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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED FEBRUARY 2, 1997
COMMISSION FILE NUMBER: 0-17017
DELL COMPUTER CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE 74-2487834
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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ONE DELL WAY, ROUND ROCK, TEXAS 78682-2244
(Address, including Zip Code, of registrant's principal executive offices)
(512) 338-4400
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $.01 per share
Preferred Stock Purchase Rights
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 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) 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. [X]
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AGGREGATE MARKET VALUE OF COMMON STOCK HELD BY
NON-AFFILIATES OF THE REGISTRANT AS OF APRIL 1, 1997...... $9,218,266,492
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF APRIL 1,
1997...................................................... 167,471,650
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DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this Report, to the extent not set forth
herein, is incorporated herein by reference from the Registrant's definitive
proxy statement relating to the annual meeting of stockholders to be held in
1997, which definitive proxy statement shall be filed with the Securities and
Exchange Commission within 120 days after the end of the fiscal year to which
this Report relates.
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PART I
ITEM 1 -- BUSINESS
GENERAL
Dell Computer Corporation (the "Company") designs, develops, manufactures,
markets, services and supports a wide range of computer systems, including
desktops, notebooks and network servers, and also markets software, peripherals
and service and support programs. With revenue of $7.8 billion for fiscal 1997
(which ended on February 2, 1997), the Company is the world's leading direct
computer systems company and one of the top five computer vendors in the world.
The Company is a Delaware corporation that was incorporated in October 1987,
succeeding to the business of a predecessor Texas corporation (also named Dell
Computer Corporation) that was originally incorporated in May 1984. Based in
Round Rock, Texas, the Company conducts operations worldwide through wholly
owned subsidiaries. See "Item 1 -- Business -- Geographic Areas of Operations"
below. Unless otherwise specified, references herein to the "Company" are
references to the Company and its consolidated subsidiaries. The Company
operates in one principal industry segment.
The Company's common stock, par value $.01 per share (the "Common Stock") is
listed on The Nasdaq National Market under the symbol "DELL." See "Item
5 -- Market for Registrant's Common Equity and Related Stockholder
Matters -- Market Information" below.
BUSINESS STRATEGY
The Company's business strategy is customer-focused and aims to deliver the best
customer experience through direct, comprehensive customer relationships,
cooperative research and development with technology partners, custom-built
computer systems and service and support programs tailored to customer needs.
The Company believes that this approach provides it with several competitive
advantages. The approach eliminates the need to support an extensive network of
wholesale and retail dealers, thereby avoiding typical dealer mark-ups; avoids
the higher inventory costs associated with the wholesale/retail channel and the
competition for retail shelf space; and reduces the obsolescence risk associated
with products in a rapidly changing technological market. In addition, direct
customer contact allows the Company to maintain, monitor and update a database
of information about customers and their current and future product and service
needs, which can be used to shape future product offerings and post-sale service
and support programs.
Comprehensive Customer Relationships
The Company develops and utilizes direct customer relationships to understand
end-users' needs and to deliver high quality computer products and services
tailored to meet those needs. With respect to major account customers, the
relationship generally begins prior to sale, when the Company works with the
customer to plan a strategy to meet that customer's current and future
technology needs. The direct relationship continues after the sale, as dedicated
account teams consisting of sales, customer service and technical personnel
continue to support the customer's technology objectives. The Company also
establishes direct relationships with small-to-medium business and individual
customers, although some of those relationships may not be as extensive as the
relationships with major account customers. All of these direct customer
relationships provide the Company with a flow of information about its
customers' plans and requirements and enable it to weigh their needs against
emerging technologies.
Cooperative Research and Development
The Company also develops cooperative, meaningful relationships with the world's
most advanced technology companies. Working with these companies, the Company's
engineers manage quality, integrate technologies and design and manage system
architecture. This cooperative approach allows the Company to determine the best
method and timing for delivering new technologies to the market. The Company's
goal is to deliver the right technology to its customers at the right time.
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Custom-Built Computers
The Company was founded on the principle that delivering computers custom-built
to specific customer orders is the best business model for providing solutions
that are truly relevant to end-user needs. This build-to-order, flexible
manufacturing process enables the Company to achieve faster inventory turnover
and reduced inventory levels and allows the Company to rapidly incorporate new
technologies and components into its product offerings.
Custom-Tailored Service and Support Programs
In the same way that the Company's computer products are built-to-order, service
and support programs are designed to fit specific customer requirements. The
Company offers a broad range of service and support programs through its own
technical personnel and its direct management of specialized service suppliers.
These services range from telephone support to on-site customer-dedicated
systems engineers.
While the Company believes that its business strategy provides it with
competitive advantages, there are many factors that may affect the Company's
business and the success of its operations. These factors include general
economic and business conditions; the level of demand for computers; the level
and intensity of competition in the 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 technologies 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" below.
GEOGRAPHIC AREAS OF OPERATIONS
The Company's products are currently sold in more than 140 countries worldwide.
The Company has organized its worldwide operations into four distinct geographic
regions to support its customers in each area through fully integrated, regional
business units. The Americas region, which is based in Round Rock, Texas, covers
the United States, Canada and Latin America. The Europe region, which is based
in Bracknell, England, covers the European countries and also some countries in
the Middle East and Africa. The Asia Pacific region, which is based in Hong
Kong, covers the Far East (exclusive of Japan), Australia and New Zealand. The
Japan region covers only Japan and is based in Kawasaki.
The Company's corporate headquarters are located in Round Rock, Texas, and its
manufacturing facilities are located in Austin, Texas; Limerick, Ireland; and
Penang, Malaysia. See "Item 2 -- Properties" below.
For financial information about the results of the Company's operations by
geographic region for each of the last three fiscal years, see Note 10 of Notes
to Consolidated Financial Statements included in "Item 8 -- Financial Statements
and Supplementary Data."
During fiscal 1997, the Company extended its direct-to-the-customer operations
into five new countries in the Asia-Pacific region. The Company intends to
continue to expand its international activities by increasing its market
presence in existing markets through strengthening its marketing and sales
programs, by improving its infrastructure, by pursuing additional distribution
opportunities and by entering new markets. International activities are subject
to special risks. See "Item 1 -- Business -- Factors Affecting the Company's
Business and Prospects" below.
PRODUCT PORTFOLIO
The Company offers a wide range of computer systems, including desktops,
notebooks and network servers, as well as software, peripherals and service and
support programs.
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Desktop Computer Systems
The OptiPlex(R) line of desktop computer systems is the Company's mainstream
offering for corporate, institutional and other major account customers who
require highly reliable systems for use in a networked environment. The OptiPlex
line consists of three series, all of which utilize Intel Corporation's
Pentium(R) or Pentium Pro processors. The OptiPlex GX Pro series, which is the
most advanced series in the OptiPlex line, utilizes Pentium Pro processors in
single or dual processor configurations and is designed for optimal performance
with 32-bit operating systems. The OptiPlex GXi and OptiPlex Gs series utilize
Pentium processors or Pentium processors with MMX(TM) technology and are
designed for mainstream business users, particularly those with sophisticated
multimedia requirements. All systems in the OptiPlex line utilize the Company's
no-tool OptiFrame(TM) chassis, facilitating servicing and upgrades. The
OptiFrame chassis is built entirely from recyclable materials.
The Company has three lines of desktop computer systems that are designed
primarily for small-to-medium businesses and individual users. The Dell
Dimension(TM) XPS Pro line utilizes Pentium Pro processors for optimal 32-bit
computing. The Dell Dimension XPS line utilizes Pentium processors with MMX
technology and is targeted at technologically sophisticated users. The Dell
Dimension line utilizes Pentium processors or Pentium processors with MMX
technology and is designed for the more value-oriented user.
Notebook Computers
The Company offers three lines of notebook or portable computers, all of which
utilize Pentium processors. The systems within the Latitude(R) XPi CD line
contain internal CD-ROM drives and are designed for users with sophisticated
multimedia requirements in both a mobile and networked environment. The Latitude
XPi line is designed for the more mainstream business user with both mobile and
networking requirements. The Latitude LM line is designed for business users who
operate primarily in a mobile environment and is available with MMX technology.
Servers
The PowerEdge(R) line of network servers consists of industry-standard systems
that can operate as file servers, database servers, applications servers and
communications/groupware servers in a networked computing environment. The
PowerEdge 6100 system, the Company's top-of-the-line server, may be configured
with up to four Pentium Pro processors in a rack-mountable or floor-standing
chassis. The PowerEdge 4100 system, the Company's mid-range server, may be
configured with either one or two Pentium Pro processors in a rack-mountable or
floor-standing chassis. The PowerEdge 2100 system, the Company's entry-level
server, utilizes single Pentium Pro processors.
Software and Peripheral Products
In addition to its own branded products, the Company offers a broad range of
software and peripheral products through its DellWare(R) program. Through
DellWare, the Company offers thousands of the most popular software packages and
hardware and communication peripherals. The Company's ReadyWare(SM) program is a
collection of more than 50 popular software applications and interface cards
that can be factory-installed on any computer system the Company sells.
Service and Support
The Company enhances its product offerings with a number of specialized
services, including custom hardware and software integration and network
installation and support. The Company offers next-business-day delivery, as well
as an extended training and support program on many of its software offerings.
For additional discussion of the Company's service and support programs, see
"Item 1 -- Business -- Service and Support" below.
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MARKETING AND SALES
The Company's customers range from major accounts, which include large
corporations, government agencies and medical and educational institutions, to
small businesses and individuals. The Company creates specialized marketing
approaches tailored to meet the needs of each type of customer. No single
customer accounted for more than 10% of the Company's consolidated net sales
during any of the last three fiscal years.
Major Accounts
The Company has a broad base of business among Fortune 500(R) companies and
governmental, medical and educational institutions worldwide. The Company holds
a U.S. General Services Administration Schedule contract, through which it sells
to U.S. federal governmental agencies.
The Company maintains a field sales force calling on major account customers and
prospects. The Company develops direct sales marketing programs and services
specifically geared to these major account customers. Account management teams,
consisting of sales, customer service and technical support representatives,
form long-term customer relationships to provide each major account customer
with a single source of assistance on issues ranging from order placement to
system configuration, connectivity and technology transitioning. To support
these teams, the Company has account executives in many major cities around the
world. For customers with in-house maintenance organizations, the Company offers
a variety of programs, including specialized computer training programs, a
repair parts assistance program and other customized programs to provide access
to the Company's technical support team. Customized product delivery and service
programs are available on a worldwide basis. See "Item 1 -- Business -- Service
and Support" below.
The Company supplements its direct marketing strategy by marketing through
value-added resellers ("VARs") that customize the Company's computer systems
with specific end-user applications through the addition of hardware, software
or services. Because VARs frequently package complete application-specific
solutions, they are able 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, handling and other related costs.
Net sales to major account customers totaled $4.9 billion in fiscal 1997, $3.4
billion in fiscal 1996 and $2.3 billion in fiscal 1995, representing a 45%
increase from fiscal 1996 to fiscal 1997 and a 45% increase from fiscal 1995 to
fiscal 1996. As a percentage of consolidated net sales, sales to this customer
group represented approximately 63% in fiscal 1997, 63% in fiscal 1996 and 67%
in fiscal 1995.
Small-to-Medium Businesses and Individuals
The Company also has a significant base of business among small-to-medium
businesses and individuals. Typically, these customers are knowledgeable
computer users and are not first-time buyers of computer systems. The Company
maintains a sales force that markets its products and services to these
customers by advertising in trade and general business publications and by
mailing a broad range of direct marketing publications, such as promotional
pieces, catalogs and customer newsletters. The Company believes these customers
value its ability to provide reliable, custom configured computer systems at
competitive prices, knowledgeable sales assistance, post-sale support and
on-site service offerings.
Net sales to small-to-medium business and individual customers totaled $2.9
billion in fiscal 1997, $1.9 billion in fiscal 1996 and $1.2 billion in fiscal
1995, representing a 49% increase from fiscal 1996 to fiscal 1997 and a 67%
increase from fiscal 1995 to fiscal 1996. As a percentage of consolidated net
sales, sales to this customer group represented approximately 37% in fiscal
1997, 37% in fiscal 1996 and 33% in fiscal 1995.
SERVICE AND SUPPORT
The Company offers a variety of service and support programs in all of its
geographic markets. The following is a brief description of the service and
support programs offered exclusively or primarily to the Company's U.S.
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customers. A full line of warranty, service and support options are available in
the Company's international markets, but these options can vary significantly
based on the local market and customer requirements.
Standard Programs
Most of the Company's systems include a standard one-year, next-business-day,
on-site service contract. In addition, basic warranty coverage for many systems
includes a three-year limited warranty, while some systems are covered by a
one-year limited warranty. The three-year warranties include one year of parts
and labor coverage and two additional years of parts only coverage, while the
one-year warranties include a year of parts and labor coverage and can be
upgraded to include years two and three with parts and labor coverage or
parts-only coverage. The Company also provides a 30-day "Total Satisfaction"
money back guarantee for any end-user customer buying directly from the Company.
The Company's SelectCare(R) service and support program is available for all
desktop and notebook systems. This program has offerings that come standard with
the Company's systems, including a toll-free hardware support line that is
accessible 24 hours a day, 7 days a week for the life of all of the Company's
systems. The technical specialists staffing this line maintain close contact
with the Company's marketing, manufacturing and product design groups and have
on-line access to each customer's original system configuration and service
history. Customers purchasing notebook computer systems are provided with access
to a separate, dedicated toll-free line staffed with mobile computing
technicians 24 hours a day, 7 days a week.
The Company's BusinessCare(SM) and BusinessCare Plus programs are standard
warranty upgrades available to PowerEdge server customers. The BusinessCare
program includes one year of next-business-day parts and labor on-site service,
two additional years of parts delivery service and five full assistance calls to
the Company's DirectLine(SM) network operating system support technicians. The
BusinessCare Plus program includes three years of four-hour, same-day service,
as well as five full assistance calls to DirectLine.
The Company offers alternative support avenues through the Internet on the
Company's World Wide Web server (http://www.dell.com) and through many of the
on-line subscription services such as CompuServe, America Online and Prodigy.
The Company also provides customers anytime access to the Company's bulletin
board for technical information that is menu-driven and fully interactive and to
its TechFax system (a fax-back service) and its AutoTech system (an interactive
voice response unit).
Many of the Company's systems include software that helps customers to diagnose
and communicate system problems. Several systems also include a built-in
diagnostics program that can provide on-line information about system
malfunctions.
Additional Options
Recognizing that customer service and support requirements vary, the Company
offers customers the opportunity to customize their SelectCare or BusinessCare
program by selecting additional levels of service and support to satisfy their
individual needs. Customers may supplement the standard one-year service
contract with extended service contracts providing up to four additional years
of next-business-day, on-site service.
Through the DellPlus program, the Company offers specialized services designed
to satisfy customers' unique hardware and software integration requirements.
With this program, a customer's particular integration requirements (whether
hardware related, such as specialized network cards, video and graphic boards,
modems, tape drives or hard drives; or software related, such as customer
proprietary software applications or drivers) can be satisfied at the time the
customer's systems are manufactured. This is in addition to the Company's
ReadyWare program, which is a collection of more than 50 popular software
applications and interface cards that can be factory-installed.
The Company offers around-the-clock software support on its most popular
software applications. Single users may subscribe to this support on a 90-day or
one-year basis, while multi-user groups can arrange for hourly blocks of access.
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The Company also offers a variety of on-site installation services that can be
customized to meet the needs of each specific customer. These services include
basic installation and orientation, system connectivity and functional testing,
external peripheral installation, internal device installation and file server
and advanced system installation.
Many of the Company's service and support programs, particularly the software
support and on-site service programs, are provided through independent
third-party contractors.
MANUFACTURING
The Company operates manufacturing facilities in Austin, Texas; Limerick,
Ireland; and Penang, Malaysia. During fiscal 1997, the Company began
construction of an additional 285,000 square-foot manufacturing facility in
Austin. This new facility is expected to begin production in the first half of
fiscal 1998 and will manufacture desktop systems for the Americas region.
The Company's manufacturing process consists of assembly, functional testing and
quality control of the Company's computer systems. Testing and quality control
processes are also applied to components, parts and subassemblies obtained from
suppliers. The Company's build-to-order manufacturing process is designed to
allow the Company to quickly produce customized computer systems and to achieve
rapid inventory turnover and reduced inventory levels, which lessen the
Company's exposure to the risk of declining inventory values. This flexible
manufacturing process also allows the Company to incorporate new technologies or
components into its product offerings quickly. The build-to-order manufacturing
process makes it more difficult, however, for the Company to achieve the same
manufacturing efficiencies as computer manufacturers that sell standardized
products in high volume.
The Company contracts with various suppliers to manufacture unconfigured base
Latitude notebook computers and then custom configures these systems for
shipment to customers.
Quality control is maintained through the 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 and component problems and information from the Company's customers
obtained through its direct relationships and service and support programs. The
Company conducts a voluntary vendor certification program, under which qualified
vendors commit to meet defined quality specifications. All of the Company's
manufacturing facilities have been certified as meeting ISO 9002 quality
standards.
PRODUCT DEVELOPMENT
The Company's product development efforts are focused on designing and
developing reasonably priced computer systems that adhere to industry standards
and incorporate the technologies and features that the Company believes are the
most desired by its customers. To accomplish this objective, the Company must
evaluate, obtain and incorporate new hardware, software, communications and
peripherals technologies that are primarily developed by others. The Company's
product development team includes programmers, technical project managers and
engineers experienced in system architecture, logic board and chip design,
sub-system development, mechanical engineering, manufacturing processing and
operating systems design. This cross-functional approach to product design has
enabled the Company to develop systems with improved functionality,
manufacturability, reliability, serviceability and performance, while keeping
costs competitive. The Company takes steps to ensure that new products are
compatible with industry standards and that they meet cost objectives based on
competitive pricing targets.
The Company bases its product development efforts on cooperative, meaningful
relationships with the world's most advanced technology companies. These working
partnerships allow the Company to use its direct marketing model and
build-to-order manufacturing process to deliver, on a timely and cost-effective
basis, those emerging technologies that are most relevant to its customers.
During fiscal 1997, the Company incurred $126 million in research, development
and engineering expenses, compared with $95 million for fiscal 1996 and $65
million for fiscal 1995. The amount the Company spends on
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research, development and engineering activities, which the Company believes to
be important to its continued success and growth, is determined as part of the
annual budget process and is based on cost-benefit analyses and revenue
forecasts. The Company prioritizes activities to focus on projects that it
believes will have the greatest market acceptance and achieve the highest return
on the Company's investment.
PATENTS, TRADEMARKS AND LICENSES
The Company holds 230 U.S. patents and eight foreign patents. At February 2,
1997, the Company had 314 U.S. patent applications pending and 40 foreign
applications pending in several European and Asian countries. The Company's
United States patents expire in years 2005 through 2014. The inventions claimed
in those patents and patent applications cover aspects of the Company's current
and possible future computer system products and related technologies. The
Company is developing a portfolio of patents that it anticipates will be of
value in negotiating intellectual property rights with others in the industry.
The Company has obtained U.S. federal trademark registration for its DELL word
mark and its Dell logo mark. The Company owns registrations for 17 of its other
marks in the United States. As of February 2, 1997, the Company had pending
applications for registration of eight other trademarks. The DELL word mark,
Dell logo and other trademark and service mark registrations in the United
States may be renewed as long as the mark continues to be used in interstate
commerce. The Company believes that establishment of the DELL mark and logo in
the United States 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 175 other countries or jurisdictions where the Company conducts or
anticipates expanding its international business. The Company has also 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 consisting of or incorporating the term "Dell" in certain foreign
countries, although 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.
On March 5, 1993, the Company and Texas Instruments, Inc. ("TI") entered into an
agreement to cross-license their respective patent portfolios. Under the terms
of the agreement, the Company makes annual royalty payments to TI. The agreement
expires on January 31, 1998.
In August 1993, the Company and International Business Machines Corporation
("IBM") entered into a patent license agreement, under which the parties
licensed to each other, within prescribed fields of use, all current patents and
all patents entitled to an effective application filing date prior to February
1, 1999 that are owned by either of the parties or any of their subsidiaries.
The Company makes annual royalty payments to IBM under the agreement. The
agreement terminates on the latest expiration date of the patents licensed
thereunder.
The Company has entered into non-exclusive licensing agreements with Microsoft
Corporation for various operating system and application software. The Company
has also entered into various other software licensing agreements with other
companies.
From time to time, other companies and individuals assert exclusive patent,
copyright, trademark or other intellectual property rights to technologies or
marks that are important to the 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. The licensing agreements generally do
not require the counterparty to assist the Company in duplicating its patented
technology nor do these agreements protect the Company from trade secret,
copyright or other violations by the Company or its suppliers in developing or
selling these products.
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INFRASTRUCTURE
Management Information Systems
The Company's management information systems enable the Company to track each
unit sold from the initial sales contacts, through the manufacturing process to
post-sale service and support. The system assists the Company in tracking key
information about many of its customers. 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. This database, unique to the Company's direct model, allows the
Company to gauge customer satisfaction issues and also provides the opportunity
to test new propositions in the marketplace prior to product or service
introductions. The Company continually analyzes updates and enhancements of its
management information systems to more fully integrate them on an
enterprise-wide basis, to reduce redundancy and to incorporate enhanced
functionality. See "Item 1 -- Business -- Factors Affecting the Company's
Business and Prospects -- Strength of Infrastructure" below.
Employees
At February 2, 1997, the Company had approximately 10,350 full-time employees.
Approximately 7,100 of those employees were located in the United States, and
approximately 3,250 were located in other countries. The Company has never
experienced a work stoppage due to labor difficulties and believes that its
employee relations are good.
GOVERNMENT REGULATION
In the United States, the Federal Communications Commission (the "FCC")
regulates the radio frequency emissions of 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. All of the
Company's current desktop, notebook and network server systems are sold under
the more restrictive Class B certification. The Company periodically tests its
products to ensure that the products satisfy applicable FCC regulations.
The Company's business also is subject to regulation by various other federal
and state governmental agencies. Such regulation includes the anti-trust
regulatory activities of the U.S. Federal Trade Commission and Department of
Justice, the import/export regulatory activities of the U.S. Department of
Commerce and the product safety regulatory activities of the U.S. Consumer
Products Safety Commission.
The Company also is required to obtain regulatory approvals in other countries
prior to the sale or shipment of products. In certain jurisdictions, such
requirements are more stringent than in the United States. Many developing
nations are just beginning to establish safety, environmental and other
regulatory requirements, which may vary greatly from U.S. requirements.
BACKLOG
At the end of fiscal 1997, backlog was $222 million, compared with backlog of
$102 million at the end 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.
FACTORS AFFECTING THE COMPANY'S BUSINESS AND PROSPECTS
There are many factors that affect the Company's business and the results of its
operations. The following is a description of some of the important factors that
may cause the actual results of the Company's operations in future periods to
differ materially from those currently expected or desired.
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General Economic Conditions
The Company's business partly depends on general economic and business
conditions. Most of the Company's sales are to major corporate, government,
education and medical customers and small-to-medium businesses. General economic
conditions that cause such customers to reduce or delay their investments in
computer systems could have a negative effect on the Company's strength and
profitability.
Industry Growth and Demand
The strength and profitability of the Company's business also depends on the
overall strength of demand for computers and growth in the computer industry. A
softening of demand may result in decreased revenues (or at least declining
revenue growth rates) for computer manufacturers in general and the Company in
particular. Furthermore, weakening demand may result in pricing pressures for
products that the Company sells, which could have a negative effect on the
Company's revenues and profitability.
Growth of the Direct Channel
The Company's future success partly depends on the continued growth of direct
channels for the distribution of computer systems and related products. While
the Company's direct marketing approach has gained acceptance among a large
number of customers who are comfortable purchasing directly from the
manufacturer, the approach may not appeal to buyers who desire physical access
to products prior to purchase. The Company believes that these buyers consist
primarily of certain small-to-medium businesses and individuals, particularly
those making their first computer purchase. The Company has no current plans or
intention to market its products through traditional indirect distribution
channels, and there can be no assurance that it would be able to establish a
significant presence in those channels if it became necessary or desirable in
the future. There can be no assurance that worldwide direct marketing channels
will grow or that the Company's distribution strategy will continue to be
successful.
Competition
The computer industry is highly competitive. Principal competitive factors
include product performance, quality and reliability, customer service and
support, marketing and distribution capabilities and price. There can be no
assurance that the Company will be able to maintain or improve its current
competitive position with respect to any of these or other competitive factors.
Some of the Company's competitors have stronger brand-recognition, greater
financial, marketing, manufacturing and technological resources, broader product
lines and larger installed customer bases than does the Company. This intense
competition could result in loss of customers or pricing pressures, which would
negatively affect the Company's results of operations.
The Company and other computer manufacturers generally have access to, and make
use of, many of the same components, often from the same group of suppliers. The
general industry practice has been to reduce the prices of computer systems as
component prices decline. The Company may take other pricing actions as it
attempts to maintain a competitive mix of price, performance and customer
support services while managing its liquidity, profitability and growth.
Although the Company attempts to mitigate the effects of price reductions by
improving product mix, further reducing component costs and lowering operating
costs, there can be no assurance that pricing actions will enhance or improve
the Company's competitive position or that cost-reduction efforts will offset
the effects of reduced prices on profitability.
International Activities
The Company's international operations have provided a significant part of the
Company's growth during recent fiscal years. The success and profitability of
international operations are subject to numerous risks and uncertainties, such
as economic and labor conditions, political instability, tax laws (including
U.S. taxes on foreign subsidiaries) and changes in the value of the U.S. dollar
versus the local currency in which products are sold. Changes in exchange rates
may adversely affect the Company's consolidated net sales (as expressed in U.S.
dollars) and gross margins from international operations. The Company attempts
to mitigate this exposure through hedging transactions. See "Item
7 -- Management's Discussion and Analysis of Financial
9
<PAGE> 11
Condition and Results of Operations -- Hedging Activities" and Note 2 of Notes
to Consolidated Financial Statements included in "Item 8 -- Financial Statements
and Supplementary Data."
Fluctuations in Operating Results
The Company's operating results may fluctuate from period to period and will
depend on numerous factors, including customer demand and market acceptance of
the Company's products, new product introductions, product obsolescence,
component price fluctuations, varying product mix, foreign currency exchange
rates, foreign currency and interest rate hedging and other factors. The
Company's business is sensitive to the spending patterns of its customers, which
in turn are subject to prevailing economic conditions and other factors beyond
the Company's control.
The Company's net sales in a given quarter are largely dependent on customer
orders received in that quarter, and operating expenditures are primarily based
on forecasts of customer demand. If demand does not meet the Company's
expectations in any given period, the sales shortfall may result in an increased
effect on operating results if the Company is unable to adjust operating
expenditures quickly enough to compensate for such a shortfall.
Product, Customer and Geographic Mix
The profitability of the Company's operations for any given period is partially
dependent on the mix of products that the Company sells during that period and
the strength of demand for the Company's products among various types of
customers and in various geographic regions. Many of the factors that affect
product, customer and geographic mix are beyond the Company's control.
In the United States, the Company has experienced increased sales to the
government sector in the third fiscal quarter, which the Company believes
reflects the budgetary spending practices of the U.S. federal government. In
addition, in its third fiscal quarter, the Company has experienced decreased
sales in Europe, which the Company believes is the result of the holiday
schedule in European countries in the late summer months. These seasonal trends
have not been material relative to the Company's level of consolidated net sales
and have partially offset one another. There can be no assurance that the
Company will not experience material seasonal trends in the future.
Technological Changes and Product Transitions
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 price/performance characteristics.
Computer manufacturers, including the Company, must incorporate these new
technologies into their products in order to remain competitive. Although the
Company's direct marketing model and build-to-order manufacturing process have
allowed it to participate in these technology transitions earlier than some of
its competitors, there can be no assurance that the Company will be able to
continue to effectively manage technology transitions or that there will be
technology improvements in the computer business sufficient to allow the Company
to take advantage of its direct model and build-to-order manufacturing process.
A failure on the part of the Company to effectively manage the periodic
transition of its product lines to new technologies on a timely basis will
directly affect the demand for the Company's products and the profitability of
the Company's operations.
The Company believes that its success is largely dependent upon continued growth
of its notebook product line, its ability to continue to expand its presence in
the network server market and its ability to continue to efficiently manage
product transitions and other technological advancements as they become
commercially available. There can be no assurance 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.
10
<PAGE> 12
Inventory Levels
Although the Company's build-to-order strategy gives it the ability to operate
with reduced levels of component and finished goods inventories, shifts in
technology and market demand may nevertheless result in excess inventory,
declining inventory values or even obsolescence. Maintaining a low 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 low inventory levels in future periods.
Supply Sources
The Company'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, any or all of which could
adversely affect the Company's financial results.
The Company has several single supplier relationships, and the lack of
availability of timely and reliable supply of components from these sources
could adversely affect the Company's business. In some cases, alternative
sources of supply are not available for some of the Company's single-sourced
components. In other cases, the Company may establish a working relationship
with a single source even when multiple suppliers are available, if the Company
believes it is advantageous to do so due to performance, quality, support,
delivery, capacity or price considerations. Where alternative sources are
available, qualification of the alternative suppliers and establishment of
reliable supplies could result in delays, which could adversely affect the
Company's manufacturing processes and results of operations.
The Company occasionally experiences delays in receiving certain components,
which can cause delays in the shipment of some products to customers. Also, the
Company has occasionally received defective components, which can affect the
reliability and reputation of its products. 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. See Note 9 of Notes to
Consolidated Financial Statements included in "Item 8 -- Financial Statements
and Supplementary Data."
Credit Risk on Derivative Instruments
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 its counterparties. The Company does
not anticipate nonperformance by any of the counterparties.
Product Development Activities
The strength of the Company's overall business is partially dependent on the
Company's ability to develop products based on new or evolving technology and
the market's acceptance of those products. There can be no assurance that the
Company's product development activities will be successful, that new
technologies will be available to the Company, that the Company will be able to
deliver commercial quantities of new products in a timely manner, that those
products will adhere to generally accepted industry standards or that the
products will achieve market acceptance. The Company believes that it is
necessary for its products to adhere to generally accepted industry standards,
which are subject to change in ways that are beyond the control of the Company.
11
<PAGE> 13
Strength of Infrastructure
The Company has grown, and continues to grow, at a rapid pace. This growth has
required the Company to enhance and expand its management team, information
systems, manufacturing operations and other aspects of its infrastructure. The
Company's success and profitability partly depends on its ability to continue to
improve its infrastructure to keep pace with the growth in its overall business
activities. There can be no assurance that the Company will be able to
effectively manage the expansion of its infrastructure to support future growth;
that needed enhancements to the Company's management information systems will be
completed before the growth of the Company's business outstrips the abilities of
the current systems; or that the Company's results of operations will not be
adversely affected by any such growth, expansion or enhancement.
Government Regulation
Any delays or failures in obtaining necessary approvals from U.S. federal
governmental agencies or from foreign jurisdictions may adversely affect the
Company's ability to successfully market and sell its products and may impede or
preclude the Company's efforts to penetrate new markets. There can be no
assurance that such failures or delays will not occur in the future.
Patent Rights
As new products are introduced, the Company's continued business success may be
largely dependent on its ability to obtain licenses to intellectual property
developed by others. There can be no assurance that the Company will be able to
obtain those licenses on commercially reasonable terms. In addition, 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 could have a
material adverse effect on the Company's business.
TRADEMARKS AND SERVICEMARKS
Several United States trademarks appear in this Report. Dell, the Dell logo,
OptiPlex, Latitude and PowerEdge are registered trademarks of the Company, and
DellWare, ReadyWare and SelectCare are registered service marks. Dell Dimension
and OptiFrame are trademarks of the Company, and BusinessCare and DirectLine are
service marks. This Report also contains trademarks and tradenames of other
entities; the Company disclaims proprietary interest in the marks and names of
others.
12
<PAGE> 14
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the name, age and position of each of the persons
who were serving as executive officers of the Company as of April 1, 1997.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- -----------------------------------------------------------
<S> <C> <C>
Michael S. Dell.................. 32 Chairman of the Board, Chief Executive Officer and Director
Morton L. Topfer................. 60 Vice Chairman
Eric F. Harslem.................. 51 Senior Vice President, Product and Technology Strategy
Michael D. Lambert............... 50 Senior Vice President, Server Group
D. Scott Mercer.................. 46 Senior Vice President, Desktop Business Unit
Thomas J. Meredith............... 46 Senior Vice President and Chief Financial Officer
Martyn R. Ratcliffe.............. 35 Senior Vice President, General Manager -- Europe
Kevin B. Rollins................. 44 Senior Vice President, General Manager -- Americas
Hiroshi Fukino................... 55 Vice President, General Manager -- Japan
Thomas B. Green.................. 42 General Counsel and Secretary
Jerome N. Gregoire............... 45 Vice President and Chief Information Officer
Phillip E. Kelly................. 39 Vice President, General Manager -- Asia Pacific
John K. Medica................... 38 Vice President, Chief Operating Officer -- Japan
Julie A. Sackett................. 53 Vice President, Human Resources
James M. Schneider............... 44 Vice President, Finance and Corporate Controller
Alex C. Smith.................... 37 Vice President, Treasurer
</TABLE>
Set forth below is biographical information about each of the Company's
executive officers.
Michael S. Dell. Mr. Dell has been Chairman of the Board, Chief Executive
Officer and a Director of the Company since May 1984. Mr. Dell founded the
Company in 1984 while attending the University of Texas at Austin. He is a
member of the Board of Directors of the United States Chamber of Commerce and
the Computerworld/Smithsonian Awards.
Morton L. Topfer. Mr. Topfer has been Vice Chairman of the Company since June
1994. In this position, Mr. Topfer shares the office of the Chief Executive
Officer with Mr. Dell. For 23 years prior to joining the Company, Mr. Topfer
held various positions with Motorola, Inc., last serving as Corporate Executive
Vice President and President of the Land Mobile Products Sector. Before joining
Motorola in 1971, Mr. Topfer spent 11 years with RCA Laboratories in various
research and development and management positions. He began his professional
career as a research engineer with Kollsman Instruments Corporation in New York.
Mr. Topfer received a Bachelor of Science degree in Physics from Brooklyn
College and a Master of Science degree in Physics from the Polytechnic Institute
of Brooklyn. He is a member of the board of directors of Autodesk, Inc. and DSC
Corporation.
Eric F. Harslem. Mr. Harslem joined the Company as Senior Vice President,
Product Group in June 1993 and was named Senior Vice President, Product and
Technology Strategy in May 1996. For ten years prior to joining the Company, he
held several key positions with Apple Computer Corporation, most recently
serving as Vice President of the Macintosh Desktop Division, where he was
responsible for all aspects of the division's business, including financial
management and product design, development and marketing. For 15 years prior to
joining Apple, Mr. Harslem held several design and management positions with
Xerox Corporation and with Rand Corporation. Mr. Harslem received a Bachelor of
Science degree in Engineering from the California Institute of Technology and a
Master of Science degree in Computer Science from the University of Wisconsin.
Michael D. Lambert. Mr. Lambert joined the Company in October 1996 as Senior
Vice President, Server Group. In this position, Mr. Lambert is responsible for
further developing a worldwide server business for the Company. Prior to joining
the Company, Mr. Lambert held various officer positions with Compaq Computer
Corporation, last serving as Vice President of North American Marketing. Prior
to joining Compaq in 1994, Mr. Lambert served four years as general manager of
the large computer products division for NCR Corporation. Mr. Lambert's more
than 28 years' experience in the computer systems industry also includes
13
<PAGE> 15
senior positions with Arix Corporation in San Jose, California, a manufacturer
of multiprocessor UNIX-based systems, and Convergent Technologies, also in San
Jose, California. Mr. Lambert received a bachelor's degree in business
administration from the University of Kentucky in Lexington.
D. Scott Mercer. Mr. Mercer joined the Company in June 1996 and holds the
position of Senior Vice President, Desktop Business Unit. In this position, Mr.
Mercer is responsible for the development and marketing of the Company's desktop
computer products. Prior to joining the Company, Mr. Mercer served as Executive
Vice President and Chief Financial and Administrative Officer for Western
Digital Corporation. Before joining Western Digital in 1991, Mr. Mercer was
Senior Vice President and Chief Financial Officer of Businessland, Inc. From
1983 to 1990, Mr. Mercer held various positions with LSI Logic Corporation, last
serving as Vice President and Chief Financial Officer. Prior to 1983, Mr. Mercer
was a senior manager with Price Waterhouse. Mr. Mercer received a bachelor's
degree in accounting from California State University at Pomona in 1974.
Thomas J. Meredith. Mr. Meredith joined the Company in November 1992 as Chief
Financial Officer. He also served as Treasurer of the Company from November 1992
until March 1994. In September 1995, Mr. Meredith was named Senior Vice
President, Finance and Information Systems and retained the position of Chief
Financial Officer. In July 1996, Mr. Meredith's title was changed to Senior Vice
President and Chief Financial Officer. Prior to joining the Company, Mr.
Meredith was Vice President and Treasurer of Sun Microsystems, Inc. from April
1990 to November 1992 and held various financial positions with Amdahl
Corporation before that time, last serving as President of Amdahl Capital
Corporation. His background also includes the positions of Director of Tax
Research and Planning for Castle and Cooke, Inc. and Senior Tax Consultant for
Arthur Young & Company. Mr. Meredith received a Bachelor of Science degree in
political science from St. Francis College in Loretto, Pennsylvania, a Juris
Doctor degree from Duquesne University and a Master of Law degree in Taxation
from Georgetown University.
Martyn R. Ratcliffe. Mr. Ratcliffe joined the Company in January 1994 as Vice
President, Europe, was named Vice President, General Manager -- Europe in March
1995 and was named Senior Vice President, General Manager -- Europe in March
1996. Prior to joining the Company, Mr. Ratcliffe served as the President and
Chief Operating Officer of Zeos International Ltd. from November 1992 to
December 1993 and Chief Operating Officer of VTech Computers Inc. from February
1992 to October 1992. Mr. Ratcliffe also held various positions with Technophone
Ltd. and Nokia Mobile Phones, which acquired Technophone Ltd., from June 1988 to
December 1991. Mr. Ratcliffe received a Bachelor of Science degree in Physics
from the University of Bath, Avon, U.K., and a Master in Business Administration
degree from the City University Business School, London, U.K.
Kevin B. Rollins. Mr. Rollins joined the Company in April 1996 as Senior Vice
President, Corporate Strategy and was named Senior Vice President, General
Manager -- Americas in May 1996. For 12 years prior to joining the Company, Mr.
Rollins was employed by Bain and Company, an international strategy consulting
firm, most recently serving as a director and partner. Mr. Rollins received a
Master of Business Administration degree and Bachelor's degrees in Humanities
and Civil Engineering from Brigham Young University.
Hiroshi Fukino. Mr. Fukino joined the Company in September 1994 as Chairman and
Representative Director of Dell Computer K.K., the Company's Japanese
subsidiary. Mr. Fukino was named Vice President, General Manager -- Japan in May
1995. For 19 years prior to joining the Company, Mr. Fukino was employed by
Seiko Instruments USA Inc., last serving as Chairman and Chief Executive
Officer. Mr. Fukino is a graduate of Hitotsubashi University and of the Advanced
Management Program at the Harvard Business School.
Thomas B. Green. Mr. Green joined the Company in August 1994 as General Counsel
and Secretary. Before joining the Company, Mr. Green served as Executive Vice
President and General Counsel of Chicago Title & Trust Company, where he was
employed from October 1992 to July 1994, and as Executive Vice President and
General Counsel of Trammell Crow Company from October 1990 to October 1992. From
February 1989 to October 1990, Mr. Green was employed by the law firm of Jones,
Day, Reavis & Pogue, Dallas, Texas, last serving as a partner in that firm. His
background also includes a term as law clerk to former United States Supreme
Court Chief Justice Warren Berger. Mr. Green received a Bachelor of Arts degree
in English and a Juris Doctor degree from the University of Utah.
14
<PAGE> 16
Jerome N. Gregoire. Mr. Gregoire joined the Company in July 1996 as Vice
President and Chief Information Officer. In this position, Mr. Gregoire is
responsible for the Company's worldwide information systems. For 10 years prior
to joining the Company, Mr. Gregoire held various positions with PepsiCo, Inc.,
most recently serving as Vice President of Information Systems for Pepsi-Cola
Company, the beverage division of the PepsiCo family. While at PepsiCo, Mr.
Gregoire also served as Vice President of Management Information Systems for
PepsiCo Food Systems, supporting the worldwide Kentucky Fried Chicken, Pizza Hut
and Taco Bell operations. Mr. Gregoire's previous experience also includes
positions as Vice President of the systems group for Dean Research Corporation,
a Kansas City-based specialist in computer-controlled materials handling,
primarily to the aerospace industry; and as Vice President of Information
Systems for Kraft/CDC Foodservice, also based in Kansas City.
Phillip E. Kelly. Mr. Kelly joined the Company in November 1994 as Vice
President, General Manager -- Asia Pacific. For 14 years prior to joining the
Company, Mr. Kelly held various positions with Motorola, Inc., last serving as
Vice President and General Manager for the North Asian Division of the Land
Mobile Products Sector, based in Hong Kong. Mr. Kelly received a Bachelor of
Business Administration degree from the University of San Diego.
John K. Medica. Mr. Medica joined the Company in March 1993 as Vice President of
the Company's Portable Products Group. He was named Vice President, Chief
Operating Officer -- Japan in March 1996. For ten years prior to joining the
Company, Mr. Medica held various positions with Apple Computer Corporation, last
serving as Senior Director for Macintosh portable engineering. Prior to joining
Apple, Mr. Medica served as a project manager for Altus Corporation in San Jose,
California. Mr. Medica received a Bachelor of Science degree in Engineering from
Manhattan College and a Master of Business Administration degree from Wake
Forest University.
Julie A. Sackett. Ms. Sackett joined the Company in November 1994 as Vice
President, Human Resources. From October 1992 to November 1994, Ms. Sackett
served as Vice President of Human Resources of Sequent Computer Systems, Inc.
For 18 years prior to that time, she held a series of human resource management
positions with Motorola, Inc., including Vice President of Corporate
Compensation and Benefits, Vice President of Personnel Services for the
Semiconductor Sector and Vice President and Director of Human Resources and
Security for the Government Electronics Group. Prior to joining Motorola, Ms.
Sackett held various human resource positions with Syntex U.S.A., Inc. and
Fairchild Camera. Ms. Sackett received a Master of Business Administration
degree from the University of Chicago. Ms. Sackett has been President of the
American Compensation Association and served for two years on the President's
Commission on Compensation of Career Federal Executives.
James M. Schneider. Mr. Schneider joined the Company in October 1996 as Vice
President, Finance and Corporate Controller. In this position, Mr. Schneider is
responsible for planning, management reporting and related systems, risk
management and worldwide financial controls. For three years prior to joining
the Company, Mr. Schneider was with MCI Communications Corporation, last serving
as Senior Vice President of Corporate Finance. For 19 years prior to joining
MCI, Mr. Schneider was associated with Price Waterhouse LLP, serving as a
partner for 10 years. Mr. Schneider earned a bachelor's degree in accounting
from Carroll College and is a Certified Public Accountant. He is a member of the
board of directors of General Communications, Inc.
Alex C. Smith. Mr. Smith has been employed by the Company since April 1991,
serving as Finance Manager from April 1991 to November 1993 and Director of
Treasury Operations from November 1993 to November 1995, when he was named Vice
President, Treasurer. Prior to joining the Company, Mr. Smith held various
treasury management positions with Electronic Data Systems Corporation and
Commodore International Ltd. Mr. Smith received a Bachelor of Science and
Business Administration degree in Economics from the University of Florida and a
Master of International Management degree in Finance from the American Graduate
School of International Management.
15
<PAGE> 17
ITEM 2 -- PROPERTIES
The Company's principal offices and U.S. manufacturing and warehousing
facilities are located in the Austin, Texas area. At February 2, 1997, the
Company had a total of approximately 1.7 million square feet of office,
manufacturing and warehouse space under lease in several buildings in Austin and
Round Rock, Texas. The expiration dates of such leases range from June 1997 to
March 2005. The Company owns 360 acres of land in Round Rock, Texas (north of
Austin), on which is located a 235,000-square-foot office building completed in
August 1994, a 240,000-square-foot office building completed in November 1995
and 392,000-square-foot office building completed in August 1996. The buildings
on the Round Rock acreage house the Company's sales, marketing and support staff
for the Americas region, as well as the Company's executive headquarters and
administrative support functions. The Company also leases a total of
approximately 54,000 square feet of office space in Canada and Mexico.
As of February 2, 1997, the Company's other international facilities consisted
of (a) approximately 290,000 square feet of leased office space in 25 countries
(with lease expiration dates ranging from 1997 to 2018), (b) a Company owned
300,000-square-foot manufacturing and warehousing facility in Limerick, Ireland
and (c) a Company owned 238,000-square-foot combination office and manufacturing
facility in Penang, Malaysia. The land on which the Penang facility is located
has been leased for a term of 58 years (commencing February 1995) from the State
Authority of Penang.
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
The Company is subject to legal proceedings and claims which arise in the
ordinary course of business. The Company's management does not expect that the
results in these legal proceedings 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 cases have been consolidated before a single
judge. In July 1996, that judge dismissed virtually all of the plaintiffs'
claims, ruling that a previously concluded investigation by the California
Attorney General's office superseded private causes of action under California
law. Some of the same plaintiffs, with others, have filed a similar action in
New Jersey. There can be no assurance that an adverse determination would not
have a material adverse effect on the Company's financial condition or results
of operations.
In June 1995, the Company was named in a class action complaint filed in State
District Court in Travis County, Texas, alleging that the Company included "used
parts" in its "new" computer systems and 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. To date, no discovery has
occurred and 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.
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's stockholders, through the
solicitation of proxies or otherwise, during the fourth quarter of fiscal 1997.
16
<PAGE> 18
PART II
ITEM 5 -- MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Common Stock is traded on The Nasdaq National Market under the symbol
"DELL." Information regarding the market prices of the Company's Common Stock
may be found in Note 12 of Notes to Consolidated Financial Statements included
in "Item 8 -- Financial Statements and Supplementary Data."
HOLDERS
As of April 1, 1997, there were 3,662 holders of record of the Common Stock.
DIVIDENDS
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.
On each of November 12, 1996 and October 9, 1995, the Company's Board of
Directors declared a two-for-one split of the Company's Common Stock in the form
of a 100% stock dividend to stockholders of record as of November 25, 1996 and
October 20, 1995, respectively. The distribution of such dividends occurred on
December 6, 1996 and October 27, 1995, respectively.
ITEM 6 -- SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
Consolidated Financial Statements, including the related notes, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The information set forth below is not necessarily indicative of
the results of future operations.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------------------------------
FEBRUARY 2, JANUARY 28, JANUARY 29, JANUARY 30, JANUARY 31,
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales............................... $7,759 $5,296 $3,475 $2,873 $2,014
Gross margin............................ $1,666 $1,067 $ 738 $ 433 $ 449
Operating income (loss)................. $ 714 $ 377 $ 249 $ (39) $ 139
Income (loss) before extraordinary
loss................................. $ 531 $ 272 $ 149 $ (36) $ 102
Net income (loss)....................... $ 518 $ 272 $ 149 $ (36) $ 102
Income (loss) before extraordinary loss
per common share(a)(b):
Primary............................ $ 2.77 $ 1.34 $ .85 $ (.27) $ 0.65
Fully diluted...................... $ 2.70 $ 1.32 $ .79 $ -- $ --
Weighted average shares outstanding(a):
Primary............................ 191.8 194.2 166.2 149.3 156.9
Fully diluted...................... 197.1 197.4 189.3 -- --
Statement of Financial Position Data:
Working capital......................... $1,089 $1,018 $ 718 $ 510 $ 359
Total assets............................ $2,993 $2,148 $1,594 $1,140 $ 927
Long-term debt.......................... $ 18 $ 113 $ 113 $ 100 $ 48
Total stockholders' equity.............. $ 806 $ 973 $ 652 $ 471 $ 369
</TABLE>
- ------------------------------
(a) All share and per share information has been retroactively restated to
reflect the two-for-one split of the Common Stock in December 1996. See Note
6 of Notes to Consolidated Financial Statements.
(b) Excludes extraordinary loss of $0.07 per common share for fiscal 1997. See
Note 2 of Notes to Consolidated Financial Statements.
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<PAGE> 19
ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's goal is to maximize shareholder value through a strategy that
focuses on a balance of three priorities: liquidity, profitability and growth.
The Company has clearly demonstrated strong performance in each of these
objectives, illustrating the fundamental advantages of the direct business
model. The following discussion provides information that management believes is
relevant to an understanding of the Company's consolidated financial condition
and results of operations. This discussion should be read in conjunction with
the Consolidated Financial Statements.
The following table summarizes the results of the Company's operations for each
of the past three fiscal years. All percentage amounts were calculated using the
underlying data in thousands.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------------------------
FEBRUARY 2, JANUARY 28, JANUARY 29,
1997 INCREASE 1996 INCREASE 1995
----------- -------- ----------- -------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales.................................... $7,759 47% $5,296 52% $3,475
Gross margin................................. $1,666 56% $1,067 45% $ 738
Gross margin as a percentage of net
sales................................... 21.5% 20.2% 21.2%
Operating expenses........................... $ 952 38% $ 690 41% $ 489
Operating expenses as a percentage of net
sales................................... 12.3% 13.1% 14.1%
Operating income............................. $ 714 90% $ 377 51% $ 249
Operating income as a percentage of net
sales................................... 9.2% 7.1% 7.1%
Net income available to common
stockholders............................... $ 518 99% $ 260 85% $ 140
</TABLE>
Net Sales
The Company has become one of the top five computer vendors in the world as a
result of its continued sales growth. The increases in consolidated net sales
for both fiscal 1997 and fiscal 1996 were primarily attributable to increased
units sold. Unit volumes increased 55% and 48% for fiscal 1997 and fiscal 1996,
respectively.
The unit volume growth in fiscal 1997 resulted from strong demand for the
Company's products across all product lines. This growth reflects the Company's
aggressive sales efforts, including pricing actions aimed at winning new
customer accounts and increasing the penetration of existing customer accounts.
While desktop products remain the primary driver of unit volumes (comprising 86%
of total units shipped during fiscal 1997), the growth rates in both the server
and notebook product lines exceeded the growth rate in desktops during fiscal
1997. Unit sales of notebook computers and server products increased 70% and
160%, respectively, during fiscal 1997.
The effect of the increased unit volumes on consolidated net sales was partially
offset by a decline in average revenue per unit, which decreased 6% for fiscal
1997 compared with fiscal 1996. The decline in average revenue per unit resulted
primarily from the Company's pricing actions following significant component
cost declines.
The unit volume increase in fiscal 1996 was due primarily to increased demand
for the Company's desktop and notebook computer products. Furthermore, the
increase in net sales in fiscal 1996 was partially attributable to an increase
in average revenue per unit of 3%, resulting from an increase in the mix of
system revenue from Pentium-processor based products as well as from notebook
computers.
18
<PAGE> 20
The Company experienced growth in net sales in all geographic regions in both
fiscal 1997 and fiscal 1996. The following table summarizes the Company's net
sales by geographic area for each of the past three fiscal years:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------
FEBRUARY 2, JANUARY 28, JANUARY 29,
1997 1996 1995
------------- ------------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Net sales:
Americas................................ $ 5,279 68% $ 3,474 66% $ 2,400 69%
Europe.................................. 2,004 26% 1,478 28% 953 27%
Asia-Pacific and Japan.................. 476 6% 344 6% 122 4%
------- --- ------- --- ------- ---
Consolidated net sales.................... $ 7,759 100% $ 5,296 100% $ 3,475 100%
======= === ======= === ======= ===
</TABLE>
The Company believes that opportunity exists for continued worldwide growth, to
be achieved by increasing its market presence in existing markets, entering new
markets and pursuing additional product opportunities. In fiscal 1997, the
Company commenced sales through an Internet web site (located at
http://www.dell.com), which by year-end was generating sales in excess of $1
million per day. Management believes that the Internet will become a significant
sales and service medium for the Company in the future. Additionally during
fiscal 1997, the Company expanded its direct operations in the Asia-Pacific
region into five new countries, including Thailand, South Korea and Taiwan. The
Company also intends to expand its product offerings to include workstations.
During fiscal 1998, the Company will form a business unit dedicated to
workstations in order to expand this product line. As a result of these and
other opportunities, the Company began construction of a new 285,000 square-foot
manufacturing facility in Austin, Texas which will manufacture desktop computers
for the Americas region. The new manufacturing facility will begin shipment of
product during the first half of fiscal 1998. Also during fiscal 1997, the
Company opened a dedicated server facility.
Gross Margin
The increase in gross margin as a percentage of consolidated net sales in fiscal
1997 over fiscal 1996 is the result of several factors, including component cost
declines, which were partially offset by price reductions, and product mix shift
to notebooks, servers and higher-end desktop products. The Company's direct
business model involves the maintenance of low levels of inventory. As such,
component cost declines can have a significant and direct impact on overall
product costs. During fiscal 1997, significant component cost declines occurred,
particularly in memory components, reducing overall product costs. However, the
Company's aggressive pricing strategies reduced the impact of these declines on
gross margin. Further gross margin benefit was realized as sales of notebook and
server products, which generally carry higher margins, increased to 18% and 4%,
respectively, of system revenue compared with 16% and 3%, respectively, during
the prior fiscal year.
The gross margin decline as a percentage of consolidated net sales in fiscal
1996 resulted primarily from a slight shift in sales mix from major accounts to
small-to-medium businesses and individuals, which typically carry lower margins,
and from the Company's more aggressive pricing strategy in fiscal 1996 compared
with fiscal 1995. Additionally, a problematic product transition involving
certain of the Company's OptiPlex desktop products had an adverse effect on
gross margin for fiscal 1996. These negative effects on gross margin were
partially offset by lower warranty and inventory obsolescence costs as a
percentage of consolidated net sales and certain economies of scale.
19
<PAGE> 21
Operating Expenses
The following table presents certain information regarding the Company's
operating expenses during each of the last three fiscal years:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------
FEBRUARY 2, JANUARY 28, JANUARY 29,
1997 1996 1995
----------- ----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Operating expenses:
Selling, general and administrative............. $ 826 $ 595 $ 424
Percentage of net sales...................... 10.7% 11.3% 12.2%
Research, development and engineering........... $ 126 $ 95 $ 65
Percentage of net sales...................... 1.6% 1.8% 1.9%
Total operating expenses.......................... $ 952 $ 690 $ 489
Percentage of net sales......................... 12.3% 13.1% 14.1%
</TABLE>
Selling, general and administrative expenses increased in absolute dollar
amounts but declined as a percentage of consolidated net sales for both fiscal
1997 and fiscal 1996. The increase in absolute dollars was due primarily to the
Company's increased staffing worldwide and increased infrastructure expenses,
including information systems, to support the Company's continued growth. The
decline in selling, general and administrative expenses as a percentage of
consolidated net sales resulted from significant net sales growth.
The Company continues to fund research, development and engineering activities
to meet the demand for swift product cycles. As a result, research, development
and engineering expenses have increased each year in absolute dollars due to
increased staffing levels and product development costs. The Company expects to
continue to increase research, development and engineering spending in absolute
dollar amounts in order to invest in future new products.
The Company believes that its ability to manage operating costs is an important
factor in its ability to remain price competitive. The Company will continue to
invest in information systems, personnel and other infrastructure, and in
research, development and engineering activities to manage and support its
growth and to provide for new, competitive products. Although operating expenses
are expected to increase in absolute dollar terms, the Company's goal is to
manage these expenses, over time, relative to its net sales and gross margin.
Operating Income
While delivering outstanding revenue growth, averaging 40% over the past three
fiscal years, the Company has grown operating income in excess of 50% per year
during the last three fiscal years. This reflects the Company's success in
managing operating expenses in relation to growth in gross margin to deliver
consistent, bottom-line performance.
Financing and Other Income (Expense), Net
The $27 million increase in financing and other income (expense), net in fiscal
1997 from fiscal 1996 resulted primarily from increased investment income of $16
million as well as a decrease in interest expense of $8 million. The increase of
$42 million in financing and other income (expense), net in fiscal 1996 from
fiscal 1995 was due to an increase in investment income. During fiscal 1995, the
Company incurred a net investment loss of $31 million primarily as a result of
interest rate increases in the United States, Canadian, Japanese and European
interest rate markets.
20
<PAGE> 22
Income Taxes
The Company's effective tax rate was 29.0% for both fiscal 1997 and 1996,
compared with 30.0% for fiscal 1995. As a result of the Company's geographical
distribution of income, the Company's effective tax rate is lower than the U.S.
federal statutory rate of 35%. Changes in the effective tax rate may result from
changes in the geographical distribution of income and losses. The Company
believes that these changes may result in a higher effective tax rate during
fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
The following table presents selected financial statistics and information for
each of the past three fiscal years:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------
FEBRUARY 2, JANUARY 28, JANUARY 29,
1997 1996 1995
----------- ----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Cash and marketable securities.................... $1,352 $ 646 $527
Working capital................................... $1,089 $1,018 $718
Days of sales in accounts receivable.............. 37 42 47
Days of supply in inventory....................... 13 31 32
Days in accounts payable.......................... 54 33 44
</TABLE>
In adhering to its goal of balancing profitability and growth with liquidity,
the Company has significantly enhanced its focus on asset management. As an
indication of its success of this effort, the Company generated $1.4 billion in
cash flows from operating activities during fiscal 1997 compared with $175
million in cash flows from operating activities during fiscal 1996. Operating
cash flows benefited from the significant decline in days of supply in inventory
at the end of fiscal 1997 compared to the end of fiscal 1996, which resulted
from tighter inventory management and improved supply of component parts.
Operating cash flows further benefited from the increase in days in accounts
payable at the end of fiscal 1997 compared to fiscal 1996 and the decrease in
days of sales in accounts receivables at the end of fiscal 1997 from the end of
fiscal 1996.
During fiscal 1997, the Company repurchased 20 million shares of its Common
Stock for an aggregate cost of $503 million. The Company is currently authorized
to repurchase up to 30 million additional shares of its Common Stock and
anticipates that repurchases under this program will constitute a significant
use of future cash resources. For additional information regarding the Company's
stock repurchase program, see Note 6 of Notes to Consolidated Financial
Statements.
Also during fiscal 1997, the Company repurchased $95 million principal amount of
its outstanding $100 million 11% Senior Notes Due August 15, 2000. As a result,
the Company recorded an extraordinary loss of $12.9 million (net of tax benefit
of $7.0 million) during fiscal 1997.
The Company utilized $114 million in cash during fiscal 1997 primarily to
construct and equip manufacturing and office facilities. The Company expects to
spend approximately $180 million on capital expenditures during fiscal 1998 to
support the Company's continued growth. The Company believes that its cash and
marketable securities and cash flows from operating activities will be adequate
to fund its planned fiscal 1998 capital expenditures.
During fiscal 1997, the Company entered into a $100 million 364-day revolving
credit facility and a $150 million 3-year revolving credit facility.
Additionally, during fiscal 1996, the Company entered into a transaction which
gives the Company the ability to raise up to $150 million through a receivables
securitization agreement. At both February 2, 1997 and January 28, 1996, these
facilities were unused.
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.
21
<PAGE> 23
HEDGING ACTIVITIES
The Company's results of operations can be affected by changes in exchange rates
between certain foreign currencies and the United States dollar. 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.
However, there can be no assurance the Company's foreign exchange risk
management activities will offset potential adverse effects in financial
position resulting from unfavorable movements in foreign exchange rate markets.
For further information regarding hedging activities and their effect on the
Company's financial statements, see Note 1 and Note 2 of Notes to Consolidated
Financial Statements.
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 February
2, 1997 and January 28, 1996........................... 25
Consolidated Statement of Income for the three fiscal
years ended February 2, 1997........................... 26
Consolidated Statement of Cash Flows for the three fiscal
years ended February 2, 1997........................... 27
Consolidated Statement of Stockholders' Equity for the
three fiscal years ended February 2, 1997.............. 28
Notes to Consolidated Financial Statements................ 29
Financial Statement Schedule:
For the three fiscal years ended February 2, 1997 Schedule
II -- Valuation and Qualifying Accounts................ 47
</TABLE>
All other schedules are omitted because they are not applicable.
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 February 2, 1997 and January 28,
1996, and the results of their operations and their cash flows for each of the
three fiscal years in the period ended February 2, 1997, 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 LLP
Austin, Texas
February 25, 1997
24
<PAGE> 26
DELL COMPUTER CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(IN MILLIONS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
FEBRUARY 2, JANUARY 28,
1997 1996
----------- -----------
<S> <C> <C>
Current assets:
Cash...................................................... $ 115 $ 55
Marketable securities..................................... 1,237 591
Accounts receivable, net.................................. 903 726
Inventories............................................... 251 429
Other current assets...................................... 241 156
------ ------
Total current assets.............................. 2,747 1,957
Property, plant and equipment, net.......................... 235 179
Other assets................................................ 11 12
------ ------
$2,993 $2,148
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $1,040 $ 466
Accrued and other liabilities............................. 618 473
------ ------
Total current liabilities......................... 1,658 939
Long-term debt.............................................. 18 113
Deferred revenue on warranty contracts...................... 219 116
Other liabilities........................................... 13 7
Commitments and contingencies............................... -- --
------ ------
Total liabilities................................. 1,908 1,175
------ ------
Put options................................................. 279 --
------ ------
Stockholders' equity:
Preferred stock and capital in excess of $.01 par value;
shares authorized: 5,000,000; shares issued and
outstanding: none and 60,000, respectively............. -- 6
Common stock and capital in excess of $.01 par value;
shares authorized: 300,000,000; shares issued and
outstanding: 173,047,420 and 186,893,214,
respectively........................................... 195 430
Retained earnings......................................... 647 570
Other..................................................... (36) (33)
------ ------
Total stockholders' equity........................ 806 973
------ ------
$2,993 $2,148
====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
25
<PAGE> 27
DELL COMPUTER CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------
FEBRUARY 2, JANUARY 28, JANUARY 29,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net sales................................................. $7,759 $5,296 $3,475
Cost of sales............................................. 6,093 4,229 2,737
------ ------ ------
Gross margin............................................ 1,666 1,067 738
------ ------ ------
Operating expenses:
Selling, general and administrative..................... 826 595 424
Research, development and engineering................... 126 95 65
------ ------ ------
Total operating expenses........................ 952 690 489
------ ------ ------
Operating income................................ 714 377 249
Financing and other income (expense), net................. 33 6 (36)
------ ------ ------
Income before income taxes and extraordinary loss....... 747 383 213
Provision for income taxes................................ 216 111 64
------ ------ ------
Income before extraordinary loss........................ 531 272 149
Extraordinary loss, net of taxes.......................... (13) -- --
------ ------ ------
Net income.............................................. 518 272 149
Preferred stock dividends................................. -- (12) (9)
------ ------ ------
Net income available to common stockholders............... $ 518 $ 260 $ 140
====== ====== ======
Primary earnings per common share:
Income before extraordinary loss........................ $ 2.77 $ 1.34 $ 0.85
Extraordinary loss, net of taxes........................ (.07) -- --
------ ------ ------
Earnings per common share............................... $ 2.70 $ 1.34 $ 0.85
====== ====== ======
Fully diluted earnings per common share:
Income before extraordinary loss........................ $ 2.70 $ 1.32 $ 0.79
Extraordinary loss, net of taxes........................ (.07) -- --
------ ------ ------
Earnings per common share............................... $ 2.63 $ 1.32 $ 0.79
====== ====== ======
Weighted average shares outstanding:
Primary................................................. 191.8 194.2 166.2
Fully diluted........................................... 197.1 197.4 189.3
</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 MILLIONS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------
FEBRUARY 2, JANUARY 28, JANUARY 29,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 518 $ 272 $ 149
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization...................... 47 38 33
Other.............................................. 29 22 33
Changes in:
Operating working capital.......................... 659 (195) (11)
Non-current assets and liabilities................. 109 38 39
------- ------- -------
Net cash provided by operating activities....... 1,362 175 243
------- ------- -------
Cash flows from investing activities:
Marketable securities:
Purchases............................................ (9,538) (4,545) (4,644)
Maturities and sales................................. 8,891 4,442 4,464
Capital expenditures.................................... (114) (101) (64)
------- ------- -------
Net cash used in investing activities........... (761) (204) (244)
------- ------- -------
Cash flows from financing activities:
Purchase of Common Stock................................ (495) -- --
Repurchase of 11% Senior Notes.......................... (95) -- --
Issuance of Common Stock under employee plans........... 57 48 35
Proceeds from long-term debt............................ -- -- 14
Repayments of borrowings................................ -- (1) (1)
Preferred stock dividends and conversion premium........ -- (13) (9)
------- ------- -------
Net cash (used in) provided by financing
activities.................................... (533) 34 39
------- ------- -------
Effect of exchange rate changes on cash................... (8) 7 2
------- ------- -------
Net increase in cash...................................... 60 12 40
Cash at beginning of period............................... 55 43 3
------- ------- -------
Cash at end of period..................................... $ 115 $ 55 $ 43
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
27
<PAGE> 29
DELL COMPUTER CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN MILLIONS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
AND CAPITAL IN AND CAPITAL IN
EXCESS OF EXCESS OF
PAR VALUE PAR VALUE
--------------- --------------- RETAINED
SHARES AMOUNT SHARES AMOUNT EARNINGS OTHER TOTAL
------ ------ ------ ------ -------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at January 30, 1994................. 1 $ 120 152 $ 200 $ 171 $(20) $ 471
Net income................................. -- -- -- -- 149 -- 149
Stock issuance under employee plans,
including tax benefits.................. -- -- 7 42 -- (4) 38
Other...................................... -- -- -- -- (9) 3 (6)
--- ----- --- ----- ----- ---- -----
Balances at January 29, 1995................. 1 120 159 242 311 (21) 652
Net income................................. -- -- -- -- 272 -- 272
Stock issuance under employee plans,
including tax benefits.................. -- -- 8 74 -- (17) 57
Preferred stock conversion................. (1) (114) 20 114 -- -- --
Other...................................... -- -- -- -- (13) 5 (8)
--- ----- --- ----- ----- ---- -----
Balances at January 28, 1996................. -- 6 187 430 570 (33) 973
Net income................................. -- -- -- -- 518 -- 518
Stock issuance under employee plans,
including tax benefits.................. -- -- 1 65 -- (18) 47
Purchase and retirement of 15 million
shares.................................. -- -- (15) (22) (388) -- (410)
Purchase and reissuance of 5 million shares
for employee plans and preferred stock
conversion.............................. -- (6) -- -- (55) -- (61)
Reclassification of put options............ -- -- -- (279) -- -- (279)
Other...................................... -- -- -- 1 2 15 18
--- ----- --- ----- ----- ---- -----
Balances at February 2, 1997................. -- $ -- 173 $ 195 $ 647 $(36) $ 806
=== ===== === ===== ===== ==== =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
28
<PAGE> 30
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business -- The Company designs, develops, manufactures, markets,
services and supports a wide range of computer systems, including desktops,
notebooks and network servers, and also markets software, peripherals and
service and support programs. The Company markets its computer products and
services under the Dell(R) brand name directly to its customers. These customers
include major corporate, government, medical and education accounts, as well as
small-to-medium businesses and individuals. The Company supplements its direct
marketing strategy by marketing through value-added resellers. The Company
conducts operations worldwide through wholly owned subsidiaries; such operations
are primarily concentrated in the United States and Europe.
Fiscal Year -- The Company's fiscal year is the 52 or 53 week period ending on
the Sunday nearest January 31.
Principles of Consolidation -- The consolidated financial statements have been
prepared in accordance with generally accepted accounting principles and include
the accounts of Dell Computer Corporation and its wholly owned subsidiaries. All
significant intercompany transactions and balances have been eliminated.
Reclassifications -- Certain reclassifications have been made in the prior years
for consistent presentation.
Use of Estimates -- The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at fiscal year end and the
reported amounts of revenues and expenses during the fiscal year. Actual results
could differ from those estimates. Management believes that the estimates are
reasonable.
Marketable Securities -- The Company's marketable securities are classified as
available-for-sale and, accordingly, are reported at fair value. Unrealized
gains and losses are reported, net of taxes, as a component of stockholders'
equity. Unrealized losses are charged against income when a decline in fair
value is determined to be other than temporary. The specific identification
method is used to determine the cost of securities sold.
Inventories -- Inventories are stated at the lower of cost or market, with cost
being determined on a first-in, first-out basis.
Property, Plant and Equipment -- Property, plant and equipment is carried at
cost. Depreciation is provided using the straight-line method over the economic
lives of the assets, which range from seven to 30 years for buildings and two to
five years for all other assets. Leasehold improvements are amortized over the
shorter of five years or the lease term.
Foreign Currency Translation -- The majority of the Company's international
sales are made by international subsidiaries which have the U.S. dollar as their
functional currency. Financial statements for international subsidiaries which
have the U.S. dollar as the functional currency are remeasured into U.S. dollars
using current rates of exchange for monetary assets and liabilities and
historical rates of exchange for nonmonetary assets. Gains and losses from
remeasurement are included in financing and other income (expense), net. The
Company's other international subsidiaries that prepare financial statements in
currencies other than the U.S. dollar translate assets and liabilities at
current rates of exchange at the balance sheet date. The resultant gains and
losses from translation are included as a component of stockholders' equity.
Income and expense items are translated using monthly average exchange rates.
Foreign Currency Hedging Instruments -- The Company enters into foreign exchange
contracts to hedge its foreign currency risks. These contracts must be
designated at inception as a hedge and measured for effectiveness both at
inception and on an ongoing basis. Realized and unrealized gains or losses and
premiums on foreign currency purchased option contracts that are designated and
effective as hedges of probable
29
<PAGE> 31
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
anticipated, but not firmly committed, foreign currency transactions are
deferred and recognized in income as a component of revenue, cost of sales
and/or operating expenses in the same period as the hedged transaction. Forward
contracts designated as hedges of probable anticipated or firmly committed
transactions are accounted for on a mark-to-market basis, with realized and
unrealized gains or losses recognized currently.
Revenue Recognition -- Sales revenue is recognized at the date of shipment to
customers. Provision is made currently for estimated product returns. Revenue
from separately priced extended warranty programs is deferred and recognized
over the extended warranty period, and the related extended warranty costs are
recognized as incurred.
Warranty and Other Post-sales Support Programs -- The Company provides currently
for the estimated costs that may be incurred under its initial warranty and
other post-sales support programs.
Advertising Costs -- Advertising costs are charged to expense the first time the
advertising takes place. There were no direct-response advertising costs
reported as assets at February 2, 1997 and January 28, 1996. Advertising
expenses for fiscal years 1997, 1996 and 1995 were $87 million, $83 million and
$63 million, respectively.
Stock-Based Compensation -- The Company adopted Statement of Financial
Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation" for fiscal year ended February 2, 1997. Upon adoption of SFAS 123,
the Company continues to apply Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," in accounting for its stock option
and stock purchase plans. As a result, no compensation expense has been
recognized for options granted with an exercise price equal to market value at
the date of grant or in connection with the employee stock purchase plan. For
stock options that 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.
Income Taxes -- The provision for income taxes is based on income before income
taxes as reported in the Consolidated Statement of Income. Deferred income taxes
reflect the impact of temporary differences between assets and liabilities
recognized for financial statement purposes and such amounts recognized for tax
purposes.
Earnings Per Common Share -- Earnings per common share is computed using the
weighted average number of common shares and Common Stock equivalents (if
dilutive) outstanding during each period. Common Stock equivalents include stock
options and put and call option instruments.
NOTE 2 -- FINANCIAL INSTRUMENTS
The fair value of marketable securities, long-term debt and interest rate
derivative instruments has been estimated by the Company based upon market
quotes from brokers. The fair value of foreign currency forward contracts has
been estimated using market quoted rates of foreign currencies at the applicable
balance sheet date. The estimated fair value of foreign currency purchased
option contracts is based on market quoted rates at the applicable balance sheet
date and the Black-Scholes options pricing model. 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, accounts payable and accrued and other liabilities
are reflected in the financial statements at fair value because of the
short-term maturity of these instruments.
30
<PAGE> 32
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Marketable Securities
The following table describes the fair value of the Company's holdings of
marketable securities.
<TABLE>
<CAPTION>
FEBRUARY 2, JANUARY 28,
1997 1996
----------- -----------
(IN MILLIONS)
<S> <C> <C>
Preferred stock............................................. $ 172 $ 57
Mutual funds................................................ 182 75
Debt securities:
State and municipal securities............................ 415 198
U.S. corporate and bank debt.............................. 415 213
International corporate and bank debt..................... 53 48
------ ----
Total debt securities....................................... 883 459
------ ----
Total marketable securities....................... $1,237 $591
====== ====
</TABLE>
At both February 2, 1997 and January 28, 1996, the cost of marketable securities
approximates fair value. At February 2, 1997, debt securities with a carrying
amount of $716 million mature within one year and the remaining debt securities
mature within three years. The Company's gross realized gains and gross realized
losses on the sale of marketable securities for both fiscal 1997 and fiscal 1996
were immaterial. The Company's gross realized gain and gross realized loss on
the sale of marketable securities were $3 million and $24 million, respectively,
for fiscal 1995.
Prior to June 1994, the Company structured derivative instruments in interest
rate markets where it had foreign operations. Realized losses on investment
derivatives recognized in income for fiscal 1995 was $24 million. The Company
closed all investment derivatives during the second quarter of fiscal 1995, and
since then has had no investment derivatives outstanding.
Foreign Currency Instruments
The Company uses foreign currency purchased option contracts and forward
contracts in an effort to reduce its exposure to currency fluctuations involving
probable anticipated, but not firmly committed, transactions and transactions
with firm foreign currency commitments. The Company enters into foreign currency
purchased options and, to a lesser extent, forward contracts to hedge a portion
of its probable anticipated, but not firmly committed, transactions. These
transactions include international sales by U.S. dollar functional currency
entities, foreign currency denominated purchases of certain components and
intercompany shipments to certain international subsidiaries. The risk of loss
associated with purchased options is limited to premium amounts paid for the
option contracts, which could be significant. Foreign currency purchased options
generally expire in twelve months or less. At February 2, 1997, the Company held
purchased option contracts with a notional amount of $1.2 billion, a carrying
amount of $33 million and a combined net realized and unrealized deferred gain
of $25.3 million. Additionally, at January 28, 1996, the Company held purchased
option contracts with a notional amount of $714 million, a carrying amount of
$38 million and a combined net realized and unrealized deferred loss of $5
million. The risk of loss associated with forward contracts is equal to the
exchange rate differential from the time the contract is made until the time it
is settled. Transactions with firm foreign currency commitments are generally
hedged using foreign currency forward contracts for periods not exceeding three
months. At February 2, 1997 and January 28, 1996, the Company held forward
contracts with a notional amount of $207 million and $365 million, respectively.
At both February 2, 1997 and January 28, 1996, forward contract carrying amounts
of $12 million and $11 million, respectively, represented fair value.
31
<PAGE> 33
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Long-term Debt and Interest Rate Risk Management
During fiscal 1997, the Company repurchased $95 million principal amount of its
outstanding $100 million 11% Senior Notes Due August 15, 2000 (the "Senior
Notes"). As a result of the repurchase, the Company recorded an extraordinary
loss of $12.9 million (net of tax benefit of $7.0 million). In connection with
the Senior Notes, the Company entered into interest rate swap agreements
expiring on August 15, 1998. At both February 2, 1997 and January 28, 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. Related
to the repurchase of Senior Notes discussed above, $95 million of the notional
amounts of both the receive fixed/pay floating interest rate swaps and the
offsetting receive floating/pay fixed interest rate swaps were marked-to-market
and included in the extraordinary loss. The weighted average interest rate on
the Senior Notes, adjusted by the swaps, was 13.8%, 13.8% and 12.1% for fiscal
years 1997, 1996 and 1995, respectively. The difference between the Company's
carrying amounts and fair value on long-term debt and related interest rate
swaps were immaterial at both February 2, 1997, and January 28, 1996.
NOTE 3 -- INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------
FEBRUARY 2, JANUARY 28, JANUARY 29,
1997 1996 1995
----------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
Current:
Domestic........................................ $252 $102 $52
Foreign......................................... 34 25 16
---- ---- ---
Prepaid........................................... (70) (16) (4)
---- ---- ---
Provision for income taxes........................ $216 $111 $64
==== ==== ===
</TABLE>
Income before income taxes included approximately $223 million, $176 million and
$126 million related to foreign operations in the fiscal 1997, 1996 and 1995,
respectively.
The Company has not recorded a deferred income tax liability of approximately
$97 million for additional taxes that would result from the distribution of
certain earnings of its foreign subsidiaries, if they were repatriated. The
Company currently intends to reinvest indefinitely these undistributed earnings
of its foreign subsidiaries.
The Company's deferred tax asset is comprised of the following principal
temporary differences:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------
FEBRUARY 2, JANUARY 28, JANUARY 29,
1997 1996 1995
----------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
Depreciation...................................... $ 6 $ 5 $(5)
Provisions for doubtful accounts and returns...... 31 25 23
Inventory and warranty provisions................. 21 18 26
Deferred service contract revenue................. 107 53 25
Import promotion reserve.......................... (8) (5) --
Other............................................. (24) (29) 9
---- ---- ---
Deferred tax asset................................ $133 $ 67 $78
==== ==== ===
</TABLE>
32
<PAGE> 34
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The difference between the income tax provisions in the Consolidated Financial
Statements and the tax expense computed at the U.S. federal statutory rate of
35% for each of the last three fiscal years is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------
FEBRUARY 2, JANUARY 28, JANUARY 29,
1997 1996 1995
----------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
Tax provision at the U.S. federal statutory
rate............................................ $266 $134 $ 75
Research and development credit................... (3) (1) (1)
Foreign income taxed at different rate............ (46) (23) (16)
Net operating loss carryovers..................... 1 1 2
Other............................................. (2) -- 4
---- ---- -----
Provision for income taxes........................ $216 $111 $ 64
==== ==== =====
Effective tax rates............................... 29.0% 29.0% 30.0%
==== ==== =====
</TABLE>
NOTE 4 -- FINANCING ARRANGEMENTS
During fiscal 1997, the Company entered into a $100 million 364-day revolving
credit facility and a $150 million 3-year revolving credit facility.
Additionally during fiscal 1996, the Company entered into a transaction which
gives the Company the ability to raise up to $150 million through a receivables
securitization agreement. At both February 2, 1997 and January 28, 1996, these
facilities were unused.
NOTE 5 -- PREFERRED STOCK
The Company has the authority to issue 5 million shares of preferred stock, par
value $.01 per share.
Series A Convertible Preferred Stock
During fiscal 1996, the Company offered to pay a cash premium of $8.25 for each
outstanding share of Series A Convertible Preferred Stock that was converted to
Common Stock. Holders of 1.2 million shares of Series A Convertible Preferred
Stock elected to convert and, as a result, received an aggregate of
approximately 20 million shares of Common Stock and $10 million in cash during
fiscal 1996. During fiscal 1997, the remaining 60,000 shares of Series A
Convertible Preferred Stock were converted into Common Stock in accordance with
their terms, resulting in the issuance of an additional 1.0 million shares of
Common Stock.
Series A Junior Participating Preferred Stock
In conjunction with the distribution of Preferred Share Purchase Rights (see
Note 8 -- Preferred Share Purchase Rights), the Company's Board of Directors
designated 200,000 shares of preferred stock as Series A Junior Participating
Preferred Stock and reserved such shares for issuance upon exercise of the
Preferred Share Purchase Rights. At February 2, 1997 and January 28, 1996, no
shares of Series A Junior Participating Preferred Stock were issued or
outstanding.
NOTE 6 -- COMMON STOCK
Stock Split
On November 12, 1996, the Company's Board of Directors declared a two-for-one
Common Stock split, payable in the form of a 100% stock dividend to stockholders
of record as of November 25, 1996. The distribution of such dividend occurred on
December 6, 1996. All share and per share information has been retroactively
restated in the Consolidated Financial Statements to reflect the stock split.
33
<PAGE> 35
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock Repurchase Program
During fiscal 1997, the Board of Directors authorized a Common Stock repurchase
program under which the Company may purchase up to 32 million shares of its
Common Stock in open market or private transactions. Subsequent to February 2,
1997, the Company's Board of Directors authorized the repurchase of an
additional 18 million shares of Common Stock. During fiscal 1997, the Company
repurchased 20 million shares of Common Stock for an aggregate cost of $503
million.
The Company utilizes put and call option instruments to facilitate its
repurchase of Common Stock. At February 2, 1997, the Company held put and call
option arrangements that entitle the Company to purchase 8.9 million additional
shares of Common Stock at an average cost of $35 per share. Additionally, the
Company has sold put options covering 8.4 million shares at an average exercise
price of $30. The Company's potential repurchase obligation under put options
with net cash settlement or physical settlement terms, which totaled $279
million at February 2, 1997, has been reclassified from stockholders' equity to
put options. The remaining options may also be settled in additional shares of
Common Stock. Each option is exercisable only at expiration, and the various
expiration dates range from March 1997 to September 1997. The put and call
option instruments did not have a material dilutive effect on earnings per
common share for fiscal 1997.
NOTE 7 -- EMPLOYEE BENEFIT PLANS
Stock Option and Employee Stock Purchase Plans
On June 22, 1994, the Company's stockholders approved the Dell Computer
Corporation Incentive Plan (the "Incentive Plan"), which effectively replaced
prior plans. The Incentive Plan, which is administered by the Compensation
Committee of the Board of Directors, provides for the granting of incentive
awards in the form of stock options, stock appreciation rights ("SARs"),
restricted stock, stock and cash to directors, executive officers and key
employees of the Company and its subsidiaries, and certain other persons who
provide consulting or advisory services to the Company. Awards under the
Incentive Plan must be granted within ten years of the plan adoption date.
Options granted may be either incentive stock options within the meaning of
Section 422 of the Internal Revenue Code or nonqualified options. The right to
purchase shares under the existing stock option agreements typically vests over
a five-year period beginning on the option's date of grant. Stock options must
be exercised within ten years from date of grant. Stock options are generally
issued at fair market value. Under the Incentive Plan, each nonemployee director
of the Company automatically receives nonqualified stock options annually.
The following table summarizes stock option activity under the plans for each of
the three fiscal years ended February 2, 1997:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------------------------
FEBRUARY 2, 1997 JANUARY 28, 1996 JANUARY 29, 1995
------------------ ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------ -------- ------ --------
(SHARE DATA IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................. 23.4 $ 8.38 22.4 $ 4.51 22.5 $3.49
Granted................... 10.7 $26.29 8.0 $15.63 8.7 $6.05
Canceled.................. (1.7) $ 9.36 (2.0) $ 4.07 (3.3) $3.57
Exercised................. (4.2) $ 5.97 (5.0) $ 4.17 (5.5) $3.46
---- ---- ----
Outstanding at end of
year.................... 28.2 $15.53 23.4 $ 8.38 22.4 $4.51
==== ==== ====
Exercisable at year-end... 4.7 $ 7.22 4.6 $ 5.19 5.7 $4.27
</TABLE>
34
<PAGE> 36
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is additional information relating to options outstanding as of
February 2, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE AVERAGE NUMBER AVERAGE
EXERCISE OF EXERCISE CONTRACTUAL OF EXERCISE
PRICE RANGE SHARES PRICE LIFE (YEARS) SHARES PRICE
- -------------------------------- ------ -------- ------------ ------ ---------
(SHARE DATA IN MILLIONS)
<S> <C> <C> <C> <C> <C>
$0.0025..................... 1.7 $0.0025 5.9 -- $0.0025
$ 0.01 -- $ 4.99................ 2.2 $ 3.71 4.4 1.2 $ 3.14
$ 5.00 -- $ 8.99................ 6.8 $ 6.27 6.9 2.5 $ 6.21
$ 9.00 -- $15.99................ 7.1 $ 14.13 8.6 0.8 $ 14.09
$16.00 -- $38.99................ 8.4 $ 23.52 9.3 0.2 $ 20.71
$39.00 -- $66.00................ 2.0 $ 45.09 9.8 -- $ --
---- ---
28.2 4.7
==== ===
</TABLE>
The Company also has an employee stock purchase plan that qualifies under
Section 423 of the Internal Revenue Code and permits substantially all employees
to purchase shares of Common Stock. Participating employees may purchase Common
Stock through payroll deductions at the end of each participation period at a
purchase price equal to 85% of the lower of the fair market value of the Common
Stock at the beginning or the end of the participation period. Common Stock
reserved for future employee purchases under the plan aggregated 3.8 million
shares at February 2, 1997, and 4.7 million shares at January 28, 1996. Shares
issued under this plan were 0.8 million shares in fiscal 1997, 0.8 million
shares in fiscal 1996 and 1.1 million shares in fiscal 1995.
During fiscal 1997, 1996 and 1995, the Company granted 0.6 million shares, 1.4
million shares and 0.6 million shares, respectively, of restricted stock. For
substantially all restricted stock grants, at the date of grant, the recipient
has all rights of a stockholder, subject to certain restrictions on
transferability and a risk of forfeiture. Restricted shares typically vest over
a seven-year period beginning on the date of grant; restrictions may not extend
more than ten years from date of grant. The Company records unearned
compensation (included in Stockholders' Equity) equal to the market value of the
restricted shares on the date of grant and charges the unearned compensation to
expense over the vesting period.
There were 7.2 million, 17.1 million and 9.6 million shares of Common Stock
available for future grants under the Incentive Plan at February 2, 1997,
January 28, 1996, and January 29, 1995, respectively.
The weighted average fair value of stock options at date of grant was $14.94 and
$8.90 per option for options granted during fiscal 1997 and fiscal 1996,
respectively. Additionally, the weighted average fair value of the purchase
rights under the employee stock purchase plan granted in fiscal 1997 and fiscal
1996 was $8.15 and $4.04 per right, respectively. The weighted average fair
value of options was determined based on the Black-Scholes model, utilizing the
following weighted average assumptions:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------
FEBRUARY 2, 1997 JANUARY 28, 1996
---------------- -----------------
<S> <C> <C>
Expected term:
Stock options....................................... 5 years 5 years
Employee stock purchase plan........................ 6 months 6 months
Interest rate......................................... 6.40% 6.20%
Volatility............................................ 56.54% 57.36%
Dividends............................................. 0% 0%
</TABLE>
35
<PAGE> 37
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
If the Company had accounted for its stock option and stock purchase plans by
recording compensation expense based on the fair value at grant date for such
awards, stock-based compensation costs would have reduced pretax income by $22.0
million ($15.6 million, net of taxes) and $7.8 million ($5.5 million, net of
taxes) in fiscal 1997 and fiscal 1996, respectively, if the fair values of the
options had been recognized as compensation expense on a straight-line basis
over the vesting period. The pro forma effect on earnings per common share would
have been a reduction of $0.08 and $0.03 for fiscal 1997 and fiscal 1996,
respectively.
401(k) Plan
The Company has a defined contribution retirement plan that complies with
Section 401(k) of the Internal Revenue Code. Substantially all employees in the
U.S. are eligible to participate in the plan. The Company matches 100% of each
participant's voluntary contributions, subject to a maximum Company contribution
of 3% of the participant's compensation. The Company accrues for its estimated
matching contributions each period. During each of fiscal 1997 and fiscal 1996,
the Company made discretionary contributions for every eligible employee,
regardless of whether the employee was a plan participant, equal to 2% of the
employee's actual earnings during calendar year 1996 and 1995, respectively. The
amounts expensed for the Company's matching and other contributions during
fiscal years 1997, 1996 and 1995 were $18 million, $8 million and $4 million,
respectively.
NOTE 8 -- PREFERRED SHARE PURCHASE RIGHTS
On November 29, 1995, the Company's Board of Directors declared a dividend of
one Preferred Share Purchase Right (a "Right") for each outstanding share of
Common Stock. The distribution of the Rights was made on December 13, 1995, to
the stockholders of record on that date. Each Right entitles the holder to
purchase one two-thousandths of a share of Series A Junior Participating
Preferred Stock at an exercise price of $225.
If a person or group acquires 15% or more of the outstanding Common Stock, each
Right will entitle the holder (other than such person or any member of such
group) to purchase, at the Right's then current exercise price, the number of
shares of Common Stock having a market value of twice the exercise price of the
Right. If exercisable, the Rights contain provisions relating to merger or other
business combinations. In certain circumstances, the Board of Directors may, at
its option, exchange part or all of the Rights (other than Rights held by the
acquiring person or group) for shares of Common Stock at an exchange rate of one
share of Common Stock for each Right.
The Company will be entitled to redeem the Rights at $.001 per Right at any time
before a 15% or greater position has been acquired by any person or group.
Additionally, the Company may lower the 15% threshold to not less than the
greater of (a) any percentage greater than the largest percentage of Common
Stock known by the Company to be owned by any person (other than Michael S.
Dell) or (b) 10%. The Rights expire on November 29, 2005.
Neither the ownership nor the further acquisition of Common Stock by Michael S.
Dell will cause the Rights to become exercisable or nonredeemable or will
trigger the other features of the Rights.
NOTE 9 -- COMMITMENTS, CONTINGENCIES AND CERTAIN CONCENTRATIONS
Lease Commitments
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 February 2, 1997, are as follows: 1998, $24 million; 1999, $20 million; 2000,
$17 million; 2001, $13 million; 2002, $9 million; and thereafter $27 million.
Rental expense recorded under all operating leases were $33 million, $22 million
and $20 million for the fiscal years ended 1997, 1996 and 1995, respectively.
36
<PAGE> 38
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Royalty Commitments
The Company is subject to certain patent royalty agreements that require fixed
cash payments over approximately the next two years. The Company is also subject
to ongoing software royalty agreements for periods exceeding twelve months which
require cash payments.
Legal Matters
The Company is subject to legal proceedings and claims which arise in the
ordinary course of business. The Company's management does not expect that the
results in these legal proceedings 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 cases have been consolidated before a single
judge. In July 1996, that judge dismissed virtually all of the plaintiffs'
claims, ruling that a previously concluded investigation by the California
Attorney General's office superseded private causes of action under California
law. Some of the same plaintiffs, with others, have filed a similar action in
New Jersey. There can be no assurance that an adverse determination would not
have a material adverse effect on the Company's financial condition or results
of operations.
In June 1995, the Company was named in a class action complaint filed in State
District Court in Travis County, Texas, alleging that the Company included "used
parts" in its "new" computer systems and 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. To date, no discovery has
occurred and 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.
Certain Concentrations
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
monitors its positions with and the credit quality of the counterparties to
these financial instruments. The Company does not anticipate nonperformance by
any of the counterparties.
The Company's marketable securities are placed with high quality financial
institutions and other companies and currently invests primarily in equity
securities and debt instruments that have maturities of less than three years.
Management believes no significant concentration of credit risk for marketable
securities exists for the Company.
The Company purchases a number of components from single sources. In some cases,
alternative sources of supply are not available. In other cases, the Company may
establish a working relationship with a single source, even when multiple
suppliers are available, if the Company believes it is advantageous to do so due
to performance, quality, support, delivery, capacity or price considerations. If
the supply of a critical single-
37
<PAGE> 39
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
source material or component were delayed or curtailed, the Company's ability to
ship the related product in desired quantities and in a timely manner could be
adversely affected. Even where alternative sources of supply are available,
qualification of the alternative suppliers and establishment of reliable
supplies could result in delays and a possible loss of sales, which could affect
operating results adversely.
NOTE 10 -- GEOGRAPHIC AREA INFORMATION
The Company operates in one principal business segment across geographically
diverse markets. The Americas region includes the United States, Canada and
Latin America. Substantially all of Americas operating results and identifiable
assets are in the United States. The Europe region includes the European
countries as well as some countries in the Middle East and Africa. Transfers
between geographic areas are recorded using internal transfer prices set by the
Company.
<TABLE>
<CAPTION>
FISCAL YEAR 1997
--------------------------------------------------------------
ASIA-PACIFIC
AMERICAS EUROPE AND JAPAN ELIMINATIONS CONSOLIDATED
-------- ------ ------------ ------------ ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers......... $5,279 $2,004 $476 $ -- $7,759
Transfers between geographic areas...... 50 32 -- (82) --
------ ------ ---- ---- ------
Total sales................... $5,329 $2,036 $476 $(82) $7,759
====== ====== ==== ==== ======
Operating income (loss)................. $ 609 $ 193 $ (6) $ -- $ 796
====== ====== ==== ====
Corporate expenses, net................. (82)
------
Total operating income........ $ 714
======
Identifiable assets..................... $ 903 $ 390 $125 $ -- $1,418
====== ====== ==== ====
General corporate assets................ 1,575
------
Total assets.................. $2,993
======
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR 1996
--------------------------------------------------------------
ASIA-PACIFIC
AMERICAS EUROPE AND JAPAN ELIMINATIONS CONSOLIDATED
-------- ------ ------------ ------------ ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers......... $3,474 $1,478 $344 $ -- $5,296
Transfers between geographic areas...... 66 192 -- (258) --
------ ------ ---- ----- ------
Total sales................... $3,540 $1,670 $344 $(258) $5,296
====== ====== ==== ===== ======
Operating income (loss)................. $ 285 $ 171 $(21) $ -- $ 435
====== ====== ==== =====
Corporate expenses, net................. (58)
------
Total operating income........ $ 377
======
Identifiable assets..................... $ 867 $ 409 $123 $ -- $1,399
====== ====== ==== =====
General corporate assets................ 749
------
Total assets.................. $2,148
======
</TABLE>
38
<PAGE> 40
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FISCAL YEAR 1995
--------------------------------------------------------------
ASIA-PACIFIC
AMERICAS EUROPE AND JAPAN ELIMINATIONS CONSOLIDATED
-------- ------ ------------ ------------ ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers......... $2,400 $ 953 $122 $ -- $3,475
Transfers between geographic areas...... 35 129 -- (164) --
------ ------ ---- ----- ------
Total sales................... $2,435 $1,082 $122 $(164) $3,475
====== ====== ==== ===== ======
Operating income (loss)................. $ 174 $ 123 $ (2) $ -- $ 295
====== ====== ==== =====
Corporate expenses, net................. (46)
------
Total operating loss.......... $ 249
======
Identifiable assets..................... $ 638 $ 286 $ 43 $ -- $ 967
====== ====== ==== =====
General corporate assets................ 627
------
Total assets.................. $1,594
======
</TABLE>
NOTE 11 -- SUPPLEMENTAL CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FEBRUARY 2, JANUARY 28,
1997 1996
----------- -----------
(IN MILLIONS)
<S> <C> <C>
SUPPLEMENTAL CONSOLIDATED STATEMENT OF FINANCIAL POSITION
INFORMATION
Accounts receivable:
Gross accounts receivable................................. $934 $755
Allowance for doubtful accounts........................... (31) (29)
---- ----
$903 $726
==== ====
Inventories:
Production materials...................................... $223 $390
Work-in-process and finished goods........................ 28 39
---- ----
$251 $429
==== ====
Property, plant and equipment:
Land and buildings........................................ $133 $ 92
Computer equipment........................................ 104 92
Office furniture and fixtures............................. 32 26
Machinery and other equipment............................. 59 45
Leasehold improvements.................................... 46 37
---- ----
Total property, plant and equipment....................... 374 292
Accumulated depreciation and amortization................. (139) (113)
---- ----
$235 $179
==== ====
Accrued and other liabilities:
Accrued compensation...................................... $113 $ 52
Accrued warranty costs.................................... 111 78
Taxes other than income taxes............................. 74 76
Deferred revenue on warranty contracts.................... 126 67
Book overdrafts........................................... 27 59
Other..................................................... 167 141
---- ----
$618 $473
==== ====
</TABLE>
39
<PAGE> 41
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------
FEBRUARY 2, JANUARY 28, JANUARY 29,
1997 1996 1995
----------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
SUPPLEMENTAL CONSOLIDATED STATEMENT OF OPERATIONS
INFORMATION
Research, development and engineering expenses:
Research and development expenses....................... $ 88 $ 62 $ 39
Engineering expenses.................................... 38 33 26
----- ----- -----
$ 126 $ 95 $ 65
===== ===== =====
Financing and other income (expense), net:
Interest expense........................................ $ (7) $ (15) $ (12)
Investment and other income (loss), net................. 40 21 (24)
----- ----- -----
$ 33 $ 6 $ (36)
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------
FEBRUARY 2, JANUARY 28, JANUARY 29,
1997 1996 1995
----------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
SUPPLEMENTAL CONSOLIDATED STATEMENT OF CASH FLOWS
INFORMATION
Changes in operating working capital accounts:
Accounts receivable, net................................ $(200) $(196) $(125)
Inventories............................................. 177 (138) (72)
Accounts payable........................................ 581 59 129
Accrued and other liabilities........................... 141 126 80
Other, net.............................................. (40) (46) (23)
----- ----- -----
$ 659 $(195) $ (11)
===== ===== =====
Supplemental cash flow information:
Income taxes paid....................................... $ 178 $ 117 $ 57
Interest paid........................................... $ 12 $ 17 $ 10
</TABLE>
40
<PAGE> 42
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 -- QUARTERLY RESULTS (UNAUDITED)
The Company believes that the following information reflects all normal
recurring adjustments necessary for a fair presentation of the information for
the periods presented. The following tables contain selected unaudited
Consolidated Statement of Income and stock price data for each quarter of fiscal
1997 and 1996. The operating results for any quarter are not necessarily
indicative of results for any future period.
<TABLE>
<CAPTION>
FISCAL YEAR 1997
-------------------------------------------
4TH 3RD 2ND 1ST
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales......................................... $2,412 $2,019 $1,690 $1,638
Gross margin...................................... $ 524 $ 450 $ 373 $ 319
Income before extraordinary loss.................. $ 188 $ 149 $ 112 $ 82
Net income........................................ $ 188 $ 145 $ 103 $ 82
Income before extraordinary loss per common
share(a)(b):
Primary...................................... $ 1.01 $ .78 $ .58 $ .42
Fully diluted................................ $ 1.00 $ .78 $ .57 $ .42
Weighted average shares outstanding(a):
Primary...................................... 185.8 191.0 194.7 194.8
Fully diluted................................ 187.0 192.0 196.2 196.8
Stock sales prices per share(a):
High............................................ $ 723/8 $ 443/8 $ 285/8 $ 233/8
Low............................................. $ 3713/16 $ 261/16 $ 203/16 $ 131/4
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR 1996
-------------------------------------------
4TH 3RD 2ND 1ST
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales......................................... $1,539 $1,415 $1,206 $1,136
Gross margin...................................... $ 278 $ 290 $ 263 $ 236
Income before extraordinary loss.................. $ 70 $ 75 $ 65 $ 62
Net income........................................ $ 70 $ 75 $ 65 $ 62
Income before extraordinary loss per common
share(a):
Primary...................................... $ .35 $ .38 $ .33 $ .28
Fully diluted................................ $ .35 $ .37 $ .33 $ .26
Weighted average shares outstanding(a):
Primary...................................... 198.7 200.1 196.5 181.0
Fully diluted................................ 199.6 202.0 198.4 195.1
Stock sales prices per share(a):
High............................................ $ 2411/16 $ 2329/32 $ 1717/32 $ 1323/32
Low............................................. $ 111/2 $ 151/2 $ 121/8 $ 97/8
</TABLE>
- ------------------------------
(a) Earnings per common share are computed independently for each of the
quarters presented. Therefore, the sum of the quarterly per common share
information may not equal the annual earnings per common share. All share,
per share and stock price information has been retroactively restated to
reflect the two-for-one split of the Common Stock in December 1996.
(b) Excludes extraordinary loss of $0.02 and $0.05 per common share for the
third and second quarter, respectively, of fiscal 1997.
41
<PAGE> 43
PART III
The information called for by Part III of Form 10-K (consisting of Item
10 -- Directors and Executive Officers of the Registrant, Item 11 -- Executive
Compensation, Item 12 -- Security Ownership of Certain Beneficial Owners and
Management and Item 13 -- Certain Relationships and Transactions), to the extent
not set forth herein under "Item 1 -- Business -- Executive Officers of the
Registrant," is incorporated by reference from the Company's definitive proxy
statement relating to the annual meeting of stockholders to be held in 1996,
which definitive proxy statement will be filed with the Securities and Exchange
Commission on or before June 2, 1997.
PART IV
ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS
The following financial statements are filed as a part of this Report under
"Item 8 -- Financial Statements and Supplementary Data":
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... 24
Consolidated Statement of Financial Position at February 2,
1997 and January 28, 1996................................. 25
Consolidated Statement of Income for the three fiscal years
ended February 2, 1997.................................... 26
Consolidated Statement of Cash Flows for the three fiscal
years ended February 2, 1997.............................. 27
Consolidated Statement of Stockholders' Equity for the three
fiscal years ended February 2, 1997....................... 28
Notes to Consolidated Financial Statements.................. 29
</TABLE>
FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule is filed as a part of this Report
under "Schedule II" immediately preceding the signature page: Schedule
II -- Valuation and Qualifying Accounts for the three fiscal years ended
February 2, 1997. All other schedules called for by Form 10-K are omitted
because they are inapplicable or the required information is shown in the
financial statements, or notes thereto, included herein.
EXHIBITS
The following exhibits are filed as a part of this Report, with each exhibit
that consists of or includes a management contract or compensatory plan or
arrangement being identified with an "*":
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
3.1 -- Certificate of Incorporation, dated October 21, 1987 and
filed October 22, 1987 (incorporated by reference to
Exhibit 3.1 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended July 30, 1995,
Commission File No. 0-17017)
3.2 -- Certificate of Amendment to the Certificate of
Incorporation, dated May 6, 1988 and filed May 9, 1988
(incorporated by reference to Exhibit 3.2 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended July 30, 1995, Commission File No. 0-17017)
3.3 -- Certificate of Amendment to the Certificate of
Incorporation, dated June 19, 1991 and filed June 21,
1991 (incorporated by reference to Exhibit 3.3 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended July 30, 1995, Commission File No. 0-17017)
</TABLE>
42
<PAGE> 44
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
3.4 -- Certificate of Amendment to the Certificate of
Incorporation, dated June 19, 1992 and filed July 10,
1992 (incorporated by reference to Exhibit 3.4 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended July 30, 1995, Commission File No. 0-17017)
3.5 -- Certificate of Designation of Series A Convertible
Preferred Stock, dated August 24, 1993 and filed August
25, 1993 (incorporated by reference to Exhibit 3.5 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended July 30, 1995, Commission File No. 0-17017)
3.6 -- Certificate of Correction Filed to Correct Certain Errors
in the Certificate of Amendment of Certificate of
Incorporation Filed in the Office of the Secretary of
State of Delaware on May 9, 1988, and in the Certificate
of Amendment of Certificate of Incorporation Filed in the
Office of the Secretary of State of Delaware on July 10,
1992, dated April 27, 1994 and filed May 5, 1994
(incorporated by reference to Exhibit 3.6 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended July 30, 1995, Commission File No. 0-17017)
3.7 -- Certificate of Amendment to Certificate of Incorporation,
dated July 31, 1995 and filed August 3, 1995
(incorporated by reference to Exhibit 3.7 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended July 30, 1995, Commission File No. 0-17017)
3.8 -- Certificate of Designations of Series A Junior
Participating Preferred Stock, dated November 29, 1995
and filed December 4, 1995 (incorporated by reference to
Exhibit 3.1 to the Company's Quarterly Report on Form 10-
Q for the fiscal quarter ended October 29, 1995,
Commission File No. 0-17017)
3.9 -- Bylaws, dated October 22, 1987 (incorporated by reference
to Exhibit 3.8 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended July 30, 1995,
Commission File No. 0-17017)
3.10 -- Amendments to the Bylaws, adopted June 19, 1991
(incorporated by reference to Exhibit 3.9 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended July 30, 1995, Commission File No. 0-17071)
3.11 -- Amendments to the Bylaws, adopted May 18, 1995
(incorporated by reference to Exhibit 3.10 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended July 30, 1995, Commission File No. 0-17017)
3.12 -- Amendments to Bylaws, adopted November 29, 1995
(incorporated by reference to Exhibit 3.2 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended October 29, 1995, Commission File No.
0-17017)
3.13 -- Restated Bylaws, as adopted on November 29, 1995
(incorporated by reference to Exhibit 3.3 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended October 29, 1995, Commission File No.
0-17017)
4.1 -- Rights Agreement, dated as of November 29, 1995
(incorporated by reference to Exhibit 4 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter
ended October 29, 1995, Commission File No. 0-17017)
4.2 -- Indenture, dated as of August 15, 1993, between the
Company and The First National Bank of Boston regarding
the Company's 11% Senior Notes Due August 15, 2000
(incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-4,
Registration No. 33-69680)
4.3 -- Exchange and Registration Rights, dated as of August 15,
1993, between the Company and the purchasers of the
Company's 11% Senior Notes Due August 15, 2000
(incorporated by reference to Exhibit 4.2 to the
Company's Registration Statement on Form S-4,
Registration No. 33-69680)
</TABLE>
43
<PAGE> 45
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
4.4 -- First Supplemental Indenture, dated as of August 16,
1996, between the Company and State Street Bank and Trust
Company, as successor trustee to The First National Bank
of Boston, regarding the Company's 11% Senior Notes Due
August 16, 2000 (incorporated by reference to Exhibit 4
to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended July 28, 1996, Commission File No.
0-17017)
10.1* -- Dell Computer Corporation 1986 Incentive Stock Option
Plan, as amended (incorporated by reference to Exhibit 4c
to the Company's Registration Statement on Form S-8,
Registration No. 33-24621)
10.2* -- Dell Computer Corporation 1987 Incentive Stock Option
Plan, as amended (incorporated by reference to Exhibit 4d
to the Company's Registration Statement on Form S-8,
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 to the Company's Registration
Statement on Form S-8, Registration No. 33-24621)
10.4* -- Dell Computer Corporation 1989 Stock Option Plan, as
amended and restated (incorporated by reference to
Exhibit 10.4 to the Company's Annual Report on Form 10-K
for the fiscal year ended January 31, 1993, Commission
File No. 0-17017)
10.5* -- Dell Computer Corporation 1993 Stock Option Plan
(incorporated by reference to Exhibit 10.36 to the
Company's Registration Statement on Form S-4,
Registration No. 33-69680)
10.6* -- Dell Computer Corporation Incentive Plan (incorporated by
reference to Exhibit 4.6 to the Company's Registration
Statement on Form S-8, Registration No. 33-54577)
10.7* -- First Amendment to Dell Computer Corporation Incentive
Plan, dated as of July 21, 1995 (incorporated by
reference to Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended July 30,
1995, Commission File No. 0-17071)
10.8* -- Second Amendment to Dell Computer Corporation Incentive
Plan, dated as of November 29, 1995 (incorporated by
reference to Exhibit 10.8 to the Company's Annual Report
on Form 10-K for the fiscal year ended January 28, 1996,
Commission File No. 0-17017)
10.9* -- Dell Computer Corporation Deferred Compensation Plan
(incorporated by reference to Exhibit 10.8 to the
Company's Annual Report on Form 10-K for the fiscal year
ended February 3, 1991, Commission File No. 0-17017)
10.10* -- Amendment to Deferred Compensation Plan, adopted on
August 25, 1995 (incorporated by reference to Exhibit
10.10 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 28, 1996, Commission File No.
0-17017)
10.11* -- Executive Incentive Bonus Plan, adopted March 1, 1995
(incorporated by reference to Exhibit 10.10 to the
Company's Annual Report on Form 10-K for the fiscal year
ended January 28, 1996, Commission File No. 0-17017)
10.12* -- Form of Indemnity Agreement between the Company and
certain of its officers, directors and key employees
(incorporated by reference to Exhibit 10.23 to the
Company's Registration Statement on Form S-1,
Registration No. 33-21823)
</TABLE>
44
<PAGE> 46
<TABLE>
<C> <S>
10.13 -- Lease Agreement, dated January 6, 1989, for Building 12 in Braker Center (incorporated
by reference to Exhibit 10s to the Company's Annual Report on Form 10-K for the fiscal
year ended January 27, 1989, Commission File No. 0-17017)
10.14 -- Two Amendments to Lease Agreement for Building 12 in Braker Center (incorporated by
reference to Exhibit 10.27 to the Company's Annual Report on Form 10-K for the fiscal
year ended January 31, 1993, Commission File No. 0-17017)
10.15* -- Agreement, dated May 12, 1988, between the Company and Michael S. Dell, along with the
Employment Agreement, dated May 3, 1984, between Michael S. Dell and the Company's
predecessor (incorporated by reference to Exhibit 10.25 to the Company's Registration
Statement on Form S-1, Registration No. 33-38991)
10.16* -- Employment Agreement, dated November 16, 1992, between the Company and Thomas J.
Meredith (incorporated by reference to Exhibit 10.36 to the Company's Annual Report on
Form 10-K for the fiscal year ended January 31, 1993, Commission File No. 0-17017)
10.17 -- Receivables Purchase Agreement, dated as of November 30, 1995, between Dell Marketing
L.P. (as Seller) and Dell Receivables L.P. (as Purchaser) (incorporated by reference to
Exhibit 10.18 to the Company's Annual Report on Form 10-K for the fiscal year ended
January 28, 1996, Commission No. 0-17017)
10.18 -- Receivables Purchase Agreement, dated as of November 30, 1995, between Dell Direct
Sales L.P. (as Seller) and Dell Receivables L.P. (as Purchaser) (incorporated by
reference to Exhibit 10.19 to the Company's Annual Report on Form 10-K for the fiscal
year ended January 28, 1996, Commission No. 0-17017)
10.19 -- Subordinated Note, dated as of November 30, 1995, payable to Dell Marketing L.P. issued
by Dell Receivables L.P. (incorporated by reference to Exhibit 10.20 to the Company's
Annual Report on Form 10-K for the fiscal year ended January 28, 1996, Commission No.
0-17017)
10.20 -- Subordinated Note, dated as of November 30, 1995, payable to Dell Direct Sales L.P.
issued by Dell Receivables L.P. (incorporated by reference to Exhibit 10.21 to the
Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1996,
Commission No. 0-17017)
10.21 -- Pooling and Servicing Agreement, dated as of November 30, 1995, among Dell Receivables
L.P. (as Transferor), Dell USA L.P. (as Servicer) and Norwest Bank Minnesota, National
Association (as Trustee) (incorporated by reference to Exhibit 10.22 to the Company's
Annual Report on Form 10-K for the fiscal year ended January 28, 1996, Commission No.
0-17017)
10.22 -- Series 1995-1 Supplement, dated as of November 30, 1995, to the Pooling and Servicing
Agreement filed as Exhibit 10.35 to this Report (incorporated by reference to Exhibit
10.23 to the Company's Annual Report on Form 10-K for the fiscal year ended January 28,
1996, Commission No. 0-17017)
10.23 -- Certificate Purchase Agreement, dated as of November 30, 1995, among Dell Receivables
L.P. (as Seller), Corporate Receivables Corporation (as Purchaser), the financial
institutions named from time to time therein (as Liquidity Providers), Citibank North
America, Inc. (as Program Agent) and Norwest Bank Minnesota, National Association (as
Trustee) (incorporated by reference to Exhibit 10.24 to the Company's Annual Report on
Form 10-K for the fiscal year ended January 28, 1996, Commission No. 0-17017)
</TABLE>
45
<PAGE> 47
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
10.24 -- Parent Undertaking Agreement, dated as of November 30,
1995, executed by the Company (incorporated by reference
to Exhibit 10.25 to the Company's Annual Report on Form
10-K for the fiscal year ended January 28, 1996,
Commission No. 0-17017)
10.25 -- Cross-Guarantee Agreement, dated as of November 30, 1995,
among Dell Marketing L.P., Dell Direct Sales L.P. and
Dell USA L.P. (incorporated by reference to Exhibit 10.26
to the Company's Annual Report on Form 10-K for the
fiscal year ended January 28, 1996, Commission No.
0-17017)
10.26* -- Severance Agreement, dated March 28, 1996, between the
Company and Richard N. Snyder (incorporated by reference
to Exhibit 10 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended April 28, 1996,
Commission File No. 0-17017)
10.27 -- Credit Agreement, dated as of June 6, 1996, among the
Company (as Borrower), Citibank, N.A. (as Administrative
Agent), Chemical Bank (as Co-Agent), and the banks named
therein relating to a $100,000,000 364-Day Revolving
Credit Facility (incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended July 28, 1996, Commission File
No. 0-17017)
10.28 -- Credit Agreement, dated as of June 6, 1996, among the
Company (as Borrower), Citibank, N.A. (as Administrative
Agent), Chemical Bank (as Co-Agent), and the banks named
therein relating to a $150,000,000 Three-Year Revolving
Credit Facility (incorporated by reference to Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended July 28, 1996, Commission File
No. 0-17017)
11+ -- Statement re Computation of Per Share Earnings
21+ -- Subsidiaries of the Company
23+ -- Consent of Price Waterhouse LLP
27+ -- Financial Data Schedule
</TABLE>
- ---------------
* Identifies Exhibit that consists of or includes a management contract or
compensatory plan or arrangement.
+ Filed herewith.
REPORTS ON FORM 8-K
The Company did not file any Current Reports on Form 8-K during the fourth
quarter of the fiscal year ended February 2, 1997.
46
<PAGE> 48
SCHEDULE II
DELL COMPUTER CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
<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
- ------ ----------- ---------- ---------- ---------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
1997 Allowance for doubtful accounts $29 $12 $10 $31
1996 Allowance for doubtful accounts $26 $13 $10 $29
1995 Allowance for doubtful accounts $26 $ 8 $ 8 $26
</TABLE>
47
<PAGE> 49
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.
DELL COMPUTER CORPORATION
Date: April 7, 1997
By: /s/ MICHAEL S. DELL
----------------------------------
Michael S. Dell,
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ MICHAEL S. DELL Chairman of the Board and Chief April 7, 1997
- ----------------------------------------------------- Executive Officer (principal
Michael S. Dell executive officer)
/s/ DONALD J. CARTY Director April 7, 1997
- -----------------------------------------------------
Donald J. Carty
/s/ PAUL O. HIRSCHBIEL, JR. Director April 7, 1997
- -----------------------------------------------------
Paul O. Hirschbiel, Jr.
/s/ MICHAEL H. JORDAN Director April 7, 1997
- -----------------------------------------------------
Michael H. Jordan
/s/ GEORGE KOZMETSKY Director April 7, 1997
- -----------------------------------------------------
George Kozmetsky
/s/ THOMAS W. LUCE, III Director April 7, 1997
- -----------------------------------------------------
Thomas W. Luce, III
/s/ KLAUS S. LUFT Director April 7, 1997
- -----------------------------------------------------
Klaus S. Luft
/s/ CLAUDINE B. MALONE Director April 7, 1997
- -----------------------------------------------------
Claudine B. Malone
/s/ MICHAEL A. MILES Director April 7, 1997
- -----------------------------------------------------
Michael A. Miles
/s/ THOMAS J. MEREDITH Senior Vice President and Chief April 7, 1997
- ----------------------------------------------------- Financial Officer (principal
Thomas J. Meredith financial officer)
/s/ JAMES M. SCHNEIDER Vice President -- Finance and April 7, 1997
- ----------------------------------------------------- Corporate Controller (principal
James M. Schneider accounting officer)
</TABLE>
48
<PAGE> 50
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
<S> <C>
3.1 -- Certificate of Incorporation, dated October 21, 1987
and filed October 22, 1987 (incorporated by reference to
Exhibit 3.1 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended July 30, 1995,
Commission File No. 0-17017)
3.2 -- Certificate of Amendment to the Certificate of
Incorporation, dated May 6, 1988 and filed May 9, 1988
(incorporated by reference to Exhibit 3.2 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended July 30, 1995, Commission File No. 0-17017)
3.3 -- Certificate of Amendment to the Certificate of
Incorporation, dated June 19, 1991 and filed June 21,
1991 (incorporated by reference to Exhibit 3.3 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended July 30, 1995, Commission File No. 0-17017)
3.4 -- Certificate of Amendment to the Certificate of
Incorporation, dated June 19, 1992 and filed July 10,
1992 (incorporated by reference to Exhibit 3.4 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended July 30, 1995, Commission File No. 0-17017)
3.5 -- Certificate of Designation of Series A Convertible
Preferred Stock, dated August 24, 1993 and filed August
25, 1993 (incorporated by reference to Exhibit 3.5 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended July 30, 1995, Commission File No. 0-17017)
3.6 -- Certificate of Correction Filed to Correct Certain
Errors in the Certificate of Amendment of Certificate of
Incorporation Filed in the Office of the Secretary of
State of Delaware on May 9, 1988, and in the Certificate
of Amendment of Certificate of Incorporation Filed in the
Office of the Secretary of State of Delaware on July 10,
1992, dated April 27, 1994 and filed May 5, 1994
(incorporated by reference to Exhibit 3.6 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended July 30, 1995, Commission File No. 0-17017)
3.7 -- Certificate of Amendment to Certificate of
Incorporation, dated July 31, 1995 and filed August 3,
1995 (incorporated by reference to Exhibit 3.7 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended July 30, 1995, Commission File No. 0-17017)
3.8 -- Certificate of Designations of Series A Junior
Participating Preferred Stock, dated November 29, 1995
and filed December 4, 1995 (incorporated by reference to
Exhibit 3.1 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended October 29, 1995,
Commission File No. 0-17017)
3.9 -- Bylaws, dated October 22, 1987 (incorporated by reference
to Exhibit 3.8 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended July 30, 1995,
Commission File No. 0-17017)
3.10 -- Amendments to the Bylaws, adopted June 19, 1991
(incorporated by reference to Exhibit 3.9 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended July 30, 1995, Commission File No. 0-17071)
3.11 -- Amendments to the Bylaws, adopted May 18, 1995
(incorporated by reference to Exhibit 3.10 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended July 30, 1995, Commission File No. 0-17017)
3.12 -- Amendments to Bylaws, adopted November 29, 1995
(incorporated by reference to Exhibit 3.2 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended October 29, 1995, Commission File No.
0-17017)
3.13 -- Restated Bylaws, as adopted on November 29, 1995
(incorporated by reference to Exhibit 3.3 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended October 29, 1995, Commission File No.
0-17017)
4.1 -- Rights Agreement, dated as of November 29, 1995
(incorporated by reference to Exhibit 4 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter
ended October 29, 1995, Commission File No. 0-17017)
4.2 -- Indenture, dated as of August 15, 1993, between the
Company and The First National Bank of Boston regarding
the Company's 11% Senior Notes Due August 15, 2000
(incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-4,
Registration No. 33-69680)
</TABLE>
49
<PAGE> 51
<TABLE>
<S> <C>
4.3 -- Exchange and Registration Rights, dated as of August
15, 1993, between the Company and the purchasers of the
Company's 11% Senior Notes Due August 15, 2000
(incorporated by reference to Exhibit 4.2 to the
Company's Registration Statement on Form S-4,
Registration No.
33-69680)
4.4 -- First Supplemental Indenture, dated as of August 16,
1996, between the Company and State Street Bank and Trust
Company, as successor trustee to The First National Bank
of Boston, regarding the Company's 11% Senior Notes Due
August 16, 2000 (incorporated by reference to Exhibit 4
to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended July 28, 1996, Commission File No.
0-17017)
10.1* -- Dell Computer Corporation 1986 Incentive Stock Option Plan,
as amended (incorporated by to Exhibit 4c to the Company's
Registration Statement on Form S-8, Registration
No. 33-24621)
10.2* -- Dell Computer Corporation 1987 Incentive Stock Option Plan,
as amended (incorporated by reference to Exhibit 4d to the
Company's Registration Statement on Form S-8, 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 to the Company's Registration Statement
on Form S-8, Registration No. 33-24621)
10.4* -- Dell Computer Corporation 1989 Stock Option Plan, as
amended and restated (incorporated by reference to
Exhibit 10.4 to the Company's Annual Report on Form 10-K
for the fiscal year ended January 31, 1993, Commission
File No. 0-17017)
10.5* -- Dell Computer Corporation 1993 Stock Option Plan (incorporated
by reference to Exhibit 10.36 to the Company's Registration
Statement on Form S-4, Registration No. 33-69680)
10.6* -- Dell Computer Corporation Incentive Plan (incorporated by
reference to Exhibit 4.6 to the Company's Registration
Statement on Form S-8, Registration No. 33-54577)
10.7* -- First Amendment to Dell Computer Corporation Incentive
Plan, dated as of July 21, 1995 (incorporated by
reference to Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended July 30,
1995, Commission File No. 0-17071)
10.8* -- Second Amendment to Dell Computer Corporation
Incentive Plan, dated as of November 29, 1995
(incorporated by reference to Exhibit 10.8 to the
Company's Annual Report on Form 10-K for the fiscal year
ended January 28, 1996, Commission File No. 0-17017)
10.9* -- Dell Computer Corporation Deferred Compensation Plan
(incorporated by reference to Exhibit 10.8 to the
Company's Annual Report on Form 10-K for the fiscal year
ended February 3, 1991, Commission File No. 0-17017)
10.10* -- Amendment to Deferred Compensation Plan, adopted on
August 25, 1995 (incorporated by reference to Exhibit
10.10 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 28, 1996, Commission File No.
0-17017)
10.11* -- Executive Incentive Bonus Plan, adopted March 1, 1995
(incorporated by reference to Exhibit 10.10 to the
Company's Annual Report on Form 10-K for the fiscal year
ended January 28, 1996, Commission File No. 0-17017)
10.12* -- Form of Indemnity Agreement between the Company and
certain of its officers, directors and key employees
(incorporated by reference to Exhibit 10.23 to the
Company's Registration Statement on Form S-1,
Registration No. 33-21823)
10.13 -- Lease Agreement, dated January 6, 1989, for Building
12 in Braker Center (incorporated by reference to Exhibit
10s to the Company's Annual Report on Form 10-K for the
fiscal year ended January 27, 1989, Commission File No.
0-17017)
10.14 -- Two Amendments to Lease Agreement for Building 12 in
Braker Center (incorporated by reference to Exhibit 10.27
to the Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1993, Commission File No.
0-17017)
10.15* -- Agreement, dated May 12, 1988, between the Company and
Michael S. Dell, along with the Employment Agreement,
dated May 3, 1984, between Michael S. Dell and the
Company's predecessor (incorporated by reference to
Exhibit 10.25 to the Company's Registration Statement on
Form S-1, Registration No. 33-38991)
</TABLE>
50
<PAGE> 52
<TABLE>
<S> <C>
10.16* -- Employment Agreement, dated November 16, 1992, between
the Company and Thomas J. Meredith (incorporated by
reference to Exhibit 10.36 to the Company's Annual Report
on Form 10-K for the fiscal year ended January 31, 1993,
Commission File No. 0-17017)
10.17 -- Receivables Purchase Agreement, dated as of November 30, 1995,
between Dell Marketing L.P. (as Seller) and Dell Receivables
L.P. (as Purchaser) (incorporated by reference to Exhibit
10.18 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 28, 1996, Commission No. 0-17017)
10.18 -- Receivables Purchase Agreement, dated as of November 30, 1995,
between Dell Direct Sales L.P. (as Seller) and Dell Receivables
L.P. (as Purchaser) (incorporated by reference to Exhibit 10.19
to the Company's Annual Report on Form 10-K for the fiscal year
ended January 28, 1996, Commission No. 0-17017)
10.19 -- Subordinated Note, dated as of November 30, 1995, payable to
Dell Marketing L.P. issued by Dell Receivables L.P. (incorporated
by reference to Exhibit 10.20 to the Company's Annual Report on
Form 10-K for the fiscal year ended January 28, 1996,
Commission No. 0-17017)
10.20 -- Subordinated Note, dated as of November 30, 1995,
payable to Dell Direct Sales L.P. issued by Dell
Receivables L.P. (incorporated by reference to Exhibit
10.21 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 28, 1996, Commission No.
0-17017)
10.21 -- Pooling and Servicing Agreement, dated as of November
30, 1995, among Dell Receivables L.P. (as Transferor),
Dell USA L.P. (as Servicer) and Norwest Bank Minnesota,
National Association (as Trustee) (incorporated by
reference to Exhibit 10.22 to the Company's Annual Report
on Form 10-K for the fiscal year ended January 28, 1996,
Commission No.
0-17017)
10.22 -- Series 1995-1 Supplement, dated as of November 30,
1995, to the Pooling and Servicing Agreement filed as
Exhibit 10.35 to this Report (incorporated by reference
to Exhibit 10.23 to the Company's Annual Report on Form
10-K for the fiscal year ended January 28, 1996,
Commission No. 0-17017)
10.23 -- Certificate Purchase Agreement, dated as of November
30, 1995, among Dell Receivables L.P. (as Seller),
Corporate Receivables Corporation (as Purchaser), the
financial institutions named from time to time therein
(as Liquidity Providers), Citibank North America, Inc.
(as Program Agent) and Norwest Bank Minnesota, National
Association (as Trustee) (incorporated by reference to
Exhibit 10.24 to the Company's Annual Report on Form 10-K
for the fiscal year ended January 28, 1996, Commission
No. 0-17017)
10.24 -- Parent Undertaking Agreement, dated as of November 30,
1995, executed by the Company (incorporated by reference
to Exhibit 10.25 to the Company's Annual Report on Form
10-K for the fiscal year ended January 28, 1996,
Commission No. 0-17017)
10.25 -- Cross-Guarantee Agreement, dated as of November 30, 1995,
among Dell Marketing L.P., Dell Direct Sales L.P. and
Dell USA L.P. (incorporated by reference to Exhibit
10.26 to the Company's Annual Report on Form 10-K
for the fiscal year ended January 28, 1996, Commission
No. 0-17017)
10.26* -- Severance Agreement, dated March 28, 1996, between the
Company and Richard N. Snyder (incorporated by reference
to Exhibit 10 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended April 28, 1996,
Commission File No. 0-17017)
10.27 -- Credit Agreement, dated as of June 6, 1996, among the
Company (as Borrower), Citibank, N.A. (as Administrative
Agent), Chemical Bank (as Co-Agent), and the banks named
therein relating to a $100,000,000 364-Day Revolving
Credit Facility (incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended July 28, 1996, Commission File
No. 0-17017)
10.28 -- Credit Agreement, dated as of June 6, 1996, among the
Company (as Borrower), Citibank, N.A. (as Administrative
Agent), Chemical Bank (as Co-Agent), and the banks named
therein relating to a $150,000,000 Three-Year Revolving
Credit Facility (incorporated by reference to Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended July 28, 1996, Commission File
No. 0-17017)
</TABLE>
51
<PAGE> 53
<TABLE>
<S> <C>
11+ -- Statement re Computation of Per Share Earnings
21+ -- Subsidiaries of the Company
23+ -- Consent of Price Waterhouse LLP
27+ -- Financial Data Schedule
</TABLE>
- ----------------
* Identifies Exhibit that consists of or includes a management contract or
compensatory plan or arrangement.
+ Filed herewith.
52
<PAGE> 1
EXHIBIT 11
DELL COMPUTER CORPORATION
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------
FEBRUARY 2, JANUARY 28, JANUARY 29,
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Primary earnings per common share:
Calculation of weighted average shares (a):
Weighted average shares of Common Stock
outstanding .................................... 178.8 179.9 154.6
Weighted average shares of common stock
equivalents, utilizing the treasury stock method 13.0 14.3 11.6
========= ========= =========
Weighted average shares outstanding .............. 191.8 194.2 166.2
========= ========= =========
Earnings:
Net income available to common stockholders ...... $ 518 $ 260 $ 140
========= ========= =========
Earnings per common share (a)(b) ................... $ 2.77(f) $ 1.34 $ .85
========= ========= =========
Fully diluted earnings per common share:
Calculation of weighted average shares (a):
Weighted average shares of Common Stock
outstanding .................................... 178.8 179.9 154.6
Weighted average shares of common stock
equivalents, utilizing the treasury stock method 17.7 13.6 13.7
Assumed conversion of Convertible Preferred Stock .6(d) 3.9(c) 21.0
========= ========= =========
Weighted average shares outstanding .............. 197.1 197.4 189.3
========= ========= =========
Earnings:
Net income available to common stockholders ...... $ 518 $ 260 $ 140
Add: preferred dividends ........................ -- 1(e) 9
========= ========= =========
Adjusted net income available to common
stockholders .................................. $ 518 $ 261 $ 149
========= ========= =========
Earnings per common share (a)(b) ................... $ 2.70(f) $ 1.32 $ .79
========= ========= =========
</TABLE>
(a) All share and per share information has been retroactively restated to
reflect the two-for-one split of the common stock distribution in December
1996. See Note 6 of Notes to Consolidated Financial Statements.
(b) Earnings (loss) 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) Assumes conversion of the 60,000 shares of outstanding convertible
preferred stock from the beginning of fiscal 1997 to the actual conversion
date.
(e) Preferred dividends are exclusive of the conversion premium and expenses
of the conversion offer. See Note 5 of Notes to Consolidated Finical
Statements.
(f) Excludes extraordinary loss of $0.07 per common share. See Note 2 of Notes
to Consolidated Financial Statements.
<PAGE> 1
EXHIBIT 21
DELL COMPUTER CORPORATION
Listing of Subsidiaries
NAME JURISDICTION
---- ------------
Dell Computer PTY. Limited Australia
Dell Computer Ges.m.b.H Austria
Dell Export Sales Corporation Barbados
Dell Products (Europe) B.V. Beijing Beijing/Netherlands
Representative Office
Dell Computer NV Belgium
Dell Computadores do Brasil LTDA. Brazil
Dell Computer sro Czech Republic
Dell Catalog Sales Corporation Delaware
Dell Computer Corporation Delaware
Dell Computer Holdings Corporation Delaware
Dell Direct Sales Corporation Delaware
Dell Eastern Europe Corporation Delaware
Dell Funding Corporation Delaware
Dell Gen. P. Corp. Delaware
Dell International Incorporated Delaware
Dell Marketing Corporation Delaware
Dell Products Corporation Delaware
Dell Receivables Gen. P. Corp. Delaware
Dell USA Corporation Delaware
Dell Computer AS Denmark
Dell Computer AB Finland
Dell Computer OY Finland
Dell Computer S.A. France
Dell Computer GmbH Germany
Dell Computer Asia LTD. Hong Kong
Dell Asis Pacific Sdn Liaison Office India/Malaysia
Dell Computer Limited Ireland
Dell Direct Ireland
Dell Products Ireland
Dell Research Ireland
Dell Computer Corporation K.K. Japan
Dell Computer Corporation Korea
Dell Computer International Transactions Madeira
LDA
Dell Computer NV Madeira
Dell Asia Pacific Sdn. Malaysia
Dell Computer de Mexico, S.A. de C.V. Mexico
Dell Computer BV Netherlands
Dell Computer Holdings (Europe) B.V. Netherlands
Dell Products (Asia) B.V. Netherlands
Dell Products (Europe) B.V. Netherlands
Dell Computer Limited New Zealand
<PAGE> 2
Dell Computer AS Norway
Dell Computer Corporation Ontario, Canada
Dell Computer, Sp.z.o.o. Poland
Dell Quebec Inc. Quebec
Dell Computer Asia Pte. Ltd. Singapore
Dell Computer (Pty.) Ltd. South Africa
Dell Computer S.A. Spain
Dell Computer AB Sweden
Dell Computer SA Switzerland
Dell Catalog Sales L.P. Texas
Dell Computer Holdings, L.P. Texas
Dell Direct Sales L.P. Texas
Dell Marketing L.P. Texas
Dell Products L.P. Texas
Dell Receivables L.P. Texas
Dell USA L.P. Texas
Dell World Trade L.P. Texas
DellWare Direct L.P. Texas
Dell Computer Co., Ltd. Thailand
Dell Computer Corporation Limited United Kingdom
Dell Computer EEIG United Kingdom
Dell Distribution (EMEA) Limited United Kingdom
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-24621, 33-54577, 33-31812 and 33-63273) of Dell
Computer Corporation of our report dated February 25, 1997 appearing on page 24
of this Form 10-K.
PRICE WATERHOUSE LLP
Austin, Texas
April 7, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DELL
COMPUTER CORPORATION FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED FEBRUARY
2, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-02-1997
<PERIOD-END> FEB-02-1997
<CASH> 115
<SECURITIES> 1,237
<RECEIVABLES> 934
<ALLOWANCES> 31
<INVENTORY> 251
<CURRENT-ASSETS> 2,747
<PP&E> 374
<DEPRECIATION> 139
<TOTAL-ASSETS> 2,993
<CURRENT-LIABILITIES> 1,658
<BONDS> 18
0
0
<COMMON> 195
<OTHER-SE> 611
<TOTAL-LIABILITY-AND-EQUITY> 2,993
<SALES> 7,759
<TOTAL-REVENUES> 7,759
<CGS> 6,093
<TOTAL-COSTS> 6,093
<OTHER-EXPENSES> 126
<LOSS-PROVISION> 12
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> 747
<INCOME-TAX> 216
<INCOME-CONTINUING> 531
<DISCONTINUED> 0
<EXTRAORDINARY> (13)
<CHANGES> 0
<NET-INCOME> 518
<EPS-PRIMARY> 2.70
<EPS-DILUTED> 2.63
</TABLE>
