-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RGU/gC4uA4mqlph3qQj4qASqfYkwYW5Gz4wy9ddKzdFxQ2EUY/OjPHogprTwBSXy htdlVlFcGtVGMx8EV65GaQ== 0000950134-96-002712.txt : 19960607 0000950134-96-002712.hdr.sgml : 19960607 ACCESSION NUMBER: 0000950134-96-002712 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960428 FILED AS OF DATE: 19960606 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DELL COMPUTER CORP CENTRAL INDEX KEY: 0000826083 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPUTERS [3571] IRS NUMBER: 742487834 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-17017 FILM NUMBER: 96577730 BUSINESS ADDRESS: STREET 1: 2214 W BRAKER LN STREET 2: STED CITY: AUSTIN STATE: TX ZIP: 78758 BUSINESS PHONE: 5123384400 MAIL ADDRESS: STREET 1: 2112 KRAMER LN - BLDG 1 CITY: AUSTIN STATE: TX ZIP: 78758 10-Q 1 FORM 10-Q FOR QUARTER ENDED APRIL 28, 1996 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED APRIL 28, 1996 COMMISSION FILE NUMBER:0-17017 DELL COMPUTER CORPORATION (Exact name of registrant as specified in its charter) Delaware 74-2487834 (State of incorporation) (I.R.S. Employer ID No.) 2214 WEST BRAKER LANE, SUITE D AUSTIN, TEXAS 78758-4053 (Address of principal executive offices) (512) 338-4400 (Telephone number) INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING TWELVE MONTHS AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO [ ] AS OF JUNE 4, 1996, 89,646,697 SHARES OF THE REGISTRANT'S COMMON STOCK, PAR VALUE $.01 PER SHARE, WERE OUTSTANDING. ================================================================================ 2 PART I -- FINANCIAL INFORMATION Item 1. Financial Statements DELL COMPUTER CORPORATION CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (in millions, except share data) (unaudited)
ASSETS April 28, January 28, 1996 1996 ---------- ----------- Current assets: Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 66 $ 55 Marketable securities . . . . . . . . . . . . . . . . . . . 787 591 Accounts receivable, net . . . . . . . . . . . . . . . . . 778 726 Inventories . . . . . . . . . . . . . . . . . . . . . . . . 252 429 Other current assets . . . . . . . . . . . . . . . . . . . 147 156 ---------- ---------- Total current assets . . . . . . . . . . . . . . . . 2,030 1,957 Property, plant and equipment, net . . . . . . . . . . . . . . 198 179 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . 12 12 ---------- ---------- $ 2,240 $ 2,148 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable . . . . . . . . . . . . . . . . . . . . . $ 609 $ 466 Accrued and other liabilities . . . . . . . . . . . . . . . 396 473 ---------- ---------- Total current liabilities . . . . . . . . . . . . . . . 1,005 939 Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . 113 113 Deferred profit on warranty contracts . . . . . . . . . . . . 153 116 Other liabilities . . . . . . . . . . . . . . . . . . . . . . 7 7 Commitments and contingencies . . . . . . . . . . . . . . . . -- -- ---------- ---------- Total liabilities . . . . . . . . . . . . . . . . . 1,278 1,175 ---------- ---------- Put options . . . . . . . . . . . . . . . . . . . . . . . . . 172 -- ---------- ---------- Stockholders' equity: Preferred stock and capital in excess of $.01 par value; shares authorized: 5,000,000; shares issued and outstanding: 60,000 . . . . . . . . . . . . . . . . . . . . . . . . . . 6 6 Common stock and capital in excess of $.01 par value; shares authorized: 300,000,000; shares issued: 93,702,883 and 93,446,607, respectively . . . . . . . . . . . . . . . . 261 430 Retained earnings . . . . . . . . . . . . . . . . . . . . . 652 570 Common treasury stock, at cost: 3,278,580 shares . . . . . (100) -- Other . . . . . . . . . . . . . . . . . . . . . . . . . . . (29) (33) --------- ---------- Total stockholders' equity . . . . . . . . . . . . . 790 973 --------- ---------- $ 2,240 $ 2,148 ========= ==========
The accompanying notes are an integral part of these condensed consolidated financial statements. 1 3 DELL COMPUTER CORPORATION CONDENSED CONSOLIDATED STATEMENT OF INCOME (in millions, except per share data) (unaudited)
Three Months Ended --------------------------- April 28, April 30, 1996 1995 ----------- ----------- Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,638 $ 1,136 Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . 1,319 900 ----------- ----------- Gross margin . . . . . . . . . . . . . . . . . . . . . . . 319 236 ----------- ----------- Operating expenses: Selling, general and administrative . . . . . . . . . . . . 182 127 Research, development and engineering . . . . . . . . . . . 25 21 ----------- ----------- Total operating expenses . . . . . . . . . . . . . . . . 207 148 ----------- ----------- Operating income . . . . . . . . . . . . . . . . . . . . 112 88 Financing and other income (expense), net . . . . . . . . . . 4 (1) ----------- ----------- Income before income taxes . . . . . . . . . . . . . . . . 116 87 Provision for income taxes . . . . . . . . . . . . . . . . . . 34 25 ----------- ----------- Net income . . . . . . . . . . . . . . . . . . . . . . . . 82 62 Preferred stock dividends . . . . . . . . . . . . . . . . . . -- 12 ----------- ----------- Net income available to common stockholders . . . . . . . . . $ 82 $ 50 =========== =========== Earnings per common share: Primary . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.84 $ 0.55 =========== =========== Fully diluted . . . . . . . . . . . . . . . . . . . . . . . $ 0.84 $ 0.53 =========== ===========
The accompanying notes are an integral part of these condensed consolidated financial statements. 2 4 DELL COMPUTER CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (in millions) (unaudited)
Three Months Ended ---------------------------- April 28, April 30, 1996 1995 ---------- ---------- Cash flows from operating activities: Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 82 $ 62 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization . . . . . . . . . . . . . . 10 9 Other . . . . . . . . . . . . . . . . . . . . . . . . . . 3 -- Changes in: Operating working capital . . . . . . . . . . . . . . . . 203 (63) Non-current assets and liabilities . . . . . . . . . . . 36 2 ---------- ---------- Net cash provided by operating activities . . . . . 334 10 ---------- ---------- Cash flows from investing activities: Marketable securities: Purchases . . . . . . . . . . . . . . . . . . . . . . . . (1,851) (1,191) Maturities and other redemptions . . . . . . . . . . . . 1,445 1,253 Sales . . . . . . . . . . . . . . . . . . . . . . . . . . 209 2 Capital expenditures . . . . . . . . . . . . . . . . . . . (31) (14) ---------- ---------- Net cash (used in) provided by investing activities (228) 50 ---------- ---------- Cash flows from financing activities: Preferred stock dividends paid . . . . . . . . . . . . . . -- (13) Issuance of common stock under employee plans . . . . . . . 4 7 Purchases of treasury stock . . . . . . . . . . . . . . . . (100) -- ---------- ---------- Net cash used in financing activities . . . . . . . (96) (6) ---------- ---------- Effect of exchange rate changes on cash . . . . . . . . . . . 1 (2) ---------- ---------- Net increase in cash . . . . . . . . . . . . . . . . . . . . . 11 52 Cash at beginning of period . . . . . . . . . . . . . . . . . 55 43 ---------- ---------- Cash at end of period . . . . . . . . . . . . . . . . . . . . $ 66 $ 95 ========== ==========
The accompanying notes are an integral part of these condensed consolidated financial statements. 3 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 January 28, 1996. In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring accruals) considered necessary to present fairly the financial position of Dell Computer Corporation and its consolidated subsidiaries at April 28, 1996 and January 28, 1996 and the results of their operations for the three-month periods ended April 28, 1996 and April 30, 1995. All share and per share information for fiscal 1996 has been retroactively restated to reflect the two-for-one common stock split which took place during the third quarter of fiscal 1996. NOTE 2 -- STOCK REPURCHASE PROGRAM On February 22, 1996, the Company announced a stock repurchase program under which the Company may purchase up to 12 million shares of common stock in open market or private transactions. On May 29, 1996, the Company announced that the maximum number of shares that may be repurchased under the program has been increased from 12 million to 16 million. The repurchase program is intended to offset the dilutive effect of shares issued to employees under the Company's stock-based employee benefit plans. The total number of shares to be purchased will be based on several factors, including the level of stock issuances pursuant to employee awards, the price of the common stock and other general market conditions. The Company may also utilize equity options as part of the repurchase program. During the first quarter of fiscal 1997, the Company repurchased a total of 3.3 million shares of common stock under the repurchase program, for an aggregate purchase price of $100 million (average cost of $30.50 per share). All such shares were purchased in open market transactions, with the total of the purchases shown as common treasury stock. In addition, during the first quarter of fiscal 1997, the Company entered into equity "collar" arrangements with respect to an aggregate of 5.3 million additional shares of common stock by selling put options (which entitle the holder of the option to sell shares of common stock to the Company at a specified price) and purchasing call options (which entitle the Company to purchase shares of common stock from the holder of the option at a specified price). The premiums received with respect to the equity options totaled $29 million and equaled the premiums paid. Consequently, there was no exchange of cash. The put and call options give the Company the choice of net cash settlement or settlement in additional shares of common stock. The put prices range from $29.36 to $34.62 per share, while the call prices range from $32.30 to $38.43 per share. For most of the options, the call price may be increased if the per-share market price of the common stock at the time of exercise exceeds a specified price. Each option is exercisable only at expiration, and the expiration dates range from September 3, 1996, to March 25, 1997. The potential cost of repurchasing the shares subject to these option arrangements ranges from $172 million (average put cost of $32.52 per share) to $193 million (average call cost of $36.48 per share), not taking into account any increase in the call prices described above. The Company's $172 million potential repurchase obligation under the put options at April 28, 1996 has been reclassified from stockholders' equity to put options. The put options did not have a materially dilutive effect on earnings per common share for the first quarter of fiscal 1997. From the end of the first quarter of fiscal 1997 through June 3, 1996, the Company repurchased 1.1 million additional shares of common stock in open market transactions for an aggregate purchase price of $56 million (average cost of $53.48 per share). 4 6 NOTE 3 -- OFFER TO REPURCHASE DEBT On May 23, 1996, the Company commenced a tender offer to purchase the entire $100 million principal amount of its outstanding 11% Senior Notes Due August 15, 2000 (the "Senior Notes"). The purchase price will be determined by reference to a fixed spread of 0.90% over the yield to maturity of the U.S. Treasury 5.875% notes due August 15, 1998 (the earliest date on which the Senior Notes may be redeemed by the Company in accordance with their terms) at 3:30 p.m., New York City time, on June 7, 1996, plus accrued and unpaid interest on the Senior Notes to, but not including, the date of payment. The tender offer will expire at 12:00 midnight, New York City time, on June 21, 1996, unless extended or earlier terminated by the Company. The Company will purchase the Senior Notes using currently available cash and marketable securities. The retirement of the Senior Notes prior to their maturity would result in a one-time after-tax extraordinary charge of approximately $12 million, assuming all of the outstanding Senior Notes are purchased. The Company expects to conclude the tender offer during the second quarter and record the charge at that time. The charge includes the estimated premium to be paid in conjunction with the tender offer, the market value of the interest rate swap agreements related to the Senior Notes and unamortized debt issuance costs. At the end of the first quarter of fiscal 1997 and the fourth quarter of fiscal 1996, the Company had outstanding receive fixed/pay floating interest rate swaps with an aggregate notional amount of $100 million offset by receive floating/pay fixed interest rate swaps with an aggregate notional amount of $100 million. The weighted average interest rate on the Senior Notes, adjusted by the swaps, was 13.8% for the first quarter of both fiscal 1997 and fiscal 1996. These offsetting interest rate swap agreements, which mature on August 15, 1998, will have no further financial statement impact relating to changes in fair market value. NOTE 4 -- COMMITMENTS AND CONTINGENCIES The Company has been named as a defendant in approximately 30 repetitive stress injury lawsuits, most of which are in New York state courts or United States District Courts for the New York City area. Several are in state courts in New Jersey. One is in the Federal District Court for the Eastern District of Pennsylvania, and one is in Federal District Court in Kansas. Four cases have been dismissed; the remainder are at various stages of the process leading to trial. The allegations in all of these lawsuits are similar. Each plaintiff alleges that he or she suffers from symptoms generally known as "repetitive stress injury," which allegedly were caused by the design or manufacture of the keyboard supplied with the computer the plaintiff used. The Company has denied or is in the process of denying the claims and intends to vigorously defend the suits. The suits naming the Company are just a few of many lawsuits of this type that have been filed, often naming Apple, Atex, Compaq, IBM, Keytronic and other major suppliers of keyboard products. The Company currently is not able to predict the outcome of these suits. It is possible that the Company may be named in additional suits. Ultimate resolution of the litigation against the Company may depend on progress in resolving this type of litigation overall. However, the Company does not believe that the outcome of these matters will have a material adverse effect on the Company's financial condition or results of operations. On August 11, 1993, the Company received a subpoena from the United States Department of Commerce, Office of Export Enforcement of the Bureau of Export Administration, requiring the Company to provide all documents relative to any and all exports of 486/66 computers or related components to Russia, Ireland, Iran or Iraq during the period from January 1992 through August 1993 in connection with an investigation to enforce regulations under the Export Administration Act of 1979, as amended. The investigation has been closed, with no findings of wrongdoing by the Company, with respect to the Company's shipments to Russia, Ireland and Iraq. The Company is awaiting a response from the Department of Commerce regarding its voluntary self disclosure of certain shipments to Iran in June 1992. If the Office of Export Enforcement's investigators determine that the Company has violated applicable regulations, the government could potentially file civil or criminal charges. The Company has fully responded to the subpoena and, in accordance with its policy to comply fully with export laws and regulations, intends to cooperate with the Office of Export Enforcement. The Company does not believe that this investigation or its outcome will have a material adverse effect on the Company's financial condition or results of operations. In May 1995, the Company was named, along with two other computer manufacturers and one computer monitor vendor, in a class action complaint filed in the California Superior Court for Marin County. Subsequently, 5 7 several other similar actions were filed in California Superior Courts for other counties, naming a total of 48 defendants, including the Company. The complaints in all of these cases allege that each of the defendants has engaged in false or misleading advertising with regard to the size of computer monitor screens. The plaintiffs seek restitution in the form of refunds or product exchange, damages, punitive damages and attorneys' fees. The California Judicial Council, in December 1995, ordered all of these similar cases consolidated for proceedings up to and including trial and, in January 1996, appointed a single trial judge for the consolidated proceeding. The Company plans to vigorously contest the allegations of the complaints. This litigation is currently at a preliminary stage, and no discovery has occurred. Thus, it is too early for the Company to adequately evaluate the likelihood of the plaintiffs' prevailing on their claims. There can be no assurance that an adverse determination in this litigation would not have a material adverse effect on the Company's financial condition or results of operations. In June 1995, the Company was served with a class action complaint filed in State District Court in Travis County, Texas. The complaint alleges that the Company has included "used parts" in its "new" computer systems and has failed to adequately inform its customers and prospective customers of that practice. According to the complaint, these facts constitute fraud, negligent misrepresentation, breach of contract and breach of warranty. The plaintiffs seek refund of the purchase price for computer systems purchased from the Company, damages in an unspecified amount, injunctive relief, interest and attorneys' fees. The Company plans to vigorously contest the allegations of the complaint. This litigation is currently at a preliminary stage, and no discovery has occurred. Thus, it is too early for the Company to adequately evaluate the likelihood of the plaintiffs' prevailing on their claims. There can be no assurance that an adverse determination in this litigation would not have a material adverse effect on the Company's financial condition or results of operations. NOTE 5 -- EARNINGS PER COMMON SHARE Primary earnings per common share are computed by dividing net income available to common stockholders by the weighted average number of common shares and common stock equivalents (if dilutive) outstanding during each period. Common stock equivalents include stock options. The Series A Convertible Preferred Stock (the "Convertible Preferred Stock") is not a common stock equivalent for purposes of computing earnings per common share. The number of common stock equivalents outstanding is computed using the treasury stock method. Shares used in the calculation of fully diluted earnings per common share have been adjusted for the assumed conversion of all of the Company's outstanding Convertible Preferred Stock. NOTE 6 -- SUPPLEMENTAL FINANCIAL INFORMATION (in millions) Supplemental Condensed Consolidated Statement of Financial Position Information:
April 28, January 28, 1996 1996 --------------- ---------------- Inventories: Production materials . . . . . . . . . . . . . . . . . . . $ 207 $ 390 Work-in-process and finished goods . . . . . . . . . . . . 45 39 --------------- ---------------- $ 252 $ 429 =============== ================ Accrued and other liabilities: Royalties and licensing . . . . . . . . . . . . . . . . . . $ 21 $ 51 Accrued compensation . . . . . . . . . . . . . . . . . . . 49 52 Accrued warranty costs . . . . . . . . . . . . . . . . . . 83 78 Taxes other than income taxes . . . . . . . . . . . . . . . 64 76 Deferred profit on warranty contracts . . . . . . . . . . . 78 67 Book overdrafts . . . . . . . . . . . . . . . . . . . . . . 2 59 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 90 --------------- ---------------- $ 396 $ 473 =============== ================
6 8 Supplemental Condensed Consolidated Statement of Income Information:
Three Months Ended ------------------------------------ April 28, April 30, 1996 1995 ----------------- --------------- Financing and other income (expense), net: Investment income, net ..................................... $ 7 $ 5 Interest expense ........................................... (3) (4) Foreign currency transactions............................... 1 (1) Other....................................................... (1) (1) ----------------- --------------- $ 4 $ (1) ================= =============== Weighted average shares used to compute earnings per common share: Primary................................................. 97.4 90.5 ================= =============== Fully diluted........................................... 98.4 97.5 ================= ===============
Supplemental Condensed Consolidated Statement of Cash Flows Information:
Three Months Ended ------------------------------------ April 28, April 30, 1996 1995 ----------------- --------------- Changes in operating working capital accounts: Accounts receivable, net . . . . . . . . . . . . . . . . . $ (53) $ (25) Inventories . . . . . . . . . . . . . . . . . . . . . . . . 177 (42) Accounts payable . . . . . . . . . . . . . . . . . . . . . 141 8 Accrued and other liabilities . . . . . . . . . . . . . . . (80) (8) Other, net . . . . . . . . . . . . . . . . . . . . . . . . 18 4 ----------------- --------------- $ 203 $ (63) ================= =============== Changes in non-current assets and liabilities: Other assets . . . . . . . . . . . . . . . . . . . . . . . $ -- $ 1 Other liabilities . . . . . . . . . . . . . . . . . . . . . 36 1 ----------------- --------------- $ 36 $ 2 ================= ===============
The Company accounts for highly liquid investments with maturities of three months or less at date of acquisition as marketable securities and reflects the related cash flows as investing cash flows. As a result, a significant portion of its gross marketable securities purchases and maturities disclosed as investing cash flows is related to highly liquid investments. 7 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS All percentage amounts and ratios were calculated using the underlying data in thousands. Operating results for the three-month period ended April 28, 1996 are not necessarily indicative of the results that may be expected for the full fiscal year. The conversion of shares of Series A Convertible Preferred Stock into common stock during the first quarter of fiscal 1996, discussed more fully in the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1996, had the effect of reducing primary earnings per common share by $0.14 for the first quarter of fiscal 1996. RESULTS OF OPERATIONS The following table sets forth for the periods indicated the percentage of consolidated net sales represented by certain items in the Company's condensed consolidated statement of income.
Percentage of Consolidated Net Sales ---------------------------------------------------- Three Months Ended ---------------------------------------------------- April 28, April 30, January 28, 1996 1995 1996 --------- --------- ----------- Net sales: Americas . . . . . . . . . . . . . . . 65.1% 62.2% 64.5% Europe . . . . . . . . . . . . . . . . 28.5 30.7 30.0 Asia Pacific and Japan . . . . . . . . 6.4 7.1 5.5 ----- ----- ----- Consolidated net sales . . . . . . . 100.0 100.0 100.0 Cost of sales . . . . . . . . . . . . . . 80.5 79.2 81.9 ----- ----- ----- Gross margin . . . . . . . . . . . . 19.5 20.8 18.1 Operating expenses: Selling, general and administrative . . 11.1 11.3 10.5 Research, development and engineering . 1.5 1.8 1.5 ----- ----- ----- Total operating expenses . . . . . . 12.6 13.1 12.0 ----- ----- ----- Operating income . . . . . . . . . . 6.9 7.7 6.1 Financing and other income (expense), net 0.2 (0.1) 0.3 ----- ----- ----- Income before income taxes . . . . . . 7.1 7.6 6.4 Provision for income taxes . . . . . . . 2.1 2.2 1.9 ----- ----- ----- Net income . . . . . . . . . . . . . . 5.0 5.4 4.5 Preferred stock dividends . . . . . . . . -- 1.0 -- ----- ----- ----- Net income available to common stockholders . . . . . . . . . . . . . 5.0% 4.4% 4.5% ===== ===== =====
Net Sales. The first quarter of fiscal 1997 marked the Company's ninth consecutive quarter of sequential growth in consolidated net sales. Consolidated net sales in the first quarter of fiscal 1997 increased 44% and 6%, respectively, over the first and fourth quarters of fiscal 1996. The increase in consolidated net sales in the first quarter of fiscal 1997 over the comparable quarter of the prior fiscal year was due primarily to increased unit sales, up 43%, reflecting strong demand for the Company's desktop products and its Latitude(TM) family of notebook computers. Net sales grew in all geographic regions in the first quarter of fiscal 1997 as compared with both the first and the fourth quarters of fiscal 1996. Growth in net sales in the first quarter of fiscal 1997, as compared with the first quarter of fiscal 1996, was led by the Americas, where net sales increased 51%. After taking into account the results of the Company's foreign currency hedging activities, consolidated net sales (expressed in United States dollars) were not significantly affected in the first quarter of fiscal 1997 as a result of fluctuations in foreign currency exchange rates from the comparable quarter of the prior fiscal year. The mix of the Company's business between sales to major accounts (consisting of sales to major corporate, government, medical and education accounts and value-added resellers) and sales to small-to-medium 8 10 businesses and individuals shifted during the first quarter of fiscal 1997, with sales to small-to-medium businesses and individuals representing 39% of consolidated net sales in the first quarter of fiscal 1997, compared with 37% and 42% in the first and fourth quarters of fiscal 1996, respectively. At April 28, 1996, backlog was $118 million, compared with $136 million and $102 million at the end of the first and fourth quarters, respectively, of fiscal 1996. The Company does not believe that backlog is a meaningful indicator of sales that can be expected for any period, and there can be no assurance that the backlog at any point in time will translate into sales in any subsequent period, particularly in light of the Company's policy of allowing customers to cancel or reschedule orders without penalty prior to commencement of manufacturing. Gross Margin. Gross margin increased $83 million in the first quarter of fiscal 1997 from the comparable quarter of the prior fiscal year. However, the Company's gross margin as a percentage of consolidated net sales in the first quarter of fiscal 1997 was 19.5%, down from 20.8% in the first quarter of fiscal 1996. The decline in gross margin percentage from the first quarter of fiscal 1996 was due primarily to a more competitive pricing environment in Japan and Europe, the Company's more aggressive pricing in Europe and a relatively higher mix of sales to small-to-medium businesses and individuals, which generally carry lower margins. In addition to these negative impacts on gross margin, royalties increased as a percentage of consolidated net sales, primarily due to increased software royalty costs. Gross margin increased $41 million from the fourth quarter of fiscal 1996 to the first quarter of fiscal 1997, and gross margin as a percentage of consolidated net sales increased from 18.1% in the fourth quarter of fiscal 1996 to 19.5% in the first quarter of fiscal 1997. The fourth quarter gross margin was adversely impacted by the Company's problematic product transition involving certain of its OptiPlex(TM) desktop products. The increase in gross margin percentage from the fourth quarter of fiscal 1996 was primarily the result of component cost declines and a relatively lower mix of sales to small-to-medium businesses and individuals, which generally carry lower margins, in the first quarter of fiscal 1997 than in the fourth quarter of fiscal 1996. During the first quarter of fiscal 1997 the Company improved its inventory position, reducing its days in inventory from 31 days at the end of fiscal 1996 to 17 days at the end of the first quarter of fiscal 1997. This significant improvement in inventory position enabled the Company to capitalize on declining component costs, such as memory chips. These positive impacts on gross margin were partially offset by pricing actions taken during the first quarter of fiscal 1997 as a result of the component cost declines. Operating Expenses. The Company's goal is to manage operating expenses, over time, in relation to gross margin. Over the last year, the Company has continued to increase staffing worldwide to meet the demands of its growth and to expand its international presence, resulting in increased compensation-related expenses. The Company has also increased spending related to its key global information systems project, which it began in late fiscal 1995 and expects to complete in fiscal 1999. The increase in these infrastructure expenditures, in addition to greater spending for advertising and promotion, resulted in an increase in selling, general and administrative expenses of 42% in the first quarter of fiscal 1997 from the comparable quarter of the prior fiscal year. However, selling, general and administrative expenses as a percentage of consolidated net sales decreased slightly to 11.1% in first quarter of fiscal 1997 from 11.3% in the first quarter of fiscal 1996. Over the last year, the Company has increased headcount to support increased product development activities and improved quality and time-to-market of its products, resulting in increased compensation-related expenses. The Company has also increased the use of prototypes to improve the quality of its products, resulting in increased development costs. These activities resulted in an increase in research, development and engineering expenses of 21% in the first quarter of fiscal 1997 over the first quarter of fiscal 1996. Research, development and engineering expenses as a percentage of consolidated net sales, however, decreased to 1.5% in the first quarter of fiscal 1997 from 1.8% in the first quarter of fiscal 1996. The Company believes that its ability to manage operating costs is an important factor in its ability to remain price competitive. However, the Company will continue to invest in information systems and infrastructure to manage and support its growth. As discussed above, the Company is currently investing in a key global information systems project, which it expects to complete in fiscal 1999. 9 11 Financing and Other Income (Expense), Net. The increase in financing and other income (expense), net in the first quarter of fiscal 1997 from the comparable quarter of the prior fiscal year was primarily due to increased investment income in the first quarter of fiscal 1997. See Note 6 of Notes to Condensed Consolidated Financial Statements for detail regarding financing and other income (expense), net. Income Tax. The Company's effective tax rate was 29% for both the first quarter of fiscal 1997 and the first quarter of fiscal 1996. HEDGING ACTIVITIES The results of the Company's international operations are affected by changes in exchange rates between certain foreign currencies and the United States dollar. Consequently, the Company conducts a foreign currency hedging program to reduce its exposure to the risk that the dollar-value equivalent of anticipated cash flows will be adversely affected by changes in foreign currency exchange rates. The Company uses foreign currency purchased option contracts and forward contracts in an effort to reduce its exposure to currency fluctuations involving anticipated, but not firmly committed, transactions and transactions with firm foreign currency commitments. For a discussion regarding how the results of the Company's international operations are affected by changes in exchange rates between certain foreign currencies and the U.S. dollar and a discussion regarding the Company's hedging program, including the accounting for transactions conducted under such program, see Note 1 and Note 4 included in "Item 8 -- Financial Statements and Supplementary Data" and "Hedging Activities" in "Item 7 -- Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1996. At April 28, 1996 and January 28, 1996, the Company held purchased option contracts that were designated and effective as hedges of probable anticipated sales by international subsidiaries and intercompany shipments with a total notional amount of $962 million and $714 million, respectively, and a combined net realized and unrealized deferred gain (loss) of $1 million and ($5) million, respectively. Relative to probable anticipated foreign currency denominated purchases, the Company closed all option contracts that were designated and effective as hedges during the fourth quarter of fiscal 1996 and did not enter into any such option contracts during the first quarter of fiscal 1997. Forward contracts designated to hedge foreign currency transaction exposures of $176 million and $365 million were outstanding at April 28, 1996 and January 28, 1996, respectively. LIQUIDITY AND CAPITAL RESOURCES Cash flows from operating activities for the first quarter of fiscal 1997 of $334 million represented the Company's primary source of cash during the quarter and benefited substantially from the decline in the inventory level during the quarter, which resulted from tighter inventory management and declining component costs. Working capital totaled $1,025 million at April 28, 1996 compared with $1,018 million at January 28, 1996. Days in accounts receivable at the end of the first quarter of fiscal 1997 increased slightly to 43 days from 42 days at the end of fiscal 1996. Days in accounts payable increased to 42 days at the end of the first quarter of fiscal 1997 from 33 days at the end of fiscal 1996. Days in inventory decreased significantly to 17 days at the end of the first quarter of fiscal 1997 from 31 days at the end of fiscal 1996. The Company's capital expenditures of $31 million during the first quarter of fiscal 1997 were primarily to construct facilities, to acquire information systems (principally hardware and third-party software licenses) and to acquire personal computer office equipment. Capital expenditures for fiscal 1997 are expected to be approximately $120 million, relating primarily to the construction of facilities, the acquisition of information systems and the acquisition of computer equipment for internal use. The Company believes that its cash and marketable securities and cash flows from operating activities will be adequate to fund its planned fiscal 1997 capital expenditures. During the first quarter of fiscal 1997, the Company announced a stock repurchase program and repurchased a total of 3.3 million shares of common stock under such program for an aggregate purchase price of $100 million. For further discussion regarding the Company's stock repurchase program, including activity conducted under the program, see Note 2 of Notes to Condensed Consolidated Financial Statements. 10 12 On May 23, 1996, the Company commenced a tender offer to purchase the entire $100 million principal amount of its outstanding 11% Senior Notes. The retirement of the Senior Notes prior to their maturity would result in a one-time after-tax extraordinary charge of approximately $12 million, assuming all of the outstanding Senior Notes are purchased. The Company expects to conclude the tender offer during the second quarter and record the charge at that time. See Note 3 of Notes to Condensed Consolidated Financial Statements for further discussion regarding the tender offer. The Company has a series of line of credit facilities, each of which bears interest at a defined Base Rate or Eurocurrency Rate and has a covenant based on quarterly maintenance of net worth. Maximum aggregate amounts available under these credit facilities are limited to $200 million less the aggregate of outstanding letters of credit under these facilities. During the commitment period, the Company is obligated to pay a fee on the unused portion of the credit facilities. Facilities with respect to $150 million expire on June 6, 1996, and facilities with respect to the remaining $50 million expire on September 6, 1996. The Company is currently in the process of negotiating a revolving credit facility to replace the series of line of credit facilities and expects to complete this transaction during the second quarter. No borrowings were outstanding under the series of line of credit facilities as of April 28,1996, and the maximum available totaled $196 million. In November 1995, several of the Company's subsidiaries entered into a transaction pursuant to which Dell Receivables L.P. ("Dell Receivables"), a newly-formed wholly-owned subsidiary of the Company, purchases certain accounts receivable and related assets from other Company subsidiaries and in turn transfers such accounts receivable and related assets to the Dell Trade Receivable Master Trust (the "Master Trust"). The Master Trust will issue certificates evidencing fractional undivided interests therein, which certificates may be sold to investors. This arrangement gives Dell Receivables the ability to raise up to $150 million through the sale of certificates of interest in the Master Trust. Dell Receivables is obligated to pay a commitment fee on the unused portion of the facility. At April 28, 1996, this facility was unused. The Company's commitments to use cash include its potential obligation under the tender offer for the outstanding Senior Notes, the repayment of the portion, if any, of the Senior Notes not purchased pursuant to the tender offer, the repayment of the outstanding balance of a $14 million secured loan, the payment of operating lease commitments and the Company's potential obligation under its stock repurchase program. Management believes that sufficient resources will be available to meet the Company's cash requirements through at least the next twelve months. Cash requirements for periods beyond the next twelve months depend on the Company's profitability, its ability to manage working capital requirements and its rate of growth. FACTORS AFFECTING THE COMPANY'S BUSINESS AND PROSPECTS Statements in this Report that relate to future results or events are based on the Company's current expectations. There are many factors that affect the Company's business and the results of its operations and may cause the actual results of operations in future periods to differ materially from those currently expected or desired. These factors include general economic and business conditions; the level of demand for personal computers; the level and intensity of competition in the personal computer industry and the pricing pressures that may result; the ability of the Company to timely and effectively manage periodic product transitions and component availability; the ability of the Company to develop new products based on new or evolving technology and the market's acceptance of those products; the ability of the Company to manage its inventory levels to minimize excess inventory, declining inventory values and obsolescence; the product, customer and geographic sales mix of any particular period; and the Company's ability to continue to improve its infrastructure (including personnel and systems) to keep pace with the growth in its overall business activities. For a discussion of these and other factors affecting the Company's business and prospects, see "Item 1 -- Business -- Factors Affecting the Company's Business and Prospects" in the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1996. The computer industry is characterized by continuing improvements in technology, which result in the frequent introduction of new products, short product life cycles and continual improvement in product 11 13 price/performance characteristics. Achieving a successful product transition is one of the biggest challenges facing computer companies, and the Company anticipates several significant product transitions during the remainder of fiscal 1997. Although the Company has instituted several refinements to its internal processes in an attempt to avoid the types of product transition problems it experienced during the fourth quarter of fiscal 1996, there can be no assurance that the Company will not experience similar problems in the upcoming product transitions. A failure on the part of the Company to effectively manage the periodic transitions will directly affect the demand for the Company's products and the profitability of the Company's operations. The Company's ability to maintain a low inventory level and achieve a high number of inventory turns is dependent on many factors, including market demand for the Company's products and the price and availability of component supplies. Some of these factors are beyond the Company's control. Although the Company was successful in managing its inventory level to optimal levels during the first quarter of fiscal 1997, there can be no assurance that the Company will be able to achieve similar success in future periods. 12 14 PART II -- OTHER INFORMATION Item 1. Legal Proceedings The Company has been named as a defendant in approximately 30 repetitive stress injury lawsuits, most of which are in New York state courts or United States District Courts for the New York City area. Several are in state courts in New Jersey. One is in the Federal District Court for the Eastern District of Pennsylvania, and one is in Federal District Court in Kansas. Four cases have been dismissed; the remainder are at various stages of the process leading to trial. The allegations in all of these lawsuits are similar. Each plaintiff alleges that he or she suffers from symptoms generally known as "repetitive stress injury," which allegedly were caused by the design or manufacture of the keyboard supplied with the computer the plaintiff used. The Company has denied or is in the process of denying the claims and intends to vigorously defend the suits. The suits naming the Company are just a few of many lawsuits of this type that have been filed, often naming Apple, Atex, Compaq, IBM, Keytronic and other major suppliers of keyboard products. The Company currently is not able to predict the outcome of these suits. It is possible that the Company may be named in additional suits. Ultimate resolution of the litigation against the Company may depend on progress in resolving this type of litigation overall. However, the Company does not believe that the outcome of these matters will have a material adverse effect on the Company's financial condition or results of operations. On August 11, 1993, the Company received a subpoena from the United States Department of Commerce, Office of Export Enforcement of the Bureau of Export Administration, requiring the Company to provide all documents relative to any and all exports of 486/66 computers or related components to Russia, Ireland, Iran or Iraq during the period from January 1992 through August 1993 in connection with an investigation to enforce regulations under the Export Administration Act of 1979, as amended. The investigation has been closed, with no findings of wrongdoing by the Company, with respect to the Company's shipments to Russia, Ireland and Iraq. The Company is awaiting a response from the Department of Commerce regarding its voluntary self disclosure of certain shipments to Iran in June 1992. If the Office of Export Enforcement's investigators determine that the Company has violated applicable regulations, the government could potentially file civil or criminal charges. The Company has fully responded to the subpoena and, in accordance with its policy to comply fully with export laws and regulations, intends to cooperate with the Office of Export Enforcement. The Company does not believe that this investigation or its outcome will have a material adverse effect on the Company's financial condition or results of operations. In May 1995, the Company was named, along with two other computer manufacturers and one computer monitor vendor, in a class action complaint filed in the California Superior Court for Marin County. Subsequently, several other similar actions were filed in California Superior Courts for other counties, naming a total of 48 defendants, including the Company. The complaints in all of these cases allege that each of the defendants has engaged in false or misleading advertising with regard to the size of computer monitor screens. The plaintiffs seek restitution in the form of refunds or product exchange, damages, punitive damages and attorneys' fees. The California Judicial Council, in December 1995, ordered all of these similar cases consolidated for proceedings up to and including trial and, in January 1996, appointed a single trial judge for the consolidated proceeding. The Company plans to vigorously contest the allegations of the complaints. This litigation is currently at a preliminary stage, and no discovery has occurred. Thus, it is too early for the Company to adequately evaluate the likelihood of the plaintiffs' prevailing on their claims. There can be no assurance that an adverse determination in this litigation would not have a material adverse effect on the Company's financial condition or results of operations. In June 1995, the Company was served with a class action complaint filed in State District Court in Travis County, Texas. The complaint alleges that the Company has included "used parts" in its "new" computer systems and has failed to adequately inform its customers and prospective customers of that practice. According to the complaint, these facts constitute fraud, negligent misrepresentation, breach of contract and breach of warranty. The plaintiffs seek refund of the purchase price for computer systems purchased from the Company, damages in an unspecified amount, injunctive relief, interest and attorneys' fees. The Company plans to vigorously contest the allegations of the complaint. This litigation is currently at a preliminary stage, and no discovery has occurred. Thus, it is too early for the Company to adequately evaluate the likelihood of the plaintiffs' prevailing on their 13 15 claims. There can be no assurance that an adverse determination in this litigation would not have a material adverse effect on the Company's financial condition or results of operations. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. The following exhibits are filed as a part of this Report:
Exhibit No. Description of Exhibit - ----------- ---------------------- 10 Severance Agreement, dated March 28, 1996, between the Company and Richard N. Snyder 11 Statement Re Computation of Per Share Earnings 27 Financial Data Schedule
(b) Reports on Form 8-K The Company did not file any Current Reports on Form 8-K during the fiscal quarter to which this Report relates. On May 23, 1996, the Company filed a Current Report on Form 8-K reporting under Item 5 the commencement by the Company of a tender offer for the entire $100 million principal amount of its 11% Senior Notes Due August 15, 2000. 14 16 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DELL COMPUTER CORPORATION June 5, 1996 /s/ Catherine P. Thompson ------------------------------ Catherine P. Thompson Vice President, Corporate Controller (On behalf of the registrant and as chief accounting officer) 15 17 INDEX TO EXHIBITS
Exhibit No. Description of Exhibit - ----------- ---------------------- 10 Severance Agreement, dated March 28, 1996, between the Company and Richard N. Snyder 11 Statement Re Computation of Per Share Earnings 27 Financial Data Schedule
EX-10 2 SEVERANCE AGREEMENT 1 EXHIBIT 10 [DELL LETTERHEAD] March 28, 1996 Mr. Richard N. Snyder 3800 Corum Circle Austin, Texas 78746 Dear Dick: This letter agreement (this "Agreement") sets forth the mutual agreement of Dell Computer Corporation for itself and its subsidiaries (collectively referred to as the "Company" or "Dell") and yourself regarding your employment by and departure from employment with the Company. 1. You and Dell agree that this Agreement is entered into in connection with the amicable termination of your employment by Dell, and that your employment will be terminated effective March 29, 1996 (the "Termination Effective Date"). Dell will pay your health insurance and other present benefits through the Termination Effective Date above. After the Termination Effective Date, you will be responsible for the payments to continue health insurance provided under Dell's group policy. 2. You agree that you are not entitled to receive from Dell or from any of its officers, managers, directors, employees, agents, or representatives any form of consideration or the payment of any amount other than what is expressly set forth in this letter. You agree that you are not entitled to receive from Dell any payment or distribution of any other type (whether in cash or other property), except as expressly set forth in this Agreement. You further agree that as of the Termination Effective Date, you do not own and do not hold any vested and exercisable rights to purchase or otherwise acquire from the Company shares of the Company's common stock, par value $.01 per share (the "Common Stock") or any other securities. In connection with any transactions involving Dell's securities, you understand and agree that you are and will be subject to all the requirements of applicable laws, rules and regulations. 3. You agree that in connection with your employment by the Company you received a grant of 220,000 shares of Common Stock (110,000 prior to the two-for-one split of the Common Stock in October 1995) (the "Restricted Stock") subject to certain vesting, transfer, and other restrictions more fully set forth in the 2 Mr. Richard N. Snyder March 28, 1996 Page 2 agreements pursuant to which you received the Restricted Stock (the "Restricted Stock Agreements"). Under the Restricted Stock Agreements certain restrictions lapsed on February 27 and 28, 1996 with respect to a total of 46,142 shares of the Restricted Stock and you hereby acknowledge that certificates representing those shares have been delivered to you. You acknowledge and agree that, under the terms of the Restricted Stock Agreements, your ownership of, and any and all of the rights you may have or claim to the remaining 173,858 shares of Restricted Stock are forfeited as of the Termination Effective Date. 4. Your vested balance in Dell's 401(k) Plan Trust and the Company's deferred compensation plan (if any) will be available for you to withdraw or roll over at the end of the month if your request is submitted to the plan administrator by the 25th of the month after the Termination Effective Date, subject to applicable laws and regulations. Any balance you may have in Dell's Employee Stock Purchase Plan will also be available for you to withdraw after the Termination Effective Date, in accordance with the provisions of the Plan. 5. On the Termination Effective Date, you will resign from all positions as a corporate officer of Dell Computer Corporation and its subsidiaries and affiliates. You agree that upon reasonable request from the Company's General Counsel, you will separately confirm such resignations in writing. From and after the Termination Effective Date, you will have no duties, obligations or responsibilities to perform any work or services for or on behalf of the Company. You further agree that, except as otherwise requested or permitted by the Company, you will not return to the place of business where you were employed by the Company, you will not travel to or visit any of the Company's business locations, and you will not call or visit any of the Company's employees during working hours or in any way or at any time disrupt or undertake any activity that would have a tendency to disrupt the business endeavors of the Company or its employees. Upon the Company's prior request or permission, you may visit the Company for the purpose of establishing and maintaining a business relationship between your new employer, or any person for whom you may be consulting, and the Company. You will be free to undertake other employment after the Termination Effective Date so long as your employment and services do not contravene any other provision of this Agreement. 6. In addition, the Company will pay for all services provided to you by Price Waterhouse LLP in connection with the preparation of your 1995 personal income tax return in accordance with your present entitlements to such services. 7. You agree that by execution of this Agreement you fully, finally, completely and generally release the Company and each of its officers, managers, directors, control persons, employees, agents and representatives, 3 Mr. Richard N. Snyder March 28, 1996 Page 3 individually and separately, from any and all claims, actions, liabilities, obligations, demands, and/or causes of action, of whatever kind or character, whether known or unknown, arising from, relating to, or in any way connected with (i) any of the foregoing persons, (ii) your employment, resignation or termination of employment with the Company, (iii) your decision to move to or from or accept employment in Austin, Texas, (iv) your severance of employment with your former employer prior to accepting employment with the Company, and (v) any act or omission that has occurred on or before the Termination Effective Date in connection with any activity related to any of the foregoing persons or to any activity, statements, controversy or dispute related to your employment, resignation or termination of employment with the Company. The foregoing release does not cover any claim, demand or cause of action you may have to the extent that it arises out of any breach or default by the Company under this Agreement or any other act or omission by the Company after the Termination Effective Date relating to your employment with the Company. 8. The release set forth in Paragraph 7 above shall be construed as broadly as possible and shall include without limitation (1) any contractual or other claims of employment or payment you may have; (2) any claims, if any, arising out of or in connection with the initiation, termination or existence of your employment relationship with the Company or any service performed on behalf of the Company; (3) any claims regarding accrued vacation, bonuses or any other form of benefit attributable to the Company; and (4) any claims arising under the Federal Age Discrimination in Employment Act, the Civil Rights Act of 1964, as amended, or any other applicable federal, state or municipal statute, ordinance or regulation. You represent that you have not assigned to any other person any of the foregoing claims and that you have the full right to grant this release. 9. The Company hereby fully, finally, completely and generally releases you from any and all claims, actions, demands and/or causes of action, of whatever kind or character, whether known or unknown, arising from, relating to, or in any way connected with any act or omission by you that has occurred before the Termination Effective Date in connection with your employment by the Company. The foregoing release does not cover any claim, demand or cause of action the Company may have to the extent that it arises out of any breach or default by you under this Agreement or any other act or omission by you after the Termination Effective Date relating to your employment with the Company. 10. The release set forth in Paragraph 9 above shall be construed as broadly as possible and includes without limitation (1) any contractual claims the Company may have; (2) any claims arising out of the initiation or termination of your employment relationship with the Company; and (3) any claims arising out of any act, service or omission performed or not performed by you. The Company 4 Mr. Richard N. Snyder March 28, 1996 Page 4 represents that it has not assigned to any other person the foregoing claims and causes of action and that it has the full right to grant the release set forth herein. 11. You represent that, from and after the Termination Effective Date, you will not have in your possession any documents, correspondence, memoranda, or other tangible media which contain information of any kind relating to the Company or its business operations. You agree that you will not take any such documents and information from the control or premises of the Company and that if you should find yourself in possession of same you will return all of same to the Company immediately. 12. You acknowledge that the Company conducts business in all fifty states of the United States and in numerous foreign nations including but not limited to the countries of the U.K., Ireland, France, Germany, Spain, Switzerland, Finland, Norway, Sweden, Canada, Mexico, Australia, Japan, Malaysia, Hong Kong, the Czech Republic and Poland. You further acknowledge and agree that in your position with the Company you have since February 1995 represented the Company as one of its most senior executives; that you have received from the Company unique and special knowledge and training which was not previously available to you before your employment with the Company; that the Company possesses and utilizes at the Termination Effective Date trade secrets not known or used by the Company's competitors, which trade secrets give the Company an advantage over its competitors; that during your employment with the Company you have received knowledge of and confidential information about the Company's trade secrets including but not limited to those relating to its production, research, marketing, service, support, pricing and sales practices and policies; that at the Termination Effective Date the Company's manufacturing, administrative and other premises are restricted by security procedures put in place by the Company and that Company-hired security guards are on duty at all times to monitor and protect the Company's premises and information; that it would take any person or entity a significant amount of time to enter any of the Company's markets and to achieve substantial commercial success in such markets because the necessary understanding of any technical data and information relating to such markets (and to their customers, pricing, product offerings and service delivery methods) would be difficult and costly to develop; that you were involved in organizing the Company's sales and marketing practices and had access to the Company's sale's data; and that unauthorized use by you of the knowledge, information, data and trade secrets of the Company described above would seriously damage the Company and hinder its ability to do business worldwide. The character of any knowledge or information as a trade secret will be determined from time to time according to the facts then prevailing and applicable law. 5 Mr. Richard N. Snyder March 28, 1996 Page 5 13. Non-Competition. You agree that, for the duration of the "Restriction Period" (which for purposes of this Agreement shall be defined to mean the period from the Termination Effective date, through and including March 29, 1997), without the prior written approval of the Company's Vice President of Human Resources, you will not manage, operate, join, control or participate in, directly or indirectly, consult on behalf of or for the benefit of, or derive any benefit whatsoever from or be an officer, director, employee, partner, agent or consultant of, any business or activity (a "Competitor") that sells personal computers, computer workstations or servers directly to the end user (the "PC Direct Channel"). You will not be in violation of this Paragraph 13 merely because you own publicly traded securities issued by a Competitor engaged in the PC Direct Channel as long as you own less than 5% of any class of securities then outstanding. Notwithstanding any other provision of this Paragraph 13 to the contrary, the restrictive covenant contained in this Paragraph 13 shall not prohibit you from obtaining employment with and being employed by, in whatever capacity, Hewlett-Packard Company or any of its wholly-owned subsidiaries, so long as you continue to comply with all of the provisions of this Agreement. 14. You agree that the non-competition provision set forth in Paragraph 13 is ancillary to this Agreement, that this Agreement is an otherwise enforceable agreement, and that the non-competition provision is therefore ancillary to an otherwise enforceable agreement. You further agree that the non-competition provision contains reasonable limitations as to the time, geographical area and scope of activity for which you are to be restrained; that the limitations of this Agreement and your covenant not to compete with the Company do not impose a greater restraint than is necessary to protect the goodwill or other business interests of the Company; and that the primary purpose of this Agreement does not obligate you to render personal services to the Company. 15. The 46,142 Restricted Shares described in Paragraph 3, and any amount received by you upon disposition of said shares, are subject to certain forfeiture and repayment conditions (the "Two Year Restriction") for a period of two years after your employment with the Company ends in accordance with the terms of the Restricted Share Agreements. As separate consideration for the non-competition provision set forth in Paragraph 13, the Company hereby waives the Two Year Restriction as to the 46,142 Restricted Shares that have been delivered to you. 16. The Company agrees to pay you, within ten (10) days after the Termination Effective Date, a lump sum of $1,198,614.80. You agree that such consideration, as well as the other consideration and promises set forth in this Agreement, constitute full and adequate consideration to support this Agreement and each of its provisions. You and the Company hereby agree as follows: 6 Mr. Richard N. Snyder March 28, 1996 Page 6 (a) Of such lump sum amount, the amount of $798,614.80 shall be considered as further and separate consideration for the non-competition provision set forth in Paragraph 13 and shall be subject to normal withholding. (b) The remaining $400,000.00 of such lump sum amount shall be considered as further and separate consideration for your general release of the Company for any and all claims, actions, demands and/or causes of action arising prior to the Termination Effective Date and in connection with your employment with the Company or the termination of such employment (including any such claims, actions, demands or causes of action that may be based on, or arise out of, acts or omissions, or alleged acts or omissions, of the Company that may constitute, or be alleged to constitute, fraud, defamation or other tortious conduct), and the Company shall not withhold from such amount. You hereby agree to indemnify the Company for, and hold the Company harmless against, any and all losses, claims, damages, liabilities, costs or expenses (including attorney's fees), judgments and amounts paid in settlement in connection with any claim, action, suit, proceeding or investigation arising out of or pertaining to the Company's failure to withhold from the amount described in this subparagraph (b). 17. As further and separate consideration for the non-competition provision set forth in Paragraph 13, the Company agrees to pay you on or before April 5, 1997, a lump sum of $100,000, subject to normal withholding. You understand and agree that your right to this lump sum payment is conditioned upon your full and complete compliance with the remaining provisions of this Paragraph 17. No earlier than March 29, 1997, you will execute and deliver to the Company a sworn affidavit (the "Compliance Affidavit"), in the form attached hereto as Exhibit A. In the Compliance Affidavit, you will attest under oath that as of the date of the affidavit and at all times prior thereto, you are and have been in full and complete compliance with the terms of this Agreement. You will not be entitled to receive this lump sum payment unless and until you have executed and delivered a true and accurate Compliance Affidavit to the General Counsel of the Company in accordance with the terms set forth above. 18. You and the Company both agree that the releases given in this Agreement will not be taken as admissions of liability with respect to any matter by you or by the Company. You and the Company further agree that no release contained herein shall be admissible in any judicial, administrative or other proceeding or cause of action as an admission of liability by you, by the Company or by any persons released by this Agreement. 7 Mr. Richard N. Snyder March 28, 1996 Page 7 19. You agree that you will not, for a period of two (2) years after the Termination Effective Date, alone or with others, directly or indirectly, solicit or recruit for your benefit, or for the benefit of any person or entity, the employment or other services of any person who is an employee of the Company or who within the six month period preceding such solicitation or recruitment has been an employee of the Company. You agree that you will not, during this two year period, cause or facilitate (by providing information or otherwise) the solicitation or the recruitment of such employment or other services by or for the benefit of any person or organization with which you may be associated. 20. In addition to the other agreements contained herein, you agree that you will not use, publish, misappropriate or disclose in any manner, directly or indirectly, for yourself or for the benefit of any other person or entity, any Confidential and Proprietary Information. "Confidential and Proprietary Information" means, without limitation, any information that you have learned or originated during your employment with the Company, to the extent that such information is related to the products, marketing plans, sales plans, operating procedures, properties or financial condition, prospects or results of operations of the Company, which information is commercially valuable and is not publicly available to or readily ascertainable by third parties through proper means, and any information disclosed by third parties in confidence to the Company. Nothing in this Paragraph 20 shall prohibit you from accepting employment with, or being employed by, any company or other entity otherwise permissible under the terms of Paragraph 13 hereof, so long as you comply with the provisions of this Paragraph 20. Confidential and Proprietary Information specifically includes, without limitation, all such information of the kinds described in subparagraphs A through G below: A. Manufacturing and research processes currently in use, planned or under development, including design rules, device characteristics, process flow and manufacturing capabilities and yields. B. Computer product, process and device strategies in use, planned or under development, including device specifications, system architectures, logic designs, circuit implementations and long-range plans. C. Software products in use, planned or under development, including operating system adaptations or enhancements, language compilers, interpreters and translators, system design and evaluation tools, and application and diagnostic programs. 8 Mr. Richard N. Snyder March 28, 1996 Page 8 D. Information relating to Company employees; actual and anticipated relationships between the Company and other companies or persons; sales levels, profit levels, pricing and other unpublished financial data; and budget, staffing compensation, equipment and related plans. E. Information relating to the Company's customer, supplier and vendor relationships including performance requirements, development and delivery schedules, device and product pricing and quantities, and other information communicated to the Company by its customers, suppliers and vendors. F. Information relating to the compensation, skill and work of the Company's employees. G. Any Intellectual Property defined below and any copyrightable works described below, except as publicly disclosed in patents and other publicly available documents. 21. You agree that all discoveries, ideas, improvements or inventions you have created, conceived, developed or discovered, alone or with others, during your employment with the Company which relate to the Company's business or which result from the use of the Company's equipment, supplies, facilities or information, and which are protectable under applicable patent or copyright laws (collectively, the "Intellectual Property"), in whatever form, is the Company's sole and exclusive property. You hereby assign to the Company all of your rights in any Intellectual Property. You agree that you will assist the Company at the Company's expense in all ways in the future, including giving evidence and executing any documents deemed helpful or necessary by the Company, to establish, perfect and register worldwide, at the Company's expense, the Company's title and exclusive ownership in the Intellectual Property. You agree that you will not do anything in conflict with the Company's rights in the Intellectual Property and that you will cooperate fully to protect the Intellectual Property against misappropriation or infringement. 22. You agree that the Company is the copyright owner in all copyrightable works of every kind and description created or developed by you, solely or jointly with others, during the time of your employment with the Company. If so requested at any time, and for no additional considerations, you will execute in writing any acknowledgments or assignments or copyright ownership of such works as may be appropriate in the opinion of the Company for preservation of the worldwide ownership in the Company of such copyrights. 9 Mr. Richard N. Snyder March 28, 1996 Page 9 23. You agree that your obligations pursuant to Paragraphs 20 and 21 with respect to the Intellectual Property will survive the satisfaction or completion of any other term of this Agreement and will continue for the duration of the Restriction Period as to Paragraph 20 and in perpetuity as to Paragraph 21 except as otherwise specified herein. 24. You acknowledge that your breach of any of the non-competition, non-solicitation, non-disclosure or non-use provisions set forth above will cause irreparable harm to the Company for which there may be no adequate remedy at law and for which the ascertainment of damages would be difficult. You therefore agree that in the event of your breach of any such provision, in addition to and without having to prove the inadequacy of other remedies at law, the Company shall be entitled to receive specific performance by you of any such provision that you have breached, and the Company will furthermore be entitled to the issuance of a court order directing full and immediate injunctive relief against you without the Company being required to post any bond or other security therefore. However, the provisions of this Paragraph should not be interpreted in any way as a limitation on the Company's right to obtain money damages against you in the event of a breach of any of the provisions set forth above. 25. You and the Company agree to maintain in confidence the terms of this Agreement and not to disclose the Agreement publicly or to third parties except as may be required in compliance with the requirements of applicable law. You and the Company further agree that after the Termination Effective Date, except as provided in the next sentences, neither you nor any representative of the Company will make further comment, on or off the record, for attribution or otherwise with regard to the circumstances of your departure except as authorized in writing in advance by the party about whom the comment is made. In addition, you will make no comment, on or off the record, for attribution or otherwise, during the Restriction period, about your employment with the Company, or about the Company or an aspect of its business or operations, without the express prior written agreement of the Company, except as you may be required to do under oath in response to a subpoena. You agree that in the event you breach this covenant of confidentiality and the Company is damaged as a result of such breach, you shall be personally liable for all damages arising from such breach, including reasonable attorneys' fees and costs incurred by the Company in pursuing such claim against you; and the Company agrees that in the event it breaches this covenant of confidentiality and you are damaged as a result of such breach, the Company shall be liable for all damages arising from such breach, including reasonable attorney's fees and costs incurred by you in pursuing such claim against the Company. 10 Mr. Richard N. Snyder March 28, 1996 Page 10 26. This Agreement shall be interpreted in all respects by the internal laws of the State of Texas, excluding its choice of law rules, and the venue (location of any lawsuit) shall be solely in Travis County, Texas. 27. You are advised to consult with an attorney before executing this Agreement. By your signature below, you acknowledge that you have had a sufficient opportunity to thoroughly discuss the implications of this Agreement with independent advisors of your choice prior to execution. In signing this Agreement, you agree that you have not been induced to execute this Agreement by any representations or agreements made by any person other than what is expressly set forth in this Agreement. You also agree that you understand this Agreement in full and sign it voluntarily with full knowledge of its contents. You acknowledge that this Agreement was written in a manner that you were able to and did understand. 28. If Agreement accurately sets forth your agreement with the Company with respect to matters arising in connection with your employment and any other agreement between you and the Company, please signify by your execution of this letter where indicated below and return it to the Company by close of business on March 29, 1996. "Execution" of the Agreement means that you will sign it in the presence of a notary public. You hereby acknowledge that you have had a period of at least 21 days within which to consider this agreement and discuss it with your attorney, the original version of this Agreement having been submitted to you and your attorney on February 29, 1996. You have a period of seven (7) days following your execution of this Agreement within which to revoke it. This Agreement shall not become effective or enforceable until the revocation period has expired. If you choose to revoke this Agreement, all payments and benefits to you will immediately cease. If you do not revoke the Agreement within seven (7) days from the date you sign it, its provisions become final. If you decide to revoke this Agreement, please contact the Company's General Counsel within seven (7) days from the date you signed the Agreement. If Dell has not received an executed copy of this letter, signed by you and notarized on or before close of business on March 29, 1996, this offer will automatically terminate and expire without further notice from Dell. 29. This Agreement constitutes the entire agreement of the parties and supersedes all prior oral and/or written agreements with Dell concerning the subject matter hereof or concerning your employment with Dell. This Agreement may not be modified except by a written agreement with Dell executed by you and an authorized officer of Dell. 30. This Agreement is binding upon and shall inure to the benefit of the parties and their respective heirs, representatives and assigns. 11 Mr. Richard N. Snyder March 28, 1996 Page 11 If this letter accurately sets forth your agreement with respect to the matters set forth herein, please so signify by signing this letter where indicated below and then delivering to the Company your executed original of this Agreement. (SIGNATURE PAGES ATTACHED) 12 Mr. Richard N. Snyder March 28, 1996 Page 12 DELL COMPUTER CORPORATION Date: March 28, 1996 By: /s/ THOMAS B. GREEN ------------------- ------------------------------- Thomas B. Green, General Counsel Sworn to and subscribed before me on March 28, 1996 /s/ STEPHANIE J. SALMON - --------------------------------- [SEAL] Notary Public, State of Texas I have carefully read the foregoing Agreement. On behalf of myself, my executor, heirs, successors and assigns, I agree to all of its terms, and to be bound by all of its terms. I acknowledge receipt of a copy of it and the sufficiency of the consideration and payments recited by it. Date: March 29, 1996 /s/ RICHARD N. SNYDER ------------------- ------------------------------- Richard N. Snyder Sworn to and subscribed before me on March 29, 1996. /s/ REBECCA C. SCOGGIN - --------------------------------- [SEAL] Notary Public, State of Texas 13 Mr. Richard N. Snyder March 28, 1996 Page 13 As the spouse of Richard N. Snyder, I have carefully read the foregoing Agreement. On behalf of myself, my executor, heirs, successors and assigns, I agree to all of its terms, and to be bound by all of its terms, and I understand that the term "you" as used in the letter shall also be deemed to include me. I acknowledge receipt of a copy of it and the sufficiency of the consideration and payments recited in it. Date: March 29, 1996 /s/ CANDICE D. SNYDER ------------------- ------------------------------- Candice Snyder Sworn to and subscribed before me on March 29, 1996. /s/ REBECCA C. SCOGGIN - --------------------------------- [SEAL] Notary Public, State of Texas 14 EXHIBIT A COMPLIANCE AFFIDAVIT STATE OF ------------ COUNTY OF ----------- I, RICHARD N. SNYDER, residing at 3800 Corum Circle, Austin, Texas 78746, being duly sworn, declare under oath that the following statements are true and correct: 1. I am providing this Compliance Affidavit to and for the benefit of Dell Computer Corporation and its subsidiaries and affiliates (collectively, the "Company") pursuant to that certain letter agreement (the "Agreement") between the Company and me dated March 28, 1996, regarding matters relating to my employment with the Company and termination thereof. 2. I hereby certify, declare and attest under oath that as of the date of this Compliance Affidavit and at all times prior to the date hereof, I am and have been in full and complete compliance with the terms of the Agreement, including without limitation, the non-competition, non-solicitation, non-disclosure and non-use provisions contained in the Agreement, and I acknowledge and reaffirm all of my obligations as set forth in the Agreement. ---------------------------------- RICHARD N. SNYDER, Affiant SUBSCRIBED AND SWORN TO before me on the day of 199 . ---- -------------------- ------ ---------------------------------- Notary Public -- State of My Commission Expires: - ---------------------------- ----------------------------------- Printed Name of Notary Public EX-11 3 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11 DELL COMPUTER CORPORATION STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (in millions, except per share data)
Three Months Ended -------------------------- April 28, April 30, 1996 1995 -------- --------- Primary earnings per common share: Calculation of weighted average shares(a): Weighted average shares of common stock outstanding . . . . . 91.7 83.9 Weighted average shares of common stock equivalents, utilizing the treasury stock method . . . . . . . . . . . . 5.7 6.6 ----- ----- Weighted average shares outstanding . . . . . . . . . . . . . 97.4 90.5 ===== ===== Earnings: Net income available to common stockholders . . . . . . . . . $82 $50 ===== ===== Earnings per common share(a)(b) . . . . . . . . . . . . . . . . . . $0.84 $0.55 ===== ===== Fully diluted earnings per common share: Calculation of weighted average shares(a): Weighted average shares of common stock outstanding . . . . . 91.7 83.9 Weighted average shares of common stock equivalents, utilizing the treasury stock method . . . . . . . . . . . . 6.2 7.4 Assumed conversion of Convertible Preferred Stock . . . . . . .5 6.2(c) ----- ----- Weighted average shares outstanding . . . . . . . . . . . . . 98.4 97.5 ===== ===== Earnings: Net income available to common stockholders . . . . . . . . . $82 $ 50 Add: preferred dividends . . . . . . . . . . . . . . . . . . -- 1(d) ----- ----- Adjusted net income available to common stockholders . . . . . $82 $51 ===== ===== Earnings per common share(a)(b) . . . . . . . . . . . . . . . . . . $0.84 $0.53 ===== =====
- -------------------- (a) All share and per share information for fiscal 1996 has been retroactively restated to reflect the two-for-one common stock split which took place during the third quarter of fiscal 1996. (b) Earnings per common share was calculated using the underlying data in thousands. (c) Assumes conversion, at the beginning of fiscal 1996, of the 60,000 shares of outstanding Convertible Preferred Stock and assumes conversion of the remaining Convertible Preferred Stock (those shares which were converted in March 1995) for the period from the beginning of fiscal 1996 to the actual conversion date. (d) Preferred dividends are exclusive of the conversion premium and expenses of the conversion offer. EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMAITON EXTRACTED FROM DELL COMPUTER CORPORATION FINANCIAL STATEMENTS AS OF AND FOR THE THREE MONTH PERIOD ENDED APRIL 28, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 3-MOS FEB-02-1997 APR-28-1996 66 787 778 0 252 2,030 198 0 2,240 1,005 113 0 6 261 523 2,240 1,638 1,638 1,319 1,319 25 0 3 116 34 82 0 0 0 82 .84 .84
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