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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 30, 1999
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 JUNE 4, 1999, 2,540,873,167 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 AND UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
APRIL 30, JANUARY 29,
1999 1999
--------- -----------
<S> <C> <C>
Current assets:
Cash...................................................... $ 620 $ 520
Marketable securities..................................... 3,384 2,661
Accounts receivable, net.................................. 2,151 2,094
Inventories............................................... 289 273
Other..................................................... 561 791
------ ------
Total current assets.............................. 7,005 6,339
Property, plant and equipment, net.......................... 536 523
Other....................................................... 22 15
------ ------
Total assets...................................... $7,563 $6,877
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $2,641 $2,397
Accrued and other......................................... 1,247 1,298
------ ------
Total current liabilities......................... 3,888 3,695
Long-term debt.............................................. 514 512
Other....................................................... 346 349
------ ------
Total liabilities................................. 4,748 4,556
------ ------
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 authorized: 3,000; shares issued and
outstanding: 2,539 and 2,543, respectively............. 2,061 1,781
Retained earnings......................................... 804 606
Other..................................................... (50) (66)
------ ------
Total stockholders' equity........................ 2,815 2,321
------ ------
Total liabilities and stockholders' equity........ $7,563 $6,877
====== ======
</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
-------------------
APRIL 30, MAY 3,
1999 1998
--------- ------
<S> <C> <C>
Net revenue................................................. $5,537 $3,920
Cost of revenue............................................. 4,347 3,047
------ ------
Gross margin.............................................. 1,190 873
------ ------
Operating expenses:
Selling, general and administrative....................... 508 388
Research, development and engineering..................... 82 56
------ ------
Total operating expenses.......................... 590 444
------ ------
Operating income.................................. 600 429
Financing and other......................................... 20 7
------ ------
Income before income taxes................................ 620 436
Provision for income taxes.................................. 186 131
------ ------
Net income................................................ $ 434 $ 305
====== ======
Basic earnings per common share (in whole dollars).......... $ 0.17 $ 0.12
====== ======
Diluted earnings per common share (in whole dollars)........ 0.16 $ 0.11
====== ======
Weighted average shares outstanding:
Basic..................................................... 2,528 2,547
====== ======
Diluted................................................... 2,738 2,799
====== ======
</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>
THREE MONTHS ENDED
--------------------
APRIL 30, MAY 3,
1999 1998
--------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 434 $ 305
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 34 22
Tax benefits of employee stock plans................... 379 14
Other.................................................. 33 4
Changes in:
Operating working capital.............................. 196 78
Non-current assets and liabilities..................... (7) 34
------- -------
Net cash provided by operating activities......... 1,069 457
------- -------
Cash flows from investing activities:
Marketable securities:
Purchases.............................................. (4,623) (3,127)
Maturities and sales................................... 3,876 2,686
Capital expenditures...................................... (51) (71)
------- -------
Net cash used in investing activities............. (798) (512)
------- -------
Cash flows from financing activities:
Purchase of common stock.................................. (249) (334)
Issuance of common stock under employee plans............. 45 20
Cash received from sale of equity options................. 39 --
Proceeds from the issuance of long-term debt, net of
issuance costs......................................... 2 494
------- -------
Net cash (used in) provided by financing
activities....................................... (163) 180
------- -------
Effect of exchange rate changes on cash..................... (8) (1)
------- -------
Net increase in cash........................................ 100 124
Cash at beginning of period................................. 520 320
------- -------
Cash at end of period....................................... $ 620 $ 444
======= =======
</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 U.S.
Securities and Exchange Commission in the Company's Annual Report on Form 10-K
for the fiscal year ended January 29, 1999. 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 April 30,
1999 and January 29, 1999, and the results of their operations and their cash
flows for the three-month periods ended April 30, 1999 and May 3, 1998. Certain
prior period amounts have been reclassified to conform to the current period
presentation.
NOTE 2 -- INVENTORIES (IN MILLIONS)
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<CAPTION>
APRIL 30, JANUARY 29,
1999 1999
--------- -----------
<S> <C> <C>
Inventories:
Production materials...................................... $238 $234
Work-in-process and finished goods........................ 51 39
---- ----
$289 $273
==== ====
</TABLE>
NOTE 3 -- 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 by the weighted
average shares outstanding during the period. Diluted earnings per share is
calculated by dividing net income 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
-------------------
APRIL 30, MAY 3,
1999 1998
--------- ------
<S> <C> <C>
Net income.................................................. $ 434 $ 305
====== ======
Weighted average shares outstanding:
Basic..................................................... 2,528 2,547
Employee stock options and other.......................... 210 252
------ ------
Diluted................................................... 2,738 2,799
====== ======
Earnings per common share:
Basic..................................................... $ 0.17 $ 0.12
Diluted................................................... $ 0.16 $ 0.11
</TABLE>
NOTE 4 -- COMPREHENSIVE INCOME
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 $448 million and
$306 million for the three-month periods ended April 30, 1999 and May 3, 1998,
respectively, was not materially different from reported net income.
4
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DELL COMPUTER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- SEGMENT INFORMATION
The Company adopted Statement of Financial Accounting Standards No. 131 in
fiscal year 1999. The Company has three reportable business segments: the
Americas, Europe and Asia-Pacific regions.
The accounting policies of the geographic segments are the same as those
described in the summary of significant accounting policies in the Company's
Annual Report on Form 10-K for the fiscal year ended January 29, 1999. The
Company allocates resources to and evaluates performance of its geographic
segments based on operating income. Transfers between geographic areas are
recorded using internal transfer prices set by the Company.
The table below presents information about the Company's reportable segments for
the three-month periods ended April 30, 1999 and May 3, 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED APRIL 30, 1999
--------------------------------------------------------------
ASIA PACIFIC
AMERICAS EUROPE AND JAPAN ELIMINATIONS CONSOLIDATED
-------- ------ ------------ ------------ ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net revenue from unaffiliated customers...... $3,794 $1,344 $399 $ -- $5,537
Transfers between geographic segments........ 5 2 1 (8) --
------ ------ ---- ----- ------
Total net revenue.................. $3,799 $1,346 $400 $ (8) $5,537
====== ====== ==== ===== ======
Operating income............................. $ 528 $ 93 $ 24 $ -- $ 645
====== ====== ==== =====
Corporate expenses........................... (45)
------
Total operating income............. $ 600
======
Depreciation and amortization................ $ 20 $ 9 $ 3 $ -- $ 32
====== ====== ==== =====
Corporate depreciation and amortization...... 2
------
Total depreciation and
amortization..................... $ 34
======
Identifiable assets.......................... $1,759 $ 940 $297 $ -- $2,996
====== ====== ==== =====
General corporate assets..................... 4,567
------
Total assets....................... $7,563
======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MAY 3, 1998
--------------------------------------------------------------
ASIA PACIFIC
AMERICAS EUROPE AND JAPAN ELIMINATIONS CONSOLIDATED
-------- ------ ------------ ------------ ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net revenue from unaffiliated customers...... $2,611 $1,040 $269 $-- $3,920
Transfers between geographic segments........ 8 1 -- (9) --
------ ------ ---- --- ------
Total net revenue.................. $2,619 $1,041 $269 $(9) $3,920
====== ====== ==== === ======
Operating income............................. $ 350 $ 104 $ 21 $-- $ 475
====== ====== ==== ===
Corporate expenses........................... (46)
------
Total operating income............. $ 429
======
Depreciation and amortization................ $ 13 $ 6 $ 1 $-- $ 20
====== ====== ==== ===
Corporate depreciation and amortization...... 2
------
Total depreciation and
amortization..................... $ 22
======
Identifiable assets.......................... $1,397 $ 711 $173 $-- $2,281
====== ====== ==== ===
General corporate assets..................... 2,673
------
Total assets....................... $4,954
======
</TABLE>
5
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DELL COMPUTER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- 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
Statements in this Report that relate to future results and events are based on
the Company's current expectations. Actual results in future periods may differ
materially from those currently expected or desired because of a number of risks
and uncertainties. For a discussion of factors affecting the Company's business
and prospects, see "Item 2 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Factors Affecting the Company's Business
and Prospects."
All percentage amounts and ratios were calculated using the underlying data in
thousands. Operating results for the three-month period ended April 30, 1999,
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
--------------------------------
APRIL 30, MAY 3, JANUARY 29,
1999 1998 1999
--------- ------ -----------
<S> <C> <C> <C>
Net revenue:
Americas............................................... 68.5% 66.6% 67.1%
Europe................................................. 24.3 26.5 26.8
Asia Pacific and Japan................................. 7.2 6.9 6.1
----- ----- -----
Consolidated net revenue....................... 100.0 100.0 100.0
Cost of revenue.......................................... 78.5 77.7 77.6
----- ----- -----
Gross margin................................... 21.5 22.3 22.4
Operating expenses:
Selling, general and administrative.................... 9.2 9.9 9.5
Research, development and engineering.................. 1.5 1.5 1.5
----- ----- -----
Total operating expenses....................... 10.7 11.4 11.0
----- ----- -----
Operating income............................... 10.8 10.9 11.4
Financing and other.................................... 0.4 0.2 0.3
----- ----- -----
Income before income taxes.......................... 11.2 11.1 11.7
Provision for income taxes............................. 3.4 3.3 3.5
----- ----- -----
Net income.......................................... 7.8% 7.8% 8.2%
===== ===== =====
</TABLE>
Net Revenue
The increase in net revenue for the first quarter of fiscal year 2000 was
principally due to increased units sold. Unit sales grew 52% in the first
quarter of fiscal year 2000 compared to the first quarter of fiscal year 1999,
and grew 9% over the fourth quarter of fiscal year 1999.
Unit sales increased across all product lines during the first quarter of fiscal
year 2000 compared to the first quarter of fiscal year 1999 and the fourth
quarter of fiscal year 1999. The Company's enterprise systems, which include
servers, workstations and storage products, continued to build a substantial
presence in the marketplace, with enterprise systems unit sales growing 86%
during the first quarter of fiscal year 2000 compared to the first quarter of
fiscal year 1999, and 24% on a sequential basis. Notebook computer unit sales
increased 64% compared to the same period for fiscal year 1999, and increased 8%
on a sequential basis. Desktop computer systems unit sales increased 47% during
the first quarter of fiscal year 2000 compared to the first quarter of fiscal
year 1999, and increased 9% sequentially. These increases were primarily
attributable to the Company's increased market penetration of new and higher-end
products.
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<PAGE> 9
Average revenue per unit sold in the first quarter of fiscal year 2000 decreased
7% compared to the first quarter of fiscal year 1999, and decreased 2%
sequentially, partially offsetting the effects of the increase in unit sales on
consolidated net revenue. The decrease was primarily due to price reductions
resulting from continued component cost declines and aggressive pricing
strategies.
In the Americas region, net revenue grew 45% in the first quarter of fiscal year
2000 compared to the first quarter of fiscal year 1999, as the Company continued
its efforts to strengthen its consumer, small-to-medium business and large
corporate customer groups. Net revenue in the Europe region increased 29% during
the first quarter of fiscal 2000, compared to the same period of the prior
fiscal year, and Asia-Pacific and Japan net revenue increased 48% during the
first quarter of fiscal year 2000, compared to the first quarter of fiscal year
1999.
Gross Margin
The decrease in gross margin as a percentage of consolidated net revenue in the
first quarter of fiscal year 2000 from the first and fourth quarters of fiscal
year 1999 was primarily attributable to the Company's aggressive pricing
strategies, partially offset by continued component cost declines. Continued
efficiencies experienced in the Company's manufacturing operations combined with
the increasing shift in product mix to the higher-end enterprise systems and
notebook computers helped to lessen the gross margin impact resulting from the
Company's aggressive pricing actions. The mix of enterprise systems increased to
16% of system revenue, compared with 11% during the same period of the prior
fiscal year, and 14% for the fourth quarter of fiscal year 1999. The mix of
notebook computers remained at 23% of system revenue from the first and fourth
quarters of fiscal year 1999.
Operating Expenses
Selling, general and administrative expenses increased in absolute dollar
amounts for the first quarter of fiscal year 2000, but decreased as a percentage
of consolidated net revenue from the first and fourth quarters of fiscal year
1999. The increase in absolute dollars was due primarily to the Company's
increase in staffing 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 net revenue for
the first quarter of fiscal year 2000 results primarily from the Company's
efforts to manage these expenses relative to its net revenue and gross margin.
The Company continues to invest in research, development and engineering
activities to support its continued goal of improving and developing efficient
procurement, manufacturing and distribution processes, and to develop and
introduce new products. 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 its research, development and engineering spending in absolute dollar
amounts.
The Company believes that its ability to manage operating expenses is an
important factor in its ability to remain competitive and successful. The
Company will continue to invest in personnel, information systems and other
infrastructure, and in research, development and engineering activities, to
support its continued growth and to continue to develop new, competitive
products and more efficient methods of delivery. It is the Company's goal to
manage operating expenses, over time, relative to its net revenue and gross
margin.
Income Taxes
The Company's effective tax rate remained flat at 30% for the first quarter of
fiscal year 2000 compared with the first and fourth quarters of fiscal year
1999.
8
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LIQUIDITY AND CAPITAL RESOURCES
The following table presents selected financial statistics and information:
<TABLE>
<CAPTION>
APRIL 30, JANUARY 29,
1999 1999
--------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Cash and marketable securities.............................. $4,004 $3,181
Working capital............................................. 3,117 2,644
Days of sales in accounts receivable........................ 35 36
Days of supply in inventory................................. 6 6
Days in accounts payable.................................... 55 54
------ ------
Cash conversion cycle....................................... $ (14) $ (12)
====== ======
</TABLE>
During the first quarter of fiscal year 2000, the Company generated $1.1 billion
in cash flows from operating activities, which represents the Company's
principal source of cash. Cash flows from operating activities resulted
primarily from the Company's net income, changes in operating working capital
and income tax benefits resulting from the exercise of employee stock options.
During the first quarter of fiscal year 2000, the Company continued to improve
on its efficient asset management. Days of sales in accounts receivable
decreased one day from fiscal year 1999, while days of supply in inventory
remained flat. This, combined with a one-day increase in days in accounts
payable, resulted in an improvement in the Company's cash conversion cycle to a
negative 14 days in the first quarter of fiscal year 2000 from a negative 12
days in fiscal year 1999. The Company's return on invested capital, a key
indicator of efficient asset management, increased to 189% for the first quarter
of fiscal year 2000 from 170% for the fourth quarter of fiscal year 1999.
During the first quarter of fiscal year 2000, the Company repurchased 18 million
shares of common stock for an aggregate cost of $249 million, primarily to
manage the dilution resulting from shares issued under the Company's employee
stock plans. The Company is currently authorized to repurchase up to 188 million
additional shares of its outstanding common stock and anticipates that
repurchases will constitute a significant use of future cash resources. At April
30, 1999, the Company held equity options that entitled it to purchase 45
million additional shares of common stock at various times through the second
quarter of fiscal year 2001 at an average cost of $24 per share.
The Company utilized $51 million in cash during the first quarter of fiscal 2000
to improve and equip its manufacturing and office facilities as the Company
continues to grow. Cash flows for similar capital expenditures for fiscal year
2000 are expected to be approximately $400 million.
The Company maintains master lease facilities providing the capacity to fund up
to $820 million. The combined facilities provide for the ability of the Company
to lease certain real property, buildings and equipment to be constructed or
acquired. At April 30, 1999, $264 million of the combined facilities had been
utilized.
Management believes that the Company has sufficient resources from cash provided
from operations and available borrowings to support its operations and capital
requirements for at least the next 12 months.
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 computer industry and the pricing pressures that may result;
the ability of the Company to timely and effectively manage periodic product
transitions, as well as 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
9
<PAGE> 11
particular period; 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 internal systems and devices will be Year 2000 ready and to assess
the Year 2000 readiness and risk to the Company of its third party providers,
and implement effective contingency plans where needed. For a discussion of
these and other factors affecting the Company's business and prospects, see
"Item 1 -- Business -- Factors Affecting the Company's Business and Prospects"
in the Company's Annual Report on Form 10-K for the fiscal year ended January
29, 1999.
YEAR 2000
The following disclosure is a Year 2000 readiness disclosure statement pursuant
to the Year 2000 Readiness and Disclosure Act.
State of Readiness
The Company established a formal Year 2000 readiness program in February 1997.
The Company's Year 2000 program consists of two separate initiatives, the
Millennium Project and the Product Group Y2K Project.
The purpose of the Millennium Project is to assess the Year 2000 readiness of
the Company's component and service providers and the Company's internal systems
and devices. The Company identified and assessed its internal systems and
devices and, where remedial steps were required to make those systems Year 2000
ready, prioritized the remedial steps to be taken. The Company has completed its
assessment and renovation of all mission critical internal systems and devices
and believes all are substantially Year 2000 ready. However, because the full
ramifications of the Year 2000 issue will not be fully realized until after the
Year 2000 date change, the Company can provide no assurances that its internal
systems and devices will not be adversely affected by the Year 2000 date change.
The Company has also identified, through the Millennium Project, its critical
component and service providers and is contacting each such vendor to assess
that vendor's Year 2000 readiness. The Company has assigned each such vendor a
priority rating based on the criticality of the function it provides to the
Company. The Company is assessing the Year 2000 readiness of each critical
vendor. Through April 30, 1999, the Company had received responses from
approximately 75% of its critical vendors, and expects to complete a review of
all of its critical vendors by no later than July 31, 1999. Because the Company
is relying on information provided to it by third parties to assess the Year
2000 readiness of such vendors, the Company cannot provide assurances that all
of its critical vendors are or will be Year 2000 ready. Therefore, the Company
cannot provide assurances that the Company will not be adversely affected by the
Year 2000 date change.
Through the Product Group Y2K Project, the Company is analyzing the Year 2000
readiness status of the computer hardware manufactured by the Company, to
provide an effective means of communicating the readiness status to customers,
and to implement an ongoing testing and monitoring program to help enable all
new Dell computer hardware offerings to meet the Company's Year 2000 readiness
standards. The Company has analyzed and continues to analyze the Year 2000
status of the computer hardware manufactured by the Company. All Dell-branded
hardware products shipped after January 1, 1997 meet the Company's Year 2000
readiness standards. Dell-branded hardware manufactured prior to that time can
generally be updated to meet the Company's Year 2000 readiness standards through
BIOS upgrades or software patches. The Company has created a Web site at
www.dell.com/year2000, which contains detailed information about the Year 2000
issue, the Company's Year 2000 readiness standards and its Year 2000 program.
Through the Web site, customers can assess the Year 2000 readiness of their
hardware and can obtain software patches and BIOS upgrades from the Company,
free of charge, to help prepare the hardware for the Year 2000 rollover.
Customers without Internet access may request free copies of the software
patches and BIOS upgrades by telephone or mail. The Company's Year 2000
readiness program applies only to Dell-branded hardware manufactured and
Dell-branded software developed by the Company. Although the Company has
attempted to ascertain the Year 2000 status of third party software and
peripherals loaded on or distributed with Company computer
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systems, it does not and cannot guarantee the Year 2000 status of any software
or peripherals provided by third parties.
Costs
The Company currently does not expect that the total costs of its Year 2000
readiness program will be material to its financial condition or results of
operation. All costs are charged to expense as incurred, and do not include
potential costs related to any customers or other claims or the cost of internal
software and hardware replaced in the normal course of business.
Risks/Contingency Plans
The Company believes that the most likely worst case scenarios would involve the
interruption of crucial suppliers as a result of infrastructure failures or
third party vendor failures. As a result, the Company is developing contingency
plans that will address each of the most likely worst case scenarios. Such
contingency plans are expected to be completed no later than September 30, 1999.
The Company believes that it is taking appropriate steps to assess and address
its Year 2000 issues and currently does not expect that its business will be
adversely affected by the Year 2000 issue in any material respect. Nevertheless,
achieving Year 2000 readiness is dependent on many factors, some of which are
not completely within the Company's control. Should either the Company's
internal systems and devices or the internal systems and devices of one or more
critical vendors fail to achieve Year 2000 readiness, the Company's business and
its results of operations could be adversely affected.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a description of the Company's market risks, see "Item 7 -- 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 January 29, 1999.
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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 AND USE OF PROCEEDS
The Company has an active stock repurchase program. One element of such program
is the purchase of call options and the sale of put and call options. During the
first quarter of fiscal year 2000, the Company sold 18,250,000 put options to
third party financial intermediaries and received net cash proceeds of $39
million in connection with such sales. The Company also sold 1,250,000 call
options to third party financial intermediaries and received no net cash
proceeds in connection with such sales. The put and call options entitle each
holder to sell or purchase, respectively, by physical delivery, cash delivery or
net-share settlement, at the Company's option, one share of common stock at a
specified price. The put options sold by the Company during the first quarter
expire on various dates through July 2000 and have exercise prices ranging from
$38 to $45 per share, with an average exercise price of $40. The call options
sold by the Company during the first quarter expire on various dates through
July 2000 and have exercise prices ranging from $82 to $87 per share, with an
average exercise price of $84.
All of these transactions were exempt from registration under Section 4(2) of
the Securities Act of 1933, as amended. Each transaction was privately
negotiated, and each purchaser of options was an accredited investor and
qualified institutional buyer. No public offering or public solicitation was
made by the Company in the placement of these securities.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The following exhibit is filed as part of this Report:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
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
June 14, 1999 /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 EXHIBIT
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
27 -- Financial Data Schedule
</TABLE>
<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 APRIL 30, 1999, 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> JAN-28-2000
<PERIOD-END> APR-30-1999
<CASH> 620
<SECURITIES> 3,384
<RECEIVABLES> 2,188
<ALLOWANCES> 37
<INVENTORY> 289
<CURRENT-ASSETS> 7,005
<PP&E> 810
<DEPRECIATION> 274
<TOTAL-ASSETS> 7,563
<CURRENT-LIABILITIES> 3,888
<BONDS> 514
0
0
<COMMON> 2,061
<OTHER-SE> 754
<TOTAL-LIABILITY-AND-EQUITY> 7,563
<SALES> 5,537
<TOTAL-REVENUES> 5,537
<CGS> 4,347
<TOTAL-COSTS> 4,347
<OTHER-EXPENSES> 82<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8
<INCOME-PRETAX> 620
<INCOME-TAX> 186
<INCOME-CONTINUING> 434
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 434
<EPS-BASIC> 0.17
<EPS-DILUTED> 0.16
<FN>
<F1>Item consists of research, development and engineering.
</FN>
</TABLE>
