Dell Computer Corporation Form 10-K

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

The information required by Part III of this Report, to the extent not set forth herein, is incorporated by reference from the Registrant’s definitive proxy statement relating to the annual meeting of stockholders to be held in July 2001, which definitive proxy statement will be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this Report relates.

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 1 — Business — Factors Affecting the Company’s Business and Prospects.”

Dell Computer Corporation (the “Company”) is the world’s largest direct computer systems company and a premier provider of products and services for customers to build their information-technology and Internet infrastructures. The Company’s revenue for fiscal year 2001 was $31.9 billion. In April 2001, the Company took the lead as the world’s number one computer system company, based on global market share estimates. The Company was founded in 1984 by Michael Dell on a simple concept: by selling personal computer systems directly to customers, the Company could best understand their needs, and efficiently provide the most effective computing solutions to meet those needs. With its direct relationships, the Company strives to make it easier for customers to choose, purchase and support their computing environments. Today, the Company is enhancing and broadening the fundamental competitive advantages of its direct model by increasingly applying the efficiencies of the Internet to its entire business. Approximately half of the Company’s sales are Web-enabled, approximately half of the Company’s technical support activities occur online and approximately three-quarters of the Company’s order-status transactions occur online.

The Dell™ line of high-performance computer systems includes PowerEdge™ servers, PowerApp™ server appliances, PowerVault™ storage products, Dell Precision™ workstations, Latitude™ and Inspiron™ notebook computers, and OptiPlex™ and Dimension™ desktop computers. The Company arranges for system installation and management, guides customers through technology transitions and provides an extensive range of other services. The Company designs and customizes products and services to the requirements of its customers, and sells an extensive selection of peripheral hardware, including handheld products, and computing software. The Company sells its products and services to large corporate, government, healthcare and education customers, small-to-medium businesses and individuals.

The Company is a Delaware corporation that was incorporated in October 1987, succeeding to the business of a predecessor Texas corporation that was originally incorporated in May 1984. Based in Austin, Texas, the Company conducts operations worldwide through wholly owned subsidiaries. See “Item 1 — Business — Geographic Areas of Operations.” Unless otherwise specified, references herein to the Company are references to the Company and its consolidated subsidiaries. The Company operates principally in one industry segment.

The Company’s common stock, par value $.01 per share, is listed on The Nasdaq National Market under the symbol DELL. See “Item 5 — Market for Registrant’s Common Equity and Related Stockholder Matters — Market Information.”

The Company’s business strategy is based on its direct business model. The Company’s business model seeks to deliver a superior customer experience through direct, comprehensive customer relationships, cooperative research and development with technology partners, computer systems custom-built to customer specifications and service and support programs tailored to customer needs.

The Company believes that the direct model provides it with several distinct competitive advantages. The direct model eliminates the need to support an extensive network of wholesale and retail dealers, thereby avoiding dealer mark-ups; avoids the higher inventory costs associated with the wholesale/ retail channel and the competition for retail shelf space; and reduces the high risk of obsolescence associated with products in a rapidly changing technological market. In addition, the direct model allows the Company to maintain, monitor and update a customer database that can be used to shape future product offerings and post-sale service and support programs. This direct approach, combined with the Company’s efficient procurement, manufacturing and distribution processes, allows the Company to rapidly deliver relevant technology to its customers.

The Company believes that it has significant opportunities for continued growth. While the Company believes that its business strategy provides it with competitive advantages, there are many factors that may affect the Company’s business and the success of its operations. For a discussion of these factors, see “Item 1 — Business — Factors Affecting the Company’s Business and Prospects.”

The Company is committed to refining and extending the advantages of its direct model approach by moving even greater volumes of product sales, service and support to the Internet. The Company receives in excess of 500 million page visits per quarter to www.dell.com, where it maintains approximately 80 country-specific sites. According to Nielsen/ Net Ratings, during the December 2000 holiday season, www.dell.com was the third most visited web site in the United States. The Company also develops custom Internet sites, called Premier Pages™, for various corporate and institutional customers, allowing these customers to simplify and accelerate procurement and support processes. Through these custom sites, the Company offers the customer paperless purchase orders, approved product configurations, global pricing, real-time order tracking, purchasing history and account team information. The Company currently provides more than 60,000 Premier Pages worldwide. The Company also provides an online virtual account executive for its small business customers. And, for all domestic customers, the Company provides a spare-parts ordering system, and a virtual help desk featuring natural-language search capabilities and direct access to technical support data.

The Company develops and utilizes direct customer relationships to understand end-users’ needs and to deliver high quality computer products and services tailored to meet those needs. For large corporate and institutional customers, the Company works with the customer prior to the sale to plan a strategy to meet that customer’s current and future technology needs. After the sale, the Company continues the direct relationship by establishing account teams, consisting of sales, customer service and technical personnel, dedicated to the Company’s large corporate and institutional customers. The Company also establishes direct relationships with small-to-medium businesses and individuals through account representatives, telephone sales representatives or Internet contact. These direct customer relationships provide the Company with a constant flow of information about its customers’ plans and requirements and enable the Company to weigh its customers’ needs against emerging technologies.

The Company has successfully developed cooperative, working relationships with many of the world’s most advanced technology companies. Working with these companies, the Company’s engineers manage quality, integrate technologies and design and manage system architecture. This cooperative approach allows the Company to determine the best method and timing for delivering new technologies to the market. The Company’s goal is to quickly and efficiently deliver the latest relevant technology to its customers.

The direct model is based on the principle that delivering custom-built computer systems is the best business model for providing solutions that are truly relevant to end-user needs. This concept, together with the Company’s flexible, build-to-order manufacturing process, enables the Company to achieve faster inventory turnover and reduced inventory levels and allows the Company to rapidly incorporate new technologies and components into its product offerings.

In the same way that the Company’s computer products are built-to-order, service and support programs are designed to fit specific customer requirements. The Company offers a broad range of service and support programs through its own technical personnel and its direct management of specialized service suppliers. These services range from online support to onsite customer-dedicated systems engineers.

The Company conducts operations worldwide and is managed on a geographic basis, with three geographic segments being the Americas, Europe, and Asia-Pacific and Japan regions. The Americas segment, which is based in Round Rock, Texas, covers the U.S., Canada, South America and Latin America. The European segment, which is based in Bracknell, England, covers the European countries and also some countries in the Middle East and Africa. The Asia-Pacific and Japan segment covers the Pacific Rim, including Japan, Australia and New Zealand, and is based in Singapore. See “Item 1 — Business — Factors Affecting the Company’s Business and Prospects — International Activities” for information about certain risks of international activities.

The Company’s corporate headquarters are located in Austin, Texas. Its manufacturing facilities are located in or around Austin, Texas; Nashville, Tennessee; Eldorado do Sul, Brazil; Limerick, Ireland; Penang, Malaysia; and Xiamen, China. See “Item 2 — Properties.”

For financial information about the results of the Company’s operating segments for each of the last three fiscal years, see Note 10 of Notes to Consolidated Financial Statements included in “Item 8 — Financial Statements and Supplementary Data.”

During fiscal year 2001, the Company opened new manufacturing facilities in Nashville, Tennessee and Xiamen, China. The Company also opened a call center in Nashville, Tennessee and additional office and research and development space in Austin, Texas.

The Company’s product offerings include: Dimension and OptiPlex desktop computers, Latitude and Inspiron notebook computers, PowerEdge servers, PowerApp server appliances, PowerVault storage products, and Dell Precision workstations. The Company has also continued to broaden its revenue base beyond the core systems, commonly referred to as “beyond the box” revenues. These offerings include warranty services, product integration and installation services, Internet access, ReadyWare™, DellWare™, peripherals, technology consulting and other offerings.

Servers — The Company offers two lines of server products. The PowerEdge line of servers consists of systems that can operate as file servers, database servers, applications servers and communications/ groupware servers in a networked computing environment. The PowerEdge SC family of servers was announced in the first quarter of fiscal year 2002 and is designed for high growth small business and small corporate local area network and branch office environments. PowerApp appliance servers, introduced in the first quarter of fiscal year 2001, are specialized servers that target Web hosting and network traffic management needs of Internet service

providers, dot-coms and other companies that are developing or enhancing their Internet infrastructures. According to International Data Corporation (“IDC”), based on preliminary first quarter calendar year 2001 data, the Company ranked number one in the United States for standard Intel architecture server shipments. The Company ranked number two in the United States and worldwide for server shipments, based on calendar year 2000 data. In fiscal 2001, the Company achieved a 39% unit-shipment growth in servers, the fastest among the industry’s ten largest companies.

Storage — The Company’s PowerVault storage offerings are designed to standardize and simplify storage solutions for customers who need complete, affordable storage systems without sacrificing enterprise capabilities. The Company offers a comprehensive portfolio of hardware, software and services for server-attached storage, Storage Area Networks (SAN), and Network-Attached Storage (NAS), targeted at small businesses, as well as workgroups and data centers within enterprises. The Company’s products include SCSI and Fibre-channel based disk systems, tape backup systems, SAN and NAS appliances, as well as complimentary storage management software to simplify administration and minimize related costs. Based on calendar year 2000 IDC data, the Company ranked number six worldwide in storage revenue.

Workstations — The Dell Precision workstation product line is intended for professional users who demand exceptional performance to run sophisticated applications, such as computer-aided design, digital content creation, geographic information systems, computer animation, software development and financial analysis. According to IDC, the Dell Precision workstation product line held the number one worldwide market share position in calendar year 2000.

The Company offers two lines of notebook computer systems. The Latitude line provides large corporate, government and education customers with reliability, stability and superior battery performance for complex networked environments. The Inspiron line is targeted to home and small business users who require the latest technology and high-end multimedia performance. The Company ranked number one in U.S. and number four in worldwide notebook computer shipments in calendar year 2000, according to IDC.

The Company offers two lines of desktop computer systems. OptiPlex desktop computers are designed for corporate and institutional customers who require highly reliable systems within networked environments. Dimension desktop computers are designed for small businesses and home users requiring fast technology turns and high-performance computing. According to IDC, the Company ranked number one in U.S. desktop shipments and number two in worldwide desktop shipments in calendar year 2000.

The Company maintains a variety of software and accessory programs to complement its systems offerings. Through these programs, the Company offers nearly 30,000 competitively priced software and peripheral products from leading manufacturers. The DellWare line of software and peripherals is a single source solution for customers. DellWare offerings include memory upgrades, printers, monitors and software, all of which is available online through www.dell.com. The Company’s custom factory integration program provides installation and configuration of customer hardware and software, asset tagging and labeling. Through the ReadyWare program, the Company offers factory-installed off-the-shelf software applications. Additionally, the Company offers a wide array of handheld products.

The Company enhances its product offerings with a number of specialized services, including custom hardware and software integration, leasing and asset management, server and storage consulting services, network installation and support and onsite service. The Company’s direct relationships with customers and its extensive online capabilities via www.dell.com enhance service delivery. The Company is further developing its service capabilities with Internet-based services

Compared to fiscal year 2000, beyond the box revenues increased 37%, representing 18% of net revenues during fiscal 2001. Beyond the box revenues include $2.5 billion and $1.8 billion of worldwide services revenue in fiscal years 2001 and 2000, respectively.

The Company’s customers range from large corporations, government agencies and healthcare and educational institutions to small businesses and individuals. In general, the Company uses similar sales and marketing approaches across all customer groups, as demand levels for each customer group are principally driven by similar changes in market prices and overall general economic conditions. Within each region, the Company has divided its sales and marketing forces among the various customer groups to better meet each customer group’s specific needs. No single customer accounted for more than 10% of the Company’s consolidated net revenues during any of the last three fiscal years.

The Company has established a broad range of business based on continuing relationships with large corporations, governmental, healthcare and educational institutions and small-to-medium businesses. The Company maintains a field sales force throughout the world to call on business and institutional customers and prospects. The Company develops marketing programs and services specifically geared to these relationship customers. Dedicated account teams, which include field based system engineers and consultants, form long-term customer relationships to provide each customer with a single source of assistance on various issues, including technology needs assessment and technical evaluation of Dell products; system configuration; image development order placement; lifecycle cost management; technology transition planning; installation assistance and project management; and detailed product, service and financial reporting. For customers with in-house maintenance organizations, the Company offers a variety of programs, including specialized computer training programs, a repair parts assistance program and other customized programs to provide access to the Company’s technical support team. The Company also offers customized product delivery and service programs. See “Item 1 — Business — Service and Support.”

For multinational corporate customers, the Company offers several programs designed to provide global capability, support and coordination. Through these programs, the Company can provide single points of contact and accountability with global account specialists, special global pricing, consistent service and support programs across global regions and access to central purchasing facilities.

The Company also maintains specific sales and marketing programs targeted at federal, state and local governmental agencies. The Company maintains account teams dedicated to specific governmental and educational markets.

The Company has established a significant base of business among small-to-medium businesses and individual customers. The Company markets its products and services to these customers by advertising on the Internet and television, in trade and general business publications and by mailing a broad range of direct marketing publications, such as promotional pieces, catalogs and customer newsletters. The Company believes these customers value its ability to provide reliable, custom-built computer systems at competitive prices, while offering knowledgeable sales assistance, post-sale support and a variety of service offerings.

A significant portion of the Company’s business is being conducted via the Internet. Through the Company’s World Wide Web site at www.dell.com, both relationship and transactional customers as well as potential customers can access a wide range of information about the Company’s product and service offerings, configure and purchase systems online and access volumes of support and technical information.

Dell Financial Services L.P. (“DFS”), a joint venture between the Company and The CIT Group, offers leasing and other financial services to the Company’s customers. For additional information about DFS, see Note 8 of Notes to Consolidated Financial Statements included in “Item 8 — Financial Statements and Supplementary Data.”

The Company provides a basic limited warranty and technical support and offers a full line of warranty, service and support options in all of its geographic markets. These options vary in each of the countries in which the Company does business based on local market and customer requirements. The following is a description of the warranties, service and support generally available to the Company’s customers in the United States.

The Company provides a basic limited warranty, including parts and labor, for all computer systems for a period ranging from one to three years. The Company offers additional warranties based upon the particular product offered and customer needs.

The Company also provides free, telephone-based 24-hour technical support, as well as online technical support over the Internet. During the second half of fiscal 2001, the Company announced that the Dell Solution Center™, a collection of online technical support and learning services, would become standard on the Company’s consumer and small business line of Inspiron notebooks and Dimension desktop computers. The Dell Solution Center, which appears as an icon on a customer’s computer screen, is a package of Web-based troubleshooting tools and educational offerings designed to make computers easier to use. It includes the Company’s comprehensive e-support software and hardware diagnostic tool, Resolution Assistant™, which connects users directly to the Company’s support technicians through the Internet. Alternatively, customers can access www.support.dell.com, a customized home page for each customer with information specific to their computer. For technical questions about a system, customers can also use the Company’s natural language technical support tool, Ask Dudley™.

The Company offers customers the opportunity to purchase additional customized services and support programs through a wide selection of options. For example, PowerEdge server customers may choose to extend their basic limited warranty contracts to include up to four additional years of next-business-day, onsite service. Additionally, customers may choose same-day or two-, four- or six-hour response service offerings. Notebook computer owners have access to service and support in a multitude of countries in which the Company conducts business, in the event a notebook customer is in need of service or support while traveling outside of that customer’s home country.

The Company recently announced the creation of Premier Enterprise Services™, a comprehensive portfolio of enterprise-level service offerings. Premier Enterprise Services consists of three distinct programs: Premier Enterprise Consulting™, Premier Enterprise Deployment™ and Premier Enter-

prise Support™. Premier Enterprise Consulting allows customers to leverage the Company’s expertise in planning, building and optimizing scalable enterprise infrastructures through services provided by Dell Technology Consulting™. Other service offerings include design and on-site implementation of complex storage systems, enterprise hardware training and tuning and proof-of-concept services in the Company’s Technology Solution Centers™. Premier Enterprise Deployment tailors systems to specific customer requirements by integrating custom-configured hardware and software into the Company’s manufacturing process, coordinating delivery and managing all aspects of an on-site installation. Premier Enterprise Support includes engineer-to-engineer support, technical account management, and seamless single-point-of-accountability support for issue resolution of leading enterprise software applications. These services are currently available in the United States and Canada and the Company plans to expand these services to international customers.

The Company’s Premier Access™ program includes a service and support program specifically designed for information systems professionals who have technical expertise in diagnosing and servicing computer systems. Customers can choose their level of service under the program, including rapid service and parts dispatches, direct access to advanced level technical support, specialized online support, reimbursement for certain labor costs and parts management assistance.

The Company also offers specialized custom factory integration services designed to address specific hardware and software integration requirements of customers. These services allow the Company to satisfy a customer’s particular integration requirements (whether hardware related, such as specialized network cards, video and graphic boards, modems, tape drives or hard drives; or software related, such as customer proprietary software applications or drivers) at the time the customer’s systems are manufactured. This is in addition to the Company’s ReadyWare program, a collection of popular software applications and interface cards that can be factory-installed.

The Company also offers a variety of onsite installation services that can be customized to meet the needs of each specific customer. These services include basic installation and orientation, system connectivity and functional testing, external peripheral installation, internal device installation and file server and advanced system installation.

Through Dell Technology Consulting, the Company offers professional consulting services to help customers select and implement server and storage solutions. The Company provides consulting services in connection with systems management design and implementation, E-commerce consulting, storage planning, storage consolidation, storage performance and tuning and backup and recovery planning. The Company can also draw upon a network of established relationships with a variety of nationally recognized specialty consulting firms.

The Company operates manufacturing facilities in and around Austin, Texas; Eldorado do Sul, Brazil; Nashville, Tennessee; Limerick, Ireland; Penang, Malaysia; and Xiamen, China. The Company’s manufacturing process consists of assembly, functional testing and quality control of the Company’s computer systems. Testing and quality control processes are also applied to components, parts and subassemblies obtained from suppliers. The Company’s build-to-order manufacturing process is designed to allow the Company to quickly produce customized computer systems and to achieve rapid inventory turnover and reduced inventory levels, which lessens the Company’s exposure to the risk of declining inventory values. This flexible manufacturing process also allows the Company to incorporate new technologies or components into its product offerings quickly.

Quality control is maintained through the testing of components, parts and subassemblies at various stages in the manufacturing process. Quality control also includes a burn-in period for completed

units after assembly, on-going production reliability audits, failure tracking for early identification of production and component problems and information from the Company’s customers obtained through service and support programs. The Company conducts a voluntary vendor certification program, under which qualified vendors commit to meet defined quality specifications. All of the Company’s manufacturing facilities have been certified as meeting ISO 9002 quality standards.

The Company’s product development efforts are focused on designing and developing competitively priced computer systems that adhere to industry standards and incorporate the technologies and features that the Company believes are most desired by its customers. To accomplish this objective, the Company must evaluate, obtain and incorporate new hardware, software, storage, communications and peripherals technologies that are primarily developed by others. The Company’s product development team includes programmers, technical project managers and engineers experienced in system architecture, logic board design, sub-system development, mechanical engineering, manufacturing processing and operating systems. This cross-functional approach to product design has enabled the Company to develop systems with improved functionality, manufacturability, reliability, serviceability and performance, while keeping costs competitive. The Company takes steps to ensure that new products are compatible with industry standards and that they meet cost objectives based on competitive pricing targets.

The Company bases its product development efforts on cooperative, meaningful relationships with the world’s most advanced technology companies. These working partnerships allow the Company to use its direct model and build-to-order manufacturing process to deliver, on a timely and cost-effective basis, those emerging technologies that are most relevant to its customers.

During fiscal year 2001, the Company incurred $482 million in research, development and engineering expenses, compared with $374 million (excluding $194 million of acquired in-process research and development) for fiscal year 2000 and $272 million for fiscal year 1999. The amount the Company spends on research, development and engineering activities, which the Company believes to be important to its continued success and growth, is determined as part of the annual budget process and is based on cost-benefit analyses and revenue forecasts. The Company prioritizes activities to focus on projects that it believes will have the greatest market acceptance and achieve the highest return on the Company’s investment.

Through Dell Ventures, the Company makes strategic investments in technology companies located in the United States and abroad. These investments are designed to assist the Company in gaining greater access to leading-edge technologies and services, expanded markets for the Company’s products, insight into new markets and financial return. The Company generally invests in privately held emerging technology companies with business objectives built around the Internet, services, server and storage products, and communications. See “Item 1 — Business — Factors Affecting the Company’s Business and Prospects — Equity Investments” for information about certain risks associated with Dell Ventures. For additional information about risk on financial instruments, see “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Market Risk.”

The Company holds a portfolio of 605 U.S. patents and 512 U.S. patent applications pending, and has a number of related foreign patents and patent applications pending. The Company’s U.S. patents expire in years 2005 through 2018. The inventions claimed in those patents and patent applications cover aspects of the Company’s current and possible future computer system products, manufacturing processes and related technologies. The Company is developing a portfolio of

The Company has obtained U.S. federal trademark registration for its DELL word mark and its Dell logo mark. The Company owns registrations for 34 of its other marks in the U.S. As of March 1, 2001, the Company had pending applications for registration of 48 other trademarks. The DELL word mark, Dell logo and other trademark and service mark registrations in the U.S. may be renewed as long as the mark continues to be used in interstate commerce. The Company believes that establishment of the DELL mark and logo in the U.S. is material to the Company’s operations. The Company has also applied for or obtained registration of the DELL mark and several other marks in approximately 170 other countries or jurisdictions where the Company conducts or anticipates expanding its international business. The Company has also registered approximately 700 global domain names. In addition, the Company has registered in excess of 300 country-specific domain names. The Company has also taken steps to reserve corporate names and to form non-operating subsidiaries in certain foreign countries where the Company anticipates expanding its international business.

The Company has entered into a variety of intellectual property licensing and cross-licensing agreements. In addition, the Company has entered into nonexclusive licensing agreements with Microsoft Corporation for various operating system and application software. The Company has also entered into various software licensing agreements with other companies.

From time to time, other companies and individuals assert exclusive patent, copyright, trademark or other intellectual property rights to technologies or marks that are important to the technology industry or the Company’s business. The Company evaluates each claim relating to its products and, if appropriate, seeks a license to use the protected technology. The licensing agreements generally do not require the licensor to assist the Company in duplicating its patented technology nor do these agreements protect the Company from trade secret, copyright or other violations by the Company or its suppliers in developing or selling these products. See “Item 1 — Business — Factors Affecting the Company’s Business and Prospects — Patent Rights” for information about intellectual property risks.

The Company’s management information systems enable the Company to track each unit sold from the initial sales contact, through the manufacturing process to post-sale service and support. The systems assist the Company in tracking key information about customer needs. Using its database to assess customer trends, the Company targets marketing activities specifically to particular types of customers. This database, unique to the Company’s direct model, allows the Company to gauge customer satisfaction issues and also provides the opportunity to test new propositions in the marketplace prior to product or service introductions.

On February 2, 2001, the Company had approximately 40,000 regular employees. Approximately 27,000 of those employees were located in the U.S., and approximately 13,000 were located in other countries. The Company has never experienced a work stoppage due to labor difficulties and believes that its employee relations are good.

The Company’s business is subject to regulation by various federal and state governmental agencies. Such regulation includes the radio frequency emission regulatory activities of the U.S. Federal Communications Commission, the anti-trust regulatory activities of the U.S. Federal

The Company also is required to obtain regulatory approvals in other countries prior to the sale or shipment of products. In certain jurisdictions, such requirements are more stringent than in the U.S. Many developing nations are just beginning to establish safety, environmental and other regulatory requirements, which may vary greatly from U.S. requirements.

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. At the end of fiscal year 2001, 2000, and 1999, backlog was not material.

There are many factors that affect the Company’s business and the results of its operations, some of which are beyond the control of the Company. The following is a description of some of the important factors that may cause the actual results of the Company’s operations in future periods to differ materially from those currently expected or desired.

Any general economic, business or industry conditions that cause customers or potential customers to reduce or delay their investments in computer systems could have a material adverse effect on the Company’s business, prospects and financial performance. Worldwide economic conditions could have an effect on the demand for the Company’s products and could result in declining revenue and earnings growth rates for the Company.

The Company encounters aggressive competition in all aspects of its business. The Company competes on the basis of price, technology availability, performance, quality, reliability, service and support. The Company believes that it can maintain profitability by reducing operating expenses and by continuing to leverage its lean inventory model to rapidly realize the benefit of component price declines. However, there can be no assurance that the Company can successfully continue to manage its operating expenses to mitigate declines in gross margins.

Sales outside of the United States accounted for approximately 33% of the Company’s revenues in fiscal year 2001. The Company’s future growth rates and success are dependent on continued growth and success in international markets. As is the case with most international operations, the success and profitability of the Company’s international operations are subject to numerous risks and uncertainties, including local economic and labor conditions, political instability, unexpected changes in the regulatory environment, trade protection measures, tax laws (including U.S. taxes on foreign operations) and foreign currency exchange rates.

The profit margins realized by the Company vary somewhat among its products, customers and geographic markets. Consequently, the overall profitability of the Company’s operations in any given period is partially dependent on the product, customer and geographic mix reflected in that period’s revenues.

The Company experiences some seasonal trends in the sale of its products. For example, sales to governments (particularly U.S. federal sales) are often stronger in the Company’s third quarter, European sales are often weaker in the third quarter and consumer sales are often stronger in the fourth quarter. Historically, the net result of seasonal trends has not been material relative to the Company’s overall results of operations, but many of the factors that create and affect seasonal trends are beyond the Company’s control.

The technology industry is characterized by continuing improvements in technology, which results in the frequent introduction of new products, short product life cycles and continual improvement in product price/performance characteristics. While the Company believes that its direct model and asset management practices afford it an inherent competitive advantage over some of its competitors, product transitions present some of the greatest executional challenges and risks for any computer systems company. A failure on the part of the Company to effectively manage a product transition will directly affect the demand for the Company’s products and the profitability of the Company’s operations. In addition, while the Company has meaningful relationships with some of the world’s most advanced technology companies, continuing technological advancement, which is a significant driver of customer demand, is largely beyond the control of the Company.

The Company’s direct business model gives it the ability to operate with reduced levels of component and finished goods inventories, and the Company’s financial success in recent periods has been due in part to its asset management practices, including its ability to achieve rapid inventory turns. However, temporary disruptions in component availability can unfavorably affect the Company’s short-term performance. Supply conditions have generally been favorable both to the Company and to the industry in recent years. However, less favorable supply conditions, as well as other factors, may require or result in increased inventory levels in the future.

The Company’s manufacturing process requires a high volume of quality components that are procured from third party suppliers. Reliance on suppliers, as well as industry supply conditions, generally involves several risks, including the possibility of defective parts (which can adversely affect the reliability and reputation of the Company’s products), a shortage of components and reduced control over delivery schedules (which can adversely affect the Company’s manufacturing efficiencies) and increases in component costs (which can adversely affect the Company’s profitability).

The Company has several single-sourced supplier relationships, either because alternative sources are not available or the relationship is advantageous due to performance, quality, support, delivery, capacity or price considerations. If these sources are unable to provide timely and reliable supply, the Company could experience manufacturing interruptions, delays or inefficiencies, adversely affecting its results of operations. Even where alternative sources of supply are available, qualification of the alternative suppliers and establishment of reliable supplies could result in delays and a possible loss of sales, which could affect operating results adversely.

The Company regularly utilizes derivative instruments to hedge its exposure to fluctuations in foreign currency exchange rates and interest rates. In addition, the Company utilizes equity instrument contracts to execute repurchases of its common stock under its Board-authorized stock repurchase program. Some of these instruments and contracts may involve elements of market and credit risk in excess of the amounts recognized in the Consolidated Financial Statements. For

The Company’s continued success and profitability partly depends on its ability to continue to improve its infrastructure (particularly personnel and information systems) in order to increase operational efficiencies.

The Company’s continued business success may be largely dependent on its ability to obtain licenses to intellectual property developed by others on commercially reasonable and competitive terms. If the Company or its suppliers are unable to obtain desirable technology licenses, the Company could be prohibited from marketing products, could be forced to market products without desirable features or could incur substantial costs to redesign its products, defend legal actions or pay damages.

The Company has an active venture capital program, through which the Company makes strategic equity investments primarily in privately held technology companies. See “Item 1 — Business — Dell Ventures.” Because these companies are typically early-stage ventures with either unproven business models, products that are not yet fully developed or products that have not yet achieved market acceptance, these investments are inherently risky. Many factors outside of the Company’s control determine whether or not the Company’s investments will be successful. Such factors include the ability of a company to obtain additional private equity financing, to access the public capital markets, to effect a sale or merger, or to achieve commercial success with its products or services. Accordingly, there can be no assurances that any of the Company’s investments will be successful or that the Company will be able to recover the amount invested.

Unless otherwise noted trademarks appearing in this Report are trademarks of the Company. The Company disclaims proprietary interest in the marks and names of others.

The following table sets forth the name, age and position of each of the persons who were serving as executive officers of the Company as of May 1, 2001.

Michael S. Dell — Mr. Dell has been Chairman of the Board, Chief Executive Officer and a director of the Company since May 1984. Mr. Dell shares the Office of the Chief Executive Officer with Mr. Rollins and Dr. Vanderslice. Mr. Dell founded the Company in 1984 while attending the University of Texas at Austin. He is a member of the board of directors of the U.S. Chamber of Commerce, the Computerworld/ Smithsonian Awards and the World Economic Forum Foundation. Mr. Dell is also a member of the Business Council, the World Economic Forum, the Computer Systems Policy Project, an affiliation of CEOs of the top computer companies that advocates public policy positions on trade and technology affecting the computer industry and ultimately the United States, and serves on the nominating committee for the National Technology Medal of Honor.

Kevin B. Rollins — Mr. Rollins currently serves as President and Chief Operating Officer of the Company and shares the Office of the Chief Executive Officer with Mr. Dell and Dr. Vanderslice. Mr. Rollins joined the Company in April 1996 as Senior Vice President, Corporate Strategy, was named Senior Vice President, General Manager — Americas in May 1996 and was named Vice Chairman in December 1997. In March 2001, Mr. Rollins’ title was changed from Vice Chairman to President and Chief Operating Officer. For 12 years prior to joining the Company, Mr. Rollins was employed by Bain & Company, an international strategy consulting firm, most recently serving as a director and partner. Mr. Rollins received a Master of Business Administration degree and a Bachelor of Arts degree from Brigham Young University. Mr. Rollins is also a member of the National Advisory Council of Brigham Young University and a member of the CEO Forum on Education and Technology.

James T. Vanderslice — Dr. Vanderslice currently serves as President and Chief Operating Officer of the Company and shares the Office of the Chief Executive Officer with Mr. Dell and Mr. Rollins. Dr. Vanderslice joined the Company as Vice Chairman in December 1999. In March 2001, Dr Vanderslice’s title was changed from Vice Chairman to President and Chief Operating Officer. Prior to joining the Company, Dr. Vanderslice served as Senior Vice President and Group Executive for IBM’s Technology Group and was a member of IBM’s corporate executive committee. In that role, Dr. Vanderslice was responsible for IBM’s storage systems, microelectronics, networking-hardware and printer-systems division. He also provided functional guidance to the display and technology-market development units, both based in Japan. Dr. Vanderslice holds a Bachelor of Science degree in Physics from Boston College and a PhD in Physics from Catholic University.

Paul D. Bell — Mr. Bell joined the Company in July 1996 and serves as Senior Vice President, Europe, Middle East and Africa and Home and Small Business Group. In his EMEA role, he is responsible for business operations in the Company’s European region, including the Company’s manufacturing facilities in Limerick, Ireland. In the HSB role, he shares responsibility with Mr. Parra for all related product development, manufacturing, sales, marketing and customer-service activities for the Company’s Home and Small Business Group. Prior to joining the Company, Mr. Bell was with Bain & Company, where he was a management consultant for six years, including two years as a consultant for the Company. Mr. Bell received a bachelor’s degree in Fine Arts and Business Administration from Pennsylvania State University and a Master of Business Administration degree from the Yale School of Organization and Management.

Thomas B. Green — Mr. Green has served as Senior Vice President, Law and Administration since December 1997, and is responsible for overseeing the Company’s legal and governmental affairs, human resources function and other administrative departments. Mr. Green joined the Company in August 1994 as General Counsel and Secretary. Before joining the Company, Mr. Green served as Executive Vice President and General Counsel of Chicago Title & Trust Company from October 1992 to July 1994, and as Executive Vice President and General Counsel of Trammell Crow Company from October 1990 to October 1992. From February 1989 to October 1990, Mr. Green was employed by the law firm of Jones, Day, Reavis & Pogue, Dallas, Texas, last serving as a partner in that firm. His background also includes a term as law clerk to former United States Supreme Court Chief Justice Warren Burger. Mr. Green received a Bachelor of Arts degree in English and a Juris Doctor degree from the University of Utah.

Michael D. Lambert — Mr. Lambert joined the Company in October 1996 as Senior Vice President, Server Group, and currently serves as Senior Vice President, Enterprise Systems Group. Mr. Lambert is responsible for worldwide development and marketing of the Company’s server product lines. Prior to joining the Company, Mr. Lambert held various officer positions with Compaq Computer Corporation, last serving as Vice President of North American Marketing. Prior to joining Compaq in 1994, Mr. Lambert served four years as general manager of the large computer products division for NCR Corporation. Mr. Lambert received a bachelor’s degree in Business Administration from the University of Kentucky in Lexington. Mr. Lambert serves on the board of directors of StorageNetworks, Inc.

Joseph A. Marengi — Mr. Marengi joined the Company in July 1997 and serves as Senior Vice President, Relationship Group. In this position, Mr. Marengi is responsible for the customer groups serving global, enterprise and large corporate customers. Prior to joining the Company, Mr. Marengi worked at Novell, Inc., most recently serving as President and Chief Operating Officer. He joined Novell in 1989, where he first served as Vice President of the Eastern region and ultimately became Executive Vice President of Worldwide Sales and Field Operations. For ten years prior to joining Novell, Mr. Marengi served as Vice President of Channel Sales for Excelan, Inc. and in various other executive, sales, information management positions. From 1978 through 1981, Mr. Marengi served in the United States Coast Guard and Coast Guard Reserve, reaching the rank of Lieutenant Commander. Mr. Marengi earned a bachelor’s degree in Public Administration from the University of Massachusetts and a master’s degree in Management from the University of Southern California.

Rosendo G. Parra — Mr. Parra joined the Company in August 1993 and serves as Senior Vice President, Home and Small Business Group. In that position, he shares responsibility with Mr. Bell for all related product development, manufacturing, sales, marketing and customer-service activities for the Company’s Home and Small Business Group. Prior to joining the Company, Mr. Parra held various sales and general management positions with GRiD Systems Corporation, including Regional Sales Director and Vice President and General Manager of the PC Strategic Business Unit. Before his association with GRiD, Mr. Parra spent nine years in various sales and management positions for the business products division of Tandy Corporation. Mr. Parra earned a bachelor’s degree in Marketing from the University of Maryland.

James M. Schneider — Mr. Schneider is the Company’s Chief Financial Officer and also serves as the Company’s Chief Accounting Officer. Mr. Schneider joined the Company in September 1996 as Vice President and Chief Accounting Officer, was named Senior Vice President in September 1998 and Chief Financial Officer in March 2000. For three years prior to joining the Company, Mr. Schneider was with MCI Communications Corporation, last serving as Senior Vice President of Corporate Finance. For 19 years prior to joining MCI, Mr. Schneider was associated with Price Waterhouse LLP, serving as a partner for 10 years. Mr. Schneider holds a bachelor’s degree in Accounting from Carroll College in Waukesha, Wisconsin, and is a Certified Public Accountant. He is a member of the board of directors of General Communications, Inc.

At February 2, 2001, the Company owned or leased a total of approximately ten million square feet of office, manufacturing and warehouse space worldwide, approximately seven million square feet of which is located in the U.S. and the remainder located in various international areas.

The Company believes that it can readily obtain appropriate additional space as may be required at competitive rates by extending expiring leases or finding alternative space.

The Company’s principal executive offices are located in Austin, Texas and U.S. manufacturing facilities are located in Central Texas and Middle Tennessee.

The Company owns 360 acres of land in Round Rock, Texas (north of Austin), on which are located several office buildings completed since August 1994 that contain an aggregate of approximately 2.2 million square feet of office space. This includes approximately 900,000 square feet of owned office buildings and 1.3 million square feet of leased office space. These buildings, comprising the Company’s Round Rock Campus, house the Company’s sales, marketing and support staff for the Americas region.

The Company leases 570 acres of land in Austin, Texas referred to as the Parmer Campus. Approximately 1.3 million square feet of office and manufacturing space are located on the campus, including two leased office buildings totaling 700,000 square feet and two 300,000-square-foot manufacturing facilities. Additional office space totaling 420,000 square feet and a 300,000 square foot manufacturing plant are currently under construction on the campus.

The Company leases approximately 2.0 million square feet of office and manufacturing space at various locations throughout Austin, Texas. These buildings house manufacturing, research and development and support staff and the Company’s executive headquarters and administrative support functions.

The Company also leases approximately 1.3 million square feet of space in Middle Tennessee. This includes a 300,000 square foot manufacturing facility in Lebanon, Tennessee and 520,000 square feet of manufacturing and warehouse space in Nashville, Tennessee. A 360,000 square foot office building is leased in Nashville, Tennessee and additional office space totaling approximately 70,000 square feet is leased in various locations throughout Nashville. The office space houses the sales and manufacturing support staff.

At February 2, 2001, the Company’s international facilities consisted of approximately three million square feet of office and manufacturing space in 33 countries. Approximately one million square feet of this space is leased property, with lease expiration dates ranging from March 2001 to December 2013.

The Company owns approximately two million square feet of space. The owned space includes two facilities in Penang, Malaysia totaling 460,000 square feet that combine both office and manufacturing space. Both facilities are located on land leased from the State Authority of Penang. Also included are approximately one million square feet of manufacturing and office space in Ireland, a 70,000 square foot office building in Montpellier, France, and over 380,000 square feet of office and manufacturing space in Xiamen, China. A combined office and manufacturing facility is currently under construction in Alvorada, Brazil.

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.

No matter was submitted to a vote of the Company’s stockholders, through the solicitation of proxies or otherwise, during the fourth quarter of fiscal year 2001.

ITEM 5 — MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company’s common stock is traded on The Nasdaq National Market under the symbol DELL. Information regarding the market prices of the Company’s common stock may be found in Note 11 of Notes to Consolidated Financial Statements included in “Item 8 — Financial Statements and Supplementary Data.”

As of April 24, 2001, there were 34,830 holders of record of the Company’s common stock.

The Company has never paid cash dividends on its common stock and does not anticipate paying any cash dividends on its common stock for at least the next 12 months.

The following selected financial data should be read in conjunction “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8 — Financial Statements and Supplementary Data.”

The Company designs, develops, manufactures, markets, services and supports a wide range of computer systems, including enterprise systems (servers, storage products and workstations), notebook computers and desktop computer systems, and also offers software, peripherals and service and support programs. The Company is managed on a geographic basis. The three geographic segments are the Americas, Europe, and Asia-Pacific and Japan. The Company markets and sells its computer products and services under the Dell brand name directly to its various customer groups. These customer groups include large corporate, government, healthcare and education accounts, as well as small-to-medium businesses and individuals.

The Company’s objective is to maximize stockholder value by executing a strategy that focuses on a balance of three priorities: liquidity, profitability and growth. Management believes that opportunity exists for continued worldwide growth by increasing the Company’s market presence in its existing markets, entering new markets and pursuing additional product and service opportunities. The Company continues to expand its product and services offerings to meet a variety of customer needs. Also, the Company continues to enhance and improve the reputation, quality and breadth of all of its product lines and services. The Company is continuing its efforts to strengthen its position in enterprise systems by introducing advanced technologies to serve the growing needs for these products.

The following discussion highlights the Company’s performance in the context of these priorities. This discussion should be read in conjunction with the Consolidated Financial Statements, including the related notes. 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 1 — Business — Factors Affecting the Company’s Business and Prospects.”

The following table summarizes the results of the Company’s operations for each of the past three fiscal years. All percentage amounts were calculated using the underlying data in thousands.

The Company experienced growth in net revenue for all geographic regions during both fiscal years 2001 and 2000. The following table summarizes the Company’s net revenue by geographic region for each of the past three fiscal years:

The Company reported an increase in net revenue of 26% in fiscal 2001 as compared to fiscal 2000. Fiscal 2000 net revenue was 38% higher than fiscal 1999. Strong growth in net unit shipments across all regions and products drove the revenue increase, which was somewhat offset by lower average selling prices.

Net unit shipments grew 29% for fiscal 2001 and 50% in fiscal 2000, each of which was approximately two times the comparable calendar year industry growth rates. The Company continues to profitably grow market share while simultaneously growing net unit shipments at a multiple of the overall industry. The Company’s enterprise systems, which include servers, storage products and workstations, continued to build a substantial presence in the marketplace, with unit shipments growing 47% during fiscal 2001. Additionally, notebook computer unit shipments increased 52%, and desktop computer systems unit shipments increased 22%. Unit shipments grew during fiscal year 2000 across all product lines as well: unit shipments of enterprise systems grew 81%, notebooks grew 61% and desktops grew 46%.

The Americas represented the majority of the Company’s absolute dollar revenue growth in both fiscal 2001 and 2000. Net revenue growth in Europe slowed in fiscal 2001 as compared to fiscal 2000. In Asia-Pacific and Japan the Company’s net revenues continue to grow at a faster rate than the Company as a whole. As fiscal 2001 progressed, the Company experienced a significant shift in growth among the geographic regions. At the beginning of the year, revenue in the Americas continued at the strong pace of the prior year while Europe picked up slightly from weakness experienced the prior year. During the middle of the year, however, revenues in Europe weakened as overall demand softened and the region continued to transition to a new management team. Revenues in the Americas remained relatively strong during this period. As the Company exited the year, Europe experienced a significant pickup in demand as the management team was able to fully execute its business plan. Consequently, substantially all of Europe’s fiscal 2001 year-over-year growth occurred in the fourth quarter; whereas revenue growth in the Americas slowed significantly as the overall United States economy and financial markets cooled. Revenues in Asia-Pacific and Japan continue to grow as the Company entered additional country markets and expanded production capabilities to meet these growth opportunities. For additional information regarding the Company’s segments, see Note 10 of Notes to Consolidated Financial Statements included in “Item 8 — Financial Statements and Supplementary Data.”

Average revenue per unit sold in fiscal year 2001 decreased 2% compared to fiscal year 2000, which was primarily due to price reductions resulting from component cost declines. Average revenue per unit for the fourth quarter of fiscal 2001 was approximately 6% lower than the full year average as the Company leveraged its direct-to-customer model to drive profitable market share growth. Management currently expects that this pricing environment will likely continue for the foreseeable future as the Company and its competitors adapt to slowing demand and general softness in the

As a percentage of consolidated net revenue, gross margin decreased slightly from 20.7% in fiscal year 2000 to 20.2% in fiscal year 2001. Most of the decrease occurred in the fourth quarter of the year as the Company quickly passed component cost savings to its customers and also leveraged the strength of its model to drive profitable market share growth. Earlier in the year the Company experienced overall gross margins of approximately 21%, whereas overall they had declined to approximately 18% by the end of the fiscal year. Based on the industry, economic and other factors discussed above, the Company currently expects that this gross margin environment will likely continue for the foreseeable future. Management believes that the strength of the Company’s direct-to-customer business model, as well as its strong liquidity position, result in the Company being better suited than its competitors to profitably grow market share in the current business climate.

The decrease in gross margin as a percentage of consolidated net revenue in fiscal year 2000 over fiscal year 1999 was primarily attributable to increased component costs, in part due to a higher than expected cost increase for memory components during the last half of the year.

The following table presents certain information regarding the Company’s operating expenses during each of the past three fiscal years:

Selling, general and administrative expenses increased in absolute dollar amounts and as a percentage of revenue in fiscal year 2001 versus fiscal year 2000, due primarily to the Company’s original expectations for higher net unit shipment and revenue growth. The Company heavily invested in personnel and other support costs in anticipation of that growth. As growth expectations were reduced during the year, management took steps to manage expenses relative to actual growth rates, and as a result selling, general and administrative expenses as a percentage of net revenues declined on a quarter-to-quarter basis throughout fiscal 2001. In fiscal year 2000, selling, general and administrative expense increased in absolute dollar amounts, but decreased as a percentage of consolidated net revenue as compared to fiscal year 1999.

Management believes that the Company will have to continue to improve efficiencies and control selling, general and administrative expenses relative to revenue growth to continue to profitably grow market share. Consequently, during the fourth quarter of fiscal 2001, the Company undertook

a program to reduce its workforce and to exit certain facilities during fiscal year 2002. Total charges recorded were $105 million. The charges consisted of approximately $50 million in employee termination benefits with the remainder relating to facilities closure costs. The employee separations, which occurred primarily in the United States, affected 1,700 employees across a majority of the Company’s business functions and job classes. As of April 15, 2001, substantially all of the employees had been separated from the Company and the liability related to termination benefits had been liquidated. These actions are expected to result in annual savings of approximately $100 million. These savings, however, are expected to be reinvested via pricing, selling incentives, and research and development activities to support continued unit and revenue growth in the Company’s enterprise products. The Company will continue to manage its operating expenses relative to expected revenue growth, and will undertake additional cost-cutting actions if necessary to enable it to continue to profitably grow market share.

The Company continues to invest in research, development and engineering activities to develop and introduce new products and to support its continued goal of improving and developing efficient procurement, manufacturing and distribution processes. As a result, research, development and engineering expenses have increased each year in absolute dollars due to increased staffing levels and product development costs, although, as a percent of revenue, these costs have remained level. The Company expects to continue to increase its absolute dollar amount of research, development and engineering spending with an increasing emphasis on enterprise products, including servers and storage. During fiscal 2000, as a result of the acquisition of ConvergeNet Technologies, Inc., purchased in-process research and development in the amount of $194 million was expensed.

The Company’s effective tax rate was 30% for fiscal year 2001 compared to 32% for fiscal year 2000 and 30% for fiscal year 1999. The differences in the effective tax rates among fiscal years result from changes in the geographical distribution of taxable income and losses and certain non tax-deductible charges. The Company’s effective tax rate is lower than the U.S. federal statutory rate of 35%, principally because of the Company’s geographical distribution of taxable income.

Investment and other income, net increased in absolute dollar amounts during fiscal 2001 as compared to the fiscal 2000. The increase is due primarily to gains on the sale of investments and higher interest income. See below for further discussion.

The following table presents selected financial statistics and information for each of the past three fiscal years:

During fiscal year 2001, 2000, and 1999, the Company generated $4.2 billion, $3.9 billion, and $2.4 billion, respectively, 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 that resulted from the exercise of employee stock options.

The Company ended fiscal year 2001 with $7.9 billion in cash and investments, $1 billion greater than the prior year level. The Company invests a portion of its available cash in highly liquid investments of varying maturities at date of acquisition, the inherent objective of which is primarily to minimize principal risk and maintain liquidity. As of February 2, 2001, and January 28, 2000, the Company had $6.3 billion and $4.7 billion, respectively, invested in these investments. Additionally, the Company invests in equity securities of various private and public entities in order to enhance and extend the Company’s strategic initiatives. At February 2, 2001 and January 28, 2000, these equity investments totaled $938 million and $1.5 billion, respectively, and of those amounts approximately $112 million and $856 million, respectively, represented unrealized net appreciation. See “Item 1 — Business — Factors Affecting the Company’s Business and Prospects — Equity Investments.”

During fiscal year 2001, the Company continued to improve upon its efficient asset management. As compared to fiscal year 2000, days of supply in inventory and days of sales in accounts receivable decreased in fiscal year 2001 by one and two days, respectively. This resulted in an improvement in the Company’s cash conversion cycle to a negative 21 days in fiscal year 2001 from a negative 18 days in fiscal year 2000. As a result, the Company’s return on invested capital, a key indicator of efficient asset management, increased to 355% (excluding the cumulative effect of SAB 101 and the special charge related to termination benefits and facilities closure costs) in fiscal year 2001 from 243% (excluding a special charge for purchased in-process research and development) in fiscal year 2000.

The Company has a share repurchase program that it uses primarily to manage the dilution resulting from shares issued under the Company’s employee stock plans. As of the end of the fiscal year 2001, the Company had cumulatively repurchased 871 million shares over a four year period out of its authorized 1 billion share repurchase program, for an aggregate cost of $6.8 billion. During fiscal year 2001, the Company repurchased 65 million shares of common stock for an aggregate cost of $2.7 billion. The Company utilizes equity instrument contracts to facilitate its repurchase of common stock. At February 2, 2001 and January 28, 2000, the Company held equity options and forwards that allow for the purchase of 88 million and 50 million shares of common stock, respectively, at an average price of $50 and $45 per share, respectively. At February 2, 2001 and January 28, 2000, the Company also had outstanding put obligations covering 111 million and 69 million shares, respectively, with an average exercise price of $44 and $39 per share, respectively. The equity instruments are exercisable only at the date of expiration and expire at various dates through the first quarter of fiscal 2004. The outstanding put obligations at February 2, 2001 permitted net share settlement at the Company’s option and, therefore, did not result in a put obligation liability on the accompanying Consolidated Statement of Financial Position. For additional information regarding the Company’s stock repurchase program, see Note 5 of Notes to Consolidated Financial Statements included in “Item 8 — Financial Statements and Supplementary Data” below.

The Company utilized $482 million in cash during fiscal year 2001 to improve and equip its manufacturing and office facilities as the Company continues to grow. Cash flows for similar capital expenditures for fiscal year 2002 are currently expected to be in the range of $300 to $350 million.

The Company maintains master lease facilities providing the capacity to fund up to $1.2 billion. The combined facilities provide for the ability of the Company to lease certain real property, buildings and equipment to be constructed or acquired. At February 2, 2001, $506 million of the combined facilities had been utilized.

In April 1998, the Company issued $200 million in Senior Notes due April 15, 2008 and $300 million in Senior Debentures due April 15, 2020. For additional information regarding these issuances, see Note 3 of Notes to Consolidated Financial Statements included in “Item 8 — Financial Statements and Supplementary Data.”

The Company maintains a $250 million revolving credit facility, which expires in June 2002. At February 2, 2001 this facility was unused.

Management believes that the Company’s cash provided from operations will continue to be sufficient to support its operations and capital requirements. The Company anticipates that it will continue to utilize its strong liquidity and cash flows to repurchase its common stock, make strategic equity investments and invest in systems and processes, as well as invest in the development and growth of its enterprise products.

The Company is exposed to a variety of risks, including foreign currency exchange rate fluctuations and changes in the market value of its investments. In the normal course of business, the Company employs established policies and procedures to manage these risks.

The Company’s objective in managing its exposure to foreign currency exchange rate fluctuations is to reduce the impact of adverse fluctuations on earnings and cash flows associated with foreign currency exchange rate changes. Accordingly, the Company utilizes foreign currency option contracts and forward contracts to hedge its exposure on anticipated transactions and firm commitments in most of the foreign countries in which the Company operates. The principal currencies hedged during fiscal year 2001 were the British pound, Japanese yen, Euro and Canadian dollar. The Company monitors its foreign currency exchange exposures daily to ensure the overall effectiveness of its foreign currency hedge positions. However, there can be no assurance the Company’s foreign currency hedging activities will substantially offset the impact of fluctuations in currency exchange rates on its results of operations and financial position.

Based on the Company’s foreign currency exchange instruments outstanding at February 2, 2001, the Company estimates a maximum potential one-day loss in fair value of approximately $21.4 million, using a Value-at-Risk (“VAR”) model. The VAR model estimates were made assuming normal market conditions and a 95% confidence level. The Company used a Monte Carlo simulation type model that valued its foreign currency instruments against a thousand randomly generated market price paths. Anticipated transactions, firm commitments, receivables and accounts payable denominated in foreign currencies were excluded from the model. The VAR model is a risk estimation tool, and as such, is not intended to represent actual losses in fair value that will be incurred by the Company. Additionally, as the Company utilizes foreign currency instruments for hedging anticipated and firmly committed transactions, a loss in fair value for those instruments is generally offset by increases in the value of the underlying exposure. Foreign currency fluctuations did not have a material impact on the Company’s results of operations and financial position during fiscal years 2001, 2000 and 1999.

The fair value of the Company’s cash equivalents and short- and long-term investments at February 2, 2001, was approximately $6 billion (excluding equity securities). The Company’s investment policy is to manage its investment portfolio to preserve principal and liquidity while maximizing the return on the investment portfolio through the full investment of available funds. The Company diversifies the investment portfolio by investing in multiple types of investment-grade securities and through the use of different investment brokers. The Company’s investment portfolio is partially invested in short-term securities with at least an investment-grade rating to minimize

interest rate and credit risk as well as to provide for an immediate source of funds. Based on the Company’s investment portfolio and interest rates at February 2, 2001, a 100 basis point increase or decrease in interest rates would result in a decrease or increase of $56 million, respectively, in the fair value of the investment portfolio. Changes in interest rates may affect the fair value of the investment portfolio; however, the Company will not recognize such gains or losses unless the investments are sold.

The Company also invests in equity securities of companies in order to enhance and extend the Company’s direct business model and core business initiatives. The Company has an active venture capital program, through which the Company makes strategic equity investments in privately and publicly held technology companies. Because these companies are typically early-stage companies with products or services that are not yet fully developed or that have not yet achieved market acceptance, these investments are inherently risky. See “Item 1 — Business — Factors Affecting the Company’s Business and Prospects — Equity Investments.”

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 the Company’s products and services; the level and intensity of competition in the technology industry and the pricing pressures that have resulted; the ability of the Company to timely and effectively manage periodic product transitions, as well as component availability and cost; 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; the Company’s ability to recover its investments in venture capital activities; and the Company’s ability to effectively manage its operating costs. 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.”

Effective February 3, 2001, the Company adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, which establishes accounting and reporting standards for derivative instruments and hedging activities. SFAS No. 133 requires that an entity recognize all derivatives as either assets or liabilities in the Consolidated Statement of Financial Position and measure those instruments at fair value. The adoption of this statement will not have a material effect on the Company’s financial condition or results of operations. However, its application may increase the volatility of investment and other income, net in the Consolidated Statement of Income and other comprehensive income in the Consolidated Statement of Stockholders’ Equity.

Response to this item is included in “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Market Risk.”

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Dell Computer Corporation and its subsidiaries at February 2, 2001 and January 28, 2000, and the results of their operations and their cash flows for each of the three fiscal years in the period ended February 2, 2001, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 1 to the consolidated financial statements, in fiscal year 2001 the Company changed its revenue recognition for certain product shipments.

The accompanying notes are an integral part of these consolidated financial statements.

NOTE 1 — Description of Business and Summary of Significant Accounting Policies

Description of Business — Dell Computer Corporation, a Delaware corporation, and its consolidated subsidiaries (collectively referred to as the “Company”) designs, develops, manufactures, markets, services and supports a wide range of computer systems, including desktop computer systems, notebook computers and enterprise systems (includes servers, workstations and storage products), and also markets software, peripherals and service and support programs. The Company is managed on a geographic basis. The three geographic segments are the Americas, Europe, and Asia-Pacific and Japan. The Company markets and sells its computer products and services under the Dell™ brand name directly to its various customer groups. These customer groups include large corporate, government, healthcare and education accounts, as well as small-to-medium businesses and individuals.

Fiscal Year — The Company’s fiscal year is the 52- or 53-week period ending on the Friday nearest January 31.

Principles of Consolidation — The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles and include the accounts of the Company and its consolidated subsidiaries. All significant intercompany transactions and balances have been eliminated.

Use of Estimates — The preparation of financial statements in accordance with generally accepted accounting principles requires the use of management’s estimates. These estimates are subjective in nature and involve judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at fiscal year end and the reported amounts of revenues and expenses during the fiscal year. Actual results could differ from those estimates.

Cash and Cash Equivalents — All highly liquid investments with original maturities of three months or less at date of purchase are carried at cost plus accrued interest, which approximates fair value, and are considered to be cash equivalents. All other investments not considered to be a cash equivalent are separately categorized as investments.

Investments — The Company’s debt securities and publicly traded equity securities are classified as available-for-sale and are reported at fair market value using the specific identification method. All other investments are recorded at cost. Unrealized gains and losses are reported, net of taxes, as a component of stockholders’ equity. Unrealized losses are charged against income when a decline in the fair market value of an individual security is determined to be other-than-temporary. Realized gains and losses on investments are included in investment and other income, net when realized.

Inventories — Inventories are stated at the lower of cost or market with cost being determined on a first-in, first-out basis.

Property, Plant and Equipment — Property, plant and equipment are carried at depreciated cost. Depreciation is provided using the straight-line method over the estimated economic lives of the assets, which range from 10 to 30 years for buildings and two to five years for all other assets. Leasehold improvements are amortized over the shorter of five years or the lease term. Gains or losses related to retirements or disposition of fixed assets are recognized in the period incurred. The Company performs reviews for the impairment of fixed assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company capitalizes eligible internal-use software development costs incurred subsequent to the completion of the preliminary project stage. Development costs are amortized over the shorter of the expected useful life of the software or five years.

Goodwill and Other Intangibles — Amortization of goodwill and other intangibles is charged to income on a straight-line basis over the periods estimated to benefit, ranging from three to eight years. Goodwill and other intangibles are reviewed for impairment on an undiscounted basis whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable.

Foreign Currency Translation — The majority of the Company’s international sales are made by international subsidiaries, which have the U.S. dollar as their functional currency. Local currency transactions of international subsidiaries, which have the U.S. dollar as the functional currency are remeasured into U.S. dollars using current rates of exchange for monetary assets and liabilities and historical rates of exchange for nonmonetary assets. Gains and losses from remeasurement are included in investment and other income, net. The Company’s subsidiaries that do not have the U.S. dollar as their functional currency translate assets and liabilities at current rates of exchange in effect at the balance sheet date. The resulting gains and losses from translation are included as a component of stockholders’ equity. Revenue and expenses from the Company’s international subsidiaries are translated using the monthly average exchange rates in effect for the period in which the items occur.

Foreign Currency Hedging Instruments — The Company enters into foreign currency exchange contracts to hedge its foreign currency risks. These contracts are designated at inception as a hedge and measured for effectiveness both at inception and on an ongoing basis. Realized and unrealized gains or losses and premiums paid on foreign currency purchased option contracts that are designated and effective as hedges of probable anticipated, but not firmly committed, foreign currency transactions are deferred and recognized in income as a component of net revenue, cost of revenue and/or operating expenses in the same period as the hedged transaction. Forward contracts designated as hedges of probable anticipated or firmly committed transactions are accounted for on a mark-to-market basis, with realized and unrealized gains or losses recognized in the accompanying Consolidated Statement of Income.

Equity Instruments Indexed to the Company’s Common Stock — Proceeds received from the sale of equity instruments and amounts paid to purchase equity instruments are recorded as a component of stockholders’ equity. Subsequent changes in the fair value of the equity instrument contracts are not recognized. If the contracts are ultimately settled in cash, the amount of cash paid or received is recorded as a component of stockholders’ equity.

Revenue Recognition — Product revenue is recognized when both title and risk of loss transfers to the customer, provided that no significant obligations remain. Provision is made for an estimate of product returns and doubtful accounts, based on historical experience. Revenue from separately priced extended warranty and service programs is deferred and recognized over the respective service or extended warranty period when the Company is the obligor. Revenue from sales involving multiple elements is allocated to each element based on their respective fair values and recorded as revenue as each element is delivered.

Effective January 29, 2000, the Company changed its accounting for revenue recognition in accordance with Securities and Exchange Commission’s Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (“SAB 101”). Previously, the Company had recognized revenue at the date of shipment. Under the new accounting method adopted retroactive to January 29, 2000, the Company now recognizes product revenue when both title and risk of loss transfers to the customer, provided that no significant obligations remain. The cumulative effect of the change on prior years’ retained earnings resulted in a charge to fiscal 2001 income of $59 million (net of income taxes of $25 million). Had SAB 101 been effective for all prior fiscal years presented, the pro forma results and earnings per share would not have been materially different from the previously reported results.

Warranty — The Company provides for the estimated costs that may be incurred under its basic limited warranty.

Advertising Costs — Advertising costs are charged to expense as incurred. Advertising expenses for fiscal years 2001, 2000, and 1999 were $431 million, $325 million, and $199 million, respectively.

Stock-Based Compensation — The Company applies the intrinsic value method in accounting for its stock option and stock purchase plans. Accordingly, no compensation expense has been recognized for options granted with an exercise price equal to market value at the date of grant or in connection with the employee stock purchase plan.

Income Taxes — Deferred tax assets and liabilities are recorded based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

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 for each of the past three fiscal years:

Comprehensive Income — The Company’s comprehensive income is comprised of net income, foreign currency translation adjustments and unrealized gains and losses on investments classified as available-for-sale.

Recently Issued Accounting Pronouncements — Effective February 3, 2001, the Company adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, which establishes accounting and reporting standards for derivative instruments and hedging activities. SFAS No. 133 requires that an entity recognize all derivatives as either assets or liabilities in the Consolidated Statement of Financial Position and measure those instruments at fair value. The adoption of this statement will not have a material effect on the Company’s financial condition or results of operations. However, its application may increase the volatility of investment and other income, net in the Consolidated Statement of Income and other comprehensive income in the Consolidated Statement of Stockholders’ Equity.

Reclassifications — Certain prior year amounts have been reclassified to conform to the fiscal year 2001 presentation.

During the fourth quarter of fiscal 2001, the Company undertook a program to reduce its workforce and to exit certain facilities during fiscal year 2002. Total charges recorded were $105 million, which are expected to be fully paid by the end of fiscal 2002. The charges consisted of approximately $50 million in employee termination benefits with the remainder relating to facilities closure costs. The employee separations, which occurred primarily in the United States, affected 1,700 employees across a majority of the Company’s business functions and job classes.

On October 20, 1999, the Company acquired all the outstanding shares of ConvergeNet Technologies, Inc. (“ConvergeNet”), developer of storage domain management technology, in exchange for 6.9 million shares of the Company’s common stock and $4.5 million cash for total purchase consideration of $332 million, as valued on that date. The ConvergeNet acquisition was recorded under the purchase method of accounting. Accordingly, the purchase price was allocated to the net assets acquired based on their estimated fair values. The amount allocated to purchased in-process research and development of $194 million was determined based on an appraisal completed by an independent third party using established valuation techniques in the storage management industry and expensed upon acquisition because technological feasibility had not been established and no future alternative uses existed. The excess of cost over net assets acquired was recorded as goodwill and included in other assets.

The fair value of investments, long-term debt and related interest rate derivative instruments has been estimated based upon market quotes from brokers. The fair value of foreign currency forward contracts has been estimated using market quoted rates of foreign currencies at the applicable balance sheet date. The estimated fair value of foreign currency purchased option contracts is based on market quoted rates at the applicable balance sheet date and the Black-Scholes options pricing model. Considerable judgment is necessary in interpreting market data to develop estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. Changes in assumptions could significantly affect the estimates.

Cash and cash equivalents, accounts receivable, accounts payable and accrued and other liabilities are reflected in the accompanying consolidated financial statements at cost, which approximates fair value because of the short-term maturity of these instruments.

The following table summarizes by major security type the fair market value and cost of the Company’s investments.

At February 2, 2001, debt securities with a carrying amount of $524 million mature within one year; the remaining debt securities mature within five years. The Company’s gross recognized gains and losses on investments, including impairments of certain investments, for fiscal year 2001 were $473 million and $166 million, respectively. The Company’s gross recognized gains and losses on the sale of investments for fiscal year 2000 were $81 million and $1 million, respectively. The Company’s gross recognized gains and losses on the sale of investments for fiscal year 1999 were not material. Gross unrealized gains and losses at February 2, 2001 were $262 million and $127 million, respectively. Gross unrealized gains and losses at January 28, 2000 were $879 million, and $13 million, respectively.

The Company uses foreign currency purchased option contracts to reduce its exposure to currency fluctuations involving probable anticipated, but not firmly committed, transactions. It also uses forward contracts to reduce exposure to transactions with firm foreign currency commitments. These transactions include international sales by U.S. dollar functional currency entities, foreign currency denominated purchases of certain components and intercompany shipments to certain international subsidiaries. The risk of loss associated with purchased options is limited to premium amounts paid for the option contracts. Foreign currency purchased options generally expire in 12 months or less. At February 2, 2001, the Company held purchased option contracts with a notional amount of $2 billion, a net asset value of $67 million and a combined net realized and unrealized deferred loss of $4 million. At January 28, 2000, the Company held purchased option contracts with a notional amount of $2 billion, a net asset value of $75 million and a combined net realized and unrealized deferred gain of $5 million. The risk of loss associated with forward contracts is equal to the exchange rate differential from the time the contract is entered into until the time it is settled. Transactions with firm foreign currency commitments are generally hedged using foreign currency forward contracts for periods not exceeding three months. At February 2, 2001, the Company held forward contracts with a notional amount of $888 million, a net liability value of $49 million and a net realized and unrealized deferred loss of $1 million. At January 28, 2000, the Company held forward contracts with a notional amount of $818 million, a net asset value of $17 million and a net realized and unrealized deferred gain of $1 million.

In April 1998, the Company issued $200 million 6.55% fixed rate senior notes due April 15, 2008 (the “Senior Notes”) and $300 million 7.10% fixed rate senior debentures due April 15, 2028 (the “Senior Debentures”). Interest on the Senior Notes and Senior Debentures is paid semi-annually, on April 15 and October 15. The Senior Notes and Senior Debentures rank pari passu and are redeemable, in whole or in part, at the election of the Company for principal, any accrued interest and a redemption premium based on the present value of interest to be paid over the term of the debt agreements. The Senior Notes and Senior Debentures generally contain no restrictive covenants, other than a limitation on liens on the Company’s assets and a limitation on sale-leaseback transactions.

Concurrent with the issuance of the Senior Notes and Senior Debentures, the Company entered into interest rate swap agreements converting the Company’s interest rate exposure from a fixed rate to a floating rate basis to better align the associated interest rate characteristics to its cash and investments portfolio. The interest rate swap agreements have an aggregate notional amount of $200 million maturing April 15, 2008 and $300 million maturing April 15, 2028. The floating rates are based on three-month London interbank offered rates (“LIBOR”) plus 0.41% and 0.79% for the Senior Notes and Senior Debentures, respectively. As a result of the interest rate swap agreements, the Company’s effective interest rates for the Senior Notes and Senior Debentures were 7.20% and 7.54%, respectively, for fiscal year 2001.

The Company has designated the issuance of the Senior Notes and Senior Debentures and the related interest rate swap agreements as an integrated transaction. Accordingly, the differential to be paid or received on the interest rate swap agreements is accrued and recognized as an adjustment to interest expense as interest rates change.

The difference between the Company’s carrying amounts and fair value of its long-term debt and related interest rate swaps was not material at February 2, 2001 and January 28, 2000.

The Company maintains a $250 million revolving credit facility, which expires in June 2002. Commitment fees for this facility are payable quarterly and are based on specific liquidity requirements. Commitment fees paid in fiscal years 2001, 2000 and 1999 were not material. At February 2, 2001 and January 28, 2000 this facility was unused.

Income before income taxes and cumulative effect of change in accounting principle included approximately $491 million, $449 million, and $529 million related to foreign operations in fiscal years 2001, 2000, and 1999, respectively.

The Company has not recorded a deferred income tax liability of approximately $492 million for additional taxes that would result from the distribution of certain earnings of its foreign subsidiaries if they were repatriated. The Company currently intends to reinvest indefinitely these undistributed earnings of its foreign subsidiaries.

Tax loss carryforwards will generally expire in 2020. Credit carryforwards will generally expire between 2002 and 2022.

The effective tax rate differed from statutory U.S. federal income tax rate as follows:

Authorized Shares — The Company has the authority to issue five million shares of preferred stock, par value $.01 per share. At February 2, 2001 and January 28, 2000 no shares of preferred stock were issued or outstanding.

Series A Junior Participating Preferred Stock — In conjunction with the distribution of Preferred Share Purchase Rights (see below), the Company’s Board of Directors designated 200,000 shares of preferred stock as Series A Junior Participating Preferred Stock (“Junior Preferred Stock”) and reserved such shares for issuance upon exercise of the Preferred Share Purchase Rights. At February 2, 2001 and January 28, 2000, no shares of Junior Preferred Stock were issued or outstanding.

Authorized Shares — As of February 2, 2001, the Company is authorized to issue seven billion shares of common stock.

Stock Repurchase Program — The Board of Directors has authorized the Company to repurchase up to one billion shares of its common stock in open market or private transactions. During fiscal years 2001 and 2000, the Company repurchased 65 million and 56 million shares of its common stock, respectively, for an aggregate cost of $2.7 billion and $1.1 billion, respectively. As of February 2, 2001, the Company was authorized to repurchase up to 40 million additional shares of its outstanding common stock. The Company utilizes equity instrument contracts to facilitate its repurchase of common stock. At February 2, 2001 and January 28, 2000, the Company held equity options and forwards that allow for the purchase of 88 million and 50 million shares of common stock, respectively, at an average price of $50 and $45 per share, respectively. At February 2, 2001 and January 28, 2000, the Company also had outstanding put obligations covering 111 million and 69 million shares, respectively, with an average exercise price of $44 and $39 per share, respectively. The equity instruments are exercisable only at date of expiration and expire at various dates through the first quarter of fiscal 2004. The outstanding put obligations at February 2, 2001 permitted net share settlement at the Company’s option and, therefore, did not result in a put obligation liability on the accompanying Consolidated Statement of Financial Position.

If a person or group acquires 15% or more of the outstanding common stock, each Right will entitle the holder (other than such person or any member of such group) to purchase, at the Right’s then current exercise price, the number of shares of common stock having a market value of twice the exercise price of the Right. If exercisable, the Rights contain provisions relating to merger or other business combinations.

In certain circumstances, the Board of Directors may, at its option, exchange part or all of the Rights (other than Rights held by the acquiring person or group) for shares of common stock at an exchange rate of one share of common stock for each Right.

The Company will be entitled to redeem the Rights at $.001 per Right at any time before a 15% or greater position has been acquired by any person or group. Additionally, the Company may lower the 15% threshold to not less than the greater of (a) any percentage greater than the largest percentage of common stock known by the Company to be owned by any person (other than Michael S. Dell) or (b) 10%. The Rights expire on November 29, 2005.

Neither the ownership nor the further acquisition of common stock by Michael S. Dell will cause the Rights to become exercisable or nonredeemable or will trigger the other features of the Rights.

At February 2, 2001, the Company has no Preferred Share Purchase Rights (“Rights”) outstanding. Each Right entitles the holder to purchase one thirty-two thousandth of a share of Junior Preferred Stock at an exercise price of $225 per one-thousandth of a share.

Incentive and Stock Option Plans — The Dell Computer Corporation Incentive Plan (the “Incentive Plan”), which is administered by the Compensation Committee of the Board of Directors, provides for the granting of stock-based incentive awards to directors, executive officers and key employees of the Company and its subsidiaries, and certain other persons who provide consulting or advisory services to the Company.

Options granted may be either incentive stock options within the meaning of Section 422 of the Internal Revenue Code or nonqualified options. The right to purchase shares under the existing stock option agreements typically vest pro-rata at each option anniversary date over a five-year

period. Stock options must be exercised within 10 years from date of grant. Stock options are generally issued at fair market value. Under the Incentive Plan, each nonemployee director of the Company is eligible for stock options and restricted stock awards annually, with the number of options or shares awarded being within the discretion of the Compensation Committee of the Board of Directors (subject to certain specified limits).

In addition, the Dell Computer Corporation 1998 Broad-Based Stock Option Plan (the “Broad-Based Plan”) provides for the award of nonqualified stock options to non-executive employees of the Company. Collectively, the Incentive Plan and the Broad-Based Plan are referred to as the “Option Plans.”

Exercisable stock options amounted to 100 million at a weighted average price of $8.78, 112 million at a weighted average price of $3.96, and 103 million at a weighted average price of $2.27 at February 2, 2001, January 28, 2000, and January 29, 1999, respectively.

The following is additional information relating to options for the Option Plans outstanding as of February 2, 2001:

There were 254 million, 264 million, and 162 million options to purchase the Company’s common stock available for future grants under the Option Plans at February 2, 2001, January 28, 2000, and January 29, 1999, respectively.

Employee Stock Purchase Plan — The Company also has an employee stock purchase plan that qualifies under Section 423 of the Internal Revenue Code and permits substantially all employees to purchase shares of common stock. Participating employees may purchase common stock through payroll deductions at the end of each participation period at a purchase price equal to 85% of the lower of the fair market value of the common stock at the beginning or the end of the participation period. Common stock reserved for future employee purchases under the plan aggregated 39 million shares at February 2, 2001, 44 million shares at January 28, 2000, and 47 million shares at January 29, 1999. Common stock issued under this plan totaled four million shares in fiscal year 2001, three million shares in fiscal year 2000, and five million shares in fiscal year 1999.

Restricted Stock Grants — During fiscal years 2001, 2000, and 1999, the Company granted 1.7 million shares, 1.4 million shares, and 1 million shares, respectively, of restricted stock. For substantially all restricted stock grants, at the date of grant, the recipient has all rights of a stockholder, subject to certain restrictions on transferability and a risk of forfeiture. Restricted shares typically vest over a seven-year period beginning on the date of grant. The Company records unearned compensation equal to the market value of the restricted shares on the date of grant and charges the unearned compensation to expense over the vesting period.

Fair Value Disclosures — The weighted average fair value of stock options at date of grant was $20.98, $22.64, and $11.77 per option for options granted during fiscal years 2001, 2000, and 1999, respectively. Additionally, the weighted average fair value of the purchase rights under the employee stock purchase plan granted in fiscal years 2001, 2000, and 1999 was $13.95, $11.12, and $2.51 per right, respectively. The weighted average fair value of options and purchase rights under the employee stock purchase plan was determined based on the Black-Scholes model, utilizing the following assumptions:

Had the Company accounted for its Option Plans and employee stock purchase plan by recording compensation expense based on the fair value at the grant date on a straight-line basis over the vesting period, stock-based compensation costs would have reduced pretax income by $620 million ($434 million, net of taxes), $329 million ($224 million, net of taxes), and $194 million ($136 million, net of taxes) in fiscal years 2001, 2000, and 1999, respectively. The pro forma effect on basic earnings per common share would have been a reduction of $0.17, $0.09, and $0.05 for fiscal years 2001, 2000, and 1999, respectively. The pro forma effect on diluted earnings per common share would have been a reduction of $0.16, $0.08, and $0.05 for fiscal years 2001, 2000, and 1999, respectively.

401(k) Plan — The Company has a defined contribution retirement plan that complies with Section 401(k) of the Internal Revenue Code. Substantially all employees in the U.S. are eligible to participate in the plan. The Company matches 100% of each participant’s voluntary contributions, subject to a maximum Company contribution of 3% of the participant’s compensation. The Company’s contributions during fiscal years 2001, 2000, and 1999 were $36 million, $44 million, and $21 million, respectively.

Lease Commitments — The Company maintains master lease facilities providing the capacity to fund up to $1.2 billion. The combined facilities provide for the ability of the Company to lease certain real property, buildings and equipment (collectively referred to as the “Properties”) to be constructed or acquired. Rent obligations for the Properties commence on various dates. At February 2, 2001, $506 million of the combined facilities had been utilized.

The leases have initial terms of five and seven years. Those with an initial term of five years contain an option to renew for two successive years, subject to certain conditions. The Company may, at its option, purchase the Properties during or at the end of the lease term for 100% of the then outstanding amounts expended by the lessor to complete the Properties. If the Company does not exercise the purchase option, the Company will guarantee a residual value of the Properties as determined by the agreement (approximately $430 and $310 million at February 2, 2001 and January 28, 2000, respectively).

The Company leases other property and equipment, manufacturing facilities and office space under non-cancelable leases. Certain leases obligate the Company to pay taxes, maintenance and repair costs.

Future minimum lease payments under all non-cancelable leases as of February 2, 2001 are as follows: $37 million in fiscal 2002; $30 million in fiscal 2003; $26 million in fiscal 2004; $182 million in fiscal 2005; $279 million in fiscal 2006; and $31 million thereafter. Rent expense under all leases totaled $95 million, $81 million and $58 million for fiscal years 2001, 2000, and 1999, respectively.

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.

Certain Concentrations — All of the Company’s foreign currency exchange and interest rate derivative instruments involve elements of market and credit risk in excess of the amounts recognized in the consolidated financial statements. The counterparties to the financial instruments consist of a number of major financial institutions. In addition to limiting the amount of agreements and contracts it enters into with any one party, the Company monitors its positions with and the credit quality of the counterparties to these financial instruments. The Company does not anticipate nonperformance by any of the counterparties.

The Company’s investments in debt securities are placed with high quality financial institutions and companies. The Company’s investments in debt securities primarily have maturities of less than three years. Management believes that no significant concentration of credit risk for investments exists for the Company.

The Company markets and sells its products and services to large corporate, government, healthcare and education customers, small-to-medium businesses and individuals. Its receivables from such parties are well diversified.

The Company purchases a number of components from single sources. In some cases, alternative sources of supply are not available. In other cases, the Company may establish a working relationship with a single source, even when multiple suppliers are available, if the Company believes it is advantageous to do so due to performance, quality, support, delivery, capacity or price considerations. If the supply of a critical single-source material or component were delayed or curtailed, the Company’s ability to ship the related product in desired quantities and in a timely manner could be adversely affected. Even where alternative sources of supply are available, qualification of the alternative suppliers and establishment of reliable supplies could result in delays and a possible loss of sales, which could affect operating results adversely.

During fiscal year 1998, the Company and Newcourt Credit Group Inc. (“Newcourt”), formed a joint venture, Dell Financial Services L.P. (“DFS”), to provide leasing and asset management services to the Company’s customers. Subsequently, in fiscal 2000, Newcourt was acquired by The CIT Group, Inc. The Company has a 70% equity interest in DFS; however, as the Company cannot and does not exercise control over DFS, it accounts for the investment under the equity method. During fiscal year 2001, DFS originated financing arrangements for the Company’s customers totaling $2.5 billion as compared to originations of $1.8 billion in fiscal year 2000. The Company’s investment in DFS at February 2, 2001 and January 28, 2000, was not material to the Company’s consolidated financial position or results of operations.

The Company conducts operations worldwide and is managed on a geographic basis, with those geographic segments being the Americas, Europe, and Asia-Pacific and Japan regions. The Americas segment, which is based in Round Rock, Texas, covers the United States, Canada, South America, and Latin America. The European segment, which is based in Bracknell, England, covers the European countries and also some countries in the Middle East and Africa. The Asia-Pacific and Japan segment covers the Pacific Rim, including Japan, Australia and New Zealand, and is based in Singapore. The Company’s operations are primarily concentrated in the North America, 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. 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:

The following is net revenue and long-lived asset information by geographic region:

The allocation between domestic and foreign net revenue is based on the location of the customers. Net revenue and long-lived assets from no single foreign country was material to the Company’s consolidated net revenues and long-lived assets for fiscal years 2001, 2000, and 1999.

Net revenue by product group includes worldwide service revenue. No single customer accounted for more than 10% of the Company’s consolidated net revenue during fiscal years 2001, 2000, and 1999.

The following tables contain selected unaudited Consolidated Statement of Income and stock sales price data for each quarter of fiscal years 2001 and 2000.

The information called for by Part III of Form 10-K (consisting of Item 10 — Directors and Executive Officers of the Registrant, Item 11 — Executive Compensation, Item 12 — Security Ownership of Certain Beneficial Owners and Management and Item 13 — Certain Relationships and Related Transactions), to the extent not set forth herein under “Item 1 — Business — Executive Officers of the Company,” is incorporated by reference from the Company’s definitive proxy statement, which will be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this Report relates.

The following financial statements are filed as a part of this Report under “Item 8 — Financial Statements and Supplementary Data”:

The following financial statement schedule is filed as a part of this Report under Schedule II on page 51: Schedule II — Valuation and Qualifying Accounts for the three fiscal years ended February 2, 2001. All other schedules called for by Form 10-K are omitted because they are inapplicable or the required information is shown in the financial statements, or notes thereto, included herein.

The following exhibits are filed as a part of this Report, with each exhibit that consists of or includes a management contract or compensatory plan or arrangement being identified with an “*”:


	*	Identifies Exhibit that consists of or includes a management contract or compensatory plan or arrangement.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.


DELL COMPUTER CORPORATION

By:	/s/ MICHAEL S. DELL

	Michael S. Dell
	Chairman of the Board and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.


	*	Identifies Exhibit that consists of or includes a management contract or compensatory plan or arrangement.

† Filed herewith. EX-10.4 2 d86544ex10-4.txt EX-10.4 - DEFERRED COMPENSATION PLAN 1 EXHIBIT 10.4 DELL COMPUTER CORPORATION DEFERRED COMPENSATION PLAN AMENDED AND RESTATED EFFECTIVE AS OF JANUARY 1, 2001 2 Table of Contents

i 3 Table of Contents (continued)

ii 4 Table of Contents (continued)

iii 5 DELL COMPUTER CORPORATION DEFERRED COMPENSATION PLAN Dell Computer Corporation, a corporation organized and existing under the laws of the State of Delaware (the "Company"), hereby restates the Dell Computer Corporation Deferred Compensation Plan (the "Plan"), such restatement to be effective as of January 1, 2001, except as otherwise provided herein; WITNESSETH: WHEREAS, the Company wishes to promote in certain of its highly compensated employees, and those of its affiliates, the strongest interest in the successful operation of the business and increased efficiency in their work, to align the financial interests of such employees with those of Company shareholders and to provide an opportunity for accumulation of funds for their retirement; and WHEREAS, the Plan was initially adopted effective May 1, 1991, and previously has been amended and restated effective as of April 1, 1996 and January 1, 1999; and WHEREAS, it is intended that the Plan be "unfunded" for purposes of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and not be construed to provide income to any participant or beneficiary under the Internal Revenue Code of 1986, as amended (the "Code") prior to actual receipt of benefits hereunder; NOW THEREFORE, the Plan is hereby restated in its entirety as follows with no interruption in time, effective as of January 1, 2001, except as otherwise indicated herein: ARTICLE I. DEFINITIONS AND CONSTRUCTION 1.1 DEFINITIONS. Where the following words and phrases appear in the Plan, they shall have the respective meanings set forth below, unless their context clearly indicates to the contrary. (1) ACCOUNT(S): A Participant's Compensation Deferrals Account and Company Credits Account, if any. (2) AFFILIATE: Each trade or business (whether or not incorporated), which together with Dell Computer Corporation would be deemed to be a "single employer" within the meaning of Code Section 414(b), (c), (m), or (o). (3) BASE SALARY: A Participant's gross base salary payable in the ordinary course of business under the Company's payroll system and not any periodic bonuses. -1- 6 (4) BASE SALARY DEFERRALS: Base Salary deferred by a Participant pursuant to Section 3.1. (5) BONUS: The Annual Incentive Compensation Bonus, if any, paid in cash by the Company to or for the benefit of a Participant for services rendered or labor performed while a Participant. For purposes of this Plan, the term Bonus expressly excludes any bonuses received under any other compensation or bonus plan sponsored by the Company. (6) BONUS DEFERRALS: Bonus deferred by a Participant pursuant to Section 3.1. (7) BONUS YEAR: The period ending on the last day of each fiscal year; provided, however, that the Bonus Year may be changed by the Committee to reflect the twelve month period used by the Company under the Annual Incentive Compensation Bonus program for each group of Eligible Employees hereunder, if any. (8) CHANGE OF CONTROL: The earliest to occur of any of the following: (a) The acquisition by any person of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934 ("Exchange Act")) of 20% or more of either (i) the then outstanding shares of stock or (ii) the combined voting power of the then outstanding voting securities of Dell Computer Corporation; provided, however, that for purposes of this Paragraph (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from Dell Computer Corporation, (ii) any acquisition by Dell Computer Corporation, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by Dell Computer Corporation or any corporation controlled by Dell Computer Corporation, (iv) any acquisition by Mr. Michael S. Dell, his "affiliates" (as defined in Rule 12b-2 promulgated under the Exchange Act) or "associates" (as defined in Rule 12b-2 promulgated under the Exchange Act), his heirs, or any trust or foundation to which he has transferred or may transfer stock (collectively, "Michael Dell"), or (v) any acquisition by any corporation pursuant to a transaction which complies with clauses (1), (2), and (3) of Paragraph (c) of this Section 1.1(6); or (b) Individuals who constitute the Incumbent Board (as later defined) cease for any reason to constitute at least a majority of the Directors; or (c) Approval by the stockholders of Dell Computer Corporation of a reorganization, merger, or consolidation, or sale or other disposition of all or substantially all of the assets of Dell Computer Corporation, or the acquisition of assets of another corporation (a "Business Combination"), unless following such Business Combination (i) all or substantially all of the persons who were the beneficial owners, respectively, of the outstanding stock and outstanding voting securities of Dell Computer Corporation immediately prior to such Business Combination beneficially own, directly -2- 7 or indirectly, immediately following such Business Combination more than 60% of the then outstanding shares of common stock and more than 60% of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns Dell Computer Corporation or all or substantially all of Dell Computer Corporation's assets either directly or through one or more subsidiaries), (ii) no person (excluding any employee benefit plan (or related trust) of Dell Computer Corporation, such corporation resulting from such Business Combination, and Michael Dell) beneficially owns, directly or indirectly, 20% or more of the then outstanding shares of common stock of the corporation resulting from such Business Combination or 20% or more of the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board (as later defined) at the time of the execution of the initial agreement, or of the action of the Directors, providing for such Business Combination; or (d) Approval by the stockholders of Dell Computer Corporation of a complete liquidation or dissolution of Dell Computer Corporation. For purposes of this Section, "Incumbent Board" shall mean the individuals who, as of the Effective Date, constitute the Directors; provided, however, that any individual becoming a Director, subsequent to such date whose election, or nomination for election by Dell Computer Corporation's stockholders, was approved by a vote of at least a majority of the Directors then comprising the Incumbent Board shall be considered a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of Directors or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Directors. (9) CODE: The Internal Revenue Code of 1986, as amended from time to time. (10) COMMITTEE: The administrative committee appointed by the Directors to administer the Plan. (11) COMPANY: Dell Computer Corporation, a corporation organized and existing under the laws of the State of Delaware, or its successor or successors (12) COMPANY CREDITS: The amount, if any, credited to a Participant's Company Credits Account pursuant to Section 3.2. (13) COMPANY CREDITS ACCOUNT: A hypothetical account for each Participant to which is credited his Company Credits pursuant to Section 3.2, and which is credited with -3- 8 (or debited for) such account's allocation of net income (or net loss) as provided in Section 4.3. (14) COMPENSATION: A Participant's Compensation shall include all the items in Section 14(a) below and exclude all the items in Section 14(b) below: (a) All of the following items shall be included: o The total of all wages, salaries, fees for professional services, and other amounts received by a Participant in cash or in kind for services actually rendered in the course of employment with the Employer while a Participant and an Employee to the extent such amounts are includable in gross income (but determined without regard to the exclusions from gross income under sections 931 and 933 of the Code); o In the case of a Participant who is an employee within the meaning of section 401(c)(1) of the Code and the Treasury regulations thereunder, the Employee's earned income (as described in section 401(c)(2) of the Code and the Treasury regulations thereunder) determined without regard to the exclusions from gross income under sections 931 and 933 of the Code; o Foreign earned income (as defined in section 911(b) of the Code) whether or not excludable from gross income; o Amounts described in sections 104(a)(3), 105(a), and 105(h) of the Code, but only to the extent these amounts are includable in the gross income of the Participant; o The value of a non-qualified stock option granted to the Participant by the Employer, but only to the extent that the value of the option is includable in the gross income of the Participant for the taxable year in which it is granted; o The amount includable in the gross income of the Participant upon making an election described in section 83(b); o Elective contributions made on a Participant's behalf by the Employer that are not includable in income under section 125, section 402(e)(3), section 402(h), section 403(b), or 457 of the Code; and o Any amounts that are not includable in the gross income of a Participant under a salary reduction agreement by reason of the application of section 132(f) of the Code. (b) All of the following items shall be excluded to the extent they would otherwise be included: -4- 9 o Reimbursements and other expense allowances; o Cash and noncash fringe benefits; o Moving expenses; o Deferred compensation under any plan or program other than as specifically included in Section 1.1(i)(1)(vii); o Welfare benefits; o Employer contributions to or payments from this or any other deferred compensation program, whether such program is qualified under section 401(a) of the Code or nonqualified; o Amounts realized from the exercise of a stock option that is not an incentive stock option within the meaning of section 422 of the Code; o Amounts realized at the time restricted stock or property is freely transferable or no longer subject to a substantial risk of forfeiture in accordance with section 83 of the Code; o Amounts realized from the sale, exchange, disqualifying disposition or other disposition of stock acquired under an incentive stock option; and o Any other amounts that receive special tax benefits under the Code, such as premiums for group life insurance (but only to the extent such premiums are not includable in the gross income of the Participant). (15) COMPENSATION DEFERRALS: Base Salary Deferrals and Bonus Deferrals. (16) COMPENSATION DEFERRALS ACCOUNT: A hypothetical account for each Participant to which is credited his Compensation Deferrals pursuant to Section 3.1, and which is credited with (or debited for) such account's allocation of net income (or net loss) as provided in Section 4.3. (17) DIRECTORS: The Board of Directors of Dell Computer Corporation. (18) DISABILITY: A physical or mental condition which, as determined in the sole discretion of the Committee, totally and presumably permanently prevents a Participant from engaging in any substantial or gainful employment; provided, however, that an individual shall be deemed to be disabled if he is determined to be disabled under the terms of the Dell Computer Corporation 401(k) Plan. (19) EFFECTIVE DATE: January 1, 2001, except as otherwise provided herein. (20) ELECTION DATE: (i) With respect to Base Salary, January 1st of each Plan Year, or such earlier date as may be designated by the Committee, and (ii) with respect to -5- 10 Bonuses, two weeks prior to the last day of the Company's third fiscal quarter, or such earlier date as may be designated by the Committee. (21) EMPLOYEE: Any individual on the payroll of an Employer (i) whose wages from the Employer are subject to withholding for purposes of Federal income taxes and for purposes of the Federal Insurance Contributions Act, (ii) who is included within a "select group of management or highly compensated employees," as such term is used in ERISA Section 401(a)(1), and (iii) who is designated by the Committee as eligible to participate in this Plan. (22) EMPLOYER OR PARTICIPATING EMPLOYER: The Company and any Affiliate of the Company to the extent that (i) an Employee of such Affiliate is a Participant hereunder and (ii) the Affiliate has adopted the Plan in accordance with the provisions of Article XI. (23) ERISA: Public Law No. 93-406, the Employee Retirement Income Security Act of 1974, as amended from time to time. (24) INVESTMENT FUND(S): The investment fund(s) designated by the Committee from time to time for the hypothetical investment of a Participant's Accounts pursuant to Article V. (25) PARTICIPANT: An Employee participating in the Plan in accordance with the provisions of Section 2.1. (26) PLAN: The Dell Computer Corporation Deferred Compensation Plan, as amended from time to time. (27) PLAN YEAR: The twelve-consecutive month period commencing January 1 of each year. (28) RETIREMENT DATE: The date upon which a Participant attains sixty-five years of age. (29) TRUST OR TRUST FUND: The fund consisting of funds, investments and properties, if any, held pursuant to the provisions of the Trust Agreement, together with all income, profit, and increments thereto. (30) TRUST AGREEMENT: The Dell Computer Corporation Deferred Compensation Trust, entered into between the Company and the Trustee pursuant to Section 10.3, as such agreement may be amended from time to time. (31) TRUSTEE: The corporation, individual or individuals appointed by the Directors to administer the Trust Fund in accordance with the terms of the Trust Agreement. (32) UNFORESEEABLE FINANCIAL EMERGENCY: An unexpected need of the Participant for cash, which (i) arises from an illness, casualty loss, sudden financial reversal, or such other unforeseeable occurrence that is caused by an event beyond the control of the Participant, (ii) would result in severe financial hardship to the Participant if his Compensation Deferral election was not canceled pursuant to Section 3.1(c) or if a -6- 11 withdrawal pursuant to Section 7.1 was not permitted, and (iii) is not reasonably satisfiable from other resources of the Participant. Cash needs arising from foreseeable events, such as the purchase of a house or education expenses for children, shall not be considered to be the result of an Unforeseeable Financial Emergency. (33) VALUATION DATES: Each day the New York Stock Exchange is open for business. (34) VESTED INTEREST: The percentage of a Participant's Accounts that, pursuant to Article VI, is vested. (35) VESTING SERVICE: With respect to each Participant, "Vesting Service" as defined and credited under the Dell Computer Corporation 401(k) Plan. 1.2 NUMBER AND GENDER. Wherever appropriate herein, words used in the singular shall be considered to include the plural, and words used in the plural shall be considered to include the singular. The masculine gender, where appearing in the Plan, shall be deemed to include the feminine gender. 1.3 HEADINGS. The headings of Articles and Sections herein are included solely for convenience, and if there is any conflict between such headings and the text of the Plan, the text shall control. ARTICLE II. PARTICIPATION 2.1 PARTICIPATION. (a) Prior to the first day of each Plan Year, the Committee, in its sole discretion, shall select and notify those Employees who are newly eligible to become Participants as of such date. Any such eligible Employee may become a Participant on such date or on the first day of any subsequent Plan Year (with respect to Base Salary deferrals) or as of the first day of any Bonus Year (with respect to Bonus deferrals) by executing and filing with the Committee, prior to the applicable Election Date, the enrollment form prescribed by the Committee. (b) Notwithstanding Subsection (a) above, if an individual is designated by the Committee as an Employee following the first day of a Plan Year (with respect to Base Salary deferrals) or prior to the Election Date for a Bonus Year (with respect to Bonus deferrals), such eligible Employee may elect to become a Participant as follows: (1) with respect to Base Salary deferrals, by filing an election with the Committee during the thirty (30)-day period commencing on the date of such selection or prior to the Election Date for any subsequent Plan Year; and (2) with respect to Bonus deferrals, by filing an election with the Committee during the thirty (30)-day period commencing on the date of such selection or prior to the Election Date for any subsequent Bonus Year, provided, -7- 12 however, that an individual designated as an Employee after the first day of the fourth fiscal quarter of the Company shall not be permitted to file an election for such Bonus Year. (c) Once an individual has been designated as an Employee and commences Plan participation, he shall remain a Participant eligible to participate in the Plan each Plan Year or Bonus Year until his participation is terminated in accordance with Section 2.2 or the Committee terminates his designation as an Employee under this Plan. 2.2 TERMINATION OF PARTICIPATION. Notwithstanding any provision herein to the contrary, an individual who has become or is entitled to become a Participant of the Plan shall cease to be or be entitled to be a Participant effective as of the earliest to occur of (1) the date the Participant is no longer employed by the Company or (2) any earlier date designated by the Committee and communicated to the affected individual prior to the effective date of such action. 2.3 REEMPLOYMENT OF A PARTICIPANT. A Participant who terminates employment with the Company and is subsequently rehired by the Company shall not be entitled to commence or continue participation in the Plan unless and until he is again eligible to become a Participant in accordance with Section 2.1. In the case of such a rehired Participant, his recommencement of Plan participation, if any, shall be considered as his initial commencement of participation for purposes of the Plan. ARTICLE III. CONTRIBUTIONS 3.1 PARTICIPANT COMPENSATION DEFERRALS. Each Participant may elect to defer a portion of his Compensation in accordance with this Section. Compensation not deferred by a Participant pursuant to this Section shall, for purposes of this Plan, be received by such Participant in cash. (a) BASE SALARY DEFERRALS. (1) Each Participant may elect to defer receipt of an integral percentage of from 1% to 50% of his Base Salary for any Plan Year under the Plan as Base Salary deferrals. Notwithstanding the preceding, the Committee may, by resolution, provide that the maximum deferral limit for certain groups of Participants shall be less than fifty percent (50%). Such election must be made in the form and within the time period required by the Committee. (2) A Participant's election to defer Base Salary for any Plan Year under the Plan must be made on or prior to the Election Date for Base Salary deferrals. (3) If an Employee becomes initially eligible under the Plan following an Election Date, he may make an election to defer Base Salary for the remaining portion of the Plan Year by filing an election within the thirty (30) day period following the date of his initial eligibility. -8- 13 (4) A Participant's election to make Base Salary deferrals shall become effective as of the Election Date coincident with or next following the date such Participant executes and files with the Committee the form described in Paragraph (1) above. Notwithstanding the foregoing, if a Participant is selected as initially eligible under the Plan following an Election Date, such Participant's election to make Base Salary deferrals shall become effective as soon as administratively feasible following the date such election is received by the Committee; provided, however, that such election shall apply no earlier than the first day of the payroll period coincident with or next such date. (5) The reduction of a Participant's Base Salary pursuant to this election shall be effected by Base Salary reductions as of each payroll period within the election period. (6) A Participant shall be deemed to have elected the same Base Salary deferral percentage pursuant to this Subsection for a Plan Year that was in effect for the immediately preceding Plan Year unless such Participant elects a new deferral percentage for the Plan Year in accordance with Paragraph (1) or cancels his Base Salary deferrals for the Plan Year in accordance with Subsection (c) below. (b) BONUS DEFERRALS. (1) Effective as of January 1, 2000, each Participant may elect to defer receipt of an integral percentage of from 1% to 100% of his Bonus for any Bonus Year under the Plan as Bonus deferrals. Such election must be made in the form and within the time period required by the Committee. Notwithstanding any provision hereof, the portion of a Participant's Bonus which is deferred pursuant to this Subsection shall be subject to withholding for applicable payroll taxes (i.e., amounts required to be withheld under Code Section 3121(v)) and such taxes shall be netted from the portion of his Bonus deferred hereunder. (2) A Participant's election to defer Bonus under the Plan must be made on or prior to the Election Date for Bonus deferrals, and such election shall be irrevocable for such Bonus Year. (3) If an Employee becomes initially eligible under the Plan following an Election Date, he may make an election to defer a designated portion of his Bonus for the entire Bonus Year by filing an election within the thirty (30)-day period following the date of his initial eligibility, and such election shall be irrevocable for such Bonus Year. Notwithstanding the preceding, an Employee who becomes initially eligible to participate in the Plan after the first day of the fourth quarter of the Company's fiscal year shall not be permitted to make a deferral election with respect to any portion of the Bonus received during such Bonus Year. -9- 14 (4) The reduction of a Participant's Bonus pursuant to this election shall be effected at the time such Bonus is paid to such Participant in one lump sum deferral. (5) A Participant's election to defer a Bonus during a Bonus Year shall not apply to a Bonus paid during any subsequent Bonus Year. (c) CANCELLATION OF BASE SALARY DEFERRAL ELECTION. (1) A Participant may cancel his Base Salary Deferral election effective as of the first day of any subsequent payroll period by executing and filing with the Committee the form prescribed by the Committee within the minimum time period prescribed by the Committee. Notwithstanding the preceding, the Committee shall have the right, in its sole discretion, to decline to accept the termination of a Participant's Base Salary Deferral election. An individual described in the preceding sentence may again elect to make Base Salary Deferrals hereunder in accordance with Subsection (a)(1) above. (2) Upon application by the Participant, in the event that the Committee determines that the Participant has suffered an Unforeseeable Financial Emergency, all the Participant's Compensation Deferral election(s) then in effect shall be canceled as soon as administratively practicable after such determination. If the Participant's Compensation Deferral election is so canceled, the Participant may again elect to defer a percentage of his Compensation effective as of any subsequent Election Date that is at least twelve (12) months after the effective date of such cancellation by complying with the procedural requirements set forth in Subsection (a)(1) or (b)(1), as applicable. (d) ONGOING ELECTION. A Participant's election to make Base Salary Deferrals shall remain in force and effect while he is a Participant unless and until such deferrals cease in accordance with the provisions of Subsection (c) above or such Participant terminates participation in the Plan pursuant to Section 2.2. (e) CREDITING OF DEFERRALS. Compensation Deferrals made by a Participant shall be credited to such Participant's Compensation Deferrals Account as of a date determined in accordance with procedures established from time to time by the Committee. (f) COMMITTEE LIMITATION ON COMPENSATION DEFERRALS. Notwithstanding the preceding, the Committee may, in its sole discretion, limit (i.e., reduce or terminate) the Compensation Deferral election or Bonus Deferral election for any Participant or group of Participants. 3.2 COMPANY CREDITS. As of any date or dates selected by the Company, the Company may credit a Participant's Company Credits Account with an amount, if any, as the Company in its sole discretion shall determine. Such credits may be made on behalf of some Participants but not others, and such credits may vary in amount among individual Participants. -10- 15 ARTICLE IV. ALLOCATIONS TO PARTICIPANT ACCOUNTS 4.1 INDIVIDUAL ACCOUNTS. The Committee shall create and maintain adequate records to disclose the interest hereunder of each Participant, former Participant and Beneficiary. Such records shall be in the form of individual accounts and credits and debits shall be made to such accounts in the manner herein described. 4.2 INVESTMENT OF ACCOUNTS. The Committee shall allocate earnings and losses to each Participant's Accounts according to the hypothetical investments made by a Participant pursuant to the terms of Article V. 4.3 ALLOCATION OF NET INCOME OR LOSS AND CHANGES IN VALUE. (a) As of each Valuation Date, the Committee shall determine the fair market value and the net income (or net loss) of each Investment Fund for the period elapsed since the next preceding Valuation Date. The net income (or net loss) of each Investment Fund since the next preceding Valuation Date shall be ascertained by the Committee in such manner as it deems appropriate, which may include expenses, if any, of administering the Investment Fund, the Trust, and the Plan. (b) For purposes of allocations of net income (or net loss), each Participant's Accounts shall be divided into subaccounts to reflect the hypothetical investment of such Participant's Accounts in a particular Investment Fund or Investment Funds pursuant to Article V. As of each Valuation Date, the net income (or net loss) of each Investment Fund, separately and respectively, shall be allocated among the corresponding subaccounts of the Participants who had such corresponding subaccounts invested in such Investment Fund since the next preceding Valuation Date, and each such corresponding subaccount shall be credited with (or debited for) that portion of such net income (or net loss) that the value of each such corresponding subaccount on such next preceding Valuation Date was of the value of all such corresponding subaccounts on such date; provided, however, that the value of such subaccounts as of the next preceding Valuation Date shall be reduced by the amount of any distributions made therefrom since the next preceding Valuation Date. (c) So long as there is any balance in any Account, such Account shall continue to receive allocations pursuant to this Section. ARTICLE V. HYPOTHETICAL INVESTMENT OF ACCOUNTS 5.1 HYPOTHETICAL INVESTMENT OF ACCOUNTS. The Committee shall from time to time select, add, and/or delete Investment Funds for purposes of the hypothetical investment of Participants' Accounts. For purposes of allocating earnings and losses and valuation of each Participant's Accounts, each Participant's Accounts shall be deemed to be invested in the Investment Funds. The Committee shall designate which Investment Fund or Funds the Participant's Accounts shall be deemed to be invested. The preceding notwithstanding, the Committee may, in its discretion, permit one or more Participants, or any group of Participants, to direct -11- 16 the hypothetical investment of all or any portion of their Accounts in accordance with Section 5.2. 5.2 DESIGNATION OF INVESTMENT FUNDS. (a) Each Participant shall designate, in accordance with the procedures established from time to time by the Committee, the manner in which the amounts credited to his Accounts over which he has been given investment discretion by the Committee shall be deemed to be invested from among the Investment Funds. Such Participant may designate one of such Investment Funds for the hypothetical investment of all the amounts credited to such Accounts, or he may split the hypothetical investment of the amounts credited to such Accounts between such Investment Funds in such increments as the Committee may prescribe. If a Participant fails to make a proper designation, then his Accounts shall be deemed to be invested in the Investment Fund or Investment Funds designated by the Committee from time to time. (b) A Participant may change his hypothetical investment designation for future amounts to be credited to the portion of his Accounts over which he has been given investment discretion by the Committee. Any such change shall be made in accordance with the procedures established by the Committee, and the frequency of such changes may be limited by the Committee. (c) If the Committee elects to establish a hypothetical investment fund that holds shares of the Company's common stock, a Participant may elect to invest his Accounts in such fund. The Committee may in its sole discretion refuse to recognize Participant elections that it determines may cause the Participant's Accounts to become subject to the short-swing profit provisions of Section 16b of the Securities Exchange Act of 1934 and establish special election procedures for Participants subject to Section 16 of such Act. (d) A Participant's hypothetical investment selections pursuant to the immediately preceding paragraph shall be made solely for purposes of crediting earnings and/or losses to his Accounts under Section 4.3 of this Plan. The Committee shall not, in any way, be bound to actually invest any amounts set aside pursuant to Article X below to satisfy its obligations under this Plan in accordance with such selections. ARTICLE VI. VESTED INTEREST 6.1 VESTING OF COMPENSATION DEFERRALS ACCOUNT. A Participant shall have a 100% Vested Interest in his Compensation Deferrals Account at all times. 6.2 VESTING OF COMPANY CREDITS ACCOUNT. (a) A Participant shall acquire a Vested Interest in his Company Credits Account as such Participant completes years of Vesting Service in accordance with the following schedule: -12- 17

(b) Notwithstanding Subsection (a) above, a Participant shall have a 100% Vested Interest in his Company Credits Account upon the earliest to occur of (i) the attainment of such Participant's Retirement Date while employed by the Company, (ii) the death of such Participant while employed by the Company, (iii) the date such Participant becomes Disabled, or (iv) any earlier date designated by the Committee in its sole discretion. 6.3 FORFEITURES. A Participant who terminates employment with the Company and its Affiliates with a Vested Interest in his Company Credits Account that is less than 100% shall forfeit to the Company the nonvested portion of such Account as of the date of such termination. ARTICLE VII. IN-SERVICE WITHDRAWALS AND LOANS 7.1 IN-SERVICE WITHDRAWALS. (a) Except as provided in Subsections (b) through (d) below, no in-service withdrawals shall be permitted under the Plan, and Participants shall not be permitted to make withdrawals from the Plan prior to a termination of employment with the Company and its Affiliates. (b) In the event that the Committee, upon written petition of the Participant, determines in its sole discretion that the Participant has suffered an Unforeseeable Financial Emergency, the Participant shall be entitled to withdrawal from his Compensation Deferrals Account an amount not to exceed the lesser of (i) the amount determined by the Committee as necessary to meet the Participant's needs created by the Unforeseeable Financial Emergency or (ii) the Vested Interest in the Participant's Accounts. Such benefit shall be paid in a single lump sum payment as soon as administratively practicable after the Committee has made its determination with respect to the availability and amount of such withdrawal. If the Participant's Accounts are deemed to be invested in more than one Investment Fund, such withdrawal shall be made pro rata from each Investment Fund in which such Accounts are deemed to be invested. This Subsection shall not be applicable to the Participant following his termination of employment with the Company and its Affiliates, and in the event of such termination the amounts credited to the Participant's Accounts shall be payable to him only in accordance with Article VIII. (c) A Participant may at any time make an irrevocable election, effective as of the first day of the next Plan Year, to have all or a portion of the Vested Interest in his Accounts, determined as of the date his election is made, paid to him on a fixed date -13- 18 specified in such election, which shall be at least two (2) years following the date that such election is submitted to the Committee in writing. The amount of the payment pursuant to this irrevocable election shall be stated in the election and shall be a fixed dollar amount, and shall not be adjusted for earnings or losses following such election date. Once an in-service distribution election has been filed with the Committee, it may be extended to provide that the distribution shall be made on a date which is subsequent to the original distribution date; provided, however, that a Participant may not elect to extend his distribution date during the two (2) year period immediately preceding the designated distribution date. A Participant may have only one election hereunder outstanding at any time. Notwithstanding the preceding, if the Participant terminates employment prior to the designated payment date, his election shall be terminated and his Accounts shall be distributed as provided in Section 8.4 below. (d) In the event that the Committee, upon written petition of the Participant, determines in its sole discretion that the Participant has a Disability, the Participant shall be entitled to a distribution in accordance with Article VIII. 7.2 INVOLUNTARY DISTRIBUTIONS. Notwithstanding anything contained in the Plan to the contrary, if at any time any Participant is finally determined by the Internal Revenue Service or the U.S. Department of Labor not to qualify as a member of a select group of "management or highly compensated employees" as such term is used in ERISA Section 401(a)(1), the Committee may, in its sole discretion, immediately distribute in one lump sum to such Participant his vested account under the Plan. A final determination of the Internal Revenue Service or the U.S. Department of Labor shall be a decision rendered by the Internal Revenue Service or the U.S. Department of Labor which is no longer subject to administrative appeal within such agency. In addition, the Committee may, in its exclusive and sole discretion, cause the Plan to make a distribution to a Participant during a Plan Year in order to cause the Participant to have sufficient taxable compensation to satisfy the annual addition requirements of Code Section 415 with respect to any qualified retirement plans maintained by the Company during such Plan Year. 7.3 NO LOANS. Participants shall not, at any time, be permitted to borrow from the Plan or Trust Fund. ARTICLE VIII. PLAN BENEFITS 8.1 PLAN BENEFIT. A Participant's Plan benefit shall be the value of his Accounts determined as of the Valuation Date immediately preceding the time of payment of such Accounts in accordance with Section 8.3. 8.2 EVENTS ENTITLING PAYMENT OF BENEFIT. A Participant's benefit shall become payable upon the earliest to occur of the following events: (a) A termination of the Participant's employment with the Company and its Affiliates for any reason; (b) The death of the Participant; -14- 19 (c) A determination by the Committee that the Participant has a Disability; or (d) A Change of Control. A Participant's benefit shall equal the Participant's Vested Interest in his Accounts as of the Valuation Date next preceding the date the payment of such benefit is to be paid or commence pursuant to Section 8.3. 8.3 PAYEE AND TIME OF PAYMENT. Payment of a Participant's benefit shall be paid or commence as soon as administratively practicable following the Section 8.2 event triggering payment. The Participant's benefit shall be paid to the Participant, unless the Section 8.2 triggering event is the death of the Participant, in which case the Participant's benefit shall be paid to the Participant's designated beneficiary as provided in Section 8.5. 8.4 ALTERNATIVE FORMS OF BENEFIT PAYMENTS. (a) A Participant's benefit under the Plan shall be paid in cash in one of the following forms: (1) A single lump sum payment; or (2) Monthly, quarterly or annual installment payments for a term certain not to exceed ten years payable to such Participant or, in the event of such Participant's death prior to the end of such term certain, to his designated beneficiary as provided in Section 8.5. (b) A Participant must elect one of the forms of payment listed in Subsection 8.4(a) above on or before the date he first becomes a Participant of the Plan pursuant to Article II. Except as provided in Subsection 8.4(c) below, such election shall be irrevocable by the Participant and shall remain in effect for all periods of a Participant's participation in the Plan. In the event a Participant fails to elect timely the form in which his benefit payments are to be made, such benefit payments shall be deemed to have been elected by such Participant to be in the form of a single lump sum payment. (c) A Participant may shall be entitled to change his elected form of benefit payment under Subsection 8.4(a) above with respect to all amounts allocated to his Accounts (i.e., both existing and future allocations) as of each January 1st. Such change shall be made prior to each such January 1st and shall be effective as of the subsequent January 1st. If a triggering event described in Section 8.2 occurs during the Plan Year following the Committee's receipt of an election to change distribution forms, such election shall be deemed to be null and void and the immediately preceding election shall apply to the Participant's distribution. A Participant who does not elect to change his current elected (or deemed elected) form of benefit payment with respect to future allocations to such Participant's Accounts as of any such January 1 shall not be entitled to change his elected form of benefit until the subsequent January 1st. If a Participant elected to receive his benefit payment in one or more different forms of payment prior to January 1, 2000, such Participant shall receive his distribution pursuant to the most recent form of distribution elected by the -15- 20 Participant; provided, however, if no such election is on file with the Committee, his distribution shall be made in the form elected of a single lump sum payment, unless such Participant elects to file a new election under Subsection (a) above. (d) If a Participant dies prior to the date the payment of his benefit begins or is completed, such benefit shall be paid to such Participant's beneficiary designated in accordance with Section 8.5 in a single lump payment, notwithstanding any other form of payment elected by such Participant. (e) The preceding Subsections notwithstanding, if the Section 8.2 event triggering payment of a Participant's benefit is a Change of Control, such benefit shall be paid to such Participant in a single lump sum cash payment as soon as administratively practicable after such Change of Control. (f) Notwithstanding any provision of the Plan to the contrary, the Committee may, in its sole and absolute discretion, distribute a Participant's benefit in the form of a single lump sum payment notwithstanding any other form of distribution elected by the Participant. 8.5 DESIGNATION OF BENEFICIARIES. (a) Each Participant shall have the right to designate the beneficiary or beneficiaries to receive payment of his benefit in the event of his death. Each such designation shall be made by executing the beneficiary designation form prescribed by the Committee and filing such form with the Committee during the life of such Participant. Any such beneficiary designation may be changed at any time by execution and filing of a new designation in accordance with this Subsection. The preceding notwithstanding, (i) if a Participant has designated his spouse as his beneficiary, such designation shall be void and of no effect upon the divorce of the Participant and such spouse, unless the Participant notifies the Committee to the contrary in writing after the date of such divorce, and (ii) if a Participant who is married on the date of his death has designated an individual or entity other than his surviving spouse as his beneficiary, such designation shall not be valid unless (a) such surviving spouse has consented thereto in writing, and such consent (1) acknowledges the effect of such specific designation, (2) either consents to the specific designated beneficiary (which designation may not subsequently be changed by the Participant without spousal consent) or expressly permits such designation by the Participant without the requirement of further consent by such spouse, and (3) is witnessed by a Plan representative (other than the Participant) or a notary public or (b) the consent of such spouse cannot be obtained because such spouse cannot be located or because of other circumstances that the Committee in its discretion determines warrants a waiver of such consent. Any such consent by such surviving spouse shall be irrevocable. (b) If at the time of the death of the Participant no designated beneficiary is on file with the Committee, or such beneficiary designation is not valid or effective for any reason as determined by the Committee, then the designated beneficiary or beneficiaries to receive such benefit shall be as follows: -16- 21 (1) If a Participant has a surviving spouse at the time of such Participant's death, his designated beneficiary shall be such surviving spouse; (2) If a Participant has no surviving spouse at the time of such Participant's death, his designated beneficiary shall be such Participant's executor or administrator or, if there is no administration of such Participant's estate, his heirs at law. 8.6 PAYER OF BENEFITS. To the extent the Trust Fund has sufficient assets, the Trustee shall pay benefits to Participants or their beneficiaries, except to the extent the Company pays the benefits directly. To the extent the Trustee does not or cannot pay benefits out of the Trust Fund, the benefits shall be paid by the Company. Any benefit payments made to a Participant or for his benefit pursuant to any provision of the Plan shall be debited to such Participant's Accounts. All benefit payments shall be made in cash. 8.7 UNCLAIMED BENEFITS. In the case of a benefit payable to or on behalf of a Participant, if the Committee after a reasonable search is unable to locate the Participant or beneficiary to whom such benefit is payable, upon the Committee's determination thereof, such benefit shall be forfeited to the Company. The Committee shall adopt procedures concerning the process that will be followed to locate a Participant or beneficiary under this Section. Notwithstanding the foregoing, if subsequent to any such forfeiture the Participant or beneficiary to whom such benefit is payable makes a valid claim for such benefit within a reasonable (as determined by and in the discretion of the Committee) period of time following the date such benefit became payable, such forfeited benefit shall be payable pursuant to the Plan provisions. ARTICLE IX. ADMINISTRATION OF PLAN 9.1 APPOINTMENT OF COMMITTEE. The general administration of the Plan shall be vested in the Committee, which shall be appointed by the Directors and shall consist of one or more persons. Any individual, whether or not an employee of the Company, is eligible to become a member of the Committee. 9.2 TERM, VACANCIES, RESIGNATION, AND REMOVAL. Each member of the Committee shall serve until he resigns, dies, or is removed by the Directors. At any time during his term of office, a member of the Committee may resign by giving written notice to the Directors and the Committee, such resignation to become effective upon the appointment of a substitute member or, if earlier, the lapse of thirty days after such notice is given as herein provided. At any time during his term of office, and for any reason, a member of the Committee may be removed by the Directors with or without cause, and the Directors may in their discretion fill any vacancy that may result therefrom. Any member of the Committee who is an employee of the Company shall automatically cease to be a member of the Committee as of the date he ceases to be employed by the Company and its Affiliates. 9.3 SELF-INTEREST OF COMMITTEE MEMBERS. No member of the Committee shall have any right to vote or decide upon any matter relating solely to himself under the Plan (including, without limitation, Committee decisions under Article II) or to vote in any case in which his -17- 22 individual right to claim any benefit under the Plan is particularly involved. In any case in which a Committee member is so disqualified to act and the remaining members cannot agree, the Directors shall appoint a temporary substitute member to exercise all the powers of the disqualified member concerning the matter in which he is disqualified. 9.4 COMMITTEE POWERS AND DUTIES. The Committee shall administer and enforce the Plan according to the terms and provisions hereof and shall have all powers necessary to accomplish these purposes, including, but not by way of limitation, the complete and absolute discretion to construe all provisions of the Plan and make all factual determinations and the right, power, authority, and duty: (a) To make rules, regulations, and bylaws for the administration of the Plan that are not inconsistent with the terms and provisions hereof, and to enforce the terms of the Plan and the rules and regulations promulgated thereunder by the Committee; (b) To construe in its sole discretion all terms, provisions, conditions, and limitations of the Plan; (c) To correct any defect or to supply any omission or to reconcile any inconsistency that may appear in the Plan in such manner and to such extent as it shall deem in its discretion expedient to effectuate the purposes of the Plan; (d) To employ and compensate such accountants, attorneys, investment advisors, and other agents, employees, and independent contractors as the Committee may deem necessary or advisable for the proper and efficient administration of the Plan; (e) To determine in its sole discretion all questions relating to eligibility; (f) To establish or designate Investment Funds as provided in Article V; (g) To determine whether and when there has been a termination of a Participant's employment with the Company and its Affiliates, and the reason for such termination; (h) To make a determination in its sole discretion as to the right of any person to a benefit under the Plan and to prescribe procedures to be followed by distributees in obtaining benefits hereunder; and (i) To receive and review reports from the Trustee as to the financial condition of the Trust Fund, including its receipts and disbursements. 9.5 CLAIMS REVIEW. (a) In any case in which a claim for Plan benefits of a Participant or beneficiary is denied or modified, the Committee shall furnish written notice to the claimant within ninety days (or within 180 days if additional information requested by the Committee necessitates an extension of the ninety-day period and, in which case, the claimant shall be informed of such extension prior to the end of the initial ninety-day period), which notice shall: -18- 23 (1) State the specific reason or reasons for the denial or modification; (2) Provide specific reference to pertinent Plan provisions on which the denial or modification is based; (3) Provide a description of any additional material or information necessary for the Participant, his beneficiary, or representative to perfect the claim and an explanation of why such material or information is necessary; and (4) Explain the Plan's claim review procedure as contained herein. (b) In the event a claim for Plan benefits is denied or modified, if the Participant, his beneficiary, or a representative of such Participant or beneficiary desires to have such denial or modification reviewed, he must, within sixty days following receipt of the notice of such denial or modification, submit a written request for review by the Committee of its initial decision. In connection with such request, the Participant, his beneficiary, or the representative of such Participant or beneficiary may review any pertinent documents upon which such denial or modification was based and may submit issues and comments in writing. Within sixty days following such request for review the Committee shall, after providing a full and fair review, render its final decision in writing to the Participant, his beneficiary, or the representative of such Participant or beneficiary stating specific reasons for such decision and making specific references to pertinent Plan provisions upon which the decision is based. If special circumstances require an extension of such sixty-day period, the Committee's decision shall be rendered as soon as possible, but not later than 120 days after receipt of the request for review. If an extension of time for review is required, written notice of the extension shall be furnished to the Participant, beneficiary, or the representative of such Participant or beneficiary prior to the commencement of the extension period. (c) Compliance with the claims review procedures set forth in this Section shall be a condition precedent to the filing of a lawsuit by a Participant, his beneficiary, or any person claiming through a participant or beneficiary in connection with a Plan benefit, and a failure to timely exhaust the administrative remedies set forth herein shall bar any such proceeding in federal or state court. 9.6 COMPANY TO SUPPLY INFORMATION. The Company shall supply full and timely information to the Committee, including, but not limited to, information relating to each Participant's Compensation, age, retirement, death, or other cause of termination of employment and such other pertinent facts as the Committee may require. When making a determination in connection with the Plan, the Committee shall be entitled to rely upon the aforesaid information furnished by the Company or any Affiliate. 9.7 INDEMNITY. To the extent permitted by applicable law, the Company shall indemnify and hold harmless each member of the Committee and other employee of the Company or an Affiliate to whom Plan administrative functions have been delegated by the Committee against any and all expenses and liabilities arising out of such individual's administrative functions or fiduciary responsibilities under or incident to the Plan, including any expenses -19- 24 and liabilities that are caused by or result from an act or omission constituting the negligence of such individual in the performance of such functions or responsibilities, but excluding expenses and liabilities that are caused by or result from such individual's own gross negligence or willful misconduct. Expenses against which such individual shall be indemnified hereunder shall include, without limitation, the amounts of any settlement or judgment, costs, counsel fees, and related charges reasonably incurred in connection with a claim asserted or a proceeding brought or settlement thereof. ARTICLE X. PURPOSE AND UNFUNDED NATURE OF THE PLAN 10.1 PURPOSE OF PLAN. The Company intends and desires by the adoption and maintenance of the Plan to recognize the value to the Company of the past and present services of employees covered by the Plan and to encourage and ensure their continued service with the Company by making more adequate provision for their future retirement security. 10.2 UNFUNDED NATURE OF PLAN. The Plan is intended to constitute an unfunded, unsecured plan of deferred compensation for a select group of management or highly compensated employees of the Company. Further, it is the intention of the Company that the Plan be "unfunded" for purposes of the Code and Title I of ERISA. The Plan constitutes a mere promise by the Company to make benefit payments in the future. Plan benefits herein provided are to be paid out of the Company's general assets, and Participants shall have the status of general unsecured creditors of the Company. 10.3 FUNDING OF OBLIGATION. (a) The adoption of this Plan and any setting aside of amounts by the Employers with which to discharge their obligations hereunder shall not be deemed to create a trust; legal and equitable title to any funds so set aside shall remain with the Employers, and any recipient of benefits hereunder shall have no security or other interest in such funds. Any and all funds so set aside shall remain subject to the claims of the general creditors of the Employers, present and future. This provision shall not require the Employers to set aside any funds, but the Employers may set aside funds if they choose to do so. (b) The Company, in its sole discretion, may establish the Trust and enter into the Trust Agreement. Any such Trust, and any assets held by such Trust, to assist the Employers in meeting its obligations under the Plan shall be a "rabbi trust." The Employers may transfer money or other property to the Trustee, and the Trustee shall pay Plan benefits to Participants and their beneficiaries out of the Trust Fund unless otherwise paid by the Company. In such event, the Company shall remain the owner of all assets in the Trust Fund, and the assets held in the Trust Fund shall be subject to the claims of Company creditors if the Company becomes "insolvent" as described in Subsection (c) below. No Participant or beneficiary shall have any preferred claim to, or any beneficial ownership interest in, any assets of the Trust Fund. -20- 25 (c) The Company shall be considered "insolvent" if (i) the Company is unable to pay its debts as they become due or (ii) the Company is subject to a pending proceeding as a debtor under the United Sates Bankruptcy Code (or any successor federal statute). (d) The chief executive officer of the Company and the Directors shall each have the duty to inform the Trustee in writing if the Company becomes insolvent. Such notice given under the preceding sentence by any one party shall satisfy each party's duty to give notice. When so informed, the Trustee shall suspend payments to the Participants and beneficiaries and hold the assets for the benefit of the Company's general creditors. If the Trustee receives a written allegation that the Company is insolvent, the Trustee shall suspend payments to the Participants and beneficiaries and hold the Trust Fund for the benefit of the Company's general creditors and shall determine within the period specified in the Trust Agreement, or, in the absence of a specified period, within a reasonable period of time, whether the Company is insolvent. If the Trustee determines that the Company is not insolvent, the Trustee shall resume payments to the Participants and beneficiaries. In the case of insolvency of the Company or any Affiliate designated to participate in the Plan pursuant to Section 11.1, only the assets contributed to the Trust, if any, by the Company or such Affiliate, whichever is insolvent, shall be subject to the claims of such insolvent entity. (e) All expenses incident to the administration of the Plan and Trust, including but not limited to, legal, accounting, Trustee fees, and expenses of the Committee, may be paid by the Company and, if not so paid, shall be paid by the Trustee from the Trust Fund, if any. (f) All income, profits, recoveries, contributions, forfeitures and any and all moneys, securities, and properties of any kind at any time received or held by the Trustee, if any, shall be held for investment purposes as a commingled Trust Fund pursuant to the terms of the Trust Agreement. The Committee shall maintain Accounts in the name of each Participant, but the maintenance of Accounts designated as Accounts of a Participant shall not mean that such Participant shall have a greater or lesser interest than that due him under the terms of the Plan and shall not be considered as segregating any funds or property from any other funds or property contained in the commingled fund. ARTICLE XI. PARTICIPATING ENTITIES 11.1 DESIGNATION OF PARTICIPATING ENTITIES. (a) The Committee may designate any Employer as eligible to participate in the Plan by written instrument delivered to the Company and the designated entity. Such written instrument shall specify the effective date of such designated participation, may incorporate specific provisions relating to the operation of the Plan that apply to the designated entity only, and shall become, as to such designated entity and its employees, a part of the Plan. Each designated Employer shall be conclusively presumed to have consented to its designation and to have agreed to be bound by the -21- 26 terms of the Plan and any and all amendments thereto upon its submission of information to the Committee required by the terms of or with respect to the Plan; provided, however, that the terms of the Plan may be amended so as to increase the obligations of an entity only with the consent of such entity, which consent shall be conclusively presumed to have been given by such entity upon its submission, after receipt of notice of any such amendment, of any information to the Committee required by the terms of or with respect to the Plan. (b) Except as modified by the Committee in the written instrument described in Subsection (a) above, the provisions of this Plan shall be applicable with respect to each participating entity separately, and amounts payable hereunder for or on behalf of a Participant shall be paid by the participating entity that employs such Participant. (c) Any participating entity may, by appropriate action of its officers without the need for approval of its board of directors or noncorporate counterpart or the Committee, the Company, or the Directors, terminate its participation in the Plan. Moreover, the Committee may, in its discretion, terminate a participating entity's Plan participation at any time by giving written notice to such participating entity and the Company. ARTICLE XII. MISCELLANEOUS 12.1 NOT CONTRACT OF EMPLOYMENT. The adoption and maintenance of the Plan shall not be deemed to be a contract between the Company and any person or to be consideration for the employment of any person. Nothing herein contained shall be deemed to give any person the right to be retained in the employ of the Company or to restrict the right of the Company to discharge any person at any time, nor shall the Plan be deemed to give the Company the right to require any person to remain in the employ of the Company or to restrict any person's right to terminate his employment at any time. 12.2 ALIENATION OF INTEREST FORBIDDEN. The interest of a Participant or his beneficiary or beneficiaries hereunder may not be sold, transferred, assigned, or encumbered in any manner, either voluntarily or involuntarily, and any attempt so to anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge the same shall be null and void, nor shall the benefits hereunder be liable for or subject to the debts, contracts, liabilities, engagements, or torts of any person to whom such benefits or funds are payable, nor shall they be an asset in bankruptcy or subject to garnishment, attachment, or other legal or equitable proceedings. The preceding notwithstanding, the Committee shall comply with the terms and provisions of a "qualified domestic relations order" as defined in ERISA Section 206(d). 12.3 WITHHOLDING. All Compensation Deferrals, Company Credits, and benefit payments provided for hereunder shall be subject to applicable withholding and other deductions as shall be required of the Company under any applicable local, state, or federal law as such laws are interpreted by the Company. 12.4 AMENDMENT AND TERMINATION. The Directors have the absolute and unconditional right to amend the Plan at any time and may from time to time, in their discretion, amend, in whole or in part, any or all of the provisions of the Plan; provided, however, that any -22- 27 amendments to the Plan that do not have a significant cost impact on the Company, whether or not retroactive, may be made by the Committee; and provided, further, that no amendment may be made that would reduce a Participant's Vested Interest in the amounts credited to his Accounts as of the date of adoption of such amendment. The Directors have the absolute and unconditional right to terminate the Plan at any time on behalf of the Company and each participating entity. In the event that the Plan is terminated, notwithstanding any other form of benefit elected by the Participant, the balance of each Participant's Accounts shall be paid to such Participant or his designated beneficiary in the manner selected by the Committee in its discretion (notwithstanding any other form of benefit elected by such Participant), which may include the payment of a single lump sum cash payment, in full satisfaction of all of such Participant's or beneficiary's benefits hereunder. 12.5 SEVERABILITY. If any provision of the Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining provisions hereof; instead, each provision shall be fully severable, and the Plan shall be construed and enforced as if said illegal or invalid provision had never been included herein. 12.6 GOVERNING LAWS. All provisions of the Plan shall be construed in accordance with the laws of the State of Texas except to the extent preempted by federal law. EX-21 3 d86544ex21.txt EX-21 - SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21

2 Dell Computer AS Norway Dell Computer BV Netherlands Dell Computer Corporation Limited United Kingdom Dell Computer EEIG United Kingdom Dell Computer Ges.m.b.H Austria Dell Computer GmbH Germany Dell Computer Holdings (Europe) B.V. Netherlands Dell Computer Holding I, SGPS, Unipessoal Lda Madeira Dell Computer Holding II, SGPS, Unipessoal Lda Madeira Dell Computer International (II) - Comercio de Computadores Sociedade Unipessoal Lda Madeira, Portugal Dell Computer Limited Ireland Dell Computer NV Belgium Dell Computer Poland, Sp.z.o.o. Poland Dell Computer Portugal - Comercio de Computadores e Servicos, Unipessoal, Madeira Lda Dell Computer S.A. France Dell Computer S.A. Spain Dell Computer SA Switzerland Dell Computer spol. sro Czech Republic Dell Direct Ireland Dell Distribution (EMEA) Limited United Kingdom Dell Financial Services International Limited Ireland Dell Products Ireland Dell Products (Asia) BV Netherlands Dell Products (Europe) B.V. Netherlands Dell Products II Ireland Dell Research Ireland OY Dell Computer AB Finland Dell Computer Holdings (Europe) Investments C.V. Netherlands ASIA-PACIFIC/JAPAN Dell Asia Pacific Sdn. Malaysia Dell Computer (China) Co. Ltd. China Dell Computer (Thailand) Co., Ltd. Thailand Dell Computer Asia Pte. Ltd. Singapore Dell Computer Asia, Limited Hong Kong

3 Dell Computer Corporation Korea Dell Computer Kabushiki Kaisha Japan Dell Computer India Private Limited India Dell Computer Limited New Zealand Dell Computer PTY. Limited Australia

EX-23 4 d86544ex23.txt EX-23 - CONSENT OF PRICEWATERHOUSECOOPERS LLP 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (Nos. 33-24621, 33-54577, 33-31812, 33-63273, 33-54583, 333-49014, 333-49016, 333-66415 and 333-58039) of Dell Computer Corporation of our report dated February 15, 2001 appearing on page 26 of this Form 10-K. PRICEWATERHOUSECOOPERS LLP Austin, Texas May 2, 2001 GRAPHIC 5 d86544pi5-178.gif GRAPHIC begin 644 d86544pi5-178.gif M1TE&.#EA#``,`/?^``````$!`0("`@,#`P0$!`4%!08&!@<'!P@("`D)"0H* M"@L+"PP,#`T-#0X.#@\/#Q`0$!$1$1(2$A,3$Q04%!45%186%A<7%Q@8&!D9 M&1H:&AL;&QP<'!T='1X>'A\?'R`@("$A(2(B(B,C(R0D)"4E)28F)B7IZ>GM[>WQ\?'U]?7Y^?G]_?X"`@(&!@8*" M@H.#@X2$A(6%A8:&AH>'AXB(B(F)B8J*BHN+BXR,C(V-C8Z.CH^/CY"0D)&1 MD9*2DI.3DY24E)65E9:6EI>7EYB8F)F9F9J:FIN;FYRGI^?GZ"@ MH*&AH:*BHJ.CHZ2DI*6EI::FIJ>GIZBHJ*FIJ:JJJJNKJZRLK*VMK:ZNKJ^O MK["PL+&QL;*RLK.SL[2TM+6UM;:VMK>WM[BXN+FYN;JZNKN[N[R\O+V]O;Z^ MOK^_O\#`P,'!P<+"PL/#P\3$Q,7%Q<;&QL?'Q\C(R,G)RWM_?W^#@X.'AX>+BXN/CX^3DY.7EY>;FYN?GY^CHZ.GIZ>KJZNOK MZ^SL[.WM[>[N[N_O[_#P\/'Q\?+R\O/S\_3T]/7U]?;V]O?W]_CX^/GY^?KZ M^OO[^_S\_/W]_?[^_O___R'Y!`$``/X`+``````,``P`!PA>`/]%8T:PH,%_ M&0`H7,@0(3UF_R)&C*8N`T)P"O1(1"4@F$6+UB@0^H=*P2V$*/]94\!$P$F4 J%B/^`1!%XL>('#-EC'BSY,F0(S]& GRAPHIC 6 d86544pi5-110.gif GRAPHIC begin 644 d86544pi5-110.gif M1TE&.#EA#``,`/?^``````$!`0("`@,#`P0$!`4%!08&!@<'!P@("`D)"0H* M"@L+"PP,#`T-#0X.#@\/#Q`0$!$1$1(2$A,3$Q04%!45%186%A<7%Q@8&!D9 M&1H:&AL;&QP<'!T='1X>'A\?'R`@("$A(2(B(B,C(R0D)"4E)28F)B7IZ>GM[>WQ\?'U]?7Y^?G]_?X"`@(&!@8*" M@H.#@X2$A(6%A8:&AH>'AXB(B(F)B8J*BHN+BXR,C(V-C8Z.CH^/CY"0D)&1 MD9*2DI.3DY24E)65E9:6EI>7EYB8F)F9F9J:FIN;FYRGI^?GZ"@ MH*&AH:*BHJ.CHZ2DI*6EI::FIJ>GIZBHJ*FIJ:JJJJNKJZRLK*VMK:ZNKJ^O MK["PL+&QL;*RLK.SL[2TM+6UM;:VMK>WM[BXN+FYN;JZNKN[N[R\O+V]O;Z^ MOK^_O\#`P,'!P<+"PL/#P\3$Q,7%Q<;&QL?'Q\C(R,G)RWM_?W^#@X.'AX>+BXN/CX^3DY.7EY>;FYN?GY^CHZ.GIZ>KJZNOK MZ^SL[.WM[>[N[N_O[_#P\/'Q\?+R\O/S\_3T]/7U]?;V]O?W]_CX^/GY^?KZ M^OO[^_S\_/W]_?[^_O___R'Y!`$``/X`+``````,``P`!P@Z`/\)'$APX)L? M"!,J_/<#F;B'$!\:8"BNX,`#%"T*Q/BCHD:.'BV"U/AOY,>,)SN2Y&C@@,N7 &+@$$!``[ ` end -----END PRIVACY-ENHANCED MESSAGE-----






Aggregate market value of common stock held by non-affiliates of the registrant as of April 24, 2001	$	59,238,525,534




Number of shares of common stock outstanding as of April 24, 2001		2,611,286,980


PART I
	ITEM 2 -- PROPERTIES
PART II
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
DELL COMPUTER CORPORATION CONSOLIDATED STATEMENT OF INCOME
DELL COMPUTER CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PART III
PART IV
DELL COMPUTER CORPORATION VALUATION AND QUALIFYING ACCOUNTS
SIGNATURES
EX-10.4 - Deferred Compensation Plan
EX-21 - Subsidiaries of the Registrant
EX-23 - Consent of PricewaterhouseCoopers LLP



				Fiscal Year Ended

				February 2,		January 28,		January 29,		February 1,		February 2,
				2001(a)		2000(b)		1999		1998		1997


				(in millions, except per share data)




Results of Operations Data:




	Net revenue			$	31,888	$	25,265	$	18,243	$	12,327	$	7,759




	Gross margin				6,443		5,218		4,106		2,722		1,666




	Operating income				2,663		2,263		2,046		1,316		714




	Income before extraordinary loss				2,236		1,666		1,460		944		531




	Income before cumulative effect of change in accounting principle(c)				2,236		1,666		1,460		944		518




	Net income			$	2,177	$	1,666	$	1,460	$	944	$	518




	Earnings per common share(d):
		Before cumulative effect of change in accounting principle




			Basic	$	0.87	$	0.66	$	0.58	$	0.36	$	0.19




			Diluted	$	0.81	$	0.61	$	0.53	$	0.32	$	0.17
		After cumulative effect of change in accounting principle




			Basic	$	0.84	$	0.66	$	0.58	$	0.36	$	0.19




			Diluted	$	0.79	$	0.61	$	0.53	$	0.32	$	0.17




		Number of weighted average shares outstanding:




			Basic		2,582		2,536		2,531		2,631		2,838




			Diluted		2,746		2,728		2,772		2,952		3,126




Balance Sheet Data:




	Working capital			$	2,948	$	2,489	$	2,112	$	758	$	891




	Total assets				13,435		11,471		6,877		4,268		2,993




	Long-term debt				509		508		512		17		18




	Total stockholders’ equity			$	5,622	$	5,308	$	2,321	$	1,293	$	806



		Fiscal Year Ended

		February 2,			Percentage			January 28,			Percentage			January 29,
		2001			Increase			2000			Increase			1999


		(dollars in millions)




Net revenue		$	31,888			26	%	$	25,265			38	%	$	18,243




Gross margin		$	6,443			24	%	$	5,218			27	%	$	4,106




	Percentage of net revenue		20.2	%					20.7	%					22.5	%




Operating expenses		$	3,675			33	%	$	2,761			34	%	$	2,060




	Percentage of net revenue		11.5	%					10.9	%					11.3	%




Special charges		$	105			(45	)%	$	194			100	%		—




	Percentage of net revenue		0.3	%					0.8	%					—




Total operating expenses		$	3,780			28	%	$	2,955			43	%	$	2,060




	Percentage of net revenue		11.8	%					11.7	%					11.3	%




Operating income		$	2,663			18	%	$	2,263			11	%	$	2,046




	Percentage of net revenue		8.4	%					9.0	%					11.2	%




Net income		$	2,177			31	%	$	1,666			14	%	$	1,460




	Percentage of net revenue		6.8	%					6.6	%					8.0	%



		Fiscal Year Ended

		February 2,		Percentage		January 28,		Percentage		January 29,
		2001		Increase		2000		Increase		1999


		(in millions)




Net Revenue:




	Americas	$	22,871		28%	$	17,879		44%	$	12,420




	Europe		6,399		14%		5,590		20%		4,674




	Asia Pacific and Japan		2,618		46%		1,796		56%		1,149

Consolidated Net Revenue		$	31,888			$	25,265			$	18,243






Delaware (State or other jurisdiction of incorporation or organization)		74-2487834 (I.R.S. Employer Identification No.)


Name	Age		Title

Michael S. Dell		36	Chairman of the Board and Chief Executive Officer




Kevin B. Rollins		48	President and Chief Operating Officer




James T. Vanderslice		60	President and Chief Operating Officer




Paul D. Bell		40	Senior Vice President, Europe, Middle East and Africa and Home and Small Business Group




Thomas B. Green		46	Senior Vice President, Law and Administration and Secretary




Michael D. Lambert		54	Senior Vice President, Enterprise Systems Group




Joseph A. Marengi		47	Senior Vice President, Relationship Group




Rosendo G. Parra		41	Senior Vice President, Home and Small Business Group




James M. Schneider		48	Senior Vice President and Chief Financial Officer


(a)		Includes a special charge of $105 million related to employee termination benefits and facilities closure costs.

(b)		Includes a special charge of $194 million related to a purchase of in-process research and development.

(c)		Effective January 29, 2000, the Company changed its accounting for revenue recognition in accordance with the Securities and Exchange Commission’s Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (“SAB 101”). The cumulative effect of the change on retained earnings as of the beginning of fiscal year 2001 resulted in a charge to fiscal year 2001 income of $59 million (net of income taxes of $25 million). With the exception of the cumulative effect adjustment, the effect of the change on the net income for fiscal year ended February 2, 2001 and all prior years presented was not material. See Note 1 of Notes to Consolidated Financial Statements included in “Item 8 — Financial Statements and Supplementary Data.”

(d)		Excludes extraordinary loss of $0.01 basic per common share for fiscal year 1997 related to repurchase of debt instruments.


ITEM 7 —	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


(a)		The $105 million special charge relates to employee termination benefits and facilities closure costs.

(b)		The $194 million special charge represents purchased in-process research and development.


			Page

Financial Statements:




	Report of Independent Accountants			26




	Consolidated Statement of Financial Position at February 2, 2001 and January 28, 2000			27




	Consolidated Statement of Income for each of the three fiscal years ended February 2, 2001			28




	Consolidated Statement of Cash Flows for each of the three fiscal years ended February 2, 2001			29




	Consolidated Statement of Stockholders’ Equity for each of the three fiscal years ended February 2, 2001			30




	Notes to Consolidated Financial Statements			31




Financial Statement Schedule:
	For each of the three fiscal years ended February 2, 2001




		Schedule II — Valuation and Qualifying Accounts		51



		Common Stock and
		Capital in Excess
		of Par Value									Other
								Retained			Comprehensive
		Shares			Amount			Earnings			Income			Other			Total

Balances at February 1, 1998			2,575		$	747		$	607		$	(35	)	$	(26	)	$	1,293




	Net income		—			—			1,460			—			—			1,460




	Change in unrealized gain on investments, net of taxes		—			—			—			3			—			3




	Foreign currency translation adjustments		—			—			—			(4	)		—			(4	)

Total comprehensive income																		1,459




	Stock issuances under employee plans, including tax benefits		117			1,092			—			—			(7	)		1,085




	Purchases and retirements		(149	)		(60	)		(1,458	)		—			—			(1,518	)




	Other		—			2			(3	)		—			3			2

Balances at January 29, 1999			2,543			1,781			606			(36	)		(30	)		2,321




	Net income		—			—			1,666			—			—			1,666




	Change in unrealized gain on investments, net of taxes		—			—			—			559			—			559




	Foreign currency translation adjustments		—			—			—			10			—			10

Total comprehensive income																		2,235




	Stock issuances under employee plans, including tax benefits		82			1,406			—			—			(46	)		1,360




	Purchases and retirements		(56	)		(48	)		(1,013	)		—			—			(1,061	)




	Stock issued pursuant to acquisition		6			334			—			—			—			334




	Other		—			110			1			—			8			119

Balances at January 28, 2000			2,575			3,583			1,260			533			(68	)		5,308




	Net income		—			—			2,177			—			—			2,177




	Change in unrealized gain on investments, net of taxes		—			—			—			(475	)		—			(475	)




	Foreign currency translation adjustments		—			—			—			4			—			4

Total comprehensive income																		1,706




	Stock issuances under employee plans, including tax benefits		91			1,347			—			—			(6	)		1,341




	Purchases and retirements		(65	)		(102	)		(2,598	)		—			—			(2,700	)




	Other		—			(33	)		—			—			—			(33	)

Balances at February 2, 2001			2,601		$	4,795		$	839		$	62		$	(74	)	$	5,622



			February 2, 2001						January 28, 2000

			Fair				Unrealized		Fair				Unrealized
			Market				Gain		Market				Gain
			Value		Cost		(Loss)		Value		Cost		(Loss)


			(in millions)




Equity securities			$	938	$	826	$	112	$	1,451	$	595	$	856




Debt securities:




	U.S. corporate and bank debt			1,454		1,442		12		1,256		1,242		14




	State and municipal securities			105		104		1		115		117		(2	)




	U.S. government and agencies			449		439		10		192		195		(3	)




	International corporate and bank debt			—		—		—		30		30		—

Total debt securities				2,008		1,985		23		1,593		1,584		9

		Total investments	$	2,946	$	2,811	$	135	$	3,044	$	2,179	$	865


					Weighted
					Average
		Number of			Exercise
		Shares			Price

		(in millions)




Outstanding at February 1, 1998			439		$	2.25




	Granted		60			19.94




	Cancelled		(26	)		2.63




	Exercised		(110	)		1.29

Outstanding at January 29, 1999			363			5.40




	Granted		50			42.86




	Cancelled		(16	)		9.89




	Exercised		(77	)		2.48

Outstanding at January 28, 2000			320			11.39




	Granted		154			37.78




	Cancelled		(35	)		22.18




	Exercised		(95	)		3.26

Outstanding at February 2, 2001			344		$	24.36



	Options Outstanding						Options Exercisable

					Weighted
			Weighted		Average				Weighted
	Number		Average		Remaining		Number		Average
	Of		Exercise		Contractual		Of		Exercise
	Shares		Price		Life (Years)		Shares		Price


	(share data in millions)




$ 0.01-$ 1.49		67	$	0.96		4.46		49	$	0.95




$ 1.50-$14.99		60	$	6.17		6.00		29	$	5.79




$15.00-$35.99		44	$	23.35		7.73		13	$	21.02




$36.00-$37.59		112	$	37.41		9.46		2	$	33.39




$37.60-$53.90		61	$	44.66		8.84		7	$	44.82

		344						100


		February 2,			January 28,
		2001			2000


		(in millions)




Supplemental Consolidated Statement of Financial Position Information




Accounts receivable:




	Gross accounts receivable	$	2,964		$	2,652




	Allowance for doubtful accounts		(69	)		(44	)

		$	2,895		$	2,608

Inventories:




	Production materials	$	95		$	129




	Work-in-process and finished goods		305			262



		Fiscal Year 2000

		4th		3rd		2nd		1st
		Quarter		Quarter		Quarter		Quarter


		(in millions, except per share data)




Net revenue		$	6,802	$	6,784	$	6,142	$	5,537




Gross margin			1,304		1,370		1,354		1,190




Net income		$	436	$	289	$	507	$	434




Earnings per common share (b):




	Basic	$	0.17	$	0.11	$	0.20	$	0.17




	Diluted	$	0.16	$	0.11	$	0.19	$	0.16



		Fiscal Year 2001

						Asia-Pacific
		Americas		Europe		and Japan		Eliminations			Consolidated


		(in millions)




Sales to unaffiliated customers		$	22,871	$	6,399	$	2,618	$	—		$	31,888




Transfers between geographic segments			43		5		4		(52	)		—

	Total sales	$	22,914	$	6,404	$	2,622	$	(52	)	$	31,888

Operating income		$	2,480	$	406	$	192	$	—		$	3,078

Special charge												(105	)




Corporate expenses												(310	)

	Total operating income										$	2,663

Depreciation and amortization		$	124	$	51	$	20	$	—		$	195

Corporate expenses												45

	Total depreciation and amortization										$	240

Identifiable assets		$	2,553	$	1,167	$	524	$	—		$	4,244

General corporate assets												9,191

	Total assets										$	13,435



		Fiscal Year 1999

						Asia-Pacific
		Americas		Europe		and Japan		Eliminations			Consolidated


		(in millions)




Sales to unaffiliated customers		$	12,420	$	4,674	$	1,149	$	—		$	18,243




Transfers between geographic segments			33		5		1		(39	)		—

	Total sales	$	12,453	$	4,679	$	1,150	$	(39	)	$	18,243

Operating income		$	1,802	$	446	$	78	$	—		$	2,326

Corporate expenses												(280	)

	Total operating income										$	2,046

Depreciation and amortization		$	59	$	29	$	8	$	—		$	96

Corporate expenses												7

	Total depreciation and amortization										$	103

Identifiable assets		$	1,640	$	1,017	$	234	$	—		$	2,891

General corporate assets												3,986

	Total assets										$	6,877



			Fiscal Year 2001(a)

			4th		3rd		2nd		1st
			Quarter		Quarter		Quarter		Quarter


			(in millions, except per share data)




Net revenue			$	8,674	$	8,264	$	7,670	$	7,280




Gross margin				1,559		1,758		1,634		1,492




Net income before cumulative effect in accounting principle				434		674		603		525




Net income			$	434	$	674	$	603	$	466




Earnings per common share (b):
	Before cumulative effect of change in accounting principle




		Basic	$	0.17	$	0.26	$	0.23	$	0.20




		Diluted	$	0.16	$	0.25	$	0.22	$	0.19
	After cumulative effect of change in accounting principle




		Basic	$	0.17	$	0.26	$	0.23	$	0.18




		Diluted	$	0.16	$	0.25	$	0.22	$	0.17




Weighted average shares outstanding:




	Basic			2,582		2,586		2,582		2,575




	Diluted			2,783		2,739		2,726		2,737




Stock sales prices per share:




	High		$	33.06	$	44.25	$	54.67	$	59.69




	Low		$	16.25	$	22.75	$	42.00	$	35.00


(a)		Reflects the adoption of SAB 101 as discussed in Note 1. The cumulative effect of this change was $59 million, net of taxes. Other than the cumulative effect, this accounting change had no material effect on the Company’s previously reported revenue or quarterly earnings during fiscal 2001.

(b)		Earnings per common share are computed independently for each of the quarters presented. Therefore, the sum of the quarterly per common share information may not equal the annual earnings per common share.


ITEM 9 —	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE


Exhibit
No.			Description of Exhibit

	3.1	—	Certificate of Incorporation, dated October 21, 1987 and filed October 22, 1987 (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 30, 1995, Commission File No. 0-17017)


						Write-Offs
		Balance at		Charged to		Charged		Balance
Fiscal		Beginning		Bad Debt		to		at End of
Year	Description	Period		Expense		Allowance		Period


		(in millions)




2001	Allowance for doubtful accounts	$	44	$	56	$	31	$	69




2000	Allowance for doubtful accounts	$	30	$	29	$	15	$	44




1999	Allowance for doubtful accounts	$	28	$	13	$	11	$	30


Name	Title	Date


/s/ MICHAEL S. DELL Michael S. Dell	Chairman of the Board, Chief Executive Officer (principal executive officer) and Director	May 2, 2001

/s/ DONALD J. CARTY Donald J. Carty	Director	May 2, 2001

/s/ WILLIAM H. GRAY, III William H. Gray, III	Director	May 2, 2001

/s/ MICHAEL H. JORDAN Michael H. Jordan	Director	May 2, 2001

/s/ THOMAS W. LUCE III Thomas W. Luce III	Director	May 2, 2001

/s/ KLAUS S. LUFT Klaus S. Luft	Director	May 2, 2001

/s/ ALEX J. MANDL Alex J. Mandl	Director	May 2, 2001

/s/ MICHAEL A. MILES Michael A. Miles	Director	May 2, 2001

/s/ SAMUEL A. NUNN Samuel A. Nunn	Director	May 2, 2001

/s/ MARY ALICE TAYLOR Mary Alice Taylor	Director	May 2, 2001

/s/ MORTON L. TOPFER Morton L. Topfer	Director	May 2, 2001

/s/ JAMES M. SCHNEIDER James M. Schneider	Sr. Vice President and Chief Financial Officer (principal financial and accounting officer)	May 2, 2001