<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MAY 4, 1997
COMMISSION FILE NUMBER: 0-17017
DELL COMPUTER CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 74-2487834
(State of incorporation) (I.R.S. Employer ID No.)
ONE DELL WAY
ROUND ROCK, TEXAS 78682
(Address of principal executive offices)
(512) 338-4400
(Telephone number)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING TWELVE MONTHS AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
--- ---
AS OF THE CLOSE OF BUSINESS ON MAY 30, 1997, 168,177,835 SHARES OF THE
REGISTRANT'S COMMON STOCK, PAR VALUE $.01 PER SHARE, WERE OUTSTANDING.
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<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DELL COMPUTER CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(IN MILLIONS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
MAY 4, FEBRUARY 2,
1997 1997
------------ ------------
<S> <C> <C>
Current assets:
Cash ............................................ $ 140 $ 115
Marketable securities ........................... 1,302 1,237
Accounts receivable, net ........................ 991 903
Inventories ..................................... 266 251
Other current assets ............................ 280 241
------------ ------------
Total current assets .......................... 2,979 2,747
Property, plant and equipment, net ............... 252 235
Other assets ..................................... 12 11
------------ ------------
$ 3,243 $ 2,993
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................ $ 1,146 $ 1,040
Accrued and other liabilities ................... 707 618
------------ ------------
Total current liabilities ..................... 1,853 1,658
Deferred revenue ................................. 226 219
Other liabilities ................................ 43 31
------------ ------------
Total liabilities ............................. 2,122 1,908
------------ ------------
Put options ...................................... 264 279
------------ ------------
Stockholders' equity:
Preferred stock and capital in excess
of $.01 par value; shares authorized:
5,000,000; shares issued and
outstanding: none ............................ -- --
Common stock and capital in excess of
$.01 par value; shares authorized:
300,000,000; shares issued and
outstanding: 167,727,302 and
173,047,420, respectively ..................... 234 195
Retained earnings .............................. 653 647
Other .......................................... (30) (36)
------------ ------------
Total stockholders' equity .................... 857 806
------------ ------------
$ 3,243 $ 2,993
============ ============
</TABLE>
The accompanying notes are an integral part
of these condensed consolidated financial statements.
1
<PAGE> 3
DELL COMPUTER CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------
MAY 4, APRIL 28,
1997 1996
------------ ------------
<S> <C> <C>
Net sales ........................................ $ 2,588 $ 1,638
Cost of sales .................................... 2,030 1,319
------------ ------------
Gross margin .................................... 558 319
------------ ------------
Operating expenses:
Selling, general and administrative ............. 240 182
Research, development and engineering ........... 41 25
------------ ------------
Total operating expenses ....................... 281 207
------------ ------------
Operating income ............................... 277 112
Financing and other income (expense), net ........ 10 4
------------ ------------
Income before income taxes ...................... 287 116
Provision for income taxes ....................... 89 34
------------ ------------
Net income ...................................... $ 198 $ 82
============ ============
Earnings per common share ........................ $ 1.08 $ 0.42
============ ============
Weighted average shares outstanding .............. 184 195
============ ============
</TABLE>
The accompanying notes are an integral part
of these condensed consolidated financial statements.
2
<PAGE> 4
DELL COMPUTER CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
MAY 4, APRIL 28,
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income ........................................ $ 198 $ 82
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ................... 14 10
Other ........................................... 6 7
Changes in:
Operating working capital ........................ 82 199
Non-current assets and liabilities ............... 18 36
---------- ----------
Net cash provided by operating activities ....... 318 334
---------- ----------
Cash flows from investing activities:
Marketable securities:
Purchases ........................................ (2,490) (1,851)
Maturities and sales ............................. 2,422 1,654
Capital expenditures .............................. (32) (31)
---------- ----------
Net cash used in investing activities ........... (100) (228)
---------- ----------
Cash flows from financing activities:
Purchase of common stock .......................... (199) (100)
Issuance of common stock under employee plans ..... 8 4
Cash received from sale of equity options ......... 4 --
---------- ----------
Net cash used in financing activities ........... (187) (96)
---------- ----------
Effect of exchange rate changes on cash ............ (6) 1
---------- ----------
Net increase in cash ............................... 25 11
Cash at beginning of period ........................ 115 55
---------- ----------
Cash at end of period .............................. $ 140 $ 66
========== ==========
</TABLE>
The accompanying notes are an integral part
of these condensed consolidated financial statements.
3
<PAGE> 5
DELL COMPUTER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Dell
Computer Corporation (the "Company") should be read in conjunction with the
consolidated financial statements and notes thereto filed with the Securities
and Exchange Commission in the Company's Annual Report on Form 10-K for the
fiscal year ended February 2, 1997. In the opinion of management, the
accompanying condensed consolidated financial statements reflect all
adjustments (consisting only of normal recurring accruals) considered necessary
to present fairly the financial position of the Company and its consolidated
subsidiaries at May 4, 1997 and February 2, 1997 and the results of their
operations for the three-month periods ended May 4, 1997 and April 28, 1996.
Certain amounts from prior periods have been reclassified to conform to current
period presentation.
NOTE 2 - PROPOSED STOCK SPLIT
On May 20, 1997, the Company's Board of Directors declared a two-for-one common
stock split, subject to stockholder approval of an increase in authorized
shares at the Company's annual stockholder meeting on July 18, 1997. If the
increase in authorized shares is approved, the stock split will be distributed
in the form of a 100% stock dividend on July 25, 1997, to stockholders of
record as of July 18, 1997. Share and per share information included in the
accompanying condensed consolidated financial statements have not been restated
to reflect the proposed stock split.
NOTE 3 - COMMITMENTS AND CONTINGENCIES
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 any of these legal proceedings will have a material adverse effect
on the Company's financial condition or results of operations.
NOTE 4 - EARNINGS PER COMMON SHARE
Earnings per common share are computed by dividing net income by the weighted
average number of common shares and common stock equivalents (if dilutive)
outstanding during each period. Common stock equivalents include stock options
and equity option instruments. The number of common stock equivalents
outstanding is computed using the treasury stock method.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128").
This statement is effective for financial statements issued for periods ending
after December 15, 1997 and will require restatement of all prior period
comparative amounts. Under SFAS 128, primary and fully diluted earnings per
share calculations will be replaced by basic and diluted earnings per share
calculations. Diluted earnings per share does not differ from earnings per
common share as currently reported. Basic earnings per share for the three
month periods ending May 4, 1997 and April 28, 1996 will be $1.17 and $0.45,
respectively.
4
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NOTE 5 - SUPPLEMENTAL FINANCIAL INFORMATION (IN MILLIONS)
Supplemental Condensed Consolidated Statement of Financial Position
Information:
<TABLE>
<CAPTION>
MAY 4, FEBRUARY 2,
1997 1997
---------- ----------
<S> <C> <C>
Inventories:
Production materials ............................ $ 232 $ 223
Work-in-process and finished goods .............. 34 28
---------- ----------
$ 266 $ 251
========== ==========
</TABLE>
Supplemental Condensed Consolidated Statement of Cash Flows Information:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
MAY 4, APRIL 28,
1997 1996
---------- ----------
<S> <C> <C>
Changes in operating working capital accounts:
Accounts receivable, net ........................ $ (117) $ (57)
Inventories ..................................... (17) 177
Accounts payable ................................ 112 141
Accrued and other liabilities ................... 122 (80)
Other, net ...................................... (18) 18
---------- ----------
$ 82 $ 199
========== ==========
</TABLE>
5
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
All percentage amounts and ratios were calculated using the underlying data in
thousands. Operating results for the three-month period ended May 4, 1997 are
not necessarily indicative of the results that may be expected for the full
fiscal year.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
consolidated net sales represented by certain items in the Company's condensed
consolidated statement of income.
<TABLE>
<CAPTION>
PERCENTAGE OF CONSOLIDATED NET SALES
--------------------------------------
THREE MONTHS ENDED
--------------------------------------
MAY 4, APRIL 28, FEBRUARY 2,
1997 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net sales:
Americas ........................................ 67.4% 65.1% 68.8%
Europe .......................................... 24.9 28.5 25.6
Asia Pacific and Japan .......................... 7.7 6.4 5.6
---------- ---------- ----------
Consolidated net sales ......................... 100.0 100.0 100.0
Cost of sales .................................... 78.4 80.5 78.3
---------- ---------- ----------
Gross margin ................................... 21.6 19.5 21.7
Operating expenses:
Selling, general and administrative ............. 9.3 11.1 9.7
Research, development and engineering ........... 1.6 1.5 1.6
---------- ---------- ----------
Total operating expenses ....................... 10.9 12.6 11.3
---------- ---------- ----------
Operating income ............................... 10.7 6.9 10.4
Financing and other income (expense), net ........ 0.4 0.2 0.6
---------- ---------- ----------
Income before income taxes ...................... 11.1 7.1 11.0
Provision for income taxes ....................... 3.4 2.1 3.2
---------- ---------- ----------
Net income ...................................... 7.7% 5.0% 7.8%
========== ========== ==========
</TABLE>
Net Sales
Consolidated net sales in the first quarter of fiscal 1998 increased 58% and
7%, respectively, over the first and fourth quarters of fiscal 1997. The
increase in consolidated net sales was attributable to increased units sold.
Unit volumes increased 65% and 7% in the first quarter of fiscal 1998 compared
to the first and fourth quarters of fiscal 1997, respectively. This unit
volume growth reflects strong demand for the Company's products across all
product lines. While desktop products remain the primary driver of unit
volumes (comprising 85% of total units shipped during the first quarter of
fiscal 1998), the growth rate in the server product line continues to exceed
the growth rate of desktop products. During the first quarter of fiscal 1998
unit sales of server products increased 349% and 13%, respectively, compared to
the first and fourth quarters of fiscal 1997. Notebook products also exhibited
strong growth in the first quarter of fiscal 1998 with unit sales increasing
71% and 5%, respectively, compared to the first and fourth quarters of fiscal
1997.
The effect of the increased unit volumes on consolidated net sales for the
first quarter of fiscal 1998 compared to the first quarter of fiscal 1997 was
partially offset by a 4% decline in average revenue per unit. Average revenue
per unit remained relatively flat from the fourth quarter of fiscal 1997 to the
first quarter of fiscal 1998.
6
<PAGE> 8
Net sales grew in all geographic regions in the first quarter of fiscal 1998 as
compared with both the first and the fourth quarters of fiscal 1997. Growth in
net sales in the first quarter of fiscal 1998 was led by the Americas, where
net sales increased 64% and 5%, respectively, compared to the first and fourth
quarters of fiscal 1997. Additionally, the Asia-Pacific and Japan region
exhibited strong sales growth in the first quarter of fiscal 1998, with net
sales increasing 90% and 47%, respectively, compared to the first and fourth
quarters of fiscal 1997.
Gross Margin
The Company's gross margin as a percentage of consolidated net sales increased
to 21.6% in the first quarter of fiscal 1998 from 19.5% for the first quarter
of fiscal 1997, while declining slightly from the fourth quarter of fiscal
1997.
The increase in gross margin from the first quarter of fiscal 1997 resulted
from component cost declines, partially offset by price reductions, and product
mix shift to server and higher-end desktop products. During the first quarter
of fiscal 1998, sales of server products increased to 6% of system revenue and
2% of overall unit shipments compared to 3% of systems revenue and 1% of
overall unit shipments during the first quarter of fiscal 1997. Additionally,
the Company experienced an increase in shipments of more highly configured
desktop products, which typically carry higher margins, despite overall desktop
products decreasing as a percentage of systems revenue from 81% during the
first quarter of fiscal 1997 to 74% during the first quarter of fiscal
1998.
Operating Expenses
Selling, general and administrative expenses increased in absolute dollar
amounts in the first quarter of fiscal 1998 but declined as a percentage of
consolidated net sales as compared to both the first and fourth quarters of
fiscal 1997. The Company has continued to increase staffing worldwide and
increase spending related to other infrastructure needs to meet the demands of
its growth. However, selling, general and administrative expenses declined as
a percentage of consolidated net sales as a result of significant sales growth.
Research, development and engineering expenses have increased in absolute
dollar amounts due to increased staffing levels and product development costs
in order to meet the demand of product transition cycles. Although spending
may continue to increase in absolute dollar terms, the Company's goal is to
manage operating expenses, over time, relative to net sales and gross margin.
Income Taxes
The Company's effective tax rate was 31.0% for the first quarter of fiscal 1998
compared with 29.0% for the first and fourth quarters of fiscal 1997. The
increase in the Company's effective tax rate resulted from changes in the
geographical distribution of income and losses.
LIQUIDITY AND CAPITAL RESOURCES
The following table presents selected financial statistics and information:
<TABLE>
<CAPTION>
MAY 4, FEBRUARY 2,
1997 1997
---------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Cash and marketable securities ................... $ 1,442 $ 1,352
Working capital .................................. $ 1,126 $ 1,089
Days of sales in accounts receivable ............. 34 37
Days of supply in inventory ...................... 12 13
Days in accounts payable ......................... 51 54
</TABLE>
7
<PAGE> 9
Cash flows generated from operating activities for the first quarter of fiscal
1998 were $318 million and represented the Company's primary source of cash
during the quarter. Operating cash flows benefited from the Company's
continued focus on asset management, as evidenced by the decline in inventory
levels to 12 days and days sales in accounts receivable to 34 days at the end
of the first quarter of fiscal 1998.
During the first quarter of fiscal 1998, the Company repurchased 6.6 million
shares of common stock for $199 million. At May 4, 1997, the Company held call
option arrangements that entitle the Company to purchase 9.3 million additional
shares of common stock for an average cost of $68. The Company is currently
authorized to repurchase up to 23.2 million additional shares of its common
stock and anticipates that such repurchases will constitute a significant use
of future cash resources. The above share information is not restated to
reflect the proposed stock split announced on May 20, 1997. For further
discussion regarding the proposed stock split, see Note 2 of the Notes to the
Condensed Consolidated Financial Statements.
The Company utilized $32 million in cash during the first three months of
fiscal 1998 to construct and equip facilities. Capital expenditures for fiscal
1998 are expected to be approximately $150 million.
During the first quarter of fiscal 1998, the Company entered into a master
lease agreement which provides for the ability to lease certain buildings and
equipment to be constructed or acquired. The lessor has committed to fund
approximately $75 million under this agreement.
Management believes that the Company will have sufficient resources available
to meet its cash requirements for the foreseeable future, including working
capital requirements, planned capital expenditures and stock repurchases.
FACTORS AFFECTING THE COMPANY'S BUSINESS AND PROSPECTS
Statements in this Report that relate to future results or events are based on
the Company's current expectations. There are many factors that affect the
Company's business and the results of its operations and may cause the actual
results of operations in future periods to differ materially from those
currently expected or desired. These factors include general economic and
business conditions; the level of demand for personal computers; the level and
intensity of competition in the personal computer industry and the pricing
pressures that may result; foreign currency fluctuations; the ability of the
Company to timely and effectively manage periodic product transitions and
component availability; the ability of the Company to develop new products
based on new or evolving technology and the market's acceptance of those
products; the ability of the Company to manage its inventory levels to minimize
excess inventory, declining inventory values and obsolescence; the product,
customer and geographic sales mix of any particular period; and the Company's
ability to continue to improve its infrastructure (including personnel and
systems) to keep pace with the growth in its overall business activities. For
a discussion of these and other factors affecting the Company's business and
prospects, see "Item 1 -- Business -- Factors Affecting the Company's Business
and Prospects" in the Company's Annual Report on Form 10-K for the fiscal year
ended February 2, 1997.
8
<PAGE> 10
PART II OTHER INFORMATION
ITEM 1. 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 any of these legal proceedings will have a material adverse effect
on the Company's financial condition or results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The following exhibits are filed as part of this Report:
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
11 Statement Re Computation of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K.
None.
9
<PAGE> 11
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DELL COMPUTER CORPORATION
June 2, 1997 /s/ James M. Schneider
---------------------------------------
James M. Schneider
Vice President, Finance
(On behalf of the registrant
and as Chief Accounting Officer)
10
<PAGE> 12
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
11 Statement Re Computation of Per Share Earnings
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 11
DELL COMPUTER CORPORATION
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------
MAY 4, APRIL 28,
1997 1996
---------- ----------
<S> <C> <C>
Primary earnings per common share:
Calculation of weighted average shares (a):
Weighted average shares of common stock outstanding ...... 170 183
Weighted average shares of common stock
equivalents, utilizing the treasury stock method ........ 14 12
---------- ----------
Weighted average shares outstanding ...................... 184 195
========== ==========
Earnings:
Net income available to common stock stockholders ........ $ 198 $ 82
========== ==========
Earnings per common share (a)(b) ........................... $ 1.08 $ 0.42
========== ==========
Fully diluted earnings per common share:
Calculation of weighted average shares (a):
Weighted average shares of common stock outstanding ...... 170 183
Weighted average shares of common stock
equivalents, utilizing the treasury stock method ........ 14 13
Assumed conversion of Convertible Preferred Stock ........ -- 1(c)
---------- ----------
Weighted average shares outstanding ...................... 184 197
========== ==========
Net income available to common stockholders .............. $ 198 $ 82
========== ==========
Earnings per common share (a)(b) ........................... $ 1.08 $ 0.42
========== ==========
</TABLE>
(a) All share and per share information for fiscal 1997 reflects the
two-for-one common stock split effected on December 6, 1996. However,
share and per share information does not reflect the proposed stock split
announced on May 20, 1997. For further information regarding the proposed
stock split, see Note 2 of the Notes to the Condensed Consolidated
Financial Statements.
(b) Earnings per common share was calculated using the underlying data in
thousands.
(c) Assumes conversion of the 60,000 shares of outstanding convertible
preferred stock from the beginning of fiscal 1997 to the actual conversion
date.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DELL
COMPUTER CORPORATION FINANCIAL STATEMENTS AS OF AND FOR THE THREE MONTH PERIOD
ENDED MAY 4, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-1-1998
<PERIOD-END> MAY-4-1997
<CASH> 140
<SECURITIES> 1,302
<RECEIVABLES> 1,022
<ALLOWANCES> 31
<INVENTORY> 266
<CURRENT-ASSETS> 2,979
<PP&E> 390
<DEPRECIATION> 139
<TOTAL-ASSETS> 3,243
<CURRENT-LIABILITIES> 1,853
<BONDS> 0
0
0
<COMMON> 234
<OTHER-SE> 623
<TOTAL-LIABILITY-AND-EQUITY> 3,243
<SALES> 2,588
<TOTAL-REVENUES> 2,588
<CGS> 2,030
<TOTAL-COSTS> 2,030
<OTHER-EXPENSES> 41
<LOSS-PROVISION> 4
<INTEREST-EXPENSE> 1
<INCOME-PRETAX> 287
<INCOME-TAX> 89
<INCOME-CONTINUING> 198
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 198
<EPS-PRIMARY> 1.08
<EPS-DILUTED> 1.08
</TABLE>
