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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13E-4
ISSUER TENDER OFFER STATEMENT
(Pursuant to Section 13(e)(1) of the Securities Exchange Act of 1934)
DELL COMPUTER CORPORATION
(Name of Issuer)
DELL COMPUTER CORPORATION
(Name of Person(s) Filing Statement)
SERIES A CONVERTIBLE PREFERRED STOCK
(Title of Class of Securities)
247025-50-5
247025-40-6
U24702-10-9
(CUSIP Number of Class of Securities)
MICHAEL S. DELL
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
DELL COMPUTER CORPORATION
2112 KRAMER LANE, BUILDING 1
AUSTIN, TEXAS 78758-4012
(512) 338-4400
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of the Person(s) Filing Statement)
Copies to:
LARRY W. SONSINI THOMAS B. GREEN
WILSON, SONSINI, GENERAL COUNSEL
GOODRICH & ROSATI DELL COMPUTER CORPORATION
650 PAGE MILL ROAD 2112 KRAMER LANE, BUILDING 1
PALO ALTO, CALIFORNIA 94304 AUSTIN, TEXAS 78758-4012
(415) 493-9300 (512) 338-4400
FEBRUARY 21, 1995
(Date Tender Offer First Published, Sent or Given to Security Holders)
CALCULATION OF FILING FEE
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TRANSACTION AMOUNT OF
VALUATION(1) FILING FEE(1)
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<S> <C>
$125,000,000 $25,000
</TABLE>
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(1) The filing fee included herewith is one-fiftieth of one percent of the
market value of 1,250,000 shares of Series A Convertible Preferred Stock of
Dell Computer Corporation. In accordance with Rule 0-11(a)(4) under the
Securities Exchange Act of 1934, as amended, the value of Series A
Convertible Preferred Stock is based on the book value of the securities
computed as of October 30, 1994, which is the latest practicable date.
/ / Check box if any part of the fee is offset as provided by Rule
0-11(a)(2) and identify the filing with which the offsetting fee was previously
paid. Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
Amount Previously Paid: Not applicable.
Form or Registration No.:
Filing Party:
Date Filed:
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This Issuer Tender Offer Statement on Schedule 13E-4 (this "Statement")
relates to the offer by Dell Computer Corporation, a Delaware corporation (the
"Issuer"), to pay a cash premium of $8.25 (the "Conversion Premium") for each
share of its Series A Convertible Preferred Stock (the "Series A Preferred
Stock") that is converted to common stock, par value $.01 per share ("Common
Stock"), of the Issuer on the terms and subject to the conditions set forth in
the Offer of Premium Upon Conversion (the "Offer of Premium") and the related
Special Conversion Notice and Registration Agreement (which together constitute
the "Conversion Offer"), copies of which are attached hereto as Exhibits (a)(1),
(a)(2) and (a)(3) hereto, respectively.
ITEM 1. SECURITY AND ISSUER.
(a) The name of the Issuer is Dell Computer Corporation, a Delaware
corporation, and the address of its principal executive offices is 2112 Kramer
Lane, Building 1, Austin, Texas 78758-4012.
(b) The information set forth on the cover page and under the captions "The
Conversion Offer" and "Beneficial Ownership and Market Prices -- Preferred
Stock" in the Offer of Premium is incorporated herein by reference.
(c) The information set forth under the caption "Beneficial Ownership and
Market Prices -- Preferred Stock" in the Offer of Premium is incorporated herein
by reference.
(d) This Statement is being filed by the Issuer.
ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) The information set forth under the caption "The Conversion
Offer -- Conversion" in the Offer of Premium is incorporated herein by
reference.
(b) Not applicable.
ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE ISSUER OR
AFFILIATE.
The information set forth under the captions "The Conversion
Offer -- Purpose," "The Conversion Offer -- Conversion" and "Special
Considerations -- Market for the Series A Preferred Stock" in the Offer of
Premium is incorporated herein by reference.
(a) The information set forth under the captions "The Conversion
Offer -- Conversion" and "The Conversion Offer -- Resale Registration" in the
Offer of Premium is incorporated herein by reference.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
(e) The information set forth under the captions "The Conversion
Offer -- Regular Dividend Payments," "Special Considerations -- Subordinated
Status of Common Stock," "Capitalization," "Summary Consolidated Financial
Data," and "Dividend Policy" in the Offer of Premium is incorporated herein by
reference.
(f) The information set forth under the captions "The Conversion
Offer -- Conversion," "The Conversion Offer -- Resale Registration,"
"Capitalization" and "Summary Consolidated Financial Data" in the Offer of
Premium is incorporated herein by reference.
(g) Not applicable.
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(h) The information set forth under the captions "The Conversion Offer,"
"Beneficial Ownership and Market Prices -- Preferred Stock" and "Special
Considerations -- Market for the Series A Preferred Stock" in the Offer of
Premium is incorporated herein by reference.
(i) Not applicable.
(j) Not applicable.
ITEM 4. INTEREST IN SECURITIES OF THE ISSUER.
The Issuer is not aware of any transactions in the Series A Preferred Stock
effected during the past 40 business days by the Issuer or any controlling
person, director, executive officer, associate or subsidiary of the Issuer, or
by any director or executive officer of any subsidiary of the Issuer.
ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO
THE ISSUER'S SECURITIES.
The Issuer is not aware of any contract, arrangement, understanding or
relationship relating to the Conversion Offer between the Issuer or any
controlling person, director, executive officer or subsidiary of the Issuer, and
any person with respect to any securities of the Issuer except for the
Registration Agreement offered in the Conversion Offer, which is filed as
Exhibit (a)(3) hereto. The information set forth under the captions "The
Conversion Offer -- Resale Registration" and "Special
Considerations -- Registration Agreement Provisions" in the Offer of Premium is
incorporated herein by reference.
ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Not applicable.
ITEM 7. FINANCIAL INFORMATION.
(a) The information set forth under the captions "Capitalization," "Summary
Consolidated Financial Data," "Incorporation of Certain Documents by Reference,"
and in the financial statements listed in the documents thereby incorporated in
the Offer of Premium is incorporated herein by reference.
(b) The information set forth under the caption "Summary Consolidated
Financial Data" in the Offer of Premium is incorporated herein by reference.
ITEM 8. ADDITIONAL INFORMATION.
(a) Not applicable.
(b) The information set forth under the caption "The Conversion
Offer -- Conditions" is incorporated herein by reference.
(c) The information set forth under the caption "Special
Considerations -- Market for Series A Preferred Stock" is incorporated herein by
reference.
(d) Not applicable.
(e) Reference is hereby made to the Offer of Premium and the related
Special Conversion Notice and Registration Agreement, copies of which appear as
Exhibits (a)(1), (a)(2) and (a)(3) hereto, respectively, and which are
incorporated herein by reference in their entirety.
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ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
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(a)(1) -- Offer of Premium Upon Conversion dated February 21, 1995
(a)(2) -- Special Conversion Notice
(a)(3) -- Registration Agreement
(a)(4) -- Notice of Guaranteed Delivery
(a)(5) -- Letter to Brokers, Dealers, Commercial Banks, Trust Companies and
Other Nominees
(a)(6) -- Letter to Clients for use by Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees
(a)(7) -- Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9
(a)(8) -- Form of Press Release dated February 21, 1995
(a)(9) -- Annual Report on Form 10-K for the Fiscal Year Ended January 30,
1994, of Dell Computer Corporation
(a)(10) -- Quarterly Report on Form 10-Q for the Quarterly Period Ended
October 30, 1994, of Dell Computer Corporation
(a)(11) -- Current Report on Form 8-K, dated February 21, 1995
(b) -- Not applicable
(c) -- See Exhibit (a)(3)
(d) -- Opinion of Baker & McKenzie dated February 21, 1995
(e) -- Not applicable
(f) -- Question and Answer -- For Use by Dell Computer Corporation
Employees Only
</TABLE>
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this Statement is true, complete and correct.
DELL COMPUTER CORPORATION
By: /s/ THOMAS J. MEREDITH
Name: Thomas J. Meredith
Title: Chief Financial Officer
Dated: February 21, 1995
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INDEX TO EXHIBITS
<TABLE>
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EXHIBIT
NUMBER DESCRIPTION PAGE NUMBER
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<S> <C> <C>
(a)(1) -- Offer of Premium Upon Conversion dated February 21, 1995
(a)(2) -- Special Conversion Notice
(a)(3) -- Registration Agreement
(a)(4) -- Notice of Guaranteed Delivery
(a)(5) -- Letter to Brokers, Dealers, Commercial Banks, Trust Companies and
Other Nominees
(a)(6) -- Letter to Clients for use by Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees
(a)(7) -- Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9
(a)(8) -- Form of Press Release dated February 21, 1995
(a)(9) -- Annual Report on Form 10-K for the Fiscal Year Ended January 30,
1994, of Dell Computer Corporation
(a)(10) -- Quarterly Report on Form 10-Q for the Quarterly Period Ended
October 30, 1994, of Dell Computer Corporation
(a)(11) -- Current Report on Form 8-K, dated February 21, 1995
(b) -- Not applicable
(c) -- See Exhibit (a)(3)
(d) -- Opinion of Baker & McKenzie dated February 21, 1995
(e) -- Not applicable
(f) -- Question and Answer -- For Use by Dell Computer Corporation
Employees Only
</TABLE>
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OFFER OF PREMIUM UPON CONVERSION
OF ANY AND ALL OF THE OUTSTANDING
SERIES A CONVERTIBLE PREFERRED STOCK
OF
DELL COMPUTER CORPORATION
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT MIDNIGHT,
NEW YORK CITY TIME, ON WEDNESDAY, MARCH 22, 1995,
UNLESS EXTENDED BY THE COMPANY.
Dell Computer Corporation, a Delaware corporation (the "Company" or
"Dell"), hereby offers to pay a cash premium of $8.25 (the "Conversion Premium")
for each share of its Series A Convertible Preferred Stock (the "Series A
Preferred Stock") that is converted to common stock, par value $.01 per share
("Common Stock"), of the Company from the date of this Offer of Premium through
12:00 midnight, New York City time, on Wednesday, March 22, 1995, unless
extended (the "Special Conversion Period"). A holder of Series A Preferred Stock
who elects to convert during the Special Conversion Period will receive 4.2105
shares of Common Stock (equivalent to a conversion price of $23.75 per share of
Common Stock) and the Conversion Premium of $8.25 in cash for each share of
Series A Preferred Stock converted. At the conclusion of the Special Conversion
Period, a holder of shares of Series A Preferred Stock who did not convert those
shares to Common Stock during the Special Conversion Period will not be entitled
to the Conversion Premium upon conversion.
The Company will register under the Securities Act of 1933, as amended (the
"Securities Act"), and applicable U.S. state securities laws, the resale of the
shares of Common Stock to be issued upon conversion of Series A Preferred Stock
pursuant to this offer by the holders thereof (the "Resale Registration") if and
to the extent those holders enter into a Registration Agreement with the Company
and subject to the terms and conditions of the Registration Agreement. Under the
Resale Registration, resales of such Common Stock may be made for 30 calendar
days (the "Resale Window") only in ordinary brokerage transactions and
transactions in which brokers solicit purchasers. The Company currently intends
to use its reasonable commercial efforts to have the Resale Registration
declared effective as soon as reasonably practicable following completion of the
Conversion Offer. However, the Company may delay the effectiveness of the Resale
Registration in its discretion until a later date as the Company determines may
be required or advisable. There can be no assurance about when the Resale
Registration will become effective. Shares of Common Stock issued upon
conversion of Series A Preferred Stock and not sold pursuant to the Resale
Registration will remain restricted securities under the Securities Act. See
"Special Considerations -- Restrictions on Resale." Holders of Series A
Preferred Stock who elect to convert Series A Preferred Stock pursuant to the
Conversion Offer will not receive future, regular dividend payments with respect
to Series A Preferred Stock, including any amount in respect of periods since
January 27, 1995.
The offer is made on the terms and subject to the conditions set forth in
this Offer of Premium and any supplements or amendments thereto (the "Offer of
Premium"), in the related Special Conversion Notice, and in the related
Registration Agreement (which together constitute the "Conversion Offer"). The
Conversion Offer is not conditioned on any minimum number of shares of Series A
Preferred Stock being tendered for conversion.
BEFORE MAKING A DECISION WHETHER TO ACCEPT THE CONVERSION OFFER, EACH
HOLDER OF SERIES A PREFERRED STOCK SHOULD CAREFULLY CONSIDER THE FACTORS
DESCRIBED IN "SPECIAL CONSIDERATIONS."
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NEITHER THIS TRANSACTION NOR THE SECURITIES TO BE ISSUED UPON CONVERSION OF THE
SERIES A PREFERRED STOCK HAVE BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE FAIRNESS OR MERITS OF THIS TRANSACTION OR UPON THE
ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS
DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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The date of this Offer of Premium is February 21, 1995.
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THE SERIES A PREFERRED STOCK AND SHARES OF COMMON STOCK ISSUABLE UPON
CONVERSION THEREOF HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, EXCEPT THAT SUCH COMMON
STOCK MAY BE REGISTERED FOR RESALE DURING THE RESALE WINDOW ON THE TERMS AND
SUBJECT TO THE CONDITIONS OF THE REGISTRATION AGREEMENT. OTHER THAN PURSUANT TO
THE RESALE REGISTRATION, THE SHARES OF SERIES A PREFERRED STOCK AND THE COMMON
STOCK ISSUABLE UPON CONVERSION MAY NOT BE OFFERED, RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT (A) BY THE INITIAL INVESTOR IN THE SERIES A PREFERRED STOCK
(1) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL
BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A OR TO THE COMPANY, (2) IN AN OFFSHORE
TRANSACTION IN ACCORDANCE WITH RULE 903 OR 904 OF REGULATION S UNDER THE
SECURITIES ACT, OR (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED BY
RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), OR (B) BY SUBSEQUENT
INVESTORS, AS SET FORTH IN (A) ABOVE AND, IN ADDITION, TO AN INSTITUTIONAL
ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501 UNDER THE SECURITIES ACT IN A
TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, IN
EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES.
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TABLE OF CONTENTS
<TABLE>
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The Conversion Offer.................... 1
Special Considerations.................. 5
Capitalization.......................... 9
Summary Consolidated Financial Data..... 10
Beneficial Ownership and Market Prices.. 11
Dividend Policy......................... 12
Procedures for Conversion and
Registration.......................... 12
Certain Federal Income Tax
Considerations........................ 17
Description of Capital Stock............ 20
Available Information................... 24
Incorporation of Certain Documents
by Reference.......................... 25
Conversion Agent........................ 26
</TABLE>
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The Conversion Offer is being made by the Company in reliance on the
exemption from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), afforded by Section 3(a)(9) thereof. The Company
will not pay any commission or other remuneration to any broker, dealer,
salesman or other person for soliciting conversion of the Series A Preferred
Stock. Regular employees of the Company may solicit holders concerning the
Conversion Offer to holders of the Series A Preferred Stock, but they will not
receive additional compensation for doing so.
THE COMPANY HAS MADE NO ARRANGEMENTS FOR AND HAS NO UNDERSTANDING WITH ANY
DEALER, SALESMAN OR OTHER PERSON REGARDING THE SOLICITATION OF HOLDERS OF SERIES
A PREFERRED STOCK TO TENDER SERIES A PREFERRED STOCK FOR CONVERSION, AND NO
PERSON HAS BEEN AUTHORIZED BY THE COMPANY TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE CONVERSION OFFER AND, IF GIVEN OR MADE,
SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THE DELIVERY OF THIS OFFER OF PREMIUM SHALL NOT,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION THEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
THE CONVERSION OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY OR THE
CONVERSION AGENT ACCEPT SERIES A PREFERRED STOCK TENDERED FOR CONVERSION FROM,
HOLDERS OF SERIES A PREFERRED STOCK IN ANY JURISDICTION IN WHICH THE CONVERSION
OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES
OR BLUE SKY LAWS OF SUCH JURISDICTION. THE COMPANY WILL MAKE A GOOD FAITH EFFORT
TO COMPLY WITH APPLICABLE SECURITIES AND BLUE SKY LAWS IN ORDER TO PREVENT THE
EXCLUSION OF HOLDERS OF SERIES A PREFERRED STOCK FROM THE CONVERSION OFFER.
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THE CONVERSION OFFER
PURPOSE
The purpose of the Conversion Offer is to induce conversion of the Series A
Preferred Stock into Common Stock. The Company believes the effects of
conversion will be to strengthen the Company's balance sheet, to eliminate or
reduce the future dividend payments on the Series A Preferred Stock, and to
eliminate or reduce the uncertainty and potential effects on the market price of
the Common Stock associated with the possible future conversion of the Series A
Preferred Stock.
NO RECOMMENDATION OR FAIRNESS OPINION
THE BOARD OF DIRECTORS OF THE COMPANY HAS NOT EXPRESSED A VIEW WITH RESPECT
TO THE FAIRNESS OF THE CONVERSION OFFER TO HOLDERS OF SERIES A PREFERRED STOCK.
NEITHER THE COMPANY NOR THE BOARD OF DIRECTORS OF THE COMPANY HAS SOUGHT OR
RECEIVED A FAIRNESS OPINION ABOUT THE TERMS OF THE CONVERSION OFFER TO HOLDERS
OF SERIES A PREFERRED STOCK. NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS HAS
RECOMMENDED THAT HOLDERS OF SERIES A PREFERRED STOCK TENDER THEIR SERIES A
PREFERRED STOCK FOR CONVERSION PURSUANT TO THE CONVERSION OFFER OR REFRAIN FROM
TENDERING SERIES A PREFERRED STOCK FOR CONVERSION PURSUANT TO THE CONVERSION
OFFER. NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS HAS RECOMMENDED THAT
HOLDERS OF SERIES A PREFERRED STOCK ACCEPT OR REFUSE TO INCLUDE SHARES IN THE
RESALE REGISTRATION OR TO RESELL THEIR COMMON STOCK PURSUANT TO THE RESALE
REGISTRATION. EACH HOLDER OF SERIES A PREFERRED STOCK SHOULD CAREFULLY REVIEW
THIS OFFER OF PREMIUM AND DETERMINE FOR ITSELF WHETHER TO TENDER SERIES A
PREFERRED STOCK PURSUANT TO THE CONVERSION OFFER, WHETHER TO SIGN THE
REGISTRATION AGREEMENT, AND WHETHER TO RESELL SHARES OF COMMON STOCK PURSUANT TO
THE RESALE REGISTRATION.
CONVERSION
The Company hereby offers to pay a cash Conversion Premium of $8.25 for
each share of its Series A Preferred Stock that is converted to Common Stock
during the Special Conversion Period. A holder of Series A Preferred Stock who
elects to convert during the Special Conversion Period will receive 4.2105
shares of Common Stock (equivalent to a conversion price of $23.75 per share of
Common Stock) and the Conversion Premium of $8.25 in cash for each share of
Series A Preferred Stock converted. The Conversion Premium will be funded from
the working capital of the Company. As of January 29, 1995, the Company had
approximately $719 million in working capital, including approximately $527
million in cash and short-term investments. Assuming all of the outstanding
shares of Series A Preferred Stock are converted during the Special Conversion
Period, the holders of Series A Preferred Stock will receive an aggregate of
5,263,125 shares of Common Stock and $10,312,500 in cash (subject to applicable
income taxes and back-up withholding obligations). At the conclusion of the
Special Conversion Period, a holder of shares of Series A Preferred Stock who
did not convert those shares to Common Stock in the Conversion Offer will not be
entitled to the Conversion Premium upon conversion. Holders may elect to convert
some or all of their shares of Series A Preferred Stock pursuant to the
Conversion Offer.
In establishing the Conversion Premium being offered to the holders of
Series A Preferred Stock as an inducement to tender their Series A Preferred
Stock for conversion, the Company considered (i) an estimated present value of
dividend payments (using a discount rate based on the Company's estimated
weighted average cost of capital) that are expected to be declared after
February 15, 1995, through August 25, 1996, which is the first date the Company
may call the Series A Preferred Stock for redemption; (ii) the prices at which
Series A Preferred Stock has been
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sold in private transactions, to the extent the Company could obtain that
information, and the increase in those prices since the date the Series A
Preferred Stock was issued; (iii) recent trading prices for Common Stock on the
Nasdaq National Market; (iv) the potential benefits of increased liquidity in a
public market that the Resale Registration could afford holders of Series A
Preferred Stock who convert Series A Preferred Stock pursuant to the Conversion
Offer; and (v) potential transaction costs that may be incurred by holders in
connection with the sale of shares of Common Stock under the Resale
Registration.
The number of shares of Common Stock to be issued for each share of Series
A Preferred Stock converted in the Conversion Offer is the number originally
provided in the Certificate of Designation with respect to the Series A
Preferred Stock. No adjustment of the conversion ratio of the Series A Preferred
Stock has been made. No adjustment in the conversion ratio of the Series A
Preferred Stock or in the number of shares of Common Stock issuable upon
conversion thereof will be necessary as a result of the Conversion Offer.
Shares of Series A Preferred Stock that the Company receives on conversion
will be restored to the status of authorized but unissued shares of preferred
stock, without designation as to class, and may thereafter be issued (but not as
Series A Preferred Stock). Shares of Series A Preferred Stock that are not
converted pursuant to the Conversion Offer or otherwise will continue to retain
their original rights, preferences and limitations as provided in the
Certificate of Designation relating to those shares.
RESALE REGISTRATION
The Company will register under the Securities Act and applicable U.S.
state securities laws the resale of the shares of Common Stock to be issued upon
conversion of Series A Preferred Stock pursuant to the Conversion Offer by the
holders thereof, if the holders enter into a Registration Agreement with the
Company and subject to the terms and conditions of the Registration Agreement.
The Resale Registration will be made through a Registration Statement to be
filed with the Securities and Exchange Commission (the "Commission"). After the
Commission declares the Registration Statement effective, holders of Common
Stock that are identified in the Registration Statement may resell their Common
Stock during the 30-day Resale Window only in ordinary brokerage transactions
and transactions in which the broker solicits purchasers. The Company currently
intends to use its reasonable commercial efforts to have the Commission declare
the Registration Statement effective as soon as reasonably practicable following
completion of the Conversion Offer. However, the Company may delay the
effectiveness of the Registration Statement in its discretion until a later date
as the Company determines may be required or advisable. The Registration
Statement will not be available for resales until the Commission has declared
the Registration Statement to be, or allowed it to become, effective. There can
be no assurance about when the Registration Statement will become effective.
The Resale Registration will be governed by the terms and conditions of the
Registration Agreement, which holders should read and consider carefully. The
Company will register only those shares of Common Stock that have been issued in
this Conversion Offer and only if the Conversion Agent has received a properly
completed and manually signed Registration Agreement with respect to those
shares. Holders of Series A Preferred Stock desiring to have such Common Stock
registered in the Resale Registration must deliver to the Conversion Agent, on
or before the Expiration Date (hereafter defined), a duly completed and signed
Registration Agreement. In the Registration Agreement, the Company will agree to
indemnify holders signing the Registration Agreement for certain liabilities
under the Securities Act relating to the Resale Registration, and the holders
will agree to indemnify the Company for certain liabilities under the Securities
Act arising from information provided by such holders for use in the Resale
Registration. In the Registration Agreement, holders will also agree to comply
with applicable securities laws, including prospectus delivery requirements,
prohibitions against using Common Stock issued upon conversion of
2
<PAGE> 5
Series A Preferred Stock to cover any short position in the Common Stock
established by that holder, and the provisions of Rule 10b-6 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). In addition, holders who
sell shares of Common Stock pursuant to the Resale Registration may be deemed to
be statutory "underwriters" under the Securities Act, subject to the liability
provisions thereof. See "Special Considerations -- Registration Agreement
Provisions." Holders may elect to have some or all of their Common Stock issued
upon conversion of Series A Preferred Stock in the Conversion Offer registered
for resale pursuant to the Resale Registration.
The purpose of the Resale Registration is to encourage conversion of the
Series A Preferred Stock by providing holders with increased liquidity during a
30-day period for the shares of Common Stock issued upon conversion of the
Series A Preferred Stock. Shares of Common Stock issued upon conversion of
Series A Preferred Stock will be restricted securities within the meaning of
Rule 144 of the Securities Act and will be subject to restrictions on
transferability. See "Special Considerations -- Restrictions on Resale."
Accordingly, the Resale Registration is expected to be the only opportunity for
holders to sell the Common Stock issued on conversion in a public market until
the holding period for restricted securities specified in Rule 144 under the
Securities Act has expired. See "Special Considerations -- Market for Restricted
Common Stock."
REGULAR DIVIDEND PAYMENTS
Holders of Series A Preferred Stock who elect to convert Series A Preferred
Stock pursuant to the Conversion Offer will not receive future, regular dividend
payments with respect to Series A Preferred Stock, including any amount in
respect of periods since January 27, 1995, the last record date for payment of
regularly scheduled dividends.
EXPIRATION AND EXTENSION
The Company will pay the Conversion Premium with respect to any and all
shares of Series A Preferred Stock tendered for conversion and not withdrawn
before 12:00 midnight, New York City time, on Wednesday, March 22, 1995, unless
extended by the Company in its sole discretion (such date, as may be extended,
the "Expiration Date"). In order to extend the Conversion Offer, the Company
will notify the Conversion Agent and make a public announcement of the extension
before 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date. Tenders of Series A Preferred Stock for
conversion may be withdrawn at any time before the Expiration Date.
If the Company accepts Series A Preferred Stock for conversion pursuant to
the Conversion Offer, the Company will proceed with the Resale Registration with
respect to shares of Common Stock for which a properly completed and duly signed
Registration Agreement has been received by the Conversion Agent and not
withdrawn before the Expiration Date. Registration Agreements may be withdrawn
at any time before the Expiration Date.
CONDITIONS
The Conversion Offer is not conditioned upon any minimum number of shares
of Series A Preferred Stock being tendered for conversion pursuant to the
Conversion Offer. The Conversion Offer is subject to certain customary
conditions. See "Procedures for Conversion and Registration." The Resale
Registration is subject to the Company's acceptance of Series A Preferred Stock
for conversion pursuant to the Conversion Offer, the Conversion Agent's receipt
of a properly completed and duly signed Registration Agreement with respect to
the shares to be included in the Registration Statement, and other customary
terms and conditions specified in the Registration Agreement. A holder's ability
to resell Common Stock pursuant to the Resale Registration is subject to the
Commission's declaring the Registration Statement effective and to compliance
with state securities laws. See "Procedures for Conversion and Registration."
There can be no assurance about when the Registration Statement will become
effective.
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The Conversion Offer is made on the terms and subject to the conditions set
forth in this Offer of Premium, in the related Special Conversion Notice, and in
the related Registration Agreement. The Company intends to conduct the
Conversion Offer in accordance with the applicable requirements of the Exchange
Act and the rules and regulations of the Commission thereunder.
MODIFICATION AND TERMINATION
The Company expressly reserves the right, at its sole discretion, in each
case subject to applicable law, to (i) delay payment of the Conversion Premium,
or terminate the Conversion Offer and not pay the Conversion Premium and
promptly return all Series A Preferred Stock to the holders of Series A
Preferred Stock who elected to convert pursuant to the Conversion Offer by
giving oral or written notice of the delay or termination to the Conversion
Agent prior to the Expiration Date, (ii) waive any condition to the Conversion
Offer and pay the Conversion Premium on all Series A Preferred Stock tendered
for conversion pursuant thereto, (iii) waive any condition to the Resale
Registration, (iv) extend the Expiration Date and retain all Series A Preferred
Stock tendered pursuant to the Conversion Offer, and not withdrawn, until the
expiration thereof, (v) amend the terms of the Conversion Offer, (vi) modify the
form or amount of the consideration to be paid pursuant to the Conversion Offer,
or (vi) delay the effectiveness of the Registration Statement for the Resale
Registration as the Company determines may be required or advisable. Any
amendment to the Conversion Offer will apply to all Series A Preferred Stock
tendered for conversion pursuant to the Conversion Offer, and any amendment to
the Registration Agreement will apply to all Common Stock subject to a
Registration Agreement.
FEES AND EXPENSES
The holders of Series A Preferred Stock who elect to convert pursuant to
the Conversion Offer will not be obligated to pay brokerage commissions, fees or
transfer taxes upon conversion of Series A Preferred Stock pursuant to the
Conversion Offer. The Company will pay all its charges and expenses in
connection with the Conversion Offer. Holders will be responsible for their own
income taxes, administrative expenses, and the fees and expenses of their own
advisors.
The holders of Series A Preferred Stock who elect to have the Common Stock
issuable upon conversion registered in the Resale Registration will not be
obligated to pay fees and expenses of the Resale Registration. However, such
holders will be obligated to pay any transfer taxes, income taxes, and brokerage
fees upon resale of that Common Stock.
The Company estimates that the aggregate amount of fees and expenses it
will incur in connection with the Conversion Offer is approximately $300,000.
ACCEPTANCE PROCEDURES
TO RECEIVE THE CONVERSION PREMIUM OFFERED HEREBY, YOU MUST COMPLETE THE
SPECIAL CONVERSION NOTICE PROVIDED WITH THIS OFFER OF PREMIUM AND RETURN IT TO
THE CONVERSION AGENT OR, IF YOUR SHARES ARE HELD IN BOOK-ENTRY FORM THROUGH THE
DEPOSITORY TRUST COMPANY ("DTC"), YOU MUST COMPLY WITH THE BOOK-ENTRY TENDER
PROCEDURES, IN EACH CASE BY THE EXPIRATION DATE OF 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON WEDNESDAY, MARCH 22, 1995, UNLESS EXTENDED BY THE COMPANY. See
"Procedures for Conversion and Registration" and the Special Conversion Notice.
To have shares of Common Stock issued upon conversion of shares of Series A
Preferred Stock in the Conversion Offer registered for resale in the Resale
Registration, you must complete the Registration Agreement provided with this
Offer of Premium and deliver a manually signed copy to the Conversion Agent
before the Expiration Date. EVEN IF YOUR SHARES ARE HELD IN BOOK-ENTRY FORM, YOU
MUST COMPLETE AND TIMELY DELIVER A MANUALLY SIGNED REGISTRATION AGREEMENT TO THE
CONVERSION AGENT BEFORE THE EXPIRATION DATE IN ORDER TO HAVE SHARES OF COMMON
STOCK INCLUDED IN THE REGISTRATION STATEMENT. See "Procedures for Conversion and
Registration" and the Registration Agreement.
4
<PAGE> 7
The Company will be deemed to have accepted valid Special Conversion
Notices and Registration Agreements when, as and if the Company has given oral
or written notice thereof to the Conversion Agent. The acceptance for conversion
of Series A Preferred Stock validly tendered for conversion pursuant to the
Conversion Offer and not properly withdrawn will be made as promptly as
practicable after the Expiration Date. If any tendered Series A Preferred Stock
is not accepted for conversion because of an invalid or late Special Conversion
Notice or otherwise, certificates for the unaccepted Series A Preferred Stock
will be returned, without expense, to the tendering holders thereof as soon as
practicable after the Expiration Date.
SPECIAL CONSIDERATIONS
In addition to the other information contained in this Offer of Premium,
holders of Series A Preferred Stock should consider carefully the following
factors before tendering Series A Preferred Stock pursuant to the Conversion
Offer.
RESTRICTIONS ON RESALE
The shares of Series A Preferred Stock were originally issued on August 26,
1993, in a private placement exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) and Regulation D under the Securities
Act. The shares were resold by the purchaser in transactions exempt from the
registration requirements of the Securities Act in reliance on Rule 144A and
Regulation S under the Securities Act. The Series A Preferred Stock and shares
of Common Stock issuable upon conversion thereof have not been and will not be
registered under the Securities Act or any state securities laws, except that
Common Stock issued upon conversion in the Conversion Offer may be registered
for resale during the 30-day Resale Window pursuant to the Resale Registration.
Other than pursuant to the Resale Registration, the shares of Series A Preferred
Stock and the Common Stock issuable upon conversion may not be offered, resold,
pledged or otherwise transferred except (a) by the initial investor in the
Series A Preferred Stock (1) to a person who the seller reasonably believes is a
qualified institutional buyer within the meaning of Rule 144A under the
Securities Act in a transaction meeting the requirements of Rule 144A or to the
Company, (2) in an offshore transaction in accordance with Rule 903 or 904 of
Regulation S under the Securities Act, or (3) pursuant to an exemption from
registration provided by Rule 144 under the Securities Act (if available), or
(b) by subsequent investors, as set forth in (a) above and, in addition, to an
institutional accredited investor within the meaning of Rule 501 under the
Securities Act in a transaction exempt from the registration requirements of the
Securities Act, in each case in accordance with any applicable securities laws
of any state of the United States.
MARKET FOR THE SERIES A PREFERRED STOCK
Although the Series A Preferred Stock is subject to various restrictions on
transfer, trades occur from time to time through the Private Offerings, Resales
and Trading through Automated Linkages ("PORTAL") system of the National
Association of Securities Dealers, Inc. in which only qualified institutional
buyers (as defined in Rule 144A under the Securities Act) may participate and in
other private transactions. Private trading in the Series A Preferred Stock is
limited, and there is currently no established trading market for the Series A
Preferred Stock. To the extent that shares of Series A Preferred Stock are
converted as a result of the Conversion Offer, the number of outstanding shares
of Series A Preferred Stock will be reduced. Accordingly, the Company
anticipates that the private market could be substantially reduced for shares of
Series A Preferred Stock remaining outstanding after the Conversion Offer.
Shares of Series A Preferred Stock that are not converted may not continue to be
eligible for trading on the PORTAL system or be eligible for book-entry
transfer. The shares of Series A Preferred Stock are not "margin securities"
under the regulations of the Board of Governors of the Federal Reserve System
(the "Federal Reserve Board"), meaning that, among other things, brokers may not
extend credit on the collateral of the Series A Preferred Stock. Following the
Conversion Offer, the shares of Series A Preferred Stock would continue not to
5
<PAGE> 8
constitute "margin securities" for the purposes of the Federal Reserve Board
and, therefore, could not be used as collateral for loans made by brokers.
MARKET FOR THE RESTRICTED COMMON STOCK
Shares of Common Stock issued upon conversion of Series A Preferred Stock
will be restricted securities within the meaning of Rule 144 under the
Securities Act and will be subject to limitations on transferability as
described in "Special Considerations -- Restrictions on Resale." Based on
current law and assuming that the holding period of the Common Stock may tack
back to the date of original issuance of the Series A Preferred Stock, the
Company believes that shares of Common Stock issued upon conversion of Series A
Preferred Stock may be resold publicly after August 26, 1995, pursuant to Rule
144. In general, under Rule 144 as currently in effect, if two years have
elapsed since the later of the date of acquisition of restricted shares from the
Company or any "affiliate" (as defined below) of the Company, the acquiror or
subsequent holder (including an affiliate) is entitled to sell, within any
three-month period, that number of shares that does not exceed the greater of 1%
of the then outstanding shares of Common Stock or the average weekly trading
volume of the shares of Common Stock on all exchanges and/or reported through
the automated quotation system of a registered securities association during the
four calendar weeks preceding the date on which notice of the sale is filed with
the Commission. Sales under Rule 144 are also subject to certain restrictions
relating to manner of sale, notice requirements and the availability of current
public information about the Company. If three years have elapsed since the
later of the date of acquisition of restricted shares from the Company or from
any affiliate of the Company, and the acquiror or subsequent holder thereof is
deemed not to have been an affiliate of the Company at any time during the 90
days preceding a sale, such person would be entitled to sell such shares in the
public market under Rule 144(k) without regard to the volume limitations, manner
of sale provisions, public information requirements or notice requirements. As
defined in Rule 144, an "affiliate" of an issuer is a person that directly, or
indirectly through the use of one or more intermediaries, controls, or is
controlled by, or is under common control with, such issuer.
REGISTRATION AGREEMENT PROVISIONS
The holders of Series A Preferred Stock do not currently have registration
rights with respect to their shares or the Common Stock issuable upon conversion
of Series A Preferred Stock.
Certain provisions of the Registration Agreement are intended to provide
the Company and the holders of Common Stock issued upon conversion of Series A
Preferred Stock pursuant to the Conversion Offer with certain rights and
obligations comparable to those typically found in registration rights
agreements. In the Registration Agreement, the Company will agree to indemnify
such holders who sign the Registration Agreement for certain liabilities under
the Securities Act relating to the Resale Registration, and those holders will
agree to indemnify the Company for certain liabilities under the Securities
arising from information provided by those holders for use in the Resale
Registration. In the Registration Agreement, those holders will also agree to
comply with applicable securities laws, including prospectus delivery
requirements. The Registration Agreement also contains covenants intended to
assure that holders comply with certain other securities laws applicable to a
secondary distribution of securities. See "Special Considerations -- Short
Sales" and "Special Considerations -- Cooling Off Period."
The Company currently intends to use its reasonable commercial efforts to
have the Resale Registration declared effective as soon as reasonably
practicable following completion of the Conversion Offer. However, the Company
may delay the effectiveness of the Resale Registration in its discretion until a
later date as the Company determines may be required or advisable. There can be
no assurance about when the Resale Registration will become effective.
6
<PAGE> 9
SHORT SALES
In order to avoid violation of the registration requirements of the
Securities Act, holders of Series A Preferred Stock may not use Common Stock
issuable upon conversion to cover short positions in the Company's Common Stock.
Sales of Common Stock issuable upon conversion may be made only after the
conversion has occurred and only in accordance with the applicable legal and
contractual transfer restrictions. See "Special Considerations -- Restrictions
on Resale." Sales of Common Stock covered by the Resale Registration may be made
only after the holder has received notice from the Company that the Commission
has declared the Registration Statement for such resales effective under the
Securities Act, and then during the Resale Window for so long as the
Registration Statement is effective. HOLDERS ARE URGED TO CONSULT THEIR LEGAL
COUNSEL FOR ADVICE ABOUT COMPLIANCE WITH FEDERAL AND STATE SECURITIES LAWS.
COOLING OFF PERIOD
Rule 10b-6 under the Exchange Act prohibits persons (subject to some
exceptions) who are engaged in a distribution of Common Stock from bidding for
or purchasing, or inducing other persons to bid for or purchase, Common Stock or
any right to purchase the Common Stock until they have completed their
participation in the distribution. Under Rule 10b-6 and Commission
interpretations of that rule, a selling shareholder in the Resale Registration
and affiliates of that selling shareholder must cease bidding for and purchasing
Common Stock and Series A Preferred Stock at least two business days before the
selling shareholder offers or sells Common Stock pursuant to the Registration
Statement in the Resale Registration. Such bids and purchases may not be made
for so long as the shares of Common Stock registered in the Resale Registration
and held by that selling shareholder (or persons acting in concert or affiliated
with that selling shareholder) remain unsold. Broker-dealers may also be subject
to this cooling-off period if their activities are deemed to be participation in
the distribution, such as if the broker-dealer purchases securities as principal
from a selling shareholder or sells securities as agent for a selling
shareholder. Consequently, the Registration Agreement provides that the Resale
Registration will be available only in ordinary brokerage transactions,
including ordinary transactions in which brokers solicit purchasers. HOLDERS ARE
URGED TO CONSULT THEIR LEGAL COUNSEL FOR ADVICE ABOUT COMPLIANCE WITH RULE 10B-6
IF THEY DETERMINE TO INCLUDE SHARES IN THE RESALE REGISTRATION.
NO DETERMINATION ABOUT THE FAIRNESS OF THE CONVERSION OFFER
The Board of Directors of the Company has not expressed a view with respect
to the fairness of the Conversion Offer to holders of Series A Preferred Stock.
Neither the Company nor the Board of Directors of the Company has sought or
received a fairness opinion about the terms of the Conversion Offer to holders
of Series A Preferred Stock. Neither the Company nor its Board of Directors has
recommended that holders of Series A Preferred Stock tender their Series A
Preferred Stock for conversion pursuant to the Conversion Offer or refrain from
tendering Series A Preferred Stock for conversion pursuant to the Conversion
Offer. Neither the Company nor its Board of Directors has recommended that
holders of Series A Preferred Stock accept or refuse to include shares in the
Resale Registration or to resell their Common Stock pursuant to the Resale
Registration. Each holder of Series A Preferred Stock should carefully review
this Offer of Premium and determine for itself whether to tender Series A
Preferred Stock pursuant to the Conversion Offer, whether to sign the
Registration Agreement, and whether to resell shares of Common Stock pursuant to
the Resale Registration.
FEDERAL INCOME TAX CONSIDERATIONS
It is more likely than not that the payment of the cash Conversion Premium
will be treated for tax purposes as ordinary dividend income to a recipient,
provided that the recipient makes no dispositions of Common Stock or Series A
Preferred Stock that are considered to be part of the same integrated plan as
the conversion of the Series A Preferred Stock. The Conversion Premium may be
taxable as ordinary dividend income or capital gain to recipients who dispose of
Common
7
<PAGE> 10
Stock or Series A Preferred Stock as part of the same integrated plan as the
conversion of the Series A Preferred Stock, depending on their individual
circumstances. See "Certain Federal Income Tax Considerations."
NO APPRAISAL RIGHTS
Holders of Series A Preferred Stock are not entitled to appraisal under
applicable law in connection with the Conversion Offer.
SUBORDINATED STATUS OF COMMON STOCK
The Common Stock received upon conversion of any Series A Preferred Stock
will rank junior in right of payment of dividends and liquidating distributions
to all existing and future indebtedness of the Company, including the Company's
11% Senior Notes Due August 15, 2000, and will also rank junior in right of
payment to other debentures, notes or preferred stock of the Company, whether
now or hereafter issued (including the shares of Series A Preferred Stock that
are not converted).
VOLATILITY OF STOCK PRICE
The Common Stock is currently quoted on the Nasdaq National Market. The
Company believes that factors including but not limited to new product or other
announcements by the Company, its competitors or suppliers and quarterly
fluctuations in the Company's and competitors' results of operations have caused
significant fluctuations in the market price of the Common Stock and could
continue to do so in the future. In addition, substantial sales of the Company's
Common Stock in excess of historical trading volumes, as may be occasioned by
the sale of shares of Common Stock in the Resale Registration, are likely to
have an adverse effect on the trading price of the Company's Common Stock.
Further, the Company competes in a highly dynamic industry which may result in
increased volatility of the Company's Common Stock price.
8
<PAGE> 11
CAPITALIZATION
The following table sets forth the actual capitalization of the Company at
October 30, 1994, and the pro forma capitalization adjusted to reflect the
assumed conversion of all of the outstanding shares of Series A Preferred Stock
to Common Stock and the payment of the aggregate Conversion Premium and the
estimated expenses of the Conversion Offer. This table should be read in
conjunction with the Company's Annual Report on Form 10-K for the Fiscal Year
Ended January 30, 1994, and Quarterly Report on Form 10-Q for the Quarterly
Period Ended October 30, 1994, incorporated herein by reference.
<TABLE>
<CAPTION>
OCTOBER 30, 1994
----------------------
ACTUAL PRO FORMA
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt(1)..................................................... $ 100,000 $ 100,000
Stockholders' equity:
Preferred Stock, $.01 par value (liquidation preference $100.00 per
share); shares authorized: 5,000,000; shares issued and
outstanding: 1,250,000 actual and no shares outstanding pro
forma............................................................ 13 --
Common Stock, $.01 par value; shares authorized: 100,000,000; shares
issued and outstanding: 39,086,664 actual and 44,349,789 pro
forma (2)........................................................ 391 444
Additional paid-in capital.......................................... 342,909 342,869
Unrealized loss on short-term investments........................... (2,451) (2,451)
Retained earnings................................................... 253,114 242,501
Translation adjustment.............................................. (12,155) (12,155)
--------- ---------
Total stockholders' equity....................................... 581,821 571,208
--------- ---------
Total capitalization........................................ $ 681,821 $ 671,208
========= =========
</TABLE>
- ---------------
(1) Consists of the Company's 11% Senior Notes Due August 15, 2000.
(2) Excludes 10,262,391 shares of Common Stock reserved for issuance under the
Company's employee benefit plans. Options for 6,203,033 shares under such
plans were outstanding at October 30, 1994.
9
<PAGE> 12
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth summary consolidated financial data of the
Company. The table also sets forth summary pro forma financial information that
gives effect to the conversion of the Series A Preferred Stock (assuming all
shares are converted) and the payment of the aggregate Conversion Premium and
the estimated expenses of the Conversion Offer. The payment of the Conversion
Premium and the expenses of the Conversion Offer will be treated as an
additional dividend on the Series A Preferred Stock for financial reporting
purposes. Accordingly, the aggregate amount of the Conversion Premium and
expenses paid will be deducted from net income to determine the net income
applicable to common stockholders in the period in which the Conversion Offer is
completed, which will be the first quarter of fiscal 1996 unless the Conversion
Offer is extended or withdrawn. In addition, the weighted average shares
outstanding used to calculate primary earnings per common share will include the
shares of Common Stock issued upon conversion from the Expiration Date to the
end of the period. The summary historical information in this table should be
read in conjunction with the Company's Annual Report on Form 10-K for the Fiscal
Year Ended January 30, 1994, and Quarterly Report on Form 10-Q for the Quarterly
Period Ended October 30, 1994, incorporated herein by reference.
<TABLE>
<CAPTION>
PRO FORMA
-------------------------
YEAR ENDED NINE MONTHS ENDED NINE MONTHS
------------------------- ------------------------- YEAR ENDED ENDED
JANUARY 31, JANUARY 30, OCTOBER 31, OCTOBER 30, JANUARY 30, OCTOBER 30,
1993 1994 1993 1994 1994 1994
----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT RATIO AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.............................. $ 2,013,924 $ 2,873,165 $ 2,130,217 $ 2,442,680 $ 2,873,165 $2,442,680
Gross profit........................... 449,452 432,816 294,466 520,892 432,816 520,892
Operating income (loss)................ 139,112 (39,024) (66,180) 170,592 (39,024) 170,592
Net income (loss)...................... 101,642 (35,833) (53,541) 88,886 (35,833) 88,886
Preferred stock dividends.............. -- (3,743) (1,556) (6,562) -- --
----------- ----------- ----------- ----------- ----------- ----------
Net income (loss) applicable to common
stockholders......................... $ 101,642 $ (39,576) $ (55,097) $ 82,324 $ (35,833) $ 88,886
=========== =========== =========== =========== =========== ==========
Earnings (loss) per common share(1):
Primary.............................. $ 2.59 $ (1.06) $ (1.48) $ 2.01 $ (0.84) $ 1.92
Fully diluted........................ -- -- -- $ 1.89 -- --
Weighted average shares used to compute
earnings per share(1):
Primary.............................. 39,235 37,333 37,227 41,009 42,596 46,272
Fully diluted........................ -- -- -- 46,944 -- --
Ratio of earnings to combined fixed
charges and preferred stock
dividends(2)......................... 10.11 --(3) --(3) 5.5 --(3) 8.5
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
-------------------------
JANUARY 31, JANUARY 30, OCTOBER 31, OCTOBER 30, JANUARY 30, OCTOBER 30,
1993 1994 1993 1994 1994 1994
----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF FINANCIAL POSITION
DATA(4):
Working capital........................ $ 358,948 $ 510,397 $ 487,533 $ 624,589 $ 499,784 $ 613,976
Total assets........................... 927,005 1,140,480 1,119,610 1,389,795 1,129,867 1,379,182
Long-term debt......................... 48,373 100,000 100,000 100,000 100,000 100,000
Total stockholders' equity............. 369,200 471,108 448,545 581,821 460,495 571,208
Book value per share................... 10.02 12.42 11.96 14.89 10.66 12.88
</TABLE>
- ---------------
(1) Pro forma primary earnings per share have been computed assuming the
issuance of 5,263,125 shares of Common Stock pursuant to the Conversion
Offer and net income (loss) before the Conversion Premium and the estimated
expenses of the Conversion Offer. The effect of the payment of the
Conversion Premium and the expenses of the Conversion Offer will be treated
as an additional dividend on the Series A Preferred Stock for financial
reporting purposes in the period in which the Conversion Offer is completed.
(2) For purposes of computing the ratio of earnings to combined fixed charges
and preferred stock dividends, earnings consist of income before income
taxes plus fixed charges excluding capitalized interest. Fixed charges
consist of interest incurred, an appropriate portion of rent expense
representative of the interest factor, and preferred stock dividend
requirements equal to the pre-tax earnings that would be required to cover
such dividend requirements based on the Company's effective income tax rates
for the respective periods.
(3) Earnings were inadequate to cover combined fixed charges and preferred
dividend requirements by $43 million for the year ended January 30, 1994,
$70 million for the nine months ended October 31, 1993, and $39 million for
the pro forma year ended January 30, 1994.
(4) Pro Forma Statement of Financial Position Data is adjusted to reflect the
payment of the aggregate Conversion Premium (assuming all shares are
converted) and the estimated expenses of the Conversion Offer.
10
<PAGE> 13
BENEFICIAL OWNERSHIP AND MARKET PRICES
PREFERRED STOCK
As of February 14, 1995, there were 1,250,000 shares of Series A Preferred
Stock outstanding held by 4 record holders. This Offer of Premium, together with
the Special Notice of Conversion and Registration Agreement, is being sent to
those registered holders and to others believed to have beneficial interests in
the Series A Preferred Stock. No officer, director or affiliate of the Company
holds any shares of Series A Preferred Stock.
The Series A Preferred Stock is traded in the PORTAL system of the National
Association of Securities Dealers, Inc. and in other private transactions.
Trading on the PORTAL system is limited, and transaction prices are not readily
available. Accordingly, there is currently no established trading market for the
Series A Preferred Stock. Based on information received from broker-dealers that
purchase or sell the Series A Preferred stock from time to time, the Company
believes that the Series A Preferred Stock currently trades at prices
approximating the market value of the number of shares of Common Stock into
which Series A Preferred Stock is convertible. Holders of Series A Preferred
Stock are urged to obtain current market quotations. To the extent that shares
of Series A Preferred Stock are converted, it is anticipated that the limited
private trading market for unconverted Series A Preferred Stock will become more
limited. There can be no assurance that the Series A Preferred Stock will
continue to be traded in the PORTAL system following the Conversion Offer. See
"Special Considerations -- Market for the Series A Preferred Stock."
COMMON STOCK
If all the shares of Series A Preferred Stock are converted, the Company
will have 44,958,736 shares of Common Stock issued and outstanding (assuming no
additional issuance of shares of Common Stock after February 14, 1995, other
than upon conversion of the Series A Preferred Stock). The Common Stock is
traded in the over-the-counter market and quoted on the Nasdaq National Market
under the symbol DELL. On February 14, 1995, the last reported sale price of the
Common Stock was $45 3/8 per share. The Common Stock issuable upon conversion of
the Series A Preferred Stock will not be eligible for trading in the Nasdaq
National Market and will be subject to the transfer restrictions described in
"Special Considerations -- Restrictions on Resale," except as provided in the
Resale Registration.
The following table sets forth, for the fiscal quarters indicated, the high
and low bid prices for the Common Stock as reported on the Nasdaq National
Market.
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
Fiscal Year Ending January 28, 1996
First Quarter
(January 30, 1995, through February 14, 1995................ $45 5/8 $39 1/2
Fiscal Year Ended January 29, 1995
Fourth Quarter................................................. $47 3/4 $36 3/4
Third Quarter.................................................. $44 $27 1/2
Second Quarter................................................. $30 3/4 $21 1/2
First Quarter.................................................. $30 1/8 $19 1/8
Fiscal Year Ended January 30, 1994
Fourth Quarter................................................. $28 1/8 $20 1/8
Third Quarter.................................................. $21 5/8 $15 1/8
Second Quarter................................................. $34 3/4 $13 7/8
First Quarter.................................................. $49 1/4 $27 5/8
</TABLE>
11
<PAGE> 14
DIVIDEND POLICY
PREFERRED STOCK
Holders of shares of Series A Preferred Stock are entitled to receive,
when, as and if declared by the Board of Directors out of funds legally
available therefore, cash dividends at an annual rate of $7.00 per share,
payable quarterly in arrears. Dividends are cumulative and are payable to the
holders of record as they appear on the stock transfer books on such record
dates as are fixed by the Board of Directors. The Series A Preferred Stock has
priority as to dividends over the Common Stock.
COMMON STOCK
Dividends on the Common Stock are payable when, as and if declared by the
Board of Directors of the Company. The Company has never paid cash dividends on
its Common Stock. The Company intends to retain earnings for use in its business
and, therefore, does not anticipate paying any cash dividends on the Common
Stock for at least the next twelve months. In addition, the Company's current
credit facility generally prohibits the payment of cash dividends by the Company
on the Common Stock except in certain circumstances.
PROCEDURES FOR CONVERSION AND REGISTRATION
The acceptance of the Conversion Offer by a holder of Series A Preferred
Stock pursuant to the procedure set forth below will constitute an agreement
between the holder of Series A Preferred Stock and the Company in accordance
with the terms and subject to the conditions set forth in this Offer of Premium.
CONVERSION OFFER
Except as set forth under "Procedures for Conversion and
Registration -- Book-Entry Transfer," to tender Series A Preferred Stock validly
for conversion pursuant to the Conversion Offer, the Special Conversion Notice
provided herewith, properly completed and duly executed, and any required
signature guarantees and any other required documents must be received on or
before the Expiration Date by the Conversion Agent at its address set forth in
this Offer of Premium. In addition, either (i) the certificates for Series A
Preferred Stock tendered for conversion pursuant to the Conversion Offer must be
received by the Conversion Agent along with such executed Special Conversion
Notice (or facsimile thereof) on or prior to the Expiration Date, or (ii) the
tendering holder must comply with the guaranteed delivery procedures described
below. NO SPECIAL CONVERSION NOTICES AND NO CERTIFICATES FOR SERIES A PREFERRED
STOCK SHOULD BE SENT TO THE COMPANY.
All signatures on a Special Conversion Notice or a notice of withdrawal, as
the case may be, must be guaranteed by an Eligible Institution (as hereinafter
defined), unless the Series A Preferred Stock delivered or withdrawn, as the
case may be, pursuant thereto are delivered (i) by a registered holder (which
term, for the purposes described above, shall include any participant in The
Depository Trust Company (the "Book-Entry Transfer Facility") whose name appears
on a security position listing as the owner of Series A Preferred Stock) or (ii)
for the account of an Eligible Institution. If shares of Series A Preferred
Stock are registered in the name of a person other than the signer of a Special
Conversion Notice or a notice of withdrawal, as the case may be, or if
certificates for shares of Common Stock or certificates for unconverted shares
of Series A Preferred Stock are to be issued or returned to a person other than
the registered holder, then the Series A Preferred Stock must be endorsed by the
registered holder, or be accompanied by a written instrument or instruments of
transfer or conversion in form satisfactory to the Company duly executed by the
registered holder, with such signatures guaranteed by an Eligible Institution.
If signatures on a Special Conversion Notice are required to be guaranteed, such
guarantees must be
12
<PAGE> 15
by a bank, a trust company or a member firm of the New York Stock Exchange (each
of the foregoing being referred to as an "Eligible Institution").
Issuance of Common Stock and payment of the Conversion Premium upon
conversion of the Series A Preferred Stock pursuant to the Conversion Offer will
be made only against delivery of Series A Preferred Stock actually tendered for
conversion. If fewer than all of the shares of Series A Preferred Stock
evidenced by a submitted certificate are converted, the holder of such shares
should fill in the number of shares tendered for conversion in the appropriate
boxes on the Special Conversion Notice with respect to the tender being made.
The Conversion Agent will then reissue and return to the holder of such shares
(unless otherwise requested by the holder of such shares pursuant to the Special
Conversion Notice), as promptly as practicable following the Expiration Date, a
certificate evidencing the number of shares of Series A Preferred Stock not
tendered for conversion. The entire number of shares of Series A Preferred Stock
deposited with the Conversion Agent will be deemed to have been tendered for
conversion unless otherwise indicated.
Holders of Series A Preferred Stock who are not registered holders of, and
seek to convert, Series A Preferred Stock should (i) obtain a properly completed
Special Conversion Notice for such Series A Preferred Stock from the registered
holder with signatures guaranteed by an Eligible Institution, or (ii) obtain and
include with the Special Conversion Notice certificates representing shares of
Series A Preferred Stock properly endorsed for transfer by the registered holder
or accompanied by a written instrument or instruments of transfer or conversion
from the registered holder with signatures on the endorsement or written
instrument or instruments of transfer or conversion guaranteed by an Eligible
Institution, or (iii) effect a record transfer of such Series A Preferred Stock
and comply with the requirements applicable to registered holders for Series A
Preferred Stock being converted prior to the Expiration Date. The Company has no
obligation to transfer any Series A Preferred Stock from the name of the
registered holder thereof if the Company does not accept for conversion pursuant
to the Conversion Offer any of the shares of such Series A Preferred Stock.
If a registered holder desires to deliver Series A Preferred Stock pursuant
to the Conversion Offer but is unable to locate the certificates representing
shares of Series A Preferred Stock to be delivered, the holder should write to
or telephone the transfer agent for the Series A Preferred Stock, American Stock
Transfer Company, Attention: Carolyn O'Neil, 40 Wall Street, New York, New York
10005, telephone (212) 936-5100, about procedures for obtaining replacement
certificates representing shares of Series A Preferred Stock or arranging for
indemnification.
To prevent back-up U.S. federal income tax withholding of 31% on certain
payments, each converting holder of Series A Preferred Stock must properly
complete a Form W-9 as set forth in the Special Conversion Notice. Holders who
do not properly complete Form W-9 may be subject to a $50 penalty imposed by the
Internal Revenue Service and may be subject to backup withholding. Exempt
holders (including among others, corporations and certain foreign individuals)
are not subject to these requirements if they satisfactorily establish their
status as such. See "Certain Federal Income Tax Considerations."
Holders of Series A Preferred Stock desiring to convert their Series A
Preferred Stock pursuant to the terms thereof, and not pursuant to the terms and
conditions of the Conversion Offer, may do so by preparing a conversion notice
and endorsing for transfer to the Company the certificates representing the
Series A Preferred Stock, all in accordance with the Certificate of Designation
related to the Series A Preferred Stock. Series A Preferred Stock delivered to
the Conversion Agent and endorsed for transfer on the reverse side of the
certificate without the Special Conversion Notice provided herewith will not be
deemed to have been delivered pursuant to the Conversion Offer, and no
Conversion Premium will be paid with respect thereto.
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RESALE REGISTRATION
Holders of Series A Preferred Stock desiring to have shares of Common Stock
issued pursuant to the Conversion Offer included in the Resale Registration must
deliver to the Conversion Agent, on or before the Expiration Date, a duly
completed and signed Registration Agreement. Pursuant to the Registration
Agreement, the Company will agree to indemnify holders signing the Registration
Agreement from certain liabilities under the Securities Act relating to the
Resale Registration, and the holders will agree to indemnify the Company from
certain liabilities under the Securities arising from information provided by
such holders for use in the Resale Registration. Holders of Series A Preferred
Stock should carefully consider the terms of the Registration Agreement before
determining whether to include shares in the Resale Registration. Holders may
elect to have some or all of their Common Stock issued upon conversion of Series
A Preferred Stock registered for resale pursuant to the Resale Registration.
VALIDITY AND FORM
All questions as to the form of all documents and the validity (including
the time of receipt), eligibility, acceptance and withdrawal of Series A
Preferred Stock tendered for conversion pursuant to the Conversion Offer will be
determined by the Company, in its sole discretion, which determination shall be
final and binding. The Company expressly reserves the absolute right to reject
any and all Series A Preferred Stock tendered for conversion pursuant to the
Conversion Offer not in proper form and to determine whether the acceptance of
or payment by it for such conversions would be unlawful. The Company expressly
reserves the absolute right to reject any and all Registration Agreements not in
proper form and to determine whether the acceptance of or performance thereunder
by it for such shares sought to be registered would be unlawful. The Company
also reserves the absolute right, subject to applicable law, to waive or amend
any of the conditions of the Conversion Offer or to waive any defect or
irregularity in the conversion of any particular Series A Preferred Stock. None
of the Company, the Conversion Agent, or any other person will be under any duty
to give notification of any defects or irregularities in Series A Preferred
Stock tendered for conversion pursuant to the Conversion Offer or in the
Registration Agreement or any other document or will incur any liability for
failure to give any such notification. No conversion of Series A Preferred Stock
will be deemed to have been validly made until all defects and irregularities
with respect to such Series A Preferred Stock have been cured or waived. Any
Series A Preferred Stock received by the Conversion Agent that are not properly
converted and as to which irregularities have not been cured or waived will be
returned by the Conversion Agent to the holder submitting such Series A
Preferred Stock as soon as practicable following the Expiration Date. The
Company's interpretation of the terms and conditions of the Conversion Offer
will be final and binding on all parties.
THE METHOD OF DELIVERY OF SERIES A PREFERRED STOCK AND ALL OTHER REQUIRED
DOCUMENTS TO THE CONVERSION AGENT IS AT THE ELECTION AND RISK OF HOLDERS OF
SERIES A PREFERRED STOCK. IF SENT BY MAIL, IT IS RECOMMENDED THAT HOLDERS OF
SERIES A PREFERRED STOCK USE PROPERLY INSURED REGISTERED MAIL WITH RETURN
RECEIPT REQUESTED, AND THAT THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE
EXPIRATION DATE TO PERMIT DELIVERY TO THE CONVERSION AGENT ON OR BEFORE THE
EXPIRATION DATE.
BOOK-ENTRY TRANSFER
The Conversion Agent will make a request to establish an account with
respect to the Series A Preferred Stock at the Book-Entry Transfer Facility for
purposes of the Conversion Offer within two business days after the date of this
Offer of Premium, and any financial institution that is a participant in the
Book-Entry Transfer Facility's systems may make book-entry delivery of the
Series A Preferred Stock being tendered by causing the Book-Entry Transfer
Facility to transfer such Series A Preferred Stock into the Conversion Agent's
account at the Book-Entry Transfer
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Facility in accordance with the Book-Entry Transfer Facility's procedures for
transfer. However, although delivery of Series A Preferred Stock may be effected
through book-entry transfer at the Book-Entry Transfer Facility, the Special
Conversion Notice and the Registration Agreement or copy thereof, with any
required signatures, signature guarantees and any other required documents,
must, in any case other than as set forth in the following paragraph, be
transmitted to and received by the Conversion Agent at the address set forth
herein on or before the Expiration Date. Otherwise, the guaranteed delivery
procedures described hereafter must be complied with.
DTC's Automated Tender Offer Program ("ATOP") is the only method of
processing conversion offers through the DTC. To accept the Conversion Offer
through ATOP, participants in DTC must send electronic instructions to DTC
through DTC's communication system in place of sending a signed, hard copy
Special Conversion Notice. DTC is obligated to communicate those electronic
instructions to the Conversion Agent. To submit Series A Preferred Stock for
conversion through ATOP, the electronic instructions sent to DTC and transmitted
by DTC to the Conversion Agent must contain the character by which the
participant acknowledges its receipt of and agrees to be bound by the Special
Conversion Notice. WHETHER OR NOT A HOLDER ACCEPTS THE CONVERSION OFFER THROUGH
ATOP, A HOLDER DESIRING TO HAVE SHARES OF COMMON STOCK INCLUDED IN THE RESALE
REGISTRATION MUST DELIVER A COMPLETED, MANUALLY SIGNED COPY OF THE REGISTRATION
AGREEMENT TO THE CONVERSION AGENT.
GUARANTEED DELIVERY PROCEDURES
If a holder of Series A Preferred Stock desires to tender Series A
Preferred Stock for conversion pursuant to the Conversion Offer and the holder's
Series A Preferred Stock are not immediately available or time will not permit
the holder's Series A Preferred Stock or other required documents to reach the
Conversion Agent on or prior to the Expiration Date, the tender of Series A
Preferred Stock for conversion pursuant to the Conversion Offer may be effected
if all of the following conditions are satisfied:
(a) delivery is made by or through an Eligible Institution; and
(b) on or prior to the Expiration Date, the Conversion Agent receives
from such Eligible Institution a properly completed and duly executed
Notice of Guaranteed Delivery (by telegram, facsimile transmission, mail or
hand delivery), substantially in the form provided by the Company with this
Offer of Premium, which contains a signature guaranteed by an Eligible
Institution in the form set forth in such in such Notice of Guaranteed
Delivery (unless such tender for conversion is for the account of an
Eligible Institution), which sets forth the name and address of the holder
of the Series A Preferred Stock and the amount of Series A Preferred Stock
tendered, which states that the tender is being made thereby, and which
guarantees that within five New York Stock Exchange ("NYSE") trading days
after the Expiration Date, the Special Conversion Notice (or facsimile
thereof), properly completed and duly executed, together with the Series A
Preferred Stock and any required signature guarantees and any other
documents required by the Special Conversion Notice, will be deposited by
the Eligible Institution with the Conversion Agent; and
(c) all Series A Preferred Stock tendered for conversion pursuant to
the Conversion Offer as well as the Special Conversion Notice (or facsimile
thereof), properly completed and duly executed, with any required signature
guarantees and any other documents required by the Special Conversion
Notice, are received by the Conversion Agent within five NYSE trading days
after the Expiration Date.
A Notice of Guaranteed Delivery may be delivered by hand or transmitted by
telegram, facsimile transmission or mail to the Conversion Agent and must
include a signature guarantee by an Eligible Institution in the form set forth
in such Notice of Guaranteed Delivery.
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Notwithstanding any other provision hereof, except as provided with respect
to ATOP the conversion of Series A Preferred Stock accepted pursuant to the
Conversion Offer will in all cases be made only after timely receipt by the
Conversion Agent of certificates for such Series A Preferred Stock, the Special
Conversion Notice (or a facsimile thereof), properly completed and duly
executed, with any required signature guarantees and any other required
documents.
ACCEPTANCES OF SERIES A PREFERRED STOCK; DELIVERY OF COMMON STOCK AND CONVERSION
PREMIUM
The acceptance for conversion of Series A Preferred Stock validly tendered
for conversion pursuant to the Conversion Offer and not properly withdrawn will
be made as promptly as practicable after the Expiration Date. Subject to rules
promulgated pursuant to the Exchange Act, however, the Company reserves the
right to delay payment of the Conversion Premium or terminate the Conversion
Offer and not pay the Conversion Premium for any reason, subject to any
applicable law. For purposes of the Conversion Offer, the Company will be deemed
to have accepted for conversion Series A Preferred Stock tendered and not
properly withdrawn if, as and when the Company gives oral or written notice to
the Conversion Agent of its acceptance of such shares for conversion. Subject to
the terms and conditions of the Conversion Offer, delivery of Common Stock and
the payment of the Conversion Premium for Series A Preferred Stock converted
pursuant to the Conversion Offer will be made by the Conversion Agent as soon as
practicable after receipt of such notice. Under no circumstances will interest
be paid by the Company by reason of any delay in making payment of the
Conversion Premium. The Conversion Agent will act as agent for the converting
holder of Series A Preferred Stock for the purpose of receiving Common Stock and
cash from the Company and transmitting the Common Stock and cash to the
converting holders. Series A Preferred Stock not accepted for conversion and
payment of the Conversion Premium, will be returned without expense to the
converting holder of such Series A Preferred Stock as promptly as practicable
following the Expiration Date.
No alternative, conditional or contingent deliveries of Special Conversion
Notices will be accepted. All converting holders, by execution of a Special
Conversion Notice, or facsimile thereof, waive any right to receive notice of
acceptance of their Series A Preferred Stock for conversion and payment pursuant
to the Conversion Offer.
WITHDRAWAL RIGHTS
Conversion of Series A Preferred Stock pursuant to the Conversion Offer is
irrevocable except that Series A Preferred Stock tendered for conversion
pursuant to the Conversion Offer may be withdrawn at any time prior to the
Expiration Date, unless theretofore accepted for conversion pursuant to the
Conversion Offer.
For a withdrawal to be effective, a written, telegraphic or facsimile
transmitted notice of withdrawal must be timely received by the Conversion Agent
at its address set forth herein. Any notice of withdrawal must specify the name
of the person who tendered the Series A Preferred Stock to be withdrawn, the
principal amount of Series A Preferred Stock to be withdrawn and the name of the
registered holder(s) of the Series A Preferred Stock as set forth in the
certificates, if different from that of the person who tendered such Series A
Preferred Stock. If certificates for Series A Preferred Stock have been tendered
to the Conversion Agent, then, prior to the physical release of such
certificates, the withdrawing holder must also submit to the Conversion Agent
the serial numbers of the particular certificates evidencing the Series A
Preferred Stock to be withdrawn and a signed notice of withdrawal with
signature(s) guaranteed by an Eligible Institution, except in the case of Series
A Preferred Stock tendered by an Eligible Institution. If shares of Series A
Preferred Stock have been tendered pursuant to the procedure for book-entry
transfer, the notice of withdrawal must specify the name and number of the
account at the applicable Book-Entry Transfer Facility to be credited with the
withdrawn shares and otherwise comply with the Book-Entry Transfer Facility's
procedures.
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If the Company extends the Conversion Offer or is delayed in its payment of
the Conversion Premium pursuant to the Conversion Offer for any reason, then,
without prejudice to the Company's rights under the Conversion Offer, the
Conversion Agent may, subject to applicable law, retain Series A Preferred Stock
tendered for conversion pursuant to the Conversion Offer on behalf of the
Company and such Series A Preferred Stock may not be withdrawn except to the
extent converting holders are entitled to withdrawal rights as described in this
section.
Any permitted withdrawal of Series A Preferred Stock tendered for
conversion may not be rescinded, and any Series A Preferred Stock withdrawn will
thereafter be deemed not validly tendered for purposes of the Conversion Offer;
however, withdrawn Series A Preferred Stock may be redelivered by following one
of the procedures described herein at any time on or prior to the Expiration
Date.
All questions as to validity, form and eligibility (including time of
receipt) of notices of withdrawal will be determined by the Company in its sole
discretion, which determination will be final and binding on all parties. None
of the Company, the Conversion Agent, or any other person will be under any duty
to give notification of any defects or irregularities in any notice of
withdrawal, nor will they incur any liability for failure to give any such
notification.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
Baker & McKenzie has served as tax counsel to the Company in connection
with the Conversion Offer. The following expresses Baker & McKenzie's opinion to
the Company as to the material Federal income tax consequences that, under
currently applicable law, should arise from the Conversion Offer. The following
discussion is based upon the Internal Revenue Code of 1986, as amended (the
"Code"), and Treasury Regulations, Internal Revenue Service rulings and judicial
decisions now in effect, all of which are subject to change at any time by
legislative, judicial or administrative action, and any such changes may be
retroactively applied in a manner that could adversely affect a stockholder.
Except as otherwise discussed below, this discussion is applicable only to
stockholders who are citizens or residents of the United States for U.S. tax
purposes and to domestic corporations. The discussion may not be applicable with
respect to Series A Preferred Stock held as other than a capital asset.
Moreover, the discussion is not applicable to stockholders who hold, or who are
related within the meaning of Section 318 of the Internal Revenue Code to
stockholders who hold, employee stock options of the Company. Furthermore,
state, local and foreign tax consequences of the Conversion Offer are not
addressed in this discussion. Stockholders should note that the opinions of
counsel are not binding on the Internal Revenue Service or any court, and the
Company has not sought, and does not intend to seek, a ruling from the Internal
Revenue Service as to the Federal income tax consequences of the Conversion
Offer.
STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO THE
APPLICATION OF THE FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATION, AS
WELL AS TO THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS
TO WHICH THEY MAY BE SUBJECT.
CONVERSION AND RECEIPT OF CONVERSION PREMIUM
Recognition of Gain or Loss on Conversion
The conversion of Series A Preferred Stock into Common Stock and the
Conversion Premium (the "Conversion") will constitute a "recapitalization" of
the Company within the meaning of Section 368(a)(1)(E) of the Code. Accordingly,
the Conversion will not be a taxable transaction to the Company, but may be a
taxable transaction to the stockholders to the extent of the cash received, with
the consequences described below.
A stockholder whose shares of Series A Preferred Stock are converted into
Common Stock and the Conversion Premium will be taxable to the extent of the
lesser of (i) the excess of the fair market value of the total amount received
in the Conversion (i.e., the sum of the value of the
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<PAGE> 20
Common Stock and the Conversion Premium) over such stockholder's tax basis in
the Series A Preferred Stock converted, or (ii) the amount of the Conversion
Premium. To the extent the Conversion Premium exceeds the amount specified in
clause (i) of the preceding sentence, such amount will not be currently taxable
but will reduce a stockholder's basis in the Common Stock received in the
Conversion as discussed below. A stockholder is not allowed to recognize (i.e.,
take into account for tax purposes) loss on the Conversion.
Character of Gain
The character of any gain recognized by a stockholder in the Conversion
will depend upon whether the receipt of the Conversion Premium by the
stockholder has the effect of a dividend distribution as to such stockholder or
is treated as a sale or exchange. If the conversion of Series A Preferred Stock
and receipt of the Conversion Premium is treated as a sale or exchange, any gain
recognized will be capital gain that, in general, will be long-term capital gain
if the shares of Series A Preferred Stock have been held for more than one year
at the Expiration Date and short-term capital gain, if the shares of Series A
Preferred Stock have been held for one year or less at that time.
If the conversion has the effect of a dividend distribution to a
stockholder, the gain recognized by that stockholder will be treated as ordinary
dividend income to the extent of the stockholder's ratable share of the
Company's accumulated earnings and profits, and the remainder, if any, of the
recognized gain will be taxed as gain from the exchange of the Series A
Preferred Stock. The Company believes that its accumulated earnings and profit
are sufficient to treat all recognized gain as ordinary dividend income.
Whether the conversion of Series A Preferred Stock in the Conversion has
the effect of a dividend distribution as to a stockholder or is treated as a
sale or exchange will be determined by applying the principles described in
Section 302 of the Code. Under Section 302, a distribution will not have the
effect of the distribution of a dividend, and any gain recognized will be
capital gain rather than a dividend, if the distribution is not "essentially
equivalent to a dividend" or one of several other safe harbor tests is
satisfied.
The conversion of Series A Preferred Stock in the Conversion will not be
"essentially equivalent to a dividend" if it results in a "meaningful reduction"
of the stockholder's proportionate stock interest in the Company. The
determination of whether a stockholder's proportionate interest in a corporation
has been meaningfully reduced ordinarily is based on an evaluation of the
reduction in the stockholder's right to vote, participate in earnings and
participate in proceeds of liquidation. For this purpose, under Section 318 of
the Code, a stockholder is deemed to constructively own Series A Preferred Stock
and Common Stock that are actually owned, and in some cases, constructively
owned, by certain related individuals and entities or that may be acquired by
such stockholder or such related individuals or entities by option or
conversion, including through employee stock options. Furthermore, the Section
302 tests are applied after taking into account any related transactions that
are part of a single integrated plan. Thus, it is possible that dispositions or
acquisitions by a stockholder of shares of Series A Preferred Stock, Common
Stock acquired upon conversion, or other Common Stock contemporaneous with the
Conversion may be considered to be part of the same integrated plan.
The Conversion itself will not cause an immediate decrease in a
stockholder's voting power, but rather will cause an increase in voting rights.
Tax counsel to the Company has opined that the conversion of Series A Preferred
Stock more likely than not has the effect of a dividend distribution with
respect to stockholders who do not dispose of Series A Preferred Stock, Common
Stock acquired upon conversion, or other Common Stock in related transactions
that are considered to be part of a single integrated plan (including shares
constructively owned under Section 318), other than pursuant to the Conversion
Offer. Tax counsel has not opined as to the character of any gain that other
stockholders may realize in the Conversion because of the inherently factual
nature of the determination that each such stockholder must make. Accordingly,
such stockholders should consult
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their tax advisors concerning the application of the "meaningful reduction" and
other safe harbor tests to their particular facts and circumstances.
If the conversion of Series A Preferred Stock is treated to any extent as a
dividend distribution as to a corporate stockholder, the amount of the
distribution which is taxable as a dividend should generally be eligible for the
70 percent dividends received deduction, subject to the limitations of sections
1059, 246A and 246 of the Code.
Basis and Holding Period of Common Stock Received
A stockholder's tax basis in the Common Stock received in the Conversion
will be equal to the stockholder's tax basis in the Series A Preferred Stock
converted in the Conversion, increased by the amount of any gain recognized by
the stockholder and decreased by the amount of the Conversion Premium received.
The holding period of the Common Stock will include the holding period of the
Series A Preferred Stock converted in the Conversion, provided that the Series A
Preferred Stock is held as a capital asset. Gain, loss and tax basis, determined
as described above, must be calculated separately for each block of Series A
Preferred Stock (i.e., Series A Preferred Stock acquired at the same time in a
single transaction) held by a stockholder.
Cash in Lieu of Fractional Shares
Stockholders who receive cash in lieu of fractional shares of Common Stock
should be treated as having received the cash in redemption of the fractional
share interest. The character of the cash received by a stockholder will depend
upon whether the redemption is essentially equivalent to a dividend to such
stockholder or is treated as a sale or exchange, determined under Section 302 of
the Code. Stockholders should consult their tax advisors regarding the
appropriate treatment of any cash that is received in exchange for fractional
share interests.
Special Tax Considerations for Non-United States Stockholders
For purposes of the following discussion, a non-United States stockholder
includes a non-resident alien individual (other than certain former United
States citizens or residents), a foreign corporation, a foreign partnership and
a foreign trust or estate. Each non-United States stockholder is urged to
consult a tax advisor with respect to the tax consequences of the Conversion as
applied to such stockholder's specific facts and circumstances.
In general, a non-United States stockholder is not subject to United States
federal income tax with respect to gain realized on a sale or other disposition
of shares of the Company. The Code generally requires withholding at a 30% rate
on dividends paid by the Company to non-United States stockholders, unless a
treaty applies which reduces or eliminates such withholding. In certain
circumstances, backup withholding, as discussed below, at a rate of 31% may
apply to payments to non-United States stockholders. If a non-United States
stockholder has not provided a properly completed IRS Form W-8, the Company will
withhold 31% of the Conversion Premium and of the cash paid in lieu of
fractional shares. Because the Company will not know whether the payment of the
Conversion Premium or the payment of cash in lieu of fractional shares to a
particular non-United States stockholder will be treated as a dividend or an
exchange, the Company will, where a non-United States stockholder has provided a
properly completed IRS Form W-8, treat the payment of the Conversion Premium and
the cash paid in lieu of fractional shares as a dividend and will withhold 30%,
or lower treaty rate, if applicable, of such payment. Non-United States
stockholders should consult their tax advisors regarding these withholding rules
and the procedures for obtaining a refund if the amount withheld exceeds the
non-United States stockholder's final tax liability.
BACKUP WITHHOLDING
A holder of Series A Preferred Stock participating in the Conversion may be
subject, under certain circumstances, to "backup withholding" at a 31% rate on
certain payments. This withholding
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<PAGE> 22
generally applies only if the holder (i) fails to furnish its social security or
other taxpayer identification number ("TIN"), (ii) furnishes an incorrect TIN,
(iii) fails to properly report interest or dividends and the Internal Revenue
Service has notified the Company that the holder is subject to withholding, or
(iv) fails, under certain circumstances, to provide a certified statement,
signed under penalty of perjury, that the TIN provided is its correct number and
that it is not subject to backup withholding. The backup withholding rules may
apply to the payment of the Conversion Premium and cash paid in lieu of
fractional shares. Any amount withheld from a payment to a holder under the
backup withholding rules is allowable as a credit against such holder's federal
income tax liability, provided that the required information is furnished to the
Internal Revenue Service. Certain holders of Series A Preferred Stock
(including, among others, corporations and certain foreign individuals) are not
subject to backup withholding. Holders of Series A Preferred Stock should
consult their tax advisors as to their qualification for exemption from backup
withholding and the procedure for obtaining such an exemption.
THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE ARE FOR GENERAL
INFORMATION ONLY. EACH STOCKHOLDER SHOULD CONSULT A TAX ADVISOR AS TO THE
PARTICULAR CONSEQUENCES OF THE CONVERSION THAT MAY BE APPLICABLE TO SUCH
STOCKHOLDER, INCLUDING THE APPLICATION OF STATE, LOCAL, AND FOREIGN TAX LAWS.
DESCRIPTION OF CAPITAL STOCK
The following summary description is qualified in its entirety by reference
to the Company's Certificate of Incorporation, as amended. The authorized
capital stock of the Company consists of 100,000,000 shares of Common Stock, par
value $.01 per share, and 5,000,000 shares of preferred stock, par value $.01
per share (the "Preferred Stock").
COMMON STOCK
The Company is authorized to issue up to 100,000,000 shares of Common
Stock. As of February 14, 1995, there were 39,695,611 shares of Common Stock
outstanding. The holders of Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of stockholders. Because
holders of Common Stock do not have cumulative voting rights, the holders of a
majority of the shares of Common Stock represented at a meeting have the power
to elect all of the directors to be elected at that meeting. Subject to the
prior rights of holders of Preferred Stock, the holders of Common Stock are
entitled to dividends, when and as declared by the Board of Directors out of
funds legally available therefor. The terms of the Company's line of credit
restrict payment of cash dividends except in certain circumstances. See
"Dividend Policy." If the Company dissolves or is liquidated, the holders of
Common Stock are entitled to share ratably in all assets remaining after payment
of liabilities and the liquidation preferences of any outstanding shares of
Preferred Stock.
Holders of Common Stock have no preemptive rights and have no right to
convert their Common Stock into any other securities. All of the outstanding
shares of Common Stock are, and all shares of Common Stock offered hereby are or
will be, upon conversion of Series A Preferred Stock, fully paid and
nonassessable.
The Certificate of Incorporation of the Company divides the Board of
Directors of the Company into three classes, each class to be as nearly equal in
number of directors as possible. At each annual meeting of stockholders,
directors in each class are elected for three year terms to succeed the
directors of that class whose terms are expiring. Paul O. Hirschbiel, Donald J.
Carty and Thomas W. Luce, III, are Class I directors with their terms of office
expiring in 1995. Michael S. Dell and Michael H. Jordan are Class II directors
with their terms of office expiring in 1996. George Kozmetsky and Claudine B.
Malone are Class III directors with their terms of office expiring in 1997. The
Certificate of Incorporation and Bylaws of the Company also provide that
directors may be removed from office only for cause (as defined in the
Certificate of Incorporation), that stockholder
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action must be taken at a duly called annual or special meeting (and not by
written consent), and that stockholders follow an advance notification procedure
for certain stockholder nominations of candidates for the Board of Directors and
for certain other stockholder business to be conducted at an annual meeting.
The existence of these provisions of the Company's Certificate of
Incorporation and Bylaws may be disadvantageous to the extent they discourage
takeovers in which stockholders might receive a substantial premium for some or
all of their shares. Therefore, stockholders not affiliated with management who
desire to participate in such a takeover may not be afforded the opportunity to
do so, even when such stockholders believe participation to be in their best
interest. Also, such provisions may reduce temporary fluctuations in the market
price of the Common Stock that may accompany the accumulation of large blocks of
Common Stock and thereby deprive stockholders of an opportunity to sell their
stock at a temporarily higher price. In addition to reducing temporary market
fluctuations, such provisions could potentially depress the market price of
shares of Common Stock and may have the effect of discouraging changes in
control, particularly those that are opposed by the Company's incumbent
management, even if a majority of stockholders desire the change in control.
Such provisions thereby could also prevent the removal of management.
In addition, the ability of the Board of Directors to issue shares of
Preferred Stock and to fix the voting, redemption, conversion and other rights
thereof without stockholder approval could hinder any proposed tender offer,
merger or other attempt to gain control of the Company. See "Description of
Capital Stock -- Blank Check Preferred Stock."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
BLANK CHECK PREFERRED STOCK
Pursuant to the Certificate of Incorporation of the Company, the Board of
Directors has the authority, without further stockholder approval, to provide
for the issuance of up to 5,000,000 shares of Preferred Stock in one or more
series and to determine the dividend rights, conversion rights, voting rights,
rights and terms of redemption, liquidation preferences, the number of shares
constituting any such series, and the designation of such series. Because the
Board of Directors has the power to establish the preferences and rights of each
series, it may afford the holders of any Preferred Stock preferences, powers and
rights (including voting rights) senior to the rights of the holders of Common
Stock. Other than the shares of Series A Preferred Stock described below, no
shares of Preferred Stock have been issued and remain outstanding before the
date of this Offer of Premium. The issuance of shares of Preferred Stock or the
issuance of rights to purchase shares of stock may have the effect of delaying,
deferring or preventing a change in control of the Company.
SERIES A PREFERRED STOCK
The Series A Preferred Stock has been authorized as a series of preferred
stock, consisting of 1,250,000 shares. As of February 14, 1995, 1,250,000 shares
of Series A Convertible Preferred Stock were issued and outstanding. The terms
and provisions of the Series A Preferred Stock are set forth in the Certificate
of Designation creating the Series A Preferred Stock. A copy of the Certificate
of Designation may be obtained from Dell Computer Corporation, 2112 Kramer Lane,
Building 1, Austin, Texas 78758-4012, Attention: Investor Relations.
Dividends. Holders of shares of Series A Preferred Stock are entitled to
receive, when, as and if declared by the Board of Directors out of funds legally
available therefore, cash dividends at an annual rate of $7.00 per share,
payable quarterly in arrears. Dividends are cumulative and are payable to the
holders of record as they appear on the stock transfer books on such record
dates as are fixed by the Board of Directors.
21
<PAGE> 24
The Series A Preferred Stock has priority as to dividends over the Common
Stock and any other series or class of the Company's stock thereafter issued
that ranks junior as to dividends to the Series A Preferred Stock, when and if
issued (collectively, "Junior Dividend Stock"), and no dividend (other than
dividends payable solely in stock that is Junior Dividend Stock and that ranks
junior to the Series A Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary (such stock that is junior as to liquidation rights, "Junior
Liquidation Stock") (the Common Stock and any other capital stock of the Company
that is both Junior Dividend Stock and Junior Liquidation Stock, "Junior Stock")
may be paid on any Junior Dividend Stock, and no payment may be made on account
of the purchase redemption, retirement, or other acquisition of Junior Dividend
Stock or Junior Liquidation Stock (other than such acquisitions pursuant to
employee or director incentive or benefit plans or arrangements, or acquisitions
or exchanges solely for Junior Stock), unless all accrued and unpaid dividends
on the Series A Preferred Stock for all dividend payment periods ending on or
before the date of payment of such dividends on Junior Dividend Stock, or such
payment for such Junior Dividend Stock or Junior Liquidation Stock, as the case
may be, have been paid or declared and set apart for payment. The Company may
not pay dividends on any other series or class of Company's stock hereafter
issued that ranks on a parity with the Series A Preferred Stock as to dividends
("Parity Dividend Stock"), and may not make any payment on account of the
purchase, redemption, retirement or other acquisition of shares of Parity
Dividend Stock or any other series or class of the Company's stock hereafter
issued that ranks on a parity with the Series A Preferred Stock as to
distributions of assets upon liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary (such stock that has parity with the
Series A Preferred Stock as to liquidation rights, "Parity Liquidation Stock")
(other than such acquisitions pursuant to employee or director incentive or
benefit plans or arrangements, or acquisitions or exchanges solely for Junior
Stock), unless all accrued and unpaid dividends on the Series A Preferred Stock
for all dividend payment periods ending on or before the date of payment of such
dividends on Parity Dividend Stock, or such payment for such Parity Dividend
Stock or Parity Liquidation Stock, as the case may be, have been paid or
declared and set apart for payment.
Liquidation Rights. In the case of the voluntary or involuntary
liquidation, dissolution or winding up of the Company, holders of shares of
Series A Preferred Stock are entitled to receive the liquidation preference of
$100.00 per share, plus an amount equal to any accrued and unpaid dividends to
the payment date, before any payment or distribution is made to the holders of
Common Stock or any other series or class of the Company's stock hereafter
issued that ranks junior to the Series A Preferred Stock as to distributions of
assets upon such liquidation, dissolution or winding up, but the holders of the
shares of the Series A Preferred Stock will not be entitled to receive the
liquidation preference of such shares until the liquidation preference of any
other series or class of the Company's stock hereafter issued that ranks senior
to the Series A Preferred Stock as to distributions of assets upon such
dissolution, liquidation or winding up ("Senior Liquidation Stock") has been
paid in full. The holders of Series A Preferred Stock and all series or classes
of the Company's stock hereafter issued that rank on a parity with the Series A
Preferred Stock as to distributions of assets upon such liquidation, dissolution
or winding up of the Company are entitled to share ratably, in accordance with
the respective preferential amounts payable on such stock, in any distribution
(after payment of the liquidation preference of the Senior Liquidation Stock)
which is not sufficient to pay in full the aggregate of the preferential amounts
payable thereon. After payment in full of the liquidation preference of the
shares of the Series A Preferred Stock, the holders of such shares will not be
entitled to any further participation in any distribution of assets by the
Company. Neither a consolidation or merger of the Company with another
corporation nor a sale or transfer of all or part of the Company's assets for
cash, securities or other property will be considered a liquidation, dissolution
or winding up of the Company.
Voting Rights. The holders of the Series A Preferred Stock have no voting
rights except as described below or as required by law. In exercising any such
vote, each outstanding share of
22
<PAGE> 25
Series A Preferred Stock will be entitled to one vote, excluding shares held by
the Company or any affiliate of the Company, which shares have no voting rights.
Whenever dividends on the Series A Preferred Stock or on any outstanding
shares of Parity Dividend Stock have not been paid in an aggregate amount equal
to at least six quarterly dividends on such shares (whether or not consecutive),
the number of members of the Company's Board of Directors will be increased by
two, and the holders of the Series A Preferred Stock, voting separately as a
class with the holders of Parity Dividend Stock on which like voting rights have
been conferred and are exercisable, will be entitled to elect such two
additional directors at any meeting of stockholders at which directors are to be
elected held during the period such dividends remain in arrears. Such voting
rights will terminate when all such accrued and unpaid dividends have been
declared and paid or set apart for payment. The term of office of all directors
so elected will terminate immediately upon the termination of such voting
rights.
In addition, so long as any Series A Preferred Stock is outstanding, the
Company may not, without the affirmative vote or consent of the holders of at
least 66 2/3% (unless a higher percentage shall then be required by applicable
law) of all outstanding shares of Series A Preferred Stock, voting separately as
a class, (i) amend, alter or repeal any provision of the Company's Certificate
of Incorporation or Bylaws so as to affect adversely the relative rights,
preferences, qualifications, limitations, or restrictions of the Series A
Preferred Stock, (ii) create, authorize or issue, or reclassify any authorized
stock of the Company into, or increase the authorized amount of, any series or
class of stock that ranks senior to the Series A Preferred Stock as to dividends
or distributions of assets upon liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, or any security convertible into any
such class or series of such stock, or (iii) enter into a share exchange that
affects the Series A Preferred Stock, consolidate with or merge into another
entity, or permit another entity to consolidate with or merge into the Company,
unless in each such case each share of Series A Preferred Stock remains
outstanding and unaffected or is converted into or exchanged for convertible
preferred stock of the surviving entity having powers, preferences and relative
participating optional or other rights and qualification limitations and
restrictions thereof identical to that of a share of Series A Preferred Stock
(except for changes that do not affect the holders of the Series A Preferred
Stock adversely).
Redemption at Option of the Company. The Series A Preferred Stock may not
be redeemed before August 25, 1996. On and after that date, the Series A
Preferred Stock may be redeemed by the Company, at its option, in whole or in
part at any time, subject to the limitations, if any, imposed by applicable law,
at a redemption price per share of $104.67 if redeemed at any time during the
period from August 25, 1996, through August 15, 1997, and at the following
redemption prices per share, if redeemed during the 12-month period ending
August 15:
<TABLE>
<CAPTION>
PRICE PER
YEAR SHARE
---- ---------
<S> <C>
1998.............................................................. $103.89
1999.............................................................. 103.11
2000.............................................................. 102.33
2001.............................................................. 101.56
2002.............................................................. 100.78
</TABLE>
and thereafter at $100 per share, plus, in each case, accrued and unpaid
dividends to but excluding the redemption date.
Conversion Rights. The holder of any shares of Series A Preferred Stock has
the right, at the holder's option, to convert any or all shares into Common
Stock at any time at the rate of 4.2105 shares of Common Stock for each share of
Series A Preferred Stock (equivalent to a conversion price of $23.75 for each
share of Common Stock), subject to adjustment in certain circumstances except
that if the Series A Preferred Stock is called for redemption, the conversion
right will terminate at the close of business on the fifth business day prior to
the date fixed for such redemption.
23
<PAGE> 26
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). In accordance with the
Exchange Act, the Company files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). The reports,
proxy statements and other information can be inspected and copied at the public
reference facilities that the Commission maintains at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
located at 7 World Trade Center, 13th Floor, New York, New York 10048, and Suite
1400, Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois
60661. Copies of these materials can be obtained at prescribed rates from the
Public Reference Section of the Commission at the principal offices of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
The Company has filed with the Commission an Issuer Tender Offer Statement
on Schedule 13E-4 (the "Schedule 13E-4") under the Exchange Act, with respect to
the Conversion Offer. This Offer of Premium does not contain all of the
information set forth in the Schedule 13E-4, certain parts of which have been
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and the Conversion Offer,
reference is made to the Schedule 13E-4, including the exhibits filed as part
thereof or incorporated by reference therein. Statements made in this Offer of
Premium about the contents of any contract, agreement, or other document are not
necessarily complete; with respect to each such contract, agreement or other
document filed as an exhibit to the Schedule 13E-4, reference is made to that
exhibit for a more complete description of the matter involved, and each such
statement is qualified in its entirety by that reference. Copies of the Schedule
13E-4 and its exhibits may be inspected, without charge, at the offices of the
Commission, or obtained at prescribed rates from the Public Reference Section of
the Commission, at the address previously set forth.
The address of the Company's principal executive offices is Dell Computer
Corporation, 2112 Kramer Lane, Austin, Texas 78758-4012, and its telephone
number at that address is (512) 338-4400.
24
<PAGE> 27
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission (File No.
0-17017) pursuant to the Exchange Act are incorporated in this Offer of Premium
by reference:
1. The Company's Annual Report on Form 10-K for the Fiscal Year Ended
January 30, 1994;
2. The Company's Quarterly Report on Form 10-Q for the Quarterly Period
Ended October 30, 1994;
3. The Company's Current Report on Form 8-K, dated February 21, 1995;
4. All other documents filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Offer of
Premium and before the termination of the Conversion Offer.
The Company will provide without charge to each person to whom a copy of
this Offer of Premium is delivered, upon the written or oral request of any such
person, a copy of any or all of the documents that are incorporated by
reference, other than exhibits to such documents not specifically incorporated
by reference. Requests for such copies should be directed to Dell Computer
Corporation, 2112 Kramer Lane, Austin, Texas 78758-4012, Attention: Investor
Relations, telephone (512) 728-8315.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Offer of
Premium to the extent that a statement contained herein modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this Offer
of Premium.
25
<PAGE> 28
CONVERSION AGENT
Citibank, N.A., will act as Conversion Agent for the Conversion Offer. The
Conversion Agent will act as agent for the holders of Series A Preferred Stock
accepting the Conversion Offer for the purpose of receiving Common Stock and the
Conversion Premium from the Company. If you require assistance, please contact
the Conversion Agent at (800) 422-2066 or the address below. All correspondence
in connection with the Conversion Offer should be addressed to the Conversion
Agent as follows:
The Conversion Agent:
CITIBANK, N.A.
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
Citibank, N.A. Citibank, N.A. Citibank, N.A.
c/o Citicorp Data Distribution, c/o Citicorp Data Distribution, Corporate Trust Window
Inc. Inc. 111 Wall Street, 5th Floor
P.O. Box 7072 404 Sette Drive New York, New York
Paramus, New Jersey 07653 Paramus, New Jersey 07652
Confirm by Telephone:
(800) 422-2066
</TABLE>
The Company will pay the Conversion Agent reasonable and customary
compensation, which the Company estimates will total approximately $5,000, for
services in connection with the Conversion Offer. In addition, the Company will
reimburse the Conversion Agent for its out-of-pocket expenses, and will
indemnify the Conversion Agent against certain liabilities and expenses in
connection with its services, including liabilities under the federal securities
laws. The Company also will pay brokerage houses and other custodians, nominees
and fiduciaries the reasonable out-of-pocket expenses incurred by them in
forwarding copies of this Offer of Premium and related documents to beneficial
holders of Series A Preferred Stock, and in handling or forwarding tenders of
Series A Preferred Stock for their customers.
---------------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
OFFER OF PREMIUM AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS OFFER
OF PREMIUM DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO PURCHASE, SECURITIES TO ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION OF AN OFFER. NEITHER THE DELIVERY OF THIS OFFER
OF PREMIUM NOR ANY ISSUANCE OF SECURITIES PURSUANT TO THE CONVERSION OFFER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE INFORMATION SET FORTH OR INCORPORATED HEREIN BY REFERENCE OR IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE OF THIS OFFER OF PREMIUM. HOWEVER, IF
ANY MATERIAL CHANGE OCCURS DURING THE PERIOD THAT THIS OFFER OF PREMIUM IS
REQUIRED TO BE DELIVERED, THIS OFFER OF PREMIUM WILL BE AMENDED AND SUPPLEMENTED
ACCORDINGLY.
26
<PAGE> 1
DELL COMPUTER CORPORATION
SPECIAL CONVERSION NOTICE
TO CONVERT
SERIES A CONVERTIBLE PREFERRED STOCK
FOR
SHARES OF COMMON STOCK AND $8.25 CASH CONVERSION PREMIUM
PURSUANT TO ITS OFFER OF PREMIUM DATED FEBRUARY 21, 1995
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON WEDNESDAY, MARCH 22, 1995,
UNLESS EXTENDED BY THE COMPANY.
The Conversion Agent:
CITIBANK, N.A.
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
Citibank, N.A. Citibank, N.A. Citibank, N.A.
c/o Citicorp Data Distribution, Inc. c/o Citicorp Data Distribution, Inc. Corporate Trust Window
P.O. Box 7072 404 Sette Drive 111 Wall Street, 5th Floor
Paramus, New Jersey 07653 Paramus, New Jersey 07652 New York, New York
Confirm by Telephone:
(800) 422-2066
</TABLE>
Delivery of this Special Conversion Notice to an address other than as set
forth above will not constitute a valid delivery.
The undersigned acknowledges receipt of the Offer of Premium Upon Conversion
dated February 21, 1995 (the "Offer of Premium"), of Dell Computer Corporation
(the "Company"), this Special Conversion Notice, and the related Registration
Agreement, which together constitute the Company's offer (the "Conversion
Offer") to pay a cash premium of $8.25 (the "Conversion Premium") for each share
of its Series A Convertible Preferred Stock (the "Series A Preferred Stock")
that is converted to common stock, par value $.01 per share (the "Common
Stock"), of the Company from the date of the Offer of Premium through 12:00
midnight, New York City time, on Wednesday, March 22, 1995, unless extended (the
"Special Conversion Period"). A holder of Series A Preferred Stock who elects to
convert during the Special Conversion Period will receive 4.2105 shares of
Common Stock (equivalent to a conversion price of $23.75 per share of Common
Stock) and the Conversion Premium of $8.25 in cash for each share of Series A
Preferred Stock converted.
EVEN IF YOU VALIDLY TENDER YOUR SERIES A PREFERRED STOCK, THE SHARES OF
COMMON STOCK ISSUABLE UPON CONVERSION WILL NOT BE REGISTERED FOR RESALE UNDER
THE SECURITIES ACT OF 1933 UNLESS YOU TIMELY SIGN AND DELIVER THE REGISTRATION
AGREEMENT TO THE CONVERSION AGENT. SEE INSTRUCTION 12.
This Special Conversion Notice is to be used (a) if certificates for shares
of Series A Preferred Stock are to be physically delivered to the Conversion
Agent herewith or (b) if tenders are to be made according to the guaranteed
delivery procedures set forth in the Offer of Premium under "Procedures for
Conversion and Registration -- Guaranteed Delivery Procedures." Holders of
Series A Preferred Stock whose certificates are not immediately available or who
cannot deliver their certificates and all other documents required hereby to the
Conversion Agent before the Expiration Date (as hereinafter defined) must tender
the Series A Preferred Stock according to the guaranteed delivery procedures set
forth in "Procedures for Conversion and Registration -- Guaranteed Delivery
Procedures" in the Offer of Premium.
The Company will pay the Conversion Premium with respect to any and all
shares of Series A Preferred Stock tendered for conversion and not withdrawn
before 12:00 midnight, New York City time, on Wednesday, March 22, 1995, unless
extended by the Company in its sole discretion (such date, as may be extended,
the "Expiration Date"). Capitalized terms used herein and not otherwise defined
shall have the respective meanings assigned to them in the Offer of Premium.
PLEASE READ THE ENTIRE SPECIAL CONVERSION NOTICE CAREFULLY BEFORE CHECKING
ANY BOX BELOW. YOUR BANKER OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM. THE
INSTRUCTIONS INCLUDED WITH THIS SPECIAL CONVERSION NOTICE MUST BE FOLLOWED.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE OFFER OF
PREMIUM AND SPECIAL CONVERSION NOTICE SHOULD BE DIRECTED TO THE CONVERSION AGENT
AT (800) 422-2066 OR AT ITS ADDRESS PREVIOUSLY SET FORTH.
<PAGE> 2
Holders who wish to tender their shares of Series A Preferred Stock for
conversion pursuant to the Conversion Offer must complete the table in Box One
and complete and sign Box Two. If only columns (1) through (3) are completed in
Box One, the holder will be deemed to have tendered all of the shares of Series
A Preferred Stock listed in the table in Box One. If a holder wishes to tender
less than all of such shares of Series A Preferred Stock, column (4) in Box One
must be completed in full and the holder should refer to Instruction 3.
<TABLE>
<S> <C> <C> <C>
____________________________________________________________________________________________________________________________________
BOX ONE
List below the shares of Series A Preferred Stock to which this Special Conversion Notice relates.
If the space provided below is inadequate, the number of shares and certificate numbers of the Series A
Preferred Stock should be listed on a separate signed schedule affixed hereto.
____________________________________________________________________________________________________________________________________
DESCRIPTION OF SHARES TENDERED
____________________________________________________________________________________________________________________________________
CERTIFICATE(S) TENDERED
(ATTACH ADDITIONAL LIST IF NECESSARY)
____________________________________________________________________________________________________________________________________
<CAPTION>
(1)
NAME(S) AND
ADDRESS(ES) OF
REGISTERED HOLDER(S) (3)
(PLEASE FILL IN, IF BLANK (2) AGGREGATE (4)
EXACTLY AS NAME(S) CERTIFICATE NUMBER OF SHARES AGGREGATE NUMBER
APPEAR(S) ON NUMBER(S) (ATTACH REPRESENTED OF SHARES
CERTIFICATE(S)) LIST IF NECESSARY) BY CERTIFICATES TENDERED*
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
TOTAL
NUMBER OF
SHARES
____________________________________________________________________________________________________________________________________
* Unless otherwise indicated, the Holder will be deemed to have tendered for conversion pursuant to the Conversion Offer the entire
number of shares of Series A Preferred Stock represented by tendered certificates. See Instruction 3.
------------------------
NOTE: SIGNATURES MUST BE PROVIDED UNDER BOX TWO
PLEASE READ CAREFULLY THE ACCOMPANYING INSTRUCTIONS
____________________________________________________________________________________________________________________________________
</TABLE>
Ladies and Gentlemen:
In accordance with the terms and subject to the conditions set forth in the
Conversion Offer, the undersigned hereby tenders for conversion the
above-described aggregate number of shares of Series A Preferred Stock. Subject
to, and effective upon acceptance for conversion of the Series A Preferred Stock
tendered herewith, the undersigned hereby tenders, assigns and transfers to, or
upon the order of, the Company all right, title and interest in and to all the
shares of Series A Preferred Stock that are being tendered hereby and that are
being accepted for conversion pursuant to the Conversion Offer, and irrevocably
constitutes and appoints the Conversion Agent the true and lawful agent and
attorney-in-fact of the undersigned with respect to such shares of Series A
Preferred Stock (with full knowledge that the Conversion Agent also acts as
agent for the Company) with full power of substitution (such power of attorney
being deemed to be an irrevocable power coupled with an interest), to deliver
such shares of Series A Preferred Stock for conversion by the Company on the
Company's books, together, in each case, with all accompanying required
documentation, upon receipt by the Conversion Agent, as the undersigned's agent,
of Common Stock and the Conversion Premium to which the undersigned is entitled
upon the acceptance for conversion by the Company of such shares of Series A
Preferred Stock under the Conversion Offer.
The name and address of the registered holder(s) should be printed above
under "Description of Shares Tendered," if not already printed thereunder,
exactly as they appear on the certificates representing shares of Series A
Preferred Stock tendered hereby. The certificate number(s) and the aggregate
number of shares of Series A Preferred Stock to which this Special Conversion
Notice relates, together with the aggregate number of shares of Series A
Preferred Stock that the undersigned wishes to tender for conversion, should be
indicated in the appropriate boxes above under "Description of Shares Tendered."
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, assign and transfer the shares of Series A
Preferred Stock tendered hereby. The undersigned will, upon request, execute and
deliver any additional documents deemed by the Conversion Agent or the Company
to be necessary or desirable to complete the tender of Series A Preferred Stock
tendered hereby. The undersigned hereby represents that the Series A Preferred
Stock tendered hereby are valid.
<PAGE> 3
All authority conferred, or agreed to be conferred, in this Special
Conversion Notice shall survive the death or incapacity of the undersigned, and
any obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, legal representatives, successors and assigns of the
undersigned. The tender of shares of Series A Preferred Stock may be withdrawn
at any time before the Expiration Date, unless theretofore accepted for
conversion pursuant to the Conversion Offer. See "Procedures for Conversion and
Registration -- Withdrawal Rights" in the Offer of Premium.
The undersigned understands that tender of Series A Preferred Stock pursuant
to any of the procedures described in the Offer of Premium and in this Special
Conversion Notice will constitute a binding agreement between the undersigned
and the Company upon the terms and subject to the conditions of the Conversion
Offer.
Shares of Series A Preferred Stock properly tendered for conversion and not
withdrawn will be accepted as soon as practicable after the satisfaction or
waiver of all conditions to the Conversion Offer. The undersigned understands
that the shares of Common Stock and Conversion Premium will be delivered as
promptly as practicable upon acceptance for conversion of the tendered shares of
Series A Preferred Stock of the Company. The Conversion Offer is subject to
certain conditions, as more particularly set forth in the Offer of Premium. See
"Procedures for Conversion and Registration" in the Offer of Premium.
Unless otherwise indicated herein under "Special Issuance and Payment
Instructions," please issue the certificates for the Common Stock with respect
to the shares of Series A Preferred Stock accepted for conversion, and return
any shares of Series A Preferred Stock not tendered, in the name(s) of the
undersigned at the address set forth above under "Description of Shares
Tendered." Similarly, unless otherwise indicated under "Special Delivery
Instructions," please deliver the certificates for the Common Stock and the
Conversion Premium with respect to the shares of Series A Preferred Stock
accepted for conversion, and any shares of Series A Preferred Stock not tendered
(and accompanying documents, as appropriate), to the undersigned at the address
set forth above under "Description of Shares Tendered." If both the "Special
Issuance and Payment Instructions" and the "Special Delivery Instructions" are
completed, please issue the certificates for the Common Stock with respect to
the shares of Series A Preferred Stock accepted for conversion, and return or
issue any certificates shares of Series A Preferred Stock not tendered to, the
person or persons so indicated, subject in the case of any transfer to
compliance with the restrictions on transfer with respect to such shares and to
delivery to the transfer agent of any additional certificates or documents
required by the transfer agent to establish compliance with such restrictions.
________________________________________________________________________________
SPECIAL ISSUANCE AND
PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 4, 5, 6 AND 7)
DO NOT COMPLETE unless certificates for shares of Series A Preferred
Stock for shares not converted or Common Stock are to be issued in the
name of someone other than the person whose signature appears in Box Two
of this Special Conversion Notice.
Issue:
(Check appropriate box(es))
/ / Series A Preferred Stock to:
/ / Common Stock to:
Name(s) _____________________________________________________________________
(Please Print)
_____________________________________________________________________________
(Please Print)
Address______________________________________________________________________
_____________________________________________________________________________
(Zip Code)
_____________________________________________________________________________
(Tax Identification or Social Security Number)
(Complete Substitute Form W-9)
________________________________________________________________________________
________________________________________________________________________________
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 4, 5, 6 AND 7)
DO NOT COMPLETE unless certificates for shares of Series A Preferred
Stock for shares not converted or Common Stock are to be sent to someone
other than the person whose signature appears in Box Two of this Special
Conversion Notice or such person at an address other than that shown in
Box One, entitled "Description of Shares Tendered."
Name(s) _____________________________________________________________________
(Please Print)
_____________________________________________________________________________
(Please Print)
Address______________________________________________________________________
_____________________________________________________________________________
(Zip Code)
_____________________________________________________________________________
(Tax Identification or Social Security Number)
(Complete Substitute Form W-9)
________________________________________________________________________________
________________________________________________________________________________
SIGNATURE(S) MUST BE PROVIDED UNDER BOX TWO
(Please Read the Accompanying Instructions Carefully)
/ / CHECK HERE IF TENDERED SHARES OF SERIES A PREFERRED STOCK ARE ENCLOSED
HEREWITH.
/ / CHECK HERE IF TENDERED SHARES OF SERIES A PREFERRED STOCK ARE BEING
DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE
CONVERSION AGENT BEFORE THE DATE HEREOF AND COMPLETE THE FOLLOWING:
Name(s) of Registered Owner(s):_____________________________________________
Date of Execution of Notice
of Guaranteed Delivery:_____________________________________________________
Name of Eligible Institution
which Guaranteed Delivery:__________________________________________________
Transaction Code Number:____________________________________________________
________________________________________________________________________________
<PAGE> 4
________________________________________________________________________________
BOX TWO
PLEASE SIGN BELOW -- TO BE COMPLETED BY ALL HOLDERS
TENDERING SERIES A PREFERRED STOCK
______________________________________________________________________________
X___________________________________ _______________________________________
Signature of Registered Holder(s) or Signature(s) of Registered Holder(s) or
Authorized Signatory Authorized Signatory
X___________________________________ _______________________________________
Type or Print Name Type or Print Name
Dated: __________________, 199_ Dated: __________________, 199_
Area Code and Telephone No(s):________________________________________________
Tax Identification or Social Security No(s).:_________________________________
Must be signed by the registered holder(s) exactly as the name(s) appear(s)
on the certificate(s) for shares of Series A Preferred Stock or on a security
position listing or by person(s) authorized to become registered holder(s) as
evidenced by endorsements and documents transmitted herewith. See Instructions
4 and 5. If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation, agent, or other person acting in a
fiduciary or representative capacity, please provide the following information.
See Instruction 4.
Name(s): Address(es) (including zip code)
____________________________________ _______________________________________
____________________________________ _______________________________________
Type or Print Type or Print
Capacity (Full Title):_______________________________________________________
Guarantee of Signature(s)
(If required -- see Instruction 4)
Name of Firm:________________________________________________________________
Authorized Signature_________________________________________________________
Title:_______________________________________________________________________
Dated:_______________________________________________________________________
PLEASE COMPLETE SUBSTITUTE FORM W-9 BELOW -- SEE INSTRUCTION 7
________________________________________________________________________________
<PAGE> 5
PAYER'S NAME________________
<TABLE>
<S> <C> <C> <C>
Form W-9
(Rev. March 1994)
REQUEST FOR TAXPAYER GIVE FORM TO THE
Department of the Treasury IDENTIFICATION NUMBER AND CERTIFICATION REQUESTER. DO
Internal Revenue Service NOT SEND TO IRS.
____________________________________________________________________________________________________________________________________
Name (if joint names, list first and circle the name of the person or entity whose number you enter in Part
1 below. SEE INSTRUCTIONS ON PAGE 2 IF YOUR NAME HAS CHANGED.)
________________________________________________________________________________________________________________________________
Business name (Sole proprietors SEE instructions on page 2).
________________________________________________________________________________________________________________________________
Please check appropriate box: / / Individual/Sole proprietor / / Corporation / / Partnership / / Other .................
________________________________________________________________________________________________________________________________
Requester's name and address
Address (number, street, and apt. or suite no.) (optional)
_______________________________________________________________________
City, state, and ZIP code
____________________________________________________________________________________________________________________________________
List account number(s) here (optional)
PART I TAXPAYER IDENTIFICATION NUMBER (TIN)
___________________________________________________________________________
Enter your TIN in the appropriate box. For
individuals, this is your social security number
(SSN). For sole proprietors, see the instructions Social security number
on page 2. For other entities, it is your employer ---------------------- _______________________________________________________
identification number (EIN). If you do not have a - - PART II For Payees Exempt From
number, see HOW TO GET A TIN below. ---------------------- Backup Withholding (See Part II
OR Instructions on page 2)
NOTE: If the account is in more than one name, Employee identification
see the chart on page 2 for guidelines on whose number _______________________________________________________
number to enter. ----------------------
-
----------------------
____________________________________________________________________________________________________________________________________
PART III CERTIFICATION
____________________________________________________________________________________________________________________________________
Under penalties of perjury, I certify that:
1. The number shown on this form is my correct taxpayer identification number (or I am waiting for a number to be issued to me), and
2. I am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I have not been notified by
the Internal Revenue Service that I am subject to backup withholding as a result of a failure to report all interest or
dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding.
CERTIFICATION INSTRUCTIONS.-- You must cross out item 2 above if you have been notified by the IRS that you are currently subject to
backup withholding because of underreporting interest or dividends on your tax return. For real estate transactions, item 2 does not
apply. For mortgage interest paid, the acquisition or abandonment of secured property, cancellation of debt, contributions to an
individual retirement arrangement (IRA), and generally payments other than interest and dividends, you are not required to sign the
Certification, but you must provide your correct TIN. (Also see PART III INSTRUCTIONS on page 2).
____________________________________________________________________________________________________________________________________
SIGN
HERE SIGNATURE DATE
____________________________________________________________________________________________________________________________________
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE
CONVERSION OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE
FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER IF YOU WROTE
"APPLIED FOR" IN THE SPACE FOR THE TIN ABOVE.
____________________________________________________________________________________________________________________________________
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under the penalties of perjury that a taxpayer identification number has not been issued to me, and either (a) I have
mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or
Social Security Administration Office or (b) I intend to mail or deliver an application in the near future. I understand that if I
do not provide taxpayer identification number within sixty (60) days, 31% of any payments made to me thereafter may be withheld
until I provide a number.
____________________________________________________________________________________________________________________________________
_______________________________________________________________ __________________________________________________________
Signature Date
____________________________________________________________________________________________________________________________________
</TABLE>
<PAGE> 6
INSTRUCTIONS
FORMING PART OF THE TERMS AND PROVISIONS
OF THE CONVERSION OFFER
1. DELIVERY OF THIS SPECIAL CONVERSION NOTICE AND CERTIFICATES, GUARANTEED
DELIVERY PROCEDURES. This Special Conversion Notice is to be used if (a)
certificates for shares of Series A Preferred Stock are to be physically
delivered to the Conversion Agent herewith, or (b) tenders are to be made
according to the guaranteed delivery procedures set forth in the Offer of
Premium.
To validly tender Series A Preferred Stock pursuant to the Conversion
Offer, a properly completed and duly executed copy of this Special Conversion
Notice (or facsimile thereof) with any required signature guarantees, together
with either a properly completed and duly executed Notice of Guaranteed Delivery
or certificates for the shares of Series A Preferred Stock and any other
documents required by this Special Conversion Notice, must be received by the
Conversion Agent at its address set forth on the first part of this Special
Conversion Notice before 12:00 midnight, New York City time, on the Expiration
Date.
Holders of Series A Preferred Stock who desire to tender shares of Series A
Preferred Stock pursuant to the Conversion Offer and whose certificates
representing such shares of Series A Preferred Stock are not lost but are not
immediately available, or time will not permit all required documents to reach
the Conversion Agent before 12:00 midnight, New York City time, on the
Expiration Date, may tender their shares of Series A Preferred Stock pursuant to
the guaranteed delivery procedure set forth in the Offer of Premium under
"Procedures for Conversion and Registration -- Guaranteed Delivery Procedures."
Pursuant to the guaranteed delivery procedures (a) tender must be made through a
commercial bank or trust company having an office or branch in the United States
or by a firm which is a member of a registered national securities exchange or
of the National Association of Securities Dealers, Inc. (an "Eligible
Institution"), (b) the Conversion Agent must have received from such Eligible
Institution, before 12:00 midnight, New York City time, on the Expiration Date,
a properly completed and duly executed Notice of Guaranteed Delivery (by mail,
hand delivery, telegram or facsimile transmission), and (c) the certificates for
all tendered shares of Series A Preferred Stock in proper form for conversion,
together with a properly completed and duly executed Special Conversion Notice
(or facsimile thereof) and all other documents required by this Special
Conversion Notice, must be received by the Conversion Agent within five New York
Stock Exchange days after the Expiration Date, all as provided in the Offer of
Premium under the caption "Procedures for Conversion and
Registration -- Guaranteed Delivery Procedures."
THE METHOD OF DELIVERY OF THIS SPECIAL CONVERSION NOTICE, THE CERTIFICATES
FOR SERIES A PREFERRED STOCK AND OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND
RISK OF THE TENDERING HOLDER. EXCEPT AS OTHERWISE PROVIDED HEREIN AND IN THE
OFFER OF PREMIUM, SUCH DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED
BY THE CONVERSION AGENT. IF DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT THE
HOLDER USE PROPERLY INSURED, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, AND
THAT THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO
PERMIT DELIVERY TO THE CONVERSION AGENT BEFORE 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON THE EXPIRATION DATE.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance, withdrawal and revocation of tendered shares of Series A
Preferred Stock will be determined by the Company, whose determination will be
final and binding on all parties. The Company reserves the absolute right to
reject any or all tenders or withdrawals of shares of Series A Preferred Stock
that are not in proper form or the acceptance of which would, in the opinion of
counsel to the Company, be unlawful. The Company also reserves the right to
waive any irregularities or conditions of tender as to particular shares of
Series A Preferred Stock. The interpretation of the Company of the terms and
conditions of the Conversion Offer (including the Instructions herein) will be
final and binding on all parties, and irregularities in connection with tenders
must be cured within such time as the Company shall determine. No alternative,
conditional or contingent tenders will be accepted. None of the Company, the
Conversion Agent or any other person will be under any duty to give notification
of any defects or irregularities in any tender, nor will any of them incur any
liability for failure to give
any such notification. Tender of shares of Series A Preferred Stock will not be
deemed to have been made until irregularities have been cured or waived. Any
shares of Series A Preferred Stock received by the Conversion Agent that are not
properly tendered and as to which irregularities have not been cured or waived
will be returned by the Conversion Agent to the tendering holders of such shares
of Series A Preferred Stock, unless otherwise provided in this Special
Conversion Notice, as soon as practicable following the Expiration Date.
Any tendered shares of Series A Preferred Stock that are not accepted for
conversion pursuant to the Conversion Offer because of an invalid tender, the
occurrence of certain other events set forth in the Offer of Premium or
otherwise, will be returned without expense to the appropriate tendering holder
thereof, as promptly as practicable following the expiration, withdrawal or
termination of the Conversion Offer.
<PAGE> 7
2. WITHDRAWAL RIGHTS. Shares of Series A Preferred Stock tendered pursuant
to the Conversion Offer may be withdrawn, as hereinafter provided, at any time
before 12:00 midnight, New York City time, on the Expiration Date, unless
theretofore accepted for conversion pursuant to the Conversion Offer.
For the withdrawal of a tender of shares of Series A Preferred Stock to be
effective, a written, telegraphic or facsimile transmitted notice of withdrawal
must be received by the Conversion Agent at the address or number set forth on
the front page of this Special Conversion Notice before the Expiration Date. Any
such notice of withdrawal must specify the name of the person who tendered the
shares of Series A Preferred Stock, the number of shares of Series A Preferred
Stock to be withdrawn and (where certificates for shares of Series A Preferred
Stock have been tendered) the names in which such shares of Series A Preferred
Stock are registered, if different from that of the person tendering such shares
of Series A Preferred Stock. If shares of Series A Preferred Stock have been
delivered or otherwise identified to the Conversion Agent, then, before the
release of such shares of Series A Preferred Stock, the serial numbers of the
particular certificate evidencing the shares of Series A Preferred Stock to be
withdrawn and a notice of withdrawal signed by the registered holder in the same
manner as the original Special Conversion Notice with the signature(s)
guaranteed by an Eligible Institution (except in the case of shares of Series A
Preferred Stock tendered by an Eligible Institution) must be submitted.
Withdrawals of shares of Series A Preferred Stock tendered may not be rescinded;
however, withdrawn shares of Series A Preferred Stock may be retendered on or
before 12:00 midnight, New York City time, on the Expiration Date by following
any of the procedures described above under Instruction 1.
All questions as to the validity (including time of receipt) of notices of
withdrawal will be determined by the Company, whose determination will be final
and binding on all parties. None of the Company, the Conversion Agent or any
other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or will incur any liability for
failure to give such notification.
3. ACCEPTANCE OF SHARES OF SERIES A PREFERRED STOCK FOR CONVERSION;
DELIVERY OF COMMON STOCK AND CONVERSION PREMIUM; PARTIAL TENDER. The entire
number of shares represented by tendered certificates of Series A Preferred
Stock will be deemed to have been tendered unless otherwise indicated. If less
than the entire aggregate amount evidenced by a submitted certificate is to be
tendered, the tendering holder should fill in the aggregate number of shares of
Series A Preferred Stock which are to be tendered in column (4) of the table in
Box One above.
Upon the terms and subject to the conditions of Conversion Offer and the
acceptance for conversion of shares of Series A Preferred Stock validly tendered
under the Conversion Offer and not withdrawn, delivery of Common Stock and the
Conversion Premium will be made promptly after the Expiration Date.
For purposes of the Conversion Offer, the Company shall be deemed to have
accepted for conversion validly tendered shares of Series A Preferred Stock
when, as, and if the Company has given oral or written notice thereof to the
Conversion Agent. The Conversion Agent will act as agent for the tendering
holders of shares of Series A Preferred Stock for the purpose of receiving the
Common Stock and the Conversion Premium and transmitting the Common Stock and
the Conversion Premium to such holders.
4. SIGNATURES ON THIS SPECIAL CONVERSION NOTICE; STOCK POWERS AND
ENDORSEMENT GUARANTEE OF SIGNATURES. With respect to a tender of shares of
Series A Preferred Stock, this Special Conversion Notice must be signed by the
registered holder(s) of the shares of Series A Preferred Stock tendered, and
such signatures must correspond with the name(s) of such holder(s) as written on
the face of the certificate without any change whatsoever. If this Special
Conversion Notice is signed by a person other than the registered holder(s) of
the shares of Series A Preferred Stock, such shares of Series A Preferred Stock
must be endorsed or accompanied by appropriate stock powers signed exactly as
the name(s) of the registered holder(s) appear(s) on such shares of Series A
Preferred Stock. Signatures of endorsement on any such shares of Series A
Preferred Stock or stock powers must be guaranteed by an Eligible Institution.
(a) If any of the shares of Series A Preferred Stock are held of record by
two or more persons, all such persons must sign this Special Conversion Notice.
(b) If any of the shares of Series A Preferred Stock are registered in
different names, it will be necessary to complete, sign and submit as many
separate Special Conversion Notices and any necessary accompanying documents as
there are different registrations.
(c) If this Special Conversion Notice is signed by the registered holder(s)
of the shares of Series A Preferred Stock, no endorsements of shares of Series A
Preferred Stock or separate stock powers are required, unless shares of Series A
Preferred Stock not converted or the certificates of Common Stock are to be
issued in the name of, or delivered to, any person other than the registered
holder(s). Signatures on any such shares of Series A Preferred Stock or stock
powers must be guaranteed by an Eligible Institution (unless signed by an
Eligible Institution).
<PAGE> 8
(d) If this Special Conversion Notice is signed by a person other than the
registered holder(s) of the shares of Series A Preferred Stock, such shares of
Series A Preferred Stock must be endorsed or accompanied by appropriate stock
powers and signed exactly as the name(s) of the registered holder(s) appear(s)
on such shares of Series A Preferred Stock. Signatures on any such shares of
Series A Preferred Stock or stock powers must be guaranteed by an Eligible
Institution (unless signed by an Eligible Institution).
(e) If this Special Conversion Notice or any certificate or stock powers
are signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation, or other person acting in a fiduciary or
representative capacity, such person should so indicate when signing, and unless
waived by the Company, proper evidence satisfactory to the Company of the
authority of such person to so act must be submitted with this Special
Conversion Notice.
5. BROKERAGE FEE AND TRANSFER TAXES. Holders of shares of Series A
Preferred Stock will not be required to pay transfer taxes with respect to the
conversion of shares of Series A Preferred Stock pursuant to this Conversion
Offer unless the box entitled "Special Issuance and Payment Instructions" herein
is marked as described in Instruction 6. If, however, the box entitled "Special
Issuance and Payment Instructions" is marked and Common Stock or any shares of
Series A Preferred Stock not tendered are to be issued in the name of, or
delivered to, any person other than the registered holder(s), or if a transfer
tax is imposed for any reason other than the conversion of the shares of Series
A Preferred Stock pursuant to the Conversion Offer, the amount of any transfer
taxes (whether imposed on the registered holder(s), such other person or
otherwise) will be payable by tendering holder(s). Unless satisfactory evidence
of the payment of such taxes, or exemption therefrom, is submitted herewith, the
amount of such transfer taxes will be billed directly to the tendering holder(s)
EXCEPT AS PROVIDED IN THIS INSTRUCTION 5, IT WILL NOT BE NECESSARY FOR TRANSFER
TAX STAMPS TO BE AFFIXED TO THE CERTIFICATES LISTED IN THIS SPECIAL CONVERSION
NOTICE.
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If (a) certificates for
Common Stock or (b) any shares of Series A Preferred Stock not converted are to
be issued or delivered in the name of a person other than the person(s) signing
this Special Conversion Notice, the appropriate boxes on this Special Conversion
Notice should be completed.
7. SUBSTITUTE FORM W-9. Under Federal income tax law, each tendering holder
must provide the Conversion Agent with such holder's correct taxpayer
identification number by completing the Substitute Form W-9 set forth above. In
general, if a holder is an individual, the taxpayer identification number is the
Social Security number of such individual. If the Conversion Agent is not
provided with the correct taxpayer identification number, the holder may be
subject to a $50 penalty imposed by the Internal Revenue Service, as well as
"backup withholding" as described below. Certain holders (including, among
others, all corporations and certain foreign individuals) are not subject to
these backup withholding and reporting requirements. In order to satisfy the
Conversion Agent that a foreign individual qualifies as an exempt recipient,
such holder must submit a statement (Form W-8), signed under penalties of
perjury, attesting to that individual's exempt status. The Form W-8 can be
obtained from the Conversion Agent. For further information concerning backup
withholding and instructions for completing the Substitute Form W-9 (including
how to obtain a taxpayer identification number if you do not have one and how to
complete Substitute Form W-9 if shares of Series A Preferred Stock are held in
more than one name), consult the enclosed "Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9."
Failure to complete the Substitute Form W-9 will not, by itself, cause
shares of Series A Preferred Stock to fail to be deemed to be validly tendered,
but may require the Conversion Agent, in certain circumstances, to withhold 31%
of the amount of any payments made pursuant to the Conversion Offer. Backup
withholding is not an additional Federal income tax. Rather, the Federal income
tax liability of a person subject to backup withholding will be reduced by the
amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained from the Internal Revenue Service.
8. WAIVER OF CONDITIONS. The Company reserves the right to waive the
specified conditions to the Conversion Offer, as described in the Offer of
Premium under "Procedures for Conversion and Registration."
9. MUTILATED, LOST, STOLEN OR DESTROYED SHARES OF SERIES A PREFERRED
STOCK. Any holder whose certificates for shares of Series A Preferred Stock have
been mutilated, lost, stolen or destroyed should contact the Conversion Agent at
the address or telephone number previously indicated for further instructions.
10. EXPIRATION DATE. The Conversion Offer will expire at 12:00 midnight,
New York City time, on Wednesday, March 22, 1995, unless extended by the
Company. The Company reserves the right to extend the Conversion Offer for such
periods as it may determine in its sole discretion, in which event the
Expiration Date shall be the time and date on which the Conversion Offer, as so
extended, shall expire. The Company shall notify the Conversion Agent of any
extension by written or oral notice and will make a public announcement thereof
by release to the Dow Jones News Service before 9:00 a.m., New York City time,
on the next business day following the previously scheduled Expiration Date.
During any such extension, all shares of Series A
<PAGE> 9
Preferred Stock previously tendered and not accepted for conversion will remain
subject to the Conversion Offer and may, subject to the terms and conditions
hereof, be accepted for exchange by the Company, subject to the withdrawal
rights of tendering holders.
11. MODIFICATION AND TERMINATION. The Company expressly reserves the right,
at its sole discretion, subject to applicable law, to (i) delay payment of the
Conversion Premium, or terminate the Conversion Offer and not pay the Conversion
Premium and promptly return all Series A Preferred Stock to the holders of
Series A Preferred Stock who elected to convert pursuant to the Conversion Offer
by giving oral or written notice of the delay or termination to the Conversion
Agent, (ii) waive any condition to the Conversion Offer and pay the Conversion
Premium on all Series A Preferred Stock tendered for conversion pursuant
thereto, (iii) waive any condition to the Resale Registration, (iv) extend the
Expiration Date and retain all Series A Preferred Stock tendered pursuant to the
Conversion Offer until the expiration thereof, (v) amend the terms of the
Conversion Offer, (vi) modify the form or amount of the consideration to be paid
pursuant to the Conversion Offer, or (vi) delay the effectiveness of the
Registration Statement for the Resale Registration in its discretion until a
later date as the Company determines may be required or advisable. Any amendment
to the Conversion Offer will apply to all Series A Preferred Stock tendered for
conversion pursuant to the Conversion Offer, and any amendment to the
Registration Agreement will apply to all Common Stock subject to a Registration
Agreement.
12. REGISTRATION AGREEMENT. In order for shares of Common Stock issuable
upon conversion of Series A Preferred Stock to be registered for resale, the
beneficial owner of the shares of Series A Preferred Stock being tendered for
conversion must complete, sign and deliver the Registration Agreement to the
Conversion Agent before 12:00 midnight, New York City time, on the Expiration
Date. EVEN IF YOU TIMELY DELIVER THIS SPECIAL CONVERSION NOTICE OR INSTRUCT YOUR
BROKER OR CUSTODIAN TO DO SO, THE SHARES OF COMMON STOCK ISSUABLE UPON
CONVERSION WILL NOT BE REGISTERED FOR RESALE UNDER THE SECURITIES ACT OF 1933
UNLESS YOU TIMELY SIGN AND DELIVER THE REGISTRATION AGREEMENT TO THE CONVERSION
AGENT.
13. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and answers for
assistance may be directed to the Conversion Agent at its address and telephone
number set forth above. Additional copies of the Offer of Premium and this
Special Conversion Notice may be obtained from the Conversion Agent at its
address and telephone number set forth above.
IMPORTANT: THIS SPECIAL CONVERSION NOTICE OR A MANUALLY SIGNED FACSIMILE
HEREOF MUST BE RECEIVED BY CITIBANK, N.A., THE CONVERSION AGENT, BEFORE 12:00
MIDNIGHT, NEW YORK CITY TIME, ON THE EXPIRATION DATE.
<PAGE> 1
DELL COMPUTER CORPORATION
REGISTRATION AGREEMENT
FOR SHARES OF COMMON STOCK
ISSUED UPON CONVERSION OF
SERIES A CONVERTIBLE PREFERRED STOCK
PURSUANT TO ITS OFFER OF PREMIUM DATED FEBRUARY 21, 1995
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON WEDNESDAY, MARCH 22, 1995,
UNLESS EXTENDED BY THE COMPANY.
PLEASE SIGN AND COMPLETE BELOW
TO HAVE SHARES REGISTERED IN THE RESALE REGISTRATION
EXACT NAME OF HOLDER:___________________________________________________________
STREET ADDRESS OF HOLDER:_______________________________________________________
PHONE NUMBER:______________________________ TELECOPY NUMBER: ___________________
NUMBER OF SHARES OF COMMON STOCK BENEFICIALLY OWNED AS OF FEBRUARY 21, 1995
(EXCLUDING SHARES ISSUABLE UPON CONVERSION OF SERIES A PREFERRED STOCK):
NUMBER OF SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF SERIES A PREFERRED
STOCK TO BE REGISTERED UNDER THIS AGREEMENT [IF NO INDICATION IS MADE, ALL SUCH
SHARES OF COMMON STOCK ISSUED UPON CONVERSION OF SERIES A PREFERRED STOCK WILL
BE REGISTERED]:_________________________________________________________________
SIGNATURE OF HOLDER:____________________________________________________________
[IF AN ENTITY] By:______________________________________________________________
Name (please print):_____________________________________________
Title (please print):____________________________________________
NUMBER OF PROSPECTUSES NEEDED (LIMIT OF 20):____________________________________
<PAGE> 2
The Conversion Agent:
CITIBANK, N.A.
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
Citibank, N.A. Citibank, N.A. Citibank, N.A.
c/o Citicorp Data Distribution, c/o Citicorp Data Distribution, Corporate Trust Window
Inc. Inc. 111 Wall Street, 5th Floor
P.O. Box 7072 404 Sette Drive New York, New York
Paramus, New Jersey 07653 Paramus, New Jersey 07652
Confirm by Telephone:
(800) 422-2066
</TABLE>
Delivery of this Registration Agreement to an address other than as set
forth above will not constitute a valid delivery. In order for shares of Common
Stock issuable upon conversion to be registered for resale, the beneficial owner
of the shares of Series A Preferred Stock being tendered for conversion must
complete, sign and deliver this Registration Agreement to the Conversion Agent
before 12:00 midnight, New York City time, on Wednesday, March 22, 1995, unless
extended by the Company. EVEN IF YOU ARE TENDERING SERIES A PREFERRED STOCK
THROUGH A BROKER OR OTHER CUSTODIAN WHO HOLDS STOCK FOR YOUR ACCOUNT, THE SHARES
OF COMMON STOCK ISSUABLE UPON CONVERSION WILL NOT BE REGISTERED FOR RESALE UNDER
THE SECURITIES ACT OF 1933 UNLESS YOU TIMELY SIGN AND DELIVER THIS REGISTRATION
AGREEMENT TO THE CONVERSION AGENT.
REGISTRATION AGREEMENT
This REGISTRATION AGREEMENT (the "Agreement") is made and entered into by
and among Dell Computer Corporation, a Delaware corporation (the "Company"), and
the undersigned holders (the "Holders") of the Series A Convertible Preferred
Stock of the Company (the "Series A Preferred Stock"), effective as of the
closing of the Conversion Offer (hereinafter defined).
RECITALS
A. The Company has offered to register under the Securities Act and
applicable U.S. state securities laws, the resale from time to time of the
shares of Common Stock to be issued upon conversion of the Series A Preferred
Stock by the holders thereof pursuant to that certain Offer of Premium Upon
Conversion dated February 21, 1995, the related Special Conversion Notice, and
this Registration Agreement (which together constitute the "Conversion Offer").
B. To facilitate the transactions contemplated by the Conversion Offer and
to provide certain information required by the Company to be included in the
Registration Statement (hereinafter defined), the Company and the Holders desire
to enter into this Agreement.
AGREEMENTS
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the Company and the Holders hereby agree as follows:
1. Certain Definitions. For purposes of this Agreement, the following terms
shall have the following respective meanings:
(a) "Commission" means the Securities and Exchange Commission, or any
other federal agency at the time administering the Exchange Act or the
Securities Act, whichever is the relevant statute for the particular
purpose.
(b) "Common Stock" means the Company's common stock, par value $.01
per share.
2
<PAGE> 3
(c) "Conversion Offer" means the Company's offer to the holders of the
Series A Preferred Stock to convert such shares into the Company's Common
Stock pursuant to that certain Offer of Premium Upon Conversion dated
February 21, 1995, the related Special Conversion Notice, and this
Agreement.
(d) "Effective Date" means the date on which the Commission declares
the Registration Statement effective or on which the Registration Statement
otherwise becomes effective.
(e) "Exchange Act" means the Securities Exchange Act of 1934, or any
successor thereto, as the same shall be amended from time to time.
(f) "Expiration Date" means the date upon which the Conversion Offer
expires.
(g) "Prospectus" means the final prospectus contained in the
Registration Statement or filed pursuant to Rule 424(b) under the
Securities Act, as it may be amended or supplemented by the Company from
time to time.
(h) "Registrable Securities" means the shares of Common Stock to be
issued to Holders upon conversion of the Series A Preferred Stock pursuant
to the Conversion Offer and identified on the signature page for each of
such Holders and to be registered by the Company in accordance with this
Agreement.
(i) "Registration Expenses" has the meaning assigned thereto in
Section 4 hereof.
(j) "Registration Statement" means the Company's registration
statement on Form S-3 or such other successor form, in the form it is
declared effective by the Commission, registering for resale the
Registrable Securities.
(k) "Securities Act" means the Securities Act of 1933, or any
successor thereto, as the same shall be amended from time to time.
2. Registration under the Securities Act. The Company agrees to use its
reasonable commercial efforts to register the resale by the Holders from time to
time during the Resale Window (hereinafter defined) of the Registrable
Securities under the Securities Act and any applicable U.S. state securities or
"blue sky" laws and to have the Registration Statement declared effective by the
Commission as soon as reasonably practicable after the Expiration Date;
provided, however, that the Company may, in its sole discretion, delay the
effectiveness of such Registration Statement until a later date as the Company
determines may be required or advisable. The Company further agrees to use its
reasonable commercial efforts to keep the Registration Statement covering the
Registrable Securities effective for a period of 30 calendar days after the
Effective Date (the "Resale Window"). In counting the days in the Resale Window,
the day the Registration Statement is declared effective shall count as the
first day if it is declared effective at or before 10:00 a.m., New York City
time. The Company will promptly notify the Holders of the Registrable Securities
of the Effective Date at the address and telecopy number provided by such
Holders on the signature page above.
3. Covenants of the Holders. As a condition of the Company's obligation to
register the Registrable Securities and any and all other obligations of the
Company under this Agreement, each Holder hereby represents, warrants and
agrees:
(a) to furnish to the Company the information requested next to such
Holder's signature below, which shall include such Holder's name exactly as
it appears upon the stock transfer records of the Company, its current
street address, phone number, telecopy number, relationship to the Company,
if any, the exact number of shares of Series A Preferred Stock beneficially
owned by such Holder, and the exact number of shares of Common Stock
beneficially owned by such Holder and such other information reasonably
available to such Holder as the Company may reasonably request;
3
<PAGE> 4
(b) that such Holder shall not take, directly or indirectly, any
action that is designed to or which has constituted or that might
reasonably be expected to cause or result in stabilization or manipulation
of the price of any security of the Company to facilitate the sale or
resale of the Common Stock;
(c) that such Holder will comply with Rule 10b-6 under the Exchange
Act, which requires a seller of Registrable Securities and all affiliates
of the that seller (as "affiliate" is defined in such rule) to suspend all
bids for or purchases of shares of Common Stock at least two business days
before and during any offers and sales of Registrable Shares by that seller
and until that seller's offers and sales terminate;
(d) that such Holder will comply with Rule 10b-7 under the Exchange
Act, which prohibits any person from stabilizing the prices of a security
to facilitate and offering of that security;
(e) that such Holder shall not offer, sell, contract to sell,
establish any short position in, or otherwise offer or dispose of any other
Registrable Securities prior to the Effective Date; and
(f) that such Holder will not offer, sell, pledge or otherwise dispose
of the Series A Preferred Stock and the Common Stock issuable upon
conversion thereof prior to the Effective Date;
(g) that such Holder will offer and sell the Registrable Securities
only in the manner described in the Registration Statement;
(h) that such Holder will deliver or cause to be delivered a
Prospectus to the buyer at or before any sale of Registrable Securities;
(i) that, if such Holder sells Registrable Securities on the Nasdaq
National Market in an ordinary brokerage transaction, such holder will
deliver to its broker (i) a copy of the letter attached as Exhibit A
completed and executed by such Holder (the "Seller's Letter"), and (ii) a
copy of the letter attached as Exhibit B (the "Broker's Letter"), and shall
cause its broker to execute the Broker's Letter and promptly to deliver
both the Seller's Letter and the Broker's Letter to the transfer agent for
the Common Stock and to the Company, attention: General Counsel, and that
the Company may refuse to authorize transfer of such Registrable Securities
if such letters are not delivered to the Company in form and substance
satisfactory to the Company;
(j) that, if such Holder sells Registrable Securities directly to
another person other than in an ordinary brokerage transaction on the
Nasdaq National Market, such holder will deliver to the transfer agent for
the Common Stock and to the Company, attention: General Counsel, a copy of
the Seller's Letter completed and executed by such Holder, and that the
Company may refuse to authorize transfer of such Registrable Securities if
such letter is not delivered to the Company in form and substance
satisfactory to the Company;
(k) that such Holder will immediately suspend all offers and sales of
Registrable Securities pursuant to the Registration Statement upon
termination of the Resale Window or, if earlier, upon notification from the
Company that the Prospectus may no longer be used for offers or sales; and
(l) that such Holder is the beneficial owner of the shares of Series A
Preferred Stock and Common Stock set forth on the signature page of such
Holder hereto.
4. Registration Expenses. The Company agrees to bear and to pay or cause to
be paid promptly upon request being made therefor all expenses incident to the
Company's performance of or compliance with this Agreement, including, without
limitation, (a) all Commission registration and filing fees and expenses, (b)
all fees and expenses in connection with the qualification of the Common Stock
for offering and sale under any U.S. state securities and "blue sky" laws, (c)
all expenses relating to the preparation, printing, distribution and
reproduction of each registration
4
<PAGE> 5
statement required to be filed hereunder, each prospectus included therein or
prepared for distribution pursuant hereto, each amendment or supplement to the
foregoing, the certificates representing the Common Stock and all other
documents relating hereto, (d) messenger and delivery expenses, (e) internal
expenses (including, without limitation, all salaries and expenses of the
Company's officers and employees performing legal or accounting duties), (f)
fees, disbursements and expenses of counsel and independent certified public
accountants of the Company (including the expenses of any opinions or "cold
comfort" letters required by or incident to such performance and compliance),
and (g) fees, expenses and disbursements of any other persons, including special
experts, retained by the Company in connection with such registration
(collectively, the "Registration Expenses"). Notwithstanding the foregoing, the
Holders shall pay all agency fees and commissions, underwriting discounts and
commissions, and transfer and other taxes attributable to the sale of such
Registrable Securities and the fees and disbursements of any counsel or other
advisors or experts retained by such Holders (severally or jointly).
5. Indemnification.
(a) Indemnification by the Company. On and after the effectiveness of the
registration of the resale of the Registrable Securities pursuant to Section 2
hereof, and in consideration of the agreements of the Holders contained herein,
the Company agrees to indemnify and hold harmless each of the Holders in any
offering or sale of the Registrable Securities against any losses, claims,
damages or liabilities, joint or several, to which such Holder may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement under which such Registrable Securities
were registered under the Securities Act, or any final prospectus contained
therein or furnished by the Company to any such holder, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and the Company agrees
to reimburse such Holder for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such action or claim as
such expenses are incurred; provided, however, that the Company shall not be
liable to any such person in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement or final prospectus, or amendment or supplement, in
reliance upon and in conformity with written information furnished to the
Company by such person expressly for use therein; provided, further, that the
Company shall not be liable to any person to the extent such loss, claim,
damage, or liability results from the fact that there was not delivered by such
person a final prospectus the delivery of which would have avoided such loss,
claim, damage or liability.
(b) Indemnification by the Holders. Each of the Holders, severally, hereby
agrees (i) to indemnify and hold harmless the Company, and all other Holders,
against any losses, claims, damages or liabilities to which the Company or such
other Holders of may become subject, under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement, or any
final prospectus contained therein or furnished by the Company to any such
Holder, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by such
Holder expressly for use therein, and (ii) reimburse the Company for any legal
or other expenses reasonably incurred by the Company in connection with
investigating or defending any such action or claim; provided, however, that no
such Holder shall be required to undertake liability to any person under this
Section 5(b) for any amounts in excess of the dollar
5
<PAGE> 6
amount of the proceeds to be received by such Holder from the sale of such
Holder's Registrable Securities pursuant to such registration.
(c) Notices of Claims, Etc. Promptly after receipt by an indemnified party
under subsection (a) or (b) above of written notice of the commencement of any
action, such indemnified party shall, if a claim in respect thereof is to be
made against an indemnifying party pursuant to the indemnification provisions of
or contemplated by this Section 5, notify such indemnifying party in writing of
the commencement of such action; but the omission so to notify the indemnifying
party shall not relieve it from any liability which it may have to any
indemnified party other than under the indemnification provisions of or
contemplated by Section 5(a) or 5(b) hereof. In case any such action shall be
brought against any indemnified party and it shall notify an indemnifying party
of the commencement thereof, such indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and,
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, such indemnifying party shall not be
liable to such indemnified party for any legal expenses of other counsel or any
other expenses, in each case subsequently incurred by such indemnified party, in
connection with the defense thereof other than reasonable costs of
investigation.
(d) Contribution. Each party hereto agrees that, if for any reason the
indemnification provisions contemplated by Section 5(a) or Section 5(b) are
unavailable to or insufficient to hold harmless an indemnified party in respect
of any losses, claims, damages or liabilities (or actions in respect thereof)
referred to therein, then each indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect the relative fault of the indemnifying party and the
indemnified party in connection with the statements or omissions which resulted
in such losses, claims, damages or liabilities (or actions in respect thereof),
as well as any other relevant equitable considerations. The relative fault of
such indemnifying party and indemnified party shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by such indemnifying party or by such indemnified party,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The parties hereto
agree that it would not be just and equitable if contributions pursuant to this
Section 5(d) were determined by pro rata allocation (even if the holders or any
agents or underwriters or all of them were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in this Section 5(d). The amount paid or
payable by an indemnified party as a result of the losses, claims, damages, or
liabilities (or actions in respect thereof) referred to above shall be deemed to
include any legal or other fees or expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 5(d), no Holder shall
be required to contribute any amount in excess of the amount by which the dollar
amount of the proceeds received by such Holder from the sale of any Registrable
Securities (after deducting any fees, discounts and commissions applicable
thereto) exceeds the amount of any damages which such holder has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Holders' obligations in this Section 5(d) to contribute
shall be several in proportion to the principal amount of Registrable Securities
registered by them and not joint.
(e) The obligations of the Company under this Section 5 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each officer, director and partner of
each Holder and each person, if any, who controls any Holder
6
<PAGE> 7
within the meaning of the Securities Act; and the obligations of the Holders
contemplated by this Section 5 shall be in addition to any liability which the
respective Holder may otherwise have and shall extend, upon the same terms and
conditions, to each officer and director of the Company (including any person
who, with his consent, is named in any registration statement as about to become
a director of the Company) and to each person, if any, who controls the Company
within the meaning of the Securities Act.
6. Miscellaneous.
(a) Specific Performance. The parties hereto acknowledge that there may be
no adequate remedy at law if any party fails to perform any of its obligations
hereunder and that each party may be irreparably harmed by any such failure, and
accordingly agree that each party, in addition to any other remedy in which it
may be entitled at law or in equity, shall be entitled to compel specific
performance of the obligations of any other party under this Agreement in
accordance with the terms and conditions hereunder, in any court of the United
States or any State thereof having jurisdiction.
(b) Notices. All notices, requests, claims, demands, waivers and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered by hand, if delivered personally or by courier, or
three days after being deposited in the mail (registered or certified mail,
postage prepaid, return receipt requested), or upon electronic confirmation of
receipt if delivered by telecopy, as follows: If to the Company, to it at Dell
Computer Corporation, 2112 Kramer Lane, Building 1, Austin, Texas 78758-4012,
Attention: General Counsel, Telecopy number: (512) 728-3773, and if to a Holder,
to it at the address and telecopy number provided by such Holder herein, or to
such other address as any party may have furnished to the others in writing in
accordance herewith, except that notices of change of address shall be effective
only upon receipt.
(c) Successors and Assigns. All the terms and provisions of this Agreement
shall be binding upon, shall inure to the benefit of and shall be enforceable by
the respective successors and assigns of the parties hereto.
(d) Survival. The respective indemnities, agreements, representations,
warranties and each other provision set forth in this Agreement or made pursuant
hereto shall remain in full force and effect regardless of any investigation (or
statement as to the results thereof) made by or on behalf of any Holder, any
director, officer or partner of such Holder, or any controlling person of such
Holder, and shall survive the effectiveness of the Registration Statement.
(e) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
(f) Headings. The descriptive headings of the several Sections and
paragraphs of this Agreement are inserted for convenience only, do not
constitute a part of this Agreement and shall not affect in any way the meaning
or interpretation of this Agreement.
(g) Entire Agreement. This Agreement and the other writings referred to
herein or delivered pursuant hereto which form a part hereof contain the entire
understanding of the parties with respect to its subject matter, and supersede
all prior agreements and understandings between the parties with respect to its
subject matter.
(h) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute one and the same agreement.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective the closing of the Conversion Offer.
DELL COMPUTER CORPORATION
By:
Thomas J. Meredith
Chief Financial Officer
THE SIGNATURE OF THE HOLDER ON THE COVER OF THIS
REGISTRATION AGREEMENT SHALL BE A COUNTERPART
SIGNATURE TO THIS REGISTRATION AGREEMENT
8
<PAGE> 9
EXHIBIT A
SELLER'S LETTER
__________________, 1995
General Counsel
Dell Computer Corporation
2112 Kramer Lane, Building 1
Austin, Texas 78758-4012
Telephone: (512) 338-4400
Telecopy: (512) 728-3773
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Telephone: (718) 921-8200
(212) 936-5100
Telecopy: (718) 236-4588
Re: Dell Computer Corporation
Common Stock Issued Upon Conversion of Series A Convertible Preferred
Stock
Ladies and Gentlemen:
The undersigned has sold_______________________[insert number] shares
("Shares") of Common Stock of Dell Computer Corporation (the "Company") to
________________________________________[insert name] (the "Purchaser"). Terms
having their initial letter capitalized but not defined in this letter have the
meanings ascribed them in the Registration Agreement between the undersigned and
the Company. In order to induce you to transfer the Shares and to issue,
register and countersign new certificates representing the Shares without a
legend restricting the transfer thereof, the undersigned acknowledges and
represents to the Company and American Stock Transfer & Trust Company as
follows:
1. The undersigned delivered, or caused to be delivered, to the
Purchaser a copy of the Prospectus of the Company relating to the Shares at
or before the written confirmation of the sale of the Shares to the
Purchaser.
2. No written materials other than the Prospectus and confirmation
were used in connection with the sale.
3. The sale was made in compliance with all applicable state
securities or blue-sky laws.
4. The undersigned also acknowledges and represents that the
undersigned has complied with all its covenants in the Registration
Agreement, including without limitation the covenants regarding compliance
with Rule 10b-6 and Rule 10b-7 under the Exchange Act and the prohibits
against offering or selling the Shares before the Effective Date of the
Registration Statement. I represent that I am not, and at no time have
been, an affiliate of the Company.
INDIVIDUAL:
________________________________________
(Signature of Selling Security Holder)
________________________________________
(Printed Name of Selling Security
Holder)
________________________________________
PARTNERSHIP, CORPORATION OR TRUST:
Print Name of Entity:
By:_____________________________________
(Signature of Authorized Officer or
Representative)
________________________________________
(Print Name of Authorized Officer or
Representative)
________________________________________
(Title)
9
<PAGE> 10
EXHIBIT B
BROKER'S LETTER
______________, 1995
General Counsel
Dell Computer Corporation
2112 Kramer Lane, Building 1
Austin, Texas 78758-4012
Telephone: (512) 338-4400
Telecopy: (512) 728-3773
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Telephone: (718) 921-8200
(212) 936-5100
Telecopy: (718) 236-4588
Re: Dell Computer Corporation
Common Stock Issued Upon Conversion of Series A Convertible Preferred
Stock
Ladies and Gentlemen:
We have read the letter of ________________________________ [print name
of seller] dated ______________________, 1995, concerning the proposed sale of
shares (the "Shares") of Common Stock of Dell Computer Corporation (the
"Company") through us and advise you that, in connection with the sale of the
Shares:
1. We have sold or will sell the Shares in a brokerage transaction as
agent for the named seller.
2. The undersigned delivered, or caused to be delivered, to the
purchaser of the Shares a copy of the Prospectus of the Company relating to
the Shares at or before the written confirmation of the sale of the Shares
to the Purchaser through the undersigned firm.
3. No written materials other than the Prospectus and confirmation
were used in connection with the sale.
4. The selling of the Shares by the undersigned as agent for the named
seller does not constitute participation by the undersigned in a
distribution within the meaning of the Securities and Exchange Commission's
Rule 10b-6(c)(5). We understand that this determination may depend on the
magnitude of the number of shares we are asked to sell, or foreseeably will
be asked to sell, and the presence of any special selling efforts or
selling methods. If our participation constitutes participation in a
distribution within the meaning of Rule 10b-6(c)(5), we represent and
acknowledge to you that we have complied with Rule 10b-6.*
Sincerely,
______________________________________
(Print Name of Firm)
______________________________________
(Signature of Authorized
Representative)
______________________________________
(Print Name and Capacity of Signer)
______________________________________
(Telephone Number)
- ---------------
*Note: In the view of the Securities and Exchange Commission, additional
compensation offered to registered representatives or a favorable
research report or any recommendation by the broker are indicia of
special selling efforts and may indicate the transaction constitutes a
distribution for purposes of Rule 10b-6. When a broker-dealer agrees with
one or more shareholders to act as their exclusive agent in connection
with sales off a shelf registration statement, the broker-dealer will be
subject to Rule 10b-6, and the broker-dealer will be prohibited from
engaging in market making or other activities proscribed by Rule 10b-6.
10
<PAGE> 1
DELL COMPUTER CORPORATION
NOTICE OF GUARANTEED DELIVERY
TO CONVERT
SERIES A CONVERTIBLE PREFERRED STOCK
FOR
SHARES OF COMMON STOCK AND $8.25 CASH CONVERSION PREMIUM
PURSUANT TO ITS OFFER OF PREMIUM DATED FEBRUARY 21, 1995
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT MIDNIGHT,
NEW YORK CITY TIME, ON WEDNESDAY, MARCH 22, 1995,
UNLESS EXTENDED BY THE COMPANY.
The Conversion Agent:
CITIBANK, N.A.
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
Citibank, N.A. Citibank, N.A. Citibank, N.A.
c/o Citicorp Data Distribution, Inc. c/o Citicorp Data Distribution, Inc. Corporate Trust Window
P.O. Box 7072 404 Sette Drive 111 Wall Street, 5th Floor
Paramus, New Jersey 07653 Paramus, New Jersey 07652 New York, New York
Confirm by Telephone:
(800) 422-2066
</TABLE>
As set forth in the Offer of Premium Upon Conversion dated February 21,
1995 (the "Offer of Premium"), under "Procedures for Conversion and
Registration -- Guaranteed Delivery Procedures," this form or one substantially
equivalent hereto must be used to accept the Conversion Offer (as defined below)
if certificates for Series A Convertible Preferred Stock (the "Series A
Preferred Stock") of Dell Computer Corporation (the "Company") are not
immediately available or time will not permit such certificates or other
required documents to reach the Conversion Agent prior to 12:00 midnight, New
York City time, on or prior to the Expiration Date (as defined in the Offer of
Premium). Such form may be delivered by hand or transmitted by facsimile
transmission or mail to the Conversion Agent prior to midnight, New York City
time, on the Expiration Date. Capitalized terms used herein and not otherwise
defined shall have the respective meanings assigned to them in the Offer of
Premium.
DELIVERY OF THIS NOTICE TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF THIS NOTICE VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE WILL NOT
CONSTITUTE A VALID DELIVERY.
This form is not to be used to guarantee signatures. The Eligible
Institution (as defined in the Offer of Premium) that completes this form must
communicate the guarantee to the Conversion Agent and must deliver the Letter of
Transmittal and certificates for Series A Preferred Stock to the Conversion
Agent within the time period shown herein. Failure to do so could result in a
financial loss to that Eligible Institution.
<PAGE> 2
LADIES AND GENTLEMEN:
The undersigned hereby tenders to the Company, upon the terms and
conditions set forth in the Offer of Premium, related Special Conversion Notice,
and related Registration Agreement (which together constitute the "Conversion
Offer"), receipt of which is hereby acknowledged, shares of Series A
Preferred Stock pursuant to the guaranteed delivery procedures described in
"Procedures for Conversion and Registration -- Guaranteed Delivery Procedures"
in the Offer of Premium.
(PLEASE TYPE OR PRINT ALL INFORMATION BELOW)
Signature(s):___________________________________________________________________
________________________________________________________________________________
Name(s) of Record Holder(s):
________________________________________________________________________________
Address(es):____________________________________________________________________
________________________________________________________________________________
City State Zip Code
Area Code and Tel. No(s):_______________________________________________________
Dated:__________________________________________________________________________
Certificate No(s). (if available):
________________________________________________________________________________
Total number of shares represented by Certificate(s):___________________________
Account Number:_________________________________________________________________
GUARANTEE
(DO NOT USE FOR SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities exchange
or a member of the National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office in the United States, hereby
represents that (a) the above named person(s) owns(s) the shares of Series A
Preferred Stock tendered hereby within the meaning of Rule 14e-4 under the
Securities Exchange Act of 1934, as amended ("Rule 14e-4"); (b) such tender of
shares of Series A Preferred Stock complies with Rule 14e-4; and (c) delivery to
the Conversion Agent of the certificate(s) representing the shares of Series A
Preferred Stock tendered hereby, together with the appropriate properly
completed and duly executed Special Conversion Notice (or facsimile thereof),
with any required signature guarantee and any other required documents, will be
received no later than five (5) New York Stock Exchange trading days after the
Expiration Date.
________________________________________________________________________________
Name of Firm Authorized Signature
________________________________________________________________________________
Address Title
________________________________________________________________________________
Zip Code Name: Please Type or Print
Area Code & Tel. No.___________________________ Dated:___________________, 199__
NOTE: DO NOT SEND SERIES A PREFERRED STOCK CERTIFICATES WITH THIS FORM. SERIES A
PREFERRED STOCK CERTIFICATES MUST BE SENT ONLY WITH THE SPECIAL CONVERSION
NOTICE.
<PAGE> 1
NOTICE OF PREMIUM UPON CONVERSION
OF ANY AND ALL OF THE OUTSTANDING
SERIES A CONVERTIBLE PREFERRED STOCK
OF
DELL COMPUTER CORPORATION
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON WEDNESDAY, MARCH 22, 1995,
UNLESS EXTENDED BY THE COMPANY.
February 21, 1995
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
We are enclosing the material listed below relating to the offer by Dell
Computer Corporation (the "Company"), upon the terms and subject to the
conditions set forth in the enclosed Offer of Premium Upon Conversion dated
February 21, 1995 (the "Offer of Premium"), to pay a cash premium of $8.25 (the
"Conversion Premium") for each share of its Series A Convertible Preferred Stock
(the "Series A Preferred Stock") that is converted to common stock, par value
$.01 per share (the "Common Stock"), of the Company from the date of the Offer
of Premium through 12:00 midnight, New York City time, on Wednesday, March 22,
1995, unless extended (the "Special Conversion Period"). A holder of Series A
Preferred Stock who elects to convert during the Special Conversion Period will
receive 4.2105 shares of Common Stock (equivalent to a conversion price of
$23.75 per share of Common Stock) and the Conversion Premium of $8.25 in cash
for each share of Series A Preferred Stock converted. At the conclusion of the
Special Conversion Period, a holder of shares of Series A Preferred Stock who
did not convert those shares to Common Stock in the Conversion Offer will no
longer be entitled to the Conversion Premium upon conversion.
The Company will register under the Securities Act of 1933, as amended (the
"Securities Act"), and applicable U.S. state securities laws, the resale of the
shares of Common Stock to be issued upon conversion of Series A Preferred Stock
pursuant to this offer by the holders thereof (the "Resale Registration"). Under
the Resale Registration, resales of such Common Stock may be made for 30
calendar days (the "Resale Window") only in ordinary brokerage transactions. The
Company currently intends to use its reasonable commercial efforts to have the
Resale Registration declared effective as soon as reasonably practicable
following completion of the Conversion Offer. However, the Company may delay the
effectiveness of the Resale Registration in its discretion until a later date as
the Company determines may be required or advisable.
Holders of Series A Preferred Stock who elect to convert Series A Preferred
Stock pursuant to the Conversion Offer will not receive future, regular dividend
payments with respect to Series A Preferred Stock, including any amount in
respect of periods since January 27, 1995, the last record date since the date
hereof for payment of regularly scheduled dividends.
The offer is made on the terms and subject to the conditions set forth in
the enclosed Offer of Premium and any supplements or amendments thereto (the
"Offer of Premium"), in the related Special Conversion Notice, and in the
related Registration Agreement (which together constitute the "Conversion
Offer").
<PAGE> 2
For your information and for forwarding to your clients who hold Series A
Preferred Stock, whether registered in your name, in the name of your nominee,
or in their own names, we are enclosing the following documents:
1. The Offer of Premium;
2. The Special Conversion Notice to be used by holders of Series A
Preferred Stock in accepting the Conversion Offer (facsimile copies of the
Special Conversion Notice may be used to tender Series A Preferred Stock
for conversion);
3. The Registration Agreement to be signed by those holders of Series
A Preferred Stock that accept the Conversion Offer in order to participate
in the Resale Registration;
4. A Notice of Guaranteed Delivery to be used to accept the Conversion
Offer if any shares of Series A Preferred Stock to be tendered are
represented by certificates and those certificates are not immediately
available;
5. A suggested form of letter that may be sent to your clients for
whose accounts you hold Series A Preferred Stock in your name or in the
name of a nominee, with space provided for obtaining the clients'
instructions about the Conversion Offer;
6. Guidelines of the Internal Revenue Service for Certification of
Taxpayer Identification Number on Substitute Form W-9;
7. A return envelope addressed to Citibank, N.A., the Conversion
Agent;
8. The Company's Annual Report on Form 10-K for the Fiscal Year Ended
January 30, 1994;
9. The Company's Quarterly Report on Form 10-Q for the Quarterly
Period Ended October 30, 1994; and
10. The Company's Current Report on Form 8-K, dated February 21, 1995.
WE URGE YOU TO CONTACT YOUR CLIENTS PROMPTLY. PLEASE NOTE THAT THE SPECIAL
CONVERSION PERIOD EXPIRES AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY,
MARCH 22, 1995, UNLESS EXTENDED BY THE COMPANY.
No fees or commissions will be payable to brokers, dealers or other persons
for soliciting tenders or Series A Preferred Stock pursuant to the Conversion
Offer. However, the Company will, upon request, reimburse brokers, dealers,
commercial banks and trust companies for reasonable and necessary costs incurred
by them in forwarding the Offer of Premium and the related documents to the
beneficial owners of Series A Preferred Stock held by them as nominee or in a
fiduciary capacity. The Company will pay all transfer taxes, if any, on the
conversion of the Series A Preferred Stock, other than those resulting from a
request to issue Common Stock to a person other than the registered holder of
the Series A Preferred Stock.
Any questions or requests for assistance or additional copies of the
enclosed materials may be obtained from the Company or the Conversion Agent at
the addresses and telephone numbers set forth in the Offer of Premium.
Very truly yours,
DELL COMPUTER CORPORATION
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
OR ANY PERSON AS AN AGENT OF THE COMPANY, ANY AFFILIATE OF THE COMPANY, OR THE
CONVERSION AGENT OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENTS ON
BEHALF OF ANY OF THEM IN CONNECTION WITH THE CONVERSION OFFER EXCEPT FOR
STATEMENTS EXPRESSLY MADE IN THE OFFER OF PREMIUM AND THE RELATED DOCUMENTS.
2
<PAGE> 1
NOTICE OF PREMIUM UPON CONVERSION
OF ANY AND ALL OF THE OUTSTANDING
SERIES A CONVERTIBLE PREFERRED STOCK
OF
DELL COMPUTER CORPORATION
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON WEDNESDAY, MARCH 22, 1995,
UNLESS EXTENDED BY THE COMPANY.
February 21, 1995
To Our Clients:
Enclosed for your consideration is a copy of the Offer of Premium Upon
Conversion ("Offer of Premium") of Dell Computer Corporation (the "Company"),
dated February 21, 1995, with respect to the offer by the Company upon the terms
and subject to the conditions set forth in the Offer of Premium to pay a cash
premium of $8.25 (the "Conversion Premium") for each share of its Series A
Convertible Preferred Stock (the "Series A Preferred Stock") that is converted
to common stock, par value $.01 per share (the "Common Stock"), of the Company
from the date of the Offer of Premium through 12:00 midnight, New York City
time, on Wednesday, March 22, 1995, unless extended (the "Special Conversion
Period"). A holder of Series A Preferred Stock who elects to convert during the
Special Conversion Period will receive 4.2105 shares of Common Stock (equivalent
to a conversion price of $23.75 per share of Common Stock) and the Conversion
Premium of $8.25 in cash for each share of Series A Preferred Stock converted.
At the conclusion of the Special Conversion Period, a holder of shares of Series
A Preferred Stock who did not convert those shares to Common Stock in the
Conversion Offer will no longer be entitled to the Conversion Premium upon
conversion.
The Company will register under the Securities Act of 1933, as amended (the
"Securities Act"), and applicable U.S. state securities laws, the resale of the
shares of Common Stock to be issued upon conversion of Series A Preferred Stock
pursuant to this offer by the holders thereof (the "Resale Registration"). Under
the Resale Registration, resales of such Common Stock may be made for 30
calendar days (the "Resale Window") only in ordinary brokerage transactions. The
Company currently intends to use its reasonable commercial efforts to have the
Resale Registration declared effective as soon as reasonably practicable
following completion of the Conversion Offer. However, the Company may delay the
effectiveness of the Resale Registration in its discretion until a later date as
the Company determines may be required or advisable.
Holders of Series A Preferred Stock who elect to convert Series A Preferred
Stock pursuant to the Conversion Offer will not receive future, regular dividend
payments with respect to Series A Preferred Stock, including any amount in
respect of periods since January 27, 1995, the last record date since the date
hereof for payment of regularly scheduled dividends.
Assuming all of the outstanding Series A Preferred Stock are converted
during the Special Conversion Period, the holders of Series A Preferred Stock
will receive an aggregate of approximately 5,263,125 shares of Common Stock and
$10,312,500 in cash.
THE ENCLOSED OFFER OF PREMIUM, TOGETHER WITH THE INFORMATION INCORPORATED
BY REFERENCE THEREIN, CONSTITUTE THE COMPANY'S OFFER AND DISCLOSURE MATERIALS
AND SHOULD BE REVIEWED BY YOU IN THEIR ENTIRETY.
<PAGE> 2
We are the record owner of Series A Preferred Stock held by us for your
account, and the Offer of Premium is being forwarded to you as the beneficial
owner of those shares of Series A Preferred Stock. The conversion of those
shares of Series A Preferred Stock can be made only by us as the holder of
record and pursuant to your instructions. The enclosed Special Conversion Notice
is furnished to you for your information only and cannot be used by you to
convert Series A Preferred Stock held by us for your account.
We request your instructions as to whether you wish us to convert on your
behalf any or all the principal amount of Series A Preferred Stock held by us
for your account, pursuant to the terms and subject to the conditions of the
Conversion Offer.
Your attention is called to the following:
1. Pursuant to the Conversion Offer, a cash premium of $8.25 will be
paid by the Company for each share of Series A Preferred Stock converted
during the Special Conversion Period.
2. The Conversion Offer is being made for all of the outstanding
Series A Preferred Stock as of February 21, 1995. The Conversion Offer is
not conditioned upon any minimum amount of shares of Series A Preferred
Stock being tendered.
3. The Special Conversion Period commenced as of Tuesday, February 21,
1995, and will remain in effect until and will expire at 12:00 midnight,
New York City time, on Wednesday, March 22, 1995, unless extended by the
Company.
4. Holders electing to convert Series A Preferred Stock pursuant to
the Conversion Offer will not be obligated to pay brokerage fees or
commissions.
5. Holders of Series A Preferred Stock may convert less than the
entire stated number of shares of Series A Preferred Stock represented by
surrendered certificates provided they appropriately indicate this fact on
the Conversion Notice accompanying the shares of Series A Preferred Stock
to be converted.
6. IF YOU ALSO WISH TO HAVE SHARES REGISTERED IN THE RESALE
REGISTRATION DESCRIBED IN THE OFFER OF PREMIUM, YOU MUST SIGN THE ENCLOSED
REGISTRATION AGREEMENT AND HAVE IT DELIVERED DIRECTLY TO THE CONVERSION
AGENT BEFORE THE EXPIRATION OF THE SPECIAL CONVERSION PERIOD.
If you wish us to convert any or all of your shares of Series A Preferred
Stock, please so instruct us by completing, executing, and returning to us the
instruction form attached hereto. If you authorize a conversion of your Series A
Preferred Stock, the total number of your shares of Series A Preferred Stock
will be converted unless otherwise indicated. If you do not instruct us to
convert your shares of Series A Preferred Stock they will not be converted. The
Conversion Offer is not being made, nor will deliveries of shares of Series A
Preferred Stock for conversion pursuant to the Conversion Offer be accepted from
or on behalf of, holders of Series A Preferred Stock residing in any
jurisdiction in which the making of the Conversion Offer or the acceptance
thereof would not be in compliance with the laws of such jurisdiction. YOUR
INSTRUCTIONS SHOULD BE FORWARDED TO US IN AMPLE TIME TO PERMIT US TO SUBMIT A
SPECIAL CONVERSION NOTICE ON YOUR BEHALF TO THE CONVERSION AGENT PRIOR TO THE
EXPIRATION OF THE SPECIAL CONVERSION PERIOD.
2
<PAGE> 3
INSTRUCTIONS
WITH RESPECT TO THE
CONVERSION OFFER
BY
DELL COMPUTER CORPORATION
The undersigned acknowledge(s) receipt of your letter, dated February 21,
1995, and the Offer of Premium, in connection with the Conversion Offer by Dell
Computer Corporation, a Delaware corporation (the "Company") to pay a cash
premium of $8.25 for each share of its Series A Convertible Preferred Stock (the
"Series A Preferred Stock") that is converted to common stock, par value $.01
per share, of the Company from the date of the Offer of Premium through 12:00
midnight, New York City time, on Wednesday, March 22, 1995, unless extended (the
"Special Conversion Period").
You are hereby instructed to deliver to the Company for conversion pursuant
to the Conversion Offer the number of shares of Series A Preferred Stock
indicated below (or, if no number is indicated below, all shares of Series A
Preferred Stock) which are held by you for the account of the undersigned, upon
the terms and subject to the conditions set forth in the Conversion Offer.
<TABLE>
<S> <C>
Dated ____________ , 1995 _____________________________________________
_____________________________________________
_____________________________________________
_____________________________________________
Please print name(s) here
Number of shares of Series A Preferred Stock
to be converted pursuant to the Conversion
Offer*
____________________________________________ _____________________________________________
_____________________________________________
Address(es)
(_________) _________________________________
Area Code and Day Telephone number
_____________________________________________
Tax Identification or Social Security No(s).
</TABLE>
- ---------------
* If the number of shares is not indicated, the total number of shares held by
us for your account will be delivered for conversion pursuant to the
Conversion Offer.
<PAGE> 1
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON FORM W-9
<TABLE>
<S> <C> <C> <C>
Form W-9
(Rev. March 1994)
REQUEST FOR TAXPAYER GIVE FORM TO THE
Department of the Treasury IDENTIFICATION NUMBER AND CERTIFICATION REQUESTER. DO
Internal Revenue Service NOT SEND TO IRS.
____________________________________________________________________________________________________________________________________
Name (if joint names, list first and circle the name of the person or entity whose number you enter in Part
1 below. SEE INSTRUCTIONS ON PAGE 2 IF YOUR NAME HAS CHANGED.)
________________________________________________________________________________________________________________________________
Business name (Sole proprietors SEE instructions on page 2).
________________________________________________________________________________________________________________________________
Please check appropriate box: / / Individual/Sole proprietor / / Corporation / / Partnership / / Other .................
________________________________________________________________________________________________________________________________
Requester's name and address
Address (number, street, and apt. or suite no.) (optional)
_______________________________________________________________________
City, state, and ZIP code SAMPLE
____________________________________________________________________________________________________________________________________
List account number(s) here (optional)
PART I TAXPAYER IDENTIFICATION NUMBER (TIN)
___________________________________________________________________________
Enter your TIN in the appropriate box. For
individuals, this is your social security number
(SSN). For sole proprietors, see the instructions Social security number
on page 2. For other entities, it is your employer ---------------------- _______________________________________________________
identification number (EIN). If you do not have a - - PART II For Payees Exempt From
number, see HOW TO GET A TIN below. ---------------------- Backup Withholding (See Part II
OR Instructions on page 2)
NOTE: If the account is in more than one name, Employee identification
see the chart on page 2 for guidelines on whose number _______________________________________________________
number to enter. ----------------------
-
----------------------
____________________________________________________________________________________________________________________________________
PART III CERTIFICATION
____________________________________________________________________________________________________________________________________
Under penalties of perjury, I certify that:
1. The number shown on this form is my correct taxpayer identification number (or I am waiting for a number to be issued to me), and
2. I am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I have not been notified by
the Internal Revenue Service that I am subject to backup withholding as a result of a failure to report all interest or
dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding.
CERTIFICATION INSTRUCTIONS.-- You must cross out item 2 above if you have been notified by the IRS that you are currently subject to
backup withholding because of underreporting interest or dividends on your tax return. For real estate transactions, item 2 does not
apply. For mortgage interest paid, the acquisition or abandonment of secured property, cancellation of debt, contributions to an
individual retirement arrangement (IRA), and generally payments other than interest and dividends, you are not required to sign the
Certification, but you must provide your correct TIN. (Also see PART III INSTRUCTIONS on page 2).
____________________________________________________________________________________________________________________________________
SIGN
HERE SIGNATURE SAMPLE DATE
____________________________________________________________________________________________________________________________________
</TABLE>
Section references are to the Internal Revenue Code.
PURPOSE OF FORM.-- A person who is required to file an information return with
the IRS must get your correct TIN to report income paid to you, real estate
transactions, mortgage interest you paid, the acquisition or abandonment of
secured property, cancellation of debt, or contributions you made to an IRA. Use
Form W-9 to give your correct TIN to the requester (the person requesting your
TIN) and, when applicable, (1) to certify the TIN you are giving is correct (or
you are waiting for a number to be issued), (2) to certify you are not subject
to backup withholding, or (3) to claim exemption from backup withholding if you
are an exempt payee. Giving your correct TIN and making the appropriate
certifications will prevent certain payments from being subject to backup
withholding.
NOTE: If a requester gives you a form other than a W-9 to request your TIN, you
must use the requester's form if it is substantially similar to this Form W-9.
WHAT IS BACKUP WITHHOLDING?--Persons making certain payments to you must
withhold and pay to the IRS 31% of such payments under certain conditions. This
is called "backup withholding." Payments that could be subject to backup
withholding include interest, dividends, broker and barter exchange
transactions, rents, royalties, nonemployee pay, and certain payments from
fishing boat operators. Real estate transactions are not subject to backup
withholding.
If you give the requester your correct TIN, make the proper certifications, and
report all your taxable interest and dividends on your tax return, your payments
will not be subject to backup withholding. Payments you receive will be subject
to backup withholding if:
1. You do not furnish your TIN to the requester, or
2. The IRS tells the requester that you furnished an incorrect TIN, or
3. The IRS tells you that you are subject to backup withholding because you did
not report all your interest and dividends on your tax return (for reportable
interest and dividends only), or
4. You do not certify to the requester that you are not subject to backup
withholding under 3 above (for reportable interest and dividend accounts opened
after 1983 only), or
5. You do not certify your TIN. See the Part III instructions for exceptions.
Certain payees and payments are exempt from backup withholding and information
reporting. See the Part II instructions and the separate INSTRUCTIONS FOR THE
REQUESTER OF FORM W-9.
HOW TO GET A TIN.-- If you do not have a TIN, apply for one immediately. To
apply, get FORM SS-5, Application for a Social Security Number Card (for
individuals), from your local office of the Social Security Administration, or
FORM SS-4, Application for Employer Identification Number (for businesses and
all other entities), from your local IRS office.
If you do not have a TIN, write "Applied For" in the space for the TIN in Part
I, sign and date the form, and give it to the requester. Generally, you will
then have 60 days to get a TIN and give it to the requester. If the requester
does not receive your TIN within 60 days, backup withholding, if applicable,
will begin and continue until you furnish your TIN.
NOTE: Writing "Applied for" on the form means that you have already applied for
a TIN OR that you intend to apply for one soon.
As soon as you receive your TIN, complete another Form W-9, include your TIN,
sign and date the form, and give it to the requester.
- --------------------------------------------------------------------------------
Cat. No. 10231X Form W-9 (Rev. 3-94)
<PAGE> 2
Form W-9 (Rev. 3-94) Page 2
- --------------------------------------------------------------------------------
PENALTIES
FAILURE TO FURNISH TIN.-- If you fail to furnish your correct TIN to a
requester, you are subject to a penalty of $50 for each such failure unless your
failure is due to reasonable cause and not to willful neglect.
CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.-- If you make a
false statement with no reasonable basis that results in no backup withholding,
you are subject to a $500 penalty.
CRIMINAL PENALTY FOR FALSIFYING INFORMATION.-- Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
MISUSE OF TINS.-- If the requester discloses or uses TINs in violation of
Federal law, the requester may be subject to civil and criminal penalties.
SPECIFIC INSTRUCTIONS
NAME.-- If you are an individual, you must generally enter the name shown on
your social security card. However, if you have changed your last name, for
instance, due to marriage, without informing the Social Security Administration
of the name change, please enter your first name, the last name shown on your
social security card, and your new last name.
Sole Proprietor.--You must enter your individual name. (Enter either your SSN
or EIN in Part I.) You may also enter your business name or "doing business as"
name on the business name line. Enter your name as shown on your social security
card and business name as it was used to apply for your EIN on From SS-4.
PART I--TAXPAYER IDENTIFICATION NUMBER (TIN)
You must enter your TIN in the appropriate box. If you are a sole proprietor,
you may enter your SSN or EIN. Also see the chart on this page for further
clarification of name and TIN combinations. If you do not have a TIN, follow the
instructions under HOW TO GET A TIN on page 1.
PART II--FOR PAYEES EXEMPT FROM BACKUP WITHHOLDING
Individuals (including sole proprietors) are not exempt from backup withholding.
Corporations are exempt from backup withholding for certain payments, such as
interest and dividends. For a complete list of exempt payees, see the separate
Instructions for the Requester of Form W-9.
If you are exempt from backup withholding, you should still complete this form
to avoid possible erroneous backup withholding. Enter your correct TIN in Part
I, write "Exempt" in Part II, and sign and date the form. If you are a
nonresident alien or a foreign entity not subject to backup withholding, give
the requester a completed Form W-8, Certificate of Foreign Status.
PART III--CERTIFICATION
For a joint account, only the person whose TIN is shown in Part I should sign.
1. INTEREST, DIVIDEND, AND BARTER EXCHANGE ACCOUNTS OPENED BEFORE 1984 AND
BROKER ACCOUNTS CONSIDERED ACTIVE DURING 1983. You must give your correct TIN,
but you do not have to sign the certification.
2. INTEREST, DIVIDEND, BROKER, AND BARTER EXCHANGE ACCOUNTS OPENED AFTER 1983
AND BROKER ACCOUNTS CONSIDERED INACTIVE DURING 1983. You must sign the
certification or backup withholding will apply. If you are subject to backup
withholding and you are merely providing your correct TIN to the requester, you
must cross out item 2 in the certification before signing the form.
3. REAL ESTATE TRANSACTIONS. You must sign the certification. You may cross out
item 2 of the certification.
4. OTHER PAYMENTS.You must give your correct TIN, but you do not have to sign
the certification unless you have been notified of an incorrect TIN. Other
payments include payments made in the course of the requester's trade or
business for rents, royalties, goods (other than bills for merchandise), medical
and health care services, payments to a nonemployee for services (including
attorney and accounting fees), and payments to certain fishing boat crew
members.
5. MORTGAGE INTEREST PAID BY YOU, ACQUISITION OR ABANDONMENT OF SECURED
PROPERTY, CANCELLATION OF DEBT, OR IRA CONTRIBUTIONS. You must give your correct
TIN, but you do not have to sign the certification.
PRIVACY ACT NOTICE.
Section 6109 requires you to give your correct TIN to persons who must file
information returns with the IRS to report interest, dividends, and certain
other income paid to you, mortgage interest you paid, the acquisition or
abandonment of secured property, cancellation of debt, or contributions you made
to an IRA. The IRS uses the numbers for identification purposes and to help
verify the accuracy of your tax return. You must provide your TIN whether or not
you are required to file a tax return. Payers must generally withhold 31% of
taxable interest, dividend, and certain other payments to a payee who does not
give a TIN to a payer. Certain penalties may also apply.
WHAT NAME AND NUMBER TO GIVE THE REQUESTER
<TABLE>
<S> <C>
- -------------------------------------------
FOR THIS TYPE OF ACCOUNT: GIVE NAME AND SSN OF:
- -------------------------------------------
1. Individual The individual
2. Two or more The actual owner of the
individuals (joint account or, if combined
account) funds, the first
individual on the
account.(1)
3. Custodian account of The minor(2)
a minor (Uniform
Gift to Minors Act)
4. a. The usual The grantor-trustee(1)
revocable savings
trust (grantor is
also trustee)
b. So-called trust The actual owner(1)
account that is
not a legal or
valid trust under
state law
5. Sole proprietorship The owner(3)
- -------------------------------------------
FOR THIS TYPE OF ACCOUNT: GIVE NAME AND EIN OF:
- -------------------------------------------
6. Sole proprietorship The owner(3)
7. A valid trust, Legal entity(4)
estate, or pension
trust
8. Corporate The corporation
9. Association, club, The organization
religious,
charitable,
educational, or
other tax-exempt
organization
10. Partnership The partnership
11. A broker or The broker or nominee
registered nominee
12. Account with the The public entity
Department of
Agriculture in the
name of a public
entity (such as a
state or local
government, school
district, or prison)
that receives
agricultural program
payments
- -------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's SSN.
(3) You must show your individual name, but you may also enter your business or
"doing business as" name. You may use either your SSN or EIN.
(4) List first and circle the name of the legal trust, estate, or pension trust.
(Do not furnish the TIN of the personal representative or trustee unless the
legal entity itself is not designated in the account title.)
NOTE: If no name is circled when more than one name is listed, the number will
be considered to be that of the first name listed.
<PAGE> 1
(Dell Logo) Investor Contacts:
Don Collis, Ken Smith
(512) 728-8671
(512) 728-4034
Media Contact:
Michele Moore
(512) 728-4100
DELL COMPUTER CORPORATION ANNOUNCES
COMMENCEMENT OF SPECIAL CONVERSION OFFER
FOR SERIES A PREFERRED STOCK
AUSTIN, TEXAS, FEBRUARY 21, 1995 -- Dell Computer Corporation announced
today that it is offering to pay a cash premium of $8.25 for each share of its
Series A Convertible Preferred Stock that is converted to Common Stock during
the offer period. Dell is also offering to register resales of the shares of
Common Stock to be issued in the conversion offer for a 30-day period with the
Securities and Exchange Commission.
The purpose of the offer is to induce the conversion of the Series A
Convertible Preferred Stock into Common Stock. The Company believes the effects
of the conversion include strengthening the Company's balance sheet and
eliminating or reducing the future dividend payments on the Series A Convertible
Preferred Stock.
This release shall not constitute an offer to sell or the solicitation of
an offer to buy, nor shall there be any sale of the Common Stock, in any state
in which such offer or sale would be unlawful before registration or
qualification under the securities laws of any such state. The Common Stock may
not be publicly offered for resale except by means of a prospectus.
A Global 500(R) Company, Dell Computer Corporation (Nasdaq:DELL) designs,
develops, manufactures, markets, services and supports a complete line of
personal computers compatible with industry standards. With annual revenues of
nearly $3.5 billion, Dell is the world's leading direct marketer of personal
computers and one of the top five personal computer vendors in the world.
Information on the company and its products can be obtained through its
toll-free number: 1-800-BUY-DELL (1-800-289-3355) or by accessing the Dell
Worldwide Web server, at http://www.us.dell.com/.
# # #
Dell is a registered trademark of Dell Computer Corporation.
Note to editors: See the accompanying page for offer details.
<PAGE> 2
Dell Computer Announces
Commencement of Special Conversion Offer
SUMMARY OF CONVERSION OFFER
The conversion offer commences February 21, 1995, and the offer and
withdrawal rights will expire at 12:00 midnight, New York City time, on
Wednesday, March 22, 1995, unless the Company extends the offer. A holder of
Series A Convertible Preferred Stock who elects to convert during the offer
period will receive 4.2105 shares of Common Stock (equivalent to a conversion
price of $23.75 per share of Common Stock) and the conversion premium of $8.25
in cash for each share of Series A Preferred Stock converted. At the conclusion
of the offer period, a holder of shares of Series A Preferred Stock who did not
convert those shares to Common Stock in the conversion offer will no longer be
entitled to the conversion premium.
Dell will register resales of the shares of Common Stock to be issued in
the conversion offer with the Securities and Exchange Commission and state
securities authorities. A registration statement for those resales will be filed
with the Securities and Exchange Commission but will not become effective until
after the closing of the offer to pay the premium. The Company will make the
registration statement available for resales only for 30 calendar days. The
Common Stock to be issued on conversion may not be sold and offers to buy may
not be accepted before that registration statement becomes effective, except in
limited circumstances that comply with applicable securities laws and the
transfer restrictions on those shares of Common Stock.
The offer to pay the premium and register resales of the Common Stock is
being made on the terms and subject to the conditions set forth in an Offer of
Premium and related documents being sent to holders of Series A Convertible
Preferred Stock on February 21, 1995. The Conversion Agent for the offer is
Citibank, N.A. (telephone 800-422-2066).
The payment of the premium in the Conversion Offer will be treated for
accounting purposes as an additional dividend on the Series A Convertible
Preferred Stock. Accordingly, the aggregate amount of the conversion premium
paid will be deducted from net income to determine the net income available to
common stockholders for the period in which the Conversion Offer is completed,
which will be in the first quarter of fiscal 1996 unless extended. The maximum
amount of the premium could total $10.3 million (note: $8.25 x 1.25 million
shares = $10.3 million). In addition, the weighted average shares outstanding
used to calculate primary earnings per common share will include the shares of
Common Stock issued upon conversion from the closing of the conversion offer to
the end of the period.
<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED JANUARY 30, 1994
COMMISSION FILE NUMBER: 0-17017
DELL COMPUTER CORPORATION
9505 ARBORETUM BOULEVARD
AUSTIN, TEXAS 78759-7299
(512) 338-4400
A DELAWARE CORPORATION IRS EMPLOYER ID NO. 74-2487834
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES ACT OF 1934 DURING
THE PRECEDING 12 MONTHS, AND (2) IT HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS
FOR THE PAST 90 DAYS. YES /X/ NO / /
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. / /
AS OF MARCH 24, 1994, THE AGGREGATE MARKET VALUE OF THE COMMON STOCK HELD
BY NON-AFFILIATES OF THE REGISTRANT WAS $727,015,985.
AS OF MARCH 24, 1994, THE REGISTRANT HAD OUTSTANDING 38,178,970 SHARES OF
ITS COMMON STOCK, $.01 PAR VALUE. INFORMATION RELATING TO THE COMMON STOCK HAS
BEEN RETROACTIVELY RESTATED TO GIVE EFFECT TO A 3 FOR 2 SPLIT OF THE COMMON
STOCK IN THE FORM OF A 50% STOCK DIVIDEND DECLARED BY THE COMPANY'S BOARD OF
DIRECTORS AS OF MARCH 6, 1992 FOR HOLDERS OF RECORD AS OF MARCH 23, 1992. THE
DISTRIBUTION OF SUCH DIVIDEND OCCURRED ON APRIL 9, 1992.
DOCUMENTS INCORPORATED BY REFERENCE
PART III OF THIS REPORT IS INCORPORATED BY REFERENCE TO THE REGISTRANT'S
DEFINITIVE PROXY STATEMENT RELATING TO ITS ANNUAL MEETING OF STOCKHOLDERS, WHICH
WILL BE FILED WITH THE COMMISSION WITHIN 120 DAYS OF THE END OF FISCAL 1994.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
Unless otherwise indicated, all references to years in connection with
financial information refer to the Company's fiscal years. The Company's fiscal
year ends on the Sunday closest to January 31 of each year. Fiscal 1994 ended on
January 30, 1994, fiscal 1993 ended on January 31, 1993, fiscal 1992 ended on
February 2, 1992, and fiscal 1995 will end on January 29, 1995.
PART I
ITEM 1. BUSINESS
Dell Computer Corporation (the "Company" or "Dell") is the fifth largest
personal computer vendor in the world and had fiscal 1994 consolidated net sales
of $2.87 billion. Dell markets and provides complete personal computer solutions
directly to its customers, which include major corporate, government and
education accounts as well as value-added remarketers, system integrators, small
businesses and individuals. These complete personal computer solutions are
customized to the end-user's specifications and comprise customized hardware,
integrated software and peripherals, tailored maintenance and support, and
value-added services. Information Dell obtains from its direct customer
relationships helps Dell understand and tailor its offerings to end-users'
needs. Dell supplements its direct marketing strategy by selling personal
computer systems through mass merchants in several countries to penetrate
further the individual and small-business market.
A key element in the Company's growth has been the development of the
Dell(R)brand of personal computers, which has become one of the leading brand
names in the industry. All of the 59 personal computer systems currently offered
by the Company have been introduced since August 1, 1993. Many of the systems
can be custom configured with a variety of hardware including multimedia devices
such as CD-ROM and sound cards as well as an assortment of memory, mass storage
and other options. As part of its commitment to complete personal computer
solutions, the Company also markets a wide range of software, peripherals, and
service and support programs.
As the personal computer market has matured it has become more segmented,
with customers seeking distribution channels that provide better overall value.
Buyers' considerations now include the convenience of purchasing the entire
personal computer solution (hardware, software and peripherals) from a single
vendor, the convenience of obtaining support for that entire solution from a
single vendor, and the ability to obtain customized products and services at
competitive prices. The consistency and quality with which a vendor can meet
buyers' needs is also important.
Since incorporating in 1984, the Company has grown rapidly because of the
effectiveness and efficiency of its approach to meeting customer needs. The
Company's effectiveness is driven by its ability to design, package, market and
support computer products; provide customized products and services; and be
accessible and responsive in providing post-sale service and support. The
efficiency of Dell's approach is driven by its direct interaction with the
customer, thus avoiding high inventory and occupancy costs of physical stores.
Dell's approach also generally avoids the inefficiency and mark-ups associated
with the typical industry model, where products move through a multi-step
process involving manufacturers, distributors, retail stores and a variety of
value-added service providers.
Dell Computer Corporation was originally incorporated in Texas in May 1984.
In October 1987, the current Delaware corporation was formed and the renamed
successor to the Texas company became a subsidiary of the Delaware corporation.
Based in Austin, Texas, the Company operates wholly-owned subsidiaries in
Australia, Canada, The Czech Republic, France, Germany, Ireland, Japan, Mexico,
the Netherlands, Norway, Poland, Spain, Sweden, the United Kingdom, and the
United States of America. Dell Computer Corporation's Common Stock, $.01 Par
Value, (the "Common Stock") is quoted on the NASDAQ National Market System under
the trading symbol DELL.
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THE DELL DIRECT RELATIONSHIP MARKETING STRATEGY
Dell's primary strategy is to develop and utilize direct customer
relationships to understand end-users' needs and to deliver high quality
personal computer products and services tailored to meet those needs. The
Company provides its customers with individualized service, from the initial
order to custom configured manufacturing and to post-sale service and support,
including technical support and on-site service. The Company uses feedback from
this broad base of customer contact to refine its product, marketing and
customer support plans.
Although the Company believes its direct marketing strategy offers many
advantages to certain customers, direct marketing does not offer end-users
physical access to products before the purchase decision. A certain portion of
personal computer buyers (primarily medium- to small-sized businesses and
individuals) desire physical access to products, particularly at the time they
make their first personal computer purchase. This is a primary reason the
Company has supplemented its direct marketing strategy through distribution
agreements with mass merchants in several countries, including Best Buy,
CompUSA, and Sam's Clubs in the United States; Price/CostCo in the United
States, Canada and Mexico; Future Shop in Canada; and PC World in the United
Kingdom. Each of these companies operates a chain of stores or clubs through
which the Company sells selected products.
There is no single customer of Dell, or any value added remarketer or
distributor of the Company's products, to which aggregate sales amounted to ten
percent or more of the Company's consolidated revenues for any of the three
years ended in 1994.
INTERNATIONAL OPERATIONS
Dell's direct relationship approach is a worldwide strategy that has been
well received in geographic markets in which it has been introduced. The Company
currently sells personal computer products in more than 115 countries through
selected distributors and wholly-owned and operated subsidiaries in Australia,
Canada, The Czech Republic, France, Germany, Ireland, Japan, Mexico, the
Netherlands, Norway, Poland, Spain, Sweden, and the United Kingdom. Many of the
Company's international subsidiaries were originally formed as stand-alone
businesses providing sales, technical support and customer service. While this
approach facilitated effective and rapid market penetration, it also created
redundant marketing and support programs in the subsidiaries. The Company is in
the process of consolidating common functions, primarily in Europe, to create
regional business units that reduce redundant costs and improve the Company's
ability to deliver quality services in that market.
The Company has maintained a strong focus on local management in its
international operations, retaining experienced professionals to head each of
its subsidiaries. Dell's manufacturing facility in Ireland now supplies
virtually all of the products the Company sells in Europe, the Middle East and
Africa. The Company believes that its international growth affords significant
opportunities to achieve higher levels of operating and economic efficiencies.
The Company is considering several ways to enhance its international presence in
addition to implementing the Company's restructuring announced during 1994. Dell
intends to continue to expand its international activities by increasing market
presence in existing markets, improving support systems, pursuing additional
international manufacturing and distribution opportunities, and entering new
markets primarily through third-party resellers. The success and profitability
of international operations may be adversely affected by conditions that differ
from conditions in the United States, including economic and labor conditions,
political instability, tax laws (including, but not limited to, U.S. taxes on
foreign subsidiaries), and changes in the value of the United States dollar
versus the local currency in which products are sold. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Hedging Activities."
The Company's European operations contributed net revenues of $782 million
for 1994, a 41% increase over $553 million in net revenues for 1993. European
net revenues for 1993 represented a 129% increase over 1992. Other international
sales increased 85% to $136 million for 1994, following a 157% increase in 1993
over 1992. These increases resulted primarily from increased sales in existing
markets and, to a lesser extent, expansion into new markets.
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MARKETING AND SALES
The Company markets its products to businesses, government agencies,
academic institutions and individuals. Specialized marketing approaches are
tailored to meet the needs of each type of customer in a cost effective manner.
During the last half of 1994, Dell began introducing new personal computer
products that targeted distinct markets based on customer usage and buyer
preferences. This allows the Company to meet specific customer needs and desires
more effectively. These new products also help profit margins by reducing price
conflicts inherent in offering similar products in different markets. The new
products include six product lines designed for distinct markets: OmniPlex(TM),
for mission-critical business operations; OptiPlex(TM), for advanced stand-alone
applications; NetPlex, for corporate network environments; Dell Dimension(TM)
XPS, for technologically sophisticated users; and Dell Dimension and Dell
Precision(TM), for value-minded customers. Since January 30, 1994, the Company
has introduced two new personal computer product lines: the PowerEdge(TM) server
line offering performance and reliability for network applications; and the
Latitude(TM) notebook personal computer line, marking the first stage of the
Company's phased re-entry into the notebook computer market.
National Accounts
The Company has developed marketing programs and services specifically
geared to large corporate, government, medical, and education customers. Account
management teams consisting of sales, customer service and technical support
representatives provide each large account with a single source of assistance on
issues ranging from order placement to system configuration and connectivity. To
support these teams, Dell has account executives in many major cities in North
America and Europe. Customers with in-house maintenance organizations can elect
to receive specialized training on Dell's systems, a repair parts assistance
program, and access to high level technical support from the Company. Customized
product delivery and service programs are available on a worldwide basis.
Dell currently has a broad base of business among the Fortune 500(R)
companies and governmental and educational institutions worldwide. The Company's
government customers include the U.S. Federal government and various state and
local governments. The Company has held a U.S. General Services Administration
Schedule contract since June 1987, through which U.S. federal governmental
agencies may purchase the Company's computers and equipment. Consolidated net
sales to major corporate, government and education accounts led sales gains in
1994, increasing 51% to $1.44 billion from $953 million in 1993. U.S. Federal
government sales were stronger than normal in the third quarter of 1994 because
of a surge in buying at the end of the U.S. Federal government's budget year,
which resulted in a larger than normal decline of 58% in the fourth quarter of
1994 as the U.S. Federal government entered a new budget year. Sales to major
corporate, government and education accounts increased 129% in 1993 from $416
million in 1992. Sales to this customer group represented approximately 50% of
consolidated net sales in 1994 and 47% in 1993.
Medium- to Small-Sized Businesses and Individuals
A broad range of medium- to small-sized businesses and individuals have
chosen to buy directly from Dell. The Company provides these customers with
competitive prices, knowledgeable sales assistance, custom configuration and
post-sale service and support. The Company markets to these customers by
advertising in trade and general business publications, participating in
industry trade shows and conferences, and mailing a broad range of direct
marketing publications such as promotional pieces, catalogs and customer
newsletters. Dell also sells its personal computer systems through Best Buy,
CompUSA, and Sam's Clubs in the United States; Price/CostCo in the United
States, Canada, and Mexico; Future Shop in Canada; and PC World in the United
Kingdom. These mass merchants provide end users with physical access to the
Company's products in a showroom setting while the Company is able to maintain
the direct relationship with the end-user through post-sale service and support.
In 1994, sales to medium- to small-businesses and individuals increased 31% to
$1.03 billion from $787 million in 1993. Sales to this customer group
represented 36% of consolidated net sales in 1994 and 39% in 1993.
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Value Added Remarketers and System Integrators ("VARs")
VARs sell computer systems customized to specific end-user applications
through the addition of hardware, software or services. Because VARs package
complete application-specific solutions, they are in an ideal position to
benefit from the Company's custom manufacturing and technical and marketing
support programs. To provide VARs with added flexibility, the Company offers
several programs tailored directly to their needs. For example, VARs can
purchase complete systems from the Company and have them shipped directly to the
user's installation site, allowing VARs to reduce inventory carrying costs,
preserve margins, and avoid the risk of price cuts on systems held in inventory.
The Company has specialized account teams trained to meet the needs of its VARS.
Sales to VARs increased 46% to $401 million in fiscal 1994 from $274 million in
fiscal 1993. Sales to this customer group represented approximately 14% of
consolidated net sales in both 1994 and 1993.
Marketing Information Systems
The Company's information systems enable the Company to track each unit
sold from the initial sales contacts through the manufacturing process and
post-sale service and support. The Company's marketing information systems
assist the Company in tracking key information about many of its customers from
the initial sales contact through the sales, manufacturing and post-sale service
and support processes. The Company is able to target marketing activities
specifically to particular types of customers using its database to assess
purchasing trends, advertising effectiveness, and customer and product
groupings.
SERVICE AND SUPPORT
The Company offers its customers comprehensive service and support programs
tailored to meet varying levels of customer requirements. Customers with
problems or questions may talk to trained Company specialists through a
toll-free telephone number. These specialists maintain close contact with
marketing, manufacturing and product design groups and can obtain the
configuration and prior service history of the customer's system. Customer phone
calls provide direct feedback that the Company uses to update a centralized
database of information. The Company tracks customer support calls by category
in order to spot and correct trends that may signal a design or manufacturing
concern. Many of Dell's currently offered computer systems include software that
enables customers to diagnose and communicate system problems. In addition, a
built-in diagnostics system on many of the Company's newer computer systems
provides on-line information about in-process system operation. The Company's
support offerings in the United States include an automated toll-free, 24-hour
TechFax(SM) service that enables customers to access portions of the Company's
technical database by telephone and to receive technical instructions or
diagrams by facsimile within minutes.
Recognizing that customer requirements vary, Dell introduced SelectCare(SM)
in January 1993. SelectCare offers different service programs that enable
customers to pay only for the level of service they need. The programs cater
primarily to large organizations that have their own service operations or that
need more sophisticated levels of support. These programs include: (i) Dell
Parts Only, which provides up to four additional years of parts warranty
coverage; (ii) Parts and Labor, providing on-site service for up to four
additional years; (iii) Self-Maintainer program, designed for companies with
in-house service capabilities, which provides instruction for servicing of Dell
computers; and (iv) Third-Party Maintenance, designed for companies that retain
an outside service provider but request access to Dell second-level toll-free
technical support, electronic bulletin board and fax services. The Company's
general service programs include unlimited toll-free customer service and
technical support on hardware products, a comprehensive field service program, a
one-year limited warranty on hardware and an unconditional 30-day money back
guarantee on hardware for any end-user buying directly from the Company.
Other new, specialized programs introduced in 1994 include a broad array of
service and support options tailored for advanced systems customers, as well as
programs dedicated for mobile computing customers.
Dell also offers BusinessCare(SM), which is designed specifically for
corporate users involved in local or wide area networks. BusinessCare is a
flexible, multi-faceted three-year service plan that provides next-
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business-day on-site service and next-business-day parts delivery. It also
offers a "Getting Started" helpline, access to technical service information via
Dell's TechFax and bulletin board services, an optional four-hour Critical
Care(R) response system in major metropolitan areas and DirectLine(SM) (an
around-the-clock toll-free support line manned by Novell and Banyan-certified
network engineers).
The Company offers next-day on-site service contracts as part of its
worldwide field service program. This on-site service, which is provided by the
Company or by BancTec Service Corp. ("BancTec"), Digital Equipment Corporation
("DEC") and other service companies, is available to resolve customer problems
that cannot be resolved by telephone. Through its agreement with BancTec, Dell
offers deskside service contracts with four-hour service on certain systems in
major U.S. metropolitan locations. The Company's contract with BancTec
authorizes the Company to offer service contracts on BancTec's behalf to the
Company's customers in the United States. The Company has entered into similar
service agreements for many of its customers outside the United States. The
Company believes that it could offer acceptable replacement services from
another third-party vendor if any of its service agreements were terminated.
PRODUCT DEVELOPMENT
The Company employs a product development team that includes programmers,
technical project managers and engineers experienced in system architecture,
logic board and chip design, sub-system development, mechanical engineering and
operating systems design. This team has progressively assumed control of the
design of several key components for which the Company previously relied on
outside vendors. This design capability has allowed the Company to develop
circuits specific to its system requirements, thereby increasing the
functionality, manufacturability, reliability, serviceability and performance of
its products while keeping costs competitive. All of the Company's 59 personal
computer systems currently offered have been introduced since August 1, 1993.
The Company takes steps to determine that new products are compatible with
industry standards and that they meet cost objectives based on competitive
pricing targets.
The Company's expenditures on research, development and engineering
activities approximated $49 million in fiscal 1994 compared with $42 million for
1993. The Company considers its research, development and engineering activities
to be important to its success and growth.
THE DELL PRODUCT PORTFOLIO
The Company has eight Dell-branded lines of personal computer systems,
including the PowerEdge server line and the Latitude notebook computer line
announced in February 1994. The Company completed the first phase of its
re-entry into the notebook computer market with the introduction on February 21,
1994, of four 486-based Dell Latitude notebook computers.
The Dell PowerEdge line includes sixteen servers consisting of eight
Pentium-based systems and eight 486-based systems. The PowerEdge servers are
intended for resource sharing as well as groupware and database markets. The
OmniPlex line comprises two PentiumTM and five 486-based systems that are
targeted for the corporate user who works in a mission-critical environment
requiring a powerful workstation. The OptiPlex line comprises twelve 486-based
systems that are targeted at corporate customers who require advanced features
and performance. The NetPlex line comprises six 486-based systems that are
targeted at corporate customers looking for an inexpensive network computer. The
Dell Dimension XPS line comprises one Pentium-based and two 486-based systems
that are targeted at technologically sophisticated users. Each Dell Dimension
XPS system can be configured in either a desktop or a floorstanding model. Each
system in these lines is marketed directly to end-users, and certain OmniPlex
and OptiPlex systems are also marketed through CompUSA. Each system can be
custom configured with a variety of hardware including multimedia devices such
as CD-ROM and sound cards as well as an assortment of memory, mass storage and
other options. Each system is backed by Dell's comprehensive service and support
program, which includes compatibility, service and response guarantees.
The Dell Dimension and Dell Precision lines comprise six and five personal
computer systems, respectively. Certain systems can be configured as either
desktop or floorstanding models. The Dell Dimension and the Dell Precision lines
are essentially similar designs. The Dell Dimension line is marketed through the
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Company's direct sales force. The Dell Precision line is marketed through Best
Buy, CompUSA, Price/CostCo and Sam's Clubs. Systems sold by third parties are
sold in set configurations and are supported by the Company's basic service and
support offerings.
In addition to its own branded products, the Company offers a broad range
of software and peripheral products through its DellWare(TM) program. The
DellWare line offers more than 4,000 of the most popular software packages and
hardware peripherals. In February 1993, Dell expanded its third-party
applications software integration capabilities with ReadyWare(TM), a collection
of more than 100 popular software applications that can be factory-installed on
all Dell systems. The Company offers next business day delivery as well as an
extended support program from Software Support, Inc. of Lake Mary, Florida, on
more than 120 of its software offerings. This support program includes a 24-hour
toll-free software support line.
The Company enhances its personal computer systems offerings with a number
of specialized services, including custom hardware and software integration and
network installation and support. For example, the Company offers custom
configuration, installation and support of integrated network solutions based on
Novell's network operating systems. Under this program, the Company offers
turnkey solutions for networking offices that need basic Local Area Networks or
for linking workgroups with more complex networks. The Company offers a number
of other hardware and software integration services tailored to specific
end-user needs.
GOVERNMENT REGULATION
In the United States, the Federal Communications Commission ("FCC")
regulates the radio frequency emissions of personal computing equipment. The FCC
has established two standards for computer products, Class A and Class B. Only
Class B products may be sold for use in a residential environment. Both Class A
and Class B products may be sold for use in a commercial environment. The
Company periodically tests or hires consultants to test its products to ensure
that the products satisfy applicable FCC regulations. All of the Company's
current desktop and portable systems are sold under Class B certification; many
of the network servers sold by the Company are under Class A certification, but
some are sold under Class B certification. From time to time, the Company has
experienced delays in securing FCC certification and there can be no assurance
that such delays will not occur in the future.
The Company is also required to obtain regulatory approvals in other
countries prior to the sale or shipment of personal computing equipment. In
certain jurisdictions such requirements are more stringent than in the United
States. Any delays or failures in obtaining necessary approvals from foreign
jurisdictions may impede or preclude the Company's efforts to penetrate such
markets and there can be no assurance that such failures or delays will not
occur in the future.
THE DELL MANUFACTURING PROCESS
Dell's manufacturing process consists of assembly, functional testing and
quality control of the Company's products and related components, parts and
subassemblies. A flexible manufacturing process allows the Company to
custom-configure personal computer systems to specific customer orders. Although
this custom configuration process offers the Company significant advantages, it
makes it more difficult for it to achieve the same manufacturing efficiencies as
computer manufacturers that sell standardized products in high volume. The
Company's sales representatives enter customer orders into a computerized order
entry system. Once customer credit is approved, the orders are electronically
dispatched to manufacturing for production and shipment. The Company's
information systems allow it to monitor customer orders from order placement to
delivery and assists the Company in tracking key information about many of its
systems sold and its customers from the initial sales contact through the sales,
manufacturing and post-sale service and support processes.
The Company manufactures all of its desktop and server personal computer
systems at its Austin, Texas, and Limerick, Ireland, manufacturing facilities.
The Company contracts with other companies to manufacture unconfigured base
notebook personal computers which the Company configures for shipment to
customers.
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Quality control is maintained through testing of components, parts and
subassemblies at various stages in the manufacturing process. Quality control
also includes a burn-in period for completed units after assembly, on-going
production reliability audits, failure tracking for early identification of
production problems, and information from the Company's customers obtained
through its toll-free telephone support service. Both the U.S. and the Irish
manufacturing facilities have been certified as meeting ISO 9002 quality
standards.
All components, parts and subassemblies are purchased from outside sources
on a purchase order basis and, in certain cases, through supply contracts.
Certain items, including the Pentium and i486(TM) microprocessors, are available
from only one source. However, even when multiple vendors are available, the
Company may establish a working relationship with a single source when the
Company believes it is advantageous for total cost of ownership reasons
including performance, quality, support, delivery and price considerations.
BACKLOG
The Company does not believe that backlog is a meaningful indicator of
sales that can be expected for any time period. In conjunction with its effort
to minimize the time between customer order and product delivery, it is the
Company's policy to hold its backlog of customer orders to a minimum. Backlog
represented $38 million at January 30, 1994. Consistent with the Company's
return policy, customers may cancel or reschedule orders without penalty prior
to commencement of manufacturing.
COMPETITION
The personal computer industry is highly competitive and has been
characterized by frequent introduction of new products, continual improvement in
computer performance characteristics, decreasing average selling prices, and
increased competition at both the manufacturing and retail levels. Pricing is
very competitive and margins have been reduced. The Company's practice is to
price its personal computers so that they present attractive price and
performance characteristics and customer support services when compared to the
products of other leading personal computer makers. The Company expects pricing
pressures to continue, and it may choose to reduce prices when practicable.
These pricing pressures, when not mitigated by cost reductions and a higher
margin product mix, can result in reduced profit margins. Further, some of the
Company's competitors have significantly greater financial, marketing,
manufacturing and technological resources, broader product lines, greater brand
name recognition and larger installed customer bases than the Company. There can
be no assurance that the Company will continue to compete successfully.
PATENTS, TRADEMARKS AND LICENSES
The Company holds thirty United States patents and six issued foreign
patents. As of March 24, 1994, the Company had 188 United States patent
applications pending, and 33 foreign applications pending in several European
and Asian countries. The Company's United States patents expire in 2005 through
2011. The inventions claimed in the applications cover aspects of the Company's
current and possible future personal computer products and related technologies.
The Company is developing a portfolio of patents that are anticipated to be of
value in negotiating intellectual property rights with others in the industry.
The Company has obtained U.S. Federal trademark registration on the mark
DELL, and has pending applications for registration of 10 other trademarks. The
DELL trademark registration in the U.S. may be renewed as long as the mark
continues to be used in commerce. The Company believes that establishment of the
mark DELL in the U.S. is material to the Company's operations. The Company has
also applied for or obtained registration of the DELL mark and several other
marks in approximately 75 other countries where the Company conducts or
anticipates expanding its international business. The Company also has taken
steps to reserve corporate names and to form non-operating subsidiaries in
certain foreign countries where the Company anticipates expanding its
international business. The Company is precluded from obtaining a registration
for trademarks incorporating the term "Dell" in certain foreign countries. The
Company does not believe that its inability to register "Dell" as a trademark in
such countries will have a material adverse effect on its business.
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The Company has entered into a patent license agreement with IBM effective
as of August 1, 1993, under which the parties have licensed to one another
within prescribed fields of use all current patents and all patents entitled to
an effective application filing date prior to February 1, 1999, which are owned
by either of the parties or any of their subsidiaries. Under the agreement, the
Company will also make royalty payments to IBM. The agreement terminates on the
latest expiration date of the patents licensed thereunder.
On March 5, 1993, Dell and Texas Instruments, Inc. ("TI") entered into an
agreement to cross-license their respective patent portfolios. Under the terms
of the agreement, Dell makes annual royalty payments to TI. The agreement
expires on January 31, 1998.
The Company has entered into non-exclusive licensing agreements with
Microsoft Corporation for various software packages, including MS-DOS and
Windows. The license grants the Company the right to distribute copies of MS-DOS
and Windows through March 31, 1996, with the right, at the Company's election,
to extend the license for up to five additional years. In addition, the Company
has entered into a non-exclusive license agreement with Phoenix for basic
input-output system (BIOS) and other software that facilitates compatibility
between the Company's products and products manufactured and sold by other
companies. The license agreement with Phoenix provides for a perpetual license
on a royalty-free basis for a nominal annual maintenance fee.
From time to time, other companies and individuals assert exclusive patent,
copyright, trademark and other intellectual property rights to technologies or
marks that are important to the personal computer industry or the Company's
business. The Company evaluates each claim relating to its products and, if
appropriate, seeks a license to use the protected technology. For example, the
Company has entered into a licensing agreement with IBM providing for a license
under certain IBM computer patents. The licensing agreement with IBM does not
require IBM to assist the Company in duplicating its patented technology and
does not protect the Company from trade secret, copyright or other violations by
the Company or its suppliers in developing or selling these products.
The Company could be at a disadvantage if its competitors obtain licenses
for protected technologies with more favorable terms than does the Company. If
the Company or its suppliers are unable to license protected technology used in
the Company's products, the Company could be prohibited from marketing those
products or may have to market products without desirable features. The Company
could also incur substantial costs to redesign its products or to defend any
legal action taken against the Company. If the Company's products should be
found to infringe protected technology, the Company could be enjoined from
further infringement and required to pay damages to the infringed party. Any of
these results could have a material adverse effect on the Company.
TRADEMARKS
Several United States trademarks appear in this Annual Report. Intel is a
registered trademark and Pentium and i486 are trademarks of Intel Corporation.
Dell, DellWare and Dell System are registered trademarks of the Company. Dell
Dimension, Latitude, OmniPlex, OptiPlex, PowerEdge, Powerline and Precision are
trademarks of the Company. BusinessCare, ReadyWare, SelectCare and TechFax are
service marks of the Company. Other trademarks and tradenames are used to
identify the entities claiming the marks and names of their products. References
herein to Best Buy, Compaq, CompUSA, Future Shop, IBM, Novell, Price/CostCo and
Sam's Clubs mean, respectively, Best Buy Co., Inc., Compaq Computer Corporation,
CompUSA, Inc., Future Shop Discount Superstores, International Business Machines
Corporation, Novell, Inc., Price/CostCo, Inc. and Sam's Clubs, A Division of
WalMart Stores, Inc. The Company disclaims proprietary interest in the marks and
names of others.
EMPLOYEES
As of January 30, 1994, the Company had approximately 5,980 full-time
employees, 4,150 in the United States and 1,830 in other countries. The Company
has never experienced a work stoppage due to labor difficulties and believes
that its employee relations are good.
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SEGMENTS AND SEASONALITY
Dell operates in one industry segment: the design, manufacture, sale and
support of personal computers and related products. The Company experiences
seasonal trends in its U.S. and European corporate and government sectors. The
seasonal trends of these geographical regions have substantially offset each
other in the past, but there can be no assurance that these geographical regions
will continue to offset each other or that the Company will not experience
seasonal trends in the future.
ITEM 2. PROPERTIES
As of January 30, 1994, the Company had approximately 1,900,000 square feet
of space under lease worldwide. Approximately 1,400,000 square feet of this
space is in Austin, Texas. The remaining 500,000 square feet of space is used
for operations in North America, Europe, Mexico, Japan, Australia, and other
international locations.
Dell leases a 150,000 square foot, nine-story office building in Austin for
use as its headquarters. The lease on this building expires on April 30, 1995.
The Company's manufacturing and warehousing activities are conducted at a
700,000 square foot leased facility in Austin, Texas; 190,000 square feet of
leased warehousing facility in Europe, Canada, and other international
locations; and a 140,000 square foot manufacturing center in Limerick, Ireland
owned by the Company.
Although the Company believes that its facilities are adequate to meet
current requirements, Dell is currently expanding its Limerick, Ireland
facilities and has a 224,000 square foot office building under construction on
land owned by Dell in Round Rock, Texas. The Round Rock facility will be used as
a direct sales, marketing and support facility upon occupancy in August 1994.
The Company is evaluating other opportunities to expand facilities in
anticipation of increasing needs. The Company believes that it can readily
obtain appropriate additional space as may be required at competitive rates.
ITEM 3. LEGAL PROCEEDINGS
Set forth below is a discussion of certain legal proceedings involving the
Company, some of which could have a material adverse effect on the Company if
resolved against it. The Company is also party to other legal proceedings
incidental to its business, none of which the Company believes to be material.
The Company and its Chairman, Michael S. Dell, are defendants in nineteen
lawsuits filed between May and November 1993, in the United States District
Court for the Western District of Texas, Austin Division. Thomas J. Meredith,
the Company's Chief Financial Officer, is also a defendant in seven of the
lawsuits. Joel Kocher, Senior Vice President of the Company, is also a defendant
in one of the lawsuits, but the plaintiffs have conditionally agreed to dismiss
him. The suits have been consolidated, an amended and consolidated complaint has
been filed, and the plaintiffs have requested class certification for a class of
persons who purchased or held the Company's common stock between February 24,
1993, and July 14, 1993. In general, the plaintiffs allege that the Company made
overly optimistic forecasts about the Company's prospects without a reasonable
basis and failed to disclose adverse material information about the Company's
business (particularly with regard to problems in its notebook business) on a
timely basis, thereby inducing the plaintiffs to buy Company common stock at
artificially high prices. The plaintiffs also allege that Mr. Dell sold
securities of the Company while in the possession of material, non-public
information about the Company. The consolidated complaint asserts that these
actions or omissions violated various provisions of the federal securities laws,
particularly Section 10(b) of the Exchange Act and Rule 10b-5; that Mr. Dell's
trades violated Section 20A of the Exchange Act; and that the defendants
violated provisions of Texas statutes and common law principles against
negligent misrepresentation and deceit. The complaint seeks unspecified damages.
The Company has moved for dismissal of the complaint and intends to defend
itself and its officers vigorously. It is the Company's policy to make accruals
for potential liability or settlement of litigated matters as appropriate. The
Company believes that its current accruals with respect to these lawsuits are
adequate.
Since August 1992, the Company has been named as a defendant in sixteen
repetitive stress injury lawsuits, all in New York state courts or United States
District Courts for the New York City area. All of
9
<PAGE> 11
these lawsuits are similar: each plaintiff alleges that he or she suffers from
symptoms generally known as "repetitive stress injury," which allegedly were
caused by the design or manufacture of the keyboard supplied with the computer
the plaintiff used. The Company has denied or is in the process of denying the
claims and intends to vigorously defend the suits. The suits naming the Company
are just a few of many lawsuits of this type which have been filed, often naming
IBM, Atex, Keytronic and other major suppliers of keyboard products. To date,
the courts assigned to hear six of the cases against Dell have stayed most
activity, pending resolution of several preliminary legal issues related to the
large numbers of cases which have been consolidated for hearing before these
courts. The Company is unable to predict at this time the ultimate outcome of
these suits. It is possible that the Company may be named in additional suits,
but it is impossible to predict how many may be filed. Ultimate resolution of
the litigation against the Company may depend on progress on resolving this type
of litigation overall.
For information about a pending Securities and Exchange Commission informal
inquiry relating to foreign currency hedging and trading activities, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Hedging Activities." By letter dated July 21, 1993, the Commission
notified the Company that it was extending the informal inquiry to the
circumstances and events surrounding the public announcement on July 14, 1993,
about the Company's expected losses for its second quarter of 1994 and into the
Company's procedures for estimating sales. The Company and its independent
accountants are voluntarily cooperating with the Commission in its informal
inquiry.
On August 11, 1993, the Company received a subpoena from the United States
Department of Commerce, Office of Export Enforcement of the Bureau of Export
Administration, requiring the Company to provide all documents relative to any
and all exports of 486/66 personal computers or related components to Russia,
Ireland, Iran or Iraq during the period from January 1992 through August 1993 in
connection with an investigation to enforce regulations under the Export
Administration Act of 1979, as amended. If the Office of Export Enforcement's
investigators determine that the Company has violated applicable regulations,
the government could potentially file civil or criminal charges. The Company is
cooperating in the investigation. The Company does not believe this
investigation or its resolution will have a material adverse effect on the
Company's financial condition or results of operations.
The Company had received a request from the Federal Trade Commission (the
"FTC") dated July 27, 1993, to provide documents and other information in
connection with the FTC's inquiry to determine whether the Company's advertising
and marketing claims regarding upgradeability of its personal computers is in
violation of the Federal Trade Commission Act. On February 10, 1994, the FTC
advised the Company that no violation of the Federal Trade Commission Act had
been found and that the inquiry, as it related to the Company, was being closed.
The Company has received a request from the FTC dated January 5, 1994, to
provide documents and other information in connection with the FTC's inquiry to
determine whether the Company's advertising and marketing claims regarding
cathode ray tube ("CRT") monitor screen sizes are in violation of the Federal
Trade Commission Act. The Company is cooperating with the FTC in this inquiry.
The Company does not believe that the inquiry or its outcome will have a
material adverse effect on the Company's financial condition or results of
operations.
The Company has received a request from the FTC dated November 12, 1993,
requesting the Company's cooperation in an inquiry with respect to whether the
Company may have misrepresented or improperly failed to disclose patent rights
that would conflict with open use of a local high-speed personal computer bus
standard promulgated by the Video Electronics Standards Association (VESA). The
Company intends to cooperate in this inquiry. The Company does not believe that
the inquiry or its outcome will have a material adverse effect on the Company's
financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
10
<PAGE> 12
PART II
ITEM 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Common Stock is quoted on the NASDAQ National Market System under the
trading symbol DELL. The following table sets forth, for the fiscal quarters
indicated, the high and low reported closing sale price for the Common Stock as
reported on the NASDAQ National Market System.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL 1994
Fourth Quarter
(November 1, 1993, through January 30, 1994)............................... $27 3/4 $20 3/4
Third Quarter
(August 2, 1993, through October 31, 1993)................................. $21 $16 1/8
Second Quarter
(May 3, 1993, through August 1, 1993)...................................... $34 $15 7/8
First Quarter
(February 1, 1993, through May 2, 1993).................................... $49 $28
FISCAL 1993
Fourth Quarter
(November 2, 1992, through January 31, 1993)............................... $49 3/8 $33 3/8
Third Quarter
(August 3, 1992, through November 1, 1992)................................. $35 3/8 $22 5/8
Second Quarter
(May 4, 1992, through August 2, 1992)...................................... $28 $15 3/8
First Quarter
(February 3, 1992, through May 3, 1992).................................... $28 1/8 $20 1/2
</TABLE>
HOLDERS
As of March 24, 1994, there were 4,524 holders of record of the Common
Stock.
DIVIDENDS
The Company did not pay cash dividends on its common stock in 1993 or 1994.
The Company intends to retain earnings for use in its business and, therefore,
does not anticipate paying any cash dividends on common stock for at least the
next twelve months. In addition, the terms of the Company's current loan
agreements and credit facilities place restrictions on the payment of cash
dividends by the Company. Effective March 6, 1992, the Company's Board of
Directors declared a 3 for 2 stock split in the form of a 50% stock dividend for
holders of record as of March 23, 1992. The distribution of such dividend
occurred on April 9, 1992.
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<PAGE> 13
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the consolidated financial statements, including the Notes to Consolidated
Financial Statements. The information set below is not necessarily indicative of
results of future operations. The information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Future Outlook" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Hedging Activities."
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------------------------
JANUARY 30, JANUARY 31, FEBRUARY 2, FEBRUARY 3, FEBRUARY 2,
1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales:
North America (U.S. and Canada)................... $1,955,223 $1,387,446 $ 619,469 $ 390,705 $ 317,447
Europe............................................ 781,905 552,999 241,857 148,964 71,111
Other International............................... 136,037 73,479 28,613 6,566 --
---------- ---------- ---------- ---------- ----------
Consolidated net sales.......................... 2,873,165 2,013,924 889,939 546,235 388,558
Cost of sales....................................... 2,440,349 1,564,472 607,768 364,183 278,972
---------- ---------- ---------- ---------- ----------
Gross profit.................................. 432,816 449,452 282,171 182,052 109,586
Operating expenses:
Selling, general and administrative............... 422,906 267,982 182,155 115,016 81,103
Research, development and engineering............. 48,934 42,358 33,140 22,444 17,069
---------- ---------- ---------- ---------- ----------
Total operating expenses.................... 471,840 310,340 215,295 137,460 98,172
---------- ---------- ---------- ---------- ----------
Operating income (loss)..................... (39,024) 139,112 66,876 44,592 11,414
Net financing and other income (expenses)........... 258 4,180 6,539 (1,020) (3,144)
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes........... (38,766) 143,292 73,415 43,572 8,270
Provision for income taxes (benefits)............... (2,933) 41,650 22,504 16,340 3,156
---------- ---------- ---------- ---------- ----------
Net income (loss)........................... (35,833) 101,642 50,911 27,232 5,114
Preferred stock dividends........................... (3,743) -- -- -- --
---------- ---------- ---------- ---------- ----------
Net income (loss) applicable to common
stockholders.............................. $ (39,576) $ 101,642 $ 50,911 $ 27,232 $ 5,114
========== ========== ========== ========== ==========
Earnings (loss) per common share.................... $ (1.06) $ 2.59 $ 1.40 $ .91 $ .18
Shares used in per common share calculation......... 37,333 39,235 36,274 30,064 28,843
BALANCE SHEET DATA:
Working capital..................................... $ 510,397 $ 358,948 $ 282,646 $ 95,163 $ 57,970
Total assets........................................ $1,140,480 $ 927,005 $ 559,563 $ 264,222 $ 171,774
Long-term debt...................................... $ 100,000 $ 48,373 $ 41,450 $ -- $ --
Preferred stock..................................... $ 120,151 $ -- $ -- $ -- $ --
Total stockholders' equity.......................... $ 471,108 $ 369,200 $ 274,180 $ 112,005 $ 79,761
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The Company reported a net loss for 1994 of $35.8 million or $1.06 per
common share on consolidated net sales of $2.87 billion compared with net income
of $101.6 million or $2.59 per common share on consolidated net sales of $2.01
billion for 1993. The Company's results for 1994 included pre-tax charges
totaling $91.4 million associated with inventory writedowns and related costs;
costs associated with delayed and canceled personal computer notebook projects;
and costs associated with the restructuring of operations to consolidate several
common functions and improve efficiency, especially in international markets.
These charges have been included in two items in the Company's consolidated
statement of operations for the year ended January 30, 1994: cost of sales,
$70.3 million and operating expenses, $21.1 million.
12
<PAGE> 14
During the first half of 1994, the Company delayed and canceled certain
notebook development projects and reevaluated its probable future sales for the
notebook products then offered. The Company recorded more than $39.3 million of
charges in the first half of 1994 due to the notebook inventory writedowns and
delayed and canceled notebook projects. The Company canceled its notebook
product line in August, 1993 and sold its then remaining inventories of
notebooks at significantly reduced prices. The Company has focused its efforts
on the development of a 486-based notebook product line and is re-entering the
notebook computer market with a phased approach. Completion of the first phase
of the Company's re-entry into the notebook computer market resulted in the
introduction on February 21, 1994 of the 486-based Dell Latitude family of
notebook computers.
During the first half of 1994, the Company also recorded $29.3 million of
other costs, consisting mostly of inventory writedowns and related costs. These
charges arose from the Company's determination that certain products and
inventory were excess or obsolete because the products were scheduled to be
replaced with newer products or because the Company otherwise had lowered its
estimates of expected demand for materials in inventory or under outstanding
purchase commitments.
Also during the first half of 1994, the Company recorded $22.8 million for
the costs of consolidating operations, writing off of certain assets, and making
employee severance payments. Most of the charges in this area were associated
with consolidating certain common functions in the European subsidiaries and
creating regional business units. This consolidation effort is designed to
reduce redundant costs and improve the Company's ability to deliver higher
levels of operational efficiency and higher quality support in European markets.
Operations in some subsidiaries have been closed and transferred to other
subsidiaries, and some consolidation is occurring outside of Europe.
Approximately 60% of the restructuring charges are for cash outlays,
approximately half of which will occur in 1995.
Excluding these charges, net income would have declined by approximately
67% from the prior year primarily due to competitive conditions creating greater
margin pressure; sales of older products at significantly reduced prices to
avoid incurring additional charges for excess and obsolete inventory; the
absence of a major notebook computer product line; and manufacturing and
administrative process inefficiencies resulting in increased manufacturing
spending and operating expenses.
The Company's second half of 1994 was marked by significant challenges and
a period of transition as the Company focused on improving liquidity, improving
profit margins, and balancing growth to allow these improvements. During the
second half of 1994, the Company made progress toward its goals with an increase
in cash and short-term investments from $106 million at August 1, 1993 to $337
million at January 30, 1994; an increase in gross margin from 11.6% for the
first half of 1994 to 18.3% in the second half of 1994; and a reduction in
operating expenses as a percentage of sales from 17.7% for the first half of
1994 to 15.3% for the second half.
The Company believes that the improvement in its profit margins during the
second half of 1994 compared with the first half of 1994 was partially
attributable to improvements in internal processes. The Company is still
implementing further improvements to these processes. The challenges posed by
these changes and by the highly competitive nature of the personal computer
industry may adversely affect the Company's consolidated net sales and gross
profit margins in future periods. No assurance can be given that the Company's
restructuring efforts will be successful or that significant additional costs
will not be incurred, although the Company believes it has taken adequate
charges for the expected costs associated with its restructuring efforts.
Additionally, there can be no assurance that the Company's notebook computer
development activities will be successful, that new product and software
technologies will be available to the Company, that the Company will be able to
deliver commercial quantities of new products in a timely manner, or that such
products will achieve market acceptance.
For 1993, the Company earned $101.6 million or $2.59 per common share on
consolidated net sales of $2.01 billion compared with the prior-year results of
$51 million or $1.40 per common share on consolidated net sales of $890 million.
This increase in consolidated net sales and net income for 1993 over 1992 was
driven primarily by price reductions, increased customer interest in the
Company's distribution and support programs, and further penetration of
international markets.
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<PAGE> 15
The table below sets forth for the years indicated the percentage of
consolidated net sales represented by certain items in the Company's
consolidated statements of operations.
<TABLE>
<CAPTION>
PERCENTAGE OF CONSOLIDATED NET SALES
--------------------------------------
YEAR ENDED
--------------------------------------
JANUARY 30, JANUARY 31, FEBRUARY 2,
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Net sales:
North America (U.S. and Canada)..................... 68.1% 68.9% 69.6%
Europe.............................................. 27.2 27.5 27.2
Other international................................. 4.7 3.6 3.2
-------- -------- --------
Consolidated net sales........................... 100.0 100.0 100.0
Cost of sales......................................... 84.9 77.7 68.3
-------- -------- --------
Gross profit..................................... 15.1 22.3 31.7
Operating expenses:
Selling, general and administrative................. 14.7 13.3 20.5
Research, development and engineering............... 1.7 2.1 3.7
-------- -------- --------
Total operating expenses......................... 16.4 15.4 24.2
-------- -------- --------
Operating income (loss)........................ (1.3) 6.9 7.5
Net financing and other income (expense).............. -- 0.2 0.7
-------- -------- --------
Income (loss) before income taxes.............. (1.3) 7.1 8.2
Provision for income taxes (benefit).................. (0.1) 2.1 2.5
-------- -------- --------
Net income (loss).............................. (1.2) 5.0 5.7
Preferred stock dividends............................. (0.1) -- --
-------- -------- --------
Net income (loss) applicable to common
stockholders................................ (1.3%) 5.0% 5.7%
======== ======== ========
</TABLE>
Net Sales
The Company's consolidated net sales increased 43% to $2.87 billion in 1994
compared with $2.01 billion in 1993, and $890 million in 1992. Year-to-year
increases in consolidated net sales in 1994, 1993, and 1992 were 43%, 126%, and
63%, respectively.
These increases in sales were primarily due to increased sales volumes of
the Company's desktop and server products, offset somewhat by the cancellation
of the notebook product line in August 1993. The Company's 1994 second half
consolidated net sales increased 9.3% over 1994's first half consolidated net
sales, reflecting continued sales growth despite the absence of a notebook
product line since mid-fiscal 1994. Unit volumes for 1994 increased 61% (78% for
desktops and servers) over 1993 unit volumes, compared with a 176% (185% for
desktops and servers) increase in unit volumes for 1993 over 1992. Average
revenue per unit of the Company's products for 1994 declined by 12% from 1993
because of shifts in the Company's product mix and industry-wide pricing
practices.
The Company's consolidated net sales (expressed in United States dollars)
were reduced by 3.9% and .4% in 1994 and 1992, respectively, and benefited 2.4%
in 1993 by fluctuations in the average value of the United States dollar,
relative to its average value in the comparable periods of the prior year,
particularly in relation to the British pound. Based on this information, the
Company believes that the increase in consolidated net sales was primarily
caused by an increase in unit sales offset primarily by lower average prices per
unit and, to a lesser extent, changes in foreign currency exchange rates.
Net sales from the Company's 486-based systems continued to increase and
represented 81%, 59%, and 20% of consolidated net sales for 1994, 1993 and 1992,
respectively. The increase in consolidated net sales was led by sales of
486-based mid-size and small-chassis desktop systems, which accounted for 69% of
14
<PAGE> 16
consolidated net sales in 1994, 47% in 1993, and 13% in 1992. Sales of servers
and workstations accounted for 13% of consolidated net sales in 1994 compared
with 12% in 1993 and 7% in 1992.
Sales of the Company's notebook systems declined to 2% of consolidated net
sales in 1994, compared with 11% in 1993 and 14% in 1992. The Company canceled
its notebook product line in August 1993. The Company completed the first phase
of its re-entry into the notebook computer market with the introduction on
February 21, 1994, of the 486-based Dell Latitude family of notebook computers.
Sales of 386- and 386SX-based desktop systems (which were discontinued in 1994)
reflected the shift in demand toward 486-based systems by decreasing to 3% of
consolidated net sales in 1994 compared with 17% in 1993 and 50% in 1992.
During 1994, Dell introduced four new families of personal computers
targeted for specific customer markets: NetPlex, OptiPlex and OmniPlex for the
corporate and stand-alone environments and Dell Dimension XPS for
technologically sophisticated individuals. The Company also began shipping three
Pentium-based systems in the second half of 1994. Sales of Pentium-based systems
constituted 4% of revenues for the fourth quarter. Since January 30, 1994, the
Company has introduced two new personal computer product lines: The PowerEdge
server line offering performance and reliability for network applications; and
the Latitude notebook personal computer line, marking the first stage of the
Company's phased re-entry into the notebook computer market. All of the
Company's 59 personal computer systems currently offered have been introduced
since August 1, 1993.
North American sales increased 41% in 1994 to $1.96 billion from $1.39
billion in 1993 compared with a 124% increase in 1993 from $619 million in 1992.
North American sales for the fourth quarter of 1994 declined from the third
quarter due to a 58% decline in U.S. government sales and a softening of demand
as the Company shifted its emphasis from revenue growth driven by aggressive
pricing to improving liquidity, profitability and support systems.
The Company's European operations contributed net revenues of $782 million
for 1994, representing a 41% increase over $553 million in net revenues for
1993. European revenues for 1993 represented a 129% increase over $242 million
in net revenues for 1992. Other international sales increased 85% to $136
million for 1994, following a 157% increase in 1993 over $29 million in 1992.
These increases resulted primarily from existing markets and, to a lesser
extent, expansion into new markets. The Company believes that its international
growth affords significant opportunities to achieve higher levels of operating
and economic efficiencies. The Company is considering several ways to enhance
its international presence in addition to implementing the Company's
restructuring announced during 1994. Dell intends to continue to expand its
international activities by increasing market presence in existing markets,
improving support systems, pursuing additional international manufacturing and
distribution opportunities, and entering new markets primarily through
third-party resellers.
Consolidated net sales to major corporate, government and education
accounts led sales gains in 1994, increasing 51% to $1.44 billion from $953
million in 1993. U.S. Federal government sales were stronger than normal in the
third quarter of 1994 because of a surge in buying at the end of the U.S.
Federal government's budget year, which resulted in a larger than normal
sequential decline of 58% in the fourth quarter of 1994 as the U.S. Federal
government entered a new budget year. Sales to major corporate, government and
education accounts increased 129% in 1993 from $416 million in 1992. Sales to
medium- to small-sized businesses and individuals increased 31% to $1.03 billion
for 1994 from $787 million for 1993 and $337 million in 1992.
Gross Profit Margin
The Company's 1994 gross profit margins continued to decline from 1993 and
1992 levels. The gross margin for 1994 declined to 15.1% from 22.3% in 1993 and
31.7% in 1992. Gross margins for 1994 were affected by $70.3 million of
inventory write-downs and related costs incurred during the first half of 1994.
The decline in gross profit margin was also attributable to significant price
reductions to maintain competitive position; manufacturing inefficiencies
associated with system and process weaknesses; and price reductions on older
products to avoid incurring additional charges for excess and obsolete
inventory. Additional pricing actions may occur as the Company attempts to
maintain its competitive mix of price, performance and customer support
services. The Company attempts to mitigate the effect of its pricing actions
through
15
<PAGE> 17
improvements in the product mix, reduced component costs, manufacturing
efficiencies, operating expense controls, and tax planning.
The decline in gross profit margins in 1993 from 1992 was primarily due to
the Company's pricing actions, almost half of which were offset by reduced
component costs and manufacturing efficiencies.
The results of the Company's international operations are subject to
currency fluctuations. However, the Company attempts to reduce its exposure to
currency fluctuations through the use of foreign currency option contracts for
periods not exceeding twelve months and, to a lesser extent, through the use of
forward contracts, generally for periods not exceeding three months, which hedge
certain anticipated intercompany shipments to foreign subsidiaries. Forward
contracts entered into to hedge anticipated intercompany shipments, none of
which were outstanding at the end of 1994, are accounted for on a mark-to-market
basis. The Company has purchased options to hedge a portion of its anticipated,
but not firmly committed, intercompany sales for 1995 and may enter into
additional hedging transactions as management considers appropriate. Based upon
foreign currency exchange rates at the end of 1994, option contracts that hedge
1995 anticipated shipments to international subsidiaries had a combined net
realized and unrealized deferred gain of $2.2 million.
Operating Expenses
Operating expenses for 1994 increased 52% to $472 million from $310 million
in 1993. The 1993 level represented an increase of 44% over 1992. As a
percentage of sales, operating expenses for 1994 increased to 16.4% from 15.4%
for 1993, but declined from 24.2% for 1992. This increase over 1993 was
primarily due to $21.1 million of charges for the costs of consolidating
operations, writing off certain assets and making employee severance payments.
Net Financing and Other Income
Net financing and other income was $.3 million, $4.2 million and $6.5
million for 1994, 1993 and 1992, respectively.
Short-term investment income was $8.8 million in 1994 compared to $12.9
million in 1993 and $6.9 million in 1992. The decrease in 1994 was primarily due
to lower average investment balances as a result of the retirement of the
commercial paper program in the first quarter of 1994, and was also due to lower
rates of return. The increase in 1993 over 1992 was attributable to income
earned from the investment of proceeds from the commercial paper program
initiated in 1993.
In the normal course of business, the Company employs a variety of interest
rate derivative instruments to more efficiently manage its principal, market and
credit risks as well as to enhance its investment yield. Derivative instruments
used include interest rate swaps, written and purchased interest rate options
and swaptions (options to enter into interest rate swaps). The Company
structures derivative instruments in interest rate markets where it has foreign
operations. At January 30, 1994, and January 31, 1993, the Company had
outstanding investment derivative instruments with remaining maturities of less
than five years, which are accounted for on a mark-to-market basis, with a total
notional amount of $355 million and $180 million, respectively. At January 30,
1994, the Company had outstanding interest rate swap and swaption agreements
with maturities of less than five years entered into concurrently with the 11%
Senior Notes issued August 26, 1993, ("Notes") with aggregate notional values of
$100 million and $65 million, respectively. Interest rate derivatives generally
involve exchanges of interest payments based upon fixed and floating interest
rates without exchanges of underlying notional amounts. Consequently, the
Company's exposure to credit loss is significantly less than the stated notional
amounts.
Realized and unrealized net gains on interest rate derivatives recognized
in income were $5.2 million for 1994, compared with $2.5 million for 1993, and
$5.5 million for 1992. The gains recognized in 1994 primarily resulted from
movements in the United States, Canadian, Japanese, and European interest rate
markets. At January 30, 1994, the swaption entered into concurrently with the
issuance of the Notes had an unrealized loss of $.5 million recognized in
income. The value of the Company's short-term and derivative investment
portfolios at January 30, 1994, is subject to movements in the United States,
Canadian, Japanese and
16
<PAGE> 18
European interest rate markets and, generally, is adversely affected by
increases in market rates of interest. Since January 30, 1994, the value of the
Company's short-term and investment derivative portfolios has decreased as a
result of interest rate increases in these markets. The Company believes this
increase in interest rates is temporary. However, if interest rates in these
markets do not decline to mid-February 1994 levels, the Company will recognize
material charges on a mark-to-market basis in the first quarter of 1995. If such
higher rates prevail, the Company will recognize additional charges in future
periods. These charges may have an adverse effect on net income in the first
quarter of 1995 and in future periods.
Interest expense in 1994 increased to $8.4 million from $7.9 million in
1993 and $1.8 million in 1992. The increase in 1994 interest expense was
primarily due to higher effective borrowing rates compared to 1993, as
short-term credit facilities were refinanced with long-term debt. The increase
in interest expense for 1993 compared with 1992 was primarily attributable to
the issuance of commercial paper and increased borrowings under Section 84 of
Ireland's Corporation Tax of 1976 ("Section 84 Borrowings").
Net foreign currency gains (losses) were $.8 million, ($.6) million and
($1.6) million for 1994, 1993, and 1992, respectively. During 1993, the Company
entered into foreign currency forward and option contracts with the intent to
profit from anticipated movements in exchange rates. The Company marked the
contracts to market and recognized resulting gains and losses as a component of
net financing and other income. Net foreign exchange losses recognized during
1993 consisted of $9.6 million in losses related to foreign currency trading
activities and $9.0 million in foreign currency transaction gains associated
with unhedged intercompany balances and other foreign currency transactions. The
Company resumed its intercompany hedging practices in the third quarter of 1993.
During 1994, the Company did not enter into foreign currency contracts with the
intent to profit from movements in exchange rates. Accordingly, net foreign
currency gains recognized during 1994 resulted from remeasuring non-functional
currency denominated assets and liabilities, net of transaction hedge results.
All of the Company's foreign exchange and interest rate derivative
instruments involve elements of market and credit risk in excess of the amounts
recognized in the financial statements. The counterparties to financial
instruments consist of a number of major financial institutions. In addition to
limiting the amount of agreements and contracts it enters into with any one
party, the Company regularly monitors the credit quality of the financial
institutions which are counterparties to these financial instruments. The
Company does not anticipate nonperformance by the counterparties.
Financing fees and other expenses increased to $6.1 million in 1994 from
$2.8 million in 1993 and $2.5 million in 1992. The increase in 1994 was
primarily due to fees and other expenses related to the second quarter repayment
of outstanding Section 84 borrowings, renegotiation of the line of credit
facility, and the amortization of financing costs associated with the issuance
of the Notes.
Income Tax
The Company's effective tax rate was 7.6% for 1994 compared with 29.1% and
30.7% for 1993, and 1992, respectively. The change in the effective tax rate
resulted from changes in the geographical distribution of income and losses and
from significant second quarter 1994 losses.
FUTURE OUTLOOK
In the past, Dell has focused on increasing market share by meeting
customers' demands for a wider range of products, services and support at
competitive prices, while managing its costs to achieve a targeted return on
sales (net income as a percentage of consolidated net sales). During Dell's
rapid growth, the personal computer industry has been characterized by frequent
product introductions, continual improvement in computer performance
characteristics, decreasing average selling prices, and increased competition at
both the manufacturing and sales levels. Currently, the Company's objective is
to continue to focus on balancing liquidity and profitability while
restimulating profitable growth.
Dell's substantial growth and increasingly complex activities outpaced some
of Dell's internal business systems and have required the restructuring of some
elements of the organization, the implementation of new or improved management
systems, and the revision of administrative processes. For example, many of
Dell's international subsidiaries were originally formed as stand-alone
businesses providing sales, technical support,
17
<PAGE> 19
and customer service for their local markets. While this approach facilitated
effective and rapid market penetration, it also created redundant marketing and
support programs in the subsidiaries. Infrastructure improvements to reduce the
redundancies and control costs will be an important factor in the future. Dell
is in the process of consolidating certain common functions, primarily in
Europe, to create regional business units that reduce redundant costs, and
improve Dell's ability to deliver quality services in that market. Additionally,
the Company is also working to improve key processes that it expects will
improve profitability.
As previously discussed, the Company believes that the absence of a major
notebook computer product offering during 1994 was a contributing factor to its
decreased sales growth. The Company also believes that a significant opportunity
for market expansion lies in the network server market where its presence has
been limited. Although the Company has introduced a 486-based notebook and new
server products in February 1994, there can be no assurance that the Company's
notebook or server development activities will be successful, that notebook or
server product technologies will be available to the Company, that the Company
will be able to deliver commercial quantities of these computer products in a
timely manner, or that such products will achieve market acceptance.
Dell has also acted to manage its future growth by strengthening its
management team. During the last year Dell has hired additional experienced
personnel in several key positions, including information systems, operations,
corporate finance, product development, and portable computers. The strengthened
management team has been focused on improving liquidity, developing the systems
to support Dell's growth and complexity, and rebuilding Dell's profitability.
The personal computer industry is characterized by short product life
cycles resulting from rapid changes in technology and consumer preferences and
declining prices. To retain its competitive position, the Company must continue
to enhance and improve its existing products while developing and introducing
new products and obtaining and incorporating new hardware and software
technologies that others develop, such as notebook computer and Pentium-based
product lines. All of the Company's 59 personal computer systems currently
offered have been introduced since August 1, 1993. There can be no assurance
that the Company's development activities will be successful, that new product
and software technologies will be available to the Company, that the Company
will be able to deliver commercial quantities of new products in a timely
manner, or that such products will achieve market acceptance. Certain new
products introduced by the Company are intended to replace existing products.
Although the Company monitors the products that are intended to be replaced and
attempts to phase out the manufacture of such products in a timely manner, there
can be no assurance that such transitions will be executed without adversely
affecting the Company's results of operations.
Dell's manufacturing process requires a high volume of quality components.
Several microprocessors used in the Company's products are currently available
only from Intel Corporation. In addition, the Company has certain single
supplier relationships that are considered advantageous for total cost of
ownership reasons including performance, quality, support, delivery and price
considerations. Reliance on those vendors, as well as industry supply
conditions, generally involves several risks, including the possibility of a
shortage of components, increases in component costs and reduced control over
delivery schedules, which could adversely affect the Company's financial
results. The Company occasionally experiences delays in receiving certain
components, which can cause delays in the shipment of some products to
customers. There can be no assurance that the Company will be able to continue
to obtain additional supplies in a timely or cost-effective manner.
HEDGING ACTIVITIES
The results of the Company's international operations are affected by
changes in exchange rates between certain foreign currencies and the United
States dollar. The Company's exposure to currency fluctuations has increased as
a result of the expansion of its international operations. The functional
currency for most of the Company's international subsidiaries is the local
currency of the subsidiary. An increase in the value of the United States dollar
increases costs incurred by the Company's international operations because many
of its
18
<PAGE> 20
international subsidiaries' component purchases are denominated in the United
States dollar. Changes in exchange rates may negatively affect the Company's
consolidated net sales (as expressed in United States dollars) and gross profit
margins from international operations. The Company monitors this exposure and
attempts to mitigate the exposure through hedging transactions.
Because of the significant growth in the Company's international operations
in recent years, the Company has attempted through various means to mitigate the
effects of currency fluctuations. The purpose of the Company's hedging program
is to protect the Company from the risk that the dollar-equivalent price of
anticipated cash flows resulting from sale of products from its manufacturing
subsidiaries to its international sales subsidiaries will be adversely affected
by changes in foreign currency exchange rates. The Company's hedging activities
consist primarily of hedging anticipated intercompany sales to its international
subsidiaries and resulting intercompany balances through the use of purchased
options for periods not exceeding twelve months and, to a lesser extent, forward
contracts, generally for periods not exceeding three months. The risk of loss
associated with purchased options is limited to the amount of premiums paid for
the option contracts, which could be significant. The premium amounts paid on
purchased options are amortized over the period of the hedged transaction. Gains
and losses incurred on purchased option contracts are deferred until occurrence
of the hedged transaction and recognized as a component of the cost of the
hedged transaction. Gains and losses incurred on forward contracts designated as
hedging contracts of anticipated intercompany shipments are marked-to-market and
recognized as a component of cost of sales in the current period.
When the Company began to hedge anticipated intercompany sales in March
1991, the accounting for foreign currency option contracts, particularly
combination option contracts, had not been specifically addressed in
authoritative accounting literature and was subject to varying interpretations
in practice. From March 1991 until March 20, 1992, the Company principally used
combination foreign currency option contracts to hedge anticipated intercompany
sales to its international subsidiaries. During this period, the accounting for
combination option contracts was actively deliberated by the accounting
profession. The Company closely followed the deliberations of the accounting
profession during this period. After consideration of the deliberations of the
Emerging Issues Task Force, in the fourth quarter of 1992 the Company began to
account on a mark-to-market basis for open combination option contracts entered
into with the same strike prices and maturities ("synthetic forward contracts")
which were originally entered into to hedge anticipated 1993 sales to
international subsidiaries. Accordingly, the Company recognized unrealized
losses of $4.0 million related to open synthetic forward contracts as a
component of cost of sales in its Consolidated Statement of Income for the year
ended February 2, 1992.
In 1992, the Company realized $1.7 million in losses on forward contracts
entered into to hedge anticipated 1993 sales to its international subsidiaries,
which losses were deferred at February 2, 1992, and recognized in the first two
quarters of 1993. Generally accepted accounting principles do not afford hedge
accounting treatment to forward contracts intended to hedge anticipated
transactions. The Company does not believe the losses are material in the
context of the Company's financial condition or results of operations taken as a
whole.
On March 19, 1992, the Chief Accountant of the Securities and Exchange
Commission settled much of the accounting controversy associated with hedge
accounting for anticipated transactions when he issued a letter indicating that
the SEC would object to deferral of realized and unrealized gains or losses
arising from complex options and similar transactions entered into after March
20, 1992. Subsequent to that date, the Company has not entered into any
combination option contracts to hedge anticipated transactions.
On November 30, 1992, the SEC's Division of Enforcement notified the
Company that it was beginning an informal inquiry, which is continuing,
regarding the Company's accounting practices for foreign currency hedging and
trading activities and the completeness of the Company's public disclosure about
those activities. The Company and its independent accountants are voluntarily
cooperating with the SEC in this informal inquiry. The SEC's Division of
Corporation Finance has also indicated it has concerns about the deferred
accounting treatment the Company afforded gains and losses on forward and option
contracts entered into to hedge anticipated transactions and has not expressed
its definitive views about whether the Company's
19
<PAGE> 21
accounting for these forward and option contracts complies with generally
accepted accounting principles in all material respects.
The table below shows the effect on income before income taxes, net income
and earnings per common share for each of the four quarters of 1992, 1993, and
1994, if gains and losses on hedging contracts had been accounted for on a
mark-to-market basis. However, if the Company had believed this accounting
treatment to be appropriate, it likely would have followed different hedging
strategies, which could have received differing accounting treatment than
indicated below. Accordingly, the Company does not believe that the net income
on a mark-to-market basis or the earnings per common share on a mark-to-market
basis included in the following table accurately reflect its business results or
the effect of hedging on its net income.
<TABLE>
<CAPTION>
1992
-------------------------------------------------------------------
QUARTER ENDED
---------------------------------------------------- YEAR ENDED
MAY 5, AUGUST 4, NOVEMBER 3, FEBRUARY 2, FEBRUARY
1991 1991 1991 1992 2, 1992
------ --------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Effect on income before income taxes:
Forward contracts................................. $ -- $ (1.2) $ (0.5) $ -- $ (1.7)
Synthetic forward contracts....................... 10.9 (3.8) (12.0) 0.2 (4.7)
Other option contracts............................ -- -- (9.8) (8.9) (18.7)
------ --------- ----------- ----------- ----------
Total effect on income before income
taxes..................................... $10.9 $ (5.0) $ (22.3) $ (8.7) $(25.1)
====== ======== =========== ========== ==========
Deferred realized and unrealized gain (loss)........ $10.9 $ 5.9 $ (16.4) $ (25.1) $(25.1)
====== ======== =========== ========== ==========
Effect on net income and earnings per common share:
Net income (loss) on a mark-to-market basis....... $17.3 $ 9.1 $ (1.7) $ 9.7 $ 34.4
Net income as reported............................ $10.1 $ 12.4 $ 13.0 $ 15.4 $ 50.9
Earnings (loss) per common share on a
mark-to-market basis............................ $ .52 $ .25 $ (.05) $ .26 $ .98
Earnings per common share as reported............. $ .30 $ .34 $ .35 $ .41 $ 1.40
</TABLE>
<TABLE>
<CAPTION>
1993
-------------------------------------------------------------------
QUARTER ENDED
---------------------------------------------------- YEAR ENDED
MAY 3, AUGUST 2, NOVEMBER 1, JANUARY 31, JANUARY
1992 1992 1992 1993 31, 1993
------ --------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Effect on income before income taxes:
Forward contracts.................................. $ 1.0 $ 0.7 $ -- $ -- $ 1.7
Synthetic forward contracts........................ 1.8 2.0 0.9 -- 4.7
Other option contracts............................. (4.9) (13.7) 29.8 9.5 20.7
------ -------- ----------- ---------- ----------
Total effect on income before income taxes... $(2.1) $ (11.0) $ 30.7 $ 9.5 $ 27.1
====== ======== =========== ========== ==========
Deferred realized and unrealized gain (loss)......... $(27.2) $ (38.2) $ (7.5) $ 2.0 $ 2.0
====== ======== =========== ========== ==========
Effect on net income and earnings per common share:
Net income on a mark-to-market basis............... $ 18.4 $ 14.7 $ 48.9 $ 38.0 $120.8
Net income as reported............................. $ 19.8 $ 21.9 $ 28.6 $ 31.3 $101.6
Earnings per common share on a mark-to-market
basis............................................ $ .48 $ .38 $ 1.24 $ .94 $ 3.08
Earnings per common share as reported.............. $ .52 $ .57 $ .72 $ .77 $ 2.59
</TABLE>
20
<PAGE> 22
<TABLE>
<CAPTION>
1994
--------------------------------------------------------------------
QUARTER ENDED
---------------------------------------------------- YEAR ENDED
MAY 2, AUGUST 1, OCTOBER 31, JANUARY 30, JANUARY 30,
1993 1993 1993 1994 1994
------ --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Effect on income (loss) before income taxes:
Forward contracts................................. $ -- $ -- $ -- $ -- $ --
Synthetic forward contracts....................... -- -- -- -- --
Other option contracts............................ (0.3) 5.3 (6.4) 1.6 0.2
------ -------- ---------- ---------- ----------
Total effect on income (loss) before
income taxes.............................. $(0.3) $ 5.3 $ (6.4) $ 1.6 $ 0.2
====== ======== ========== ========== ==========
Deferred realized and unrealized gain (loss)........ $ 1.7 $ 7.0 $ .6 $ 2.2 $ 2.2
====== ======== ========== ========== ==========
Effect on net income (loss) and earnings (loss)
per common share:
Net income (loss) on a mark-to-market basis....... $10.0 $ (71.8) $ 7.8 $ 18.7 $ (35.6)
Net income (loss) as reported..................... $10.2 $ (75.8) $ 12.0 $ 17.7 $ (35.8)
Earnings (loss) per common share on a
mark-to-market basis............................ $ .25 $ (1.93) $ .16 $ .41 $ (1.06)
Earnings (loss) per common share as reported...... $ .25 $ (2.03) $ .26 $ .39 $ (1.06)
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating results for 1994 generated $113 million in cash, a
$152 million year-to-year increase over 1993, primarily due to record cash flow
from operations. Asset management improvements led the increased operating cash
flow for 1994. The Company experienced a decrease in days in accounts receivable
to 50 days at the end of 1994 from 54 days at the end of 1993. Inventory levels
decreased to 33 days of supply at the end of 1994, a substantial decline from
the 55 days of supply of inventory at the end of 1993. Days in accounts payable
decreased to 42 days at the end of 1994 from 53 days at the end of 1993. The
lower inventory balances resulted from improved controls and demand/supply
process improvements during the year. Although the Company made significant
progress in reducing inventory during 1994, maintaining current inventory levels
is dependent upon the Company's ability to achieve targeted revenues, to further
reduce complexities in its product line, and to increase commonality of parts.
In 1994, approximately $48 million of cash was used for capital
expenditures to expand facilities and to acquire information systems and
personal computer office equipment. Planned capital expenditures for 1995 are
approximately $75 million, primarily related to the acquisition of land and
construction of buildings in Round Rock, Texas, and the acquisition of
information systems and computer equipment for internal use.
On August 26, 1993, the Company issued $100 million of 11% Senior Notes due
August 15, 2000. Interest on the Notes is payable semiannually, commencing
February 15, 1994. The Notes are redeemable, in whole or in part, at the option
of the Company, on and after August 15, 1998 at redemption prices decreasing
from 103.50% to 101.75% of principal, depending upon the redemption date. See
Note 3 to the Consolidated Financial Statements. Concurrent with the issuance of
the Notes, on August 26, 1993, the Company sold 1,250,000 shares of Series A
Convertible Preferred Stock (the "Preferred Stock") generating gross proceeds of
$125 million. Each share of Series A Preferred Stock entitles its holder to
cumulative annual dividends and to convert to shares of common stock. In the
event of voluntary or involuntary liquidation, each share of Preferred Stock
entitles its holder to receive $100 per share liquidation preference plus an
amount equal to accrued and unpaid dividends before any distributions to common
stockholders. See Note 4 to the Consolidated Financial Statements.
The Company's primary source of cash for 1994 came from financing
activities including the issuance of the Notes and the Preferred Stock during
the third quarter of 1993. The primary unused financing sources available at
January 30, 1994, are a bank line of credit and an asset securitization program,
which are described below.
21
<PAGE> 23
The Company has a line of credit facility which bears interest at a defined
Base Rate or Eurocurrency Rate with covenants based on minimum pre-tax earnings,
a maximum ratio of total liabilities to tangible net worth, and a maximum
inventory level. Maximum amounts available under the credit facility are limited
to the lesser of $75 million or eligible receivables as defined by the credit
agreement. During the commitment period, the Company is obligated to pay .375%
per annum on the unused portion of the credit facility. No amounts were
outstanding under this credit facility as of January 30, 1994. The maximum
available under this credit facility as of January 30, 1994, totaled $41
million.
In the second quarter of 1994, the Company's subsidiary, Dell Receivables
Corporation, entered into a Receivables Purchase Agreement pursuant to which the
Company may raise up to $100 million through the sale of interests in certain of
its accounts receivable. The funding expense is based on the rate of interest on
commercial paper issued by the purchaser. During 1994, the Company sold $85
million of receivables. As of January 30, 1994, there were no receivables sold
which remain to be collected.
Repayment of the Notes and these credit facilities, together with operating
lease commitments, constitute the Company's long-term commitments to use cash.
The Company is a defendant in several consolidated lawsuits brought by
certain of its stockholders. An unfavorable outcome in these lawsuits could have
a material adverse effect on the Company's financial condition and results of
operations. See "Legal Proceedings."
Management believes that sufficient resources will be available to meet the
Company's cash requirements through at least the next twelve months. Cash
requirements for periods beyond the next twelve months depend on the Company's
profitability, its ability to manage working capital requirements, and its rate
of growth.
22
<PAGE> 24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements:
Report of Independent Accountants.............................................. 24
Consolidated Statement of Financial Position at January 30, 1994 and January
31, 1993...................................................................... 25
Consolidated Statement of Operations for the three years ended January 30,
1994.......................................................................... 26
Consolidated Statement of Cash Flows for the three years
ended January 30, 1994....................................................... 27
Consolidated Statement of Stockholders' Equity for the three years
ended January 30, 1994....................................................... 28
Notes to Consolidated Financial Statements..................................... 29
Financial Statement Schedules:
For the year ended January 30, 1994
Schedule I -- Short-term Investments......................................... 52
Schedule II -- Amounts Receivable from Related Parties....................... 53
For the three years ended January 30, 1994
Schedule VIII -- Valuation and Qualifying Accounts........................... 54
Schedule IX -- Short-term Borrowings......................................... 55
Schedule X -- Supplementary Consolidated Statement of Operations
Information................................................................. 56
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
23
<PAGE> 25
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Dell Computer Corporation
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of Dell
Computer Corporation and its subsidiaries at January 30, 1994 and January 31,
1993, and the results of their operations and their cash flows for each of the
three years in the period ended January 30, 1994, 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.
PRICE WATERHOUSE
Austin, Texas
March 2, 1994
24
<PAGE> 26
DELL COMPUTER CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
JANUARY 30, JANUARY 31,
1994 1993
---------- ----------
<S> <C> <C>
Current assets:
Cash............................................................... $ 3,355 $ 14,948
Short-term investments............................................. 333,667 80,367
Accounts receivable, net........................................... 410,774 374,013
Inventories........................................................ 220,265 303,220
Other current assets............................................... 80,323 80,239
---------- ---------
Total current assets....................................... 1,048,384 852,787
Property and equipment, net.......................................... 86,892 70,462
Other assets......................................................... 5,204 3,756
---------- ---------
$1,140,480 $927,005
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $ 282,708 $295,133
Accrued liabilities................................................ 237,651 171,473
Income taxes....................................................... 17,628 27,233
---------- ---------
Total current liabilities.................................. 537,987 493,839
Long-term debt....................................................... 100,000 48,373
Other liabilities.................................................... 31,385 15,593
Commitments and contingencies
Stockholders' equity:
Preferred stock: $.01 par value; shares authorized: 5,000,000;
shares outstanding: 1,250,000 at January 30, 1994............... 13 --
Common stock: $.01 par value; shares authorized: 100,000,000;
shares issued and outstanding: 37,929,031 and 36,857,948,
respectively.................................................... 379 369
Additional paid-in capital......................................... 320,041 177,978
Unrealized gain on short-term investments.......................... 3,230 --
Retained earnings.................................................. 170,790 208,544
Cumulative translation adjustment.................................. (23,345) (17,691)
---------- ---------
Total stockholders' equity................................. 471,108 369,200
---------- ---------
$1,140,480 $927,005
========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
25
<PAGE> 27
DELL COMPUTER CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR
------------------------------------
1994 1993 1992
---------- ---------- --------
<S> <C> <C> <C>
Net sales.................................................. $2,873,165 $2,013,924 $889,939
Cost of sales.............................................. 2,440,349 1,564,472 607,768
---------- ---------- --------
Gross profit..................................... 432,816 449,452 282,171
Operating expenses:
Selling, general and administrative...................... 422,906 267,982 182,155
Research, development and engineering.................... 48,934 42,358 33,140
---------- ---------- --------
Total operating expenses............................ 471,840 310,340 215,295
---------- ---------- --------
Operating income (loss).......................... (39,024) 139,112 66,876
Financing and other income, net............................ 258 4,180 6,539
---------- ---------- --------
Income (loss) before income taxes................ (38,766) 143,292 73,415
Provision for income taxes (benefit)....................... (2,933) 41,650 22,504
---------- ---------- --------
Net income (loss)................................ (35,833) 101,642 50,911
Preferred stock dividends.................................. (3,743) -- --
---------- ---------- --------
Net income (loss) applicable to common
stockholders................................... $ (39,576) $ 101,642 $ 50,911
========== ========== ========
Earnings (loss) per common share........................... $ (1.06) $ 2.59 $ 1.40
========== ========== ========
Weighted average shares outstanding........................ 37,333 39,235 36,274
========== ========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
26
<PAGE> 28
DELL COMPUTER CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................... $ (35,833) $ 101,642 $ 50,911
Charges to income not requiring cash outlays:
Depreciation and amortization..................... 30,646 19,597 13,832
Other............................................. 3,971 149 5,841
Changes in:
Operating working capital......................... 97,008 (162,521) (70,962)
Non-current assets and liabilities................ 17,254 2,111 871
----------- ----------- -----------
Net cash (used in) provided by operating
activities................................. 113,046 (39,022) 493
Cash used in investing activities:
Short-term investments:
Purchases......................................... (2,587,858) (1,808,464) (1,085,024)
Maturities and other redemptions.................. 2,287,998 1,750,919 985,632
Sales............................................. 46,560 76,570 --
Capital expenditures................................. (48,055) (47,251) (32,630)
----------- ----------- -----------
Net cash used in investing activities........ (301,355) (28,226) (132,022)
Cash flows from financing activities:
Net proceeds from (payments for) short-term
borrowings........................................ (8,500) 8,500 --
Borrowings from long-term debt....................... 96,654 7,270 41,450
Repayments of borrowings............................. (49,861) (711) (2,577)
Net proceeds from issuance of common stock........... -- -- 105,659
Net proceeds from issuance of preferred stock........ 120,151 -- --
Preferred stock dividends paid....................... (1,921) -- --
Issuance of common stock under employee plans........ 21,935 12,244 6,112
----------- ----------- -----------
Net cash provided by financing activities.... 178,458 27,303 150,644
----------- ----------- -----------
Effect of translation exchange rate changes on cash.... (1,742) (567) (282)
----------- ----------- -----------
Net increase (decrease) in cash........................ (11,593) (40,512) 18,833
Cash at beginning of period............................ 14,948 55,460 36,627
----------- ----------- -----------
Cash at end of period.................................. $ 3,355 $ 14,948 $ 55,460
=========== =========== ===========
</TABLE>
See Note 11 for Supplemental Statement of Cash Flow information.
The accompanying notes are an integral part of these financial statements.
27
<PAGE> 29
DELL COMPUTER CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY
-------------------------------------------------------------------
PREFERRED COMMON PAID-IN RETAINED
STOCK STOCK CAPITAL EARNINGS OTHER TOTAL
--------- ------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT FEBRUARY 3, 1991 $ -- $290 $ 54,042 $ 55,991 $ 1,682 $112,005
Net income.................... -- -- -- 50,911 -- 50,911
Issuance of 5,762,250 shares
of common stock, net....... -- 58 105,601 -- -- 105,659
Issuance of 1,021,489 shares
of common stock under
employee plans............. -- 10 6,102 -- -- 6,112
Foreign currency translation
adjustment................. -- -- -- -- (507) (507)
------- ------ -------- -------- -------- --------
BALANCES AT FEBRUARY 2, 1992 -- 358 165,745 106,902 1,175 274,180
Net income.................... -- -- -- 101,642 -- 101,642
Issuance of 1,056,328 shares
of common stock under
employee
plans...................... -- 11 12,233 -- -- 12,244
Foreign currency translation
adjustment................. -- -- -- -- (18,866) (18,866)
------- ------ -------- -------- -------- --------
BALANCES AT JANUARY 31, 1993 -- 369 177,978 208,544 (17,691) 369,200
Net loss...................... -- -- -- (35,833) -- (35,833)
Issuance of 1,250,000 shares
of preferred stock......... 13 -- 120,138 -- -- 120,151
Issuance of 1,071,083 shares
of common stock under
employee plans............. -- 10 21,925 -- -- 21,935
Preferred stock dividends
paid....................... -- -- -- (1,921) -- (1,921)
Unrealized gain on short-term
investments................ -- -- -- -- 3,230 3,230
Foreign currency translation
adjustment................. -- -- -- -- (5,654) (5,654)
------- ------ -------- -------- -------- --------
BALANCES AT JANUARY 30, 1994 $ 13 $379 $320,041 $170,790 $(20,115) $471,108
======= ====== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE> 30
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company's consolidated financial statements have been prepared in
accordance with generally accepted accounting principles. The fiscal year of the
Company ends on the Sunday nearest January 31. Unless otherwise indicated, all
references to years in connection with financial information refer to the
Company's fiscal years and all references to quarters refer to the Company's
fiscal quarters. The Company's significant accounting policies are set forth
below.
Principles of Consolidation -- The consolidated financial statements
include the accounts of Dell Computer Corporation and its wholly-owned
subsidiaries. All significant intercompany transactions and balances have been
eliminated. Financial results of the Company's international subsidiaries are
consolidated on a one month delay to facilitate consolidated financial
reporting. Certain prior period amounts have been reclassified for comparative
purposes.
Short-term Investments -- Short-term investments consist primarily of debt
securities and equity securities with readily determinable fair values. The
Company accounts for highly liquid investments with maturities of three months
or less at date of acquisition as short-term investments. Effective January 30,
1994, the Company adopted Statement of Financial Accounting Standards (SFAS) No.
115, "Accounting for Certain Investments in Debt and Equity Securities." In
accordance with SFAS No. 115, the Company's short-term investments classified as
available-for-sale are reported at fair value, with unrealized gains and losses
reported net of taxes in a separate component of stockholder's equity. In
accordance with SFAS 115, investments whose turnover is quick and maturities are
short are reflected as gross purchases and gross maturities and redemptions in
the Consolidated Statement of Cash Flows. The specific identification method is
used to determine the cost of securities sold. Prior to the adoption of SFAS
115, short-term investments were classified as available-for-sale and carried at
the lower of aggregate amortized cost or market, with changes in the valuation
allowance recognized in current period income. Individual securities classified
as available-for-sale with other than a temporary decline in fair value are
written down to fair value with the charge included in income.
Inventories -- Inventories are stated at the lower of cost (based upon a
first-in, first-out valuation) or market. Cost includes the acquisition cost of
purchased components, parts and subassemblies, freight costs, labor and
overhead.
Property and Equipment -- Property and equipment are carried at cost.
Depreciation is provided using the straight-line method over the economic lives
of the assets ranging from ten to thirty years for buildings and two to five
years for all other assets. Leasehold improvements are amortized over the term
of the respective leases.
Foreign Currency Translation -- The financial statements of the Company's
international subsidiaries are generally measured using the local currency as
the functional currency. Accordingly, assets and liabilities of these
subsidiaries are translated at current rates of exchange at the balance sheet
date of the reporting entity. The resultant gains or losses from translation are
included in a separate component of stockholders' equity. Income and expense
items for these subsidiaries are translated using monthly average exchange
rates. Gains or losses resulting from remeasuring monetary asset and liability
accounts that are denominated in currencies other than a subsidiary's functional
currency are included currently as a component of financing and other income in
the consolidated financial statements.
Financial Instruments -- The Company enters into foreign exchange option
and forward contracts to hedge its economic and transaction foreign currency
exposures. Prior to March 21, 1992, the Company principally used combination
option contracts that were designated as hedges of probable anticipated, but not
firmly committed, foreign currency transactions. Gains and losses on such
transactions were deferred and recognized in income in the same period as the
hedged transaction. Subsequent to March 20, 1992, anticipated foreign currency
transactions have been hedged using purchased foreign currency option contracts
29
<PAGE> 31
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
for periods not exceeding twelve months and, to a lesser extent, foreign
exchange forward contracts, generally for periods not exceeding three months.
Realized and unrealized gains or losses on foreign currency purchased
option contracts that are designated and effective as hedges of probable
anticipated, but not firmly committed, foreign currency transactions are
deferred and recognized in income in the same period as the hedged transaction.
The risk of loss associated with purchased options is limited to premium amounts
paid for the option contracts, which could be significant. Premium amounts paid
are amortized over the period of the hedged transaction.
Forward contracts designated as hedges of anticipated transactions are
accounted for on a mark-to-market basis and recognized as a component of cost of
sales in the current period. Transaction exposures representing firm foreign
currency commitments are generally hedged using foreign exchange forward
contracts. Realized and unrealized gains or losses on forward contracts that
effectively hedge foreign currency transactions are deferred and included in
income as part of those transactions.
Additionally, during 1993, the Company actively traded foreign currency
forward and option contracts with the intent to profit from anticipated changes
in the financial markets. These contracts were designated at inception as
trading activities and accordingly, were accounted for on a mark-to-market basis
with the realized and unrealized gain or loss recognized as a component of net
financing and other income in the consolidated financial statements.
The Company also employs a variety of interest rate derivative instruments
to more efficiently manage its principal, market and credit risks as well as to
enhance its investment yield. Derivative instruments used include interest rate
swaps, written and purchased interest rate options and swaptions (options to
enter into interest rate swaps). Interest rate differentials to be paid or
received on interest rate swaps which are designated to specific borrowings are
accrued and recognized as an adjustment to interest expense as interest rates
change. Realized gains or losses on terminated interest rate swap positions
designated to specific borrowings are recognized as an adjustment to interest
expense over the remaining life of the obligations. Interest rate derivative
instruments that are not designated to a specific asset or liability are
considered investment derivatives and are accounted for on a mark-to-market
basis, with realized and unrealized gains or losses recognized as incurred and
included as a component of financing and other income in the consolidated
financial statements.
Revenue Recognition -- Sales revenues are recognized at the date of
shipment to customers. Provision is made currently for estimated product
returns. Revenue and costs relating to sales of extended service contracts are
deferred and amortized over the service period on a straight-line basis.
Warranty and Other Post-sales Support Programs -- The Company provides
currently for the estimated costs which may be incurred under its warranty and
other post-sales support programs.
Income Taxes -- The provision for income taxes is based on earnings
reported in the financial statements under an asset and liability approach in
accordance with SFAS No. 109 "Accounting for Income Taxes" that requires the
recognition of deferred tax assets and liabilities and their reported amounts
for financial statement purposes.
Earnings Per Share -- Earnings per share are computed by dividing net
income by the weighted average number of common shares and common share
equivalents outstanding (if dilutive) during each period. Common share
equivalents include stock options. The Company's preferred stock is not a common
share equivalent for earnings per share purposes. The number of common
equivalent shares outstanding relating to stock options is computed using the
treasury stock method.
NOTE 2 -- SHORT-TERM INVESTMENTS
At January 30, 1994, the short-term investment portfolio, consisting
primarily of debt securities and equity securities with readily determinable
fair values, was classified as available-for-sale and measured at fair value in
accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity
30
<PAGE> 32
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Securities." Prior to the adoption of this accounting standard and at January
31, 1993, the short-term investments portfolio was carried at the lower of
aggregate amortized cost or market (LCM). Adoption of SFAS No. 115 had no effect
on the Company's results of operations.
Short-term investments at January 30, 1994, and January 31, 1993, consist
of the following:
<TABLE>
<CAPTION>
FISCAL YEAR 1994
-------------------------------------------------------
UNREALIZED UNREALIZED CARRYING AND
COST GAINS LOSSES FAIR VALUE
-------- ---------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
(carried at fair value)
Preferred stock..................... $ 52,470 $ 484 $3,250 $ 49,704
Mutual Funds........................ 10,000 -- 14 9,986
State and municipal securities...... 133,340 263 17 133,586
U.S. corporate and bank debt........ 136,124 4,345 78 140,391
-------- -------- -------- ----------
Total short-term
investments............... $331,934 $5,092 $3,359 $333,667
======== ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR 1993
-------------------------------------------------------
UNREALIZED UNREALIZED CARRYING AND
COST GAINS LOSSES FAIR VALUE
-------- ---------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
(carried at aggregate LCM)
Preferred stock..................... $ 36,701 $ 571 $2,848 $ 34,424
Mutual Funds........................ 17,150 -- 1,061 16,089
State and municipal securities...... 20,456 53 5 20,504
U.S. corporate and bank debt........ 10,050 -- 700 9,350
-------- -------- -------- ----------
Total short-term
investments............... $ 84,357 $ 624 $4,614 $ 80,367
======== ======== ======== =========
</TABLE>
The Company's gross realized gains on the sale of short-term investments
were $630,000 for 1994 and $595,000 for 1993. Gross realized losses were
$1,133,000 for 1994 and $33,000 for 1993. Gross realized gains and losses for
1992 were insignificant.
A profile of the maturities of debt securities classified as
available-for-sale carried at fair value as of January 30, 1994 is presented in
the following table.
<TABLE>
<CAPTION>
LESS THAN 60 DAYS TO ONE TO
60 DAYS ONE YEAR THREE YEARS TOTAL
--------- ---------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
State and municipal securities........... $68,350 $ 36,548 $28,688 $133,586
U.S. corporate and bank debt............. 23,059 83,701 33,631 140,391
------- --------- -------- --------
Total debt securities.......... $91,409 $ 120,249 $62,319 $273,977
======= ======== ======== ========
</TABLE>
NOTE 3 -- FINANCING ARRANGEMENTS
On August 26, 1993, the Company issued $100 million of 11% Senior Notes due
August 15, 2000. Interest on the Notes is payable semiannually, commencing
February 15, 1994. The Notes are redeemable, in whole or in part, at the option
of the Company, on and after August 15, 1998 at redemption prices decreasing
from 103.50% to 101.75% of principal, depending upon the redemption date plus
accrued interest to the date of redemption. In addition, the Company may redeem
up to $33.3 million principal amount of the Notes with the proceeds of one or
more equity offerings, at any time as a whole or from time to time in part, at a
redemption price of 110% of principal, if redeemed at any time on or before
February 15, 1995.
31
<PAGE> 33
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Indenture governing the Notes contains certain covenants including
limitations on the amount of future indebtedness and restrictions on the payment
of common stock dividends under certain circumstances. However, covenants
limiting future indebtedness may be inapplicable from time to time if the Notes
are assigned an investment grade rating by both of the major rating services.
Concurrently with the issuance of the Notes, the Company entered into
interest rate swap agreements and swaptions to reduce its interest costs
associated with the Notes and to more efficiently manage market risk associated
with changing interest rates. At January 30, 1994, the Company had outstanding
interest rate swaps maturing in fiscal 1999 with an aggregate notional amount of
$100 million and a swaption expiring in fiscal 1999 with a notional amount of
$65 million. The swap agreements effectively change the Company's interest rate
exposure from a fixed-rate to a floating-rate basis and resulted in a weighted
average interest rate of 9.5% on the Notes for 1994. A written swaption executed
by the Company effectively mitigates a portion of the cost associated with the
call feature of the Notes and, providing market rates remain at levels when the
swaption was issued on October 28, 1993, sets a portion of the Company's
interest rate exposure during fiscal 1999 and 2000 to a fixed-rate basis.
The Company has designated the issuance of the Notes and the related
interest rate swap agreements as an integrated transaction. Accordingly, the
differential to be paid or received on the swaps is accrued and recognized as an
adjustment to interest expense as interest rates change. The swaption is
accounted for on a mark-to-market basis and, accordingly, the net unrealized
loss of $.5 million is recognized currently in the statement of operations.
These instruments involve, in varying degrees, elements of credit or interest
rate risk in excess of the amounts recognized in the financial statements. The
Company regularly monitors its positions with, and the credit quality of, the
financial institutions that are counterparties to these financial instruments,
and it does not anticipate nonperformance by the counterparties.
The Company has a $75 million line of credit facility that bears interest
at a defined Base Rate or Eurocurrency Rate with covenants based on minimum
pre-tax earnings, a maximum ratio of total liabilities to tangible net worth,
and a maximum inventory level. No amounts were outstanding under this credit
facility as of January 30, 1994. During the commitment period, the Company is
obligated to pay .375% per annum on the unused portion of the credit facility.
The credit facility contains certain limitations on the Company's ability to pay
dividends with respect to common stock and restricts the payment of dividends on
the Series A Convertible Preferred Stock if an event of default has occurred and
is continuing or would result therefrom. The maximum available under this credit
facility is the lesser of $75 million or eligible receivables as defined in the
credit facility, which totaled $41 million as of January 30, 1994.
During 1993, the Company's subsidiary, Dell Receivables Corporation,
entered into a Receivable Purchase Agreement pursuant to which the Company may
raise up to $100 million through the sale of interests in certain of its
accounts receivable. The funding expense is based on the rate of interest on
commercial paper issued by the purchaser. The discount on sale of receivables is
included in financing and other income (expense). During 1994, the Company sold
$85 million of receivables. As of January 30, 1994, there were no receivables
sold which remain to be collected.
In fiscal 1994, the Company repaid its borrowings under Section 84 of
Ireland's Corporation Tax Act of 1976 and retired its commercial paper program.
NOTE 4 -- STOCKHOLDERS' EQUITY
Preferred Stock -- Simultaneously with the issuance of the Notes on August
26, 1993, the Company sold 1,250,000 shares of Series A Convertible Preferred
Stock (the "Preferred Stock") generating gross proceeds of $125 million.
Preferred stock issuance costs were approximately $4 million. Each share of
Preferred Stock entitles its holder to receive annual cumulative cash dividends
of $7 and to convert it into 4.2105 shares of common stock (equivalent to a
conversion price of $23.75 per share of common stock), subject to adjustment
32
<PAGE> 34
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to prevent dilution in certain circumstances. In the event of voluntary or
involuntary liquidation, each share of Preferred Stock entitles its holder to
receive up to $100 per share plus an amount equal to accrued and unpaid
dividends before any distributions to common stock. The aggregate liquidation
preference value of the Preferred Stock at January 30, 1994, was $126.8 million.
The preferred shares are not redeemable before August 25, 1996. On and after
August 25, 1996, the Preferred Stock may be redeemed by the Company, at its
option, in whole or in part at any time at a redemption price per share
decreasing from $104.67 to $100, depending on the redemption date, together in
each case with any accrued and unpaid dividends.
Dividends on the Preferred Stock are cumulative, have priority over
dividends on common stock, and must be paid in the event of liquidation and
before any distribution to holders of common stock. On January 27, 1994, the
Board of Directors declared a $1.75 per share quarterly cash dividend which was
paid on February 15, 1994, to Preferred Stockholders of record on February 4,
1994.
In addition, so long as any Preferred Stock is outstanding, the Company may
not, without the affirmative vote or consent of the holders of at least 66 2/3%
(unless a higher percentage shall then be required by applicable law) of all
outstanding shares of Preferred Stock, voting separately as a class, (i) amend,
alter or repeal any provision of the Company's Certificate of Incorporation or
Bylaws so as to affect adversely the relative rights, preferences,
qualifications, limitations, or restrictions of the Preferred stock, (ii)
create, authorize or issue, or reclassify any authorized stock of the Company
into, or increase the authorized amount of, any series or class of stock that
ranks senior to the Preferred Stock as to dividends or distributions of assets
upon liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, or any security convertible into any such class or series of such
stock, or (iii) enter into a share exchange that affects the Preferred Stock,
consolidate with or merge into another entity, or permit another entity to
consolidate with or merge into the Company, unless in each such case each share
of Preferred Stock remains outstanding and unaffected or is converted into or
exchanged for convertible preferred stock of the surviving entity having powers,
preferences and relative participating optional or other rights and
qualification limitations and restrictions thereof identical to that of a share
of Preferred Stock (except for changes that do not affect the holders of the
Preferred Stock adversely).
The holders of the Preferred Stock have no other voting rights except if
dividends have not been paid in an aggregate amount for at least six quarterly
dividends on such shares. Under these circumstances, the number of members of
the Company's Board of Directors will be increased by two, and the holders of
the Preferred Stock will be entitled to elect two additional directors at any
meeting of stockholders at which directors are to be elected held during the
period such dividends remain in arrears.
Common Stock -- During 1993, the Company's Board of Directors declared a 3
for 2 stock split in the form of a 50% stock dividend. All share and per-share
information has been retroactively restated in the consolidated financial
statements to reflect the stock split. During 1992, the Company issued 5,762,250
shares of $.01 par value common stock in a public offering. The gross proceeds
of the offering amounted to $111,404,000. Common stock issuance costs, which are
netted against paid-in capital, were approximately $5,745,000.
Employee Stock Purchase Plan -- The Company has an Employee Stock Purchase
Plan which permits substantially all employees to acquire the Company's common
stock. Participating employees may acquire common stock at the end of each
period at a purchase price of 85% of the lower of the fair market value at the
beginning or the end of the participation period. Periods are semi-annual and
begin on January 1 and July 1 of each year. Employees may designate up to 10% of
their base compensation for the purchase of common stock. Common stock reserved
for future employee purchases aggregated 1,655,036 shares at January 30, 1994,
and 893,575 shares at January 31, 1993. Shares issued under this plan were
238,539 shares in 1994, 150,326 shares in 1993 and 137,243 shares in 1992. There
have been no charges to income in connection with the issuance of these shares.
33
<PAGE> 35
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The 401(k) Plan -- The Company has a defined contribution retirement plan
which complies with section 401(k) of the Internal Revenue Code. Substantially
all employees who have completed six months of service are eligible to
participate in the plan. The plan provides for Company matching contributions of
50% of the employees' voluntary contributions, up to a maximum of 6% of the
employees' compensation. Common stock reserved for issuance under the 401(k)
Plan aggregated 275,605 shares of common stock. The Company has accrued for its
estimated matching amounts to be funded from authorized, previously unissued,
shares of the Company's common stock. Shares are issued to the plan based on the
fair market value of the Company's common stock at the time of issuance. The
amounts expensed for the Company's 50% matching contribution during 1994, 1993,
and 1992, were $3.0 million, $2.0 million and $.9 million, respectively.
Stock Option Plans -- In 1993, the Company's Board of Directors voted to
adopt the 1993 Stock Option Plan (the "1993 Plan") with provisions substantially
the same as those of the 1989 Stock Option Plan (the "1989 Plan") which was
adopted by the Board of Directors in 1989, as amended. At January 30, 1994,
substantially all employees and directors are eligible to receive options to
purchase a maximum aggregate of 11.25 million shares of the Company's common
stock under the 1993 Plan and 1989 Plan, as amended. Options granted may be
either incentive stock options within the meaning of Section 422 of the Internal
Revenue Code or nonqualified options. Options under the 1993 Plan and the 1989
Plan must be granted within ten years of the plan adoption date. Stock options
are generally issued at fair market value. The right to purchase shares under
the existing stock option plans typically vest over a five year period beginning
on either the option holder's date of hire or the option's date of grant.
Incentive options must be exercised within ten years from date of grant. For
stock options which have been issued at discounted prices, the Company accrues
compensation expense over the vesting period for the difference between the
exercise price and the fair market value on the measurement date. Options
vesting over a ten year period with an exercise price of $.01 per share were
granted to certain key employees in 1994 and 1993 at fair market values ranging
from $18.50 to $36.50 and $15.75 to $35.88, respectively. Options on 1,046,213
shares were exercisable under the plans at January 30, 1994.
Prior to the adoption of the 1989 Stock Option Plan, the Company had two
incentive stock option plans and a nonqualified stock option plan for its
employees and directors. Options under those plans must be exercised within ten
years from date of grant.
34
<PAGE> 36
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes activity under the plans for each of the
three years ended January 30, 1994:
<TABLE>
<CAPTION>
STOCK OPTION PLANS
-------------------------------------------------
NUMBER OF SHARES
PRICE RANGE -------------------------------
OF SHARES UNDER AVAILABLE
UNDER OPTION OPTION FOR GRANT
-------------- ------------- -------------
<S> <C> <C> <C>
OUTSTANDING AT FEBRUARY 3, 1991..................... $ .11-$ 8.79 2,811,703 537,118
Authorizations for grant............................ -- -- 4,500,000
Granted............................................. $9.77-$19.55 1,853,625 (1,853,625)
Canceled............................................ $ .11-$17.33 (143,369) 112,568
Exercised........................................... $ .11-$17.33 (794,186) --
------------- -------------
OUTSTANDING AT FEBRUARY 2, 1992..................... $ .11-$19.55 3,727,773 3,296,061
Granted............................................. $ .01-$36.31 2,642,079 (2,642,079)
Canceled............................................ $ .01-$24.69 (475,729) 433,264
Exercised........................................... $ .11-$23.31 (850,135) --
------------- -------------
OUTSTANDING AT JANUARY 31, 1993..................... $ .01-$36.31 5,043,988 1,087,246
Authorizations for grant............................ -- -- 4,500,000
Granted............................................. $ .01-$36.31 2,505,590 (2,505,590)
Canceled............................................ $ .01-$30.69 (1,204,814) 1,197,794
Exercised........................................... $ .01-$23.66 (726,412) --
------------- -------------
OUTSTANDING AT JANUARY 30, 1994..................... $ .01-$36.31 5,618,352 4,279,450
============= =============
</TABLE>
On August 24, 1993, the Company granted 390,623 nonqualified options to
purchase its common stock at $18.69 per share under the 1993 Plan in exchange
for cancellation of outstanding options to purchase its common stock for $30.69
which had been previously granted under the 1989 Plan. Pursuant to the exchange
agreement, vesting of these options shall occur on the earlier of August 24,
2002, or the date that the Company's common stock has traded for thirty
consecutive days at or above $32.69 per share.
NOTE 5 -- INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
U.S. Federal....................................... $ 29,404 $ 42,827 $ 26,200
Foreign............................................ 8,033 12,727 7,357
Prepaid.............................................. (40,370) (13,904) (11,053)
-------- -------- --------
Provision for income taxes (benefit)................. $ (2,933) $ 41,650 $ 22,504
======== ======== ========
</TABLE>
Income (loss) before income taxes included approximately ($32) million, $51
million and $28 million related to foreign operations in the fiscal years ended
January 30, 1994, January 31, 1993, and February 2, 1992, respectively.
The Company has not recorded a deferred income tax liability of $2.7
million for additional U.S. federal income taxes that would result from the
distribution of earnings of its foreign subsidiaries, if they were repatriated.
The Company currently intends to reinvest indefinitely the undistributed
earnings of its foreign subsidiaries.
35
<PAGE> 37
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The deferred tax asset is comprised of the following principal temporary
differences:
<TABLE>
<CAPTION>
JANUARY 30, JANUARY 31, FEBRUARY 2,
1994 1993 1992
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Depreciation........................................ $ (96) $ 1,578 $ 1,398
Provisions for doubtful accounts and returns........ 19,988 13,472 6,395
Inventory and warranty provisions................... 27,626 13,032 9,227
Deferred service contract revenue................... 9,507 3,074 1,386
Other............................................... 7,239 (1,979) 4,680
-------- -------- --------
Deferred tax asset.................................. $64,264 $29,177 $23,086
======== ======== ========
</TABLE>
The difference between the income tax provisions in the consolidated
financial statements and the tax expense computed at the United States statutory
rates are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
------------------------------
1994 1993 1992
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax provision (benefit) computed at the U.S. federal
statutory rate of 35%, 34%, and 34%, respectively.... $(13,568) $48,719 $24,963
Research and development credit........................ (1,345) (1,007) (1,072)
Foreign income taxed at different rate................. 10,315 (7,849) (1,831)
Net operating loss carryovers.......................... 3,969 (204) --
Other nondeductible accruals........................... (1,568) -- --
Other.................................................. (736) 1,991 444
-------- ------- -------
Provision (benefit) for income taxes................... $ (2,933) $41,650 $22,504
======== ======= =======
Effective tax rates.................................... 7.6% 29.1% 30.7%
======== ======= =======
</TABLE>
NOTE 6 -- FINANCIAL INSTRUMENTS
Financial instruments with off-balance sheet risk
Foreign exchange hedging instruments -- The results of the Company's
international operations are affected by changes in exchange rates between
certain foreign currencies and the United States dollar. The financial
statements of the Company's international subsidiaries are generally measured
using the local currency as the functional currency. Accordingly, an increase in
the value of the United States dollar increases the cost of component purchases
made by the Company's international subsidiaries which are denominated in the
United States dollar. The Company's hedging activities primarily consist of
hedging anticipated, but not firmly committed, intercompany sales to its
international subsidiaries and the resulting intercompany balances.
From March 1991 until March 20, 1992, the Company principally used
combination foreign currency option contracts to hedge anticipated intercompany
sales to its international subsidiaries. After consideration of the
deliberations of the Emerging Issues Task Force, in the fourth quarter of fiscal
1992 the Company began to account on a mark-to-market basis for open combination
option contracts entered into with the same strike prices and maturities
("synthetic forward contracts") which were originally entered into to hedge
anticipated fiscal 1993 sales to international subsidiaries. Accordingly, the
Company recognized unrealized losses of $4.0 million related to open synthetic
forward contracts as a component of cost of sales in its consolidated statement
of income for 1992. Based upon foreign currency exchange rates at February 2,
1992, option contracts which hedged anticipated shipments to international
subsidiaries had a combined net realized and unrealized loss of $25.1 million.
36
<PAGE> 38
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At January 30, 1994 and January 31, 1993, the Company had no combination
foreign currency contracts outstanding. Based upon foreign currency exchange
rates at January 30, 1994 and January 31, 1993, purchased option contracts which
effectively hedge anticipated, but not firmly committed, foreign currency
transactions had a combined net realized and unrealized gain of $2.2 million and
$2.0 million, respectively. Since March 20, 1992, the Company's use of issued
option contracts in the execution of its hedging program has been limited to
cancellation of previously purchased foreign currency option contracts. Forward
contracts designated to hedge foreign currency transaction exposures with
maturity dates of less than twelve months of $19 million and $15 million were
outstanding at January 30, 1994 and January 31, 1993, respectively.
On November 30, 1992, the Securities and Exchange Commission's (the
"Commission") Division of Enforcement notified the Company that it was beginning
an informal inquiry regarding the Company's accounting practices for foreign
currency hedging and trading activities and the completeness of the Company's
public disclosure about those activities. The Company believes its accounting
treatment for foreign currency hedging and trading activities complies with
generally accepted accounting principles in all material respects and that the
Company has provided appropriate disclosures of its hedging activities.
Interest Rate Derivative Instruments -- The Company utilizes a variety of
interest rate derivative instruments to more efficiently manage its principal,
market and credit risks as well as enhance its investment yield. Derivative
instruments used include interest rate swaps, written and purchased options and
swaptions (options to enter into interest rate swaps). Interest rate derivatives
are financial instruments whose value is "derived" from an underlying interest
rate or a relationship between interest rates. The Company also uses interest
rate derivatives to synthetically create investment securities more economically
than traditionally structured cash investments. The Company structures
derivative instruments in interest rate markets in countries where it has
foreign operations.
At January 30, 1994, and January 31, 1993, the Company had outstanding
interest rate derivative contracts with a total notional amount of $355 million
and $180 million, respectively. Interest rate derivatives generally involve
exchanges of interest payments based upon fixed and floating interest rates
without exchanges of underlying notional amounts. Consequently, the Company's
exposure to credit loss is significantly less than the stated notional amounts.
The Company's investment policy limits the weighted average maturity of its
investment derivative portfolio to a maximum of three years and limits the
maturity of individual positions to a maximum of five years. At January 30,
1994, the weighted average maturity of the investment derivative portfolio was
1.8 years.
The value of the Company's investment derivatives arise principally from
changes in interest rates. At January 30, 1994, the value of the Company's
short-term and derivative investment portfolio is subject to movements in United
States, Canadian, Japanese and European interest rate markets and, generally,
would be adversely impacted by increases in market rates of interest. Since
January 30, 1994, the value of the Company's short-term and investment
derivative portfolios has decreased as a result of interest rate increases in
these markets. If interest rate market conditions as of March 2, 1994 prevail,
the Company's investment income, included as a component of financing and other,
will be adversely affected by the recognition of realized and unrealized losses.
The Company has also entered into certain interest rate derivative
instruments as a means of managing its interest rate risk and the interest costs
associated with the Senior Notes issued during 1994 (See Note 3).
37
<PAGE> 39
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Fair value of financial instruments
The estimated fair value amounts disclosed under SFAS No. 107 "Disclosures
About Fair Value of Financial Instruments" have been determined by the Company
using available market information and appropriate valuation methodologies as
described below. However, considerable judgment is necessary in interpreting
market data to develop estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts that the Company
could realize in a current market exchange. Changes in assumptions could
significantly affect the estimates. Cash, accounts receivable, short-term
borrowings, accounts payable and accrued liabilities are reflected in the
financial statements at fair value because of the short-term maturity of these
instruments. The estimated fair values of the Company's other financial
instruments as of January 30, 1994, and January 31, 1993, are as follows (in
thousands):
<TABLE>
<CAPTION>
JANUARY 30, 1994 JANUARY 31, 1993
----------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Short-term investments........................ $ 333,667 $ 333,667 $ 80,367 $ 80,367
Long-term debt................................ (100,000) (105,500) -- --
Foreign currency hedging instruments:
Foreign exchange forward contracts.......... (81) (81) (23,661) (23,661)
Foreign currency option contracts........... 8,035 8,035 38,533 38,533
Interest rate derivative instruments:
Interest rate swaps designated to long-term
debt..................................... -- (1,170) -- --
Unmatched interest rate derivatives --
Interest rate options and swaptions...... (2,444) (2,444) (5,550) (5,550)
Interest rate swaps...................... 812 812 -- --
</TABLE>
The fair values of short-term investments, long-term debt and interest rate
derivative instruments were estimated based upon quotes from brokers. Foreign
exchange forward contracts, fair values are estimated using market quoted rates
of exchange at the applicable balance sheet date. The estimated fair value of
foreign currency option contracts is based on market quoted rates of exchange at
the applicable balance sheet date and the Black-Sholes options pricing model.
Concentrations of credit risk
All of the Company's foreign exchange and interest rate derivative
instruments involve elements of market and credit risk in excess of the amounts
recognized in the financial statements. The counterparties to financial
instruments consist of a number of major financial institutions. In addition to
limiting the amount of agreements and contracts it enters into with any one
party, the Company regularly monitors its positions with and the credit quality
of the financial institutions which are counterparties to these financial
instruments, and it does not anticipate nonperformance by the counterparties.
The Company has business activities with large corporate, government and
education customers, medium- to small-sized businesses and individuals and
remarketers. Its receivables from such parties are well diversified. The Company
places its short-term investments with high quality financial institutions and
other companies and currently invests primarily in debt instruments that have
maturities of less than three years and equity securities. In management's
opinion, no significant concentration of credit risk exists for the Company.
NOTE 7 -- COMMITMENTS AND CONTINGENCIES
Legal Matters -- The Company is subject to certain legal proceedings and
claims which arise in the ordinary course of its business. Additionally, the
Company has been made aware of others in the industry who
38
<PAGE> 40
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
assert exclusive rights to certain technologies, some of which have offered
related licenses to the Company. Such an offer of a license is usually taken in
the industry as a notice of a patent infringement claim. The Company's policy is
to evaluate such claims on a case-by-case basis and, if appropriate, to enter
into licensing arrangements that appear necessary or desirable. Management does
not believe that the outcome of any of these matters will have a material
adverse effect on the Company's financial condition or results of operations.
The Company and its Chairman, Michael S. Dell, are defendants in nineteen
lawsuits filed between May and November 1993, in the United States District
Court for the Western District of Texas, Austin Division. Thomas J. Meredith,
the Company's Chief Financial Officer, is also a defendant in seven of the
lawsuits. Joel Kocher, Senior Vice President of the Company, is also a defendant
in one of the lawsuits, but the plaintiffs have conditionally agreed to dismiss
him. The suits have been consolidated, an amended and consolidated complaint has
been filed, and the plaintiffs have requested class certification for a class of
persons who purchased or held the Company's common stock between February 24,
1993, and July 14, 1993. In general, the plaintiffs allege that the Company made
overly optimistic forecasts about the Company's prospects without a reasonable
basis and failed to disclose adverse material information about the Company's
business (particularly with regard to problems in its notebook business) on a
timely basis, thereby inducing the plaintiffs to buy Company common stock at
artificially high prices. The plaintiffs also allege that Mr. Dell sold
securities of the Company while in the possession of material, non-public
information about the Company. The consolidated complaint asserts that these
actions or omissions violated various provisions of the federal securities laws,
particularly Section 10(b) of the Exchange Act and Rule 10b-5; that Mr. Dell's
trades violated Section 20A of the Exchange Act; and that the defendants
violated provisions of Texas statutes and common law principles against
negligent misrepresentation and deceit. The complaint seeks unspecified damages.
The Company has moved for dismissal of the complaint and intends to defend
itself and its officers vigorously. It is the Company's policy to make accruals
for potential liability or settlement of litigated matters as appropriate. The
Company believes that its current accruals with respect to these lawsuits are
adequate. However, in the event the Company is ultimately found liable in these
lawsuits, it could have a material adverse effect on the Company's financial
condition and results of operations.
Other Commitments -- The Company is subject to certain patent royalty
agreements that require fixed payments with scheduled increases over the next
five years. The Company is also subject to software royalty agreements that
require cash payments over the next three years. Additionally, the Company
leases property and equipment, manufacturing facilities and office space under
non-cancelable leases. Certain leases obligate the Company to pay taxes,
maintenance and repair costs.
Future minimum payments under these leases at January 30, 1994 are as
follows:
<TABLE>
<CAPTION>
FISCAL OPERATING
YEAR LEASES
- ------ --------------
(IN THOUSANDS)
<S> <C> <C>
1995............................................................. $ 13,539
1996............................................................. 9,461
1997............................................................. 5,981
1998............................................................. 4,264
1999............................................................. 2,320
Thereafter....................................................... 1,570
-----------
Total minimum lease payments required............................ $ 37,135
===========
</TABLE>
Rental expense recorded under all operating leases was $19 million, $14
million and $11 million for the fiscal years ended 1994, 1993, and 1992,
respectively.
39
<PAGE> 41
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- RESTRUCTURING AND OTHER CHARGES
During the first half of 1994, the Company delayed and canceled certain
notebook development projects and reevaluated its probable future sales for the
notebook products then offered. The Company recorded over $39.3 million of
charges in the first half of 1994 due to the notebook inventory writedowns and
delayed and canceled notebook projects. The Company canceled its existing
notebook product line in August, 1993 and sold its then-remaining inventories of
notebooks at significantly reduced prices. The Company has focused its efforts
on the development of a 486-based notebook product line and is re-entering the
notebook computer market with a phased approach. Completion of the first phase
of the Company' s re-entry into the notebook computer market resulted in the
introduction on February 21, 1994, of the 486-based Dell Latitude family of
notebook computers.
During the first half of 1994, the Company also recorded $29.3 million of
other costs, consisting mostly of inventory writedowns and related costs. These
charges arose from the Company's determination that certain products and
inventory were excess or obsolete because the products were scheduled to be
replaced with newer products or because the Company otherwise had lowered its
estimates of expected demand for materials in inventory or under outstanding
purchase commitments.
Also during the first half of 1994, the Company recorded $22.8 million for
the costs of consolidating operations, writing off of certain assets, and making
employee severance payments. Most of the charges in this area were associated
with consolidating certain common functions in the European subsidiaries and
creating regional business units. This consolidation effort is designed to
reduce redundant costs and improve the Company's ability to deliver higher
levels of operational efficiency and higher quality support in European markets.
Operations in some subsidiaries have been closed and transferred to other
subsidiaries, and some consolidation is occurring outside of Europe.
Approximately 60% of the restructuring charges are cash provisions,
approximately half of which will be incurred in fiscal 1995.
NOTE 9 -- GEOGRAPHIC AREA INFORMATION
The Company operates in one industry and is engaged in the design,
manufacture, marketing, service and support of personal computers and related
equipment. Transfers between geographic areas are recorded at cost plus a
markup.
<TABLE>
<CAPTION>
FISCAL YEAR 1994
--------------------------------------------------------------------------
NORTH OTHER
AMERICA EUROPE INTERNATIONAL ELIMINATIONS CONSOLIDATED
--------- -------- ------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers..................... $2,012,697 $781,905 $ 78,563 $ -- $ 2,873,165
Transfers between geographic
areas......................... 53,159 -- -- (53,159) --
---------- -------- --------- --------- -----------
Total sales........... $2,065,856 $781,905 $ 78,563 $(53,159) $ 2,873,165
========== ======== ========= ========= =========
Operating income................ $ (34,921) $ 14,610 $ (18,713) $ -- $ (39,024)
========== ======== ========= ========= =========
Identifiable assets............. $ 881,736 $229,609 $ 29,135 $ -- $ 1,140,480
========== ======== ========= ========= =========
</TABLE>
40
<PAGE> 42
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FISCAL YEAR 1993
--------------------------------------------------------------------------
NORTH OTHER
AMERICA EUROPE INTERNATIONAL ELIMINATIONS CONSOLIDATED
--------- -------- ------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers..................... $1,451,801 $552,999 $ 9,124 $ -- $ 2,013,924
Transfers between geographic
areas......................... 42,986 -- $ -- (42,986) --
---------- -------- --------- --------- -----------
Total sales........... $ 1,494,78 $552,999 $ 9,124 $(42,986) $ 2,013,924
========== ======== ========= ========= ===========
Operating income................ $ 110,725 $ 34,668 $ (6,281) $ -- $ 139,112
========== ======== ========= ========= ===========
Identifiable assets............. $ 664,759 $251,633 $ 10,613 $ -- $ 927,005
========== ======== ========= ========= ===========
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR 1992
--------------------------------------------------------------------------
NORTH OTHER
AMERICA EUROPE INTERNATIONAL ELIMINATIONS CONSOLIDATED
--------- -------- ------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers..................... $ 648,081 $241,858 $ -- $ -- $ 889,939
Transfers between geographic
areas......................... 53,288 -- -- (53,288) --
--------- -------- --------- --------- -----------
Total sales........... $ 701,369 $241,858 $ -- $(53,288) $ 889,939
========= ======== ========= ========= ===========
Operating income................ $ 44,742 $ 22,134 $ -- $ -- $ 66,876
========= ======== ========= ========= ===========
Identifiable assets............. $ 410,917 $148,646 $ -- $ -- $ 559,563
========= ======== ========= ========= ===========
</TABLE>
41
<PAGE> 43
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- SUPPLEMENTAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
JANUARY 30, JANUARY 31,
1994 1993
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
SUPPLEMENTAL STATEMENT OF FINANCIAL POSITION INFORMATION
Accounts receivable:
Gross accounts receivable............................................ $436,789 $388,013
Allowance for doubtful accounts...................................... (26,015) (14,000)
-------- --------
$410,774 $374,013
======== ========
Inventories:
Production materials................................................. $195,744 $281,245
Work-in-process and finished goods................................... 24,521 21,975
-------- --------
$220,265 $303,220
======== ========
Other current assets:
Deferred premiums and other foreign exchange contracts............... $ 8,035 $ 38,533
Deferred income taxes................................................ 64,264 29,177
Other current assets................................................. 8,024 12,529
-------- --------
$ 80,323 $ 80,239
======== ========
Property and Equipment:
Land and buildings................................................... $ 12,157 $ 4,433
Computer equipment................................................... 63,531 45,792
Office furniture and fixtures........................................ 20,992 18,587
Machinery and other equipment........................................ 28,377 23,980
Leasehold improvements............................................... 26,645 21,330
-------- --------
Total property and equipment......................................... 151,702 114,122
Accumulated depreciation and amortization............................ (64,810) (43,660)
-------- --------
$ 86,892 $ 70,462
======== ========
Accrued liabilities:
Royalties and licensing.............................................. $ 50,185 $ 43,172
Payable on foreign exchange forward contracts........................ 81 23,661
Accrued compensation................................................. 14,396 22,310
Accrued warranty costs............................................... 49,201 20,588
Taxes other than income taxes........................................ 18,143 13,357
Deferred profit on warranty contracts................................ 21,106 8,772
Drawdown of line of credit........................................... -- 8,500
Accrued losses on interest rate swaps................................ -- 5,550
Other accrued liabilities............................................ 84,539 25,563
-------- --------
$237,651 $171,473
======== ========
</TABLE>
42
<PAGE> 44
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
JANUARY 30, JANUARY 31, FEBRUARY 2,
1994 1993 1992
----------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C>
SUPPLEMENTAL STATEMENT OF OPERATIONS INFORMATION
Research, development and engineering expenses:
Research and development expenses...................... $ 36,338 $ 31,282 $ 24,848
Engineering expenses................................... 12,596 11,076 8,292
-------- --------- ---------
$ 48,934 $ 42,358 $ 33,140
======== ========= =========
Financing and other income (expenses):
Investment income:
Short-term investment income, net................... $ 8,772 $ 12,945 $ 6,931
Interest rate derivatives........................... 5,184 2,505 5,462
Interest expense....................................... (8,350) (7,869) (1,784)
Foreign currency transaction........................... 777 9,084 (451)
Foreign currency trading............................... -- (9,649) (1,123)
Other.................................................. (6,125) (2,836) (2,496)
-------- --------- ---------
$ 258 $ 4,180 $ 6,539
======== ========= =========
</TABLE>
<TABLE>
<CAPTION>
JANUARY 30, JANUARY 31, FEBRUARY 2,
1994 1993 1992
----------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C>
SUPPLEMENTAL STATEMENT OF CASH FLOWS INFORMATION
Changes in operating working capital accounts:
Accounts receivable, net............................... $(44,942) $(222,470) $ (79,329)
Inventories............................................ 81,605 (180,517) (38,507)
Accounts payable....................................... (5,260) 208,923 22,898
Accrued liabilities.................................... 70,782 56,208 65,209
Other.................................................. (5,177) (24,665) (41,233)
-------- --------- ---------
$ 97,008 $(162,521) $ (70,962)
======== ========= =========
Changes in non-current assets and liabilities:
Other assets........................................... $ 974 $ (1,116) $ (1,277)
Other liabilities...................................... 16,280 3,227 2,148
-------- --------- ---------
$ 17,254 $ 2,111 $ 871
======== ========= =========
Supplemental cash flow information:
Income taxes paid...................................... $ 6,671 $ 27,233 $ 19,611
Interest paid.......................................... $ 5,024 $ 1,334 $ 882
</TABLE>
43
<PAGE> 45
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- QUARTERLY RESULTS (UNAUDITED)
The following tables contain selected unaudited consolidated statement of
operations and stock price data for each quarter of fiscal 1994 and 1993. The
Company believes this information reflects all normal recurring adjustments
necessary for a fair presentation of the information for the periods presented.
The operating results for any quarter are not necessarily indicative of results
for any future period.
<TABLE>
<CAPTION>
4TH 3RD 2ND 1ST
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
FISCAL YEAR 1994
Net sales....................................... $742,948 $757,284 $700,569 $672,364
Gross profit.................................... 138,350 135,568 45,774 113,124
Operating income (loss)......................... 27,156 17,789 (98,118) 14,149
Net income (loss)............................... 17,708 11,982 (75,708) 10,185
Earnings (loss) per common share................ $ .39 $ .26 $ (2.03) $ .25
Shares used in per share calculation............ 39,870 39,653 37,229 40,455
Stock sales prices per share:
High.......................................... $ 27 3/4 $ 21 $ 34 $ 49
Low........................................... $ 20 3/4 $ 16 1/8 $ 15 7/8 $ 28
</TABLE>
<TABLE>
<CAPTION>
4TH 3RD 2ND 1ST
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
FISCAL YEAR 1993
Net sales....................................... $620,306 $570,019 $457,477 $366,122
Gross profit.................................... 127,389 121,998 104,032 96,033
Operating income................................ 44,805 38,490 29,233 26,584
Net income...................................... 31,286 28,625 21,936 19,795
Earnings per share.............................. $ .77 $ .72 $ .57 $ .52
Shares used in per share calculation............ 40,506 39,569 38,460 38,030
Stock sales price per share:
High.......................................... $ 49 3/8 $ 35 3/8 $ 28 $ 28 1/8
Low........................................... $ 33 3/8 $ 22 5/8 $ 15 3/8 $ 20 1/2
</TABLE>
Earnings per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly earnings per share may not equal
the annual earnings per share.
44
<PAGE> 46
PART III
ITEM 10. DELL'S DIRECTORS AND EXECUTIVE OFFICERS
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for in these four items is incorporated by reference
to Dell Computer Corporation's definitive proxy statement relating to its annual
meeting of stockholders, which will be filed with the Commission within 120 days
of the end of fiscal 1994.
45
<PAGE> 47
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following financial statements, financial statement schedules and
exhibits are filed as part of this 10-K.
Financial Statements and Financial Statement Schedules -- See Index to
Consolidated Financial Statements at Item 8 on page 22 of this report.
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT SOURCE
- ------------------------------------------------------------------------------------- ------
<S> <C> <C>
3.1 -- Certificate of Incorporation of Dell Computer Corporation (the
"Company"), as amended (incorporated by reference to Exhibit 3.1 of the
Company's Annual Report on Form 10-K for the year ended February 2,
1992, Commission File No. 0-17017).....................................
3.2 -- Certificate of Amendment to the Certificate of Incorporation of the
Company (incorporated by reference to Exhibit 3.2 of the Company's
Annual Report on Form 10-K for the year ended January 31, 1993,
Commission File No. 0-17017)...........................................
3.3 -- Certificate of Stock Designation of the Company (incorporated by
reference to Exhibit 3.3 of the Company's Registration Statement on
Form S-4 as filed with the Securities and Exchange Commission on
October 1, 1993, Registration
No. 33-69680)..........................................................
3.4 -- Bylaws of the Company (incorporated by reference to Exhibit 3.2 of the
Company's Annual Report on Form 10-K for the year ended February 2,
1992, Commission File No. 0-17017).....................................
4.1 -- Indenture dated as of August 15, 1993, between the Company and The
First National Bank of Boston regarding 11% Senior Notes Due August 15,
2000 (incorporated by reference to Exhibit 4.1 of the Company's
Registration Statement on Form S-4 as filed with the Securities and
Exchange Commission on October 1, 1993, Registration No. 33-69680).....
4.2 -- Exchange and Registration Rights dated as of August 15, 1993, between
the Company and the purchasers of 11% Senior Notes Due August 15, 2000
(incorporated by reference to Exhibit 4.2 of the Company's Registration
Statement on Form S-4 as filed with the Securities and Exchange
Commission on October 1, 1993, Registration No. 33-69680)..............
10.1 -- Dell Computer Corporation 1986 Incentive Stock Option Plan, as amended
(incorporated by reference to Exhibit 4c of the Company's Registration
Statement on Form S-8 as filed with the Securities and Exchange
Commission on September 20, 1988, Registration No. 33-24621)...........
10.2 -- Dell Computer Corporation 1987 Incentive Stock Option Plan, as amended
(incorporated by reference to Exhibit 4d of the Company's Registration
Statement on Form S-8 as filed with the Securities and Exchange
Commission on September 20, 1988, Registration No. 33-24621)...........
10.3 -- Dell Computer Corporation 1987 Non-qualified Stock Option Plan, as
amended, including the UK Scheme (incorporated by reference to Exhibit
4e of the Company's Registration Statement on Form S-8 as filed with
the Securities and Exchange Commission on September 20, 1988,
Registration No. 33-24621).............................................
</TABLE>
46
<PAGE> 48
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT SOURCE
- ------------------------------------------------------------------------------------- ------
<S> <C> <C>
10.4 -- Dell Computer Corporation 1989 Stock Option Plan, as amended and
restated (incorporated by reference to Exhibit 10.4 of the Company's
Annual Report on Form 10-K for the year ended January 31, 1993,
Commission File No. 0-17017)...........................................
10.5 -- Dell Computer Corporation Employee Stock Purchase Plan (incorporated by
reference to Exhibit 4d of the Company's Registration Statement on Form
S-8 as filed with the Securities and Exchange Commission on October 30,
1989, Registration No. 33-31812).......................................
10.6 -- Dell Computer Corporation 401(k) Plan (incorporated by reference to
Exhibit 10f of the Company's Annual Report on Form 10-K for the year
ended February 2, 1990, Commission File No. 0-17017)...................
10.7 -- First Amendment to Exhibit 10.6, Dell Computer Corporation 401(k) Plan
(incorporated by reference to Exhibit 10.7 of the Company's Annual
Report on Form 10-K for the year ended February 3, 1991, Commission
File
No. 0-17017)...........................................................
10.8 -- Second Amendment to Exhibit 10.6, Dell Computer Corporation 401(k) Plan
(incorporated by reference to Exhibit 10.8 of the Company's Annual
Report on Form 10-K for the year ended January 31, 1993, Commission
File
No. 0-17017)...........................................................
10.9 -- Dell Computer Corporation Deferred Compensation Plan (incorporated by
reference to Exhibit 10.8 of the Company's Annual Report on Form 10-K
for the year ended February 3, 1991, Commission File No. 0-17017)......
10.10 -- Credit Agreement between the Company and Citibank, N.A., for itself and
as agent for the other banks named therein dated June 18, 1993,
together with Amendment No. 1 to Credit Agreement between the Company
and Citibank, N.A., for itself and as agent for the other banks named
therein dated July 30, 1993. A list of schedules and exhibits to the
Credit Agreement is included on page iv of the Credit Agreement. The
Company hereby agrees to furnish supplementally to the Securities and
Exchange Commission on request a copy of any omitted schedule or
exhibit to the Credit Agreement (incorporated by reference to Exhibit
10.19 of the Company's Registration Statement on Form S-4 as filed with
the Securities and Exchange Commission on October 1, 1993, Registration
No. 33-69680)..........................................................
10.11 -- Form of Indemnity Agreement between the Company and certain of its
officers, directors and key employees (incorporated by reference to
Exhibit 10.23 of the Company's Registration Statement on Form S-1 as
filed with the Securities and Exchange Commission on May 12, 1988,
Registration No. 33-21823).............................................
10.12 -- Lease Agreement for Arboretum Point dated July 25, 1987 (incorporated
by reference to Exhibit 10.25 of the Company's Registration Statement
on Form S-1 as filed with the Securities and Exchange Commission on May
12, 1988, Registration No. 33-21823)...................................
10.13 -- First through Fourth Amendments to Exhibit 10.24, Lease Agreement for
Arboretum Point (incorporated by reference to Exhibit 10r of the
Company's Annual Report on Form 10-K for the year ended January 27,
1989, Commission File No. 0-17017).....................................
10.14 -- Fifth Amendment to Exhibit 10.24, Lease Agreement for Arboretum Point
(incorporated by reference to Exhibit 19b of the Company's Quarterly
Report on Form 10-Q for the quarter ended July 28, 1989, Commission
File No. 0-17017)......................................................
</TABLE>
47
<PAGE> 49
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT SOURCE
- ------------------------------------------------------------------------------------- ------
<S> <C> <C>
10.15 -- Sixth Amendment to Exhibit 10.24, Lease Agreement for Arboretum Point
(incorporated by reference to Exhibit 10.25 of the Company's Annual
Report on Form 10-K for the year ended January 31, 1993, Commission
File No. 0-17017)......................................................
10.16 -- Lease Agreement for Building 12 in Braker Center dated January 6, 1989
(incorporated by reference to Exhibit 10s of the Company's Annual
Report on Form 10-K for the year ended January 27, 1989, Commission
File No. 0-17017)......................................................
10.17 -- Two Amendments to Exhibit 10.28 Lease Agreement for Building 12 in
Braker Center (incorporated by reference to Exhibit 10.27 of the
Company's Annual Report on Form 10-K for the year ended January 31,
1993, Commission File No. 0-17017).....................................
10.18 -- Agreement between the Company and Michael S. Dell dated May 12, 1988,
with the Employment Agreement between Michael S. Dell and a predecessor
of Dell Computer Corporation dated May 3, 1984 (incorporated by
reference to Exhibit 10.25 of Amendment No. 3 to the Company's
Registration Statement on Form S-1, as filed with the Securities and
Exchange Commission on March 27, 1991, Registration No. 33-38991)......
10.19 -- Employment Agreement between the Company and Joel Kocher effective as
of December 14, 1987 (incorporated by reference to Exhibit 10.22 of
Amendment No. 3 to the Company's Registration Statement on Form S-1, as
filed with the Securities and Exchange Commission on March 27, 1991,
Registration
No. 33-38991)..........................................................
10.20 -- Employment Agreement between the Company and Savino R. Ferrales
effective as of January 9, 1989 (incorporated by reference to Exhibit
10.21 of Amendment No. 3 to the Company's Registration Statement on
Form S-1, as filed with the Securities and Exchange Commission on March
27, 1991, Registration
No. 33-38991)..........................................................
10.21 -- Employment Agreement between the Company and Richard E. Salwen
effective as of June 12, 1989, with a letter agreement dated May 21,
1989 (incorporated by reference to Exhibit 10.23 of Amendment No. 3 to
the Company's Registration Statement on Form S-1, as filed with the
Securities and Exchange Commission on March 27, 1991, Registration No.
33-38991)..............................................................
10.22 -- Employment Agreement between the Company and Thomas J. Meredith dated
November 16, 1992 (incorporated by reference to Exhibit 10.36 of the
Company's Annual Report on Form 10-K for the year ended January 31,
1993, Commission File No. 0-17017).....................................
10.23 -- Employment Agreement between the Company and L. Scott Flaig dated
December 1, 1992 (incorporated by reference to Exhibit 10.37 of the
Company's Annual Report on Form 10-K for the year ended January 31,
1993, Commission File No. 0-17017).....................................
10.24 -- Form of Stock Option Agreement under the 1989 Stock Option Plan
(incorporated by reference to Exhibit 10.38 of the Company's Annual
Report on Form 10-K for the year ended January 31, 1993, Commission
File No. 0-17017)......................................................
10.25 -- Dell Computer Corporation 1993 Stock Option Plan (incorporated by
reference to Exhibit 10.36 of the Company's Registration Statement on
Form S-4 as filed with the Securities and Exchange Commission on
October 1, 1993, Registration
No. 33-69680)..........................................................
</TABLE>
48
<PAGE> 50
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT SOURCE
- ------------------------------------------------------------------------------------- ------
<S> <C> <C>
10.26 -- Form of Incentive Stock Option Agreement and Nonstatutory Stock Option
Agreement under the 1993 Stock Option Plan (incorporated by reference
to Exhibit 10.37 of the Company's Registration Statement on Form S-4 as
filed with the Securities and Exchange Commission on October 1, 1993,
Registration
No. 33-69680)..........................................................
10.27 -- Receivables Purchase Agreement among Dell Receivables Corporation, Dell
USA L.P., Sheffield Receivables Corporation, and Barclays Bank PLC, New
York Branch, dated as of June 23, 1993. A list of schedules and
exhibits to the Receivables Purchase Agreement is included on page iv
of the Receivables Purchase Agreement. The Company hereby agrees to
furnish supplementally to the Securities and Exchange Commission on
request a copy of any omitted schedule or exhibit to the Receivables
Purchase Agreement (incorporated by reference to Exhibit 10.38 of the
Company's Registration Statement on Form S-4 as filed with the
Securities and Exchange Commission on October 1, 1993, Registration
No. 33-69680)..........................................................
21.0 -- Subsidiaries of the Company (incorporated by reference to Exhibit 21.0
of the Company's Registration Statement on Form S-4 as filed with the
Securities and Exchange Commission on October 1, 1993, Registration No.
33-69680)..............................................................
23.1* -- Consent of Price Waterhouse............................................
</TABLE>
- ---------------
* Filed herewith.
49
<PAGE> 51
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
<TABLE>
<S> <C>
(1) Dell Computer Corporation 1986 Incentive Stock Option Plan, as amended
(incorporated by reference to Exhibit 4c of the Company's Registration Statement
on Form S-8 as filed with the Securities and Exchange Commission on September 20,
1988, Registration No. 33-24621)
(2) Dell Computer Corporation 1987 Incentive Stock Option Plan, as amended
(incorporated by reference to Exhibit 4d of the Company's Registration Statement
on Form S-8 as filed with the Securities and Exchange Commission on September 20,
1988, Registration No. 33-24621)
(3) Dell Computer Corporation 1987 Non-qualified Stock Option Plan, as amended,
including the UK Scheme (incorporated by reference to Exhibit 4e of the Company's
Registration Statement on Form S-8 as filed with the Securities and Exchange
Commission on September 20, 1988, Registration No. 33-24621)
(4) Dell Computer Corporation 1989 Stock Option Plan, as amended and restated
(incorporated by reference to Exhibit 10.4 of the Company's Annual Report on Form
10-K for the year ended January 31, 1993, Commission File No. 0-17017)
(5) Dell Computer Corporation Employee Stock Purchase Plan (incorporated by reference
to Exhibit 4d of the Company's Registration Statement on Form S-8 as filed with
the Securities and Exchange Commission on October 30, 1989, Registration No.
33-31812)
(6) Dell Computer Corporation 401(k) Plan (incorporated by reference to Exhibit 10f of
the Company's Annual Report on Form 10-K for the year ended February 2, 1990,
Commission File No. 0-17017)
(7) First Amendment to Exhibit 10.6, Dell Computer Corporation 401(k) Plan
(incorporated by reference to Exhibit 10.7 of the Company's Annual Report on Form
10-K for the year ended February 3, 1991, Commission File No. 0-17017)
(8) Second Amendment to Exhibit 10.6, Dell Computer Corporation 401(k) Plan
(incorporated by reference to Exhibit 10.8 of the Company's Annual Report on Form
10-K for the year ended January 31, 1993, Commission File No. 0-17017)
(9) Dell Computer Corporation Deferred Compensation Plan (incorporated by reference to
Exhibit 10.8 of the Company's Annual Report on Form 10-K for the year ended
February 3, 1991, Commission File No. 0-17017)
(10) Form of Indemnity Agreement between the Company and certain of its officers,
directors and key employees (incorporated by reference to Exhibit 10.23 of the
Company's Registration Statement on Form S-1 as filed with the Securities and
Exchange Commission on May 12, 1988, Registration No. 33-21823)
(11) Agreement between the Company and Michael S. Dell dated May 12, 1988, with the
Employment Agreement between Michael S. Dell and a predecessor of Dell Computer
Corporation dated May 3, 1984 (incorporated by reference to Exhibit 10.25 of
Amendment No. 3 to the Company's Registration Statement on Form S-1, as filed with
the Securities and Exchange Commission on March 27, 1991, Registration No.
33-38991)
(12) Employment Agreement between the Company and Joel Kocher effective as of December
14, 1987 (incorporated by reference to Exhibit 10.22 of Amendment No. 3 to the
Company's Registration Statement on Form S-1, as filed with the Securities and
Exchange Commission on March 27, 1991, Registration No. 33-38991)
(13) Employment Agreement between the Company and Savino R. Ferrales effective as of
January 9, 1989 (incorporated by reference to Exhibit 10.21 of Amendment No. 3 to
the Company's Registration Statement on Form S-1, as filed with the Securities and
Exchange Commission on March 27, 1991, Registration No. 33-38991)
</TABLE>
50
<PAGE> 52
<TABLE>
<S> <C>
(14) Employment Agreement between the Company and Richard E. Salwen effective as of
June 12, 1989, with a letter agreement dated May 21, 1989 (incorporated by
reference to Exhibit 10.23 of Amendment No. 3 to the Company's Registration
Statement on Form S-1, as filed with the Securities and Exchange Commission on
March 27, 1991, Registration No. 33-38991)
(15) Employment Agreement between the Company and Thomas J. Meredith dated November 16,
1992 (incorporated by reference to Exhibit 10.36 of the Company's Annual Report on
Form 10-K for the year ended January 31, 1993, Commission File No. 0-17017)
(16) Employment Agreement between the Company and L. Scott Flaig dated December 1, 1992
(incorporated by reference to Exhibit 10.37 of the Company's Annual Report on Form
10-K for the year ended January 31, 1993, Commission File No. 0-17017)
(17) Form of Stock Option Agreement under the 1989 Stock Option Plan (incorporated by
reference to Exhibit 10.38 of the Company's Annual Report on Form 10-K for the
year ended January 31, 1993, Commission File No. 0-17017)
(18) Dell Computer Corporation 1993 Stock Option Plan (incorporated by reference to
Exhibit 10.36 of the Company's Registration Statement on Form S-4 as filed with
the Securities and Exchange Commission on October 1, 1993, Registration No.
33-69680)
(19) Form of Incentive Stock Option Agreement and Nonstatutory Stock Option Agreement
under the 1993 Stock Option Plan (incorporated by reference to Exhibit 10.37 of
the Company's Registration Statement on Form S-4 as filed with the Securities and
Exchange Commission on October 1, 1993, Registration No. 33-69680)
</TABLE>
REPORTS ON FORM 8-K
Dell Computer Corporation did not file any reports on Form 8-K during the
fourth quarter of fiscal 1994.
51
<PAGE> 53
SCHEDULE I
DELL COMPUTER CORPORATION
SHORT-TERM INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AMOUNT CARRIED
NAME OF ISSUER AND MARKET ON BALANCE
TITLE OF EACH ISSUE(1) PRINCIPAL VALUE COST SHEET
- --------------------------------------------- -------- -------- -------- --------------
<S> <C> <C> <C> <C>
Preferred Stock.............................. $ 52,300 $ 49,704 $ 52,470 $ 49,704
Mutual Funds................................. 10,000 9,986 10,000 9,986
State and municipal securities............... 133,350 133,586 133,340 133,586
U.S. corporate and bank debt................. 135,830 140,391 136,124 140,391
-------- -------- -------- -----------
Total........................................ $331,480 $333,667 $331,934 $333,667
======== ======== ======== ===========
</TABLE>
- ---------------
(1) No individual security or group of securities of an issuer exceeds 2% of
total assets.
52
<PAGE> 54
SCHEDULE II
DELL COMPUTER CORPORATION
AMOUNTS RECEIVABLE FROM RELATED PARTIES
<TABLE>
<CAPTION>
CURRENT
BALANCE AT BALANCE AT
BEGINNING OF END OF
NAME OF DEBTOR PERIOD ADDITIONS DEDUCTIONS PERIOD
- -------------------------------------------------- ------------ --------- ---------- ----------
<S> <C> <C> <C> <C>
Thomas J. Meredith................................ -- $ 224,940 -- $ 224,940
Chief Financial Officer
</TABLE>
53
<PAGE> 55
SCHEDULE VIII
DELL COMPUTER CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO WRITE-OFFS BALANCE AT
FISCAL BEGINNING BAD DEBT CHARGED TO END OF
YEAR DESCRIPTION OF PERIOD EXPENSE ALLOWANCE PERIOD
- ------ --------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1994 Allowance for doubtful accounts.............. $ 14,000 $ 13,455 $1,440 $ 26,015
1993 Allowance for doubtful accounts.............. $ 7,527 $ 8,141 $1,668 $ 14,000
1992 Allowance for doubtful accounts.............. $ 3,513 $ 5,202 $1,188 $ 7,527
</TABLE>
54
<PAGE> 56
SCHEDULE IX
DELL COMPUTER CORPORATION
SHORT-TERM BORROWINGS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED MAXIMUM AVERAGE AVERAGE
BALANCE AT AVERAGE OUTSTANDING OUTSTANDING RATE
FISCAL CATEGORY OF END OF INTEREST DURING THE DURING THE DURING THE
YEAR SHORT-TERM BORROWINGS(1) PERIOD RATE(2) PERIOD PERIOD(3) PERIOD(4)
- ------ ------------------------------------- ---------- -------- ----------- ----------- ----------
<C> <S> <C> <C> <C> <C> <C>
1994 Notes payable to banks............... $ -- -- $ 165,000 $49,878 6.0%
1993 Notes payable to banks............... $8,500 3.4% $ 149,676 $81,239 3.7%
1992 Notes payable to banks............... $ -- -- $ 8,000 $ 667 6.1%
</TABLE>
- ---------------
(1) Notes payable to banks result from revolving lines of credit with financial
institutions.
(2) Computed based upon rates existing at year-end for each note outstanding at
that date.
(3) Computed by averaging thirteen month-end balances for each period presented.
(4) The weighted average is computed based upon interest rates and note payable
balances existing at each of thirteen month-end dates for the periods
presented.
55
<PAGE> 57
SCHEDULE X
DELL COMPUTER CORPORATION
SUPPLEMENTARY CONSOLIDATED STATEMENT OF INCOME INFORMATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------
1994 1993 1992
------- -------- -------
<S> <C> <C> <C>
Advertising expenses.......................................... $72,121 $54,920 $36,211
Royalties..................................................... $70,929 $45,241 $21,580
</TABLE>
56
<PAGE> 58
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.
<TABLE>
<S> <C>
DELL COMPUTER CORPORATION
DATE: April 1, 1994 /s/ MICHAEL S. DELL
By: Michael S. Dell
Chairman of the Board and
Chief Executive Officer
</TABLE>
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.
<TABLE>
<S> <C>
DATE: April 1, 1994 /s/ MICHAEL S. DELL
Michael S. Dell
Chairman of the Board and
Chief Executive Officer
DATE: April 1, 1994 /s/ THOMAS J. MEREDITH
Thomas J. Meredith
Chief Financial Officer
DATE: April 1, 1994 /s/ DONALD J. CARTY
Donald J. Carty
Director
DATE: April 1, 1994 /s/ PAUL O. HIRSCHBIEL, JR.
Paul O. Hirschbiel, Jr.
Director
DATE: April 1, 1994 /s/ MICHAEL H. JORDAN
Michael H. Jordan.
Director
DATE: April 1, 1994 /s/ GEORGE KOZMETSKY
George Kozmetsky
Director
DATE: April 1, 1994 /s/ THOMAS W. LUCE, III
Thomas W. Luce, III
Director
DATE: April 1, 1994 /s/ CLAUDINE B. MALONE
Claudine B. Malone
Director
</TABLE>
57
<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 30, 1994
COMMISSION FILE NUMBER: 0-17017
DELL COMPUTER CORPORATION
(Exact name of registrant as specified in its charter)
9505 ARBORETUM BOULEVARD
AUSTIN, TEXAS 78759-7299
(512) 338-4400
(Address, zip code and telephone number of registrant's principal executive
offices)
A DELAWARE CORPORATION IRS EMPLOYER ID NO. 74-2487834
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING TWELVE MONTHS AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES /X/ NO / /
AS OF DECEMBER 9, 1994, 39,335,124 SHARES OF THE REGISTRANT'S COMMON STOCK,
PAR VALUE $.01 PER SHARE, WERE OUTSTANDING.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DELL COMPUTER CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
OCTOBER 30, JANUARY 30,
1994 1994
----------- -----------
<S> <C> <C>
Current assets:
Cash.............................................................. $ 18,154 $ 3,355
Short-term investments............................................ 381,617 333,667
Accounts receivable, net.......................................... 489,331 410,774
Inventories, net.................................................. 274,520 220,265
Other current assets.............................................. 110,409 80,323
----------- -----------
Total current assets...................................... 1,274,031 1,048,384
Property and equipment, net......................................... 110,589 86,892
Other assets........................................................ 5,175 5,204
----------- -----------
$ 1,389,795 $ 1,140,480
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................. $ 362,368 $ 282,708
Accrued liabilities............................................... 252,419 237,651
Income taxes...................................................... 34,655 17,628
----------- -----------
Total current liabilities................................. 649,442 537,987
Long-term debt...................................................... 100,000 100,000
Other liabilities................................................... 58,532 31,385
Commitments and contingencies
Stockholders' equity:
Preferred stock: $.01 par value; shares authorized: 5,000,000;
shares issued and outstanding: 1,250,000....................... 13 13
Common stock: $.01 par value; shares authorized: 100,000,000;
shares issued and outstanding: 39,086,664 and 37,929,031,
respectively................................................... 391 379
Additional paid-in capital........................................ 342,909 320,041
Unrealized gain (loss) on short-term investments.................. (2,451) 3,230
Retained earnings................................................. 253,114 170,790
Cumulative translation adjustment................................. (12,155) (23,345)
----------- -----------
Total stockholders' equity................................ 581,821 471,108
----------- -----------
$ 1,389,795 $ 1,140,480
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
1
<PAGE> 3
DELL COMPUTER CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------- ---------------------------
OCTOBER 30, OCTOBER 31, OCTOBER 30, OCTOBER 31,
1994 1993 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales............................... $ 884,552 $ 757,284 $ 2,442,680 $ 2,130,217
Cost of sales........................... 703,129 621,716 1,921,788 1,835,751
----------- ----------- ----------- -----------
Gross profit.......................... 181,423 135,568 520,892 294,466
Operating expenses:
Selling, general and administrative... 104,861 104,868 302,384 324,368
Research, development and
engineering........................ 17,016 12,911 47,916 36,278
----------- ----------- ----------- -----------
Total operating expenses...... 121,877 117,779 350,300 360,646
----------- ----------- ----------- -----------
Operating income (loss)....... 59,546 17,789 170,592 (66,180)
Financing and other income (expense),
net................................... (1,418) 376 (43,620) (1,626)
----------- ----------- ----------- -----------
Income (loss) before income taxes..... 58,128 18,165 126,972 (67,806)
Provision for income taxes (benefit).... 16,774 6,183 38,086 (14,265)
----------- ----------- ----------- -----------
Net income (loss)..................... 41,354 11,982 88,886 (53,541)
Preferred stock dividends............... 2,187 1,556 6,562 1,556
----------- ----------- ----------- -----------
Net income (loss) applicable to common
stockholders....................... $ 39,167 $ 10,426 $ 82,324 $ (55,097)
========= ========= =========== ===========
Primary earnings (loss) per common
share................................. $ 0.93 $ .26 $ 2.01 $ (1.48)
========= ========= =========== ===========
Fully diluted earnings per
common share.......................... $ 0.86 $ -- $ 1.89 $ --
========= ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE> 4
DELL COMPUTER CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------
OCTOBER 30, OCTOBER 31,
1994 1993
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................. $ 88,886 $ (53,541)
Charges to income not requiring cash outlays:
Depreciation and amortization.............................. 23,624 22,069
Loss on short-term investments............................. 21,218 --
Other...................................................... 1,825 175
Changes in:
Operating working capital.................................. (34,389) 49,262
Non-current assets and liabilities......................... 21,257 16,934
----------- -----------
Net cash provided by operating activities............. 122,421 34,899
Cash flows from investing activities:
Short-term investments:
Purchases.................................................. (3,202,716) (1,769,552)
Maturities and other redemptions........................... 3,011,348 1,579,274
Sales...................................................... 113,406 36,260
Capital expenditures.......................................... (47,007) (38,469)
----------- -----------
Net cash used in investing activities................. (124,969) (192,487)
Cash flows from financing activities:
Net payments on short-term borrowings......................... (147) (9,231)
Repayments on long-term debt.................................. -- (48,865)
Preferred stock dividends paid................................ (6,562) --
Net proceeds from issuance of Notes........................... -- 96,654
Net proceeds from issuance of Preferred Stock................. -- 120,151
Issuance of common stock under employee plans................. 21,580 16,587
----------- -----------
Net cash provided by financing activities............. 14,871 175,296
Effect of exchange rate changes on cash......................... 2,476 (861)
----------- -----------
Net increase in cash............................................ 14,799 16,847
Cash at beginning of period..................................... 3,355 14,948
----------- -----------
Cash at end of period........................................... $ 18,154 $ 31,795
=========== ===========
</TABLE>
See Note 7 for Supplemental Statement of Cash Flow information.
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 5
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited financial statements should be read in the
context of the consolidated financial statements and notes thereto filed with
the Securities and Exchange Commission in the Company's fiscal 1994 Annual
Report on Form 10-K. In the opinion of management, the accompanying consolidated
financial statements reflect all adjustments (consisting only of normal
recurring accruals) considered necessary to present fairly the financial
position of Dell Computer Corporation and its consolidated subsidiaries at
October 30, 1994, and January 30, 1994, and the results of operations for the
three-month and nine-month periods ended October 30, 1994, and October 31, 1993.
Operating results for the three-month and nine-month periods ended October 30,
1994, are not necessarily indicative of the results that may be expected for the
year ending January 29, 1995. Certain prior-period amounts have been
reclassified for comparative purposes.
Unless otherwise indicated, all references to years in connection with
financial information refer to the Company's fiscal years and all references to
quarters in connection with financial information refer to the Company's fiscal
quarters.
NOTE 2 -- SHORT TERM INVESTMENTS
The Company realized pretax losses of $23.1 million on certain short-term
investments during the first half of 1995. These investment losses were
primarily a result of interest rate increases during the first half of 1995 in
the United States, Canadian, Japanese, and European interest rate markets.
Additionally, at October 30, 1994, other unrealized losses on short-term
investments in the amount of $3.8 million ($2.5 million net of tax) were
assessed to be temporary and recorded as a separate component of stockholders'
equity.
NOTE 3 -- COMMITMENTS AND CONTINGENCIES
On November 17, 1994, the Company announced that its Chairman, Michael S.
Dell, and the Company had reached settlement with plaintiffs in several
consolidated lawsuits filed by its stockholders. Under the settlement, the
Company and its insurers will pay a total of $13.4 million to the plaintiffs.
The settlement did not have a material effect on the Company's financial
condition and results of operations because the settlement amount was covered by
insurance or previously taken reserves.
NOTE 4 -- INVESTMENT DERIVATIVES
The Company recognized net pretax losses on interest rate derivatives of
$23.9 million in the first half of 1995. The losses resulted primarily from
increases in the United States, Canadian, Japanese, and European interest rate
markets.
NOTE 5 -- WITHDRAWAL FROM THE CONSUMER RETAILER CHANNEL
In July 1994, the Company adopted a plan to discontinue traditional sales
through consumer retailers. Revenue from consumer retailers represented 1% and
9% of consolidated net sales in the third quarter of 1995 and 1994,
respectively, and 3% and 9% of consolidated net sales in the first nine months
of 1995 and 1994, respectively.
NOTE 6 -- EARNINGS (LOSS) PER COMMON SHARE
Earnings or loss per common share are computed by dividing net income
available to common stockholders by the weighted average number of common shares
and common share equivalents
4
<PAGE> 6
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
outstanding (if dilutive) during each period. Common share equivalents include
stock options. The Series A Convertible Preferred Stock is not a common share
equivalent for purposes of computing primary earnings or loss per common share.
The number of common equivalent shares outstanding relating to stock options is
computed using the treasury stock method for the primary and fully diluted
earnings per share. Shares used in the fully diluted earnings per share have
been adjusted for the assumed conversion of the Company's Series A Convertible
Preferred Stock.
NOTE 7 -- SUPPLEMENTAL FINANCIAL INFORMATION (IN THOUSANDS)
Supplemental Consolidated Statement of Financial Position Information:
<TABLE>
<CAPTION>
OCTOBER JANUARY
30, 30,
1994 1994
--------- ---------
<S> <C> <C>
Inventories:
Production materials...................................... $ 242,863 $ 195,744
Work-in-process and finished goods........................ 31,657 24,521
--------- ---------
$ 274,520 $ 220,265
========= =========
</TABLE>
Supplemental Consolidated Statement of Operations Information:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------- ---------------------------
OCTOBER 30, OCTOBER 31, OCTOBER 30, OCTOBER 31,
1994 1993 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Financing and other income
(expense):
Investment income:
Short-term investment income
(loss), net................ $ 3,679 $ 2,271 $ (12,393) $ 5,450
Interest rate derivatives.... -- 807 (23,948) 2,584
--------- --------- --------- -----------
Total investment
income................ 3,679 3,078 (36,341) 8,034
Interest expense............. (3,450) (2,481) (8,008) (5,947)
Foreign currency transaction
gain (loss)................ (605) 646 1,999 703
Other........................ (1,042) (867) (1,270) (4,416)
--------- --------- --------- ---------
$ (1,418) $ 376 $ (43,620) $ (1,626)
========= ========= ========= =========
Weighted average shares used to
compute earnings per share:
Primary......................... 42,091 39,653 41,009 37,227
========= ========= ========= =========
Fully diluted................... 47,840 -- 46,944 --
========= ========= ========= =========
</TABLE>
5
<PAGE> 7
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
Supplemental Consolidated Statement of Cash Flows Information:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------
OCTOBER 30, OCTOBER 31,
1994 1993
----------- -----------
<S> <C> <C>
Changes in operating working capital accounts:
Accounts receivable, net.................................. $ (69,520) $ (77,444)
Inventories, net.......................................... (53,486) 71,851
Accounts payable.......................................... 80,418 22,981
Accrued liabilities....................................... 11,224 54,498
Other current assets...................................... (26,858) (2,926)
Income taxes payable...................................... 15,954 (17,126)
Other, net................................................ 7,879 (2,572)
--------- ---------
$ (34,389) $ 49,262
========= =========
Changes in non-current assets and liabilities:
Other assets.............................................. 55 75
Other liabilities......................................... 21,202 16,859
--------- ---------
$ 21,257 $ 16,934
========= =========
</TABLE>
6
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Unless otherwise indicated, all references to years in connection with
financial information refer to the Company's fiscal years and all references to
quarters in connection with financial information refer to the Company's fiscal
quarters.
RESULTS OF OPERATIONS
The Company reported net income for the third quarter of 1995 of $41.4
million or $.93 per common share compared with net income of $12.0 million or
$.26 per common share for the comparable period in 1994. Net income for the
first nine months of 1995 was $88.9 million or $2.01 per common share compared
with a net loss of $53.5 million or $1.48 per common share for the first nine
months of 1994. During the third quarter of 1995 and all prior periods, the
Company consolidated its international operating results on a one-month delay to
facilitate consolidated financial reporting. In the fourth quarter of 1995, the
Company will conform the international year end with the Company's year end.
Accordingly, the Company's income before income taxes for the fourth quarter of
1995 will include one additional month of international operations. The earnings
before taxes of these international operations will be included in the
consolidated statement of operations in financing and other income (expense).
The following table sets forth for the periods indicated the percentage of
consolidated net sales represented by certain items in the Company's
consolidated statements of operations.
<TABLE>
<CAPTION>
PERCENTAGE OF CONSOLIDATED NET SALES
-----------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------- ---------------------------
OCTOBER 30, OCTOBER 31, OCTOBER 30, OCTOBER 31,
1994 1993 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales:
North America (U.S. and
Canada).................... 70.1% 72.1% 67.6% 69.3%
Europe........................ 23.5 23.1 26.8 26.2
Other international........... 6.4 4.8 5.6 4.5
-------- --------- --------- ---------
Consolidated net sales..... 100.0 100.0 100.0 100.0
Cost of sales................. 79.5 82.1 78.7 86.2
-------- --------- --------- ---------
Gross profit............... 20.5 17.9 21.3 13.8
Operating expenses:
Selling, general and
administrative........... 11.9 13.9 12.4 15.2
Research, development and
engineering.............. 1.9 1.7 2.0 1.7
-------- --------- --------- ---------
Total operating expenses... 13.8 15.6 14.4 16.9
-------- --------- --------- ---------
Operating income
(loss)................ 6.7 2.3 6.9 (3.1)
Financing and other income
(expense), net................ (0.2) 0.1 (1.8) (0.1)
-------- --------- --------- ---------
Income (loss) before income
taxes...................... 6.5 2.4 5.2 (3.2)
Provision for income taxes
(benefit)..................... 1.9 0.8 1.6 (0.7)
-------- --------- --------- ---------
Net income (loss)............. 4.6 1.6 3.6 (2.5)
Preferred stock dividends....... 0.2 -- 0.3 --
-------- --------- --------- ---------
Net income (loss) applicable
to common stockholders..... 4.4% 1.6% 3.3% (2.5)%
========= ========= ========= =========
</TABLE>
7
<PAGE> 9
Net Sales
Consolidated net sales increased 17% to $884.6 million for the third
quarter of 1995 and increased 15% to $2.44 billion for the first nine months of
1995 over the comparable prior-year periods. Sales growth was led by increases
in sales of the Company's notebook computers, substantially offset by decreased
sales in the consumer retailer channel that the Company elected to discontinue
in the second quarter of 1995.
Consolidated net sales (expressed in United States dollars) were increased
by 1% for the third quarter of 1995 and were reduced by .2% for the first nine
months of 1995 because of fluctuations in the average value of the United States
dollar relative to its average value in the comparable periods of the prior
year. Based in part on this information, the Company believes that the increase
in consolidated net sales was primarily driven by increases in average revenue
per unit and unit shipments, though partially affected by changes in foreign
currency exchange rates.
Since January 30, 1994, the Company has introduced the Latitude(TM) family
of notebook computers as well as several Pentium(TM) processor-based systems in
its PowerEdge(TM) server line and in its Dimension(TM) and OptiPlex(TM) desktop
product lines. Average revenue per unit increased 12% for each of the third
quarter and first nine months of 1995, and unit volumes increased 4% for the
third quarter and 3% for the first nine months of 1995, over the comparable
periods of 1994, primarily because of strong demand for the Company's notebook
computers and Pentium processor-based products. The Company believes that
revenue growth is largely dependent upon its continued strength in the notebook
computer product line and its ability to continue to efficiently manage the
transition to Pentium processor-based computers. In November 1994, an inaccuracy
in Intel's Pentium microprocessors was publicized that, in rare cases, may cause
slight errors in division. Based on information from Intel Corporation, the
Company believes only a limited number of its Pentium microprocessor customers
perform calculations affected by the inaccuracy. The effect on consolidated net
sales and the cost to the Company, if any, is uncertain. There can be no
assurance that the Company's notebook, server, or other development activities
will be successful, that product technologies will be available to the Company,
that the Company will be able to deliver commercial quantities of computer
products in a timely manner, or that such products will achieve market
acceptance.
Consolidated net sales from the Company's Pentium processor-based products
represented 28% and 20% of consolidated net sales in the third quarter and the
first nine months of 1995, respectively. Sales of the Company's 486-based
systems reflected the shift in demand toward Pentium systems and decreased to
60% and 68% of consolidated net sales for the third quarter and the first nine
months of 1995, compared with 85% and 80% of consolidated net sales for the
third quarter and the first nine months of 1994, respectively.
The Company's desktop and workstation systems represented 74% and 78% of
consolidated net sales for the third quarter and the first nine months of 1995,
respectively, compared with 82% and 80% of consolidated net sales for the
comparable periods in 1994. Sales of servers accounted for 6% of consolidated
net revenue for the third quarter of 1995 and 5% for the first nine months of
1995, respectively, compared with 5% for each of the third quarter and first
nine months of 1994. Sales of notebook computers were 8% and 5% of consolidated
net sales in the third quarter and the first nine months of 1995, respectively,
compared with 1% and 3% of consolidated net sales for the respective prior-year
periods.
North American sales increased 13% to $620.1 million for the third quarter
of 1995, and 12% to $1.65 billion for the first nine months of 1995 over the
comparable prior-year periods. Sales from the Company's European operations
increased 19% to $207.9 million for the third quarter of 1995, over the third
quarter of 1994 and 17% to $654.9 million for the first nine months of 1995 over
the first nine months of 1994. Primarily due to sales growth in Japan, other
international sales increased 57% to $56.6 million for the third quarter of 1995
and 43% to $137.6 million for the first nine months of 1995 over the comparable
prior-year periods.
8
<PAGE> 10
Consolidated net sales to major corporate, government and education
accounts increased 28% to $490.3 million for the third quarter of 1995 and 26%
to $1.33 billion for the first nine months of 1995 over the comparable
prior-year periods. U.S. Federal government sales typically peak in the third
quarter primarily due to a surge in federal buying at the end of the
government's budget year and represented approximately 14% of consolidated net
sales in the third quarter of 1995 and 1994. Federal government sales have
historically declined from the third quarter to the fourth quarter as the
Federal government enters a new budget year. This decline generally reduces the
sequential growth of U.S. sales from the third to the fourth quarter. Sales to
medium- and small-sized businesses and individuals increased 5% to $273.7
million for the third quarter of 1995 and 4% to $800.9 million for the first
nine months of 1995, despite the decline in sales to consumer retailers to 1%
and 3% of consolidated net sales for the third quarter and first nine months of
1995 from 9% of consolidated net sales for the third quarter and first nine
months of 1994 due to the discontinuation of consumer retailer sales in July
1994.
The Company does not believe that backlog is a meaningful indicator of
sales that can be expected for any period. The Company attempts to reduce
manufacturing costs by more efficiently managing its flow of customer orders,
which resulted in an increase in backlog to $78.2 million at October 30, 1994,
compared with $29.4 million at July 31, 1994. Although efforts to minimize the
time between customer order and product delivery will be continued, the Company
believes that backlog may further increase during the fourth quarter of 1995.
Consistent with the Company's unconditional return policy, customers may cancel
or reschedule orders without penalty prior to commencement of manufacturing.
Gross Profit
The Company's gross profit as a percentage of consolidated net sales
increased to 20.5% for the third quarter of 1995 from 17.9% for the third
quarter of 1994, and increased to 21.3% for the first nine months of 1995 from
13.8% for the comparable period of the prior year. The increase in gross profit
is primarily due to higher average revenue per unit resulting from a higher
margin sales mix driven by changes in the Company's sales incentive programs and
pricing strategies. Gross profit margins also benefited from improvements in
manufacturing logistics and efficiencies, in component costs and quality due to
the Company's vendor certification and vendor consolidation programs, and lower
charges for inventory obsolescence attributable to improved inventory
management. Gross profit would have been 17.2% of consolidated net sales for the
first nine months of 1994, but was reduced by pre-tax charges of approximately
$71 million for the first nine months of 1994 related to notebook computers and
other costs, consisting mostly of inventory writedowns and related costs.
The personal computer industry is characterized by a highly competitive
pricing environment. The Company attempts to mitigate the effect of its pricing
actions through improvements in product mix, reduced component costs,
manufacturing efficiencies and operating expense controls. Additional pricing
actions may occur as the Company attempts to maintain a competitive mix of
price, performance and customer support services while managing its liquidity,
profitability and growth. There can be no assurance that pricing actions will be
effective in stimulating higher levels of sales or that cost reduction efforts
will offset the effects of pricing actions on the Company's gross margins.
Dell's manufacturing process requires a high volume of quality components
that are procured from third party suppliers. Reliance on suppliers, as well as
industry supply conditions, generally involves several risks, including the
possibility of defective parts, a shortage of components, increases in component
costs, and reduced control over delivery schedules, which could adversely affect
the Company's financial results. The Company has certain single supplier
relationships that are considered advantageous for reasons including
performance, quality, support, delivery, price and total cost considerations.
For example, several microprocessors used in the Company's products are
currently procured only from Intel Corporation, although some comparable
9
<PAGE> 11
microprocessors are available from other suppliers. Also, the Company
occasionally experiences delays in receiving certain components, which can cause
delays in the shipment of some products to customers. Additionally, the Company
occasionally experiences certain defective components, which can affect the
reliability and reputation of its products. The Company has procedures intended
to maximize the deliverability and quality of its products. However, there can
be no assurance that the Company will be able to continue to obtain additional
supplies of reliable components in a timely or cost-effective manner.
The results of the Company's international operations are subject to
currency fluctuations. However, the Company attempts to reduce its exposure to
currency fluctuations through the use of foreign currency option contracts for
periods not exceeding twelve months and, to a lesser extent, through the use of
forward contracts, generally for periods not exceeding three months, which hedge
certain anticipated intercompany shipments to foreign subsidiaries and certain
anticipated purchases of components. Forward contracts entered into to hedge
anticipated intercompany shipments and purchases of components, none of which
were outstanding at the end of the third quarter of 1995, are accounted for on a
mark-to-market basis. The Company has purchased options to hedge a portion of
its anticipated, but not firmly committed, intercompany sales for 1995 and
certain anticipated purchases of components for 1995 and a portion of 1996. The
Company may enter into additional hedging transactions as management considers
appropriate. Based upon foreign currency exchange rates at the end of the third
quarter of 1995, option contracts that hedge anticipated shipments to
international subsidiaries for 1995 and anticipated purchases of certain
components for 1995 and a portion of 1996 had a combined net realized and
unrealized deferred loss of $7.6 million.
Operating Expenses
Operating expenses as a percentage of consolidated net sales decreased to
13.8% for the third quarter of 1995 from 15.6% for the third quarter of 1994 and
decreased to 14.4% for the first nine months of 1995 from 16.9% for the first
nine months of 1994. Operating expenses would have been 15.9% for the first nine
months of 1994, but was increased by $21 million of charges for consolidating
operations, write-offs of certain assets, and employee severance payments.
Operating expenses increased 3% to $121.9 million for the third quarter of 1995
and decreased 3% to $350.3 million for the first nine months of 1995 over the
comparable prior-year periods. Excluding the $21 million in prior year charges,
operating expenses would have increased 3% for the first nine months of 1995
compared with the first nine months of 1994. This 3% increase in operating
expense for each period in 1995 over the comparable prior-year periods is
primarily due to the Company's ability to control the growth of selling, general
and administrative expenses while realizing higher consolidated net sales
partially offset by a 32% increase in research, development and engineering
expenses for the third quarter and first nine months of 1995 over the same
periods in 1994. The Company believes that its ability to manage operating costs
is an important factor in its ability to remain price competitive. No assurance
can be given that the Company's efforts to manage future operating expenses will
be successful.
Net Financing and Other Income (Expense)
Net financing and other income (expense) was ($1.4) million in the third
quarter of 1995 compared with $.4 million for the third quarter of 1994, and was
($43.6) million for the first nine months of 1995 compared with ($1.6) million
for the first nine months of 1994.
Short-term investment income (loss) was $3.7 million in the third quarter
of 1995 compared with $2.3 million in the third quarter of 1994, and was ($12.4)
million for the first nine months of 1995 compared with $5.5 million for the
first nine months of 1994. Investment losses for the first nine months of 1995
were primarily due to realized losses of $23.1 million on certain of the
Company's short-term investments that were recognized in the first half of 1995,
offset by investment income of approximately $10.7 million for the first nine
months of 1995. The increase in investment income to
10
<PAGE> 12
$10.7 million for the first nine months of 1995 compared with $5.5 million for
the first nine months of 1994 was primarily due to higher average investment
balances and higher effective interest rates. Other unrealized losses on
short-term investments in the amount of $3.8 million ($2.5 million net of tax)
at October 30, 1994, were assessed to be temporary and recorded as a separate
component of stockholders' equity. The investment losses are primarily a result
of interest rate increases in the United States, Canadian, Japanese, and
European interest rate markets.
In the normal course of business, the Company has historically employed a
variety of interest rate derivative instruments to more efficiently manage its
principal, market and credit risks as well as to enhance its investment yield.
Derivative instruments utilized included interest rate swaps, written and
purchased interest rate options and swaptions (options to enter into interest
rate swaps). The Company structured derivative instruments in interest rate
markets where it has foreign operations. Interest rate derivatives generally
involve exchanges of interest payments based upon fixed and floating interest
rates without exchanges of underlying notional amounts. Realized and unrealized
net gains (losses) on interest rate derivatives recognized in income for the
first nine months of 1995 were ($23.9) million compared with $2.6 million for
the first nine months of 1994. The Company closed all remaining investment
derivatives during the second quarter of 1995. In the future, the Company
intends to use derivative contracts only to manage components of its capital
structure.
Interest expense incurred in the third quarter of 1995 increased to $3.5
million from $2.5 million in the third quarter of 1994, and to $8.0 million for
the first nine months of 1995 compared with $5.9 million for the first nine
months of 1994. The increase in interest expense in 1995 was primarily due to
higher debt balances outstanding and higher net interest costs associated with
the 11% Senior Notes (the "Notes") issued in the third quarter of 1994.
Concurrently with the issuance of the Notes, the Company entered into interest
rate swap agreements to manage the interest costs associated with the Notes. The
swap agreements effectively changed the Company's interest rate exposure from a
fixed-rate to a floating-rate basis and resulted in a weighted average interest
rate of 12.88% and 11.39% on the Notes for the third quarter and the first nine
months of 1995, respectively. In August 1994, the Company entered into swap
agreements to effectively change its interest rate exposure from a floating-rate
basis to a fixed-rate basis with a one-time reset on December 19, 1994. As a
result of the swap agreements, the Company is currently paying a net interest
cost of 13.63% on the Notes. Pursuant to the terms of the swap agreements, the
counterparties may reset the swap rate differential up to a maximum net interest
cost of 13.81% on the Notes if market rates have increased on the reset-date or,
if interest rates have decreased, the Company may proportionately reduce the net
interest cost on an unlimited basis.
Financing fees and other income (expense) were ($1.0) million in the third
quarter of 1995 compared with ($.9) million in the third quarter of 1994, and
($1.3) million for the first nine months of 1995 compared with ($4.4) million
for the first nine months of 1994. The improvement in financing fees and other
costs was primarily due to higher financing-related expenses incurred in 1994 in
connection with refinancing of debt and credit facilities during the third
quarter of 1994.
Income Tax
The Company's effective tax rate was 29% for the third quarter of 1995 and
30% for the first nine months of 1995, compared with 34% and 21% for the same
periods in 1994. Changes in the effective tax rate are a result of the
geographical distribution of income and losses.
HEDGING ACTIVITIES
The results of the Company's international operations are affected by
changes in exchange rates between certain foreign currencies and the United
States dollar. The Company's exposure to currency fluctuations has increased as
a result of the expansion of its international operations. The functional
currency for most of the Company's international subsidiaries is the local
currency of the subsidiary. An increase in the value of the United States dollar
increases costs incurred by the
11
<PAGE> 13
Company's international operations because many of its international
subsidiaries' component purchases are denominated in the United States dollar.
Changes in exchange rates may negatively affect the Company's consolidated net
sales (as expressed in United States dollars) and gross profit margins from
international operations. The Company monitors this exposure and attempts to
mitigate the exposure through hedging transactions.
The purpose of the Company's hedging program is to protect the Company from
the risk that the dollar-equivalent price of anticipated cash flows resulting
from sale of products from its manufacturing subsidiaries to its international
sales subsidiaries and from third party purchases in currencies other than an
entity's functional currency will be adversely affected by changes in foreign
currency exchange rates. The Company's hedging activities consist primarily of
hedging anticipated intercompany sales to its international subsidiaries and
resulting intercompany balances and, to a lesser extent, anticipated purchases
of certain components through the use of purchased options for periods not
exceeding twelve months and, to a lesser extent, forward contracts, generally
for periods not exceeding three months. The risk of loss associated with
purchased options is limited to the amount of premiums paid for the option
contracts, which could be significant. The premium amounts paid on purchased
options are amortized over the period of the hedged transaction. Gains and
losses incurred on purchased option contracts are deferred until occurrence of
the hedged transaction and recognized as a component of the cost of the hedged
transaction. Gains and losses incurred on forward contracts designated as
hedging contracts of anticipated transactions are marked-to-market and
recognized as a component of cost of sales in the current period.
On November 30, 1992, the SEC's Division of Enforcement notified the
Company about an informal inquiry regarding the Company's accounting practices
for foreign currency hedging and trading activities and the completeness of the
Company's public disclosure about those activities. The SEC's Division of
Corporation Finance also indicated it had concerns about the deferred accounting
treatment the Company afforded gains and losses on forward and option contracts
entered into to hedge anticipated transactions.
The table below shows the effect on income before income taxes, net income
and earnings per common share for the third quarters and the first nine months
of 1995 and 1994, if gains and losses on hedging contracts had been accounted
for on a mark-to-market basis.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------- --------------------------
OCTOBER 30, OCTOBER 31, OCTOBER 30, OCTOBER 31,
1994 1993 1994 1993
----------- ----------- ----------- -----------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Effect on income before income
taxes:
Other option contracts............ $ 0.3 $ (6.4) $ (9.8) $ (1.4)
========= ========= ========= =========
Deferred realized and unrealized
gain (loss)....................... $ (7.6) $ 0.6 $ (7.6) $ 0.6
========= ========= ========= =========
Effect on net income and earnings
per share:
Net income on a mark-to-market
basis.......................... $ 41.6 $ 6.2 $ 82.0 $ (56.2)
Net income as reported............ $ 41.4 $ 10.4 $ 88.9 $ (55.1)
Primary earnings per share on a
mark-to-market basis........... $ 0.94 $ 0.16 $ 1.84 $ (1.51)
Primary earnings per share as
reported....................... $ 0.93 $ 0.26 $ 2.01 $ (1.48)
</TABLE>
12
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flow from operating activities for the first nine months
of 1995 was $122.4 million, which represented the Company's primary source of
cash. The Company had 50 days in accounts receivable at the end of the third
quarter of 1995 as well as the end of 1994. Inventory levels increased slightly
to 35 days of supply at the end of the third quarter of 1995 from 33 days at the
end of 1994. Days in accounts payable increased to 46 days at the end of the
third quarter of 1995 from 42 days at the end of 1994. Maintaining the Company's
current inventory level is dependent upon the Company's ability to achieve
targeted revenue and product mix, to further minimize complexities in its
product line, and to maximize commonality of parts. There can be no assurance
that the Company will be able to maintain these low inventory levels in future
periods.
The Company utilized $47.0 million of cash during the first nine months of
1995 to construct facilities and to acquire information systems and personal
computer office equipment. Capital expenditures for the fourth quarter of 1995
are expected to be approximately $25 million. Capital expenditures for 1996 are
expected to be higher than 1995.
Effective June 10, 1994, the Company entered into a new line of credit
facility which bears interest at a defined Base Rate or Eurocurrency Rate with
covenants based on quarterly income, maintenance of net worth, a maximum ratio
of total liabilities to tangible net worth, and a maximum inventory level.
Maximum amounts available under the credit facility are limited to $90 million
less the aggregate of outstanding letters of credit. During the commitment
period, the Company is obligated to pay a fee on the unused portion of the
credit facility. No amounts are outstanding under this credit facility, and the
maximum available totaled $86.3 million as of October 30, 1994.
The Company's subsidiary, Dell Receivables Corporation, has a Receivables
Purchase Agreement, which was renewed effective May 24, 1994, pursuant to which
the Company may raise up to $100 million through the sale of interests in
certain of its accounts receivable. The Company is obligated to pay a commitment
fee based on the unused portion of the amount available under the Receivable
Purchase Agreement. As of October 30, 1994, this facility was unused.
Repayment of the Company's $100 million in 11% Senior Notes due August 15,
2000, together with operating lease commitments, constitute the Company's
long-term commitments to use cash.
The Company is a defendant in several consolidated lawsuits brought by
certain of its stockholders. The settlement of these lawsuits announced on
November 17, 1994, if approved, will not have a material effect on the Company's
financial condition and results of operations. See "Legal Proceedings."
13
<PAGE> 15
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and its Chairman, Michael S. Dell, are defendants in nineteen
lawsuits filed between May and November 1993, in the United States District
Court for the Western District of Texas, Austin Division. On November 17, 1994,
the Company announced that Mr. Dell and the Company had reached settlement with
the plaintiffs. Under the settlement, the Company and its insurers will pay a
total of $13.4 million (plus accrued interest from the settlement date) to the
plaintiffs. In the settlement, neither the Company nor Mr. Dell admits liability
or obligation of any kind in connection with the lawsuit or the underlying
allegations. The settlement is subject to review and final approval by the
Court. Approval is anticipated early in calendar 1995.
Since August 1992, the Company has been named as a defendant in eighteen
repetitive stress injury lawsuits, sixteen of which are in New York state courts
or United States District Courts for the New York City area. One is in the
Federal District Court for the State of Pennsylvania. The final one was in the
Federal District Court for the State of Tennessee and has been voluntarily
dismissed with prejudice by the plaintiffs, without any payment by the Company
or finding any liability. The allegations in all of these lawsuits are similar:
each plaintiff alleges that he or she suffers from symptoms generally known as
"repetitive stress injury," which allegedly were caused by the design or
manufacture of the keyboard supplied with the computer the plaintiff used. The
Company has denied or is in the process of denying the claims and intends to
vigorously defend the suits. The suits naming the Company are just a few of many
lawsuits of this type which have been filed, often naming IBM, Atex, Keytronic
and other major suppliers of keyboard products. The Company currently is not
able to predict the outcome of these suits. It is possible that the Company may
be named in additional suits, but it is impossible to predict how many may be
filed. Ultimate resolution of the litigation against the Company may depend on
progress in resolving this type of litigation overall.
For information about a Securities and Exchange Commission informal inquiry
relating to foreign currency hedging and trading activities, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Hedging Activities." By letter dated July 21, 1993, the Commission
notified the Company that it was extending the informal inquiry to the
circumstances and events surrounding the public announcement on July 14, 1993,
about the Company's expected losses for its second quarter of 1994 and into the
Company's procedures for estimating sales.
On August 11, 1993, the Department of Commerce ("DOC") served a subpoena on
the Company, requesting documents relating to possible prohibited exports of
486/66 MHz personal computers that may have been shipped from Dell to Russia,
Ireland, Iran or Iraq during the period from January 1992 through October 1993.
Dell formally responded to the DOC in November 1993. The Company did not ship
any 486/66 MHz machines to Iran or Iraq and is still awaiting a response from
the DOC regarding the Company's authority under the Company's Irish export
license to make certain shipments to Russia. If the Office of Export
Enforcement's investigators determine that the Company has violated applicable
regulations, the government could potentially file civil or criminal charges.
The Company is cooperating in the investigation. The Company does not believe
this investigation or its outcome will have a material adverse effect on the
Company's financial condition or results of operations.
The Company has received a request from the Federal Trade Commission
("FTC") dated January 5, 1994, to provide documents and other information in
connection with the FTC's inquiry into the computer industry to determine
whether the Company's advertising and marketing claims regarding cathode ray
tube ("CRT") monitor screen sizes are in violation of the Federal Trade
Commission Act. In general, the inquiry focuses on differences between
advertising and marketing claims as to the size of CRT monitor screen sizes, and
the size of the display area actually viewable
14
<PAGE> 16
by the consumer. The Company is cooperating with the FTC in this inquiry. The
Company does not believe that the inquiry or its outcome will have a material
adverse effect on the Company's financial condition or results of operations.
In April 1994 the California Attorney General notified Dell and 12 other PC
manufacturers that certain of their advertisements with regard to monitor screen
sizes were believed to be deceptive and misleading, based on the same concepts
expressed by the FTC. The Company is responding to this investigation in
coordination with other companies in the industry. The Company does not believe
that the inquiry or its outcome will have a material adverse effect on the
Company's financial condition or results of operations.
The Company has received a subpoena from the FTC dated July 18, 1994, in
connection with an inquiry with respect to whether the Company may have
misrepresented or improperly failed to disclose patent rights that would
conflict with open use of a local high-speed personal computer bus standard
promulgated by the Video Electronics Standards Association (VESA). The Company
is cooperating in this inquiry. The Company does not believe that the inquiry or
its outcome will have a material adverse effect on the Company's financial
condition or results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- --------------------- ----------------------------------------------------------------------
<C> <S>
27* Financial Data Schedule
</TABLE>
- ---------------
* Filed herewith.
(b) Reports on Form 8-K
None
15
<PAGE> 17
SIGNATURE
Pursuant to the requirements 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.
DELL COMPUTER CORPORATION
/s/ THOMAS J. MEREDITH
Thomas J. Meredith
Chief Financial Officer
December 12, 1994
16
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
February 21, 1995
- --------------------------------------------------------------------------------
Date of Report (Date of earliest event reported)
DELL COMPUTER CORPORATION
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation)
0-17017 74-2487834
- --------------------------------------------------------------------------------
(Commission File No.) (IRS Employer Identification
Number)
2112 Kramer Lane, Building 1
Austin, Texas 78758-4012
(512) 338-4400
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices)
Not Applicable
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
Item 5. Other Events.
The sole purpose of this Form 8-K is to file a press release issued
by Dell Computer Corporation on February 21, 1995 regarding its financial
results for the fiscal year ended January 29, 1995.
Item 7. Financial Statements and Exhibits.
(c) Exhibits
99.1 Press Release, dated February 21, 1995
-2-
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DELL COMPUTER CORPORATION
By:/s/ THOMAS J. MEREDITH
Thomas J. Meredith
Chief Financial Officer
Date: February 21, 1995
-3-
<PAGE> 4
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Description Page
----------- -------------------------------------- ---------------
99.1 Press Release, dated February 21, 1995
<PAGE> 5
DELL SALES TOP $1 BILLION IN FOURTH QUARTER
STRONG SALES OF NOTEBOOKS AND PENTIUM SYSTEMS FUEL GROWTH
AUSTIN, TEXAS, FEB. 21, 1995 -- Dell Computer Corporation (Nasdaq: DELL) today
reported record sales of $1.03 billion for the fourth quarter ended January 29,
1995, resulting in record earnings of $1.36 per common share. Sales increased
17 percent sequentially from the third quarter, and were up 39 percent over the
fourth quarter of the prior year.
Earnings included a one-time benefit of $0.10 primary earnings per share
from the inclusion of an extra month of international operations as the company
unified its domestic and international fiscal year-end. Excluding that
benefit, earnings still were a record $1.26 per common share.
Worldwide fiscal 1995 sales totaled $3.5 billion, up 21 percent over
fiscal 1994. The company earned $3.38 per common share, compared with a loss
of $(1.06) per common share in fiscal 1994.
<TABLE>
<CAPTION>
(IN MILLIONS EXCEPT PER SHARE DATA)
Q4 FY'95 Q4 FY'94 FY'95 FY'94
<S> <C> <C> <C> <C>
Net Sales $1,032.7 $ 742.9 $3,475.3 $2,873.2
Operating Income (Loss) $ 78.7 $ 27.2 $ 249.3 ($ 39.0)
Net Income (Loss) $ 60.3 $ 17.7 $ 149.2 ($ 35.8)
Earnings per Common Share (Loss) $ 1.36 $ .39 $ 3.38 ($ 1.06)
Weighted Average Shares Outstanding 42.9 39.9 41.5 37.3
</TABLE>
"We began last year with a renewed focus on our direct model and a
strategy to pursue specific opportunities in notebook marketplace penetration,
the transition to Pentium processors and geographic expansion," said Michael S.
Dell, chairman and chief executive officer. "Our results clearly demonstrate
the continued success of our business model. We delivered solid growth,
improved profit margins and produced one of the best balance sheets in the
industry.
"My congratulations go out to all Dell employees worldwide whose spirit,
dedication and focus continue to drive our success."
-more-
<PAGE> 6
2-2-2-2
Strong demand for the company's Latitude family of notebook computers and
its higher-end, Pentium processor-based systems keyed Dell's sales growth in
the fourth quarter and the fiscal year. Sales of notebook computers represented
14 percent of worldwide sales during the fourth quarter, compared with 9
percent in the previous quarter. Fourth-quarter notebook sales surpassed sales
for the previous three quarters combined.
"Customer acceptance of our strong notebook product line has been
outstanding around the globe and is helping drive our overall momentum," Mr.
Dell said. "Our notebook products are hailed by customers and independent
reviewers alike. Our commitment to research and development and our focus on
quality both contributed to our dramatic success in portables."
Since re-entering the notebook market in 1994, Dell has won more than 20
major product awards worldwide, including the "Analysts' Choice" award from PC
Week and the "Editor's Choice" award from PC Magazine, both for
price/performance; the "Best" award from PC/Computing for durability and
reliability; and the "Chairman's Choice" award from Power 94 for technical
innovation.
Fourth-quarter sales based on the Pentium processor represented 44 percent
of worldwide systems sales, compared with 32 percent in the third quarter.
Dell has been an industry leader in the shift to Intel's fifth-generation
processor, which provides users with the highest available performance and
systems capabilities. "Our direct business model and the flexibility it
provides enabled us to take the lead in the transition to Pentium processors,"
said Mr. Dell, who cited the company's low inventory position as a key factor
in Dell's ability to rapidly build and deliver products incorporating new
technologies.
Additionally, the company's momentum in the notebook and Pentium-processor
marketplaces helped pace its seventh consecutive quarter of growth in average
revenue per unit, which over the past 12 months increased 11 percent. The
company's direct, build-to-order model enables it to meet customer demand for
more richly configured notebook, desktop and server computers customized with
software and peripherals.
Fourth-quarter sales in Europe increased 33 percent over the same period
in fiscal 1994 reflecting strong acceptance of the company's direct strategy,
improvements in cost structure and broadened product offerings.
Other international sales increased 69 percent over the fourth quarter of
fiscal 94, keyed by strong growth in Japan.
"There is increasing opportunity in the years ahead in emerging markets,
and we intend to continue to invest in infrastructure and management systems to
support business growth in Europe and Asia," said Mort Topfer, vice chairman.
During the fourth quarter, the company announced plans to build a manufacturing
plant in Penang, Malaysia, and approximately doubled the size of its Limerick,
Ireland, manufacturing plant.
Gross profit margins rose to 21 percent of sales in the fourth quarter,
compared with 20.5 percent of sales in the third quarter of fiscal 1995 and
18.6 percent of sales in the fourth quarter of fiscal 1994. The increase was
driven by materials and manufacturing cost reductions and a stable pricing
environment.
- more -
<PAGE> 7
3-3-3-3
Operating expenses decreased to 13.4 percent of sales in the fourth
quarter, compared with 13.8 percent of sales in the previous quarter and 15.0
percent of sales in the fourth quarter of fiscal 1994.
Fourth-quarter selling, general and administrative expenses, at 11.7
percent of sales, were the lowest as a percentage of sales recorded by the
company for two years. The decrease in fiscal 1995 more than offset the
company's increased investment in research and development. The company
increased research and development spending in fiscal 1995 to $65.4 million, up
34 percent over fiscal 1994.
Dell generated $121 million in cash from operations during the fourth
quarter, ending the year with $527 million in cash and investments. Over the
past 12 months, the company has generated more than $243 million in cash from
operations as it has raised profit margins and improved asset management.
For the sixth consecutive quarter, Dell maintained inventories
representing less than five weeks of sales, one of the lowest inventory
positions in the industry as the company continued to use its direct model to
efficiently manage assets.
"This is further evidence of our execution in balancing growth with
liquidity and profitability," Mr. Dell said. "We grew our market share in the
fourth quarter and invested in our infrastructure while strengthening one of
the strongest liquidity positions in the industry.
"In the year ahead, we are focused on leveraging our momentum to increase
the size of the direct channel and also to increase our penetration within that
channel," Mr. Dell said.
For the 12 months ended January 29, 1995, sales were $3.5 billion, up 21
percent from sales of $2.9 billion in fiscal 1994. Net income was $149.2
million, versus a loss of $(35.8) million in the prior fiscal year. Primary
earnings per share were $3.38 versus a loss of $(1.06).
Consolidated statements of operations and financial position follow.
A Global 500(R) company, Dell Computer Corporation (Nasdaq: DELL) designs,
develops, manufactures, markets, services and supports a complete line of
personal computers compatible with industry standards. With annual revenues of
nearly $3.5 billion, Dell is the world's leading direct marketer of personal
computers and one of the top five personal computer vendors in the world.
Information on the company and its products can be obtained through its
toll-free number, 1-800-BUY-DELL (1-800-289-3355) or by accessing the Dell
Worldwide Web server, at http://www.us/dell.com/.
# # #
Dell is a registered trademark of Dell Computer Corporation.
Intel is a registered trademark of Intel Corporation, and Pentium is a
trademark of Intel Corporation.
Dell disclaims any proprietary interest in the marks and names of others.
<PAGE> 8
DELL COMPUTER CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(IN THOUSANDS)
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 30,
1995 1994
----------- -----------
<S> <C> <C>
ASSETS:
Current assets:
Cash $ 42,953 $ 3,355
Short-term Investments 484,294 333,667
Accounts receivable, net 537,974 410,774
Inventories, net 292,925 220,265
Other current assets 112,215 80,323
---------- ----------
Total current assets 1,470,361 1,048,384
Property and equipment, net 116,981 86,892
Other assets 6,658 5,204
---------- ----------
$1,594,000 $1,140,480
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 447,071 $ 282,708
Accrued liabilities 279,402 237,651
Income taxes 24,937 17,628
---------- ----------
Total current liabilities 751,410 537,987
Long-term debt 113,429 100,000
Other liabilities 77,425 31,385
Stockholders' equity 651,736 471,108
---------- ----------
$1,594,000 $1,140,480
</TABLE> ========== ==========
================================================================================
<PAGE> 9
DELL COMPUTER CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
Three Months Ended Fiscal Year Ended
-------------------------- --------------------------
January 29, January 30, January 29, January 30,
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 1,032,662 $ 742,948 $3,475,343 $2,873,165
Cost of sales 815,500 604,598 2,737,290 2,440,349
----------- --------- ---------- ----------
Gross profit 217,162 138,350 738,053 432,816
Operating expenses:
Selling, general and administrative 121,050 98,538 423,429 422,906
Research, development and engineering 17,444 12,656 65,361 48,934
----------- --------- ---------- ----------
Total operating expenses 138,494 111,194 488,790 471,840
----------- --------- ---------- ----------
Operating income (loss) 78,668 27,156 249,263 (39,024)
Financing and other income (expense), net(1) 7,354 1,884 (36,267) 258
----------- --------- ---------- ----------
Income (loss) before income taxes 86,022 29,040 212,996 (38,766)
Provision for income taxes (benefit) 25,731 11,332 63,819 (2,933)
----------- --------- ---------- ----------
Net income (loss) 60,291 17,708 149,177 (35,833)
Preferred stock dividends 2,188 2,187 8,750 3,743
----------- --------- ---------- ----------
Net income (loss) applicable to common stockholders $ 58,103 $ 15,521 $ 140,427 $ (39,576)
=========== ========= ========== ==========
Earnings (loss) per common share:
Primary $ 1.36 $ 0.39 $ 3.38 $ (1.06)
=========== ========= ========== ==========
Fully diluted $ 1.25 $ -- $ 3.15 $ --
=========== ========= ========== ==========
Weighted average shares used to compute earnings per share:
Primary 42,862 39,870 41,542 37,333
=========== ========= ========== ==========
Fully diluted 48,079 -- 47,322 --
=========== ========= ========== ==========
</TABLE>
================================================================================
(1) The three months and twelve months ended January 29, 1995 includes $5,725
pretax income in the financing and other income line for the additional
month of international operations as the company unified its domestic
and international fiscal year ends.
<PAGE> 1
BAKER & MCKENZIE
ATTORNEYS AT LAW
660 HANSEN WAY
PALO ALTO, CALIFORNIA 94304
TELEPHONE (415) 856-2400
FACSIMILE (415) 856-9299
POSTAL OR MAILING ADDRESS
P.O. BOX 60309
PALO ALTO, CALIFORNIA 94306-0309
February 21, 1995
Dell Computer Corporation
9505 Arboretum Boulevard
Austin, Texas 78759-7299
Gentlemen:
We have acted as tax counsel to Dell Computer Corporation, a Delaware
corporation (the "Company"), in connection with an offer by the Company to pay a
cash premium of $8.25 (the "Conversion Premium") for each share of its Series A
Convertible Preferred Stock (the "Series A Preferred Stock") that is converted
to common stock, par value $.01 per share (the "Common Stock"), of the Company
(the "Conversion Offer"), which is described in the Offer of Premium dated
February 21, 1995 (the "Offer of Premium").
The Conversion Offer provides that a holder of Series A Preferred Stock of
the Company who elects to convert will receive 4.2105 shares of Common Stock and
the Conversion Premium for each share of Series A Preferred Stock converted (the
"Conversion").
This opinion is being rendered pursuant to your request. All capitalized
terms, unless otherwise specified, have the meaning assigned to them in the
Offer of Premium.
In connection with this opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
the Offer of Premium and such other documents as we have deemed necessary or
appropriate in order to enable us to render the opinion below. In our
examination, we have assumed the genuineness of all signatures, the legal
capacity of all natural persons, the authenticity of all documents submitted to
us as originals, the conformity to original documents of all documents submitted
to us as certified, conformed or photostatic copies and the authenticity of the
originals and such copies.
In rendering our opinion, we have considered the applicable provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations
("Treas. Reg."), pertinent judicial authorities, interpretive rulings of the
Internal Revenue Service and such other authorities as we have considered
relevant. Unless otherwise indicated, all Section references herein are to the
Code.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Conversion will constitute a "recapitalization" of the Company
within the meaning of Section 368(a)(1)(E) of the Code. Accordingly, the
Conversion will not be a taxable transaction to the Company, but may be a
taxable transaction to the stockholders to the extent of the Conversion
Premium received, with the consequences described below.
2. A stockholder whose shares of Series A Preferred Stock are
converted into Common Stock and the Conversion Premium will be taxable to
the extent of the lesser of (i) the excess of the fair market value of the
total amount received in the Conversion (i.e., the sum of the value of the
Common Stock and the Conversion Premium) over such stockholder's tax basis
in the Series A Preferred Stock converted, or (ii) the amount of the
Conversion Premium. To the extent that the Conversion Premium exceeds the
amount specified in clause (i) of the
<PAGE> 2
Dell Computer Corporation
February 21, 1995
preceding sentence, such amount will not be currently taxable but will
reduce a stockholder's basis in the Common Stock received in the Conversion
as discussed below. A stockholder is not allowed to recognize (i.e., take
into account for tax purposes) loss on the Conversion.
3. The character of any gain recognized by a stockholder in the
Conversion will depend upon whether the receipt of the Conversion Premium
by the stockholder has the effect of a dividend distribution as to such
stockholder or is treated as a sale or exchange. If the conversion of
Series A Preferred Stock and receipt of the Conversion Premium is treated
as a sale or exchange, any gain recognized will be capital gain that, in
general, will be long-term capital gain if the shares of Series A Preferred
Stock have been held for more than one year at the Expiration Date and
short-term capital gain if the shares of Series A Preferred Stock have been
held for one year or less at such time.
If the conversion has the effect of a dividend distribution to a
stockholder, the gain recognized by such stockholder will be treated as
ordinary dividend income to the extent of the stockholder's ratable share
of the Company's accumulated earnings and profits, and the remainder, if
any, of the recognized gain will be taxed as gain from the exchange of the
Series A Preferred Stock.
The conversion of Series A Preferred Stock more likely than not has the
effect of a dividend distribution with respect to stockholders who do not
dispose of Series A Preferred Stock, Common Stock acquired upon conversion,
or other Common Stock in related transactions that are considered to be
part of a single integrated plan (including shares constructively owned
under Section 318), other than pursuant to the Conversion Offer. No opinion
is expressed as to the character of any gain that other stockholders may
realize in the Conversion because of the inherently factual nature of the
determination that each such stockholder must make.
4. If the conversion of Series A Preferred Stock is treated to any
extent as a dividend distribution as to a corporate stockholder, the amount
of the distribution which is taxable as a dividend should generally be
eligible for the 70 percent dividends received deduction, subject to the
limitations of sections 1059, 246A and 246 of the Code.
5. A stockholder's tax basis in the Common Stock received in the
Conversion will be equal to the stockholder's tax basis in the Series A
Preferred Stock converted in the Conversion, increased by the amount of any
gain recognized by the stockholder and decreased by the amount of the
Conversion Premium received. The holding period of the Common Stock will
include the holding period of the Series A Preferred Stock converted in the
Conversion, provided that the Series A Preferred Stock is held as a capital
asset. Gain, loss and tax basis, determined as described above, must be
calculated separately for each block of Series A Preferred Stock (i.e.,
Series A Preferred Stock acquired at the same time in a single transaction)
held by a stockholder.
6. Stockholders who receive cash in lieu of fractional shares of
Common Stock should be treated as having received the cash in redemption of
the fractional share interest. The character of the cash received by a
stockholder will depend upon whether the redemption is essentially
equivalent to a dividend to such stockholder or is treated as a sale or
exchange, determined under Section 302 of the Code.
7. In general, a non-United States stockholder is not subject to
United States Federal income tax with respect to gain realized on a sale or
other disposition of shares of the Company. The Code generally requires
withholding at a 30 percent rate on dividends paid by the Company to
non-United States stockholders, unless a treaty applies which reduces or
Page 2
<PAGE> 3
Dell Computer Corporation
February 21, 1995
eliminates such withholding. In certain circumstances, backup withholding,
as discussed below, at a rate of 31 percent may apply to payments to
non-United States stockholders. For purposes of this paragraph, a
non-United States stockholder includes a non-resident alien individual
(other than certain former United States citizens or residents), a foreign
corporation, a foreign partnership and a foreign trust or estate.
8. A holder of Series A Preferred Stock participating in the
Conversion may be subject, under certain circumstances, to "backup
withholding" at a 31 percent rate on certain payments. This withholding
generally applies only if the holder (i) fails to furnish its social
security or other taxpayer identification number ("TIN"), (ii) furnishes an
incorrect TIN, (iii) fails to properly report interest or dividends and the
Internal Revenue Service has notified the Company that the holder is
subject to withholding, or (iv) fails, under certain circumstances, to
provide a certified statement, signed under penalty of perjury, that the
TIN provided is its correct number and that it is not subject to backup
withholding. The backup withholding rules may apply to the payment of the
Conversion Premium and cash paid in lieu of fractional shares. Any amount
withheld from a payment to a holder under the backup withholding rules is
allowable as a credit against such holder's federal income tax liability,
provided that the required information is furnished to the Internal Revenue
Service. Certain holders of Series A Preferred Stock (including, among
others, corporations and certain foreign individuals) are not subject to
backup withholding. No opinion is expressed as to whether particular
holders of Series A Preferred Stock qualify for exemption from backup
withholding.
Except as otherwise discussed above, the foregoing discussion of the tax
consequences to the stockholders is applicable only to stockholders who are
citizens or residents of the United States for U.S. tax purposes and to domestic
corporations. The discussion may not be applicable with respect to Series A
Preferred Stock acquired as compensation, including Series A Preferred Stock
acquired upon the exercise of options or Series A Preferred Stock held under the
Company's employee benefit plans, or to Series A Preferred Stock held as other
than a capital asset. Moreover, the discussion is not applicable to stockholders
who hold, or who are related within the meaning of Section 318 of the Code to
stockholders who hold, employee stock options of the Company.
Except as set forth above, we express no opinion as to the tax consequences
to any party, whether Federal, state, local or foreign, of the Conversion or any
related transactions contemplated by the Conversion Offer. The foregoing opinion
is based on current law. There can be no assurance that a change in the existing
statutes, regulations or administrative pronouncements would not occur in the
future which may have the effect of altering the tax consequences of the
Conversion.
This opinion is furnished to you solely for use in connection with the
Offer of Premium. We hereby consent to the filing of this opinion as an exhibit
to an Issuer Tender Offer Statement on Schedule 13E-4, including any amendments
thereof. We also consent to the references to Baker & McKenzie under the heading
"Certain Federal Income Tax Considerations" in the Offer of Premium. This
opinion may not be used or relied upon for any other purpose and may not be
circulated, quoted or otherwise referred to for any other purpose without our
express written consent.
Very truly yours,
Baker & McKenzie
Page 3
<PAGE> 1
QUESTIONS AND ANSWERS
FOR USE BY DELL COMPUTER CORPORATION EMPLOYEES ONLY
<TABLE>
<S> <C>
Q.1 WHY IS DELL MAKING THIS OFFER?
A.1 Dell is making the Offer to provide an incentive for the immediate conversion of its
Series A Preferred Stock into Common Stock. Dell believes it will get three benefits
from the conversion. First, it will strengthen Dell's balance sheet by increasing
common equity and reducing preferred equity. Second, it will eliminate or reduce the
future dividend payments on the Series A Preferred Stock, which may improve Dell's
credit-worthiness. Last, conversion will eliminate or reduce the uncertainty and
potential effects on the market price of the Common Stock associated with the
possible future conversion of the Series A Preferred Stock. [See "The Conversion
Offer -- Purpose" in the Offer of Premium.]
Q.2 WHY ISN'T DELL SIMPLY CALLING THE SERIES A PREFERRED STOCK FOR REDEMPTION IN ORDER
TO FORCE CONVERSION?
A.2 Dell is not permitted to call the Series A Preferred Stock for redemption until
August 25, 1996. [See "Description of Capital Stock -- Series A Preferred
Stock -- Redemption at Option of the Company" in the Offer of Premium.]
Q.3 HOW DID DELL ARRIVE AT THE $8.25 CASH PREMIUM?
A.3 In arriving at the $8.25 amount, Dell considered the estimated present value of
dividend payments that are expected to be declared after February 15, 1995, through
August 25, 1996, which is the first date that Dell may call the Series A Preferred
Stock for redemption. We discounted those dividend payments at Dell's weighted
average cost of capital. We also considered the prices at which shares of Series A
Preferred Stock have been sold in private transactions, to the extent we could
obtain that information, and the increase in those prices since the date the Series
A Preferred Stock was issued. We considered the recent trading prices for Common
Stock on the Nasdaq National Market. And we considered the potential benefits of
increased liquidity in a public market that Dell could afford holders of Series A
Preferred Stock who convert in the offer through Dell's offer to file a registration
statement to give them a 30-day resale opportunity. [See "The Conversion
Offer -- Conversion" in the Offer of Premium.] Holders should make their own
assessment about value and liquidity in deciding whether to accept the offer.
Neither Dell nor its Board of Directors makes any recommendation with respect to the
offer. [See "The Conversion Offer--No Recommendation or Fairness Opinion" in the
Offer of Premium.]
Q.4 WILL HOLDERS OF SERIES A PREFERRED STOCK WHO ACCEPT THE CONVERSION OFFER RECEIVE ANY
FURTHER SERIES A PREFERRED STOCK DIVIDENDS?
A.4 No. The dividend that was paid on February 15, 1995 would be the last dividend that
a holder of Series A Preferred Stock who converts would be entitled to receive. [See
"The Conversion Offer--Regular Dividend Payments" in the Offer of Premium.]
</TABLE>
1
<PAGE> 2
<TABLE>
<S> <C>
Q.5 WHAT LIQUIDITY BENEFITS ARE PROVIDED BY THE OFFER?
A.5 Part of the conversion offer is for Dell to file a registration statement with the
SEC to allow the holders who convert to resell publicly the Common Stock issued on
conversion in ordinary brokers' transactions. We will try to have the registration
statement become effective soon after we complete the conversion offer, but Dell has
the right to delay the effectiveness in its discretion until a later date as the
Company determines may be required or advisable. Dell will keep the registration
statement effective for 30 calendar days. [See "The Conversion Offer -- Resale
Registration" in the Offer of Premium.] After that, the shares of Common Stock
received on conversion cannot be sold publicly, but will be subject to all the
transfer restrictions currently on the Series A Preferred Stock. We do not expect a
market to develop for this restricted Common Stock. [See "Special Considerations --
Market for the Restricted Common Stock" in the Offer of Premium."]
Q.6 WILL THE COMMON STOCK ISSUABLE ON CONVERSION BE FREELY TRADEABLE?
A.6 No, not unless you participate in the Resale Registration by signing and returning
the Registration Agreement. The Series A Preferred Stock was issued in a private
placement, so the Common Stock issued on conversion will be restricted securities
subject to the same transfer restrictions as the Series A Preferred Stock has.
However, part of Dell's offer is to file a registration statement to allow the
holders who convert a 30-day window to resell the Common Stock publicly in ordinary
brokers' transactions. We expect the registration statement would become effective
soon after Dell completes the conversion offer, but Dell has the right to delay the
effectiveness in its discretion until a later date as the Company determines may be
required or advisable. In any case, the SEC must approve whether and when the
registration statement becomes effective. [See Q.12 and A.12. also.] [See "The
Conversion Offer -- Resale Registration" in the Offer of Premium.]
Q.7 WHEN WILL THE 30-DAY RESALE WINDOW BEGIN?
A.7 We expect the registration statement would become effective soon after Dell
completes the conversion offer. However, we may delay effectiveness at our
discretion until a later date as we determine may be required or advisable. In any
case, the SEC must approve whether and when the registration statement becomes
effective. [See "The Conversion Offer -- Resale Registration" in the Offer of
Premium.]
Q.8 HOW WILL THE PAYMENT OF THE CONVERSION PREMIUM AFFECT DELL'S FINANCIAL STATEMENTS?
A.8 The payment of the conversion premium will be treated for accounting purposes as an
additional dividend on the Series A Preferred Stock. Accordingly, the aggregate
amount of the conversion premium paid will be deducted from net income to determine
the net income available to common stockholders for the period in which the offer is
completed, which will be in the first quarter of fiscal 1996 unless the offer is
extended or terminated. In addition, the weighted average shares outstanding used to
calculate primary earnings per common share will include the shares of Common Stock
issued upon conversion from the closing of the conversion offer to the end of the
period. [See "Summary Consolidated Financial Data" in the Offer of Premium.]
Q.9 WHAT IS THE TAX TREATMENT FOR DELL OF THE PREMIUM?
A.9 It is a non-deductible dividend or redemption payment.
</TABLE>
2
<PAGE> 3
<TABLE>
<S> <C>
Q.10 WHAT IS THE TAX TREATMENT OF THE PREMIUM TO THE PREFERRED STOCKHOLDER?
A.10 This is discussed in the Offer of Premium under the heading "Certain Federal Income
Tax Considerations." You should read that and consult with your tax advisor. Dell
understands it is more likely than not that the payment of the $8.25 cash conversion
premium will be treated for tax purposes as ordinary dividend income to a recipient.
However, there are a number of factors peculiar to a holder and what the holder does
with the Common Stock that could affect this. Again, you should consult with your
tax advisor. [See "Special Considerations -- Federal Income Tax Considerations" and
"Certain Federal Income Tax Considerations" in the Offer of Premium.]
Q.11 HOW MUCH OF THE OUTSTANDING SERIES A PREFERRED STOCK DOES DELL EXPECT TO CONVERT
WITH THIS OFFER?
A.11 We hope the combination of the $8.25 cash premium and the resale opportunity under
the registration statement is attractive enough so that every share will be
converted. However, each of the preferred stockholders will make an individual
decision.
Q.12 IS THERE A MINIMUM PARTICIPATION REQUIREMENT FOR THE OFFER?
A.12 No. Dell intends to pay the $8.25 cash premium on any and all shares properly
tendered for conversion. But Dell has the right to withdraw the offer at any time
before closing without paying the premium. [See "The Conversion Offer -- Conditions"
in the Offer of Premium.]
Q.13 WHEN WILL THE PREMIUM OFFER END?
A.13 The offer and withdrawal rights will end at midnight, New York City time, Wednesday,
March 22, 1995, unless Dell extends the offer. Dell also has the right to withdraw
the offer at any time before closing without paying the conversion premium. [See
"The Conversion Offer -- Expiration and Extension" and "The Conversion
Offer -- Modification and Termination" in the Offer of Premium.]
Q.14 CAN DELL CHANGE THE TERMS OF THE OFFER AND RESALE?
A.14 Yes. Dell has reserved the right to change the terms of the offer and resale, and
Dell would give notice of changes in accordance with the SEC's rules. [See "The
Conversion Offer -- Modification and Termination" in the Offer of Premium.]
Q.15 WHEN WILL STOCKHOLDERS BE ABLE TO USE THE RESALE REGISTRATION STATEMENT [WHEN WILL
DELL FILE THE RESALE REGISTRATION STATEMENT?]
A.15 [Dell filed the registration statement when it began the conversion offer in order
to give the SEC time to review it.] Dell currently intends to use its reasonable
commercial efforts to complete the resale registration statement for shares of
Common Stock issued in the conversion offer as soon as is reasonably practicable
after the end of the conversion offer. Stockholders will not be able to sell that
Common Stock publicly under the registration statement until the SEC declares it
effective. We expect to try to get the registration statement declared effective
shortly after Dell closes the conversion offer in late March, but we may delay the
effectiveness in our discretion until a later date as we determine may be required
or advisable. Of course, the SEC has discretion whether or not to declare the
registration statement effective, so some of the timing is not in Dell's control.
See "The Conversion Offer -- Resale Registration" in the Offer of Premium.]
</TABLE>
3
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<TABLE>
<S> <C>
Q.16 WHAT WILL HAPPEN TO SERIES A PREFERRED STOCK THAT IS NOT CONVERTED IN THE OFFERING?
A.16 Series A Preferred Stock that is not converted in the offering will not get the
$8.25 cash premium and will not be able to be resold publicly under the registration
statement Dell plans to file. That Series A Preferred Stock will remain outstanding,
will continue to receive quarterly preferred dividend payments and will keep all the
other rights and preferences it currently has. However, there is only a limited
private market for the Series A Preferred Stock right now, and any market could be
substantially reduced for shares of Series A Preferred Stock remaining outstanding
after the offer. You should carefully read "Special Considerations -- Market for the
Series A Preferred Stock" in the Offer of Premium.
Q.17 WHAT HAPPENS IF A HOLDER OF SERIES A PREFERRED STOCK CHOOSES TO CONVERT BUT NOT TO
RESELL UNDER THE REGISTRATION STATEMENT?
A.17 The shares of Series A Preferred Stock are not registered securities, and the Common
shares to be issued upon conversion will not be registered other than in that
registration statement Dell plans to make available for a 30-day period. If a holder
of Series A Preferred Stock accepts the conversion offer but does not take advantage
of the 30-day resale registration, the person will hold restricted Common Stock with
substantial trading limitations. The Series A Preferred Stock currently has a very
limited private trading market, and Dell expects the private trading market for the
Common Stock issued on conversion of Series A Preferred Stock will be more limited.
Dell does not believe there would be a meaningful opportunity for liquidity until
the holder could resell under Rule 144. You should carefully read "Special
Considerations -- Market for the Series A Preferred Stock" in the Offer of Premium.
Q.18 WHEN WILL THE COMMON STOCK ISSUABLE UPON CONVERSION BECOME ELIGIBLE FOR TRADING
UNDER RULE 144?
A.18 That's a question you should ask your lawyer. For most holders, Dell expects that
they will be able to dribble out their Common Stock in broker's transactions after
August 26, 1995, but they will have to comply with additional transfer procedures
and some specific provisions of Rule 144. After August 26, 1996, stock held by
people other than affiliates should be freely tradable. I know I've left out details
and procedures in these statements that lawyers would add, and key details are in
"Special Considerations -- Market for the Restricted Common Stock" in the Offer of
Premium. You should carefully read "Special Considerations" in the Offer of Premium
and consult with your legal advisor.
Q.19 ARE THERE ANY LIMITATIONS ON TRADING THE COMMON STOCK FOR STOCKHOLDERS WHO ACCEPT
THE OFFER AND HAVE THEIR COMMON STOCK REGISTERED IN THE REGISTRATION STATEMENT?
A.19 Yes, a few. They are described in the "Special Considerations" section of the Offer
of Premium, which holders should read carefully. Also, holders should consult their
own legal advisors about these limitations. Let me point out three limitations.
First, the Common Stock covered by the registration statement may be sold only in
ordinary broker's transactions during a 30-day window. It may not be sold in block
trades or other kinds of transactions in which the broker buys as principal or acts
as agent for the seller. [See "Special Considerations--Registration Agreement
Provisions" in the Offer of Premium.]
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Second, Common Stock to be issued on conversion cannot be used to cover short
positions. If the shares are not included in the registration statement, they will
be restricted and cannot be delivered to cover the short position. If the shares are
included in the registration statement, a short sale would have to occur before the
registration statement is effective -- which Dell understands is illegal gun-jumping
under federal securities laws. Shares included in the registration statement may be
offered or sold publicly only after the registration statement is declared effective
and only during the Resale Window. [See "Special Considerations -- Short Sales" in
the Offer of Premium.]
Third, under SEC Rule 10b-6, any stockholder who decides to sell Common Stock
pursuant to a registration statement is not permitted to bid for or buy shares of
Common Stock for a period beginning 2 days before the date of sale and ending upon
completion of their sales of Common Stock. This cooling-off period also applies to
affiliates of the selling stockholder. [See "Special Considerations -- Cooling Off
Period" in the Offer of Premium.]
Again, read "Special Considerations" in the Offer of Premium and consult your own
legal advisor.
Q.20 CAN A PREFERRED STOCKHOLDER WITH A SHORT POSITION IN DELL'S COMMON STOCK USE THE
COMMON STOCK RECEIVED UPON CONVERSION TO CLOSE OUT THE HOLDER'S SHORT POSITION?
A.20 No. If the shares are not included in the registration statement, they will be
restricted and cannot be delivered to cover the short position. If the shares are
included in the registration statement, a short sale would have to occur before the
registration statement is effective--which Dell understands is illegal gunjumping.
Shares included in the registration statement may be offered or sold only after the
registration statement is declared effective. You should read the discussion in
"Special Considerations-Short Sales" and consult your own legal advisor.
Q.21 I'M A PREFERRED STOCKHOLDER. HOW DO I GET MATERIALS TO PARTICIPATE IN THE CONVERSION
OFFER?
A.21 Materials were sent on February 21, 1995 to holders of record. If a broker or other
custodian holds your shares registered in its name, the broker should forward
materials to you. You then should instruct your broker whether you want to
participate in the Conversion Offer. You may also get materials from the Conversion
Agent, Citibank, N.A. Citibank's telephone number is (800) 422-2066. Or I can take
your address and have the Conversion Agent send the materials to you.
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[For all other questions, please direct the person to the relevant portion of
the Offer to Purchase or related documents.]
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