tax benefits ........     15.9     51.0     38.2
Net operating loss carryforwards utilized    (43.0)    (5.7)    (2.2)
Foreign income taxed at different rates .     (1.5)     4.4      0.1
Alternative minimum tax .................      2.1      2.6       --
Other ...................................      0.1      0.1      0.6
                                              ----     ----     ----
Effective tax rate ......................     11.1%    22.6%     2.5%
                                              ----     ----     ----
</TABLE>

<PAGE>

The  company  has U.S.  Federal  and foreign  operating  loss  carryforwards  of
approximately  $332 million and tax credit  carryforwards of  approximately  $12
million. The operating loss carryforwards expire in the years 1997 through 2010.
The tax credit carryforwards expire in the years 2000 through 2004.

Provision  has  not  been  made  for  U.S.  or   additional   foreign  taxes  on
approximately $82 million of undistributed earnings of foreign subsidiaries,  as
those earnings are considered to be permanently reinvested.  Such earnings would
become  taxable upon the sale or liquidation  of these foreign  subsidiaries  or
upon the remittance of dividends.  It is not  practicable to estimate the amount
of the deferred tax liability on such earnings. Upon remittance, certain foreign
countries impose  withholding taxes that are then available,  subject to certain
limitations,  for use as credits  against the company's U.S. tax  liability,  if
any. The amount of withholding  tax that would be payable upon remittance of the
entire amount of undistributed earnings would approximate $.9 million.



NOTE 7.  LONG-TERM DEBT

<TABLE>
<CAPTION>


                                                      SEPT. 28,     SEPT. 30, 
IN THOUSANDS                                             1996         1995
-----------------------------------------------------------------------------
<S>                                                   <C>          <C>      
7 3/4% Convertible Subordinated Debentures due 2001   $ 125,000    $ 125,000
8 3/8% Sinking Fund Debentures due 2002 ...........      26,891       29,877
                                                      ---------    ---------
                                                        151,891      154,877
Less: current portion .............................      (1,920)      (1,420)
                                                      ---------    ---------
                                                      $ 149,971    $ 153,457
                                                      ---------    ---------

</TABLE>

                                                                                
Maturities and sinking fund  requirements  for the next five fiscal years are as
follows: 1997 -- $1,920; 1998 -- $3,500; 1999 -- $3,500; 2000 -- $3,500; 2001 --
$128,500.

The 7 3/4% Convertible  Subordinated Debentures are convertible at the option of
the holder, at any time prior to redemption or repurchase, into shares of Common
Stock of the  company at a  conversion  price of $19.20  per  share,  subject to
adjustment for certain  events.  The debentures are  subordinated  to all Senior
Indebtedness  (as  defined in the  indenture  under  which the  debentures  were
issued).  At the option of the company,  the  debentures  may be redeemed at any
time after June 1, 1994 at decreasing  redemption prices, and may be redeemed at
the option of the  holder if there is a  Fundamental  Change (as  defined in the
indenture)  in the  company's  operations.  The  indenture  does not contain any
financial  covenants  or any  restrictions  on the payment of  dividends  or the
repurchase  of  the  company's  securities.  Deferred  debt  issuance  costs  at
September 28, 1996 of $1.9 million are being amortized to interest  expense over
the life of the debentures.

The 8 3/8%  Sinking  Fund  Debentures  are  subject to  mandatory  sinking  fund
payments which provide for annual principal  retirements of $3.5 million through
2001.  The company has the option,  under  certain  conditions,  to increase the
sinking fund  payments or to redeem the  debentures  prior to maturity.  Through
fiscal 1996, the company reacquired a total of $33.1 million principal amount of
debentures. Of all acquired debentures,  $31.5 million principal amount was used
to  satisfy  sinking  fund  requirements  through  fiscal  1996.  Subsequent  to
September 28, 1996, the company  reacquired an additional $3.9 million principal
amount of the debentures.  The remainder of all acquired  debentures may be used
to satisfy  future  sinking fund  requirements.  The  debentures  are subject to
covenants  which include  certain  limitations  on the  incurrence of additional
debt, and the payment of dividends.



NOTE 8.  FINANCIAL INSTRUMENTS, COMMITMENTS AND CONTINGENCIES

FINANCIAL  INSTRUMENTS.  The company  enters  into  various  types of  financial
instruments in the normal course of business.  Fair values for certain financial
instruments are based on quoted market prices. For other financial  instruments,
fair values are estimated based on assumptions  concerning the amount and timing
of estimated  future cash flows and assumed  discount rates  reflecting  varying
degrees of perceived risk. Accordingly, the fair values may not represent actual
values of the financial instruments that could have been realized as of year end
or that will be realized in the future.

Fair values for cash and temporary cash investments, marketable debt securities,
accounts  receivable,  notes payable,  accounts  payable,  and accrued  expenses
approximate  carrying value at September 28, 1996 and September 30, 1995, due to
the relatively  short maturity of these  financial  instruments.  In fiscal year
1996, an equity  security held by the company as an  investment  and  previously
accounted for under the cost method began trading on a public stock exchange and
is classified as  available-for-sale.  The fair value of this marketable  equity
security  at  September  28,  1996  totaled  $10.9  million.  The fair  value of
investments and notes receivable, included in other assets, was $2.2 million and
$4.6 million at September 28, 1996 and September 30, 1995,  respectively,  which
is equal to their  carrying  values in both years.  The fair value of  long-term
debt,  including  debt due within one year,  at September 28, 1996 and September
30,  1995 was $151.1  million  and $142.9  million,  respectively,  compared  to
carrying values of $151.9 million and $154.9 million, respectively.

The company  enters into  various  forward  contracts  to limit its  exposure to
fluctuations  in foreign  currency  exchange rates. As of September 28, 1996, in
connection with the company's foreign exchange hedging programs, the company had
entered into forward  exchange  contracts to purchase  $67.5 million and to sell
$117.4 million in various foreign  currencies.  The company's exposure to credit
risk is  believed to be minimal  since the  counterparties  are major  financial
institutions.  The market risk  exposure is limited to risk  related to currency
rate  movements.  As  substantially  all of these  contracts  were  entered into
shortly  before year end, the fair value of  outstanding  contracts at September
28, 1996, not material in amount, approximates the original value of the forward
contracts.  Between the end of this  fiscal  year and  October 1, 1996,  forward
exchange  contracts to purchase $63 million and to sell $69.7 million in various
foreign currencies matured and were settled.  The remaining  contracts mature at
various dates through January 28, 1997.


<PAGE>

The company's  temporary cash  investments,  marketable  securities and accounts
receivable are subject to potential concentrations of credit risk. The company's
investment  policies limit the amount of investments in a single institution and
restrict  investments  to low-risk,  highly liquid  securities.  Portions of the
company's trade  receivables are concentrated in the U.S.  government and in the
health care industry. Management does not believe that the company is subject to
any  unusual  risk beyond the normal  credit risk  attendant  to  operating  its
business.  Ongoing  credit  evaluations  of customers'  financial  condition are
performed  and  generally,  collateral is not  required.  The company  maintains
reserves for potential credit losses and such losses, in the aggregate, have not
exceeded management's expectations.

In the normal  course of business,  the company  enters into certain  sales-type
lease  arrangements  with  customers.  These leases are generally  sold to third
party financing  institutions.  A portion of these arrangements  contain certain
recourse  provisions  under  which the company  remains  liable.  The  company's
maximum exposure under the recourse  provisions was approximately $13.7 million,
net  of  related   reserves.   A  portion  of  this  contingent   obligation  is
collateralized by security interests in the related equipment. The fair value of
the recourse  obligation at September 28, 1996 was not determinable as no market
exists for these obligations.

LEASE COMMITMENTS.  Lease agreements are primarily for sales and service offices
and the  company's  corporate  headquarters.  The leases expire at various dates
through 2014 and some contain  options for renewal.  Rental  expense,  including
amounts charged against previously established restructuring reserves for vacant
and sublet properties,  was $32.2 million,  $32.3 million, and $32.5 million for
fiscal years 1996, 1995 and 1994, respectively.

Future minimum rental payments under existing non-cancelable operating leases as
of September 28, 1996 are as follows:

FISCAL YEAR               IN  MILLIONS
--------------------------------------
1997 ....................    28.8
1998 ....................    21.4
1999 ....................    16.1
2000 ....................    13.9
2001 ....................    12.2
Subsequent to 2001 ......    44.4
                           ------
                         $  136.8
                           ------

A majority of the leases contain  escalation clauses which provide for increases
in base  rentals to recover  increases  in future  operating  costs.  The future
minimum  rental  payments  shown above  include base  rentals,  exclusive of any
future  escalation.  Approximately $49 million,  prior to amounts expected to be
recovered through  subleases,  of the future minimum rental payments shown above
relate to facilities  which have been closed or are expected to be closed as the
result of the company's  restructuring and cost reduction  program. A portion of
the future rental  obligations for these facilities,  net of amounts expected to
be recovered through existing and future subleases,  has been accrued as part of
the restructuring charges.

LITIGATION.   In  fiscal  1995,  the  company  settled  with  Northrop   Grumman
Corporation its six-year  copyright  infringement  and trade secrets  litigation
against Grumman Support Systems Corporation ("Grumman"). Under the terms of this
settlement,  Grumman paid the company $53 million and the parties have dismissed
all pending  litigation.  The company  recognized a pre-tax gain, net of related
legal fees and other expenses,  of $44.5 million  resulting from the settlement,
which is  included  in other  income,  net,  in the  Consolidated  Statement  of
Operations.

In November 1994, the company commenced an action against IBM Corporation in the
United States  District Court for the District of  Massachusetts,  in Worcester,
Massachusetts  claiming  several IBM  products  including  the AS/400  mid-range
systems and System/390  mainframe line,  infringe various company  patents.  The
suit seeks,  among other relief,  compensatory  damages.  In January  1995,  IBM
answered  the   complaint,   denied  the  company's   infringement   claims  and
counterclaimed  against the  company,  alleging  that the  company's  AViiON and
CLARiiON products infringed various IBM patents. This action is in the discovery
stage.

In May 1996,  the company  commenced  an  additional  action  against IBM in the
United States  District Court for the District of  Massachusetts,  in Worcester,
Massachusetts,  in which the company claims that several IBM products, including
IBM's current  AS/400  RISC-based  computer  product  line,  infringe up to five
company  patents.  (Four of the five  patents  involved  in this action are also
involved in the  proceedings  initiated  by the company  against IBM in November
1994,  described in the previous paragraph.) The suit seeks, among other relief,
injunctive and compensatory damages.

Although  the  company  believes  its claims are valid,  it cannot  predict  the
outcome of the  litigation.  In the opinion of management,  based on preliminary
evaluation of the IBM patents  covered in the  counterclaim,  and subject to the
risks of  litigation,  the  counterclaims  are without  merit,  the company will
prevail thereon and the counterclaims will not have a material adverse impact on
the results of operations or the financial position of the company.

The company and certain of its subsidiaries are involved in various other patent
infringement,  contractual,  and  proprietary  rights  suits.  In the opinion of
management,  the  conclusion  of these  suits will not have a  material  adverse
effect on the financial  position or results of operations and cash flows of the
company and its subsidiaries.


<PAGE>

NOTE 9.  STOCKHOLDERS' EQUITY

The company has 100,000,000  authorized  shares of common stock. As of September
28, 1996,  39,821,000  shares of common stock have been issued, of which 220,000
shares with a cost of $6.5  million are held by the company as treasury  shares.
During fiscal 1996, 1,668,000 additional shares were issued. As of September 30,
1995, 38,153,000 shares of common stock had been issued, of which 220,000 shares
with a cost of $6.5 million were held by the company as treasury shares.

The company has 1,000,000  authorized  shares of $.01 par value preferred stock.
The company's  Board of Directors (the "Board") is authorized to issue shares of
preferred  stock in such series and with such terms and  conditions as the Board
may  determine.  In connection  with the adoption of the  company's  Stockholder
Rights Plan (see below),  400,000 shares of preferred stock have been designated
as Series A Junior  Participating  Preferred Stock. No shares of preferred stock
have been issued as of September 28, 1996.

Under the  Stockholder  Rights Plan adopted in 1986,  as amended,  a dividend of
Stock  Purchase  Rights  (the  "Rights")  was paid.  The  Rights  enable  common
stockholders   to  purchase   from  the  company   shares  of  Series  A  Junior
Participating   Preferred  Stock  under  certain  circumstances   following  the
acquisition of, or attempt to acquire, 20% or more of the company's common stock
or a  determination  that an "adverse  person" has  purchased 15% or more of the
common stock. The Rights also entitle common  stockholders to purchase shares of
the  company's or an  acquirer's  common stock at one-half of market value under
circumstances  which  include  certain  transactions  by  or  with  a  potential
acquirer,  including "adverse persons", and mergers and certain asset sales. The
Rights may be redeemed by the company under certain circumstances.



NOTE 10.  STOCK PLANS

EMPLOYEE  QUALIFIED  STOCK PURCHASE  PLAN.  This plan covers  substantially  all
employees and authorizes the issuance of a maximum of 8,600,000 shares of common
stock upon exercise of nontransferable options granted semiannually. The options
are  exercisable  six months after grant, at the lower of 85% of market value at
the beginning or end of the six-month  period,  through  accumulation of payroll
deductions of up to 10% of each participating employee's regular base pay at the
beginning of each period. During fiscal 1996, options were exercised to purchase
706,000 shares at an average price of $7.89 per share. Unissued shares of common
stock  reserved  for  future  issuance  under this plan were  359,000  shares at
September 28, 1996 and 1,065,000 shares at September 30, 1995.

EMPLOYEE STOCK OPTION PLAN. This plan  authorizes the grant of either  incentive
stock  options  or  non-qualified  stock  options  to key  employees,  including
officers and directors,  to purchase up to 7,000,000 shares of common stock. For
incentive  options,  the purchase price is equal to the fair market value on the
date of grant. For non-qualified options the purchase price is determined by the
Employee  Stock Option Plan  Committee  within  limits as set forth in the plan.
Options granted under the plan generally are immediately exercisable and include
restrictions  against  disposition  of  the  shares  and  a  requirement,   upon
termination of employment, to offer unvested shares for resale to the company at
their original  purchase price.  The periods over which  restrictions  lapse are
determined by the Employee Stock Option Plan Committee. Options may expire up to
ten years after date of grant. During fiscal 1995,  3,000,000  additional shares
of common stock were  authorized for issuance under the plan and the termination
date of the plan was extended to November 2, 2004.  Effective  fiscal 1995,  the
Employee  Stock Option Plan  Committee has  discretion  to designate  options as
transferable.

Additional information concerning activity during fiscal 1996 is as
follows:
<TABLE>
<CAPTION>


                                             SHARES
                                        RESERVED FOR       OPTIONS      AVERAGE
                                       FUTURE GRANTS   OUTSTANDING        PRICE
                                             (000's)       (000's)   PER SHARES
--------------------------------------------------------------------------------
<S>                                           <C>          <C>         <C>     
September 30, 1995 ..................         2,540        3,212       $   6.38
     Options granted ................          (413)         413       $   7.02
     Options exercised ..............            --         (287)      $   4.85
     Option canceled ................           180         (180)      $   6.45
                                              -----        ------         
September 28, 1996 ..................         2,307        3,158       $   6.61
                                              -----        ------       
</TABLE>




RESTRICTED  STOCK OPTION PLAN.  This plan authorizes the grant of options to key
employees,  including officers,  directors,  and consultants,  to purchase up to
11,000,000 shares of the company's common stock. Option prices are determined by
the  Restricted  Stock Option Plan  Committee  within limits as set forth in the
plan.  Options  granted are  immediately  exercisable  and include  restrictions
against  disposition  of the  shares  and a  requirement,  upon  termination  of
employment, to offer unvested shares for resale to the company at their original
purchase price. The periods over which  restrictions lapse are determined by the
Restricted  Stock Option Plan Committee.  Employees may use previously  acquired
shares  of the  company's  common  stock to pay the  exercise  price  of  shares
purchased.


<PAGE>

Additional information concerning activity during fiscal 1996 is as follows:

<TABLE>
<CAPTION>

                                             SHARES
                                        RESERVED FOR      OPTIONS       AVERAGE
                                       FUTURE GRANTS  OUTSTANDING         PRICE
                                             (000's)      (000's)    PER SHARES
--------------------------------------------------------------------------------
<S>                                            <C>          <C>        <C>     
September 30, 1995 ..................           311         2,230      $   4.22
     Options granted ................          (211)          211      $   5.27
     Options exercised ..............            --          (671)     $   4.00
     Option canceled ................           118          (118)     $   4.37
                                                ---         ------        
September 28, 1996 ..................           218         1,652      $   4.49
                                                ---         ------        
</TABLE>



NON-EMPLOYEE  DIRECTOR STOCK OPTION PLAN.  This plan  authorizes the grant of an
option to purchase 4,000 shares of common stock to each non-employee director on
the date of the director's  annual  election(s)  to the Board of Directors.  The
exercise  price of  options  granted is 100% of the  closing  price per share of
common  stock on the date of grant.  An  aggregate  of 150,000  shares of common
stock may be issued under the plan. Options granted are immediately  exercisable
and include restrictions against disposition of the shares.  Should the optionee
cease to serve as a director, except under certain circumstances, any restricted
shares  must be  offered  to the  company  at  their  original  purchase  price.
Restrictions  lapse  cumulatively  to the  extent  of 25% of the  grant  on each
anniversary  of the date of grant.  During  fiscal  1996,  24,000  options  were
granted at an average price of $15.75 per share. At September 28, 1996,  options
to  purchase  64,000  shares  at an  average  price of  $11.17  per  share  were
outstanding and 86,000 shares were reserved for future grants.

NON-EMPLOYEE  DIRECTOR  RESTRICTED  STOCK OPTION PLAN.  This plan authorized the
grant of an option to purchase 4,000 shares of common stock to each non-employee
director upon his initial election to the Board of Directors. The exercise price
of  options  granted  is the lesser of 50% of the book value per share of common
stock at the end of the fiscal  year  preceding  the date of grant or 25% of the
fair market value per share on the date of grant.  An aggregate of 32,000 shares
of common stock may be issued under the plan.  Options  granted are  immediately
exercisable and include restrictions  against disposition of the shares.  Should
the optionee cease to serve as a director,  except under certain  circumstances,
any restricted  shares must be offered to the company at their original purchase
price. Restrictions lapse cumulatively to the extent of 25% of the grant on each
anniversary of the date of grant.  During fiscal 1996, options were exercised to
purchase 4,000 shares at an average price of $10.50 per share.  At September 28,
1996,  options to purchase  10,000 shares at an average  purchase price of $2.66
per  share  were  outstanding.  This  plan  terminated  on  December  31,  1994.
Outstanding options can be exercised until their expiration date. No new options
can be issued.

In connection with the Restricted Stock Option Plan, the  Non-Employee  Director
Restricted  Stock  Option  Plan,  and  non-qualified  options  issued  under the
Employee  Stock  Option  Plan,  the  aggregate  excess of fair market value over
option  price on the dates of grant is treated as  deferred  compensation.  Such
deferred   compensation   is  amortized  to  expense  over  the  period  of  the
restrictions and is credited to additional paid-in capital.



NOTE 11. BENEFIT PLANS The company has a noncontributory defined benefit pension
plan which  covers  substantially  all U.S.  employees.  The company  also has a
supplemental  retirement  benefit  plan,  which covers  certain U.S.  employees.
Benefits  under  the  plans  are  based on an  employee's  regular  base pay and
creditable years of service,  as defined in the plans.  Certain of the company's
foreign  subsidiaries  also have retirement plans covering  substantially all of
their employees. Benefits under these plans are generally based on either career
average or final average salaries and creditable years of service, as defined in
the plans.  The annual cost for these plans is  determined  using the  projected
unit  credit  actuarial  cost  method  which  includes   significant   actuarial
assumptions  and estimates  which are subject to change in the near term.  Prior
service cost is amortized over the average remaining service period of employees
expected to receive benefits under the plan. Funds  contributed to the plans are
invested  primarily in common stocks,  mutual funds,  global bond funds and cash
equivalent securities.

The components of net pension expense are as follows:

<TABLE>
<CAPTION>

                                                          YEAR ENDED
                                              ----------------------------------
                                               SEPT. 28,   SEPT. 30,   SEPT. 24, 
IN THOUSANDS                                      1996        1995        1994
--------------------------------------------------------------------------------
<S>                                            <C>         <C>         <C>     
Service cost ...............................   $  7,468    $  7,806    $  8,608
Interest on projected benefit obligation ...     12,736      11,504      10,506
Actual return on plan assets ...............    (14,362)    (17,460)     (3,286)
Deferral of net actuarial gains (losses) and
     amortization of transition surplus and
     prior service cost ....................      2,283       7,850      (6,083)
Curtailment loss, net of settlement gain ...        (50)        817         533
                                               --------    --------    --------
Net pension expense ........................   $  8,075    $ 10,517    $ 10,278
                                               --------    --------    --------
</TABLE>




The funded status of the plans is as follows:

<TABLE>
<CAPTION>

                                                                    SEPT. 28,     SEPT. 30,
IN THOUSANDS                                                           1996         1995
-------------------------------------------------------------------------------------------
<S>                                                                 <C>           <C>      
ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS:
     Vested benefit obligation ..................................   $ 150,779     $ 134,251
                                                                    ---------     ---------
     Accumulated benefit obligation .............................   $ 158,683     $ 141,950
                                                                    ---------     ---------
     Projected benefit obligation ...............................   $ 178,353     $ 157,666
Market value of plan assets .....................................     150,096       125,257
                                                                    ---------     ---------
Excess of projected benefit obligation over plan assets .........      28,257        32,409
Unrecognized actuarial gain .....................................       5,871         7,769
Unrecognized prior service cost .................................     (17,995)      (18,166)
Unrecognized transition surplus, net ............................       7,062         7,893
                                                                    ---------     ---------
Net pension liability included in current and other liabilities .   $  23,195     $  29,905
                                                                    ---------     ---------

ASSUMPTIONS USED IN COMPUTING THE FUNDED
STATUS OF THE PLANS:
     Weighted average discount rate .............................        8.00%         8.00%
     Expected long-term weighted average rate of return of assets        9.65%         9.57%
     Weighted average rate of increase in compensation levels ...        4.31%         4.34%

</TABLE>

<PAGE>

As a  result  of the  company's  restructuring  and cost  containment  programs,
pension  curtailment  losses of $.9 million and $.7 million were  recognized  in
fiscal 1995 and 1994,  respectively.  These amounts were previously  reserved as
part of the fiscal 1994 and 1993 restructuring charges.

The company also has foreign defined  contribution  pension plans. Total pension
cost charged to expense for these plans was $1.6  million in fiscal  1996,  $1.7
million in fiscal 1995, and $1.5 million in fiscal 1994.

The  company's  postretirement  benefit plan provides  certain  medical and life
insurance  benefits for retired  employees.  Substantially all U.S. employees of
the company may become eligible for these benefits if they remain employed until
normal retirement age and fulfill other eligibility requirements as specified by
the plan. With the exception of certain  participants who retired prior to 1986,
the medical benefit plan requires monthly  contributions by retired participants
in amounts equal to insured  equivalent costs less a fixed company  contribution
which  is  dependent  on  the  participant's  length  of  service  and  Medicare
eligibility.   Benefits  are  continued  to   dependents  of  eligible   retiree
participants  for 39 weeks after the death of the  retiree.  The life  insurance
benefit  plan is  noncontributory.  Funds  contributed  to the plan are invested
primarily in common stocks, mutual funds and cash equivalent securities.

The components of net periodic postretirement benefit cost are as follows:

<TABLE>
<CAPTION>


                                                       YEAR ENDED
                                             -----------------------------------
                                              SEPT. 28,  SEPT. 30,  SEPT. 24, 
IN THOUSANDS                                     1996       1995       1994
--------------------------------------------------------------------------------
<S>                                           <C>        <C>        <C>    
Service cost ..............................   $   293    $   308    $   345
Interest on projected benefit obligation ..       655        657        676
Actual return on plan assets ..............       (56)      (150)      (339)
Deferral of net actuarial gains and
     amortization of transition surplus and
     prior service cost ...................       282        344        482
                                              -------    -------    -------
Net pension expense .......................   $ 1,174    $ 1,159    $ 1,164
                                              -------    -------    -------
</TABLE>



The funded status of the plans is as follows:

<TABLE>
<CAPTION>


IN THOUSANDS                                                       SEPT. 28,   SEPT. 30,
                                                                      1996       1995
------------ ----------------------------------------------------------------------------
<S>                                                                 <C>         <C>    
ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION:
     Retirees ...................................................   $ 3,989     $ 3,995
     Fully eligible active plan participants ....................     1,088       1,031
     Other active plan participants .............................     3,683       3,490
                                                                    -------     -------
Total accumulated postretirement benefit obligation .............     8,760       8,516
Market value of plan assets .....................................        66         389
                                                                    -------     -------
Excess of accumulated postretirement benefit obligation
     over plan assets ...........................................     8,694       8,127
Unrecognized transition obligation ..............................    (2,468)     (2,645)
Unrecognized prior service cost .................................      (791)       (862)
Unrecognized actuarial gain .....................................     1,118         924
                                                                    -------     -------
Net postretirement benefit liability included
     in current and other liabilities ...........................   $ 6,553     $ 5,544
                                                                    -------     -------

ASSUMPTIONS USED IN COMPUTING THE FUNDED
STATUS OF THE PLANS:
     Weighted average discount rate .............................      8.00%       8.00%
     Expected long-term weighted average rate of return of assets     10.00%      10.00%

</TABLE>


For participants who receive full retiree medical benefits,  the medical premium
rates  were  assumed to  increase  at 7% for fiscal  1996 and  thereafter.  A 1%
increase in the medical  trend rate would not have a  significant  impact on the
accumulated postretirement benefit obligation as of October 1, 1996.


<PAGE>

NOTE 12.  GEOGRAPHIC SEGMENT DATA


The  company's  operations  involve a single  industry  segment  -- the  design,
manufacture,  sale and support of multi-user computer systems, servers, and mass
storage devices.

Financial information, summarized by geographic area, is presented below.

<TABLE>
<CAPTION>

                                                                                    OTHER
IN THOUSANDS                                  UNITED STATES        EUROPE   INTERNATIONAL   ELIMINATIONS   CONSOLIDATED
------------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>            <C>            <C>            <C>            <C>        
YEAR ENDED SEPTEMBER 28, 1996
Total revenues:
     Unaffiliated customers .................   $   941,916    $   263,461    $   116,873                   $ 1,322,250
     Interarea transfers ....................       120,810             --         26,497    $  (147,307)            --
                                                -----------    -----------    -----------    -----------    -----------
          Total .............................   $ 1,062,726    $   263,461    $   143,370    $  (147,307)   $ 1,322,250
                                                -----------    -----------    -----------    -----------    -----------
Income (loss) from operations ...............   $    42,277    $     3,054    $    (9,613)   $     1,559    $    37,277
                                                -----------    -----------    -----------    -----------    -----------
Identifiable assets .........................   $   562,845    $   177,903    $    88,614    $  (106,897)   $   722,465
                                                -----------    -----------    -----------    -----------
Corporate assets ............................                                                                   137,978
                                                                                                            -----------
          Total assets ......................                                                               $   860,443
                                                                                                            -----------        

YEAR ENDED SEPTEMBER 30, 1995 
Total revenues:
     Unaffiliated customers .................   $   744,762    $   295,357    $   119,197                   $ 1,159,316
     Interarea transfers ....................       117,811             --         20,416    $  (138,227)            --
                                                -----------    -----------    -----------    -----------    -----------
          Total .............................   $   862,573    $   295,357    $   139,613    $  (138,227)   $ 1,159,316
                                                -----------    -----------    -----------    -----------    -----------
Restructuring charge ........................   $    19,168    $    18,901    $     4,931                   $    43,000
                                                -----------    -----------    -----------                   -----------
Income (loss) from operations ...............   $   (51,686)   $   (15,108)   $   (16,050)   $     6,890    $   (75,954)
                                                -----------    -----------    -----------    -----------    -----------
Identifiable assets .........................   $   548,503    $   193,971    $    87,746    $  (104,248)   $   725,972
                                                -----------    -----------    -----------    -----------
Corporate assets ............................                                                                   106,046
                                                                                                            -----------
          Total assets ......................                                                               $   832,018
                                                                                                            -----------  

YEAR ENDED SEPTEMBER 24, 1994 
Total revenues:
     Unaffiliated customers .................   $   691,516    $   303,754    $   125,235                   $ 1,120,505
     Interarea transfers ....................       149,008             --         18,084    $  (167,092)            --
                                                -----------    -----------    -----------    -----------    -----------
          Total .............................   $   840,524    $   303,754    $   143,319    $  (167,092)   $ 1,120,505
                                                -----------    -----------    -----------    -----------    -----------
Restructuring charge ........................   $    20,800    $    12,000    $     2,200                   $    35,000
                                                -----------    -----------    -----------                   -----------
Income (loss) from operations ...............   $   (48,555)   $   (18,282)   $   (16,951)   $     4,010    $   (79,778)
                                                -----------    -----------    -----------    -----------    -----------
Identifiable assets .........................   $   559,893    $   239,669    $   101,110    $  (179,389)   $   721,283
                                                -----------    -----------    -----------    -----------
Corporate assets ............................                                                                   100,581
                                                                                                            -----------
          Total assets ......................                                                               $   821,864
                                                                                                            -----------    
</TABLE>


United States interarea transfers primarily represent shipments of equipment and
parts to international  subsidiaries.  Other  international  interarea transfers
primarily  represent  shipments of work in process and finished goods  inventory
from manufacturing facilities to domestic operations.  These interarea shipments
are made at transfer  prices which  approximate  prices charged to  unaffiliated
customers and have been eliminated from consolidated net revenues. United States
revenues from  unaffiliated  customers  include  direct export sales.  Corporate
assets  consist   primarily  of  temporary  cash   investments   and  marketable
securities.

Total   liabilities   of   international   subsidiaries,   before   intercompany
eliminations,  were $223.1  million at September 28, 1996 and $237.4  million at
September 30, 1995.  Cumulative retained earnings of international  subsidiaries
were $74.6  million at September  28, 1996 and $84.4  million at  September  30,
1995.


<PAGE>


REPORT OF INDEPENDENT ACCOUNTANTS
DATA GENERAL CORPORATION



TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
OF DATA GENERAL CORPORATION

In our opinion,  the  accompanying  consolidated  balance sheets and the related
consolidated  statements  of  operations,  of cash flows,  and of  stockholders'
equity present fairly, in all material respects,  the financial position of Data
General Corporation and its subsidiaries at September 28, 1996 and September 30,
1995,  and the results of their  operations and their cash flows for each of the
three years in the period ended September 28, 1996, in conformity with generally
accepted   accounting   principles.   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 of these  statements  in  accordance  with  generally  accepted  auditing
standards which 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,   assessing  the
accounting  principles  used and significant  estimates made by management,  and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for the opinion expressed above.



/s/ Price Waterhouse LLP

Boston, Massachusetts
October 30, 1996




SUPPLEMENTAL FINANCIAL INFORMATION
DATA GENERAL CORPORATION


QUARTERLY FINANCIAL DATA (UNAUDITED)


<TABLE>
<CAPTION>

                                                          FIRST      SECOND      THIRD        FOURTH                   
IN MILLIONS, EXCEPT PER SHARE AMOUNTS                   QUARTER     QUARTER    QUARTER       QUARTER   FISCAL YEAR
-------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>          <C>        <C>           <C>        <C>       
FISCAL 1996:
Total revenues ....................................   $   327.6    $   335.2  $   323.2     $   336.3  $  1,322.3
Total cost of revenues ............................       221.7        224.2      211.2         220.6       877.7
Net Income ........................................         4.7          6.3        7.2           9.9        28.1
Net income per share ..............................   $    0.12    $    0.15  $    0.17     $    0.24  $     0.68
Net income per share assuming full dilution .......   $    0.12    $    0.15  $    0.17     $    0.24  $     0.68

FISCAL 1995:
Total revenues ....................................   $   282.2    $   283.8  $   280.5     $   312.8  $  1,159.3
Total cost of revenues ............................       183.9        186.7      190.7         210.7       772.0
Net Income (loss) .................................        24.2(a)     (11.1)     (61.3)(b)       1.5       (46.7)
Net income (loss) per share .......................   $    0.63    $   (0.30) $   (1.65)    $    0.04  $    (1.23)
Net income (loss)  per share assuming full dilution   $    0.59    $   (0.30) $   (1.65)    $    0.04  $    (1.23)

</TABLE>

(a) Includes $44.5 million gain resulting from the settlement of litigation with
Northrop  Grumman  Corporation  (see Note 8 of Notes to  Consolidated  Financial
Statements).

 (b) Includes $43.0 million provision in fiscal year 1995 for estimated expenses
resulting from  corporate-wide  restructuring  and cost reduction  programs (see
Note 3 of Notes to Consolidated Financial Statements).

STOCK PRICE RANGE

The principal United States market on which the company's stock is traded is the
New York Stock Exchange. The following are the high and low sales prices for the
last two fiscal years.

<TABLE>
<CAPTION>

                                   FISCAL 1996                 FISCAL 1995
                             ----------------------    ----------------------
                                   HIGH         LOW          HIGH         LOW
-----------------------------------------------------------------------------
<S>                               <C>          <C>          <C>          <C>
First quarter ...............     14 3/4        9 1/4       11 1/2       9 1/8
Second quarter ..............     19 1/8       11 3/4       10 7/8       7 1/8
Third quarter ...............     17 1/8       12 1/4       10 1/8       7
Fourth quarter ..............     14            9 1/4       10 5/8       8 1/4
</TABLE>


<PAGE>

FACILITIES
DATA GENERAL CORPORATION

Data  General  does  business in more than 70 countries  through  direct  sales,
subsidiaries,  distributors and representatives. The company has 32 subsidiaries
and  approximately  250  sales  and  service  offices.   Major   administrative,
development,   manufacturing   and   support   facilities,   and   subsidiaries'
headquarters locations are listed below.


FACILITY LOCATION
(Approximate Square Feet)

Westboro, Massachusetts        corporate headquarters; administration;
(512,000/Leased)               product development; special systems


Southboro, Massachusetts       manufacturing service division; software
(545,000)*                     reproduction; distribution center; equipment
                               refurbishment; major unit repair; custom product
                               manufacturing; field engineering services and
                               logistics

Apex, North Carolina           assembly, test and systems integration facility
(300,000)

Research Triangle Park,        advanced systems research and development
North Carolina
(174,000)

Norcross, Georgia              customer support center
(105,000/Leased)

Mississauga, Ontario           sales; field engineering; administration
Canada
(32,000/Leased)

Etobicoke, Ontario, Canada     product repair center
(18,000/Leased)

Chihuahua, Mexico              product repair center
(67,000/Leased)

Schwalbach, Germany            sales; customer education; services
(71,600/Leased)

Brentford, England             sales; services; administration;
(120,000/Leased)**             customer education

Manila, Philippines            power supply and transformer manufacturing;
(68,000)                       communications products assembly and test

Melbourne, Australia           product repair center; logistics and
(31,000/Leased)                equipment refurbishment

  * Includes  50,000  square-feet of space leased to a third party,  and 200,000
 square feet available for lease.
 ** Includes 30,000 square-feet of sub-leased space.


SUBSIDIARY HEADQUARTERS

Canada                          Toronto/Mississauga

ASIA/PACIFIC
Australia                       Sydney
Hong Kong
Japan                           Tokyo
Korea                           Seoul
Malaysia
New Zealand                     Wellington
Singapore
Thailand                        Bangkok

EUROPE
Austria                         Vienna
Belgium                         Brussels
Denmark                         Copenhagen/Glostrup
Finland                         Helsinki/Espoo
France                          Paris/Velizy
Germany                         Frankfurt/Schwalbach
Hungary                         Budapest
Italy                           Milan
Netherlands                     Amsterdam
Norway                          Olso/Voyenenga
Portugal                        Lisbon/Amadora
Spain                           Madrid
Sweden                          Stockholm/Kista
Switzerland                     Zurich
United Kingdom
and Ireland                     London/Brentford

LATIN AMERICA
Argentina                       Buenos Aires
Brazil                          Rio de Janeiro
Chile                           Santiago
Mexico                          Monterrey
Peru                            Lima
Puerto Rico                     San Juan
Venezuela                       Caracas


<PAGE>


OFFICERS, DIRECTORS AND SENIOR MANAGEMENT
DATA GENERAL CORPORATION


Frederick R. Adler            Director, Chairman of the Executive Committee;
                              Retired Senior Partner, Fulbright & Jaworski 
                              L.L.P. Attorneys at Law, New York, New York

Ethan Allen Jr.               Vice President, Customer Services

Stephen P. Baxter             Vice President, Europe

Ferdinand Colloredo-Mansfeld  Director; Chairman of the Board, Cabot Partners
                              Limited Partnership, Boston, Massachusetts

William J. Cunningham*        Senior Vice President, Manufacturing and Corporate
                              Quality

Arthur W. DeMelle*            Senior Vice President; Chief Financial Officer

David J. Ellenberger*         Vice President, Corporate Marketing

Jacob Frank                   Vice President and General Counsel

John J. Gavin Jr.*            Vice President; Controller

Angelo Guadagno               Vice President, Worldwide Channel Sales

Larry D. Hemmerich            Vice President, CLARiiON Business Unit

Carl E. Kaplan                Secretary; Senior Partner, Fulbright & Jaworski 
                              L.L.P. Attorneys at Law, New York, New York

Robert C. McBride             Vice President; Treasurer

John G. McElwee               Director; Retired Chairman, John Hancock Mutual
                              Life Insurance Company, Boston, Massachusetts

Anthony C. Nicoletti          Vice President, Asia/Pacific

Edward F. Pensel              Vice President, Manufacturing Operations

James J. Ryan                 Vice President, Information Management Group

Joel Schwartz*                Senior Vice President, Worldwide Sales and
                              Marketing

Ronald L. Skates              President and Chief Executive Officer; Director

W. Nicholas Thorndike         Director; Corporate Director and Trustee

Donald H. Trautlein           Director; Retired Chairman, Bethlehem Steel
                              Corporation, Bethlehem, Pennsylvania

Richard L. Tucker             Director; Managing Director, Trinity Investment
                              Management Corporation, Boston, Massachusetts

J. Thomas West                Senior Vice President, Advanced Development; THiiN
                              Line Business Unit

William L. Wilson*            Senior Vice President, Services and Strategic
                              Business Opportunities


*  Elected during 1996


DIVISION VICE PRESIDENTS

Dennis R. Balch               Software Development

Anthony P. DiBona             U.S. Sales - Eastern Operations

Michael A. Feldstein**        CLARiiON Product Development and Operations

Jonathan W. Lane              Human Resources

Raymond J. Massey             U.S. Sales - Western Operations

Michael I. Schneider          Special Systems

Robert Van Steenberg          AViiON Systems Development

Michael S. Worhach**          Worldwide Healthcare Division

William L. Zastrow            Imaging Business Unit


VICE PRESIDENTS

John T. Anderson              U.S. Channel Sales

Ronald A. Edlin               Professional Services

Philip Gerskovich**           NUMALiiNE Business Unit

K. Todd Gresham**             CLARiiON Sales

Fidelma Hayes-Russo**         NUMALiiNE Systems Development

Robert C. Mara                Personal Computer Business Unit

Linda Mentzer**               AViiON Product Management

Michael P. Parise**           Strategic Integrator Alliances

Thomas P. Rizk                Customer Support

Daniel Sapir                  Strategic Alliances

Kenneth D. Sills**            CLARiiON Support and Services

Paul M. Suffredini**          CLARiiON Business Development

Suzanne G. Sweeney            Enterprise Applications


** Appointed during 1996


<PAGE>


CORPORATE INFORMATION
DATA GENERAL CORPORATION

CORPORATE HEADQUARTERS        Data General Corporation
                              4400 Computer Drive
                              Westboro, Mass. 01580
                              (508) 898-5000

LEGAL COUNSEL                 Fulbright & Jaworski L.L.P.
                              New York, New York

INDEPENDENT ACCOUNTANTS       Price Waterhouse LLP
                              Boston, Mass.

DEBENTURE TRUSTEES            First National Bank
                              63 Wall Street
                              New York, New York 10005

                              State Street Bank and Trust
                              225 Franklin Street
                              Boston, Mass. 02110

TRANSFER AGENT AND REGISTRAR  The Bank of New York
                              800-524-4458

                              Address Shareholder Inquiries to:
                              The Bank of New York
                              Shareholder Relations Department - 11E
                              Post Office Box 11258
                              Church Street Station
                              New York, NY 10286

                              Send Certificates For Transfer and Address Changes
                              to:
                              The Bank of New York
                              Receive and Deliver Department - 11W
                              Post Office Box 11002
                              Church Street Station
                              New York, NY 10286


STOCK EXCHANGE LISTING        New York Stock Exchange
                              London Stock Exchange
                              Unlisted trading privileges on Boston, Midwest,
                              Philadelphia, Pacific and Cincinnati exchanges

TRADING SYMBOL                DGN

ANNUAL MEETING                The Annual Meeting of Stockholders will be held
                              at 11:00 a.m., Wednesday, January 29, 1997 in the
                              Enterprise Room, State Street Bank Building,
                              225 Franklin Street, Boston, Mass.


NUMBER OF STOCKHOLDERS        As of September 28, 1996 there were approximately
                              11,300 stockholders of record.  This number
                              excludes individual stockholders holding stock
                              under nominee security position listings.

DIVIDEND POLICY               No cash dividends have been declared or paid by
                              the company since its inception.  It is the policy
                              of the company to retain any cash flow for future
                              business expansion.  The company anticipates no
                              changes in this policy in the forseeable future.
        
PUBLISHED INFORMATION         The company's Annual Report, Interim Reports,
                              Form 10-K, and Quarterly Reports on Form 10-Q as
                              filed with the Securities and Exchange Commission,
                              and other published information is available on
                              request to:
                                Investor Relations Department
                                Data General Corporation
                                4400 Computer Drive
                                Mail Stop 9S
                                Westboro, Massachusetts 01580

                              Published information, as well as mailed or faxed
                              copies of quarterly financial press releases, can
                              be obtained by calling 1-800-941-2382.

                              All information is available on Data General's
                              internet website at http://www.dg.com. In the
                              section titled "About Data General," select
                              "Financial Information for Investors."

                              Investors may also choose to:
                              Request information using e-mail to
                              AViiON@dg.com
                              Dial our FAX-back system at 1-800-99-DGFAX
                              (North America only) and press 411 to receive
                              a faxed menu of publications
                              Call Data General Corporation at 1-800-DATAGEN
        



--------------------------------------------------------------------------------
This report  contains  forward-looking  statements  under the  captions  "To Our
Stockholders, Customers and Employees" and "Management's Discussion and Analysis
of Financial  Condition and Results of  Operations"  which reflect  Management's
current views of future events and financial performance.  These forward-looking
statements involve risks and uncertainties,  and are based upon many assumptions
and  factors,  including  the  effects  of  period-to-period  fluctuations,  OEM
inventory  positions and new product  development  and marketing.  Many of these
factors are  discussed  in the  company's  Securities  and  Exchange  Commission
filings,  including its annual report on Form 10-K for the year ended  September
28, 1996. Any changes in such assumptions or factors could produce significantly
different results.
--------------------------------------------------------------------------------


                                  Data General
               An Equal Opportunity / Affirmative Action Employer
                   Making a Commitment to Workforce Diversity

AViiON,  AV/Image,  CLARiiON,  DG/UX,  and  ECLIPSE are  registered  trademarks;
DataGenie,  NUMALiiNE, and THiiN Line are trademarks;  and VALiiANT is a service
mark of Data General  Corporation.  Intel, the Intel Inside logo,  Pentium,  and
Pentium Pro are registered trademarks of Intel Corporation.  All other brand and
product  names are  trademarks  or  registered  trademarks  of their  respective
holders.

The materials  contained  herein are summary in nature,  subject to change,  and
intended for general information only. Details and specifications regarding Data
General equipment and software are included in the applicable technical manuals,
available from local sales representatives.