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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 APRIL 28, 1996
COMMISSION FILE NUMBER:0-17017
DELL COMPUTER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 74-2487834
(State of incorporation) (I.R.S. Employer ID No.)
2214 WEST BRAKER LANE, SUITE D
AUSTIN, TEXAS 78758-4053
(Address of principal executive offices)
(512) 338-4400
(Telephone number)
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 JUNE 4, 1996, 89,646,697 SHARES OF THE REGISTRANT'S COMMON STOCK, PAR
VALUE $.01 PER SHARE, WERE OUTSTANDING.
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PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
DELL COMPUTER CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(in millions, except share data)
(unaudited)
<TABLE>
<CAPTION>
ASSETS
April 28, January 28,
1996 1996
---------- -----------
<S> <C> <C>
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 66 $ 55
Marketable securities . . . . . . . . . . . . . . . . . . . 787 591
Accounts receivable, net . . . . . . . . . . . . . . . . . 778 726
Inventories . . . . . . . . . . . . . . . . . . . . . . . . 252 429
Other current assets . . . . . . . . . . . . . . . . . . . 147 156
---------- ----------
Total current assets . . . . . . . . . . . . . . . . 2,030 1,957
Property, plant and equipment, net . . . . . . . . . . . . . . 198 179
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . 12 12
---------- ----------
$ 2,240 $ 2,148
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . $ 609 $ 466
Accrued and other liabilities . . . . . . . . . . . . . . . 396 473
---------- ----------
Total current liabilities . . . . . . . . . . . . . . . 1,005 939
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . 113 113
Deferred profit on warranty contracts . . . . . . . . . . . . 153 116
Other liabilities . . . . . . . . . . . . . . . . . . . . . . 7 7
Commitments and contingencies . . . . . . . . . . . . . . . . -- --
---------- ----------
Total liabilities . . . . . . . . . . . . . . . . . 1,278 1,175
---------- ----------
Put options . . . . . . . . . . . . . . . . . . . . . . . . . 172 --
---------- ----------
Stockholders' equity:
Preferred stock and capital in excess of $.01 par value; shares
authorized: 5,000,000; shares issued and outstanding:
60,000 . . . . . . . . . . . . . . . . . . . . . . . . . . 6 6
Common stock and capital in excess of $.01 par value; shares
authorized: 300,000,000; shares issued: 93,702,883 and
93,446,607, respectively . . . . . . . . . . . . . . . . 261 430
Retained earnings . . . . . . . . . . . . . . . . . . . . . 652 570
Common treasury stock, at cost: 3,278,580 shares . . . . . (100) --
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . (29) (33)
--------- ----------
Total stockholders' equity . . . . . . . . . . . . . 790 973
--------- ----------
$ 2,240 $ 2,148
========= ==========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
1
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DELL COMPUTER CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(in millions, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
April 28, April 30,
1996 1995
----------- -----------
<S> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,638 $ 1,136
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . 1,319 900
----------- -----------
Gross margin . . . . . . . . . . . . . . . . . . . . . . . 319 236
----------- -----------
Operating expenses:
Selling, general and administrative . . . . . . . . . . . . 182 127
Research, development and engineering . . . . . . . . . . . 25 21
----------- -----------
Total operating expenses . . . . . . . . . . . . . . . . 207 148
----------- -----------
Operating income . . . . . . . . . . . . . . . . . . . . 112 88
Financing and other income (expense), net . . . . . . . . . . 4 (1)
----------- -----------
Income before income taxes . . . . . . . . . . . . . . . . 116 87
Provision for income taxes . . . . . . . . . . . . . . . . . . 34 25
----------- -----------
Net income . . . . . . . . . . . . . . . . . . . . . . . . 82 62
Preferred stock dividends . . . . . . . . . . . . . . . . . . -- 12
----------- -----------
Net income available to common stockholders . . . . . . . . . $ 82 $ 50
=========== ===========
Earnings per common share:
Primary . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.84 $ 0.55
=========== ===========
Fully diluted . . . . . . . . . . . . . . . . . . . . . . . $ 0.84 $ 0.53
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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DELL COMPUTER CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------
April 28, April 30,
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 82 $ 62
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . 10 9
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 3 --
Changes in:
Operating working capital . . . . . . . . . . . . . . . . 203 (63)
Non-current assets and liabilities . . . . . . . . . . . 36 2
---------- ----------
Net cash provided by operating activities . . . . . 334 10
---------- ----------
Cash flows from investing activities:
Marketable securities:
Purchases . . . . . . . . . . . . . . . . . . . . . . . . (1,851) (1,191)
Maturities and other redemptions . . . . . . . . . . . . 1,445 1,253
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . 209 2
Capital expenditures . . . . . . . . . . . . . . . . . . . (31) (14)
---------- ----------
Net cash (used in) provided by investing activities (228) 50
---------- ----------
Cash flows from financing activities:
Preferred stock dividends paid . . . . . . . . . . . . . . -- (13)
Issuance of common stock under employee plans . . . . . . . 4 7
Purchases of treasury stock . . . . . . . . . . . . . . . . (100) --
---------- ----------
Net cash used in financing activities . . . . . . . (96) (6)
---------- ----------
Effect of exchange rate changes on cash . . . . . . . . . . . 1 (2)
---------- ----------
Net increase in cash . . . . . . . . . . . . . . . . . . . . . 11 52
Cash at beginning of period . . . . . . . . . . . . . . . . . 55 43
---------- ----------
Cash at end of period . . . . . . . . . . . . . . . . . . . . $ 66 $ 95
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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DELL COMPUTER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of Dell Computer Corporation (the "Company") should be read in conjunction with
the consolidated financial statements and notes thereto filed with the
Securities and Exchange Commission in the Company's Annual Report on Form 10-K
for the fiscal year ended January 28, 1996. In the opinion of management, the
accompanying condensed 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 April 28, 1996 and January 28, 1996 and the
results of their operations for the three-month periods ended April 28, 1996
and April 30, 1995. All share and per share information for fiscal 1996 has
been retroactively restated to reflect the two-for-one common stock split which
took place during the third quarter of fiscal 1996.
NOTE 2 -- STOCK REPURCHASE PROGRAM
On February 22, 1996, the Company announced a stock repurchase
program under which the Company may purchase up to 12 million shares of common
stock in open market or private transactions. On May 29, 1996, the Company
announced that the maximum number of shares that may be repurchased under the
program has been increased from 12 million to 16 million. The repurchase
program is intended to offset the dilutive effect of shares issued to employees
under the Company's stock-based employee benefit plans. The total number of
shares to be purchased will be based on several factors, including the level of
stock issuances pursuant to employee awards, the price of the common stock and
other general market conditions. The Company may also utilize equity options
as part of the repurchase program.
During the first quarter of fiscal 1997, the Company repurchased a
total of 3.3 million shares of common stock under the repurchase program, for
an aggregate purchase price of $100 million (average cost of $30.50 per share).
All such shares were purchased in open market transactions, with the total of
the purchases shown as common treasury stock.
In addition, during the first quarter of fiscal 1997, the Company
entered into equity "collar" arrangements with respect to an aggregate of 5.3
million additional shares of common stock by selling put options (which entitle
the holder of the option to sell shares of common stock to the Company at a
specified price) and purchasing call options (which entitle the Company to
purchase shares of common stock from the holder of the option at a specified
price). The premiums received with respect to the equity options totaled $29
million and equaled the premiums paid. Consequently, there was no exchange of
cash. The put and call options give the Company the choice of net cash
settlement or settlement in additional shares of common stock. The put prices
range from $29.36 to $34.62 per share, while the call prices range from $32.30
to $38.43 per share. For most of the options, the call price may be increased
if the per-share market price of the common stock at the time of exercise
exceeds a specified price. Each option is exercisable only at expiration, and
the expiration dates range from September 3, 1996, to March 25, 1997. The
potential cost of repurchasing the shares subject to these option arrangements
ranges from $172 million (average put cost of $32.52 per share) to $193 million
(average call cost of $36.48 per share), not taking into account any increase
in the call prices described above. The Company's $172 million potential
repurchase obligation under the put options at April 28, 1996 has been
reclassified from stockholders' equity to put options. The put options did not
have a materially dilutive effect on earnings per common share for the first
quarter of fiscal 1997.
From the end of the first quarter of fiscal 1997 through June 3, 1996,
the Company repurchased 1.1 million additional shares of common stock in open
market transactions for an aggregate purchase price of $56 million (average
cost of $53.48 per share).
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NOTE 3 -- OFFER TO REPURCHASE DEBT
On May 23, 1996, the Company commenced a tender offer to purchase the
entire $100 million principal amount of its outstanding 11% Senior Notes Due
August 15, 2000 (the "Senior Notes"). The purchase price will be determined by
reference to a fixed spread of 0.90% over the yield to maturity of the U.S.
Treasury 5.875% notes due August 15, 1998 (the earliest date on which the
Senior Notes may be redeemed by the Company in accordance with their terms) at
3:30 p.m., New York City time, on June 7, 1996, plus accrued and unpaid
interest on the Senior Notes to, but not including, the date of payment. The
tender offer will expire at 12:00 midnight, New York City time, on June 21,
1996, unless extended or earlier terminated by the Company. The Company will
purchase the Senior Notes using currently available cash and marketable
securities. The retirement of the Senior Notes prior to their maturity would
result in a one-time after-tax extraordinary charge of approximately $12
million, assuming all of the outstanding Senior Notes are purchased. The
Company expects to conclude the tender offer during the second quarter and
record the charge at that time. The charge includes the estimated premium to
be paid in conjunction with the tender offer, the market value of the interest
rate swap agreements related to the Senior Notes and unamortized debt issuance
costs. At the end of the first quarter of fiscal 1997 and the fourth quarter
of fiscal 1996, the Company had outstanding receive fixed/pay floating interest
rate swaps with an aggregate notional amount of $100 million offset by receive
floating/pay fixed interest rate swaps with an aggregate notional amount of
$100 million. The weighted average interest rate on the Senior Notes, adjusted
by the swaps, was 13.8% for the first quarter of both fiscal 1997 and fiscal
1996. These offsetting interest rate swap agreements, which mature on August
15, 1998, will have no further financial statement impact relating to changes
in fair market value.
NOTE 4 -- COMMITMENTS AND CONTINGENCIES
The Company has been named as a defendant in approximately 30
repetitive stress injury lawsuits, most of which are in New York state courts
or United States District Courts for the New York City area. Several are in
state courts in New Jersey. One is in the Federal District Court for the
Eastern District of Pennsylvania, and one is in Federal District Court in
Kansas. Four cases have been dismissed; the remainder are at various stages of
the process leading to trial. 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 that have been filed, often naming Apple, Atex,
Compaq, IBM, 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. Ultimate
resolution of the litigation against the Company may depend on progress in
resolving this type of litigation overall. However, the Company does not
believe that the outcome of these matters will have a material adverse effect
on the Company's financial condition or results of operations.
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 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. The investigation has been closed,
with no findings of wrongdoing by the Company, with respect to the Company's
shipments to Russia, Ireland and Iraq. The Company is awaiting a response from
the Department of Commerce regarding its voluntary self disclosure of certain
shipments to Iran in June 1992. 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
has fully responded to the subpoena and, in accordance with its policy to
comply fully with export laws and regulations, intends to cooperate with the
Office of Export Enforcement. The Company does not believe that this
investigation or its outcome will have a material adverse effect on the
Company's financial condition or results of operations.
In May 1995, the Company was named, along with two other computer
manufacturers and one computer monitor vendor, in a class action complaint
filed in the California Superior Court for Marin County. Subsequently,
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several other similar actions were filed in California Superior Courts for
other counties, naming a total of 48 defendants, including the Company. The
complaints in all of these cases allege that each of the defendants has engaged
in false or misleading advertising with regard to the size of computer monitor
screens. The plaintiffs seek restitution in the form of refunds or product
exchange, damages, punitive damages and attorneys' fees. The California
Judicial Council, in December 1995, ordered all of these similar cases
consolidated for proceedings up to and including trial and, in January 1996,
appointed a single trial judge for the consolidated proceeding. The Company
plans to vigorously contest the allegations of the complaints. This litigation
is currently at a preliminary stage, and no discovery has occurred. Thus, it
is too early for the Company to adequately evaluate the likelihood of the
plaintiffs' prevailing on their claims. There can be no assurance that an
adverse determination in this litigation would not have a material adverse
effect on the Company's financial condition or results of operations.
In June 1995, the Company was served with a class action complaint
filed in State District Court in Travis County, Texas. The complaint alleges
that the Company has included "used parts" in its "new" computer systems and
has failed to adequately inform its customers and prospective customers of that
practice. According to the complaint, these facts constitute fraud, negligent
misrepresentation, breach of contract and breach of warranty. The plaintiffs
seek refund of the purchase price for computer systems purchased from the
Company, damages in an unspecified amount, injunctive relief, interest and
attorneys' fees. The Company plans to vigorously contest the allegations of
the complaint. This litigation is currently at a preliminary stage, and no
discovery has occurred. Thus, it is too early for the Company to adequately
evaluate the likelihood of the plaintiffs' prevailing on their claims. There
can be no assurance that an adverse determination in this litigation would not
have a material adverse effect on the Company's financial condition or results
of operations.
NOTE 5 -- EARNINGS PER COMMON SHARE
Primary earnings per common share are computed by dividing net income
available to common stockholders by the weighted average number of common
shares and common stock equivalents (if dilutive) outstanding during each
period. Common stock equivalents include stock options. The Series A
Convertible Preferred Stock (the "Convertible Preferred Stock") is not a common
stock equivalent for purposes of computing earnings per common share. The
number of common stock equivalents outstanding is computed using the treasury
stock method. Shares used in the calculation of fully diluted earnings per
common share have been adjusted for the assumed conversion of all of the
Company's outstanding Convertible Preferred Stock.
NOTE 6 -- SUPPLEMENTAL FINANCIAL INFORMATION (in millions)
Supplemental Condensed Consolidated Statement of Financial Position
Information:
<TABLE>
<CAPTION>
April 28, January 28,
1996 1996
--------------- ----------------
<S> <C> <C>
Inventories:
Production materials . . . . . . . . . . . . . . . . . . . $ 207 $ 390
Work-in-process and finished goods . . . . . . . . . . . . 45 39
--------------- ----------------
$ 252 $ 429
=============== ================
Accrued and other liabilities:
Royalties and licensing . . . . . . . . . . . . . . . . . . $ 21 $ 51
Accrued compensation . . . . . . . . . . . . . . . . . . . 49 52
Accrued warranty costs . . . . . . . . . . . . . . . . . . 83 78
Taxes other than income taxes . . . . . . . . . . . . . . . 64 76
Deferred profit on warranty contracts . . . . . . . . . . . 78 67
Book overdrafts . . . . . . . . . . . . . . . . . . . . . . 2 59
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 90
--------------- ----------------
$ 396 $ 473
=============== ================
</TABLE>
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Supplemental Condensed Consolidated Statement of Income Information:
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------
April 28, April 30,
1996 1995
----------------- ---------------
<S> <C> <C>
Financing and other income (expense), net:
Investment income, net ..................................... $ 7 $ 5
Interest expense ........................................... (3) (4)
Foreign currency transactions............................... 1 (1)
Other....................................................... (1) (1)
----------------- ---------------
$ 4 $ (1)
================= ===============
Weighted average shares used to compute earnings per common
share:
Primary................................................. 97.4 90.5
================= ===============
Fully diluted........................................... 98.4 97.5
================= ===============
</TABLE>
Supplemental Condensed Consolidated Statement of Cash Flows Information:
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------
April 28, April 30,
1996 1995
----------------- ---------------
<S> <C> <C>
Changes in operating working capital accounts:
Accounts receivable, net . . . . . . . . . . . . . . . . . $ (53) $ (25)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . 177 (42)
Accounts payable . . . . . . . . . . . . . . . . . . . . . 141 8
Accrued and other liabilities . . . . . . . . . . . . . . . (80) (8)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . 18 4
----------------- ---------------
$ 203 $ (63)
================= ===============
Changes in non-current assets and liabilities:
Other assets . . . . . . . . . . . . . . . . . . . . . . . $ -- $ 1
Other liabilities . . . . . . . . . . . . . . . . . . . . . 36 1
----------------- ---------------
$ 36 $ 2
================= ===============
</TABLE>
The Company accounts for highly liquid investments with maturities of
three months or less at date of acquisition as marketable securities and
reflects the related cash flows as investing cash flows. As a result, a
significant portion of its gross marketable securities purchases and maturities
disclosed as investing cash flows is related to highly liquid investments.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
All percentage amounts and ratios were calculated using the underlying data in
thousands. Operating results for the three-month period ended April 28, 1996
are not necessarily indicative of the results that may be expected for the full
fiscal year. The conversion of shares of Series A Convertible Preferred Stock
into common stock during the first quarter of fiscal 1996, discussed more fully
in the Company's Annual Report on Form 10-K for the fiscal year ended January
28, 1996, had the effect of reducing primary earnings per common share by $0.14
for the first quarter of fiscal 1996.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the
percentage of consolidated net sales represented by certain items in the
Company's condensed consolidated statement of income.
<TABLE>
<CAPTION>
Percentage of Consolidated Net Sales
----------------------------------------------------
Three Months Ended
----------------------------------------------------
April 28, April 30, January 28,
1996 1995 1996
--------- --------- -----------
<S> <C> <C> <C>
Net sales:
Americas . . . . . . . . . . . . . . . 65.1% 62.2% 64.5%
Europe . . . . . . . . . . . . . . . . 28.5 30.7 30.0
Asia Pacific and Japan . . . . . . . . 6.4 7.1 5.5
----- ----- -----
Consolidated net sales . . . . . . . 100.0 100.0 100.0
Cost of sales . . . . . . . . . . . . . . 80.5 79.2 81.9
----- ----- -----
Gross margin . . . . . . . . . . . . 19.5 20.8 18.1
Operating expenses:
Selling, general and administrative . . 11.1 11.3 10.5
Research, development and engineering . 1.5 1.8 1.5
----- ----- -----
Total operating expenses . . . . . . 12.6 13.1 12.0
----- ----- -----
Operating income . . . . . . . . . . 6.9 7.7 6.1
Financing and other income (expense), net 0.2 (0.1) 0.3
----- ----- -----
Income before income taxes . . . . . . 7.1 7.6 6.4
Provision for income taxes . . . . . . . 2.1 2.2 1.9
----- ----- -----
Net income . . . . . . . . . . . . . . 5.0 5.4 4.5
Preferred stock dividends . . . . . . . . -- 1.0 --
----- ----- -----
Net income available to common
stockholders . . . . . . . . . . . . . 5.0% 4.4% 4.5%
===== ===== =====
</TABLE>
Net Sales. The first quarter of fiscal 1997 marked the Company's
ninth consecutive quarter of sequential growth in consolidated net sales.
Consolidated net sales in the first quarter of fiscal 1997 increased 44% and
6%, respectively, over the first and fourth quarters of fiscal 1996. The
increase in consolidated net sales in the first quarter of fiscal 1997 over the
comparable quarter of the prior fiscal year was due primarily to increased unit
sales, up 43%, reflecting strong demand for the Company's desktop products and
its Latitude(TM) family of notebook computers.
Net sales grew in all geographic regions in the first quarter of
fiscal 1997 as compared with both the first and the fourth quarters of fiscal
1996. Growth in net sales in the first quarter of fiscal 1997, as compared
with the first quarter of fiscal 1996, was led by the Americas, where net sales
increased 51%. After taking into account the results of the Company's foreign
currency hedging activities, consolidated net sales (expressed in United States
dollars) were not significantly affected in the first quarter of fiscal 1997 as
a result of fluctuations in foreign currency exchange rates from the comparable
quarter of the prior fiscal year.
The mix of the Company's business between sales to major accounts
(consisting of sales to major corporate, government, medical and education
accounts and value-added resellers) and sales to small-to-medium
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<PAGE> 10
businesses and individuals shifted during the first quarter of fiscal 1997,
with sales to small-to-medium businesses and individuals representing 39% of
consolidated net sales in the first quarter of fiscal 1997, compared with 37%
and 42% in the first and fourth quarters of fiscal 1996, respectively.
At April 28, 1996, backlog was $118 million, compared with $136
million and $102 million at the end of the first and fourth quarters,
respectively, of fiscal 1996. The Company does not believe that backlog is a
meaningful indicator of sales that can be expected for any period, and there
can be no assurance that the backlog at any point in time will translate into
sales in any subsequent period, particularly in light of the Company's policy
of allowing customers to cancel or reschedule orders without penalty prior to
commencement of manufacturing.
Gross Margin. Gross margin increased $83 million in the first quarter
of fiscal 1997 from the comparable quarter of the prior fiscal year. However,
the Company's gross margin as a percentage of consolidated net sales in the
first quarter of fiscal 1997 was 19.5%, down from 20.8% in the first quarter of
fiscal 1996. The decline in gross margin percentage from the first quarter of
fiscal 1996 was due primarily to a more competitive pricing environment in
Japan and Europe, the Company's more aggressive pricing in Europe and a
relatively higher mix of sales to small-to-medium businesses and individuals,
which generally carry lower margins. In addition to these negative impacts on
gross margin, royalties increased as a percentage of consolidated net sales,
primarily due to increased software royalty costs.
Gross margin increased $41 million from the fourth quarter of fiscal
1996 to the first quarter of fiscal 1997, and gross margin as a percentage of
consolidated net sales increased from 18.1% in the fourth quarter of fiscal
1996 to 19.5% in the first quarter of fiscal 1997. The fourth quarter gross
margin was adversely impacted by the Company's problematic product transition
involving certain of its OptiPlex(TM) desktop products. The increase in gross
margin percentage from the fourth quarter of fiscal 1996 was primarily the
result of component cost declines and a relatively lower mix of sales to
small-to-medium businesses and individuals, which generally carry lower
margins, in the first quarter of fiscal 1997 than in the fourth quarter of
fiscal 1996. During the first quarter of fiscal 1997 the Company improved its
inventory position, reducing its days in inventory from 31 days at the end of
fiscal 1996 to 17 days at the end of the first quarter of fiscal 1997. This
significant improvement in inventory position enabled the Company to capitalize
on declining component costs, such as memory chips. These positive impacts on
gross margin were partially offset by pricing actions taken during the first
quarter of fiscal 1997 as a result of the component cost declines.
Operating Expenses. The Company's goal is to manage operating
expenses, over time, in relation to gross margin. Over the last year, the
Company has continued to increase staffing worldwide to meet the demands of its
growth and to expand its international presence, resulting in increased
compensation-related expenses. The Company has also increased spending related
to its key global information systems project, which it began in late fiscal
1995 and expects to complete in fiscal 1999. The increase in these
infrastructure expenditures, in addition to greater spending for advertising
and promotion, resulted in an increase in selling, general and administrative
expenses of 42% in the first quarter of fiscal 1997 from the comparable quarter
of the prior fiscal year. However, selling, general and administrative
expenses as a percentage of consolidated net sales decreased slightly to 11.1%
in first quarter of fiscal 1997 from 11.3% in the first quarter of fiscal 1996.
Over the last year, the Company has increased headcount to support
increased product development activities and improved quality and
time-to-market of its products, resulting in increased compensation-related
expenses. The Company has also increased the use of prototypes to improve the
quality of its products, resulting in increased development costs. These
activities resulted in an increase in research, development and engineering
expenses of 21% in the first quarter of fiscal 1997 over the first quarter of
fiscal 1996. Research, development and engineering expenses as a percentage of
consolidated net sales, however, decreased to 1.5% in the first quarter of
fiscal 1997 from 1.8% in the first quarter of fiscal 1996.
The Company believes that its ability to manage operating costs is an
important factor in its ability to remain price competitive. However, the
Company will continue to invest in information systems and infrastructure to
manage and support its growth. As discussed above, the Company is currently
investing in a key global information systems project, which it expects to
complete in fiscal 1999.
9
<PAGE> 11
Financing and Other Income (Expense), Net. The increase in financing
and other income (expense), net in the first quarter of fiscal 1997 from the
comparable quarter of the prior fiscal year was primarily due to increased
investment income in the first quarter of fiscal 1997. See Note 6 of Notes to
Condensed Consolidated Financial Statements for detail regarding financing and
other income (expense), net.
Income Tax. The Company's effective tax rate was 29% for both the
first quarter of fiscal 1997 and the first quarter of fiscal 1996.
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. Consequently, the Company conducts a foreign currency hedging
program to reduce its exposure to the risk that the dollar-value equivalent of
anticipated cash flows will be adversely affected by changes in foreign
currency exchange rates. The Company uses foreign currency purchased option
contracts and forward contracts in an effort to reduce its exposure to currency
fluctuations involving anticipated, but not firmly committed, transactions and
transactions with firm foreign currency commitments. For a discussion
regarding how the results of the Company's international operations are
affected by changes in exchange rates between certain foreign currencies and
the U.S. dollar and a discussion regarding the Company's hedging program,
including the accounting for transactions conducted under such program, see
Note 1 and Note 4 included in "Item 8 -- Financial Statements and Supplementary
Data" and "Hedging Activities" in "Item 7 -- Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Company's
Annual Report on Form 10-K for the fiscal year ended January 28, 1996.
At April 28, 1996 and January 28, 1996, the Company held purchased
option contracts that were designated and effective as hedges of probable
anticipated sales by international subsidiaries and intercompany shipments with
a total notional amount of $962 million and $714 million, respectively, and a
combined net realized and unrealized deferred gain (loss) of $1 million and ($5)
million, respectively. Relative to probable anticipated foreign currency
denominated purchases, the Company closed all option contracts that were
designated and effective as hedges during the fourth quarter of fiscal 1996 and
did not enter into any such option contracts during the first quarter of fiscal
1997. Forward contracts designated to hedge foreign currency transaction
exposures of $176 million and $365 million were outstanding at April 28, 1996
and January 28, 1996, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities for the first quarter of fiscal
1997 of $334 million represented the Company's primary source of cash during
the quarter and benefited substantially from the decline in the inventory level
during the quarter, which resulted from tighter inventory management and
declining component costs. Working capital totaled $1,025 million at April 28,
1996 compared with $1,018 million at January 28, 1996. Days in accounts
receivable at the end of the first quarter of fiscal 1997 increased slightly to
43 days from 42 days at the end of fiscal 1996. Days in accounts payable
increased to 42 days at the end of the first quarter of fiscal 1997 from 33
days at the end of fiscal 1996. Days in inventory decreased significantly to
17 days at the end of the first quarter of fiscal 1997 from 31 days at the end
of fiscal 1996.
The Company's capital expenditures of $31 million during the first
quarter of fiscal 1997 were primarily to construct facilities, to acquire
information systems (principally hardware and third-party software licenses)
and to acquire personal computer office equipment. Capital expenditures for
fiscal 1997 are expected to be approximately $120 million, relating primarily
to the construction of facilities, the acquisition of information systems and
the acquisition of computer equipment for internal use. The Company believes
that its cash and marketable securities and cash flows from operating
activities will be adequate to fund its planned fiscal 1997 capital
expenditures.
During the first quarter of fiscal 1997, the Company announced a stock
repurchase program and repurchased a total of 3.3 million shares of common
stock under such program for an aggregate purchase price of $100 million. For
further discussion regarding the Company's stock repurchase program, including
activity conducted under the program, see Note 2 of Notes to Condensed
Consolidated Financial Statements.
10
<PAGE> 12
On May 23, 1996, the Company commenced a tender offer to purchase the
entire $100 million principal amount of its outstanding 11% Senior Notes. The
retirement of the Senior Notes prior to their maturity would result in a
one-time after-tax extraordinary charge of approximately $12 million, assuming
all of the outstanding Senior Notes are purchased. The Company expects to
conclude the tender offer during the second quarter and record the charge at
that time. See Note 3 of Notes to Condensed Consolidated Financial Statements
for further discussion regarding the tender offer.
The Company has a series of line of credit facilities, each of which
bears interest at a defined Base Rate or Eurocurrency Rate and has a covenant
based on quarterly maintenance of net worth. Maximum aggregate amounts
available under these credit facilities are limited to $200 million less the
aggregate of outstanding letters of credit under these facilities. During the
commitment period, the Company is obligated to pay a fee on the unused portion
of the credit facilities. Facilities with respect to $150 million expire on
June 6, 1996, and facilities with respect to the remaining $50 million expire
on September 6, 1996. The Company is currently in the process of negotiating a
revolving credit facility to replace the series of line of credit facilities
and expects to complete this transaction during the second quarter. No
borrowings were outstanding under the series of line of credit facilities as of
April 28,1996, and the maximum available totaled $196 million.
In November 1995, several of the Company's subsidiaries entered into a
transaction pursuant to which Dell Receivables L.P. ("Dell Receivables"), a
newly-formed wholly-owned subsidiary of the Company, purchases certain accounts
receivable and related assets from other Company subsidiaries and in turn
transfers such accounts receivable and related assets to the Dell Trade
Receivable Master Trust (the "Master Trust"). The Master Trust will issue
certificates evidencing fractional undivided interests therein, which
certificates may be sold to investors. This arrangement gives Dell Receivables
the ability to raise up to $150 million through the sale of certificates of
interest in the Master Trust. Dell Receivables is obligated to pay a
commitment fee on the unused portion of the facility. At April 28, 1996, this
facility was unused.
The Company's commitments to use cash include its potential obligation
under the tender offer for the outstanding Senior Notes, the repayment of the
portion, if any, of the Senior Notes not purchased pursuant to the tender
offer, the repayment of the outstanding balance of a $14 million secured loan,
the payment of operating lease commitments and the Company's potential
obligation under its stock repurchase program.
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.
FACTORS AFFECTING THE COMPANY'S BUSINESS AND PROSPECTS
Statements in this Report that relate to future results or events are
based on the Company's current expectations. There are many factors that
affect the Company's business and the results of its operations and may cause
the actual results of operations in future periods to differ materially from
those currently expected or desired. These factors include general economic
and business conditions; the level of demand for personal computers; the level
and intensity of competition in the personal computer industry and the pricing
pressures that may result; the ability of the Company to timely and effectively
manage periodic product transitions and component availability; the ability of
the Company to develop new products based on new or evolving technology and the
market's acceptance of those products; the ability of the Company to manage its
inventory levels to minimize excess inventory, declining inventory values and
obsolescence; the product, customer and geographic sales mix of any particular
period; and the Company's ability to continue to improve its infrastructure
(including personnel and systems) to keep pace with the growth in its overall
business activities. For a discussion of these and other factors affecting the
Company's business and prospects, see "Item 1 -- Business -- Factors
Affecting the Company's Business and Prospects" in the Company's Annual Report
on Form 10-K for the fiscal year ended January 28, 1996.
The computer industry is characterized by continuing improvements in
technology, which result in the frequent introduction of new products, short
product life cycles and continual improvement in product
11
<PAGE> 13
price/performance characteristics. Achieving a successful product transition
is one of the biggest challenges facing computer companies, and the Company
anticipates several significant product transitions during the remainder of
fiscal 1997. Although the Company has instituted several refinements to its
internal processes in an attempt to avoid the types of product transition
problems it experienced during the fourth quarter of fiscal 1996, there can be
no assurance that the Company will not experience similar problems in the
upcoming product transitions. A failure on the part of the Company to
effectively manage the periodic transitions will directly affect the demand for
the Company's products and the profitability of the Company's operations.
The Company's ability to maintain a low inventory level and achieve a
high number of inventory turns is dependent on many factors, including market
demand for the Company's products and the price and availability of component
supplies. Some of these factors are beyond the Company's control. Although
the Company was successful in managing its inventory level to optimal levels
during the first quarter of fiscal 1997, there can be no assurance that the
Company will be able to achieve similar success in future periods.
12
<PAGE> 14
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
The Company has been named as a defendant in approximately 30
repetitive stress injury lawsuits, most of which are in New York state courts
or United States District Courts for the New York City area. Several are in
state courts in New Jersey. One is in the Federal District Court for the
Eastern District of Pennsylvania, and one is in Federal District Court in
Kansas. Four cases have been dismissed; the remainder are at various stages of
the process leading to trial. 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 that have been filed, often naming Apple, Atex,
Compaq, IBM, 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. Ultimate
resolution of the litigation against the Company may depend on progress in
resolving this type of litigation overall. However, the Company does not
believe that the outcome of these matters will have a material adverse effect
on the Company's financial condition or results of operations.
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 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. The investigation has been closed,
with no findings of wrongdoing by the Company, with respect to the Company's
shipments to Russia, Ireland and Iraq. The Company is awaiting a response from
the Department of Commerce regarding its voluntary self disclosure of certain
shipments to Iran in June 1992. 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
has fully responded to the subpoena and, in accordance with its policy to
comply fully with export laws and regulations, intends to cooperate with the
Office of Export Enforcement. The Company does not believe that this
investigation or its outcome will have a material adverse effect on the
Company's financial condition or results of operations.
In May 1995, the Company was named, along with two other computer
manufacturers and one computer monitor vendor, in a class action complaint
filed in the California Superior Court for Marin County. Subsequently, several
other similar actions were filed in California Superior Courts for other
counties, naming a total of 48 defendants, including the Company. The
complaints in all of these cases allege that each of the defendants has engaged
in false or misleading advertising with regard to the size of computer monitor
screens. The plaintiffs seek restitution in the form of refunds or product
exchange, damages, punitive damages and attorneys' fees. The California
Judicial Council, in December 1995, ordered all of these similar cases
consolidated for proceedings up to and including trial and, in January 1996,
appointed a single trial judge for the consolidated proceeding. The Company
plans to vigorously contest the allegations of the complaints. This litigation
is currently at a preliminary stage, and no discovery has occurred. Thus, it
is too early for the Company to adequately evaluate the likelihood of the
plaintiffs' prevailing on their claims. There can be no assurance that an
adverse determination in this litigation would not have a material adverse
effect on the Company's financial condition or results of operations.
In June 1995, the Company was served with a class action complaint
filed in State District Court in Travis County, Texas. The complaint alleges
that the Company has included "used parts" in its "new" computer systems and
has failed to adequately inform its customers and prospective customers of that
practice. According to the complaint, these facts constitute fraud, negligent
misrepresentation, breach of contract and breach of warranty. The plaintiffs
seek refund of the purchase price for computer systems purchased from the
Company, damages in an unspecified amount, injunctive relief, interest and
attorneys' fees. The Company plans to vigorously contest the allegations of
the complaint. This litigation is currently at a preliminary stage, and no
discovery has occurred. Thus, it is too early for the Company to adequately
evaluate the likelihood of the plaintiffs' prevailing on their
13
<PAGE> 15
claims. There can be no assurance that an adverse determination in this
litigation would not 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.
The following exhibits are filed as a part of this Report:
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
10 Severance Agreement, dated March 28, 1996, between the Company and Richard N. Snyder
11 Statement Re Computation of Per Share Earnings
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
The Company did not file any Current Reports on Form 8-K during the
fiscal quarter to which this Report relates. On May 23, 1996, the Company
filed a Current Report on Form 8-K reporting under Item 5 the commencement by
the Company of a tender offer for the entire $100 million principal amount of
its 11% Senior Notes Due August 15, 2000.
14
<PAGE> 16
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
June 5, 1996
/s/ Catherine P. Thompson
------------------------------
Catherine P. Thompson
Vice President, Corporate Controller
(On behalf of the registrant and as chief
accounting officer)
15
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
10 Severance Agreement, dated March 28, 1996, between the Company and Richard N. Snyder
11 Statement Re Computation of Per Share Earnings
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10
[DELL LETTERHEAD]
March 28, 1996
Mr. Richard N. Snyder
3800 Corum Circle
Austin, Texas 78746
Dear Dick:
This letter agreement (this "Agreement") sets forth the mutual
agreement of Dell Computer Corporation for itself and its subsidiaries
(collectively referred to as the "Company" or "Dell") and yourself regarding
your employment by and departure from employment with the Company.
1. You and Dell agree that this Agreement is entered into in
connection with the amicable termination of your employment by Dell, and that
your employment will be terminated effective March 29, 1996 (the "Termination
Effective Date"). Dell will pay your health insurance and other present
benefits through the Termination Effective Date above. After the Termination
Effective Date, you will be responsible for the payments to continue health
insurance provided under Dell's group policy.
2. You agree that you are not entitled to receive from Dell or
from any of its officers, managers, directors, employees, agents, or
representatives any form of consideration or the payment of any amount other
than what is expressly set forth in this letter. You agree that you are not
entitled to receive from Dell any payment or distribution of any other type
(whether in cash or other property), except as expressly set forth in this
Agreement. You further agree that as of the Termination Effective Date, you do
not own and do not hold any vested and exercisable rights to purchase or
otherwise acquire from the Company shares of the Company's common stock, par
value $.01 per share (the "Common Stock") or any other securities. In
connection with any transactions involving Dell's securities, you understand
and agree that you are and will be subject to all the requirements of
applicable laws, rules and regulations.
3. You agree that in connection with your employment by the
Company you received a grant of 220,000 shares of Common Stock (110,000 prior
to the two-for-one split of the Common Stock in October 1995) (the "Restricted
Stock") subject to certain vesting, transfer, and other restrictions more
fully set forth in the
<PAGE> 2
Mr. Richard N. Snyder
March 28, 1996
Page 2
agreements pursuant to which you received the Restricted Stock (the "Restricted
Stock Agreements"). Under the Restricted Stock Agreements certain restrictions
lapsed on February 27 and 28, 1996 with respect to a total of 46,142 shares of
the Restricted Stock and you hereby acknowledge that certificates representing
those shares have been delivered to you. You acknowledge and agree that, under
the terms of the Restricted Stock Agreements, your ownership of, and any and
all of the rights you may have or claim to the remaining 173,858 shares of
Restricted Stock are forfeited as of the Termination Effective Date.
4. Your vested balance in Dell's 401(k) Plan Trust and the
Company's deferred compensation plan (if any) will be available for you to
withdraw or roll over at the end of the month if your request is submitted to
the plan administrator by the 25th of the month after the Termination Effective
Date, subject to applicable laws and regulations. Any balance you may have in
Dell's Employee Stock Purchase Plan will also be available for you to withdraw
after the Termination Effective Date, in accordance with the provisions of the
Plan.
5. On the Termination Effective Date, you will resign from all
positions as a corporate officer of Dell Computer Corporation and its
subsidiaries and affiliates. You agree that upon reasonable request from the
Company's General Counsel, you will separately confirm such resignations in
writing. From and after the Termination Effective Date, you will have no
duties, obligations or responsibilities to perform any work or services for or
on behalf of the Company. You further agree that, except as otherwise
requested or permitted by the Company, you will not return to the place of
business where you were employed by the Company, you will not travel to or
visit any of the Company's business locations, and you will not call or visit
any of the Company's employees during working hours or in any way or at any
time disrupt or undertake any activity that would have a tendency to disrupt
the business endeavors of the Company or its employees. Upon the Company's
prior request or permission, you may visit the Company for the purpose of
establishing and maintaining a business relationship between your new employer,
or any person for whom you may be consulting, and the Company. You will be
free to undertake other employment after the Termination Effective Date so long
as your employment and services do not contravene any other provision of this
Agreement.
6. In addition, the Company will pay for all services provided to
you by Price Waterhouse LLP in connection with the preparation of your 1995
personal income tax return in accordance with your present entitlements to such
services.
7. You agree that by execution of this Agreement you fully,
finally, completely and generally release the Company and each of its officers,
managers, directors, control persons, employees, agents and representatives,
<PAGE> 3
Mr. Richard N. Snyder
March 28, 1996
Page 3
individually and separately, from any and all claims, actions, liabilities,
obligations, demands, and/or causes of action, of whatever kind or character,
whether known or unknown, arising from, relating to, or in any way connected
with (i) any of the foregoing persons, (ii) your employment, resignation or
termination of employment with the Company, (iii) your decision to move to or
from or accept employment in Austin, Texas, (iv) your severance of employment
with your former employer prior to accepting employment with the Company, and
(v) any act or omission that has occurred on or before the Termination
Effective Date in connection with any activity related to any of the foregoing
persons or to any activity, statements, controversy or dispute related to your
employment, resignation or termination of employment with the Company. The
foregoing release does not cover any claim, demand or cause of action you may
have to the extent that it arises out of any breach or default by the Company
under this Agreement or any other act or omission by the Company after the
Termination Effective Date relating to your employment with the Company.
8. The release set forth in Paragraph 7 above shall be construed
as broadly as possible and shall include without limitation (1) any contractual
or other claims of employment or payment you may have; (2) any claims, if any,
arising out of or in connection with the initiation, termination or existence
of your employment relationship with the Company or any service performed on
behalf of the Company; (3) any claims regarding accrued vacation, bonuses or
any other form of benefit attributable to the Company; and (4) any claims
arising under the Federal Age Discrimination in Employment Act, the Civil
Rights Act of 1964, as amended, or any other applicable federal, state or
municipal statute, ordinance or regulation. You represent that you have not
assigned to any other person any of the foregoing claims and that you have the
full right to grant this release.
9. The Company hereby fully, finally, completely and generally
releases you from any and all claims, actions, demands and/or causes of action,
of whatever kind or character, whether known or unknown, arising from, relating
to, or in any way connected with any act or omission by you that has occurred
before the Termination Effective Date in connection with your employment by the
Company. The foregoing release does not cover any claim, demand or cause of
action the Company may have to the extent that it arises out of any breach or
default by you under this Agreement or any other act or omission by you after
the Termination Effective Date relating to your employment with the Company.
10. The release set forth in Paragraph 9 above shall be construed
as broadly as possible and includes without limitation (1) any contractual
claims the Company may have; (2) any claims arising out of the initiation or
termination of your employment relationship with the Company; and (3) any
claims arising out of any act, service or omission performed or not performed
by you. The Company
<PAGE> 4
Mr. Richard N. Snyder
March 28, 1996
Page 4
represents that it has not assigned to any other person the foregoing claims
and causes of action and that it has the full right to grant the release set
forth herein.
11. You represent that, from and after the Termination Effective
Date, you will not have in your possession any documents, correspondence,
memoranda, or other tangible media which contain information of any kind
relating to the Company or its business operations. You agree that you will
not take any such documents and information from the control or premises of the
Company and that if you should find yourself in possession of same you will
return all of same to the Company immediately.
12. You acknowledge that the Company conducts business in all fifty
states of the United States and in numerous foreign nations including but not
limited to the countries of the U.K., Ireland, France, Germany, Spain,
Switzerland, Finland, Norway, Sweden, Canada, Mexico, Australia, Japan,
Malaysia, Hong Kong, the Czech Republic and Poland. You further acknowledge
and agree that in your position with the Company you have since February 1995
represented the Company as one of its most senior executives; that you have
received from the Company unique and special knowledge and training which was
not previously available to you before your employment with the Company; that
the Company possesses and utilizes at the Termination Effective Date trade
secrets not known or used by the Company's competitors, which trade secrets
give the Company an advantage over its competitors; that during your employment
with the Company you have received knowledge of and confidential information
about the Company's trade secrets including but not limited to those relating
to its production, research, marketing, service, support, pricing and sales
practices and policies; that at the Termination Effective Date the Company's
manufacturing, administrative and other premises are restricted by security
procedures put in place by the Company and that Company-hired security guards
are on duty at all times to monitor and protect the Company's premises and
information; that it would take any person or entity a significant amount of
time to enter any of the Company's markets and to achieve substantial
commercial success in such markets because the necessary understanding of any
technical data and information relating to such markets (and to their
customers, pricing, product offerings and service delivery methods) would be
difficult and costly to develop; that you were involved in organizing the
Company's sales and marketing practices and had access to the Company's sale's
data; and that unauthorized use by you of the knowledge, information, data and
trade secrets of the Company described above would seriously damage the Company
and hinder its ability to do business worldwide. The character of any
knowledge or information as a trade secret will be determined from time to time
according to the facts then prevailing and applicable law.
<PAGE> 5
Mr. Richard N. Snyder
March 28, 1996
Page 5
13. Non-Competition. You agree that, for the duration of the
"Restriction Period" (which for purposes of this Agreement shall be defined to
mean the period from the Termination Effective date, through and including
March 29, 1997), without the prior written approval of the Company's Vice
President of Human Resources, you will not manage, operate, join, control or
participate in, directly or indirectly, consult on behalf of or for the benefit
of, or derive any benefit whatsoever from or be an officer, director, employee,
partner, agent or consultant of, any business or activity (a "Competitor") that
sells personal computers, computer workstations or servers directly to the end
user (the "PC Direct Channel"). You will not be in violation of this Paragraph
13 merely because you own publicly traded securities issued by a Competitor
engaged in the PC Direct Channel as long as you own less than 5% of any class
of securities then outstanding. Notwithstanding any other provision of this
Paragraph 13 to the contrary, the restrictive covenant contained in this
Paragraph 13 shall not prohibit you from obtaining employment with and being
employed by, in whatever capacity, Hewlett-Packard Company or any of its
wholly-owned subsidiaries, so long as you continue to comply with all of the
provisions of this Agreement.
14. You agree that the non-competition provision set forth in
Paragraph 13 is ancillary to this Agreement, that this Agreement is an
otherwise enforceable agreement, and that the non-competition provision is
therefore ancillary to an otherwise enforceable agreement. You further agree
that the non-competition provision contains reasonable limitations as to the
time, geographical area and scope of activity for which you are to be
restrained; that the limitations of this Agreement and your covenant not to
compete with the Company do not impose a greater restraint than is necessary to
protect the goodwill or other business interests of the Company; and that the
primary purpose of this Agreement does not obligate you to render personal
services to the Company.
15. The 46,142 Restricted Shares described in Paragraph 3, and any
amount received by you upon disposition of said shares, are subject to certain
forfeiture and repayment conditions (the "Two Year Restriction") for a period
of two years after your employment with the Company ends in accordance with the
terms of the Restricted Share Agreements. As separate consideration for the
non-competition provision set forth in Paragraph 13, the Company hereby waives
the Two Year Restriction as to the 46,142 Restricted Shares that have been
delivered to you.
16. The Company agrees to pay you, within ten (10) days after the
Termination Effective Date, a lump sum of $1,198,614.80. You agree that such
consideration, as well as the other consideration and promises set forth in
this Agreement, constitute full and adequate consideration to support this
Agreement and each of its provisions. You and the Company hereby agree as
follows:
<PAGE> 6
Mr. Richard N. Snyder
March 28, 1996
Page 6
(a) Of such lump sum amount, the amount of $798,614.80
shall be considered as further and separate consideration for the
non-competition provision set forth in Paragraph 13 and shall be subject to
normal withholding.
(b) The remaining $400,000.00 of such lump sum amount
shall be considered as further and separate consideration for your general
release of the Company for any and all claims, actions, demands and/or causes
of action arising prior to the Termination Effective Date and in connection
with your employment with the Company or the termination of such employment
(including any such claims, actions, demands or causes of action that may be
based on, or arise out of, acts or omissions, or alleged acts or omissions, of
the Company that may constitute, or be alleged to constitute, fraud, defamation
or other tortious conduct), and the Company shall not withhold from such
amount. You hereby agree to indemnify the Company for, and hold the Company
harmless against, any and all losses, claims, damages, liabilities, costs or
expenses (including attorney's fees), judgments and amounts paid in settlement
in connection with any claim, action, suit, proceeding or investigation arising
out of or pertaining to the Company's failure to withhold from the amount
described in this subparagraph (b).
17. As further and separate consideration for the non-competition
provision set forth in Paragraph 13, the Company agrees to pay you on or before
April 5, 1997, a lump sum of $100,000, subject to normal withholding. You
understand and agree that your right to this lump sum payment is conditioned
upon your full and complete compliance with the remaining provisions of this
Paragraph 17. No earlier than March 29, 1997, you will execute and deliver to
the Company a sworn affidavit (the "Compliance Affidavit"), in the form
attached hereto as Exhibit A. In the Compliance Affidavit, you will attest
under oath that as of the date of the affidavit and at all times prior thereto,
you are and have been in full and complete compliance with the terms of this
Agreement. You will not be entitled to receive this lump sum payment unless
and until you have executed and delivered a true and accurate Compliance
Affidavit to the General Counsel of the Company in accordance with the terms
set forth above.
18. You and the Company both agree that the releases given in this
Agreement will not be taken as admissions of liability with respect to any
matter by you or by the Company. You and the Company further agree that no
release contained herein shall be admissible in any judicial, administrative or
other proceeding or cause of action as an admission of liability by you, by the
Company or by any persons released by this Agreement.
<PAGE> 7
Mr. Richard N. Snyder
March 28, 1996
Page 7
19. You agree that you will not, for a period of two (2) years
after the Termination Effective Date, alone or with others, directly or
indirectly, solicit or recruit for your benefit, or for the benefit of any
person or entity, the employment or other services of any person who is an
employee of the Company or who within the six month period preceding such
solicitation or recruitment has been an employee of the Company. You agree
that you will not, during this two year period, cause or facilitate (by
providing information or otherwise) the solicitation or the recruitment of such
employment or other services by or for the benefit of any person or
organization with which you may be associated.
20. In addition to the other agreements contained herein, you
agree that you will not use, publish, misappropriate or disclose in any manner,
directly or indirectly, for yourself or for the benefit of any other person or
entity, any Confidential and Proprietary Information. "Confidential and
Proprietary Information" means, without limitation, any information that you
have learned or originated during your employment with the Company, to the
extent that such information is related to the products, marketing plans, sales
plans, operating procedures, properties or financial condition, prospects or
results of operations of the Company, which information is commercially
valuable and is not publicly available to or readily ascertainable by third
parties through proper means, and any information disclosed by third parties in
confidence to the Company. Nothing in this Paragraph 20 shall prohibit you
from accepting employment with, or being employed by, any company or other
entity otherwise permissible under the terms of Paragraph 13 hereof, so long as
you comply with the provisions of this Paragraph 20. Confidential and
Proprietary Information specifically includes, without limitation, all such
information of the kinds described in subparagraphs A through G below:
A. Manufacturing and research processes currently in
use, planned or under development, including design rules, device
characteristics, process flow and manufacturing capabilities and yields.
B. Computer product, process and device strategies in
use, planned or under development, including device specifications, system
architectures, logic designs, circuit implementations and long-range plans.
C. Software products in use, planned or under
development, including operating system adaptations or enhancements, language
compilers, interpreters and translators, system design and evaluation tools,
and application and diagnostic programs.
<PAGE> 8
Mr. Richard N. Snyder
March 28, 1996
Page 8
D. Information relating to Company employees; actual and
anticipated relationships between the Company and other companies or persons;
sales levels, profit levels, pricing and other unpublished financial data; and
budget, staffing compensation, equipment and related plans.
E. Information relating to the Company's customer,
supplier and vendor relationships including performance requirements,
development and delivery schedules, device and product pricing and quantities,
and other information communicated to the Company by its customers, suppliers
and vendors.
F. Information relating to the compensation, skill and
work of the Company's employees.
G. Any Intellectual Property defined below and any
copyrightable works described below, except as publicly disclosed in patents
and other publicly available documents.
21. You agree that all discoveries, ideas, improvements or
inventions you have created, conceived, developed or discovered, alone or with
others, during your employment with the Company which relate to the Company's
business or which result from the use of the Company's equipment, supplies,
facilities or information, and which are protectable under applicable patent or
copyright laws (collectively, the "Intellectual Property"), in whatever form,
is the Company's sole and exclusive property. You hereby assign to the Company
all of your rights in any Intellectual Property. You agree that you will
assist the Company at the Company's expense in all ways in the future,
including giving evidence and executing any documents deemed helpful or
necessary by the Company, to establish, perfect and register worldwide, at the
Company's expense, the Company's title and exclusive ownership in the
Intellectual Property. You agree that you will not do anything in conflict
with the Company's rights in the Intellectual Property and that you will
cooperate fully to protect the Intellectual Property against misappropriation
or infringement.
22. You agree that the Company is the copyright owner in all
copyrightable works of every kind and description created or developed by you,
solely or jointly with others, during the time of your employment with the
Company. If so requested at any time, and for no additional considerations,
you will execute in writing any acknowledgments or assignments or copyright
ownership of such works as may be appropriate in the opinion of the Company for
preservation of the worldwide ownership in the Company of such copyrights.
<PAGE> 9
Mr. Richard N. Snyder
March 28, 1996
Page 9
23. You agree that your obligations pursuant to Paragraphs 20 and
21 with respect to the Intellectual Property will survive the satisfaction or
completion of any other term of this Agreement and will continue for the
duration of the Restriction Period as to Paragraph 20 and in perpetuity as to
Paragraph 21 except as otherwise specified herein.
24. You acknowledge that your breach of any of the
non-competition, non-solicitation, non-disclosure or non-use provisions set
forth above will cause irreparable harm to the Company for which there may be
no adequate remedy at law and for which the ascertainment of damages would be
difficult. You therefore agree that in the event of your breach of any such
provision, in addition to and without having to prove the inadequacy of other
remedies at law, the Company shall be entitled to receive specific performance
by you of any such provision that you have breached, and the Company will
furthermore be entitled to the issuance of a court order directing full and
immediate injunctive relief against you without the Company being required to
post any bond or other security therefore. However, the provisions of this
Paragraph should not be interpreted in any way as a limitation on the Company's
right to obtain money damages against you in the event of a breach of any of
the provisions set forth above.
25. You and the Company agree to maintain in confidence the terms
of this Agreement and not to disclose the Agreement publicly or to third
parties except as may be required in compliance with the requirements of
applicable law. You and the Company further agree that after the Termination
Effective Date, except as provided in the next sentences, neither you nor any
representative of the Company will make further comment, on or off the record,
for attribution or otherwise with regard to the circumstances of your departure
except as authorized in writing in advance by the party about whom the comment
is made. In addition, you will make no comment, on or off the record, for
attribution or otherwise, during the Restriction period, about your employment
with the Company, or about the Company or an aspect of its business or
operations, without the express prior written agreement of the Company, except
as you may be required to do under oath in response to a subpoena. You agree
that in the event you breach this covenant of confidentiality and the Company
is damaged as a result of such breach, you shall be personally liable for all
damages arising from such breach, including reasonable attorneys' fees and
costs incurred by the Company in pursuing such claim against you; and the
Company agrees that in the event it breaches this covenant of confidentiality
and you are damaged as a result of such breach, the Company shall be liable for
all damages arising from such breach, including reasonable attorney's fees and
costs incurred by you in pursuing such claim against the Company.
<PAGE> 10
Mr. Richard N. Snyder
March 28, 1996
Page 10
26. This Agreement shall be interpreted in all respects by the
internal laws of the State of Texas, excluding its choice of law rules, and the
venue (location of any lawsuit) shall be solely in Travis County, Texas.
27. You are advised to consult with an attorney before executing
this Agreement. By your signature below, you acknowledge that you have had a
sufficient opportunity to thoroughly discuss the implications of this Agreement
with independent advisors of your choice prior to execution. In signing this
Agreement, you agree that you have not been induced to execute this Agreement
by any representations or agreements made by any person other than what is
expressly set forth in this Agreement. You also agree that you understand this
Agreement in full and sign it voluntarily with full knowledge of its contents.
You acknowledge that this Agreement was written in a manner that you were able
to and did understand.
28. If Agreement accurately sets forth your agreement with the
Company with respect to matters arising in connection with your employment and
any other agreement between you and the Company, please signify by your
execution of this letter where indicated below and return it to the Company by
close of business on March 29, 1996. "Execution" of the Agreement means that
you will sign it in the presence of a notary public. You hereby acknowledge
that you have had a period of at least 21 days within which to consider this
agreement and discuss it with your attorney, the original version of this
Agreement having been submitted to you and your attorney on February 29, 1996.
You have a period of seven (7) days following your execution of this Agreement
within which to revoke it. This Agreement shall not become effective or
enforceable until the revocation period has expired. If you choose to revoke
this Agreement, all payments and benefits to you will immediately cease. If
you do not revoke the Agreement within seven (7) days from the date you sign
it, its provisions become final. If you decide to revoke this Agreement,
please contact the Company's General Counsel within seven (7) days from the
date you signed the Agreement. If Dell has not received an executed copy of
this letter, signed by you and notarized on or before close of business on
March 29, 1996, this offer will automatically terminate and expire without
further notice from Dell.
29. This Agreement constitutes the entire agreement of the parties
and supersedes all prior oral and/or written agreements with Dell concerning
the subject matter hereof or concerning your employment with Dell. This
Agreement may not be modified except by a written agreement with Dell executed
by you and an authorized officer of Dell.
30. This Agreement is binding upon and shall inure to the benefit of
the parties and their respective heirs, representatives and assigns.
<PAGE> 11
Mr. Richard N. Snyder
March 28, 1996
Page 11
If this letter accurately sets forth your agreement with respect to
the matters set forth herein, please so signify by signing this letter where
indicated below and then delivering to the Company your executed original of
this Agreement.
(SIGNATURE PAGES ATTACHED)
<PAGE> 12
Mr. Richard N. Snyder
March 28, 1996
Page 12
DELL COMPUTER CORPORATION
Date: March 28, 1996 By: /s/ THOMAS B. GREEN
------------------- -------------------------------
Thomas B. Green,
General Counsel
Sworn to and subscribed before me
on March 28, 1996
/s/ STEPHANIE J. SALMON
- --------------------------------- [SEAL]
Notary Public, State of Texas
I have carefully read the foregoing Agreement. On behalf of myself,
my executor, heirs, successors and assigns, I agree to all of its terms, and to
be bound by all of its terms. I acknowledge receipt of a copy of it and the
sufficiency of the consideration and payments recited by it.
Date: March 29, 1996 /s/ RICHARD N. SNYDER
------------------- -------------------------------
Richard N. Snyder
Sworn to and subscribed before me
on March 29, 1996.
/s/ REBECCA C. SCOGGIN
- --------------------------------- [SEAL]
Notary Public, State of Texas
<PAGE> 13
Mr. Richard N. Snyder
March 28, 1996
Page 13
As the spouse of Richard N. Snyder, I have carefully read the
foregoing Agreement. On behalf of myself, my executor, heirs, successors and
assigns, I agree to all of its terms, and to be bound by all of its terms, and
I understand that the term "you" as used in the letter shall also be deemed to
include me. I acknowledge receipt of a copy of it and the sufficiency of the
consideration and payments recited in it.
Date: March 29, 1996 /s/ CANDICE D. SNYDER
------------------- -------------------------------
Candice Snyder
Sworn to and subscribed before me
on March 29, 1996.
/s/ REBECCA C. SCOGGIN
- --------------------------------- [SEAL]
Notary Public, State of Texas
<PAGE> 14
EXHIBIT A
COMPLIANCE AFFIDAVIT
STATE OF
------------
COUNTY OF
-----------
I, RICHARD N. SNYDER, residing at 3800 Corum Circle, Austin, Texas
78746, being duly sworn, declare under oath that the following statements are
true and correct:
1. I am providing this Compliance Affidavit to and for the
benefit of Dell Computer Corporation and its subsidiaries and
affiliates (collectively, the "Company") pursuant to that certain
letter agreement (the "Agreement") between the Company and me dated
March 28, 1996, regarding matters relating to my employment with the
Company and termination thereof.
2. I hereby certify, declare and attest under oath that as of the
date of this Compliance Affidavit and at all times prior to the date
hereof, I am and have been in full and complete compliance with the
terms of the Agreement, including without limitation, the
non-competition, non-solicitation, non-disclosure and non-use
provisions contained in the Agreement, and I acknowledge and reaffirm
all of my obligations as set forth in the Agreement.
----------------------------------
RICHARD N. SNYDER, Affiant
SUBSCRIBED AND SWORN TO before me on the day of 199 .
---- -------------------- ------
----------------------------------
Notary Public -- State of
My Commission Expires:
- ----------------------------
-----------------------------------
Printed Name of Notary Public
<PAGE> 1
EXHIBIT 11
DELL COMPUTER CORPORATION
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(in millions, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
April 28, April 30,
1996 1995
-------- ---------
<S> <C> <C>
Primary earnings per common share:
Calculation of weighted average shares(a):
Weighted average shares of common stock outstanding . . . . . 91.7 83.9
Weighted average shares of common stock equivalents,
utilizing the treasury stock method . . . . . . . . . . . . 5.7 6.6
----- -----
Weighted average shares outstanding . . . . . . . . . . . . . 97.4 90.5
===== =====
Earnings:
Net income available to common stockholders . . . . . . . . . $82 $50
===== =====
Earnings per common share(a)(b) . . . . . . . . . . . . . . . . . . $0.84 $0.55
===== =====
Fully diluted earnings per common share:
Calculation of weighted average shares(a):
Weighted average shares of common stock outstanding . . . . . 91.7 83.9
Weighted average shares of common stock equivalents,
utilizing the treasury stock method . . . . . . . . . . . . 6.2 7.4
Assumed conversion of Convertible Preferred Stock . . . . . . .5 6.2(c)
----- -----
Weighted average shares outstanding . . . . . . . . . . . . . 98.4 97.5
===== =====
Earnings:
Net income available to common stockholders . . . . . . . . . $82 $ 50
Add: preferred dividends . . . . . . . . . . . . . . . . . . -- 1(d)
----- -----
Adjusted net income available to common stockholders . . . . . $82 $51
===== =====
Earnings per common share(a)(b) . . . . . . . . . . . . . . . . . . $0.84 $0.53
===== =====
</TABLE>
- --------------------
(a) All share and per share information for fiscal 1996 has been retroactively
restated to reflect the two-for-one common stock split which took place
during the third quarter of fiscal 1996.
(b) Earnings per common share was calculated using the underlying data in
thousands.
(c) Assumes conversion, at the beginning of fiscal 1996, of the 60,000 shares
of outstanding Convertible Preferred Stock and assumes conversion of the
remaining Convertible Preferred Stock (those shares which were converted in
March 1995) for the period from the beginning of fiscal 1996 to the actual
conversion date.
(d) Preferred dividends are exclusive of the conversion premium and expenses
of the conversion offer.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMAITON EXTRACTED FROM DELL
COMPUTER CORPORATION FINANCIAL STATEMENTS AS OF AND FOR THE THREE MONTH PERIOD
ENDED APRIL 28, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-02-1997
<PERIOD-END> APR-28-1996
<CASH> 66
<SECURITIES> 787
<RECEIVABLES> 778
<ALLOWANCES> 0
<INVENTORY> 252
<CURRENT-ASSETS> 2,030
<PP&E> 198
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,240
<CURRENT-LIABILITIES> 1,005
<BONDS> 113
0
6
<COMMON> 261
<OTHER-SE> 523
<TOTAL-LIABILITY-AND-EQUITY> 2,240
<SALES> 1,638
<TOTAL-REVENUES> 1,638
<CGS> 1,319
<TOTAL-COSTS> 1,319
<OTHER-EXPENSES> 25
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3
<INCOME-PRETAX> 116
<INCOME-TAX> 34
<INCOME-CONTINUING> 82
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 82
<EPS-PRIMARY> .84
<EPS-DILUTED> .84
</TABLE>
