Item 1. Business.
General
Digital Equipment Corporation, a Massachusetts corporation founded in 1957, is one of the world's largest suppliers of networked computer systems and components, software and services and a world leader in the development and implementation, directly and through partners, of client/server solutions for open computing environments. The Corporation offers a full range of desktop, client/server and production systems and related components, peripheral equipment, software and services used in a wide variety of applications, industries and computing environments. The Corporation does business in more than 100 countries, deriving more than 60% of its revenue from outside of the United States and developing and manufacturing products in the Americas, Europe and the Pacific Rim.
The term "Corporation" when used herein refers to Digital Equipment Corporation or Digital Equipment Corporation and its subsidiaries, as required by the context.
For the last five fiscal years, the percentage of total operating revenues contributed by the Corporation's principal classes of products was as follows:
			 1994 1993 1992 1991 1990
Product sales 53.5% 52.8% 55.2% 59.7% 62.9% Service and other revenues 46.5% 47.2% 44.8% 40.3% 37.1% 			 100.0% 100.0% 100.0% 100.0% 100.0% 			 ====== ====== ====== ====== ======
Service and other revenues are derived principally from Digital and multivendor hardware and software product services and systems integration services.
Products
Systems and Products: Most of the Corporation's systems are general purpose digital computers, designed to perform, interpret and record computations on collected data or act as servers providing computing resources across a network. The Corporation offers a broad range of computer systems and servers based on Digital's Alpha AXP(TM) and VAX(R) architectures, and the Intel(R) X86 architecture.
The Corporation's offerings include a line of VAX systems and servers, from VAXstation(TM) workstations to high performance servers. The Corporation also offers a full range of Intel-based and industry compatible personal computers and network hardware and desktop integration products. In addition, the Corporation is a major manufacturer and supplier of video terminals, printers and network components, such as hubs, routers and switches.
Alpha AXP: The Corporation's 64-bit, reduced instruction set computing ("RISC") architecture known as "Alpha AXP(TM)" is designed to support multiple operating systems and to be the foundation for a leading high performance computer system family. The Corporation offers a complete line of Alpha AXP-based products, ranging from chips and boards to personal computers and high performance workstations to larger general purpose computer systems. Alpha AXP supports three major operating systems: the Open Software Foundation's 64-bit unified UNIX(R) operating system (DEC OSF/1)(R), the Corporation's OpenVMS(TM) operating system and Microsoft Corporation's Windows NT(R) operating system. In April 1994, the Corporation introduced a new line of competitively priced, high performance Alpha AXP-based servers, the Digital 2100 series, which support symmetrical multiprocessing.
Storage Business: Shortly after the close of the fiscal year, the Corporation announced it had reached agreement with Quantum Corporation for the sale of portions of its storage business, including its magnetic disk drive, tape drive, solid state disk and thin-film heads businesses. The Corporation expects to continue to offer peripheral and data storage products for use with its computer systems after the transaction is complete.
Software: The Corporation designs, develops or acquires from third parties and distributes under license various software products for use on its computer systems and computer systems from other vendors. These products consist of operating systems, communication and networking software, run-time services (such as data/information handling and graphical user interfaces), language compilers, productivity tools, production systems (including databases and transaction processing monitors), office and workgroup software frameworks, and other application software.
The Corporation's software offerings are intended to promote open client/server computing and, to this end, are designed to industry-standard interfaces that enable applications to work across different platforms and operating systems. During the fiscal year, the Corporation announced the development of several software products that support this strategy, including its LinkWorks(TM) offerings. In addition, in November 1993 the Corporation announced a joint effort with Microsoft Corporation to develop the Common Object Model, a set of software standards that are designed to enable software objects in different operating systems, data formats and geographical locations to work together across a network.
Services
The Corporation provides a comprehensive portfolio of technical consulting, systems integration and support services to help customers plan, implement and manage their information technology solutions through a global network of employees and partners.
The Corporation's services offerings include maintenance and support services for the Corporation's products, as well as for products manufactured by other companies; information systems consulting; technical and application design services; education and customer training services; systems integration and project management services; network design and support services; and outsourcing and resource management services.
Sales and Distribution
The Corporation directly sells, markets and supports its products and services through approximately 725 locations throughout the world. Arrangements with third parties, including software developers, value added resellers (VARs) and authorized distributors, are an increasingly important part of the Corporation's focus on providing complete solutions to its customers and expanding distribution of its products and services through indirect channels.
For the fiscal year ended July 2, 1994, approximately 3.3% of the Corporation's total operating revenues were derived directly from sales to various agencies of the U.S. Government, and no other customer of the Corporation accounted for more than 2% of total revenues.
The Corporation believes that the dollar amount of backlog is not a meaningful indication of future revenues and historically has not published such data. It has been and continues to be the Corporation's objective to minimize the time from the receipt of a purchase order to delivery of the product.
International Operations
Sales by the Corporation to customers outside the United States amounted to 62%, 64% and 63% of total operating revenues for the fiscal years ended July 2, 1994, July 3, 1993 and June 27, 1992, respectively. International sales and marketing operations are conducted through subsidiaries, by direct sales from the parent company, by resellers and through various representative and distributorship arrangements.
The Corporation's international business is subject to risks customarily encountered in foreign operations, including fluctuations in monetary exchange rates, import and export controls and the economic, political and regulatory policies of foreign governments. In view of the diversification of the Corporation's international activities, the Corporation does not believe that there are any special risks beyond the normal business risks attendant to conducting business abroad.
See Notes A, B and I of Notes to Consolidated Financial Statements, incorporated by reference herein, for further information on the Corporation's international operations, including financial information concerning the Corporation's operations by major geographical area.
Competition
The information technology industry is highly competitive, international in scope and comprised of many companies. The methods of competition include marketing, product performance, price, service, technology and compliance with various industry standards, among others. Present and potential competition in the various markets served by the Corporation comes from firms of various sizes and types, some of which are larger and have greater resources than the Corporation. Firms not now in direct competition with the Corporation may introduce competing products in the future. It is possible for companies to be at various times competitors, customers and collaborators in different markets.
Materials
The Corporation obtains a wide variety of components, assemblies and raw materials from a substantial number of suppliers. The Corporation has established or has available alternate sources of supply for many of these materials. The Corporation believes that the materials required for its manufacturing operations are presently available in quantities sufficient to meet demand; however, a portion of the Corporation's manufacturing operations is dependent on the timely delivery of certain sub-assemblies and components from significant suppliers. The failure of such suppliers to deliver such items on a timely basis could adversely affect the Corporation's operating results until alternative sources of supply could be arranged.
Environmental Affairs
The Corporation's facilities are subject to numerous laws and regulations designed to protect human health and safety and the environment, particularly those relating to manufacturing and engineering, chemical usage, waste and emissions. Pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA"), as amended, the Corporation has been notified that it is a potentially responsible party ("PRP") for and is sharing the costs of investigating and cleaning up certain sites listed on the federal National Priorities List of Superfund Sites. Under similar state laws, the Corporation also is incurring costs in connection with the investigation and remediation of certain properties owned and/or operated by the Corporation. In the opinion of the Corporation, compliance with these laws and regulations has not had and should not have a material effect on the capital expenditures, earnings or competitive position of the Corporation.
Patents
The Corporation owns or is licensed under a number of patents and patent applications relating to its products. While the Corporation's portfolio of patents and patent applications is of significant value to the Corporation, the Corporation does not believe that any particular patent or group of patents is of material importance to the Corporation's business as a whole.
Research and Engineering
The Corporation is in an industry which is characterized by rapid technological change. In the fiscal years ended July 2, 1994, July 3, 1993 and June 27, 1992, the Corporation spent $1.30 billion, $1.53 billion and $1.75 billion, respectively, for research and engineering (R&E). Although the Corporation expects to continue its ongoing R&E efficiency initiatives, it also expects to continue to invest heavily in R&E to maintain and strengthen its competitive position.
Employees
The Corporation had approximately 77,800 regular employees, and an additional 5,000 temporary and contract workers worldwide at July 2, 1994.
Executive Officers of the Corporation
The following table sets forth the names and ages of the 11 executive officers of the Corporation and certain information relating to their positions held with the Corporation. 								 YEAR FIRST NAME AGE PRESENT TITLE BECAME OFFICER
Robert B. Palmer 54 Director; 				President and Chief 1985 				Executive Officer R. E. Caldwell 57 Vice President, Digital 1994 				Semiconductor Charles F. Christ 55 Vice President and General 1993 				Manager, Components Division Richard M. Farrahar 50 Vice President, Human 1993 				Resources Ilene B. Jacobs 47 Vice President and Treasurer 1985 Vincent J. Mullarkey 46 Vice President, Finance and 1992 				Chief Financial Officer Enrico Pesatori 53 Vice President and General 1993 				Manager, Computer Systems 				Division E.C. Mick Prokopis 52 Vice President and Corporate 1994 				Controller John J. Rando 42 Vice President, Multivendor 1993 				Customer Services Thomas C. Siekman 52 Vice President and General 1993 				Counsel William D. Strecker 50 Vice President, Advanced 1985 				Technology Group and 				Chief Technical Officer - -------------------
Executive officers of the Corporation are elected annually and hold office until the first meeting of the Board of Directors following the annual meeting of stockholders and until their successors have been chosen and qualified. All of the executive officers named have been officers or held managerial positions in the Corporation for at least the last five years, except Messrs. Christ, Pesatori and Prokopis. Prior to joining the Corporation, these officers held the following positions: Mr. Christ, who joined the Corporation as Vice President, Mass Storage Group, in 1990, served as a partner in Coopers & Lybrand's Management Consulting Services group from 1989 to July 1990; from 1986 to 1989 he served as President and Chief Executive Officer of Digital Sound Corporation. Mr. Pesatori had been President and Chief Executive Officer of Zenith Data Systems from January 1991 to January 1993; from October 1986 to 1989 he served as President and Chief Executive Officer of North American operations for Ing. Olivetti & C. S.p.A. ("Olivetti") and from 1989 to December 1990 he was Senior Vice President, Corporate Marketing of Olivetti. Mr. Prokopis was self employed from November 1993 to July 1994; from July 1992 to November 1993 he served as Executive Vice President of Ziff Communications Corp.; from March 1992 to July 1992 he was Executive Vice President and Chief Financial Officer of MAST Industries; from 1989 to 1992 he was the Corporation's Finance Manager, Manufacturing, Engineering and Marketing and from 1987 to 1989 he served as the Corporation's Manufacturing Controller.
Item 2.
Item 2. Properties
At the end of fiscal 1994, the Corporation owned or leased approximately 39.1 million square feet of space worldwide. The Corporation occupied approximately 32.3 million square feet, leased or sub-leased to others approximately 1.3 million square feet, and due to restructuring actions, had vacant space of approximately 5.5 million square feet, most of which is available for sale or sub-lease. The total space owned or leased decreased by approximately 3.0 million square feet from the prior year. Approximately 54% of the occupied space is located in the United States; approximately 59% of the occupied space is owned. The Corporation's occupied facilities are substantially utilized, well maintained and suitable for the products and services offered by the Corporation.
Approximately 500,000 square feet of space for new manufacturing facilities is under construction and scheduled for completion during fiscal 1995. The Corporation anticipates it will occupy fewer square feet of space worldwide at the end of fiscal 1995 than at the end of fiscal 1994.
Item 3.
Item 3. Legal Proceedings
The Corporation has been named as a defendant in several purported class action lawsuits filed in the U.S. District Court for the Southern District of New York and the U.S. District Court for the District of Massachusetts alleging violations of the Federal securities laws in connection with the Corporation's issuance and sale of Series A 8-7/8% Cumulative Preferred Stock and the Corporation's financial results for the fiscal quarter ended April 2, 1994. (See Note H of Notes to Consolidated Financial Statements.)
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
During the fourth quarter of the fiscal year covered by this report, no matter was submitted to a vote of security holders, through the solicitation of proxies or otherwise.
				 PART II
Item 5.
Item 5. Market for the Registrant's Common Equity and Related Stockholder 	 Matters.
See the section entitled "Stock Information," which is incorporated herein by reference, appearing on page 54 of the Corporation's 1994 Annual Report to Stockholders.
Item 6.
Item 6. Selected Financial Data.
See the section entitled "Eleven-Year Financial Summary," which is incorporated herein by reference, appearing on pages 26 and 27 of the Corporation's 1994 Annual Report to Stockholders.
Item 7.
Item 7. Management's Discussion and Analysis of Results of Operations 	 and Financial Condition.
See the section entitled "Management's Discussion and Analysis of Results of Operations and Financial Condition," which is incorporated herein by reference, appearing on pages 28 through 33 of the Corporation's 1994 Annual Report to Stockholders.
Item 8.
Item 8. Financial Statements and Supplementary Data.
The financial statements and supplementary data, which are incorporated herein by reference from the Corporation's 1994 Annual Report to Stockholders, are indexed under Item 14(a)(1). See also the financial statement schedules appearing herein, as indexed under Item 14(a)(2).
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and 	 Financial Disclosure.
None.
				 PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant.
See the section entitled "Election of Directors," which is incorporated herein by reference from the Corporation's Proxy Statement for its 1994 Annual Meeting of Stockholders. See also the section entitled "Executive Officers of the Corporation" appearing in Part I hereof.
Item 11.
Item 11. Executive Compensation.
See the section entitled "Executive Compensation," which is incorporated herein by reference from the Corporation's Proxy Statement for its 1994 Annual Meeting of Stockholders.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
See the section entitled "Security Ownership of Directors and Executive Officers" which is incorporated herein by reference from the Corporation's Proxy Statement for its 1994 Annual Meeting of Stockholders.
Item 13.
Item 13. Certain Relationships and Related Transactions.
See the section entitled "Certain Relationships and Related Transactions," which is incorporated herein by reference from the Corporation's Proxy Statement for its 1994 Annual Meeting of Stockholders.
				 PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
	 (1) Financial statements which are incorporated herein by 	 reference from the Corporation's 1994 Annual Report to 	 Stockholders:
	 Report of Independent Accountants (page 35).
	 Consolidated Statements of Operations for fiscal years 1994, 	 1993 and 1992 (page 36).
	 Consolidated Balance Sheets as at July 2, 1994 and July 3, 	 1993 (page 37).
	 Consolidated Statements of Cash Flows for fiscal years 1994, 	 1993 and 1992 (page 38).
	 Consolidated Statements of Stockholders' Equity for fiscal 	 years 1994, 1993, and 1992 (page 39).
	 Notes to Consolidated Financial Statements (pages 40 through 	 53).
	 Eleven-Year Financial Summary (pages 26 and 27).
	 Quarterly Financial Data (page 54).
The Corporation's 1994 Annual Report to Stockholders is not to be deemed filed as part of this report except for those parts thereof specifically incorporated herein by reference.
	 (2) Financial statement schedules:
		Page
		S-1 Report of Independent Accountants
		S-2 V - Property, Plant and Equipment
		S-5 VI - Accumulated Depreciation and Amortization of 			 Property, Plant and Equipment
		S-8 VIII - Valuation and Qualifying Accounts and Reserves
		S-9 X - Supplemental Income Statement Information
All other schedules have been omitted since they are not required, not applicable or the information has been included in the financial statements or the notes thereto.
Individual financial statements of the Corporation have been omitted because it is primarily an operating company and the consolidated subsidiaries are not indebted, in a material amount, to any person other than to the parent or to other consolidated subsidiaries.
(3) Exhibits:
	 3(a) - Restated Articles of Organization of the Corporation dated 		March 11, 1991 (filed under cover of Form SE as Exhibit 		3(a) to the Corporation's Annual Report on Form 10-K for 		the fiscal year ended June 29, 1991 and incorporated herein 		by reference).
	 (b) Articles of Amendment filed with the Secretary of State of 		the Commonwealth of Massachusetts on November 4, 1993 		(filed as Exhibit 4.3 to the Corporation's Registration 		Statement on Form S-3, No. 33-51987 and incorporated herein 		by reference).
	 (c) Certificate of Designation filed with the Secretary of 		State of the Commonwealth of Massachusetts on March 21, 		1994 (filed as Exhibit 4.1 to the Corporation's Report on 		Form 8-K filed on March 23, 1994 and incorporated herein by 		reference).
	 (d) - By-laws of the Corporation, as amended (filed as Exhibit 		3(c) to the Corporation's Annual Report on Form 10-K for 		the fiscal year ended June 30, 1990 and incorporated herein 		by reference).
	 4(a) - Rights Agreement dated as of December 11, 1989 between 		the Corporation and First Chicago Trust Company of New 		York, as Rights Agent (filed under cover of Form SE as 		Exhibit 4.1 to the Corporation's Current Report on 		Form 8-K dated December 12, 1989 and incorporated herein 		by reference).
	 (b) - Indenture dated as of September 15, 1992 between Citibank, 		N.A. as Trustee, and the Corporation ("Indenture") (filed 		as Exhibit 4 to the Corporation's Registration Statement 		on Form S-3, No. 33-51378 and incorporated herein by 		reference).
	 (c) - Form of 7 1/8% Note Due 2002, issued under the 		Indenture (filed as Exhibit 4.2 to the Corporation's 		Quarterly Report on Form 10-Q for the quarter ended 		December 26, 1992 and incorporated herein by reference).
	 (d) - Form of 8 5/8% Debenture due November 1, 2012, issued 		under the Indenture (filed as Exhibit 4.3 to the 		Corporation's Quarterly Report on Form 10-Q for the 		quarter ended December 26, 1992 and incorporated herein 			by reference).
	 (e) - Form of 7% Note Due 1997, issued under the Indenture (filed 		as Exhibit 4.4 to the Corporation's Quarterly Report on 		Form 10-Q for the quarter ended December 26, 1992 and 		incorporated herein by reference).
	 (f) - Form of 7 3/4% Debenture due April 1, 2023, issued under 		the Indenture (filed as Exhibit 4.2 to the Corporation's 		Quarterly Report on Form 10-Q for the quarter ended 		March 27, 1993 and incorporated herein by reference). 		 	10(a) - 1968 Employee Stock Purchase Plan (filed as Exhibit 99 to 		the Corporation's Registration Statement on Form S-8, No. 		33-50963 and incorporated herein by reference).*
	 (b) - 1976 Restricted Stock Option Plan, as amended (filed 		as Exhibit 10(b) to the Corporation's Annual Report on 		Form 10-K for the fiscal year ended June 27, 1992 and 		incorporated herein by reference).* 				 	 (c) - 1981 International Employee Stock Purchase Plan 		(filed as Exhibit 99 to the Corporation's Registration 		Statement on Form S-8, No. 33-50945 and incorporated herein 		by reference).* 	 	 (d) - 1985 Restricted Stock Option Plan, as amended (filed under 		cover of Form SE as Exhibit 10(d) to the Corporation's Annual 		Report on From 10-K for the fiscal year ended July 1, 1989 and 		incorporated herein by reference).* 	 	 (e) - 1990 Equity Plan (contained in the prospectus included 		in the Corporation's Registration Statement on Form S-8, 		No. 33-37631 and incorporated herein by reference).*
	 (f) - 1990 Stock Option Plan for Nonemployee Directors 		(contained in the prospectus included in the Corporation's 		Registration Statement on Form S-8, No. 33-37628 and 		incorporated herein by reference).*
	 (g) - Deferred Compensation Plan for Non-Employee Directors as 		Amended and Restated Effective 18 May 1987 and as further 		amended on 22 April 1991 (filed under cover of Form SE as 		Exhibit 10(g) to the Corporation's Annual Report on Form 		10-K for the fiscal year ended June 29, 1991 and 		incorporated herein by reference).*
	 (h) - Retirement Arrangement for Non-Employee Directors (filed as 		Exhibit 10(g) to the Corporation's Annual Report on Form 		10-K for the fiscal year ended June 27, 1987 and incorporated 		herein by reference).*
	 (i) - Form of Indemnification Agreement in effect between the 		Corporation and each of its officers and directors (filed as 		Exhibit 10(g) to the Corporation's Annual Report on Form 10-K 		for the fiscal year ended July 2, 1988 and incorporated 		herein by reference).*
	 (j) - Digital Equipment Corporation Restoration Pension Plan 		effective as of May 1, 1992 (filed as Exhibit 10(j) to 	 the Corporation's Annual Report on Form 10-K for the 		fiscal year ended June 27, 1992 and incorporated herein 		by reference).*
	 (k) - Digital Equipment Corporation fiscal year 1995 Cash 		Incentive Plan.* 		 	 (l) - Letter Agreement from the Corporation to Enrico Pesatori dated 		as of February 2, 1993; Agreement between the Corporation and 		Edward E. Lucente, dated as of April 29, 1994; and Agreement 		between the Corporation and Gresham T. Brebach, Jr., dated as 		of August 8, 1994.*
	11 - Computation of net income/(loss) per share.
	13 - The Corporation's 1994 Annual Report to Stockholders, certain 		portions of which have been incorporated herein by 		reference.
	22 - List of Subsidiaries.
	24 - Consent of independent accountants.
*Indicates management contract or compensatory plan or arrangement.
	 (b) Reports on Form 8-K:
The Corporation filed with the Securities and Exchange Commission a Report on Form 8-K on April 21, 1994.
				SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
									 				 DIGITAL EQUIPMENT CORPORATION 				 (Registrant)
Date: September 16, 1994 By /s/Robert B. Palmer 					 Robert B. Palmer 					 President and Chief Executive 					 Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
									 Signature Title Date
			 President and Chief 			 Executive Officer /s/ Robert B. Palmer (Principal Executive Robert B. Palmer Officer) and Director September 16, 1994
			 Vice President, Finance 			 and Chief Financial Officer /s/ Vincent J. Mullarkey (Principal Financial Vincent J. Mullarkey Officer) September 16, 1994
			 Vice President and 			 Corporate Controller /s/ E.C. Prokopis (Principal Accounting E.C. Prokopis Officer) September 16, 1994
/s/ Vernon R. Alden Director September 16, 1994 Vernon R. Alden
/s/ Philip Caldwell Director September 16, 1994 Philip Caldwell
/s/ Colby H. Chandler Director September 16, 1994 Colby H. Chandler
/s/ Arnaud de Vitry Director September 16, 1994 Arnaud de Vitry 	
/s/ Robert R. Everett Director September 16, 1994 Robert R. Everet
/s/ Kathleen F. Feldstein Director September 16, 1994 Kathleen F. Feldstein
/s/ Thomas P. Gerrity Director September 16, 1994 Thomas P. Gerrity
/s/ Thomas L. Phillips Director September 16, 1994 Thomas L. Phillips
/s/ Delbert C. Staley Director September 16, 1994 Delbert C. Staley
				
		 Report of Independent Accountants
Our report on the consolidated financial statements of Digital Equipment Corporation has been incorporated by reference in this Form 10-K from page 35 of the 1994 Annual Report to Stockholders of Digital Equipment Corporation. In connection with our audits of such financial statements, we have also audited the related financial statement schedules listed in the index on page 9 of this Form 10-K.
In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein.
						 					 /s/Coopers & Lybrand
						 Coopers & Lybrand
Boston, Massachusetts July 26, 1994