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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 AUGUST 2, 1998
COMMISSION FILE NUMBER: 0-17017
DELL COMPUTER CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 74-2487834
(State of incorporation) (I.R.S. Employer ID No.)
</TABLE>
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 September 8, 1998, 1,273,510,968 shares of the
Registrant's common stock, par value $.01 per share, were outstanding.
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DELL COMPUTER CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(IN MILLIONS AND UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
AUGUST 2, FEBRUARY 1,
1998 1998
--------- -----------
<S> <C> <C>
Current assets:
Cash...................................................... $ 511 $ 320
Marketable securities..................................... 2,107 1,524
Accounts receivable, net.................................. 1,800 1,486
Inventories............................................... 288 233
Other..................................................... 394 349
------ ------
Total current assets.............................. 5,100 3,912
Property, plant and equipment, net.......................... 446 342
Other....................................................... 14 14
------ ------
Total assets...................................... $5,560 $4,268
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $1,928 $1,643
Accrued and other......................................... 1,209 1,054
------ ------
Total current liabilities......................... 3,137 2,697
Long-term debt.............................................. 512 17
Deferred revenue on warranty contracts...................... 244 225
Other....................................................... 68 36
------ ------
Total liabilities................................. 3,961 2,975
------ ------
Stockholders' equity:
Preferred stock and capital in excess of $.01 par value;
shares authorized: 5; shares issued and outstanding:
none................................................... -- --
Common stock and capital in excess of $.01 par value;
shares issued and outstanding: 1,272 and 1,287,
respectively........................................... 1,109 747
Retained earnings......................................... 551 607
Other..................................................... (61) (61)
------ ------
Total stockholders' equity........................ 1,599 1,293
------ ------
Total liabilities and stockholders' equity........ $5,560 $4,268
====== ======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
1
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DELL COMPUTER CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(IN MILLIONS AND UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------- ---------------------
AUGUST 2, AUGUST 3, AUGUST 2, AUGUST 3,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenue........................................... $4,331 $2,814 $8,251 $5,402
Cost of revenue....................................... 3,346 2,190 6,393 4,220
------ ------ ------ ------
Gross margin........................................ 985 624 1,858 1,182
------ ------ ------ ------
Operating expenses:
Selling, general and administrative................. 436 280 824 520
Research, development and engineering............... 66 48 122 89
------ ------ ------ ------
Total operating expenses....................... 502 328 946 609
------ ------ ------ ------
Operating income............................... 483 296 912 573
Financing and other................................... 11 14 17 24
------ ------ ------ ------
Income before income taxes.......................... 494 310 929 597
Provision for income taxes............................ 148 96 279 185
------ ------ ------ ------
Net income.......................................... $ 346 $ 214 $ 650 $ 412
====== ====== ====== ======
Basic earnings per common share (in whole dollars).... $ 0.27 $ 0.16 $ 0.51 $ 0.31
====== ====== ====== ======
Diluted earnings per common share (in whole
dollars)............................................ $ 0.25 $ 0.15 $ 0.47 $ 0.28
====== ====== ====== ======
Weighted average shares outstanding:
Basic............................................... 1,264 1,326 1,269 1,336
====== ====== ====== ======
Diluted............................................. 1,392 1,458 1,396 1,480
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
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DELL COMPUTER CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS AND UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------
AUGUST 2, AUGUST 3,
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 650 $ 412
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 47 30
Other.................................................. 10 8
Changes in:
Operating working capital.............................. 339 129
Non-current assets and liabilities..................... 52 28
------- -------
Net cash provided by operating activities............ 1,098 607
------- -------
Cash flows from investing activities:
Marketable securities:
Purchases.............................................. (7,493) (5,317)
Maturities and sales................................... 6,910 5,231
Capital expenditures...................................... (155) (86)
------- -------
Net cash used in investing activities................ (738) (172)
------- -------
Cash flows from financing activities:
Proceeds from issuance of long-term debt, net of issuance
costs.................................................. 494 --
Purchase of common stock.................................. (733) (417)
Issuance of common stock under employee plans............. 79 36
Cash received from sale of equity options................. -- 28
------- -------
Net cash used in financing activities................ (160) (353)
------- -------
Effect of exchange rate changes on cash..................... (9) (3)
------- -------
Net increase in cash........................................ 191 79
Cash at beginning of period................................. 320 115
------- -------
Cash at end of period....................................... $ 511 $ 194
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
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DELL COMPUTER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Dell
Computer Corporation (the "Company") should be read in conjunction with the
consolidated financial statements and notes thereto filed with the Securities
and Exchange Commission in the Company's Annual Report on Form 10-K for the
fiscal year ended February 1, 1998. In the opinion of management, the
accompanying condensed consolidated financial statements reflect all adjustments
of a normal recurring nature considered necessary to present fairly the
financial position of the Company and its consolidated subsidiaries at August 2,
1998 and February 1, 1998, and the results of their operations and their cash
flows for the three-month and six-month periods ended August 2, 1998 and August
3, 1997.
NOTE 2 -- COMMON STOCK
On July 17, 1998, the Company's stockholders approved an amendment to the
Company's Certificate of Incorporation to increase the number of shares of
common stock, par value $.01 per share, that the Company is authorized to issue
from one billion to three billion.
On September 4, 1998, the Company effected a two-for-one common stock split by
paying a 100% stock dividend to stockholders of record as of August 28, 1998.
All share and per share information included in the accompanying condensed
consolidated financial statements and related notes have been restated to
reflect the stock split.
NOTE 3 -- INVENTORIES (IN MILLIONS)
<TABLE>
<CAPTION>
AUGUST 2, FEBRUARY 1,
1998 1998
--------- -----------
<S> <C> <C>
Inventories:
Production materials...................................... $226 $189
Work-in-process and finished goods........................ 62 44
---- ----
$288 $233
==== ====
</TABLE>
NOTE 4 -- DEBT ISSUANCE
In April 1998, the Company issued $200 million 6.55% fixed rate senior notes due
April 15, 2008 (the "Senior Notes") and $300 million 7.10% fixed rate senior
debentures due April 15, 2028 (the "Senior Debentures"). Interest on the Senior
Notes and Senior Debentures is paid semi-annually. The Senior Notes and Senior
Debentures are redeemable, in whole or in part, at the election of the Company
for principal, any accrued interest and a redemption premium based on the
present value of interest to be paid over the term of the debt agreements. The
Senior Notes and Senior Debentures generally contain no restrictive covenants,
other than a limitation on liens on the Company's assets and a limitation on
sale-leaseback transactions.
Concurrent with the issuance of the Senior Notes and Senior Debentures, the
Company entered into interest rate swap agreements converting the Company's
interest rate exposure from a fixed rate to a floating rate basis to better
align the associated interest rate characteristics to its cash and marketable
securities portfolio. The interest rate swap agreements have an aggregate
notional amount of $200 million maturing April 15, 2008 and $300 million
maturing April 15, 2028. The floating rates are based on three-month London
interbank offered rates ("LIBOR") plus .40% and .79% for the Senior Notes and
Senior Debentures, respectively. As a result of the interest rate swap
agreements, the Company's effective interest rates for the Senior Notes and
Senior Debentures were 6.09% and 6.48%, respectively, for the three-month and
six-month periods ended August 2, 1998.
4
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DELL COMPUTER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has designated the issuance of the Senior Notes and Senior
Debentures and the related interest rate swap agreements as an integrated
transaction. Accordingly, the differential to be paid or received on the
interest rate swap agreements is accrued and recognized as an adjustment to
interest expense as interest rates change.
NOTE 5 -- COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
130, "Reporting Comprehensive Income" during the first quarter of fiscal 1999.
SFAS No. 130 establishes new rules for the reporting and presentation of
comprehensive income and its components. The Company's comprehensive income is
comprised of net income, foreign currency translation adjustments and unrealized
gains and losses on marketable securities held as available-for-sale
investments. Comprehensive income of $349 million and $206 million,
respectively, for the three-month periods ended August 2, 1998 and August 3,
1997, and $655 million and $400 million, respectively, for the six-month periods
ended August 2, 1998 and August 3, 1997, was not materially different from
reported net income.
NOTE 6 -- EARNINGS PER COMMON SHARE
Basic earnings per share is based on the weighted effect of all common shares
issued and outstanding, and is calculated by dividing net income available to
common stockholders by the weighted average shares outstanding during the
period. Diluted earnings per share is calculated by dividing net income
available to common stockholders by the weighted average number of common shares
used in the basic earnings per share calculation plus the number of common
shares that would be issued assuming conversion of all potentially dilutive
common shares outstanding. The following table sets forth the computation of
basic and diluted earnings per share (in millions, except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------- ---------------------
AUGUST 2, AUGUST 3, AUGUST 2, AUGUST 3,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income............................................ $ 346 $ 214 $ 650 $ 412
====== ====== ====== ======
Weighted average shares outstanding(a):
Weighted average shares outstanding -- Basic........ 1,264 1,326 1,269 1,336
Employee stock options and other.................... 128 132 127 144
------ ------ ------ ------
Weighted average shares outstanding -- Diluted...... 1,392 1,458 1,396 1,480
====== ====== ====== ======
Earnings per common share(a):
Basic............................................... $ 0.27 $ 0.16 $ 0.51 $ 0.31
Diluted............................................. $ 0.25 $ 0.15 $ 0.47 $ 0.28
</TABLE>
- ---------------
(a) All share and per share information has been retroactively restated to
reflect the two-for-one split of the common stock in September 1998.
NOTE 7 -- RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" which
establishes accounting and reporting standards for derivative instruments and
hedging activities. SFAS No. 133 requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS No. 133 is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999. The
Company is assessing the impact that the adoption of SFAS No. 133 will have on
its consolidated financial statements.
5
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DELL COMPUTER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- LEGAL MATTERS
The Company is subject to various legal proceedings and claims arising in the
ordinary course of business. The Company's management does not expect that the
outcome in any of these legal proceedings, individually or collectively, will
have a material adverse effect on the Company's financial condition, results of
operations or cash flows.
6
<PAGE> 8
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 and six-month periods ended
August 2, 1998, 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 revenue represented by certain items in the Company's condensed
consolidated statement of income.
<TABLE>
<CAPTION>
PERCENTAGE OF CONSOLIDATED NET REVENUE
---------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------- ---------------------
AUGUST 2, AUGUST 3, AUGUST 2, AUGUST 3,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenue:
Americas............................................ 68.7% 70.5% 67.7% 69.1%
Europe.............................................. 24.8 22.1 25.6 23.4
Asia Pacific and Japan.............................. 6.5 7.4 6.7 7.5
----- ----- ----- -----
Consolidated net revenue.................... 100.0 100.0 100.0 100.0
Cost of revenue....................................... 77.3 77.8 77.5 78.1
----- ----- ----- -----
Gross margin................................ 22.7 22.2 22.5 21.9
Operating expenses:
Selling, general and administrative................. 10.1 9.9 10.0 9.6
Research, development and engineering............... 1.5 1.7 1.5 1.6
----- ----- ----- -----
Total operating expenses.................... 11.6 11.6 11.5 11.2
----- ----- ----- -----
Operating income............................ 11.1 10.6 11.0 10.7
Financing and other................................... 0.2 0.4 0.2 0.3
----- ----- ----- -----
Income before income taxes.................. 11.3 11.0 11.2 11.0
Provision for income taxes............................ 3.3 3.4 3.3 3.4
----- ----- ----- -----
Net income.................................. 8.0% 7.6% 7.9% 7.6%
===== ===== ===== =====
</TABLE>
Net Revenue
Consolidated net revenue increased 54% and 53% in the second quarter and first
six months of fiscal 1999, respectively, over the comparable periods of fiscal
1998, and increased 10% over the first quarter of fiscal 1999.
The increase in consolidated net revenue was primarily attributable to increased
units sold. Unit sales increased 74% and 70% in the second quarter and first six
months of fiscal 1999, respectively, compared to the same periods of fiscal
1998, and increased 14% over the first quarter of fiscal 1999. Unit sales
increased across all product lines for the second quarter and first six months
of fiscal 1999, compared to the same periods of fiscal 1998. Desktop products
continue to remain the primary component of unit sales, comprising 80% of total
units sold during the second quarter and first six months of fiscal 1999.
However, the unit sales growth rate in enterprise systems (which include both
servers and workstations) and notebooks exceeded the unit sales growth rate of
desktop products. During the second quarter and first six months of fiscal 1999,
enterprise unit sales increased 202% and 213%, respectively, compared to the
second quarter and first six months of fiscal 1998, and increased sequentially
20% over the first quarter of fiscal 1999. Notebook product unit sales increased
125% and 113% in the second quarter and first six months of fiscal 1999,
compared to the same period of the prior fiscal year, and increased sequentially
16% over the first quarter of fiscal 1999.
The effect of the increased unit sales on consolidated net revenue for the
second quarter and first six months of fiscal 1999 compared to the same periods
of fiscal 1998 was partially offset by a decline in average revenue per unit
sold of 11% and 10%, respectively. On a sequential basis, average revenue per
unit sold declined 3% in the
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<PAGE> 9
second quarter of fiscal 1999. The decrease in average revenue per unit sold was
primarily attributable to price reductions as a result of component cost
declines.
Net revenue increased in all geographic regions in the second quarter and the
first six months of fiscal 1999 as compared to the same periods of fiscal 1998.
Net revenue for the second quarter of fiscal 1999 compared to the second quarter
of fiscal 1998 increased 50% in the Americas, 73% in Europe and 34% in
Asia-Pacific and Japan. Net revenue for the first six months of fiscal 1999
compared to the first six months of fiscal 1998 increased 50% in the Americas,
67% in Europe and 35% in Asia-Pacific and Japan.
The increase in consolidated net revenue of 10% from the first quarter to the
second quarter of fiscal 1999 was attributable to revenue growth across all
geographic regions; the Americas grew 14%, Asia-Pacific and Japan 5% and Europe
3%.
Gross Margin
The Company's gross margin as a percentage of consolidated net revenue increased
to 22.7% and 22.5% in the second quarter and first six months of fiscal 1999,
respectively, compared to 22.2% and 21.9% in the corresponding periods of the
prior fiscal year. The Company's gross margin as a percentage of consolidated
net revenue increased modestly from the first quarter to the second quarter of
fiscal 1999. The increase in each period resulted primarily from component cost
declines, which were mostly passed through to our customers, resulting in the
aforementioned declines in average revenue per unit sold.
Operating Expenses
Selling, general and administrative expenses as a percentage of consolidated net
revenue increased to 10.1% and 10.0% for the second quarter and first six months
of fiscal 1999, respectively, from 9.9% and 9.6% in the comparable periods of
the prior fiscal year. The Company's selling, general and administrative
expenses as a percentage of consolidated net revenue increased to 10.1% from
9.9% from the first quarter to the second quarter of fiscal 1999. The increases
were due primarily to the Company's increased staffing worldwide and increased
infrastructure expenses, including those for information systems, to support the
Company's continued growth.
Research, development and engineering expenses increased in absolute dollar
amounts due to increased staffing levels and product development costs.
Although total operating expenses may continue to increase in absolute dollar
terms, the Company's goal is to manage these expenses, over time, relative to
its net revenue and gross margins.
Income Taxes
The Company's effective tax rate was 30.0% for the second quarter and first six
months of fiscal 1999, compared with 31.0% for the second quarter and first six
months of fiscal 1998. The decrease in the Company's effective tax rate resulted
from changes in the geographical distribution of its income and losses.
LIQUIDITY AND CAPITAL RESOURCES
The following table presents selected financial statistics and information:
<TABLE>
<CAPTION>
AUGUST 2, FEBRUARY 1,
1998 1998
--------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Cash and marketable securities.............................. $2,618 $1,844
Working capital............................................. $1,963 $1,215
Days of sales in accounts receivable........................ 37 36
Days of supply in inventory................................. 8 7
Days in accounts payable.................................... 52 51
</TABLE>
8
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Cash flow from operating activities was $1.1 billion for the first six months of
fiscal 1999, which resulted primarily from the Company's net income and increase
in operating working capital.
During the second quarter of fiscal 1999, the Company repurchased 22 million
shares of common stock at an average cost of $18 per share. The Company is
currently authorized to repurchase up to 100 million additional shares of its
common stock and anticipates that such repurchases will constitute a significant
use of future cash resources. At August 2, 1998, the Company had equity option
arrangements that entitle it to purchase 58 million additional shares of common
stock at an average cost of $26 per share at various times through the third
quarter of fiscal 2000. The above share and per share information has been
restated to reflect the Company's two-for-one stock split effected on September
4, 1998.
The Company utilized $155 million in cash during the first six months of fiscal
1999 to improve and equip facilities. Cash flows for capital expenditures for
fiscal 1999 are expected to be approximately $360 million.
During fiscal 1998, the Company entered into a master lease facility providing
funds up to $227 million. Subsequent to the second quarter of fiscal 1999, the
Company entered into an additional master lease facility providing funds up to
$593 million. Both agreements provide for the ability to lease certain real
property, buildings and equipment to be constructed or acquired. Currently, $85
million of these facilities has been utilized.
In April 1998, the Company issued $200 million in Senior Notes and $300 million
in Senior Debentures. See Note 4 of Notes to Condensed Consolidated Financial
Statements.
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
There are numerous factors that affect the Company's business and the results of
its operations. These factors include general economic and business conditions;
the level of demand for personal computers; the level and intensity of
competition in the personal computer industry and the pricing pressures that may
result; the ability of the Company to timely and effectively manage periodic
product transitions and component availability; the ability of the Company to
develop new products based on new or evolving technology and the market's
acceptance of those products; the ability of the Company to manage its inventory
levels to minimize excess inventory, declining inventory values and
obsolescence; the product, customer and geographic sales mix of any particular
period; and the Company's ability to continue to improve its infrastructure
(including personnel and systems) to keep pace with the growth in its overall
business activities; and the Company's ability to ensure its products and
information systems and those of its third party providers will be Year 2000
capable. 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 1, 1998.
For a description of the Company's ongoing program and efforts to address the
Year 2000 issue with respect to its products, its internal systems and the
internal systems and processes of its significant vendors and suppliers, see
"Item 1 -- Business -- Factors Affecting the Company's Business and
Prospects -- Year 2000 Compliance" in the Company's Annual Report on Form 10-K
for the fiscal year ended February 1, 1998.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." See Note 7 of Notes to Condensed
Consolidated Financial Statements.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Concurrent with the issuance of the Senior Notes and Senior Debentures,
described above, the Company entered into interest rate swap agreements
converting the Company's interest rate exposure from a fixed rate to a floating
rate basis to better align the associated interest rate characteristics to its
cash and marketable securities portfolio. The interest rate swap agreements have
an aggregate notional amount of $200 million maturing April 15, 2008 and $300
million maturing April 15, 2028. The floating rates are based on three-month
LIBOR rates plus .40% and .79% for the Senior Notes and Senior Debentures,
respectively. As a result of the interest rate swap agreements, the Company's
effective interest rates for the Senior Notes and Senior Debentures were 6.09%
and 6.48%, respectively, for the three-month and six-month periods ended August
2, 1998. Any basis point increase or decrease in interest rates would result in
an equivalent increase or decrease in the Company's effective interest rates for
the Senior Notes and Senior Debentures. However, the effects of such changes
would be mitigated by offsetting trends in the Company's cash and marketable
securities portfolio.
For a description of the Company's other market risks, see disclosures in "Item
II -- Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Market Risk" in the Company's Annual Report on Form 10-K for the
fiscal year ended February 1, 1998.
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PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is subject to various legal proceedings and claims arising 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, results of operations or cash flows.
ITEM 2. CHANGES IN SECURITIES
On July 17, 1998, the Company's stockholders approved an amendment to the
Company's Certificate of Incorporation to increase the number of shares of
common stock, par value $.01 per share, that the Company is authorized to issue
from one billion to three billion. The amendment was filed with the Delaware
Secretary of State, and became effective, on August 12, 1998.
On September 4, 1998, approximately 634 million authorized shares of common
stock were issued to complete a two-for-one stock split that had been declared
by the Company's Board of Directors on August 18, 1998. The record date for the
stock split was August 28, 1998. The remaining authorized but unissued and
unreserved shares are available for issuance from time to time for any proper
purpose approved by the Company's Board of Directors (including issuances in
connection with future stock splits or dividends and issuances to raise capital
or effect acquisitions). There are currently no arrangements, agreements or
understandings for the issuance or use of the additional shares of authorized
common stock (other than issuances permitted or required under the Company's
stock-based employee benefit plans or awards made pursuant to those plans). The
Board of Directors does not presently intend to seek further stockholder
approval of any particular issuance of shares unless such approval is required
by law or the rules of The Nasdaq Stock Market.
Stockholders do not have any preemptive or similar rights to subscribe for or
purchase any additional shares of common stock that may be issued in the future,
and therefore, future issuances of common stock may, depending on the
circumstances, have a dilutive effect on the earnings per share, voting power
and other interests of the existing stockholders.
The increase in the number of authorized shares of common stock could have an
anti-takeover effect, although that was not its purpose. For example, if the
Company were the subject of a hostile takeover attempt, it could try to impede
the takeover by issuing shares of common stock, thereby diluting the voting
power of the other outstanding shares and increasing the potential cost of the
takeover. The availability of this defensive strategy to the Company could
discourage unsolicited takeover attempts, thereby limiting the opportunity for
the Company's stockholders to realize a higher price for their shares than is
generally available in the public markets. The Company is not aware of any
attempt, or contemplated attempt, to acquire control of the Company, and the
increase in the number of authorized shares of common stock was not proposed
with the intent that it be utilized as a type of anti-takeover device.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of the Company's stockholders was held on July 17, 1998. At
that meeting, three proposals were submitted to a vote of the Company's
stockholders. Proposal 1 was a proposal to elect three Class I directors (with
Donald J. Carty, Thomas W. Luce III and Paul O. Hirschbiel, Jr. being the
nominees) and one Class III director (with Alex J. Mandl being the nominee).
Proposal 2 was a proposal to approve an amendment to the Company's Certificate
of Incorporation to increase the number of authorized shares of common stock
from one billion to three billion. Proposal 3 was a proposal to approve and
adopt a new Executive Incentive Bonus Plan (the "Plan") to govern the award and
payment of cash bonuses to certain of the Company's executive officers so that
payments thereunder will be deductible by the Company for federal income tax
purposes.
At the close of business on the record date for the meeting (which was May 29,
1998), there were 637,493,317 shares of common stock outstanding and entitled to
be voted at the meeting. Holders of 544,553,230 shares of
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<PAGE> 13
common stock (representing a like number of votes) were present at the meeting,
either in person or by proxy. The following table sets forth the results of the
voting on each of the proposals (including, in the case of Proposal 1, the
results of the voting with respect to each nominee):
<TABLE>
<CAPTION>
NUMBER OF VOTES
------------------------------------------------
BROKER
PROPOSAL FOR AGAINST ABSTAIN NON-VOTE
-------- ----------- ----------- --------- --------
<S> <C> <C> <C> <C>
Proposal 1 -- Election of directors:
Donald J. Carty............................. 539,801,391 4,751,839 -- --
Thomas W. Luce III.......................... 536,977,326 7,575,904 -- --
Paul O. Hirschbiel, Jr...................... 540,367,480 4,185,750 -- --
Alex J. Mandl............................... 535,812,378 8,740,852 -- --
Proposal 2 -- Approval of amendment to
Certificate of Incorporation................ 400,708,678 142,066,106 778,436 --
Proposal 3 -- Approval of Executive Incentive
Bonus Plan.................................. 522,681,484 20,007,038 1,864,708 --
</TABLE>
Consequently, all proposals were passed by the stockholders.
For additional discussion concerning Proposal 2 (Amendment to Certificate of
Incorporation), see "Item 2 -- Changes in Securities" above.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The following exhibits are filed as part of this Report:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
4 -- Certificate of Amendment to Certificate of Incorporation,
dated and filed on August 12, 1998
27 -- Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K.
None.
12
<PAGE> 14
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
September 11, 1998 /s/ JAMES M. SCHNEIDER
------------------------------------
James M. Schneider
Senior Vice President, Finance
(On behalf of the registrant and as
chief accounting officer)
13
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
4 -- Certificate of Amendment to Certificate of Incorporation,
dated and filed on August 12, 1998
27 -- Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 4
DELL COMPUTER CORPORATION
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
Dell Computer Corporation (the "Company"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "DGCL"), does hereby certify as follows:
FIRST: The Board of Directors of the Company (the "Board"), acting by
unanimous written consent, dated May 28, 1998, in accordance with the
applicable provisions of the DGCL and the Company's Bylaws, did duly adopt
resolutions (a) approving the amendment to the Company's Certificate of
Incorporation described herein, (b) directing that such amendment be submitted
to the stockholders of the Company for consideration at the Company's annual
meeting of stockholders held on July 17, 1998 and (c) directing that, upon
approval and adoption of such amendment by the stockholders of the Company,
this Certificate of Amendment be executed and filed with the Secretary of State
of the State of Delaware.
SECOND: The stockholders of the Company, acting at the Company's annual
meeting of stockholders duly called and held on July 17, 1998 in accordance with
the applicable provisions of the DGCL and the Company's Bylaws, did duly
consent to, approve and adopt such amendment to the Company's Certificate of
Incorporation.
THIRD: The first paragraph of Article Fourth of the Company's Certificate
of Incorporation is hereby amended to read in its entirety as follows:
"FOURTH: The total number of shares of capital stock of the
Corporation shall be three billion and five million
(3,005,000,000), which shall consist of five million
(5,000,000) shares of Preferred Stock, of the par value
of $0.01 per share, and three billion (3,000,000,000)
shares of Common Stock, of the par value of $0.01 per
share".
Such amendment having been duly adopted in accordance with the provisions
of Section 242 of the DGCL and the applicable provisions of the Company's
Certificate of Incorporation and Bylaws, the Company has caused this
Certificated of Incorporation and Bylaws, the Company has caused this
Certificate of Amendment to be executed and attested by its duly authorized
officers on July 27, 1998.
DELL COMPUTER CORPORATION
By: /s/ MICHAEL S. DELL
-------------------------------
Michael S. Dell
Chairman of the Board and
Chief Executive Officer
Attest:
/s/ THOMAS H. WELCH, JR.
- -----------------------------------
Thomas H. Welch, Jr.
Assistant Secretary
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILE 10:55 AM 08/12/1998
981315825 - 2141541
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DELL
COMPUTER CORPORATION FINANCIAL STATEMENTS AS OF AND FOR THE SIX MONTH PERIOD
ENDED AUGUST 2, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-END> AUG-02-1998
<CASH> 511
<SECURITIES> 2,107
<RECEIVABLES> 1,829
<ALLOWANCES> 29
<INVENTORY> 288
<CURRENT-ASSETS> 5,100
<PP&E> 653
<DEPRECIATION> 207
<TOTAL-ASSETS> 5,560
<CURRENT-LIABILITIES> 3,137
<BONDS> 512
0
0
<COMMON> 1,109
<OTHER-SE> 490
<TOTAL-LIABILITY-AND-EQUITY> 5,560
<SALES> 4,331
<TOTAL-REVENUES> 4,331
<CGS> 3,346
<TOTAL-COSTS> 3,346
<OTHER-EXPENSES> 66<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9
<INCOME-PRETAX> 494
<INCOME-TAX> 148
<INCOME-CONTINUING> 346
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 346
<EPS-PRIMARY> .27
<EPS-DILUTED> .25
<FN>
<F1>ITEM CONSISTS OF RESEARCH, DEVELOPMENT AND ENGINEERING.
</FN>
</TABLE>
