-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Ef4x74nSOA+VzZv3OTo74TsBkQykoBMV0POirvK4JcVUmKDPj+cu+gTeziZSRyrR VaxzcSL2LDvOGgq7W2hG9g== 0000950134-95-000250.txt : 19950222 0000950134-95-000250.hdr.sgml : 19950222 ACCESSION NUMBER: 0000950134-95-000250 CONFORMED SUBMISSION TYPE: SC 13E4 PUBLIC DOCUMENT COUNT: 14 FILED AS OF DATE: 19950221 SROS: NASD SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: DELL COMPUTER CORP CENTRAL INDEX KEY: 0000826083 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPUTERS [3571] IRS NUMBER: 742487834 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: SC 13E4 SEC ACT: 1934 Act SEC FILE NUMBER: 005-42053 FILM NUMBER: 95513746 BUSINESS ADDRESS: STREET 1: 9505 ARBORETUM BLVD CITY: AUSTIN STATE: TX ZIP: 78759-7299 BUSINESS PHONE: 5123384400 MAIL ADDRESS: STREET 1: 9505 ARBORETUM BLVD CITY: AUSTIN STATE: TX ZIP: 78759-7299 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: DELL COMPUTER CORP CENTRAL INDEX KEY: 0000826083 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPUTERS [3571] IRS NUMBER: 742487834 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: SC 13E4 BUSINESS ADDRESS: STREET 1: 9505 ARBORETUM BLVD CITY: AUSTIN STATE: TX ZIP: 78759-7299 BUSINESS PHONE: 5123384400 MAIL ADDRESS: STREET 1: 9505 ARBORETUM BLVD CITY: AUSTIN STATE: TX ZIP: 78759-7299 SC 13E4 1 SCHEDULE 13E4 ISSUER TENDER OFFER STATEMENT 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13E-4 ISSUER TENDER OFFER STATEMENT (Pursuant to Section 13(e)(1) of the Securities Exchange Act of 1934) DELL COMPUTER CORPORATION (Name of Issuer) DELL COMPUTER CORPORATION (Name of Person(s) Filing Statement) SERIES A CONVERTIBLE PREFERRED STOCK (Title of Class of Securities) 247025-50-5 247025-40-6 U24702-10-9 (CUSIP Number of Class of Securities) MICHAEL S. DELL CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER DELL COMPUTER CORPORATION 2112 KRAMER LANE, BUILDING 1 AUSTIN, TEXAS 78758-4012 (512) 338-4400 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications on Behalf of the Person(s) Filing Statement) Copies to: LARRY W. SONSINI THOMAS B. GREEN WILSON, SONSINI, GENERAL COUNSEL GOODRICH & ROSATI DELL COMPUTER CORPORATION 650 PAGE MILL ROAD 2112 KRAMER LANE, BUILDING 1 PALO ALTO, CALIFORNIA 94304 AUSTIN, TEXAS 78758-4012 (415) 493-9300 (512) 338-4400 FEBRUARY 21, 1995 (Date Tender Offer First Published, Sent or Given to Security Holders) CALCULATION OF FILING FEE
TRANSACTION AMOUNT OF VALUATION(1) FILING FEE(1) -------------------------------- -------------- $125,000,000 $25,000
- --------------- (1) The filing fee included herewith is one-fiftieth of one percent of the market value of 1,250,000 shares of Series A Convertible Preferred Stock of Dell Computer Corporation. In accordance with Rule 0-11(a)(4) under the Securities Exchange Act of 1934, as amended, the value of Series A Convertible Preferred Stock is based on the book value of the securities computed as of October 30, 1994, which is the latest practicable date. / / Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid: Not applicable. Form or Registration No.: Filing Party: Date Filed: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 This Issuer Tender Offer Statement on Schedule 13E-4 (this "Statement") relates to the offer by Dell Computer Corporation, a Delaware corporation (the "Issuer"), to pay a cash premium of $8.25 (the "Conversion Premium") for each share of its Series A Convertible Preferred Stock (the "Series A Preferred Stock") that is converted to common stock, par value $.01 per share ("Common Stock"), of the Issuer on the terms and subject to the conditions set forth in the Offer of Premium Upon Conversion (the "Offer of Premium") and the related Special Conversion Notice and Registration Agreement (which together constitute the "Conversion Offer"), copies of which are attached hereto as Exhibits (a)(1), (a)(2) and (a)(3) hereto, respectively. ITEM 1. SECURITY AND ISSUER. (a) The name of the Issuer is Dell Computer Corporation, a Delaware corporation, and the address of its principal executive offices is 2112 Kramer Lane, Building 1, Austin, Texas 78758-4012. (b) The information set forth on the cover page and under the captions "The Conversion Offer" and "Beneficial Ownership and Market Prices -- Preferred Stock" in the Offer of Premium is incorporated herein by reference. (c) The information set forth under the caption "Beneficial Ownership and Market Prices -- Preferred Stock" in the Offer of Premium is incorporated herein by reference. (d) This Statement is being filed by the Issuer. ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. (a) The information set forth under the caption "The Conversion Offer -- Conversion" in the Offer of Premium is incorporated herein by reference. (b) Not applicable. ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE. The information set forth under the captions "The Conversion Offer -- Purpose," "The Conversion Offer -- Conversion" and "Special Considerations -- Market for the Series A Preferred Stock" in the Offer of Premium is incorporated herein by reference. (a) The information set forth under the captions "The Conversion Offer -- Conversion" and "The Conversion Offer -- Resale Registration" in the Offer of Premium is incorporated herein by reference. (b) Not applicable. (c) Not applicable. (d) Not applicable. (e) The information set forth under the captions "The Conversion Offer -- Regular Dividend Payments," "Special Considerations -- Subordinated Status of Common Stock," "Capitalization," "Summary Consolidated Financial Data," and "Dividend Policy" in the Offer of Premium is incorporated herein by reference. (f) The information set forth under the captions "The Conversion Offer -- Conversion," "The Conversion Offer -- Resale Registration," "Capitalization" and "Summary Consolidated Financial Data" in the Offer of Premium is incorporated herein by reference. (g) Not applicable. 2 3 (h) The information set forth under the captions "The Conversion Offer," "Beneficial Ownership and Market Prices -- Preferred Stock" and "Special Considerations -- Market for the Series A Preferred Stock" in the Offer of Premium is incorporated herein by reference. (i) Not applicable. (j) Not applicable. ITEM 4. INTEREST IN SECURITIES OF THE ISSUER. The Issuer is not aware of any transactions in the Series A Preferred Stock effected during the past 40 business days by the Issuer or any controlling person, director, executive officer, associate or subsidiary of the Issuer, or by any director or executive officer of any subsidiary of the Issuer. ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO THE ISSUER'S SECURITIES. The Issuer is not aware of any contract, arrangement, understanding or relationship relating to the Conversion Offer between the Issuer or any controlling person, director, executive officer or subsidiary of the Issuer, and any person with respect to any securities of the Issuer except for the Registration Agreement offered in the Conversion Offer, which is filed as Exhibit (a)(3) hereto. The information set forth under the captions "The Conversion Offer -- Resale Registration" and "Special Considerations -- Registration Agreement Provisions" in the Offer of Premium is incorporated herein by reference. ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED. Not applicable. ITEM 7. FINANCIAL INFORMATION. (a) The information set forth under the captions "Capitalization," "Summary Consolidated Financial Data," "Incorporation of Certain Documents by Reference," and in the financial statements listed in the documents thereby incorporated in the Offer of Premium is incorporated herein by reference. (b) The information set forth under the caption "Summary Consolidated Financial Data" in the Offer of Premium is incorporated herein by reference. ITEM 8. ADDITIONAL INFORMATION. (a) Not applicable. (b) The information set forth under the caption "The Conversion Offer -- Conditions" is incorporated herein by reference. (c) The information set forth under the caption "Special Considerations -- Market for Series A Preferred Stock" is incorporated herein by reference. (d) Not applicable. (e) Reference is hereby made to the Offer of Premium and the related Special Conversion Notice and Registration Agreement, copies of which appear as Exhibits (a)(1), (a)(2) and (a)(3) hereto, respectively, and which are incorporated herein by reference in their entirety. 3 4 ITEM 9. MATERIAL TO BE FILED AS EXHIBITS. (a)(1) -- Offer of Premium Upon Conversion dated February 21, 1995 (a)(2) -- Special Conversion Notice (a)(3) -- Registration Agreement (a)(4) -- Notice of Guaranteed Delivery (a)(5) -- Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees (a)(6) -- Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees (a)(7) -- Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 (a)(8) -- Form of Press Release dated February 21, 1995 (a)(9) -- Annual Report on Form 10-K for the Fiscal Year Ended January 30, 1994, of Dell Computer Corporation (a)(10) -- Quarterly Report on Form 10-Q for the Quarterly Period Ended October 30, 1994, of Dell Computer Corporation (a)(11) -- Current Report on Form 8-K, dated February 21, 1995 (b) -- Not applicable (c) -- See Exhibit (a)(3) (d) -- Opinion of Baker & McKenzie dated February 21, 1995 (e) -- Not applicable (f) -- Question and Answer -- For Use by Dell Computer Corporation Employees Only
4 5 SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Statement is true, complete and correct. DELL COMPUTER CORPORATION By: /s/ THOMAS J. MEREDITH Name: Thomas J. Meredith Title: Chief Financial Officer Dated: February 21, 1995 6 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION PAGE NUMBER - ----------- ----------- ----------- (a)(1) -- Offer of Premium Upon Conversion dated February 21, 1995 (a)(2) -- Special Conversion Notice (a)(3) -- Registration Agreement (a)(4) -- Notice of Guaranteed Delivery (a)(5) -- Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees (a)(6) -- Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees (a)(7) -- Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 (a)(8) -- Form of Press Release dated February 21, 1995 (a)(9) -- Annual Report on Form 10-K for the Fiscal Year Ended January 30, 1994, of Dell Computer Corporation (a)(10) -- Quarterly Report on Form 10-Q for the Quarterly Period Ended October 30, 1994, of Dell Computer Corporation (a)(11) -- Current Report on Form 8-K, dated February 21, 1995 (b) -- Not applicable (c) -- See Exhibit (a)(3) (d) -- Opinion of Baker & McKenzie dated February 21, 1995 (e) -- Not applicable (f) -- Question and Answer -- For Use by Dell Computer Corporation Employees Only
EX-99.(A)(1) 2 OFFER OF PREMIUM UPON CONVERSION DATED 1/26/95 1 OFFER OF PREMIUM UPON CONVERSION OF ANY AND ALL OF THE OUTSTANDING SERIES A CONVERTIBLE PREFERRED STOCK OF DELL COMPUTER CORPORATION THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, MARCH 22, 1995, UNLESS EXTENDED BY THE COMPANY. Dell Computer Corporation, a Delaware corporation (the "Company" or "Dell"), hereby offers to pay a cash premium of $8.25 (the "Conversion Premium") for each share of its Series A Convertible Preferred Stock (the "Series A Preferred Stock") that is converted to common stock, par value $.01 per share ("Common Stock"), of the Company from the date of this Offer of Premium through 12:00 midnight, New York City time, on Wednesday, March 22, 1995, unless extended (the "Special Conversion Period"). A holder of Series A Preferred Stock who elects to convert during the Special Conversion Period will receive 4.2105 shares of Common Stock (equivalent to a conversion price of $23.75 per share of Common Stock) and the Conversion Premium of $8.25 in cash for each share of Series A Preferred Stock converted. At the conclusion of the Special Conversion Period, a holder of shares of Series A Preferred Stock who did not convert those shares to Common Stock during the Special Conversion Period will not be entitled to the Conversion Premium upon conversion. The Company will register under the Securities Act of 1933, as amended (the "Securities Act"), and applicable U.S. state securities laws, the resale of the shares of Common Stock to be issued upon conversion of Series A Preferred Stock pursuant to this offer by the holders thereof (the "Resale Registration") if and to the extent those holders enter into a Registration Agreement with the Company and subject to the terms and conditions of the Registration Agreement. Under the Resale Registration, resales of such Common Stock may be made for 30 calendar days (the "Resale Window") only in ordinary brokerage transactions and transactions in which brokers solicit purchasers. The Company currently intends to use its reasonable commercial efforts to have the Resale Registration declared effective as soon as reasonably practicable following completion of the Conversion Offer. However, the Company may delay the effectiveness of the Resale Registration in its discretion until a later date as the Company determines may be required or advisable. There can be no assurance about when the Resale Registration will become effective. Shares of Common Stock issued upon conversion of Series A Preferred Stock and not sold pursuant to the Resale Registration will remain restricted securities under the Securities Act. See "Special Considerations -- Restrictions on Resale." Holders of Series A Preferred Stock who elect to convert Series A Preferred Stock pursuant to the Conversion Offer will not receive future, regular dividend payments with respect to Series A Preferred Stock, including any amount in respect of periods since January 27, 1995. The offer is made on the terms and subject to the conditions set forth in this Offer of Premium and any supplements or amendments thereto (the "Offer of Premium"), in the related Special Conversion Notice, and in the related Registration Agreement (which together constitute the "Conversion Offer"). The Conversion Offer is not conditioned on any minimum number of shares of Series A Preferred Stock being tendered for conversion. BEFORE MAKING A DECISION WHETHER TO ACCEPT THE CONVERSION OFFER, EACH HOLDER OF SERIES A PREFERRED STOCK SHOULD CAREFULLY CONSIDER THE FACTORS DESCRIBED IN "SPECIAL CONSIDERATIONS." --------------------- NEITHER THIS TRANSACTION NOR THE SECURITIES TO BE ISSUED UPON CONVERSION OF THE SERIES A PREFERRED STOCK HAVE BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF THIS TRANSACTION OR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. --------------------- The date of this Offer of Premium is February 21, 1995. 2 THE SERIES A PREFERRED STOCK AND SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION THEREOF HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, EXCEPT THAT SUCH COMMON STOCK MAY BE REGISTERED FOR RESALE DURING THE RESALE WINDOW ON THE TERMS AND SUBJECT TO THE CONDITIONS OF THE REGISTRATION AGREEMENT. OTHER THAN PURSUANT TO THE RESALE REGISTRATION, THE SHARES OF SERIES A PREFERRED STOCK AND THE COMMON STOCK ISSUABLE UPON CONVERSION MAY NOT BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) BY THE INITIAL INVESTOR IN THE SERIES A PREFERRED STOCK (1) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A OR TO THE COMPANY, (2) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR 904 OF REGULATION S UNDER THE SECURITIES ACT, OR (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), OR (B) BY SUBSEQUENT INVESTORS, AS SET FORTH IN (A) ABOVE AND, IN ADDITION, TO AN INSTITUTIONAL ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501 UNDER THE SECURITIES ACT IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. --------------------- TABLE OF CONTENTS The Conversion Offer.................... 1 Special Considerations.................. 5 Capitalization.......................... 9 Summary Consolidated Financial Data..... 10 Beneficial Ownership and Market Prices.. 11 Dividend Policy......................... 12 Procedures for Conversion and Registration.......................... 12 Certain Federal Income Tax Considerations........................ 17 Description of Capital Stock............ 20 Available Information................... 24 Incorporation of Certain Documents by Reference.......................... 25 Conversion Agent........................ 26
--------------------- The Conversion Offer is being made by the Company in reliance on the exemption from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), afforded by Section 3(a)(9) thereof. The Company will not pay any commission or other remuneration to any broker, dealer, salesman or other person for soliciting conversion of the Series A Preferred Stock. Regular employees of the Company may solicit holders concerning the Conversion Offer to holders of the Series A Preferred Stock, but they will not receive additional compensation for doing so. THE COMPANY HAS MADE NO ARRANGEMENTS FOR AND HAS NO UNDERSTANDING WITH ANY DEALER, SALESMAN OR OTHER PERSON REGARDING THE SOLICITATION OF HOLDERS OF SERIES A PREFERRED STOCK TO TENDER SERIES A PREFERRED STOCK FOR CONVERSION, AND NO PERSON HAS BEEN AUTHORIZED BY THE COMPANY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE CONVERSION OFFER AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THE DELIVERY OF THIS OFFER OF PREMIUM SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. THE CONVERSION OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY OR THE CONVERSION AGENT ACCEPT SERIES A PREFERRED STOCK TENDERED FOR CONVERSION FROM, HOLDERS OF SERIES A PREFERRED STOCK IN ANY JURISDICTION IN WHICH THE CONVERSION OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION. THE COMPANY WILL MAKE A GOOD FAITH EFFORT TO COMPLY WITH APPLICABLE SECURITIES AND BLUE SKY LAWS IN ORDER TO PREVENT THE EXCLUSION OF HOLDERS OF SERIES A PREFERRED STOCK FROM THE CONVERSION OFFER. ii 3 THE CONVERSION OFFER PURPOSE The purpose of the Conversion Offer is to induce conversion of the Series A Preferred Stock into Common Stock. The Company believes the effects of conversion will be to strengthen the Company's balance sheet, to eliminate or reduce the future dividend payments on the Series A Preferred Stock, and to eliminate or reduce the uncertainty and potential effects on the market price of the Common Stock associated with the possible future conversion of the Series A Preferred Stock. NO RECOMMENDATION OR FAIRNESS OPINION THE BOARD OF DIRECTORS OF THE COMPANY HAS NOT EXPRESSED A VIEW WITH RESPECT TO THE FAIRNESS OF THE CONVERSION OFFER TO HOLDERS OF SERIES A PREFERRED STOCK. NEITHER THE COMPANY NOR THE BOARD OF DIRECTORS OF THE COMPANY HAS SOUGHT OR RECEIVED A FAIRNESS OPINION ABOUT THE TERMS OF THE CONVERSION OFFER TO HOLDERS OF SERIES A PREFERRED STOCK. NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS HAS RECOMMENDED THAT HOLDERS OF SERIES A PREFERRED STOCK TENDER THEIR SERIES A PREFERRED STOCK FOR CONVERSION PURSUANT TO THE CONVERSION OFFER OR REFRAIN FROM TENDERING SERIES A PREFERRED STOCK FOR CONVERSION PURSUANT TO THE CONVERSION OFFER. NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS HAS RECOMMENDED THAT HOLDERS OF SERIES A PREFERRED STOCK ACCEPT OR REFUSE TO INCLUDE SHARES IN THE RESALE REGISTRATION OR TO RESELL THEIR COMMON STOCK PURSUANT TO THE RESALE REGISTRATION. EACH HOLDER OF SERIES A PREFERRED STOCK SHOULD CAREFULLY REVIEW THIS OFFER OF PREMIUM AND DETERMINE FOR ITSELF WHETHER TO TENDER SERIES A PREFERRED STOCK PURSUANT TO THE CONVERSION OFFER, WHETHER TO SIGN THE REGISTRATION AGREEMENT, AND WHETHER TO RESELL SHARES OF COMMON STOCK PURSUANT TO THE RESALE REGISTRATION. CONVERSION The Company hereby offers to pay a cash Conversion Premium of $8.25 for each share of its Series A Preferred Stock that is converted to Common Stock during the Special Conversion Period. A holder of Series A Preferred Stock who elects to convert during the Special Conversion Period will receive 4.2105 shares of Common Stock (equivalent to a conversion price of $23.75 per share of Common Stock) and the Conversion Premium of $8.25 in cash for each share of Series A Preferred Stock converted. The Conversion Premium will be funded from the working capital of the Company. As of January 29, 1995, the Company had approximately $719 million in working capital, including approximately $527 million in cash and short-term investments. Assuming all of the outstanding shares of Series A Preferred Stock are converted during the Special Conversion Period, the holders of Series A Preferred Stock will receive an aggregate of 5,263,125 shares of Common Stock and $10,312,500 in cash (subject to applicable income taxes and back-up withholding obligations). At the conclusion of the Special Conversion Period, a holder of shares of Series A Preferred Stock who did not convert those shares to Common Stock in the Conversion Offer will not be entitled to the Conversion Premium upon conversion. Holders may elect to convert some or all of their shares of Series A Preferred Stock pursuant to the Conversion Offer. In establishing the Conversion Premium being offered to the holders of Series A Preferred Stock as an inducement to tender their Series A Preferred Stock for conversion, the Company considered (i) an estimated present value of dividend payments (using a discount rate based on the Company's estimated weighted average cost of capital) that are expected to be declared after February 15, 1995, through August 25, 1996, which is the first date the Company may call the Series A Preferred Stock for redemption; (ii) the prices at which Series A Preferred Stock has been 1 4 sold in private transactions, to the extent the Company could obtain that information, and the increase in those prices since the date the Series A Preferred Stock was issued; (iii) recent trading prices for Common Stock on the Nasdaq National Market; (iv) the potential benefits of increased liquidity in a public market that the Resale Registration could afford holders of Series A Preferred Stock who convert Series A Preferred Stock pursuant to the Conversion Offer; and (v) potential transaction costs that may be incurred by holders in connection with the sale of shares of Common Stock under the Resale Registration. The number of shares of Common Stock to be issued for each share of Series A Preferred Stock converted in the Conversion Offer is the number originally provided in the Certificate of Designation with respect to the Series A Preferred Stock. No adjustment of the conversion ratio of the Series A Preferred Stock has been made. No adjustment in the conversion ratio of the Series A Preferred Stock or in the number of shares of Common Stock issuable upon conversion thereof will be necessary as a result of the Conversion Offer. Shares of Series A Preferred Stock that the Company receives on conversion will be restored to the status of authorized but unissued shares of preferred stock, without designation as to class, and may thereafter be issued (but not as Series A Preferred Stock). Shares of Series A Preferred Stock that are not converted pursuant to the Conversion Offer or otherwise will continue to retain their original rights, preferences and limitations as provided in the Certificate of Designation relating to those shares. RESALE REGISTRATION The Company will register under the Securities Act and applicable U.S. state securities laws the resale of the shares of Common Stock to be issued upon conversion of Series A Preferred Stock pursuant to the Conversion Offer by the holders thereof, if the holders enter into a Registration Agreement with the Company and subject to the terms and conditions of the Registration Agreement. The Resale Registration will be made through a Registration Statement to be filed with the Securities and Exchange Commission (the "Commission"). After the Commission declares the Registration Statement effective, holders of Common Stock that are identified in the Registration Statement may resell their Common Stock during the 30-day Resale Window only in ordinary brokerage transactions and transactions in which the broker solicits purchasers. The Company currently intends to use its reasonable commercial efforts to have the Commission declare the Registration Statement effective as soon as reasonably practicable following completion of the Conversion Offer. However, the Company may delay the effectiveness of the Registration Statement in its discretion until a later date as the Company determines may be required or advisable. The Registration Statement will not be available for resales until the Commission has declared the Registration Statement to be, or allowed it to become, effective. There can be no assurance about when the Registration Statement will become effective. The Resale Registration will be governed by the terms and conditions of the Registration Agreement, which holders should read and consider carefully. The Company will register only those shares of Common Stock that have been issued in this Conversion Offer and only if the Conversion Agent has received a properly completed and manually signed Registration Agreement with respect to those shares. Holders of Series A Preferred Stock desiring to have such Common Stock registered in the Resale Registration must deliver to the Conversion Agent, on or before the Expiration Date (hereafter defined), a duly completed and signed Registration Agreement. In the Registration Agreement, the Company will agree to indemnify holders signing the Registration Agreement for certain liabilities under the Securities Act relating to the Resale Registration, and the holders will agree to indemnify the Company for certain liabilities under the Securities Act arising from information provided by such holders for use in the Resale Registration. In the Registration Agreement, holders will also agree to comply with applicable securities laws, including prospectus delivery requirements, prohibitions against using Common Stock issued upon conversion of 2 5 Series A Preferred Stock to cover any short position in the Common Stock established by that holder, and the provisions of Rule 10b-6 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). In addition, holders who sell shares of Common Stock pursuant to the Resale Registration may be deemed to be statutory "underwriters" under the Securities Act, subject to the liability provisions thereof. See "Special Considerations -- Registration Agreement Provisions." Holders may elect to have some or all of their Common Stock issued upon conversion of Series A Preferred Stock in the Conversion Offer registered for resale pursuant to the Resale Registration. The purpose of the Resale Registration is to encourage conversion of the Series A Preferred Stock by providing holders with increased liquidity during a 30-day period for the shares of Common Stock issued upon conversion of the Series A Preferred Stock. Shares of Common Stock issued upon conversion of Series A Preferred Stock will be restricted securities within the meaning of Rule 144 of the Securities Act and will be subject to restrictions on transferability. See "Special Considerations -- Restrictions on Resale." Accordingly, the Resale Registration is expected to be the only opportunity for holders to sell the Common Stock issued on conversion in a public market until the holding period for restricted securities specified in Rule 144 under the Securities Act has expired. See "Special Considerations -- Market for Restricted Common Stock." REGULAR DIVIDEND PAYMENTS Holders of Series A Preferred Stock who elect to convert Series A Preferred Stock pursuant to the Conversion Offer will not receive future, regular dividend payments with respect to Series A Preferred Stock, including any amount in respect of periods since January 27, 1995, the last record date for payment of regularly scheduled dividends. EXPIRATION AND EXTENSION The Company will pay the Conversion Premium with respect to any and all shares of Series A Preferred Stock tendered for conversion and not withdrawn before 12:00 midnight, New York City time, on Wednesday, March 22, 1995, unless extended by the Company in its sole discretion (such date, as may be extended, the "Expiration Date"). In order to extend the Conversion Offer, the Company will notify the Conversion Agent and make a public announcement of the extension before 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. Tenders of Series A Preferred Stock for conversion may be withdrawn at any time before the Expiration Date. If the Company accepts Series A Preferred Stock for conversion pursuant to the Conversion Offer, the Company will proceed with the Resale Registration with respect to shares of Common Stock for which a properly completed and duly signed Registration Agreement has been received by the Conversion Agent and not withdrawn before the Expiration Date. Registration Agreements may be withdrawn at any time before the Expiration Date. CONDITIONS The Conversion Offer is not conditioned upon any minimum number of shares of Series A Preferred Stock being tendered for conversion pursuant to the Conversion Offer. The Conversion Offer is subject to certain customary conditions. See "Procedures for Conversion and Registration." The Resale Registration is subject to the Company's acceptance of Series A Preferred Stock for conversion pursuant to the Conversion Offer, the Conversion Agent's receipt of a properly completed and duly signed Registration Agreement with respect to the shares to be included in the Registration Statement, and other customary terms and conditions specified in the Registration Agreement. A holder's ability to resell Common Stock pursuant to the Resale Registration is subject to the Commission's declaring the Registration Statement effective and to compliance with state securities laws. See "Procedures for Conversion and Registration." There can be no assurance about when the Registration Statement will become effective. 3 6 The Conversion Offer is made on the terms and subject to the conditions set forth in this Offer of Premium, in the related Special Conversion Notice, and in the related Registration Agreement. The Company intends to conduct the Conversion Offer in accordance with the applicable requirements of the Exchange Act and the rules and regulations of the Commission thereunder. MODIFICATION AND TERMINATION The Company expressly reserves the right, at its sole discretion, in each case subject to applicable law, to (i) delay payment of the Conversion Premium, or terminate the Conversion Offer and not pay the Conversion Premium and promptly return all Series A Preferred Stock to the holders of Series A Preferred Stock who elected to convert pursuant to the Conversion Offer by giving oral or written notice of the delay or termination to the Conversion Agent prior to the Expiration Date, (ii) waive any condition to the Conversion Offer and pay the Conversion Premium on all Series A Preferred Stock tendered for conversion pursuant thereto, (iii) waive any condition to the Resale Registration, (iv) extend the Expiration Date and retain all Series A Preferred Stock tendered pursuant to the Conversion Offer, and not withdrawn, until the expiration thereof, (v) amend the terms of the Conversion Offer, (vi) modify the form or amount of the consideration to be paid pursuant to the Conversion Offer, or (vi) delay the effectiveness of the Registration Statement for the Resale Registration as the Company determines may be required or advisable. Any amendment to the Conversion Offer will apply to all Series A Preferred Stock tendered for conversion pursuant to the Conversion Offer, and any amendment to the Registration Agreement will apply to all Common Stock subject to a Registration Agreement. FEES AND EXPENSES The holders of Series A Preferred Stock who elect to convert pursuant to the Conversion Offer will not be obligated to pay brokerage commissions, fees or transfer taxes upon conversion of Series A Preferred Stock pursuant to the Conversion Offer. The Company will pay all its charges and expenses in connection with the Conversion Offer. Holders will be responsible for their own income taxes, administrative expenses, and the fees and expenses of their own advisors. The holders of Series A Preferred Stock who elect to have the Common Stock issuable upon conversion registered in the Resale Registration will not be obligated to pay fees and expenses of the Resale Registration. However, such holders will be obligated to pay any transfer taxes, income taxes, and brokerage fees upon resale of that Common Stock. The Company estimates that the aggregate amount of fees and expenses it will incur in connection with the Conversion Offer is approximately $300,000. ACCEPTANCE PROCEDURES TO RECEIVE THE CONVERSION PREMIUM OFFERED HEREBY, YOU MUST COMPLETE THE SPECIAL CONVERSION NOTICE PROVIDED WITH THIS OFFER OF PREMIUM AND RETURN IT TO THE CONVERSION AGENT OR, IF YOUR SHARES ARE HELD IN BOOK-ENTRY FORM THROUGH THE DEPOSITORY TRUST COMPANY ("DTC"), YOU MUST COMPLY WITH THE BOOK-ENTRY TENDER PROCEDURES, IN EACH CASE BY THE EXPIRATION DATE OF 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, MARCH 22, 1995, UNLESS EXTENDED BY THE COMPANY. See "Procedures for Conversion and Registration" and the Special Conversion Notice. To have shares of Common Stock issued upon conversion of shares of Series A Preferred Stock in the Conversion Offer registered for resale in the Resale Registration, you must complete the Registration Agreement provided with this Offer of Premium and deliver a manually signed copy to the Conversion Agent before the Expiration Date. EVEN IF YOUR SHARES ARE HELD IN BOOK-ENTRY FORM, YOU MUST COMPLETE AND TIMELY DELIVER A MANUALLY SIGNED REGISTRATION AGREEMENT TO THE CONVERSION AGENT BEFORE THE EXPIRATION DATE IN ORDER TO HAVE SHARES OF COMMON STOCK INCLUDED IN THE REGISTRATION STATEMENT. See "Procedures for Conversion and Registration" and the Registration Agreement. 4 7 The Company will be deemed to have accepted valid Special Conversion Notices and Registration Agreements when, as and if the Company has given oral or written notice thereof to the Conversion Agent. The acceptance for conversion of Series A Preferred Stock validly tendered for conversion pursuant to the Conversion Offer and not properly withdrawn will be made as promptly as practicable after the Expiration Date. If any tendered Series A Preferred Stock is not accepted for conversion because of an invalid or late Special Conversion Notice or otherwise, certificates for the unaccepted Series A Preferred Stock will be returned, without expense, to the tendering holders thereof as soon as practicable after the Expiration Date. SPECIAL CONSIDERATIONS In addition to the other information contained in this Offer of Premium, holders of Series A Preferred Stock should consider carefully the following factors before tendering Series A Preferred Stock pursuant to the Conversion Offer. RESTRICTIONS ON RESALE The shares of Series A Preferred Stock were originally issued on August 26, 1993, in a private placement exempt from the registration requirements of the Securities Act pursuant to Section 4(2) and Regulation D under the Securities Act. The shares were resold by the purchaser in transactions exempt from the registration requirements of the Securities Act in reliance on Rule 144A and Regulation S under the Securities Act. The Series A Preferred Stock and shares of Common Stock issuable upon conversion thereof have not been and will not be registered under the Securities Act or any state securities laws, except that Common Stock issued upon conversion in the Conversion Offer may be registered for resale during the 30-day Resale Window pursuant to the Resale Registration. Other than pursuant to the Resale Registration, the shares of Series A Preferred Stock and the Common Stock issuable upon conversion may not be offered, resold, pledged or otherwise transferred except (a) by the initial investor in the Series A Preferred Stock (1) to a person who the seller reasonably believes is a qualified institutional buyer within the meaning of Rule 144A under the Securities Act in a transaction meeting the requirements of Rule 144A or to the Company, (2) in an offshore transaction in accordance with Rule 903 or 904 of Regulation S under the Securities Act, or (3) pursuant to an exemption from registration provided by Rule 144 under the Securities Act (if available), or (b) by subsequent investors, as set forth in (a) above and, in addition, to an institutional accredited investor within the meaning of Rule 501 under the Securities Act in a transaction exempt from the registration requirements of the Securities Act, in each case in accordance with any applicable securities laws of any state of the United States. MARKET FOR THE SERIES A PREFERRED STOCK Although the Series A Preferred Stock is subject to various restrictions on transfer, trades occur from time to time through the Private Offerings, Resales and Trading through Automated Linkages ("PORTAL") system of the National Association of Securities Dealers, Inc. in which only qualified institutional buyers (as defined in Rule 144A under the Securities Act) may participate and in other private transactions. Private trading in the Series A Preferred Stock is limited, and there is currently no established trading market for the Series A Preferred Stock. To the extent that shares of Series A Preferred Stock are converted as a result of the Conversion Offer, the number of outstanding shares of Series A Preferred Stock will be reduced. Accordingly, the Company anticipates that the private market could be substantially reduced for shares of Series A Preferred Stock remaining outstanding after the Conversion Offer. Shares of Series A Preferred Stock that are not converted may not continue to be eligible for trading on the PORTAL system or be eligible for book-entry transfer. The shares of Series A Preferred Stock are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), meaning that, among other things, brokers may not extend credit on the collateral of the Series A Preferred Stock. Following the Conversion Offer, the shares of Series A Preferred Stock would continue not to 5 8 constitute "margin securities" for the purposes of the Federal Reserve Board and, therefore, could not be used as collateral for loans made by brokers. MARKET FOR THE RESTRICTED COMMON STOCK Shares of Common Stock issued upon conversion of Series A Preferred Stock will be restricted securities within the meaning of Rule 144 under the Securities Act and will be subject to limitations on transferability as described in "Special Considerations -- Restrictions on Resale." Based on current law and assuming that the holding period of the Common Stock may tack back to the date of original issuance of the Series A Preferred Stock, the Company believes that shares of Common Stock issued upon conversion of Series A Preferred Stock may be resold publicly after August 26, 1995, pursuant to Rule 144. In general, under Rule 144 as currently in effect, if two years have elapsed since the later of the date of acquisition of restricted shares from the Company or any "affiliate" (as defined below) of the Company, the acquiror or subsequent holder (including an affiliate) is entitled to sell, within any three-month period, that number of shares that does not exceed the greater of 1% of the then outstanding shares of Common Stock or the average weekly trading volume of the shares of Common Stock on all exchanges and/or reported through the automated quotation system of a registered securities association during the four calendar weeks preceding the date on which notice of the sale is filed with the Commission. Sales under Rule 144 are also subject to certain restrictions relating to manner of sale, notice requirements and the availability of current public information about the Company. If three years have elapsed since the later of the date of acquisition of restricted shares from the Company or from any affiliate of the Company, and the acquiror or subsequent holder thereof is deemed not to have been an affiliate of the Company at any time during the 90 days preceding a sale, such person would be entitled to sell such shares in the public market under Rule 144(k) without regard to the volume limitations, manner of sale provisions, public information requirements or notice requirements. As defined in Rule 144, an "affiliate" of an issuer is a person that directly, or indirectly through the use of one or more intermediaries, controls, or is controlled by, or is under common control with, such issuer. REGISTRATION AGREEMENT PROVISIONS The holders of Series A Preferred Stock do not currently have registration rights with respect to their shares or the Common Stock issuable upon conversion of Series A Preferred Stock. Certain provisions of the Registration Agreement are intended to provide the Company and the holders of Common Stock issued upon conversion of Series A Preferred Stock pursuant to the Conversion Offer with certain rights and obligations comparable to those typically found in registration rights agreements. In the Registration Agreement, the Company will agree to indemnify such holders who sign the Registration Agreement for certain liabilities under the Securities Act relating to the Resale Registration, and those holders will agree to indemnify the Company for certain liabilities under the Securities arising from information provided by those holders for use in the Resale Registration. In the Registration Agreement, those holders will also agree to comply with applicable securities laws, including prospectus delivery requirements. The Registration Agreement also contains covenants intended to assure that holders comply with certain other securities laws applicable to a secondary distribution of securities. See "Special Considerations -- Short Sales" and "Special Considerations -- Cooling Off Period." The Company currently intends to use its reasonable commercial efforts to have the Resale Registration declared effective as soon as reasonably practicable following completion of the Conversion Offer. However, the Company may delay the effectiveness of the Resale Registration in its discretion until a later date as the Company determines may be required or advisable. There can be no assurance about when the Resale Registration will become effective. 6 9 SHORT SALES In order to avoid violation of the registration requirements of the Securities Act, holders of Series A Preferred Stock may not use Common Stock issuable upon conversion to cover short positions in the Company's Common Stock. Sales of Common Stock issuable upon conversion may be made only after the conversion has occurred and only in accordance with the applicable legal and contractual transfer restrictions. See "Special Considerations -- Restrictions on Resale." Sales of Common Stock covered by the Resale Registration may be made only after the holder has received notice from the Company that the Commission has declared the Registration Statement for such resales effective under the Securities Act, and then during the Resale Window for so long as the Registration Statement is effective. HOLDERS ARE URGED TO CONSULT THEIR LEGAL COUNSEL FOR ADVICE ABOUT COMPLIANCE WITH FEDERAL AND STATE SECURITIES LAWS. COOLING OFF PERIOD Rule 10b-6 under the Exchange Act prohibits persons (subject to some exceptions) who are engaged in a distribution of Common Stock from bidding for or purchasing, or inducing other persons to bid for or purchase, Common Stock or any right to purchase the Common Stock until they have completed their participation in the distribution. Under Rule 10b-6 and Commission interpretations of that rule, a selling shareholder in the Resale Registration and affiliates of that selling shareholder must cease bidding for and purchasing Common Stock and Series A Preferred Stock at least two business days before the selling shareholder offers or sells Common Stock pursuant to the Registration Statement in the Resale Registration. Such bids and purchases may not be made for so long as the shares of Common Stock registered in the Resale Registration and held by that selling shareholder (or persons acting in concert or affiliated with that selling shareholder) remain unsold. Broker-dealers may also be subject to this cooling-off period if their activities are deemed to be participation in the distribution, such as if the broker-dealer purchases securities as principal from a selling shareholder or sells securities as agent for a selling shareholder. Consequently, the Registration Agreement provides that the Resale Registration will be available only in ordinary brokerage transactions, including ordinary transactions in which brokers solicit purchasers. HOLDERS ARE URGED TO CONSULT THEIR LEGAL COUNSEL FOR ADVICE ABOUT COMPLIANCE WITH RULE 10B-6 IF THEY DETERMINE TO INCLUDE SHARES IN THE RESALE REGISTRATION. NO DETERMINATION ABOUT THE FAIRNESS OF THE CONVERSION OFFER The Board of Directors of the Company has not expressed a view with respect to the fairness of the Conversion Offer to holders of Series A Preferred Stock. Neither the Company nor the Board of Directors of the Company has sought or received a fairness opinion about the terms of the Conversion Offer to holders of Series A Preferred Stock. Neither the Company nor its Board of Directors has recommended that holders of Series A Preferred Stock tender their Series A Preferred Stock for conversion pursuant to the Conversion Offer or refrain from tendering Series A Preferred Stock for conversion pursuant to the Conversion Offer. Neither the Company nor its Board of Directors has recommended that holders of Series A Preferred Stock accept or refuse to include shares in the Resale Registration or to resell their Common Stock pursuant to the Resale Registration. Each holder of Series A Preferred Stock should carefully review this Offer of Premium and determine for itself whether to tender Series A Preferred Stock pursuant to the Conversion Offer, whether to sign the Registration Agreement, and whether to resell shares of Common Stock pursuant to the Resale Registration. FEDERAL INCOME TAX CONSIDERATIONS It is more likely than not that the payment of the cash Conversion Premium will be treated for tax purposes as ordinary dividend income to a recipient, provided that the recipient makes no dispositions of Common Stock or Series A Preferred Stock that are considered to be part of the same integrated plan as the conversion of the Series A Preferred Stock. The Conversion Premium may be taxable as ordinary dividend income or capital gain to recipients who dispose of Common 7 10 Stock or Series A Preferred Stock as part of the same integrated plan as the conversion of the Series A Preferred Stock, depending on their individual circumstances. See "Certain Federal Income Tax Considerations." NO APPRAISAL RIGHTS Holders of Series A Preferred Stock are not entitled to appraisal under applicable law in connection with the Conversion Offer. SUBORDINATED STATUS OF COMMON STOCK The Common Stock received upon conversion of any Series A Preferred Stock will rank junior in right of payment of dividends and liquidating distributions to all existing and future indebtedness of the Company, including the Company's 11% Senior Notes Due August 15, 2000, and will also rank junior in right of payment to other debentures, notes or preferred stock of the Company, whether now or hereafter issued (including the shares of Series A Preferred Stock that are not converted). VOLATILITY OF STOCK PRICE The Common Stock is currently quoted on the Nasdaq National Market. The Company believes that factors including but not limited to new product or other announcements by the Company, its competitors or suppliers and quarterly fluctuations in the Company's and competitors' results of operations have caused significant fluctuations in the market price of the Common Stock and could continue to do so in the future. In addition, substantial sales of the Company's Common Stock in excess of historical trading volumes, as may be occasioned by the sale of shares of Common Stock in the Resale Registration, are likely to have an adverse effect on the trading price of the Company's Common Stock. Further, the Company competes in a highly dynamic industry which may result in increased volatility of the Company's Common Stock price. 8 11 CAPITALIZATION The following table sets forth the actual capitalization of the Company at October 30, 1994, and the pro forma capitalization adjusted to reflect the assumed conversion of all of the outstanding shares of Series A Preferred Stock to Common Stock and the payment of the aggregate Conversion Premium and the estimated expenses of the Conversion Offer. This table should be read in conjunction with the Company's Annual Report on Form 10-K for the Fiscal Year Ended January 30, 1994, and Quarterly Report on Form 10-Q for the Quarterly Period Ended October 30, 1994, incorporated herein by reference.
OCTOBER 30, 1994 ---------------------- ACTUAL PRO FORMA --------- --------- (IN THOUSANDS) Long-term debt(1)..................................................... $ 100,000 $ 100,000 Stockholders' equity: Preferred Stock, $.01 par value (liquidation preference $100.00 per share); shares authorized: 5,000,000; shares issued and outstanding: 1,250,000 actual and no shares outstanding pro forma............................................................ 13 -- Common Stock, $.01 par value; shares authorized: 100,000,000; shares issued and outstanding: 39,086,664 actual and 44,349,789 pro forma (2)........................................................ 391 444 Additional paid-in capital.......................................... 342,909 342,869 Unrealized loss on short-term investments........................... (2,451) (2,451) Retained earnings................................................... 253,114 242,501 Translation adjustment.............................................. (12,155) (12,155) --------- --------- Total stockholders' equity....................................... 581,821 571,208 --------- --------- Total capitalization........................................ $ 681,821 $ 671,208 ========= =========
- --------------- (1) Consists of the Company's 11% Senior Notes Due August 15, 2000. (2) Excludes 10,262,391 shares of Common Stock reserved for issuance under the Company's employee benefit plans. Options for 6,203,033 shares under such plans were outstanding at October 30, 1994. 9 12 SUMMARY CONSOLIDATED FINANCIAL DATA The following table sets forth summary consolidated financial data of the Company. The table also sets forth summary pro forma financial information that gives effect to the conversion of the Series A Preferred Stock (assuming all shares are converted) and the payment of the aggregate Conversion Premium and the estimated expenses of the Conversion Offer. The payment of the Conversion Premium and the expenses of the Conversion Offer will be treated as an additional dividend on the Series A Preferred Stock for financial reporting purposes. Accordingly, the aggregate amount of the Conversion Premium and expenses paid will be deducted from net income to determine the net income applicable to common stockholders in the period in which the Conversion Offer is completed, which will be the first quarter of fiscal 1996 unless the Conversion Offer is extended or withdrawn. In addition, the weighted average shares outstanding used to calculate primary earnings per common share will include the shares of Common Stock issued upon conversion from the Expiration Date to the end of the period. The summary historical information in this table should be read in conjunction with the Company's Annual Report on Form 10-K for the Fiscal Year Ended January 30, 1994, and Quarterly Report on Form 10-Q for the Quarterly Period Ended October 30, 1994, incorporated herein by reference.
PRO FORMA ------------------------- YEAR ENDED NINE MONTHS ENDED NINE MONTHS ------------------------- ------------------------- YEAR ENDED ENDED JANUARY 31, JANUARY 30, OCTOBER 31, OCTOBER 30, JANUARY 30, OCTOBER 30, 1993 1994 1993 1994 1994 1994 ----------- ----------- ----------- ----------- ----------- ----------- (IN THOUSANDS, EXCEPT RATIO AND PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Net sales.............................. $ 2,013,924 $ 2,873,165 $ 2,130,217 $ 2,442,680 $ 2,873,165 $2,442,680 Gross profit........................... 449,452 432,816 294,466 520,892 432,816 520,892 Operating income (loss)................ 139,112 (39,024) (66,180) 170,592 (39,024) 170,592 Net income (loss)...................... 101,642 (35,833) (53,541) 88,886 (35,833) 88,886 Preferred stock dividends.............. -- (3,743) (1,556) (6,562) -- -- ----------- ----------- ----------- ----------- ----------- ---------- Net income (loss) applicable to common stockholders......................... $ 101,642 $ (39,576) $ (55,097) $ 82,324 $ (35,833) $ 88,886 =========== =========== =========== =========== =========== ========== Earnings (loss) per common share(1): Primary.............................. $ 2.59 $ (1.06) $ (1.48) $ 2.01 $ (0.84) $ 1.92 Fully diluted........................ -- -- -- $ 1.89 -- -- Weighted average shares used to compute earnings per share(1): Primary.............................. 39,235 37,333 37,227 41,009 42,596 46,272 Fully diluted........................ -- -- -- 46,944 -- -- Ratio of earnings to combined fixed charges and preferred stock dividends(2)......................... 10.11 --(3) --(3) 5.5 --(3) 8.5
PRO FORMA ------------------------- JANUARY 31, JANUARY 30, OCTOBER 31, OCTOBER 30, JANUARY 30, OCTOBER 30, 1993 1994 1993 1994 1994 1994 ----------- ----------- ----------- ----------- ----------- ----------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF FINANCIAL POSITION DATA(4): Working capital........................ $ 358,948 $ 510,397 $ 487,533 $ 624,589 $ 499,784 $ 613,976 Total assets........................... 927,005 1,140,480 1,119,610 1,389,795 1,129,867 1,379,182 Long-term debt......................... 48,373 100,000 100,000 100,000 100,000 100,000 Total stockholders' equity............. 369,200 471,108 448,545 581,821 460,495 571,208 Book value per share................... 10.02 12.42 11.96 14.89 10.66 12.88
- --------------- (1) Pro forma primary earnings per share have been computed assuming the issuance of 5,263,125 shares of Common Stock pursuant to the Conversion Offer and net income (loss) before the Conversion Premium and the estimated expenses of the Conversion Offer. The effect of the payment of the Conversion Premium and the expenses of the Conversion Offer will be treated as an additional dividend on the Series A Preferred Stock for financial reporting purposes in the period in which the Conversion Offer is completed. (2) For purposes of computing the ratio of earnings to combined fixed charges and preferred stock dividends, earnings consist of income before income taxes plus fixed charges excluding capitalized interest. Fixed charges consist of interest incurred, an appropriate portion of rent expense representative of the interest factor, and preferred stock dividend requirements equal to the pre-tax earnings that would be required to cover such dividend requirements based on the Company's effective income tax rates for the respective periods. (3) Earnings were inadequate to cover combined fixed charges and preferred dividend requirements by $43 million for the year ended January 30, 1994, $70 million for the nine months ended October 31, 1993, and $39 million for the pro forma year ended January 30, 1994. (4) Pro Forma Statement of Financial Position Data is adjusted to reflect the payment of the aggregate Conversion Premium (assuming all shares are converted) and the estimated expenses of the Conversion Offer. 10 13 BENEFICIAL OWNERSHIP AND MARKET PRICES PREFERRED STOCK As of February 14, 1995, there were 1,250,000 shares of Series A Preferred Stock outstanding held by 4 record holders. This Offer of Premium, together with the Special Notice of Conversion and Registration Agreement, is being sent to those registered holders and to others believed to have beneficial interests in the Series A Preferred Stock. No officer, director or affiliate of the Company holds any shares of Series A Preferred Stock. The Series A Preferred Stock is traded in the PORTAL system of the National Association of Securities Dealers, Inc. and in other private transactions. Trading on the PORTAL system is limited, and transaction prices are not readily available. Accordingly, there is currently no established trading market for the Series A Preferred Stock. Based on information received from broker-dealers that purchase or sell the Series A Preferred stock from time to time, the Company believes that the Series A Preferred Stock currently trades at prices approximating the market value of the number of shares of Common Stock into which Series A Preferred Stock is convertible. Holders of Series A Preferred Stock are urged to obtain current market quotations. To the extent that shares of Series A Preferred Stock are converted, it is anticipated that the limited private trading market for unconverted Series A Preferred Stock will become more limited. There can be no assurance that the Series A Preferred Stock will continue to be traded in the PORTAL system following the Conversion Offer. See "Special Considerations -- Market for the Series A Preferred Stock." COMMON STOCK If all the shares of Series A Preferred Stock are converted, the Company will have 44,958,736 shares of Common Stock issued and outstanding (assuming no additional issuance of shares of Common Stock after February 14, 1995, other than upon conversion of the Series A Preferred Stock). The Common Stock is traded in the over-the-counter market and quoted on the Nasdaq National Market under the symbol DELL. On February 14, 1995, the last reported sale price of the Common Stock was $45 3/8 per share. The Common Stock issuable upon conversion of the Series A Preferred Stock will not be eligible for trading in the Nasdaq National Market and will be subject to the transfer restrictions described in "Special Considerations -- Restrictions on Resale," except as provided in the Resale Registration. The following table sets forth, for the fiscal quarters indicated, the high and low bid prices for the Common Stock as reported on the Nasdaq National Market.
HIGH LOW ----- ----- Fiscal Year Ending January 28, 1996 First Quarter (January 30, 1995, through February 14, 1995................ $45 5/8 $39 1/2 Fiscal Year Ended January 29, 1995 Fourth Quarter................................................. $47 3/4 $36 3/4 Third Quarter.................................................. $44 $27 1/2 Second Quarter................................................. $30 3/4 $21 1/2 First Quarter.................................................. $30 1/8 $19 1/8 Fiscal Year Ended January 30, 1994 Fourth Quarter................................................. $28 1/8 $20 1/8 Third Quarter.................................................. $21 5/8 $15 1/8 Second Quarter................................................. $34 3/4 $13 7/8 First Quarter.................................................. $49 1/4 $27 5/8
11 14 DIVIDEND POLICY PREFERRED STOCK Holders of shares of Series A Preferred Stock are entitled to receive, when, as and if declared by the Board of Directors out of funds legally available therefore, cash dividends at an annual rate of $7.00 per share, payable quarterly in arrears. Dividends are cumulative and are payable to the holders of record as they appear on the stock transfer books on such record dates as are fixed by the Board of Directors. The Series A Preferred Stock has priority as to dividends over the Common Stock. COMMON STOCK Dividends on the Common Stock are payable when, as and if declared by the Board of Directors of the Company. The Company has never paid cash dividends on its Common Stock. The Company intends to retain earnings for use in its business and, therefore, does not anticipate paying any cash dividends on the Common Stock for at least the next twelve months. In addition, the Company's current credit facility generally prohibits the payment of cash dividends by the Company on the Common Stock except in certain circumstances. PROCEDURES FOR CONVERSION AND REGISTRATION The acceptance of the Conversion Offer by a holder of Series A Preferred Stock pursuant to the procedure set forth below will constitute an agreement between the holder of Series A Preferred Stock and the Company in accordance with the terms and subject to the conditions set forth in this Offer of Premium. CONVERSION OFFER Except as set forth under "Procedures for Conversion and Registration -- Book-Entry Transfer," to tender Series A Preferred Stock validly for conversion pursuant to the Conversion Offer, the Special Conversion Notice provided herewith, properly completed and duly executed, and any required signature guarantees and any other required documents must be received on or before the Expiration Date by the Conversion Agent at its address set forth in this Offer of Premium. In addition, either (i) the certificates for Series A Preferred Stock tendered for conversion pursuant to the Conversion Offer must be received by the Conversion Agent along with such executed Special Conversion Notice (or facsimile thereof) on or prior to the Expiration Date, or (ii) the tendering holder must comply with the guaranteed delivery procedures described below. NO SPECIAL CONVERSION NOTICES AND NO CERTIFICATES FOR SERIES A PREFERRED STOCK SHOULD BE SENT TO THE COMPANY. All signatures on a Special Conversion Notice or a notice of withdrawal, as the case may be, must be guaranteed by an Eligible Institution (as hereinafter defined), unless the Series A Preferred Stock delivered or withdrawn, as the case may be, pursuant thereto are delivered (i) by a registered holder (which term, for the purposes described above, shall include any participant in The Depository Trust Company (the "Book-Entry Transfer Facility") whose name appears on a security position listing as the owner of Series A Preferred Stock) or (ii) for the account of an Eligible Institution. If shares of Series A Preferred Stock are registered in the name of a person other than the signer of a Special Conversion Notice or a notice of withdrawal, as the case may be, or if certificates for shares of Common Stock or certificates for unconverted shares of Series A Preferred Stock are to be issued or returned to a person other than the registered holder, then the Series A Preferred Stock must be endorsed by the registered holder, or be accompanied by a written instrument or instruments of transfer or conversion in form satisfactory to the Company duly executed by the registered holder, with such signatures guaranteed by an Eligible Institution. If signatures on a Special Conversion Notice are required to be guaranteed, such guarantees must be 12 15 by a bank, a trust company or a member firm of the New York Stock Exchange (each of the foregoing being referred to as an "Eligible Institution"). Issuance of Common Stock and payment of the Conversion Premium upon conversion of the Series A Preferred Stock pursuant to the Conversion Offer will be made only against delivery of Series A Preferred Stock actually tendered for conversion. If fewer than all of the shares of Series A Preferred Stock evidenced by a submitted certificate are converted, the holder of such shares should fill in the number of shares tendered for conversion in the appropriate boxes on the Special Conversion Notice with respect to the tender being made. The Conversion Agent will then reissue and return to the holder of such shares (unless otherwise requested by the holder of such shares pursuant to the Special Conversion Notice), as promptly as practicable following the Expiration Date, a certificate evidencing the number of shares of Series A Preferred Stock not tendered for conversion. The entire number of shares of Series A Preferred Stock deposited with the Conversion Agent will be deemed to have been tendered for conversion unless otherwise indicated. Holders of Series A Preferred Stock who are not registered holders of, and seek to convert, Series A Preferred Stock should (i) obtain a properly completed Special Conversion Notice for such Series A Preferred Stock from the registered holder with signatures guaranteed by an Eligible Institution, or (ii) obtain and include with the Special Conversion Notice certificates representing shares of Series A Preferred Stock properly endorsed for transfer by the registered holder or accompanied by a written instrument or instruments of transfer or conversion from the registered holder with signatures on the endorsement or written instrument or instruments of transfer or conversion guaranteed by an Eligible Institution, or (iii) effect a record transfer of such Series A Preferred Stock and comply with the requirements applicable to registered holders for Series A Preferred Stock being converted prior to the Expiration Date. The Company has no obligation to transfer any Series A Preferred Stock from the name of the registered holder thereof if the Company does not accept for conversion pursuant to the Conversion Offer any of the shares of such Series A Preferred Stock. If a registered holder desires to deliver Series A Preferred Stock pursuant to the Conversion Offer but is unable to locate the certificates representing shares of Series A Preferred Stock to be delivered, the holder should write to or telephone the transfer agent for the Series A Preferred Stock, American Stock Transfer Company, Attention: Carolyn O'Neil, 40 Wall Street, New York, New York 10005, telephone (212) 936-5100, about procedures for obtaining replacement certificates representing shares of Series A Preferred Stock or arranging for indemnification. To prevent back-up U.S. federal income tax withholding of 31% on certain payments, each converting holder of Series A Preferred Stock must properly complete a Form W-9 as set forth in the Special Conversion Notice. Holders who do not properly complete Form W-9 may be subject to a $50 penalty imposed by the Internal Revenue Service and may be subject to backup withholding. Exempt holders (including among others, corporations and certain foreign individuals) are not subject to these requirements if they satisfactorily establish their status as such. See "Certain Federal Income Tax Considerations." Holders of Series A Preferred Stock desiring to convert their Series A Preferred Stock pursuant to the terms thereof, and not pursuant to the terms and conditions of the Conversion Offer, may do so by preparing a conversion notice and endorsing for transfer to the Company the certificates representing the Series A Preferred Stock, all in accordance with the Certificate of Designation related to the Series A Preferred Stock. Series A Preferred Stock delivered to the Conversion Agent and endorsed for transfer on the reverse side of the certificate without the Special Conversion Notice provided herewith will not be deemed to have been delivered pursuant to the Conversion Offer, and no Conversion Premium will be paid with respect thereto. 13 16 RESALE REGISTRATION Holders of Series A Preferred Stock desiring to have shares of Common Stock issued pursuant to the Conversion Offer included in the Resale Registration must deliver to the Conversion Agent, on or before the Expiration Date, a duly completed and signed Registration Agreement. Pursuant to the Registration Agreement, the Company will agree to indemnify holders signing the Registration Agreement from certain liabilities under the Securities Act relating to the Resale Registration, and the holders will agree to indemnify the Company from certain liabilities under the Securities arising from information provided by such holders for use in the Resale Registration. Holders of Series A Preferred Stock should carefully consider the terms of the Registration Agreement before determining whether to include shares in the Resale Registration. Holders may elect to have some or all of their Common Stock issued upon conversion of Series A Preferred Stock registered for resale pursuant to the Resale Registration. VALIDITY AND FORM All questions as to the form of all documents and the validity (including the time of receipt), eligibility, acceptance and withdrawal of Series A Preferred Stock tendered for conversion pursuant to the Conversion Offer will be determined by the Company, in its sole discretion, which determination shall be final and binding. The Company expressly reserves the absolute right to reject any and all Series A Preferred Stock tendered for conversion pursuant to the Conversion Offer not in proper form and to determine whether the acceptance of or payment by it for such conversions would be unlawful. The Company expressly reserves the absolute right to reject any and all Registration Agreements not in proper form and to determine whether the acceptance of or performance thereunder by it for such shares sought to be registered would be unlawful. The Company also reserves the absolute right, subject to applicable law, to waive or amend any of the conditions of the Conversion Offer or to waive any defect or irregularity in the conversion of any particular Series A Preferred Stock. None of the Company, the Conversion Agent, or any other person will be under any duty to give notification of any defects or irregularities in Series A Preferred Stock tendered for conversion pursuant to the Conversion Offer or in the Registration Agreement or any other document or will incur any liability for failure to give any such notification. No conversion of Series A Preferred Stock will be deemed to have been validly made until all defects and irregularities with respect to such Series A Preferred Stock have been cured or waived. Any Series A Preferred Stock received by the Conversion Agent that are not properly converted and as to which irregularities have not been cured or waived will be returned by the Conversion Agent to the holder submitting such Series A Preferred Stock as soon as practicable following the Expiration Date. The Company's interpretation of the terms and conditions of the Conversion Offer will be final and binding on all parties. THE METHOD OF DELIVERY OF SERIES A PREFERRED STOCK AND ALL OTHER REQUIRED DOCUMENTS TO THE CONVERSION AGENT IS AT THE ELECTION AND RISK OF HOLDERS OF SERIES A PREFERRED STOCK. IF SENT BY MAIL, IT IS RECOMMENDED THAT HOLDERS OF SERIES A PREFERRED STOCK USE PROPERLY INSURED REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, AND THAT THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO PERMIT DELIVERY TO THE CONVERSION AGENT ON OR BEFORE THE EXPIRATION DATE. BOOK-ENTRY TRANSFER The Conversion Agent will make a request to establish an account with respect to the Series A Preferred Stock at the Book-Entry Transfer Facility for purposes of the Conversion Offer within two business days after the date of this Offer of Premium, and any financial institution that is a participant in the Book-Entry Transfer Facility's systems may make book-entry delivery of the Series A Preferred Stock being tendered by causing the Book-Entry Transfer Facility to transfer such Series A Preferred Stock into the Conversion Agent's account at the Book-Entry Transfer 14 17 Facility in accordance with the Book-Entry Transfer Facility's procedures for transfer. However, although delivery of Series A Preferred Stock may be effected through book-entry transfer at the Book-Entry Transfer Facility, the Special Conversion Notice and the Registration Agreement or copy thereof, with any required signatures, signature guarantees and any other required documents, must, in any case other than as set forth in the following paragraph, be transmitted to and received by the Conversion Agent at the address set forth herein on or before the Expiration Date. Otherwise, the guaranteed delivery procedures described hereafter must be complied with. DTC's Automated Tender Offer Program ("ATOP") is the only method of processing conversion offers through the DTC. To accept the Conversion Offer through ATOP, participants in DTC must send electronic instructions to DTC through DTC's communication system in place of sending a signed, hard copy Special Conversion Notice. DTC is obligated to communicate those electronic instructions to the Conversion Agent. To submit Series A Preferred Stock for conversion through ATOP, the electronic instructions sent to DTC and transmitted by DTC to the Conversion Agent must contain the character by which the participant acknowledges its receipt of and agrees to be bound by the Special Conversion Notice. WHETHER OR NOT A HOLDER ACCEPTS THE CONVERSION OFFER THROUGH ATOP, A HOLDER DESIRING TO HAVE SHARES OF COMMON STOCK INCLUDED IN THE RESALE REGISTRATION MUST DELIVER A COMPLETED, MANUALLY SIGNED COPY OF THE REGISTRATION AGREEMENT TO THE CONVERSION AGENT. GUARANTEED DELIVERY PROCEDURES If a holder of Series A Preferred Stock desires to tender Series A Preferred Stock for conversion pursuant to the Conversion Offer and the holder's Series A Preferred Stock are not immediately available or time will not permit the holder's Series A Preferred Stock or other required documents to reach the Conversion Agent on or prior to the Expiration Date, the tender of Series A Preferred Stock for conversion pursuant to the Conversion Offer may be effected if all of the following conditions are satisfied: (a) delivery is made by or through an Eligible Institution; and (b) on or prior to the Expiration Date, the Conversion Agent receives from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by telegram, facsimile transmission, mail or hand delivery), substantially in the form provided by the Company with this Offer of Premium, which contains a signature guaranteed by an Eligible Institution in the form set forth in such in such Notice of Guaranteed Delivery (unless such tender for conversion is for the account of an Eligible Institution), which sets forth the name and address of the holder of the Series A Preferred Stock and the amount of Series A Preferred Stock tendered, which states that the tender is being made thereby, and which guarantees that within five New York Stock Exchange ("NYSE") trading days after the Expiration Date, the Special Conversion Notice (or facsimile thereof), properly completed and duly executed, together with the Series A Preferred Stock and any required signature guarantees and any other documents required by the Special Conversion Notice, will be deposited by the Eligible Institution with the Conversion Agent; and (c) all Series A Preferred Stock tendered for conversion pursuant to the Conversion Offer as well as the Special Conversion Notice (or facsimile thereof), properly completed and duly executed, with any required signature guarantees and any other documents required by the Special Conversion Notice, are received by the Conversion Agent within five NYSE trading days after the Expiration Date. A Notice of Guaranteed Delivery may be delivered by hand or transmitted by telegram, facsimile transmission or mail to the Conversion Agent and must include a signature guarantee by an Eligible Institution in the form set forth in such Notice of Guaranteed Delivery. 15 18 Notwithstanding any other provision hereof, except as provided with respect to ATOP the conversion of Series A Preferred Stock accepted pursuant to the Conversion Offer will in all cases be made only after timely receipt by the Conversion Agent of certificates for such Series A Preferred Stock, the Special Conversion Notice (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees and any other required documents. ACCEPTANCES OF SERIES A PREFERRED STOCK; DELIVERY OF COMMON STOCK AND CONVERSION PREMIUM The acceptance for conversion of Series A Preferred Stock validly tendered for conversion pursuant to the Conversion Offer and not properly withdrawn will be made as promptly as practicable after the Expiration Date. Subject to rules promulgated pursuant to the Exchange Act, however, the Company reserves the right to delay payment of the Conversion Premium or terminate the Conversion Offer and not pay the Conversion Premium for any reason, subject to any applicable law. For purposes of the Conversion Offer, the Company will be deemed to have accepted for conversion Series A Preferred Stock tendered and not properly withdrawn if, as and when the Company gives oral or written notice to the Conversion Agent of its acceptance of such shares for conversion. Subject to the terms and conditions of the Conversion Offer, delivery of Common Stock and the payment of the Conversion Premium for Series A Preferred Stock converted pursuant to the Conversion Offer will be made by the Conversion Agent as soon as practicable after receipt of such notice. Under no circumstances will interest be paid by the Company by reason of any delay in making payment of the Conversion Premium. The Conversion Agent will act as agent for the converting holder of Series A Preferred Stock for the purpose of receiving Common Stock and cash from the Company and transmitting the Common Stock and cash to the converting holders. Series A Preferred Stock not accepted for conversion and payment of the Conversion Premium, will be returned without expense to the converting holder of such Series A Preferred Stock as promptly as practicable following the Expiration Date. No alternative, conditional or contingent deliveries of Special Conversion Notices will be accepted. All converting holders, by execution of a Special Conversion Notice, or facsimile thereof, waive any right to receive notice of acceptance of their Series A Preferred Stock for conversion and payment pursuant to the Conversion Offer. WITHDRAWAL RIGHTS Conversion of Series A Preferred Stock pursuant to the Conversion Offer is irrevocable except that Series A Preferred Stock tendered for conversion pursuant to the Conversion Offer may be withdrawn at any time prior to the Expiration Date, unless theretofore accepted for conversion pursuant to the Conversion Offer. For a withdrawal to be effective, a written, telegraphic or facsimile transmitted notice of withdrawal must be timely received by the Conversion Agent at its address set forth herein. Any notice of withdrawal must specify the name of the person who tendered the Series A Preferred Stock to be withdrawn, the principal amount of Series A Preferred Stock to be withdrawn and the name of the registered holder(s) of the Series A Preferred Stock as set forth in the certificates, if different from that of the person who tendered such Series A Preferred Stock. If certificates for Series A Preferred Stock have been tendered to the Conversion Agent, then, prior to the physical release of such certificates, the withdrawing holder must also submit to the Conversion Agent the serial numbers of the particular certificates evidencing the Series A Preferred Stock to be withdrawn and a signed notice of withdrawal with signature(s) guaranteed by an Eligible Institution, except in the case of Series A Preferred Stock tendered by an Eligible Institution. If shares of Series A Preferred Stock have been tendered pursuant to the procedure for book-entry transfer, the notice of withdrawal must specify the name and number of the account at the applicable Book-Entry Transfer Facility to be credited with the withdrawn shares and otherwise comply with the Book-Entry Transfer Facility's procedures. 16 19 If the Company extends the Conversion Offer or is delayed in its payment of the Conversion Premium pursuant to the Conversion Offer for any reason, then, without prejudice to the Company's rights under the Conversion Offer, the Conversion Agent may, subject to applicable law, retain Series A Preferred Stock tendered for conversion pursuant to the Conversion Offer on behalf of the Company and such Series A Preferred Stock may not be withdrawn except to the extent converting holders are entitled to withdrawal rights as described in this section. Any permitted withdrawal of Series A Preferred Stock tendered for conversion may not be rescinded, and any Series A Preferred Stock withdrawn will thereafter be deemed not validly tendered for purposes of the Conversion Offer; however, withdrawn Series A Preferred Stock may be redelivered by following one of the procedures described herein at any time on or prior to the Expiration Date. All questions as to validity, form and eligibility (including time of receipt) of notices of withdrawal will be determined by the Company in its sole discretion, which determination will be final and binding on all parties. None of the Company, the Conversion Agent, or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal, nor will they incur any liability for failure to give any such notification. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS Baker & McKenzie has served as tax counsel to the Company in connection with the Conversion Offer. The following expresses Baker & McKenzie's opinion to the Company as to the material Federal income tax consequences that, under currently applicable law, should arise from the Conversion Offer. The following discussion is based upon the Internal Revenue Code of 1986, as amended (the "Code"), and Treasury Regulations, Internal Revenue Service rulings and judicial decisions now in effect, all of which are subject to change at any time by legislative, judicial or administrative action, and any such changes may be retroactively applied in a manner that could adversely affect a stockholder. Except as otherwise discussed below, this discussion is applicable only to stockholders who are citizens or residents of the United States for U.S. tax purposes and to domestic corporations. The discussion may not be applicable with respect to Series A Preferred Stock held as other than a capital asset. Moreover, the discussion is not applicable to stockholders who hold, or who are related within the meaning of Section 318 of the Internal Revenue Code to stockholders who hold, employee stock options of the Company. Furthermore, state, local and foreign tax consequences of the Conversion Offer are not addressed in this discussion. Stockholders should note that the opinions of counsel are not binding on the Internal Revenue Service or any court, and the Company has not sought, and does not intend to seek, a ruling from the Internal Revenue Service as to the Federal income tax consequences of the Conversion Offer. STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO THE APPLICATION OF THE FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATION, AS WELL AS TO THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS TO WHICH THEY MAY BE SUBJECT. CONVERSION AND RECEIPT OF CONVERSION PREMIUM Recognition of Gain or Loss on Conversion The conversion of Series A Preferred Stock into Common Stock and the Conversion Premium (the "Conversion") will constitute a "recapitalization" of the Company within the meaning of Section 368(a)(1)(E) of the Code. Accordingly, the Conversion will not be a taxable transaction to the Company, but may be a taxable transaction to the stockholders to the extent of the cash received, with the consequences described below. A stockholder whose shares of Series A Preferred Stock are converted into Common Stock and the Conversion Premium will be taxable to the extent of the lesser of (i) the excess of the fair market value of the total amount received in the Conversion (i.e., the sum of the value of the 17 20 Common Stock and the Conversion Premium) over such stockholder's tax basis in the Series A Preferred Stock converted, or (ii) the amount of the Conversion Premium. To the extent the Conversion Premium exceeds the amount specified in clause (i) of the preceding sentence, such amount will not be currently taxable but will reduce a stockholder's basis in the Common Stock received in the Conversion as discussed below. A stockholder is not allowed to recognize (i.e., take into account for tax purposes) loss on the Conversion. Character of Gain The character of any gain recognized by a stockholder in the Conversion will depend upon whether the receipt of the Conversion Premium by the stockholder has the effect of a dividend distribution as to such stockholder or is treated as a sale or exchange. If the conversion of Series A Preferred Stock and receipt of the Conversion Premium is treated as a sale or exchange, any gain recognized will be capital gain that, in general, will be long-term capital gain if the shares of Series A Preferred Stock have been held for more than one year at the Expiration Date and short-term capital gain, if the shares of Series A Preferred Stock have been held for one year or less at that time. If the conversion has the effect of a dividend distribution to a stockholder, the gain recognized by that stockholder will be treated as ordinary dividend income to the extent of the stockholder's ratable share of the Company's accumulated earnings and profits, and the remainder, if any, of the recognized gain will be taxed as gain from the exchange of the Series A Preferred Stock. The Company believes that its accumulated earnings and profit are sufficient to treat all recognized gain as ordinary dividend income. Whether the conversion of Series A Preferred Stock in the Conversion has the effect of a dividend distribution as to a stockholder or is treated as a sale or exchange will be determined by applying the principles described in Section 302 of the Code. Under Section 302, a distribution will not have the effect of the distribution of a dividend, and any gain recognized will be capital gain rather than a dividend, if the distribution is not "essentially equivalent to a dividend" or one of several other safe harbor tests is satisfied. The conversion of Series A Preferred Stock in the Conversion will not be "essentially equivalent to a dividend" if it results in a "meaningful reduction" of the stockholder's proportionate stock interest in the Company. The determination of whether a stockholder's proportionate interest in a corporation has been meaningfully reduced ordinarily is based on an evaluation of the reduction in the stockholder's right to vote, participate in earnings and participate in proceeds of liquidation. For this purpose, under Section 318 of the Code, a stockholder is deemed to constructively own Series A Preferred Stock and Common Stock that are actually owned, and in some cases, constructively owned, by certain related individuals and entities or that may be acquired by such stockholder or such related individuals or entities by option or conversion, including through employee stock options. Furthermore, the Section 302 tests are applied after taking into account any related transactions that are part of a single integrated plan. Thus, it is possible that dispositions or acquisitions by a stockholder of shares of Series A Preferred Stock, Common Stock acquired upon conversion, or other Common Stock contemporaneous with the Conversion may be considered to be part of the same integrated plan. The Conversion itself will not cause an immediate decrease in a stockholder's voting power, but rather will cause an increase in voting rights. Tax counsel to the Company has opined that the conversion of Series A Preferred Stock more likely than not has the effect of a dividend distribution with respect to stockholders who do not dispose of Series A Preferred Stock, Common Stock acquired upon conversion, or other Common Stock in related transactions that are considered to be part of a single integrated plan (including shares constructively owned under Section 318), other than pursuant to the Conversion Offer. Tax counsel has not opined as to the character of any gain that other stockholders may realize in the Conversion because of the inherently factual nature of the determination that each such stockholder must make. Accordingly, such stockholders should consult 18 21 their tax advisors concerning the application of the "meaningful reduction" and other safe harbor tests to their particular facts and circumstances. If the conversion of Series A Preferred Stock is treated to any extent as a dividend distribution as to a corporate stockholder, the amount of the distribution which is taxable as a dividend should generally be eligible for the 70 percent dividends received deduction, subject to the limitations of sections 1059, 246A and 246 of the Code. Basis and Holding Period of Common Stock Received A stockholder's tax basis in the Common Stock received in the Conversion will be equal to the stockholder's tax basis in the Series A Preferred Stock converted in the Conversion, increased by the amount of any gain recognized by the stockholder and decreased by the amount of the Conversion Premium received. The holding period of the Common Stock will include the holding period of the Series A Preferred Stock converted in the Conversion, provided that the Series A Preferred Stock is held as a capital asset. Gain, loss and tax basis, determined as described above, must be calculated separately for each block of Series A Preferred Stock (i.e., Series A Preferred Stock acquired at the same time in a single transaction) held by a stockholder. Cash in Lieu of Fractional Shares Stockholders who receive cash in lieu of fractional shares of Common Stock should be treated as having received the cash in redemption of the fractional share interest. The character of the cash received by a stockholder will depend upon whether the redemption is essentially equivalent to a dividend to such stockholder or is treated as a sale or exchange, determined under Section 302 of the Code. Stockholders should consult their tax advisors regarding the appropriate treatment of any cash that is received in exchange for fractional share interests. Special Tax Considerations for Non-United States Stockholders For purposes of the following discussion, a non-United States stockholder includes a non-resident alien individual (other than certain former United States citizens or residents), a foreign corporation, a foreign partnership and a foreign trust or estate. Each non-United States stockholder is urged to consult a tax advisor with respect to the tax consequences of the Conversion as applied to such stockholder's specific facts and circumstances. In general, a non-United States stockholder is not subject to United States federal income tax with respect to gain realized on a sale or other disposition of shares of the Company. The Code generally requires withholding at a 30% rate on dividends paid by the Company to non-United States stockholders, unless a treaty applies which reduces or eliminates such withholding. In certain circumstances, backup withholding, as discussed below, at a rate of 31% may apply to payments to non-United States stockholders. If a non-United States stockholder has not provided a properly completed IRS Form W-8, the Company will withhold 31% of the Conversion Premium and of the cash paid in lieu of fractional shares. Because the Company will not know whether the payment of the Conversion Premium or the payment of cash in lieu of fractional shares to a particular non-United States stockholder will be treated as a dividend or an exchange, the Company will, where a non-United States stockholder has provided a properly completed IRS Form W-8, treat the payment of the Conversion Premium and the cash paid in lieu of fractional shares as a dividend and will withhold 30%, or lower treaty rate, if applicable, of such payment. Non-United States stockholders should consult their tax advisors regarding these withholding rules and the procedures for obtaining a refund if the amount withheld exceeds the non-United States stockholder's final tax liability. BACKUP WITHHOLDING A holder of Series A Preferred Stock participating in the Conversion may be subject, under certain circumstances, to "backup withholding" at a 31% rate on certain payments. This withholding 19 22 generally applies only if the holder (i) fails to furnish its social security or other taxpayer identification number ("TIN"), (ii) furnishes an incorrect TIN, (iii) fails to properly report interest or dividends and the Internal Revenue Service has notified the Company that the holder is subject to withholding, or (iv) fails, under certain circumstances, to provide a certified statement, signed under penalty of perjury, that the TIN provided is its correct number and that it is not subject to backup withholding. The backup withholding rules may apply to the payment of the Conversion Premium and cash paid in lieu of fractional shares. Any amount withheld from a payment to a holder under the backup withholding rules is allowable as a credit against such holder's federal income tax liability, provided that the required information is furnished to the Internal Revenue Service. Certain holders of Series A Preferred Stock (including, among others, corporations and certain foreign individuals) are not subject to backup withholding. Holders of Series A Preferred Stock should consult their tax advisors as to their qualification for exemption from backup withholding and the procedure for obtaining such an exemption. THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE ARE FOR GENERAL INFORMATION ONLY. EACH STOCKHOLDER SHOULD CONSULT A TAX ADVISOR AS TO THE PARTICULAR CONSEQUENCES OF THE CONVERSION THAT MAY BE APPLICABLE TO SUCH STOCKHOLDER, INCLUDING THE APPLICATION OF STATE, LOCAL, AND FOREIGN TAX LAWS. DESCRIPTION OF CAPITAL STOCK The following summary description is qualified in its entirety by reference to the Company's Certificate of Incorporation, as amended. The authorized capital stock of the Company consists of 100,000,000 shares of Common Stock, par value $.01 per share, and 5,000,000 shares of preferred stock, par value $.01 per share (the "Preferred Stock"). COMMON STOCK The Company is authorized to issue up to 100,000,000 shares of Common Stock. As of February 14, 1995, there were 39,695,611 shares of Common Stock outstanding. The holders of Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. Because holders of Common Stock do not have cumulative voting rights, the holders of a majority of the shares of Common Stock represented at a meeting have the power to elect all of the directors to be elected at that meeting. Subject to the prior rights of holders of Preferred Stock, the holders of Common Stock are entitled to dividends, when and as declared by the Board of Directors out of funds legally available therefor. The terms of the Company's line of credit restrict payment of cash dividends except in certain circumstances. See "Dividend Policy." If the Company dissolves or is liquidated, the holders of Common Stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preferences of any outstanding shares of Preferred Stock. Holders of Common Stock have no preemptive rights and have no right to convert their Common Stock into any other securities. All of the outstanding shares of Common Stock are, and all shares of Common Stock offered hereby are or will be, upon conversion of Series A Preferred Stock, fully paid and nonassessable. The Certificate of Incorporation of the Company divides the Board of Directors of the Company into three classes, each class to be as nearly equal in number of directors as possible. At each annual meeting of stockholders, directors in each class are elected for three year terms to succeed the directors of that class whose terms are expiring. Paul O. Hirschbiel, Donald J. Carty and Thomas W. Luce, III, are Class I directors with their terms of office expiring in 1995. Michael S. Dell and Michael H. Jordan are Class II directors with their terms of office expiring in 1996. George Kozmetsky and Claudine B. Malone are Class III directors with their terms of office expiring in 1997. The Certificate of Incorporation and Bylaws of the Company also provide that directors may be removed from office only for cause (as defined in the Certificate of Incorporation), that stockholder 20 23 action must be taken at a duly called annual or special meeting (and not by written consent), and that stockholders follow an advance notification procedure for certain stockholder nominations of candidates for the Board of Directors and for certain other stockholder business to be conducted at an annual meeting. The existence of these provisions of the Company's Certificate of Incorporation and Bylaws may be disadvantageous to the extent they discourage takeovers in which stockholders might receive a substantial premium for some or all of their shares. Therefore, stockholders not affiliated with management who desire to participate in such a takeover may not be afforded the opportunity to do so, even when such stockholders believe participation to be in their best interest. Also, such provisions may reduce temporary fluctuations in the market price of the Common Stock that may accompany the accumulation of large blocks of Common Stock and thereby deprive stockholders of an opportunity to sell their stock at a temporarily higher price. In addition to reducing temporary market fluctuations, such provisions could potentially depress the market price of shares of Common Stock and may have the effect of discouraging changes in control, particularly those that are opposed by the Company's incumbent management, even if a majority of stockholders desire the change in control. Such provisions thereby could also prevent the removal of management. In addition, the ability of the Board of Directors to issue shares of Preferred Stock and to fix the voting, redemption, conversion and other rights thereof without stockholder approval could hinder any proposed tender offer, merger or other attempt to gain control of the Company. See "Description of Capital Stock -- Blank Check Preferred Stock." TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Common Stock is American Stock Transfer & Trust Company. BLANK CHECK PREFERRED STOCK Pursuant to the Certificate of Incorporation of the Company, the Board of Directors has the authority, without further stockholder approval, to provide for the issuance of up to 5,000,000 shares of Preferred Stock in one or more series and to determine the dividend rights, conversion rights, voting rights, rights and terms of redemption, liquidation preferences, the number of shares constituting any such series, and the designation of such series. Because the Board of Directors has the power to establish the preferences and rights of each series, it may afford the holders of any Preferred Stock preferences, powers and rights (including voting rights) senior to the rights of the holders of Common Stock. Other than the shares of Series A Preferred Stock described below, no shares of Preferred Stock have been issued and remain outstanding before the date of this Offer of Premium. The issuance of shares of Preferred Stock or the issuance of rights to purchase shares of stock may have the effect of delaying, deferring or preventing a change in control of the Company. SERIES A PREFERRED STOCK The Series A Preferred Stock has been authorized as a series of preferred stock, consisting of 1,250,000 shares. As of February 14, 1995, 1,250,000 shares of Series A Convertible Preferred Stock were issued and outstanding. The terms and provisions of the Series A Preferred Stock are set forth in the Certificate of Designation creating the Series A Preferred Stock. A copy of the Certificate of Designation may be obtained from Dell Computer Corporation, 2112 Kramer Lane, Building 1, Austin, Texas 78758-4012, Attention: Investor Relations. Dividends. Holders of shares of Series A Preferred Stock are entitled to receive, when, as and if declared by the Board of Directors out of funds legally available therefore, cash dividends at an annual rate of $7.00 per share, payable quarterly in arrears. Dividends are cumulative and are payable to the holders of record as they appear on the stock transfer books on such record dates as are fixed by the Board of Directors. 21 24 The Series A Preferred Stock has priority as to dividends over the Common Stock and any other series or class of the Company's stock thereafter issued that ranks junior as to dividends to the Series A Preferred Stock, when and if issued (collectively, "Junior Dividend Stock"), and no dividend (other than dividends payable solely in stock that is Junior Dividend Stock and that ranks junior to the Series A Preferred Stock as to distribution of assets upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary (such stock that is junior as to liquidation rights, "Junior Liquidation Stock") (the Common Stock and any other capital stock of the Company that is both Junior Dividend Stock and Junior Liquidation Stock, "Junior Stock") may be paid on any Junior Dividend Stock, and no payment may be made on account of the purchase redemption, retirement, or other acquisition of Junior Dividend Stock or Junior Liquidation Stock (other than such acquisitions pursuant to employee or director incentive or benefit plans or arrangements, or acquisitions or exchanges solely for Junior Stock), unless all accrued and unpaid dividends on the Series A Preferred Stock for all dividend payment periods ending on or before the date of payment of such dividends on Junior Dividend Stock, or such payment for such Junior Dividend Stock or Junior Liquidation Stock, as the case may be, have been paid or declared and set apart for payment. The Company may not pay dividends on any other series or class of Company's stock hereafter issued that ranks on a parity with the Series A Preferred Stock as to dividends ("Parity Dividend Stock"), and may not make any payment on account of the purchase, redemption, retirement or other acquisition of shares of Parity Dividend Stock or any other series or class of the Company's stock hereafter issued that ranks on a parity with the Series A Preferred Stock as to distributions of assets upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary (such stock that has parity with the Series A Preferred Stock as to liquidation rights, "Parity Liquidation Stock") (other than such acquisitions pursuant to employee or director incentive or benefit plans or arrangements, or acquisitions or exchanges solely for Junior Stock), unless all accrued and unpaid dividends on the Series A Preferred Stock for all dividend payment periods ending on or before the date of payment of such dividends on Parity Dividend Stock, or such payment for such Parity Dividend Stock or Parity Liquidation Stock, as the case may be, have been paid or declared and set apart for payment. Liquidation Rights. In the case of the voluntary or involuntary liquidation, dissolution or winding up of the Company, holders of shares of Series A Preferred Stock are entitled to receive the liquidation preference of $100.00 per share, plus an amount equal to any accrued and unpaid dividends to the payment date, before any payment or distribution is made to the holders of Common Stock or any other series or class of the Company's stock hereafter issued that ranks junior to the Series A Preferred Stock as to distributions of assets upon such liquidation, dissolution or winding up, but the holders of the shares of the Series A Preferred Stock will not be entitled to receive the liquidation preference of such shares until the liquidation preference of any other series or class of the Company's stock hereafter issued that ranks senior to the Series A Preferred Stock as to distributions of assets upon such dissolution, liquidation or winding up ("Senior Liquidation Stock") has been paid in full. The holders of Series A Preferred Stock and all series or classes of the Company's stock hereafter issued that rank on a parity with the Series A Preferred Stock as to distributions of assets upon such liquidation, dissolution or winding up of the Company are entitled to share ratably, in accordance with the respective preferential amounts payable on such stock, in any distribution (after payment of the liquidation preference of the Senior Liquidation Stock) which is not sufficient to pay in full the aggregate of the preferential amounts payable thereon. After payment in full of the liquidation preference of the shares of the Series A Preferred Stock, the holders of such shares will not be entitled to any further participation in any distribution of assets by the Company. Neither a consolidation or merger of the Company with another corporation nor a sale or transfer of all or part of the Company's assets for cash, securities or other property will be considered a liquidation, dissolution or winding up of the Company. Voting Rights. The holders of the Series A Preferred Stock have no voting rights except as described below or as required by law. In exercising any such vote, each outstanding share of 22 25 Series A Preferred Stock will be entitled to one vote, excluding shares held by the Company or any affiliate of the Company, which shares have no voting rights. Whenever dividends on the Series A Preferred Stock or on any outstanding shares of Parity Dividend Stock have not been paid in an aggregate amount equal to at least six quarterly dividends on such shares (whether or not consecutive), the number of members of the Company's Board of Directors will be increased by two, and the holders of the Series A Preferred Stock, voting separately as a class with the holders of Parity Dividend Stock on which like voting rights have been conferred and are exercisable, will be entitled to elect such two additional directors at any meeting of stockholders at which directors are to be elected held during the period such dividends remain in arrears. Such voting rights will terminate when all such accrued and unpaid dividends have been declared and paid or set apart for payment. The term of office of all directors so elected will terminate immediately upon the termination of such voting rights. In addition, so long as any Series A Preferred Stock is outstanding, the Company may not, without the affirmative vote or consent of the holders of at least 66 2/3% (unless a higher percentage shall then be required by applicable law) of all outstanding shares of Series A Preferred Stock, voting separately as a class, (i) amend, alter or repeal any provision of the Company's Certificate of Incorporation or Bylaws so as to affect adversely the relative rights, preferences, qualifications, limitations, or restrictions of the Series A Preferred Stock, (ii) create, authorize or issue, or reclassify any authorized stock of the Company into, or increase the authorized amount of, any series or class of stock that ranks senior to the Series A Preferred Stock as to dividends or distributions of assets upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, or any security convertible into any such class or series of such stock, or (iii) enter into a share exchange that affects the Series A Preferred Stock, consolidate with or merge into another entity, or permit another entity to consolidate with or merge into the Company, unless in each such case each share of Series A Preferred Stock remains outstanding and unaffected or is converted into or exchanged for convertible preferred stock of the surviving entity having powers, preferences and relative participating optional or other rights and qualification limitations and restrictions thereof identical to that of a share of Series A Preferred Stock (except for changes that do not affect the holders of the Series A Preferred Stock adversely). Redemption at Option of the Company. The Series A Preferred Stock may not be redeemed before August 25, 1996. On and after that date, the Series A Preferred Stock may be redeemed by the Company, at its option, in whole or in part at any time, subject to the limitations, if any, imposed by applicable law, at a redemption price per share of $104.67 if redeemed at any time during the period from August 25, 1996, through August 15, 1997, and at the following redemption prices per share, if redeemed during the 12-month period ending August 15:
PRICE PER YEAR SHARE ---- --------- 1998.............................................................. $103.89 1999.............................................................. 103.11 2000.............................................................. 102.33 2001.............................................................. 101.56 2002.............................................................. 100.78
and thereafter at $100 per share, plus, in each case, accrued and unpaid dividends to but excluding the redemption date. Conversion Rights. The holder of any shares of Series A Preferred Stock has the right, at the holder's option, to convert any or all shares into Common Stock at any time at the rate of 4.2105 shares of Common Stock for each share of Series A Preferred Stock (equivalent to a conversion price of $23.75 for each share of Common Stock), subject to adjustment in certain circumstances except that if the Series A Preferred Stock is called for redemption, the conversion right will terminate at the close of business on the fifth business day prior to the date fixed for such redemption. 23 26 AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). In accordance with the Exchange Act, the Company files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). The reports, proxy statements and other information can be inspected and copied at the public reference facilities that the Commission maintains at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices located at 7 World Trade Center, 13th Floor, New York, New York 10048, and Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of these materials can be obtained at prescribed rates from the Public Reference Section of the Commission at the principal offices of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. The Company has filed with the Commission an Issuer Tender Offer Statement on Schedule 13E-4 (the "Schedule 13E-4") under the Exchange Act, with respect to the Conversion Offer. This Offer of Premium does not contain all of the information set forth in the Schedule 13E-4, certain parts of which have been omitted in accordance with the rules and regulations of the Commission. For further information with respect to the Company and the Conversion Offer, reference is made to the Schedule 13E-4, including the exhibits filed as part thereof or incorporated by reference therein. Statements made in this Offer of Premium about the contents of any contract, agreement, or other document are not necessarily complete; with respect to each such contract, agreement or other document filed as an exhibit to the Schedule 13E-4, reference is made to that exhibit for a more complete description of the matter involved, and each such statement is qualified in its entirety by that reference. Copies of the Schedule 13E-4 and its exhibits may be inspected, without charge, at the offices of the Commission, or obtained at prescribed rates from the Public Reference Section of the Commission, at the address previously set forth. The address of the Company's principal executive offices is Dell Computer Corporation, 2112 Kramer Lane, Austin, Texas 78758-4012, and its telephone number at that address is (512) 338-4400. 24 27 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed by the Company with the Commission (File No. 0-17017) pursuant to the Exchange Act are incorporated in this Offer of Premium by reference: 1. The Company's Annual Report on Form 10-K for the Fiscal Year Ended January 30, 1994; 2. The Company's Quarterly Report on Form 10-Q for the Quarterly Period Ended October 30, 1994; 3. The Company's Current Report on Form 8-K, dated February 21, 1995; 4. All other documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Offer of Premium and before the termination of the Conversion Offer. The Company will provide without charge to each person to whom a copy of this Offer of Premium is delivered, upon the written or oral request of any such person, a copy of any or all of the documents that are incorporated by reference, other than exhibits to such documents not specifically incorporated by reference. Requests for such copies should be directed to Dell Computer Corporation, 2112 Kramer Lane, Austin, Texas 78758-4012, Attention: Investor Relations, telephone (512) 728-8315. Any statement contained in a document incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Offer of Premium to the extent that a statement contained herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Offer of Premium. 25 28 CONVERSION AGENT Citibank, N.A., will act as Conversion Agent for the Conversion Offer. The Conversion Agent will act as agent for the holders of Series A Preferred Stock accepting the Conversion Offer for the purpose of receiving Common Stock and the Conversion Premium from the Company. If you require assistance, please contact the Conversion Agent at (800) 422-2066 or the address below. All correspondence in connection with the Conversion Offer should be addressed to the Conversion Agent as follows: The Conversion Agent: CITIBANK, N.A. By Mail: By Overnight Courier: By Hand: Citibank, N.A. Citibank, N.A. Citibank, N.A. c/o Citicorp Data Distribution, c/o Citicorp Data Distribution, Corporate Trust Window Inc. Inc. 111 Wall Street, 5th Floor P.O. Box 7072 404 Sette Drive New York, New York Paramus, New Jersey 07653 Paramus, New Jersey 07652 Confirm by Telephone: (800) 422-2066
The Company will pay the Conversion Agent reasonable and customary compensation, which the Company estimates will total approximately $5,000, for services in connection with the Conversion Offer. In addition, the Company will reimburse the Conversion Agent for its out-of-pocket expenses, and will indemnify the Conversion Agent against certain liabilities and expenses in connection with its services, including liabilities under the federal securities laws. The Company also will pay brokerage houses and other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding copies of this Offer of Premium and related documents to beneficial holders of Series A Preferred Stock, and in handling or forwarding tenders of Series A Preferred Stock for their customers. --------------------- NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS OFFER OF PREMIUM AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS OFFER OF PREMIUM DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, SECURITIES TO ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN OFFER. NEITHER THE DELIVERY OF THIS OFFER OF PREMIUM NOR ANY ISSUANCE OF SECURITIES PURSUANT TO THE CONVERSION OFFER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH OR INCORPORATED HEREIN BY REFERENCE OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE OF THIS OFFER OF PREMIUM. HOWEVER, IF ANY MATERIAL CHANGE OCCURS DURING THE PERIOD THAT THIS OFFER OF PREMIUM IS REQUIRED TO BE DELIVERED, THIS OFFER OF PREMIUM WILL BE AMENDED AND SUPPLEMENTED ACCORDINGLY. 26 EX-99.(A)(2) 3 SPECIAL CONVERSION NOTICE 1 DELL COMPUTER CORPORATION SPECIAL CONVERSION NOTICE TO CONVERT SERIES A CONVERTIBLE PREFERRED STOCK FOR SHARES OF COMMON STOCK AND $8.25 CASH CONVERSION PREMIUM PURSUANT TO ITS OFFER OF PREMIUM DATED FEBRUARY 21, 1995 THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, MARCH 22, 1995, UNLESS EXTENDED BY THE COMPANY. The Conversion Agent: CITIBANK, N.A. By Mail: By Overnight Courier: By Hand: Citibank, N.A. Citibank, N.A. Citibank, N.A. c/o Citicorp Data Distribution, Inc. c/o Citicorp Data Distribution, Inc. Corporate Trust Window P.O. Box 7072 404 Sette Drive 111 Wall Street, 5th Floor Paramus, New Jersey 07653 Paramus, New Jersey 07652 New York, New York Confirm by Telephone: (800) 422-2066
Delivery of this Special Conversion Notice to an address other than as set forth above will not constitute a valid delivery. The undersigned acknowledges receipt of the Offer of Premium Upon Conversion dated February 21, 1995 (the "Offer of Premium"), of Dell Computer Corporation (the "Company"), this Special Conversion Notice, and the related Registration Agreement, which together constitute the Company's offer (the "Conversion Offer") to pay a cash premium of $8.25 (the "Conversion Premium") for each share of its Series A Convertible Preferred Stock (the "Series A Preferred Stock") that is converted to common stock, par value $.01 per share (the "Common Stock"), of the Company from the date of the Offer of Premium through 12:00 midnight, New York City time, on Wednesday, March 22, 1995, unless extended (the "Special Conversion Period"). A holder of Series A Preferred Stock who elects to convert during the Special Conversion Period will receive 4.2105 shares of Common Stock (equivalent to a conversion price of $23.75 per share of Common Stock) and the Conversion Premium of $8.25 in cash for each share of Series A Preferred Stock converted. EVEN IF YOU VALIDLY TENDER YOUR SERIES A PREFERRED STOCK, THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION WILL NOT BE REGISTERED FOR RESALE UNDER THE SECURITIES ACT OF 1933 UNLESS YOU TIMELY SIGN AND DELIVER THE REGISTRATION AGREEMENT TO THE CONVERSION AGENT. SEE INSTRUCTION 12. This Special Conversion Notice is to be used (a) if certificates for shares of Series A Preferred Stock are to be physically delivered to the Conversion Agent herewith or (b) if tenders are to be made according to the guaranteed delivery procedures set forth in the Offer of Premium under "Procedures for Conversion and Registration -- Guaranteed Delivery Procedures." Holders of Series A Preferred Stock whose certificates are not immediately available or who cannot deliver their certificates and all other documents required hereby to the Conversion Agent before the Expiration Date (as hereinafter defined) must tender the Series A Preferred Stock according to the guaranteed delivery procedures set forth in "Procedures for Conversion and Registration -- Guaranteed Delivery Procedures" in the Offer of Premium. The Company will pay the Conversion Premium with respect to any and all shares of Series A Preferred Stock tendered for conversion and not withdrawn before 12:00 midnight, New York City time, on Wednesday, March 22, 1995, unless extended by the Company in its sole discretion (such date, as may be extended, the "Expiration Date"). Capitalized terms used herein and not otherwise defined shall have the respective meanings assigned to them in the Offer of Premium. PLEASE READ THE ENTIRE SPECIAL CONVERSION NOTICE CAREFULLY BEFORE CHECKING ANY BOX BELOW. YOUR BANKER OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM. THE INSTRUCTIONS INCLUDED WITH THIS SPECIAL CONVERSION NOTICE MUST BE FOLLOWED. QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE OFFER OF PREMIUM AND SPECIAL CONVERSION NOTICE SHOULD BE DIRECTED TO THE CONVERSION AGENT AT (800) 422-2066 OR AT ITS ADDRESS PREVIOUSLY SET FORTH. 2 Holders who wish to tender their shares of Series A Preferred Stock for conversion pursuant to the Conversion Offer must complete the table in Box One and complete and sign Box Two. If only columns (1) through (3) are completed in Box One, the holder will be deemed to have tendered all of the shares of Series A Preferred Stock listed in the table in Box One. If a holder wishes to tender less than all of such shares of Series A Preferred Stock, column (4) in Box One must be completed in full and the holder should refer to Instruction 3. ____________________________________________________________________________________________________________________________________ BOX ONE List below the shares of Series A Preferred Stock to which this Special Conversion Notice relates. If the space provided below is inadequate, the number of shares and certificate numbers of the Series A Preferred Stock should be listed on a separate signed schedule affixed hereto. ____________________________________________________________________________________________________________________________________ DESCRIPTION OF SHARES TENDERED ____________________________________________________________________________________________________________________________________ CERTIFICATE(S) TENDERED (ATTACH ADDITIONAL LIST IF NECESSARY) ____________________________________________________________________________________________________________________________________
(1) NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) (3) (PLEASE FILL IN, IF BLANK (2) AGGREGATE (4) EXACTLY AS NAME(S) CERTIFICATE NUMBER OF SHARES AGGREGATE NUMBER APPEAR(S) ON NUMBER(S) (ATTACH REPRESENTED OF SHARES CERTIFICATE(S)) LIST IF NECESSARY) BY CERTIFICATES TENDERED* ____________________________________________________________________________________________________________________________________ ____________________________________________________________________________________________________________________________________ ____________________________________________________________________________________________________________________________________ ____________________________________________________________________________________________________________________________________ ____________________________________________________________________________________________________________________________________ ____________________________________________________________________________________________________________________________________ TOTAL NUMBER OF SHARES ____________________________________________________________________________________________________________________________________ * Unless otherwise indicated, the Holder will be deemed to have tendered for conversion pursuant to the Conversion Offer the entire number of shares of Series A Preferred Stock represented by tendered certificates. See Instruction 3. ------------------------ NOTE: SIGNATURES MUST BE PROVIDED UNDER BOX TWO PLEASE READ CAREFULLY THE ACCOMPANYING INSTRUCTIONS ____________________________________________________________________________________________________________________________________
Ladies and Gentlemen: In accordance with the terms and subject to the conditions set forth in the Conversion Offer, the undersigned hereby tenders for conversion the above-described aggregate number of shares of Series A Preferred Stock. Subject to, and effective upon acceptance for conversion of the Series A Preferred Stock tendered herewith, the undersigned hereby tenders, assigns and transfers to, or upon the order of, the Company all right, title and interest in and to all the shares of Series A Preferred Stock that are being tendered hereby and that are being accepted for conversion pursuant to the Conversion Offer, and irrevocably constitutes and appoints the Conversion Agent the true and lawful agent and attorney-in-fact of the undersigned with respect to such shares of Series A Preferred Stock (with full knowledge that the Conversion Agent also acts as agent for the Company) with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to deliver such shares of Series A Preferred Stock for conversion by the Company on the Company's books, together, in each case, with all accompanying required documentation, upon receipt by the Conversion Agent, as the undersigned's agent, of Common Stock and the Conversion Premium to which the undersigned is entitled upon the acceptance for conversion by the Company of such shares of Series A Preferred Stock under the Conversion Offer. The name and address of the registered holder(s) should be printed above under "Description of Shares Tendered," if not already printed thereunder, exactly as they appear on the certificates representing shares of Series A Preferred Stock tendered hereby. The certificate number(s) and the aggregate number of shares of Series A Preferred Stock to which this Special Conversion Notice relates, together with the aggregate number of shares of Series A Preferred Stock that the undersigned wishes to tender for conversion, should be indicated in the appropriate boxes above under "Description of Shares Tendered." The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, assign and transfer the shares of Series A Preferred Stock tendered hereby. The undersigned will, upon request, execute and deliver any additional documents deemed by the Conversion Agent or the Company to be necessary or desirable to complete the tender of Series A Preferred Stock tendered hereby. The undersigned hereby represents that the Series A Preferred Stock tendered hereby are valid. 3 All authority conferred, or agreed to be conferred, in this Special Conversion Notice shall survive the death or incapacity of the undersigned, and any obligation of the undersigned hereunder shall be binding upon the heirs, executors, administrators, legal representatives, successors and assigns of the undersigned. The tender of shares of Series A Preferred Stock may be withdrawn at any time before the Expiration Date, unless theretofore accepted for conversion pursuant to the Conversion Offer. See "Procedures for Conversion and Registration -- Withdrawal Rights" in the Offer of Premium. The undersigned understands that tender of Series A Preferred Stock pursuant to any of the procedures described in the Offer of Premium and in this Special Conversion Notice will constitute a binding agreement between the undersigned and the Company upon the terms and subject to the conditions of the Conversion Offer. Shares of Series A Preferred Stock properly tendered for conversion and not withdrawn will be accepted as soon as practicable after the satisfaction or waiver of all conditions to the Conversion Offer. The undersigned understands that the shares of Common Stock and Conversion Premium will be delivered as promptly as practicable upon acceptance for conversion of the tendered shares of Series A Preferred Stock of the Company. The Conversion Offer is subject to certain conditions, as more particularly set forth in the Offer of Premium. See "Procedures for Conversion and Registration" in the Offer of Premium. Unless otherwise indicated herein under "Special Issuance and Payment Instructions," please issue the certificates for the Common Stock with respect to the shares of Series A Preferred Stock accepted for conversion, and return any shares of Series A Preferred Stock not tendered, in the name(s) of the undersigned at the address set forth above under "Description of Shares Tendered." Similarly, unless otherwise indicated under "Special Delivery Instructions," please deliver the certificates for the Common Stock and the Conversion Premium with respect to the shares of Series A Preferred Stock accepted for conversion, and any shares of Series A Preferred Stock not tendered (and accompanying documents, as appropriate), to the undersigned at the address set forth above under "Description of Shares Tendered." If both the "Special Issuance and Payment Instructions" and the "Special Delivery Instructions" are completed, please issue the certificates for the Common Stock with respect to the shares of Series A Preferred Stock accepted for conversion, and return or issue any certificates shares of Series A Preferred Stock not tendered to, the person or persons so indicated, subject in the case of any transfer to compliance with the restrictions on transfer with respect to such shares and to delivery to the transfer agent of any additional certificates or documents required by the transfer agent to establish compliance with such restrictions. ________________________________________________________________________________ SPECIAL ISSUANCE AND PAYMENT INSTRUCTIONS (SEE INSTRUCTIONS 4, 5, 6 AND 7) DO NOT COMPLETE unless certificates for shares of Series A Preferred Stock for shares not converted or Common Stock are to be issued in the name of someone other than the person whose signature appears in Box Two of this Special Conversion Notice. Issue: (Check appropriate box(es)) / / Series A Preferred Stock to: / / Common Stock to: Name(s) _____________________________________________________________________ (Please Print) _____________________________________________________________________________ (Please Print) Address______________________________________________________________________ _____________________________________________________________________________ (Zip Code) _____________________________________________________________________________ (Tax Identification or Social Security Number) (Complete Substitute Form W-9) ________________________________________________________________________________ ________________________________________________________________________________ SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 4, 5, 6 AND 7) DO NOT COMPLETE unless certificates for shares of Series A Preferred Stock for shares not converted or Common Stock are to be sent to someone other than the person whose signature appears in Box Two of this Special Conversion Notice or such person at an address other than that shown in Box One, entitled "Description of Shares Tendered." Name(s) _____________________________________________________________________ (Please Print) _____________________________________________________________________________ (Please Print) Address______________________________________________________________________ _____________________________________________________________________________ (Zip Code) _____________________________________________________________________________ (Tax Identification or Social Security Number) (Complete Substitute Form W-9) ________________________________________________________________________________ ________________________________________________________________________________ SIGNATURE(S) MUST BE PROVIDED UNDER BOX TWO (Please Read the Accompanying Instructions Carefully) / / CHECK HERE IF TENDERED SHARES OF SERIES A PREFERRED STOCK ARE ENCLOSED HEREWITH. / / CHECK HERE IF TENDERED SHARES OF SERIES A PREFERRED STOCK ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE CONVERSION AGENT BEFORE THE DATE HEREOF AND COMPLETE THE FOLLOWING: Name(s) of Registered Owner(s):_____________________________________________ Date of Execution of Notice of Guaranteed Delivery:_____________________________________________________ Name of Eligible Institution which Guaranteed Delivery:__________________________________________________ Transaction Code Number:____________________________________________________ ________________________________________________________________________________ 4 ________________________________________________________________________________ BOX TWO PLEASE SIGN BELOW -- TO BE COMPLETED BY ALL HOLDERS TENDERING SERIES A PREFERRED STOCK ______________________________________________________________________________ X___________________________________ _______________________________________ Signature of Registered Holder(s) or Signature(s) of Registered Holder(s) or Authorized Signatory Authorized Signatory X___________________________________ _______________________________________ Type or Print Name Type or Print Name Dated: __________________, 199_ Dated: __________________, 199_ Area Code and Telephone No(s):________________________________________________ Tax Identification or Social Security No(s).:_________________________________ Must be signed by the registered holder(s) exactly as the name(s) appear(s) on the certificate(s) for shares of Series A Preferred Stock or on a security position listing or by person(s) authorized to become registered holder(s) as evidenced by endorsements and documents transmitted herewith. See Instructions 4 and 5. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation, agent, or other person acting in a fiduciary or representative capacity, please provide the following information. See Instruction 4. Name(s): Address(es) (including zip code) ____________________________________ _______________________________________ ____________________________________ _______________________________________ Type or Print Type or Print Capacity (Full Title):_______________________________________________________ Guarantee of Signature(s) (If required -- see Instruction 4) Name of Firm:________________________________________________________________ Authorized Signature_________________________________________________________ Title:_______________________________________________________________________ Dated:_______________________________________________________________________ PLEASE COMPLETE SUBSTITUTE FORM W-9 BELOW -- SEE INSTRUCTION 7 ________________________________________________________________________________ 5 PAYER'S NAME________________ Form W-9 (Rev. March 1994) REQUEST FOR TAXPAYER GIVE FORM TO THE Department of the Treasury IDENTIFICATION NUMBER AND CERTIFICATION REQUESTER. DO Internal Revenue Service NOT SEND TO IRS. ____________________________________________________________________________________________________________________________________ Name (if joint names, list first and circle the name of the person or entity whose number you enter in Part 1 below. SEE INSTRUCTIONS ON PAGE 2 IF YOUR NAME HAS CHANGED.) ________________________________________________________________________________________________________________________________ Business name (Sole proprietors SEE instructions on page 2). ________________________________________________________________________________________________________________________________ Please check appropriate box: / / Individual/Sole proprietor / / Corporation / / Partnership / / Other ................. ________________________________________________________________________________________________________________________________ Requester's name and address Address (number, street, and apt. or suite no.) (optional) _______________________________________________________________________ City, state, and ZIP code ____________________________________________________________________________________________________________________________________ List account number(s) here (optional) PART I TAXPAYER IDENTIFICATION NUMBER (TIN) ___________________________________________________________________________ Enter your TIN in the appropriate box. For individuals, this is your social security number (SSN). For sole proprietors, see the instructions Social security number on page 2. For other entities, it is your employer ---------------------- _______________________________________________________ identification number (EIN). If you do not have a - - PART II For Payees Exempt From number, see HOW TO GET A TIN below. ---------------------- Backup Withholding (See Part II OR Instructions on page 2) NOTE: If the account is in more than one name, Employee identification see the chart on page 2 for guidelines on whose number _______________________________________________________ number to enter. ---------------------- - ---------------------- ____________________________________________________________________________________________________________________________________ PART III CERTIFICATION ____________________________________________________________________________________________________________________________________ Under penalties of perjury, I certify that: 1. The number shown on this form is my correct taxpayer identification number (or I am waiting for a number to be issued to me), and 2. I am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. CERTIFICATION INSTRUCTIONS.-- You must cross out item 2 above if you have been notified by the IRS that you are currently subject to backup withholding because of underreporting interest or dividends on your tax return. For real estate transactions, item 2 does not apply. For mortgage interest paid, the acquisition or abandonment of secured property, cancellation of debt, contributions to an individual retirement arrangement (IRA), and generally payments other than interest and dividends, you are not required to sign the Certification, but you must provide your correct TIN. (Also see PART III INSTRUCTIONS on page 2). ____________________________________________________________________________________________________________________________________ SIGN HERE SIGNATURE DATE ____________________________________________________________________________________________________________________________________ NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE CONVERSION OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER IF YOU WROTE "APPLIED FOR" IN THE SPACE FOR THE TIN ABOVE. ____________________________________________________________________________________________________________________________________ CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under the penalties of perjury that a taxpayer identification number has not been issued to me, and either (a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (b) I intend to mail or deliver an application in the near future. I understand that if I do not provide taxpayer identification number within sixty (60) days, 31% of any payments made to me thereafter may be withheld until I provide a number. ____________________________________________________________________________________________________________________________________ _______________________________________________________________ __________________________________________________________ Signature Date ____________________________________________________________________________________________________________________________________
6 INSTRUCTIONS FORMING PART OF THE TERMS AND PROVISIONS OF THE CONVERSION OFFER 1. DELIVERY OF THIS SPECIAL CONVERSION NOTICE AND CERTIFICATES, GUARANTEED DELIVERY PROCEDURES. This Special Conversion Notice is to be used if (a) certificates for shares of Series A Preferred Stock are to be physically delivered to the Conversion Agent herewith, or (b) tenders are to be made according to the guaranteed delivery procedures set forth in the Offer of Premium. To validly tender Series A Preferred Stock pursuant to the Conversion Offer, a properly completed and duly executed copy of this Special Conversion Notice (or facsimile thereof) with any required signature guarantees, together with either a properly completed and duly executed Notice of Guaranteed Delivery or certificates for the shares of Series A Preferred Stock and any other documents required by this Special Conversion Notice, must be received by the Conversion Agent at its address set forth on the first part of this Special Conversion Notice before 12:00 midnight, New York City time, on the Expiration Date. Holders of Series A Preferred Stock who desire to tender shares of Series A Preferred Stock pursuant to the Conversion Offer and whose certificates representing such shares of Series A Preferred Stock are not lost but are not immediately available, or time will not permit all required documents to reach the Conversion Agent before 12:00 midnight, New York City time, on the Expiration Date, may tender their shares of Series A Preferred Stock pursuant to the guaranteed delivery procedure set forth in the Offer of Premium under "Procedures for Conversion and Registration -- Guaranteed Delivery Procedures." Pursuant to the guaranteed delivery procedures (a) tender must be made through a commercial bank or trust company having an office or branch in the United States or by a firm which is a member of a registered national securities exchange or of the National Association of Securities Dealers, Inc. (an "Eligible Institution"), (b) the Conversion Agent must have received from such Eligible Institution, before 12:00 midnight, New York City time, on the Expiration Date, a properly completed and duly executed Notice of Guaranteed Delivery (by mail, hand delivery, telegram or facsimile transmission), and (c) the certificates for all tendered shares of Series A Preferred Stock in proper form for conversion, together with a properly completed and duly executed Special Conversion Notice (or facsimile thereof) and all other documents required by this Special Conversion Notice, must be received by the Conversion Agent within five New York Stock Exchange days after the Expiration Date, all as provided in the Offer of Premium under the caption "Procedures for Conversion and Registration -- Guaranteed Delivery Procedures." THE METHOD OF DELIVERY OF THIS SPECIAL CONVERSION NOTICE, THE CERTIFICATES FOR SERIES A PREFERRED STOCK AND OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE TENDERING HOLDER. EXCEPT AS OTHERWISE PROVIDED HEREIN AND IN THE OFFER OF PREMIUM, SUCH DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE CONVERSION AGENT. IF DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT THE HOLDER USE PROPERLY INSURED, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, AND THAT THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO PERMIT DELIVERY TO THE CONVERSION AGENT BEFORE 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THE EXPIRATION DATE. All questions as to the validity, form, eligibility (including time of receipt), acceptance, withdrawal and revocation of tendered shares of Series A Preferred Stock will be determined by the Company, whose determination will be final and binding on all parties. The Company reserves the absolute right to reject any or all tenders or withdrawals of shares of Series A Preferred Stock that are not in proper form or the acceptance of which would, in the opinion of counsel to the Company, be unlawful. The Company also reserves the right to waive any irregularities or conditions of tender as to particular shares of Series A Preferred Stock. The interpretation of the Company of the terms and conditions of the Conversion Offer (including the Instructions herein) will be final and binding on all parties, and irregularities in connection with tenders must be cured within such time as the Company shall determine. No alternative, conditional or contingent tenders will be accepted. None of the Company, the Conversion Agent or any other person will be under any duty to give notification of any defects or irregularities in any tender, nor will any of them incur any liability for failure to give any such notification. Tender of shares of Series A Preferred Stock will not be deemed to have been made until irregularities have been cured or waived. Any shares of Series A Preferred Stock received by the Conversion Agent that are not properly tendered and as to which irregularities have not been cured or waived will be returned by the Conversion Agent to the tendering holders of such shares of Series A Preferred Stock, unless otherwise provided in this Special Conversion Notice, as soon as practicable following the Expiration Date. Any tendered shares of Series A Preferred Stock that are not accepted for conversion pursuant to the Conversion Offer because of an invalid tender, the occurrence of certain other events set forth in the Offer of Premium or otherwise, will be returned without expense to the appropriate tendering holder thereof, as promptly as practicable following the expiration, withdrawal or termination of the Conversion Offer. 7 2. WITHDRAWAL RIGHTS. Shares of Series A Preferred Stock tendered pursuant to the Conversion Offer may be withdrawn, as hereinafter provided, at any time before 12:00 midnight, New York City time, on the Expiration Date, unless theretofore accepted for conversion pursuant to the Conversion Offer. For the withdrawal of a tender of shares of Series A Preferred Stock to be effective, a written, telegraphic or facsimile transmitted notice of withdrawal must be received by the Conversion Agent at the address or number set forth on the front page of this Special Conversion Notice before the Expiration Date. Any such notice of withdrawal must specify the name of the person who tendered the shares of Series A Preferred Stock, the number of shares of Series A Preferred Stock to be withdrawn and (where certificates for shares of Series A Preferred Stock have been tendered) the names in which such shares of Series A Preferred Stock are registered, if different from that of the person tendering such shares of Series A Preferred Stock. If shares of Series A Preferred Stock have been delivered or otherwise identified to the Conversion Agent, then, before the release of such shares of Series A Preferred Stock, the serial numbers of the particular certificate evidencing the shares of Series A Preferred Stock to be withdrawn and a notice of withdrawal signed by the registered holder in the same manner as the original Special Conversion Notice with the signature(s) guaranteed by an Eligible Institution (except in the case of shares of Series A Preferred Stock tendered by an Eligible Institution) must be submitted. Withdrawals of shares of Series A Preferred Stock tendered may not be rescinded; however, withdrawn shares of Series A Preferred Stock may be retendered on or before 12:00 midnight, New York City time, on the Expiration Date by following any of the procedures described above under Instruction 1. All questions as to the validity (including time of receipt) of notices of withdrawal will be determined by the Company, whose determination will be final and binding on all parties. None of the Company, the Conversion Agent or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or will incur any liability for failure to give such notification. 3. ACCEPTANCE OF SHARES OF SERIES A PREFERRED STOCK FOR CONVERSION; DELIVERY OF COMMON STOCK AND CONVERSION PREMIUM; PARTIAL TENDER. The entire number of shares represented by tendered certificates of Series A Preferred Stock will be deemed to have been tendered unless otherwise indicated. If less than the entire aggregate amount evidenced by a submitted certificate is to be tendered, the tendering holder should fill in the aggregate number of shares of Series A Preferred Stock which are to be tendered in column (4) of the table in Box One above. Upon the terms and subject to the conditions of Conversion Offer and the acceptance for conversion of shares of Series A Preferred Stock validly tendered under the Conversion Offer and not withdrawn, delivery of Common Stock and the Conversion Premium will be made promptly after the Expiration Date. For purposes of the Conversion Offer, the Company shall be deemed to have accepted for conversion validly tendered shares of Series A Preferred Stock when, as, and if the Company has given oral or written notice thereof to the Conversion Agent. The Conversion Agent will act as agent for the tendering holders of shares of Series A Preferred Stock for the purpose of receiving the Common Stock and the Conversion Premium and transmitting the Common Stock and the Conversion Premium to such holders. 4. SIGNATURES ON THIS SPECIAL CONVERSION NOTICE; STOCK POWERS AND ENDORSEMENT GUARANTEE OF SIGNATURES. With respect to a tender of shares of Series A Preferred Stock, this Special Conversion Notice must be signed by the registered holder(s) of the shares of Series A Preferred Stock tendered, and such signatures must correspond with the name(s) of such holder(s) as written on the face of the certificate without any change whatsoever. If this Special Conversion Notice is signed by a person other than the registered holder(s) of the shares of Series A Preferred Stock, such shares of Series A Preferred Stock must be endorsed or accompanied by appropriate stock powers signed exactly as the name(s) of the registered holder(s) appear(s) on such shares of Series A Preferred Stock. Signatures of endorsement on any such shares of Series A Preferred Stock or stock powers must be guaranteed by an Eligible Institution. (a) If any of the shares of Series A Preferred Stock are held of record by two or more persons, all such persons must sign this Special Conversion Notice. (b) If any of the shares of Series A Preferred Stock are registered in different names, it will be necessary to complete, sign and submit as many separate Special Conversion Notices and any necessary accompanying documents as there are different registrations. (c) If this Special Conversion Notice is signed by the registered holder(s) of the shares of Series A Preferred Stock, no endorsements of shares of Series A Preferred Stock or separate stock powers are required, unless shares of Series A Preferred Stock not converted or the certificates of Common Stock are to be issued in the name of, or delivered to, any person other than the registered holder(s). Signatures on any such shares of Series A Preferred Stock or stock powers must be guaranteed by an Eligible Institution (unless signed by an Eligible Institution). 8 (d) If this Special Conversion Notice is signed by a person other than the registered holder(s) of the shares of Series A Preferred Stock, such shares of Series A Preferred Stock must be endorsed or accompanied by appropriate stock powers and signed exactly as the name(s) of the registered holder(s) appear(s) on such shares of Series A Preferred Stock. Signatures on any such shares of Series A Preferred Stock or stock powers must be guaranteed by an Eligible Institution (unless signed by an Eligible Institution). (e) If this Special Conversion Notice or any certificate or stock powers are signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation, or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and unless waived by the Company, proper evidence satisfactory to the Company of the authority of such person to so act must be submitted with this Special Conversion Notice. 5. BROKERAGE FEE AND TRANSFER TAXES. Holders of shares of Series A Preferred Stock will not be required to pay transfer taxes with respect to the conversion of shares of Series A Preferred Stock pursuant to this Conversion Offer unless the box entitled "Special Issuance and Payment Instructions" herein is marked as described in Instruction 6. If, however, the box entitled "Special Issuance and Payment Instructions" is marked and Common Stock or any shares of Series A Preferred Stock not tendered are to be issued in the name of, or delivered to, any person other than the registered holder(s), or if a transfer tax is imposed for any reason other than the conversion of the shares of Series A Preferred Stock pursuant to the Conversion Offer, the amount of any transfer taxes (whether imposed on the registered holder(s), such other person or otherwise) will be payable by tendering holder(s). Unless satisfactory evidence of the payment of such taxes, or exemption therefrom, is submitted herewith, the amount of such transfer taxes will be billed directly to the tendering holder(s) EXCEPT AS PROVIDED IN THIS INSTRUCTION 5, IT WILL NOT BE NECESSARY FOR TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATES LISTED IN THIS SPECIAL CONVERSION NOTICE. 6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If (a) certificates for Common Stock or (b) any shares of Series A Preferred Stock not converted are to be issued or delivered in the name of a person other than the person(s) signing this Special Conversion Notice, the appropriate boxes on this Special Conversion Notice should be completed. 7. SUBSTITUTE FORM W-9. Under Federal income tax law, each tendering holder must provide the Conversion Agent with such holder's correct taxpayer identification number by completing the Substitute Form W-9 set forth above. In general, if a holder is an individual, the taxpayer identification number is the Social Security number of such individual. If the Conversion Agent is not provided with the correct taxpayer identification number, the holder may be subject to a $50 penalty imposed by the Internal Revenue Service, as well as "backup withholding" as described below. Certain holders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order to satisfy the Conversion Agent that a foreign individual qualifies as an exempt recipient, such holder must submit a statement (Form W-8), signed under penalties of perjury, attesting to that individual's exempt status. The Form W-8 can be obtained from the Conversion Agent. For further information concerning backup withholding and instructions for completing the Substitute Form W-9 (including how to obtain a taxpayer identification number if you do not have one and how to complete Substitute Form W-9 if shares of Series A Preferred Stock are held in more than one name), consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9." Failure to complete the Substitute Form W-9 will not, by itself, cause shares of Series A Preferred Stock to fail to be deemed to be validly tendered, but may require the Conversion Agent, in certain circumstances, to withhold 31% of the amount of any payments made pursuant to the Conversion Offer. Backup withholding is not an additional Federal income tax. Rather, the Federal income tax liability of a person subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service. 8. WAIVER OF CONDITIONS. The Company reserves the right to waive the specified conditions to the Conversion Offer, as described in the Offer of Premium under "Procedures for Conversion and Registration." 9. MUTILATED, LOST, STOLEN OR DESTROYED SHARES OF SERIES A PREFERRED STOCK. Any holder whose certificates for shares of Series A Preferred Stock have been mutilated, lost, stolen or destroyed should contact the Conversion Agent at the address or telephone number previously indicated for further instructions. 10. EXPIRATION DATE. The Conversion Offer will expire at 12:00 midnight, New York City time, on Wednesday, March 22, 1995, unless extended by the Company. The Company reserves the right to extend the Conversion Offer for such periods as it may determine in its sole discretion, in which event the Expiration Date shall be the time and date on which the Conversion Offer, as so extended, shall expire. The Company shall notify the Conversion Agent of any extension by written or oral notice and will make a public announcement thereof by release to the Dow Jones News Service before 9:00 a.m., New York City time, on the next business day following the previously scheduled Expiration Date. During any such extension, all shares of Series A 9 Preferred Stock previously tendered and not accepted for conversion will remain subject to the Conversion Offer and may, subject to the terms and conditions hereof, be accepted for exchange by the Company, subject to the withdrawal rights of tendering holders. 11. MODIFICATION AND TERMINATION. The Company expressly reserves the right, at its sole discretion, subject to applicable law, to (i) delay payment of the Conversion Premium, or terminate the Conversion Offer and not pay the Conversion Premium and promptly return all Series A Preferred Stock to the holders of Series A Preferred Stock who elected to convert pursuant to the Conversion Offer by giving oral or written notice of the delay or termination to the Conversion Agent, (ii) waive any condition to the Conversion Offer and pay the Conversion Premium on all Series A Preferred Stock tendered for conversion pursuant thereto, (iii) waive any condition to the Resale Registration, (iv) extend the Expiration Date and retain all Series A Preferred Stock tendered pursuant to the Conversion Offer until the expiration thereof, (v) amend the terms of the Conversion Offer, (vi) modify the form or amount of the consideration to be paid pursuant to the Conversion Offer, or (vi) delay the effectiveness of the Registration Statement for the Resale Registration in its discretion until a later date as the Company determines may be required or advisable. Any amendment to the Conversion Offer will apply to all Series A Preferred Stock tendered for conversion pursuant to the Conversion Offer, and any amendment to the Registration Agreement will apply to all Common Stock subject to a Registration Agreement. 12. REGISTRATION AGREEMENT. In order for shares of Common Stock issuable upon conversion of Series A Preferred Stock to be registered for resale, the beneficial owner of the shares of Series A Preferred Stock being tendered for conversion must complete, sign and deliver the Registration Agreement to the Conversion Agent before 12:00 midnight, New York City time, on the Expiration Date. EVEN IF YOU TIMELY DELIVER THIS SPECIAL CONVERSION NOTICE OR INSTRUCT YOUR BROKER OR CUSTODIAN TO DO SO, THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION WILL NOT BE REGISTERED FOR RESALE UNDER THE SECURITIES ACT OF 1933 UNLESS YOU TIMELY SIGN AND DELIVER THE REGISTRATION AGREEMENT TO THE CONVERSION AGENT. 13. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and answers for assistance may be directed to the Conversion Agent at its address and telephone number set forth above. Additional copies of the Offer of Premium and this Special Conversion Notice may be obtained from the Conversion Agent at its address and telephone number set forth above. IMPORTANT: THIS SPECIAL CONVERSION NOTICE OR A MANUALLY SIGNED FACSIMILE HEREOF MUST BE RECEIVED BY CITIBANK, N.A., THE CONVERSION AGENT, BEFORE 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THE EXPIRATION DATE. EX-99.(A)(3) 4 REGISTRATION AGREEMENT 1 DELL COMPUTER CORPORATION REGISTRATION AGREEMENT FOR SHARES OF COMMON STOCK ISSUED UPON CONVERSION OF SERIES A CONVERTIBLE PREFERRED STOCK PURSUANT TO ITS OFFER OF PREMIUM DATED FEBRUARY 21, 1995 THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, MARCH 22, 1995, UNLESS EXTENDED BY THE COMPANY. PLEASE SIGN AND COMPLETE BELOW TO HAVE SHARES REGISTERED IN THE RESALE REGISTRATION EXACT NAME OF HOLDER:___________________________________________________________ STREET ADDRESS OF HOLDER:_______________________________________________________ PHONE NUMBER:______________________________ TELECOPY NUMBER: ___________________ NUMBER OF SHARES OF COMMON STOCK BENEFICIALLY OWNED AS OF FEBRUARY 21, 1995 (EXCLUDING SHARES ISSUABLE UPON CONVERSION OF SERIES A PREFERRED STOCK): NUMBER OF SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF SERIES A PREFERRED STOCK TO BE REGISTERED UNDER THIS AGREEMENT [IF NO INDICATION IS MADE, ALL SUCH SHARES OF COMMON STOCK ISSUED UPON CONVERSION OF SERIES A PREFERRED STOCK WILL BE REGISTERED]:_________________________________________________________________ SIGNATURE OF HOLDER:____________________________________________________________ [IF AN ENTITY] By:______________________________________________________________ Name (please print):_____________________________________________ Title (please print):____________________________________________ NUMBER OF PROSPECTUSES NEEDED (LIMIT OF 20):____________________________________ 2 The Conversion Agent: CITIBANK, N.A. By Mail: By Overnight Courier: By Hand: Citibank, N.A. Citibank, N.A. Citibank, N.A. c/o Citicorp Data Distribution, c/o Citicorp Data Distribution, Corporate Trust Window Inc. Inc. 111 Wall Street, 5th Floor P.O. Box 7072 404 Sette Drive New York, New York Paramus, New Jersey 07653 Paramus, New Jersey 07652 Confirm by Telephone: (800) 422-2066
Delivery of this Registration Agreement to an address other than as set forth above will not constitute a valid delivery. In order for shares of Common Stock issuable upon conversion to be registered for resale, the beneficial owner of the shares of Series A Preferred Stock being tendered for conversion must complete, sign and deliver this Registration Agreement to the Conversion Agent before 12:00 midnight, New York City time, on Wednesday, March 22, 1995, unless extended by the Company. EVEN IF YOU ARE TENDERING SERIES A PREFERRED STOCK THROUGH A BROKER OR OTHER CUSTODIAN WHO HOLDS STOCK FOR YOUR ACCOUNT, THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION WILL NOT BE REGISTERED FOR RESALE UNDER THE SECURITIES ACT OF 1933 UNLESS YOU TIMELY SIGN AND DELIVER THIS REGISTRATION AGREEMENT TO THE CONVERSION AGENT. REGISTRATION AGREEMENT This REGISTRATION AGREEMENT (the "Agreement") is made and entered into by and among Dell Computer Corporation, a Delaware corporation (the "Company"), and the undersigned holders (the "Holders") of the Series A Convertible Preferred Stock of the Company (the "Series A Preferred Stock"), effective as of the closing of the Conversion Offer (hereinafter defined). RECITALS A. The Company has offered to register under the Securities Act and applicable U.S. state securities laws, the resale from time to time of the shares of Common Stock to be issued upon conversion of the Series A Preferred Stock by the holders thereof pursuant to that certain Offer of Premium Upon Conversion dated February 21, 1995, the related Special Conversion Notice, and this Registration Agreement (which together constitute the "Conversion Offer"). B. To facilitate the transactions contemplated by the Conversion Offer and to provide certain information required by the Company to be included in the Registration Statement (hereinafter defined), the Company and the Holders desire to enter into this Agreement. AGREEMENTS NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, the Company and the Holders hereby agree as follows: 1. Certain Definitions. For purposes of this Agreement, the following terms shall have the following respective meanings: (a) "Commission" means the Securities and Exchange Commission, or any other federal agency at the time administering the Exchange Act or the Securities Act, whichever is the relevant statute for the particular purpose. (b) "Common Stock" means the Company's common stock, par value $.01 per share. 2 3 (c) "Conversion Offer" means the Company's offer to the holders of the Series A Preferred Stock to convert such shares into the Company's Common Stock pursuant to that certain Offer of Premium Upon Conversion dated February 21, 1995, the related Special Conversion Notice, and this Agreement. (d) "Effective Date" means the date on which the Commission declares the Registration Statement effective or on which the Registration Statement otherwise becomes effective. (e) "Exchange Act" means the Securities Exchange Act of 1934, or any successor thereto, as the same shall be amended from time to time. (f) "Expiration Date" means the date upon which the Conversion Offer expires. (g) "Prospectus" means the final prospectus contained in the Registration Statement or filed pursuant to Rule 424(b) under the Securities Act, as it may be amended or supplemented by the Company from time to time. (h) "Registrable Securities" means the shares of Common Stock to be issued to Holders upon conversion of the Series A Preferred Stock pursuant to the Conversion Offer and identified on the signature page for each of such Holders and to be registered by the Company in accordance with this Agreement. (i) "Registration Expenses" has the meaning assigned thereto in Section 4 hereof. (j) "Registration Statement" means the Company's registration statement on Form S-3 or such other successor form, in the form it is declared effective by the Commission, registering for resale the Registrable Securities. (k) "Securities Act" means the Securities Act of 1933, or any successor thereto, as the same shall be amended from time to time. 2. Registration under the Securities Act. The Company agrees to use its reasonable commercial efforts to register the resale by the Holders from time to time during the Resale Window (hereinafter defined) of the Registrable Securities under the Securities Act and any applicable U.S. state securities or "blue sky" laws and to have the Registration Statement declared effective by the Commission as soon as reasonably practicable after the Expiration Date; provided, however, that the Company may, in its sole discretion, delay the effectiveness of such Registration Statement until a later date as the Company determines may be required or advisable. The Company further agrees to use its reasonable commercial efforts to keep the Registration Statement covering the Registrable Securities effective for a period of 30 calendar days after the Effective Date (the "Resale Window"). In counting the days in the Resale Window, the day the Registration Statement is declared effective shall count as the first day if it is declared effective at or before 10:00 a.m., New York City time. The Company will promptly notify the Holders of the Registrable Securities of the Effective Date at the address and telecopy number provided by such Holders on the signature page above. 3. Covenants of the Holders. As a condition of the Company's obligation to register the Registrable Securities and any and all other obligations of the Company under this Agreement, each Holder hereby represents, warrants and agrees: (a) to furnish to the Company the information requested next to such Holder's signature below, which shall include such Holder's name exactly as it appears upon the stock transfer records of the Company, its current street address, phone number, telecopy number, relationship to the Company, if any, the exact number of shares of Series A Preferred Stock beneficially owned by such Holder, and the exact number of shares of Common Stock beneficially owned by such Holder and such other information reasonably available to such Holder as the Company may reasonably request; 3 4 (b) that such Holder shall not take, directly or indirectly, any action that is designed to or which has constituted or that might reasonably be expected to cause or result in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Common Stock; (c) that such Holder will comply with Rule 10b-6 under the Exchange Act, which requires a seller of Registrable Securities and all affiliates of the that seller (as "affiliate" is defined in such rule) to suspend all bids for or purchases of shares of Common Stock at least two business days before and during any offers and sales of Registrable Shares by that seller and until that seller's offers and sales terminate; (d) that such Holder will comply with Rule 10b-7 under the Exchange Act, which prohibits any person from stabilizing the prices of a security to facilitate and offering of that security; (e) that such Holder shall not offer, sell, contract to sell, establish any short position in, or otherwise offer or dispose of any other Registrable Securities prior to the Effective Date; and (f) that such Holder will not offer, sell, pledge or otherwise dispose of the Series A Preferred Stock and the Common Stock issuable upon conversion thereof prior to the Effective Date; (g) that such Holder will offer and sell the Registrable Securities only in the manner described in the Registration Statement; (h) that such Holder will deliver or cause to be delivered a Prospectus to the buyer at or before any sale of Registrable Securities; (i) that, if such Holder sells Registrable Securities on the Nasdaq National Market in an ordinary brokerage transaction, such holder will deliver to its broker (i) a copy of the letter attached as Exhibit A completed and executed by such Holder (the "Seller's Letter"), and (ii) a copy of the letter attached as Exhibit B (the "Broker's Letter"), and shall cause its broker to execute the Broker's Letter and promptly to deliver both the Seller's Letter and the Broker's Letter to the transfer agent for the Common Stock and to the Company, attention: General Counsel, and that the Company may refuse to authorize transfer of such Registrable Securities if such letters are not delivered to the Company in form and substance satisfactory to the Company; (j) that, if such Holder sells Registrable Securities directly to another person other than in an ordinary brokerage transaction on the Nasdaq National Market, such holder will deliver to the transfer agent for the Common Stock and to the Company, attention: General Counsel, a copy of the Seller's Letter completed and executed by such Holder, and that the Company may refuse to authorize transfer of such Registrable Securities if such letter is not delivered to the Company in form and substance satisfactory to the Company; (k) that such Holder will immediately suspend all offers and sales of Registrable Securities pursuant to the Registration Statement upon termination of the Resale Window or, if earlier, upon notification from the Company that the Prospectus may no longer be used for offers or sales; and (l) that such Holder is the beneficial owner of the shares of Series A Preferred Stock and Common Stock set forth on the signature page of such Holder hereto. 4. Registration Expenses. The Company agrees to bear and to pay or cause to be paid promptly upon request being made therefor all expenses incident to the Company's performance of or compliance with this Agreement, including, without limitation, (a) all Commission registration and filing fees and expenses, (b) all fees and expenses in connection with the qualification of the Common Stock for offering and sale under any U.S. state securities and "blue sky" laws, (c) all expenses relating to the preparation, printing, distribution and reproduction of each registration 4 5 statement required to be filed hereunder, each prospectus included therein or prepared for distribution pursuant hereto, each amendment or supplement to the foregoing, the certificates representing the Common Stock and all other documents relating hereto, (d) messenger and delivery expenses, (e) internal expenses (including, without limitation, all salaries and expenses of the Company's officers and employees performing legal or accounting duties), (f) fees, disbursements and expenses of counsel and independent certified public accountants of the Company (including the expenses of any opinions or "cold comfort" letters required by or incident to such performance and compliance), and (g) fees, expenses and disbursements of any other persons, including special experts, retained by the Company in connection with such registration (collectively, the "Registration Expenses"). Notwithstanding the foregoing, the Holders shall pay all agency fees and commissions, underwriting discounts and commissions, and transfer and other taxes attributable to the sale of such Registrable Securities and the fees and disbursements of any counsel or other advisors or experts retained by such Holders (severally or jointly). 5. Indemnification. (a) Indemnification by the Company. On and after the effectiveness of the registration of the resale of the Registrable Securities pursuant to Section 2 hereof, and in consideration of the agreements of the Holders contained herein, the Company agrees to indemnify and hold harmless each of the Holders in any offering or sale of the Registrable Securities against any losses, claims, damages or liabilities, joint or several, to which such Holder may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement under which such Registrable Securities were registered under the Securities Act, or any final prospectus contained therein or furnished by the Company to any such holder, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and the Company agrees to reimburse such Holder for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such action or claim as such expenses are incurred; provided, however, that the Company shall not be liable to any such person in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement or final prospectus, or amendment or supplement, in reliance upon and in conformity with written information furnished to the Company by such person expressly for use therein; provided, further, that the Company shall not be liable to any person to the extent such loss, claim, damage, or liability results from the fact that there was not delivered by such person a final prospectus the delivery of which would have avoided such loss, claim, damage or liability. (b) Indemnification by the Holders. Each of the Holders, severally, hereby agrees (i) to indemnify and hold harmless the Company, and all other Holders, against any losses, claims, damages or liabilities to which the Company or such other Holders of may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, or any final prospectus contained therein or furnished by the Company to any such Holder, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by such Holder expressly for use therein, and (ii) reimburse the Company for any legal or other expenses reasonably incurred by the Company in connection with investigating or defending any such action or claim; provided, however, that no such Holder shall be required to undertake liability to any person under this Section 5(b) for any amounts in excess of the dollar 5 6 amount of the proceeds to be received by such Holder from the sale of such Holder's Registrable Securities pursuant to such registration. (c) Notices of Claims, Etc. Promptly after receipt by an indemnified party under subsection (a) or (b) above of written notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against an indemnifying party pursuant to the indemnification provisions of or contemplated by this Section 5, notify such indemnifying party in writing of the commencement of such action; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party other than under the indemnification provisions of or contemplated by Section 5(a) or 5(b) hereof. In case any such action shall be brought against any indemnified party and it shall notify an indemnifying party of the commencement thereof, such indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, such indemnifying party shall not be liable to such indemnified party for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation. (d) Contribution. Each party hereto agrees that, if for any reason the indemnification provisions contemplated by Section 5(a) or Section 5(b) are unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the indemnifying party and the indemnified party in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by such indemnifying party or by such indemnified party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties hereto agree that it would not be just and equitable if contributions pursuant to this Section 5(d) were determined by pro rata allocation (even if the holders or any agents or underwriters or all of them were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 5(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages, or liabilities (or actions in respect thereof) referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 5(d), no Holder shall be required to contribute any amount in excess of the amount by which the dollar amount of the proceeds received by such Holder from the sale of any Registrable Securities (after deducting any fees, discounts and commissions applicable thereto) exceeds the amount of any damages which such holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Holders' obligations in this Section 5(d) to contribute shall be several in proportion to the principal amount of Registrable Securities registered by them and not joint. (e) The obligations of the Company under this Section 5 shall be in addition to any liability which the Company may otherwise have and shall extend, upon the same terms and conditions, to each officer, director and partner of each Holder and each person, if any, who controls any Holder 6 7 within the meaning of the Securities Act; and the obligations of the Holders contemplated by this Section 5 shall be in addition to any liability which the respective Holder may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of the Company (including any person who, with his consent, is named in any registration statement as about to become a director of the Company) and to each person, if any, who controls the Company within the meaning of the Securities Act. 6. Miscellaneous. (a) Specific Performance. The parties hereto acknowledge that there may be no adequate remedy at law if any party fails to perform any of its obligations hereunder and that each party may be irreparably harmed by any such failure, and accordingly agree that each party, in addition to any other remedy in which it may be entitled at law or in equity, shall be entitled to compel specific performance of the obligations of any other party under this Agreement in accordance with the terms and conditions hereunder, in any court of the United States or any State thereof having jurisdiction. (b) Notices. All notices, requests, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered by hand, if delivered personally or by courier, or three days after being deposited in the mail (registered or certified mail, postage prepaid, return receipt requested), or upon electronic confirmation of receipt if delivered by telecopy, as follows: If to the Company, to it at Dell Computer Corporation, 2112 Kramer Lane, Building 1, Austin, Texas 78758-4012, Attention: General Counsel, Telecopy number: (512) 728-3773, and if to a Holder, to it at the address and telecopy number provided by such Holder herein, or to such other address as any party may have furnished to the others in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. (c) Successors and Assigns. All the terms and provisions of this Agreement shall be binding upon, shall inure to the benefit of and shall be enforceable by the respective successors and assigns of the parties hereto. (d) Survival. The respective indemnities, agreements, representations, warranties and each other provision set forth in this Agreement or made pursuant hereto shall remain in full force and effect regardless of any investigation (or statement as to the results thereof) made by or on behalf of any Holder, any director, officer or partner of such Holder, or any controlling person of such Holder, and shall survive the effectiveness of the Registration Statement. (e) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. (f) Headings. The descriptive headings of the several Sections and paragraphs of this Agreement are inserted for convenience only, do not constitute a part of this Agreement and shall not affect in any way the meaning or interpretation of this Agreement. (g) Entire Agreement. This Agreement and the other writings referred to herein or delivered pursuant hereto which form a part hereof contain the entire understanding of the parties with respect to its subject matter, and supersede all prior agreements and understandings between the parties with respect to its subject matter. (h) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute one and the same agreement. 7 8 IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective the closing of the Conversion Offer. DELL COMPUTER CORPORATION By: Thomas J. Meredith Chief Financial Officer THE SIGNATURE OF THE HOLDER ON THE COVER OF THIS REGISTRATION AGREEMENT SHALL BE A COUNTERPART SIGNATURE TO THIS REGISTRATION AGREEMENT 8 9 EXHIBIT A SELLER'S LETTER __________________, 1995 General Counsel Dell Computer Corporation 2112 Kramer Lane, Building 1 Austin, Texas 78758-4012 Telephone: (512) 338-4400 Telecopy: (512) 728-3773 American Stock Transfer & Trust Company 40 Wall Street New York, New York 10005 Telephone: (718) 921-8200 (212) 936-5100 Telecopy: (718) 236-4588 Re: Dell Computer Corporation Common Stock Issued Upon Conversion of Series A Convertible Preferred Stock Ladies and Gentlemen: The undersigned has sold_______________________[insert number] shares ("Shares") of Common Stock of Dell Computer Corporation (the "Company") to ________________________________________[insert name] (the "Purchaser"). Terms having their initial letter capitalized but not defined in this letter have the meanings ascribed them in the Registration Agreement between the undersigned and the Company. In order to induce you to transfer the Shares and to issue, register and countersign new certificates representing the Shares without a legend restricting the transfer thereof, the undersigned acknowledges and represents to the Company and American Stock Transfer & Trust Company as follows: 1. The undersigned delivered, or caused to be delivered, to the Purchaser a copy of the Prospectus of the Company relating to the Shares at or before the written confirmation of the sale of the Shares to the Purchaser. 2. No written materials other than the Prospectus and confirmation were used in connection with the sale. 3. The sale was made in compliance with all applicable state securities or blue-sky laws. 4. The undersigned also acknowledges and represents that the undersigned has complied with all its covenants in the Registration Agreement, including without limitation the covenants regarding compliance with Rule 10b-6 and Rule 10b-7 under the Exchange Act and the prohibits against offering or selling the Shares before the Effective Date of the Registration Statement. I represent that I am not, and at no time have been, an affiliate of the Company. INDIVIDUAL: ________________________________________ (Signature of Selling Security Holder) ________________________________________ (Printed Name of Selling Security Holder) ________________________________________ PARTNERSHIP, CORPORATION OR TRUST: Print Name of Entity: By:_____________________________________ (Signature of Authorized Officer or Representative) ________________________________________ (Print Name of Authorized Officer or Representative) ________________________________________ (Title) 9 10 EXHIBIT B BROKER'S LETTER ______________, 1995 General Counsel Dell Computer Corporation 2112 Kramer Lane, Building 1 Austin, Texas 78758-4012 Telephone: (512) 338-4400 Telecopy: (512) 728-3773 American Stock Transfer & Trust Company 40 Wall Street New York, New York 10005 Telephone: (718) 921-8200 (212) 936-5100 Telecopy: (718) 236-4588 Re: Dell Computer Corporation Common Stock Issued Upon Conversion of Series A Convertible Preferred Stock Ladies and Gentlemen: We have read the letter of ________________________________ [print name of seller] dated ______________________, 1995, concerning the proposed sale of shares (the "Shares") of Common Stock of Dell Computer Corporation (the "Company") through us and advise you that, in connection with the sale of the Shares: 1. We have sold or will sell the Shares in a brokerage transaction as agent for the named seller. 2. The undersigned delivered, or caused to be delivered, to the purchaser of the Shares a copy of the Prospectus of the Company relating to the Shares at or before the written confirmation of the sale of the Shares to the Purchaser through the undersigned firm. 3. No written materials other than the Prospectus and confirmation were used in connection with the sale. 4. The selling of the Shares by the undersigned as agent for the named seller does not constitute participation by the undersigned in a distribution within the meaning of the Securities and Exchange Commission's Rule 10b-6(c)(5). We understand that this determination may depend on the magnitude of the number of shares we are asked to sell, or foreseeably will be asked to sell, and the presence of any special selling efforts or selling methods. If our participation constitutes participation in a distribution within the meaning of Rule 10b-6(c)(5), we represent and acknowledge to you that we have complied with Rule 10b-6.* Sincerely, ______________________________________ (Print Name of Firm) ______________________________________ (Signature of Authorized Representative) ______________________________________ (Print Name and Capacity of Signer) ______________________________________ (Telephone Number) - --------------- *Note: In the view of the Securities and Exchange Commission, additional compensation offered to registered representatives or a favorable research report or any recommendation by the broker are indicia of special selling efforts and may indicate the transaction constitutes a distribution for purposes of Rule 10b-6. When a broker-dealer agrees with one or more shareholders to act as their exclusive agent in connection with sales off a shelf registration statement, the broker-dealer will be subject to Rule 10b-6, and the broker-dealer will be prohibited from engaging in market making or other activities proscribed by Rule 10b-6. 10 EX-99.(A)(4) 5 NOTICE OF GUARNTEED DELIVERY 1 DELL COMPUTER CORPORATION NOTICE OF GUARANTEED DELIVERY TO CONVERT SERIES A CONVERTIBLE PREFERRED STOCK FOR SHARES OF COMMON STOCK AND $8.25 CASH CONVERSION PREMIUM PURSUANT TO ITS OFFER OF PREMIUM DATED FEBRUARY 21, 1995 THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, MARCH 22, 1995, UNLESS EXTENDED BY THE COMPANY. The Conversion Agent: CITIBANK, N.A. By Mail: By Overnight Courier: By Hand: Citibank, N.A. Citibank, N.A. Citibank, N.A. c/o Citicorp Data Distribution, Inc. c/o Citicorp Data Distribution, Inc. Corporate Trust Window P.O. Box 7072 404 Sette Drive 111 Wall Street, 5th Floor Paramus, New Jersey 07653 Paramus, New Jersey 07652 New York, New York Confirm by Telephone: (800) 422-2066
As set forth in the Offer of Premium Upon Conversion dated February 21, 1995 (the "Offer of Premium"), under "Procedures for Conversion and Registration -- Guaranteed Delivery Procedures," this form or one substantially equivalent hereto must be used to accept the Conversion Offer (as defined below) if certificates for Series A Convertible Preferred Stock (the "Series A Preferred Stock") of Dell Computer Corporation (the "Company") are not immediately available or time will not permit such certificates or other required documents to reach the Conversion Agent prior to 12:00 midnight, New York City time, on or prior to the Expiration Date (as defined in the Offer of Premium). Such form may be delivered by hand or transmitted by facsimile transmission or mail to the Conversion Agent prior to midnight, New York City time, on the Expiration Date. Capitalized terms used herein and not otherwise defined shall have the respective meanings assigned to them in the Offer of Premium. DELIVERY OF THIS NOTICE TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. This form is not to be used to guarantee signatures. The Eligible Institution (as defined in the Offer of Premium) that completes this form must communicate the guarantee to the Conversion Agent and must deliver the Letter of Transmittal and certificates for Series A Preferred Stock to the Conversion Agent within the time period shown herein. Failure to do so could result in a financial loss to that Eligible Institution. 2 LADIES AND GENTLEMEN: The undersigned hereby tenders to the Company, upon the terms and conditions set forth in the Offer of Premium, related Special Conversion Notice, and related Registration Agreement (which together constitute the "Conversion Offer"), receipt of which is hereby acknowledged, shares of Series A Preferred Stock pursuant to the guaranteed delivery procedures described in "Procedures for Conversion and Registration -- Guaranteed Delivery Procedures" in the Offer of Premium. (PLEASE TYPE OR PRINT ALL INFORMATION BELOW) Signature(s):___________________________________________________________________ ________________________________________________________________________________ Name(s) of Record Holder(s): ________________________________________________________________________________ Address(es):____________________________________________________________________ ________________________________________________________________________________ City State Zip Code Area Code and Tel. No(s):_______________________________________________________ Dated:__________________________________________________________________________ Certificate No(s). (if available): ________________________________________________________________________________ Total number of shares represented by Certificate(s):___________________________ Account Number:_________________________________________________________________ GUARANTEE (DO NOT USE FOR SIGNATURE GUARANTEE) The undersigned, a member firm of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc. or a commercial bank or trust company having an office in the United States, hereby represents that (a) the above named person(s) owns(s) the shares of Series A Preferred Stock tendered hereby within the meaning of Rule 14e-4 under the Securities Exchange Act of 1934, as amended ("Rule 14e-4"); (b) such tender of shares of Series A Preferred Stock complies with Rule 14e-4; and (c) delivery to the Conversion Agent of the certificate(s) representing the shares of Series A Preferred Stock tendered hereby, together with the appropriate properly completed and duly executed Special Conversion Notice (or facsimile thereof), with any required signature guarantee and any other required documents, will be received no later than five (5) New York Stock Exchange trading days after the Expiration Date. ________________________________________________________________________________ Name of Firm Authorized Signature ________________________________________________________________________________ Address Title ________________________________________________________________________________ Zip Code Name: Please Type or Print Area Code & Tel. No.___________________________ Dated:___________________, 199__ NOTE: DO NOT SEND SERIES A PREFERRED STOCK CERTIFICATES WITH THIS FORM. SERIES A PREFERRED STOCK CERTIFICATES MUST BE SENT ONLY WITH THE SPECIAL CONVERSION NOTICE. EX-99.(A)(5) 6 LETTER TO BROKERS,DEALERS,COMMERCIAL BANKS, ETC. 1 NOTICE OF PREMIUM UPON CONVERSION OF ANY AND ALL OF THE OUTSTANDING SERIES A CONVERTIBLE PREFERRED STOCK OF DELL COMPUTER CORPORATION THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, MARCH 22, 1995, UNLESS EXTENDED BY THE COMPANY. February 21, 1995 To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: We are enclosing the material listed below relating to the offer by Dell Computer Corporation (the "Company"), upon the terms and subject to the conditions set forth in the enclosed Offer of Premium Upon Conversion dated February 21, 1995 (the "Offer of Premium"), to pay a cash premium of $8.25 (the "Conversion Premium") for each share of its Series A Convertible Preferred Stock (the "Series A Preferred Stock") that is converted to common stock, par value $.01 per share (the "Common Stock"), of the Company from the date of the Offer of Premium through 12:00 midnight, New York City time, on Wednesday, March 22, 1995, unless extended (the "Special Conversion Period"). A holder of Series A Preferred Stock who elects to convert during the Special Conversion Period will receive 4.2105 shares of Common Stock (equivalent to a conversion price of $23.75 per share of Common Stock) and the Conversion Premium of $8.25 in cash for each share of Series A Preferred Stock converted. At the conclusion of the Special Conversion Period, a holder of shares of Series A Preferred Stock who did not convert those shares to Common Stock in the Conversion Offer will no longer be entitled to the Conversion Premium upon conversion. The Company will register under the Securities Act of 1933, as amended (the "Securities Act"), and applicable U.S. state securities laws, the resale of the shares of Common Stock to be issued upon conversion of Series A Preferred Stock pursuant to this offer by the holders thereof (the "Resale Registration"). Under the Resale Registration, resales of such Common Stock may be made for 30 calendar days (the "Resale Window") only in ordinary brokerage transactions. The Company currently intends to use its reasonable commercial efforts to have the Resale Registration declared effective as soon as reasonably practicable following completion of the Conversion Offer. However, the Company may delay the effectiveness of the Resale Registration in its discretion until a later date as the Company determines may be required or advisable. Holders of Series A Preferred Stock who elect to convert Series A Preferred Stock pursuant to the Conversion Offer will not receive future, regular dividend payments with respect to Series A Preferred Stock, including any amount in respect of periods since January 27, 1995, the last record date since the date hereof for payment of regularly scheduled dividends. The offer is made on the terms and subject to the conditions set forth in the enclosed Offer of Premium and any supplements or amendments thereto (the "Offer of Premium"), in the related Special Conversion Notice, and in the related Registration Agreement (which together constitute the "Conversion Offer"). 2 For your information and for forwarding to your clients who hold Series A Preferred Stock, whether registered in your name, in the name of your nominee, or in their own names, we are enclosing the following documents: 1. The Offer of Premium; 2. The Special Conversion Notice to be used by holders of Series A Preferred Stock in accepting the Conversion Offer (facsimile copies of the Special Conversion Notice may be used to tender Series A Preferred Stock for conversion); 3. The Registration Agreement to be signed by those holders of Series A Preferred Stock that accept the Conversion Offer in order to participate in the Resale Registration; 4. A Notice of Guaranteed Delivery to be used to accept the Conversion Offer if any shares of Series A Preferred Stock to be tendered are represented by certificates and those certificates are not immediately available; 5. A suggested form of letter that may be sent to your clients for whose accounts you hold Series A Preferred Stock in your name or in the name of a nominee, with space provided for obtaining the clients' instructions about the Conversion Offer; 6. Guidelines of the Internal Revenue Service for Certification of Taxpayer Identification Number on Substitute Form W-9; 7. A return envelope addressed to Citibank, N.A., the Conversion Agent; 8. The Company's Annual Report on Form 10-K for the Fiscal Year Ended January 30, 1994; 9. The Company's Quarterly Report on Form 10-Q for the Quarterly Period Ended October 30, 1994; and 10. The Company's Current Report on Form 8-K, dated February 21, 1995. WE URGE YOU TO CONTACT YOUR CLIENTS PROMPTLY. PLEASE NOTE THAT THE SPECIAL CONVERSION PERIOD EXPIRES AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, MARCH 22, 1995, UNLESS EXTENDED BY THE COMPANY. No fees or commissions will be payable to brokers, dealers or other persons for soliciting tenders or Series A Preferred Stock pursuant to the Conversion Offer. However, the Company will, upon request, reimburse brokers, dealers, commercial banks and trust companies for reasonable and necessary costs incurred by them in forwarding the Offer of Premium and the related documents to the beneficial owners of Series A Preferred Stock held by them as nominee or in a fiduciary capacity. The Company will pay all transfer taxes, if any, on the conversion of the Series A Preferred Stock, other than those resulting from a request to issue Common Stock to a person other than the registered holder of the Series A Preferred Stock. Any questions or requests for assistance or additional copies of the enclosed materials may be obtained from the Company or the Conversion Agent at the addresses and telephone numbers set forth in the Offer of Premium. Very truly yours, DELL COMPUTER CORPORATION NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY PERSON AS AN AGENT OF THE COMPANY, ANY AFFILIATE OF THE COMPANY, OR THE CONVERSION AGENT OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENTS ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE CONVERSION OFFER EXCEPT FOR STATEMENTS EXPRESSLY MADE IN THE OFFER OF PREMIUM AND THE RELATED DOCUMENTS. 2 EX-99.(A)(6) 7 LETTERS TO CLIENTS 1 NOTICE OF PREMIUM UPON CONVERSION OF ANY AND ALL OF THE OUTSTANDING SERIES A CONVERTIBLE PREFERRED STOCK OF DELL COMPUTER CORPORATION THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, MARCH 22, 1995, UNLESS EXTENDED BY THE COMPANY. February 21, 1995 To Our Clients: Enclosed for your consideration is a copy of the Offer of Premium Upon Conversion ("Offer of Premium") of Dell Computer Corporation (the "Company"), dated February 21, 1995, with respect to the offer by the Company upon the terms and subject to the conditions set forth in the Offer of Premium to pay a cash premium of $8.25 (the "Conversion Premium") for each share of its Series A Convertible Preferred Stock (the "Series A Preferred Stock") that is converted to common stock, par value $.01 per share (the "Common Stock"), of the Company from the date of the Offer of Premium through 12:00 midnight, New York City time, on Wednesday, March 22, 1995, unless extended (the "Special Conversion Period"). A holder of Series A Preferred Stock who elects to convert during the Special Conversion Period will receive 4.2105 shares of Common Stock (equivalent to a conversion price of $23.75 per share of Common Stock) and the Conversion Premium of $8.25 in cash for each share of Series A Preferred Stock converted. At the conclusion of the Special Conversion Period, a holder of shares of Series A Preferred Stock who did not convert those shares to Common Stock in the Conversion Offer will no longer be entitled to the Conversion Premium upon conversion. The Company will register under the Securities Act of 1933, as amended (the "Securities Act"), and applicable U.S. state securities laws, the resale of the shares of Common Stock to be issued upon conversion of Series A Preferred Stock pursuant to this offer by the holders thereof (the "Resale Registration"). Under the Resale Registration, resales of such Common Stock may be made for 30 calendar days (the "Resale Window") only in ordinary brokerage transactions. The Company currently intends to use its reasonable commercial efforts to have the Resale Registration declared effective as soon as reasonably practicable following completion of the Conversion Offer. However, the Company may delay the effectiveness of the Resale Registration in its discretion until a later date as the Company determines may be required or advisable. Holders of Series A Preferred Stock who elect to convert Series A Preferred Stock pursuant to the Conversion Offer will not receive future, regular dividend payments with respect to Series A Preferred Stock, including any amount in respect of periods since January 27, 1995, the last record date since the date hereof for payment of regularly scheduled dividends. Assuming all of the outstanding Series A Preferred Stock are converted during the Special Conversion Period, the holders of Series A Preferred Stock will receive an aggregate of approximately 5,263,125 shares of Common Stock and $10,312,500 in cash. THE ENCLOSED OFFER OF PREMIUM, TOGETHER WITH THE INFORMATION INCORPORATED BY REFERENCE THEREIN, CONSTITUTE THE COMPANY'S OFFER AND DISCLOSURE MATERIALS AND SHOULD BE REVIEWED BY YOU IN THEIR ENTIRETY. 2 We are the record owner of Series A Preferred Stock held by us for your account, and the Offer of Premium is being forwarded to you as the beneficial owner of those shares of Series A Preferred Stock. The conversion of those shares of Series A Preferred Stock can be made only by us as the holder of record and pursuant to your instructions. The enclosed Special Conversion Notice is furnished to you for your information only and cannot be used by you to convert Series A Preferred Stock held by us for your account. We request your instructions as to whether you wish us to convert on your behalf any or all the principal amount of Series A Preferred Stock held by us for your account, pursuant to the terms and subject to the conditions of the Conversion Offer. Your attention is called to the following: 1. Pursuant to the Conversion Offer, a cash premium of $8.25 will be paid by the Company for each share of Series A Preferred Stock converted during the Special Conversion Period. 2. The Conversion Offer is being made for all of the outstanding Series A Preferred Stock as of February 21, 1995. The Conversion Offer is not conditioned upon any minimum amount of shares of Series A Preferred Stock being tendered. 3. The Special Conversion Period commenced as of Tuesday, February 21, 1995, and will remain in effect until and will expire at 12:00 midnight, New York City time, on Wednesday, March 22, 1995, unless extended by the Company. 4. Holders electing to convert Series A Preferred Stock pursuant to the Conversion Offer will not be obligated to pay brokerage fees or commissions. 5. Holders of Series A Preferred Stock may convert less than the entire stated number of shares of Series A Preferred Stock represented by surrendered certificates provided they appropriately indicate this fact on the Conversion Notice accompanying the shares of Series A Preferred Stock to be converted. 6. IF YOU ALSO WISH TO HAVE SHARES REGISTERED IN THE RESALE REGISTRATION DESCRIBED IN THE OFFER OF PREMIUM, YOU MUST SIGN THE ENCLOSED REGISTRATION AGREEMENT AND HAVE IT DELIVERED DIRECTLY TO THE CONVERSION AGENT BEFORE THE EXPIRATION OF THE SPECIAL CONVERSION PERIOD. If you wish us to convert any or all of your shares of Series A Preferred Stock, please so instruct us by completing, executing, and returning to us the instruction form attached hereto. If you authorize a conversion of your Series A Preferred Stock, the total number of your shares of Series A Preferred Stock will be converted unless otherwise indicated. If you do not instruct us to convert your shares of Series A Preferred Stock they will not be converted. The Conversion Offer is not being made, nor will deliveries of shares of Series A Preferred Stock for conversion pursuant to the Conversion Offer be accepted from or on behalf of, holders of Series A Preferred Stock residing in any jurisdiction in which the making of the Conversion Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction. YOUR INSTRUCTIONS SHOULD BE FORWARDED TO US IN AMPLE TIME TO PERMIT US TO SUBMIT A SPECIAL CONVERSION NOTICE ON YOUR BEHALF TO THE CONVERSION AGENT PRIOR TO THE EXPIRATION OF THE SPECIAL CONVERSION PERIOD. 2 3 INSTRUCTIONS WITH RESPECT TO THE CONVERSION OFFER BY DELL COMPUTER CORPORATION The undersigned acknowledge(s) receipt of your letter, dated February 21, 1995, and the Offer of Premium, in connection with the Conversion Offer by Dell Computer Corporation, a Delaware corporation (the "Company") to pay a cash premium of $8.25 for each share of its Series A Convertible Preferred Stock (the "Series A Preferred Stock") that is converted to common stock, par value $.01 per share, of the Company from the date of the Offer of Premium through 12:00 midnight, New York City time, on Wednesday, March 22, 1995, unless extended (the "Special Conversion Period"). You are hereby instructed to deliver to the Company for conversion pursuant to the Conversion Offer the number of shares of Series A Preferred Stock indicated below (or, if no number is indicated below, all shares of Series A Preferred Stock) which are held by you for the account of the undersigned, upon the terms and subject to the conditions set forth in the Conversion Offer. Dated ____________ , 1995 _____________________________________________ _____________________________________________ _____________________________________________ _____________________________________________ Please print name(s) here Number of shares of Series A Preferred Stock to be converted pursuant to the Conversion Offer* ____________________________________________ _____________________________________________ _____________________________________________ Address(es) (_________) _________________________________ Area Code and Day Telephone number _____________________________________________ Tax Identification or Social Security No(s).
- --------------- * If the number of shares is not indicated, the total number of shares held by us for your account will be delivered for conversion pursuant to the Conversion Offer. EX-99.(A)(7) 8 GUIDELINES FOR CERTIFICATION OF TAXPAYER I.D. # 1 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON FORM W-9 Form W-9 (Rev. March 1994) REQUEST FOR TAXPAYER GIVE FORM TO THE Department of the Treasury IDENTIFICATION NUMBER AND CERTIFICATION REQUESTER. DO Internal Revenue Service NOT SEND TO IRS. ____________________________________________________________________________________________________________________________________ Name (if joint names, list first and circle the name of the person or entity whose number you enter in Part 1 below. SEE INSTRUCTIONS ON PAGE 2 IF YOUR NAME HAS CHANGED.) ________________________________________________________________________________________________________________________________ Business name (Sole proprietors SEE instructions on page 2). ________________________________________________________________________________________________________________________________ Please check appropriate box: / / Individual/Sole proprietor / / Corporation / / Partnership / / Other ................. ________________________________________________________________________________________________________________________________ Requester's name and address Address (number, street, and apt. or suite no.) (optional) _______________________________________________________________________ City, state, and ZIP code SAMPLE ____________________________________________________________________________________________________________________________________ List account number(s) here (optional) PART I TAXPAYER IDENTIFICATION NUMBER (TIN) ___________________________________________________________________________ Enter your TIN in the appropriate box. For individuals, this is your social security number (SSN). For sole proprietors, see the instructions Social security number on page 2. For other entities, it is your employer ---------------------- _______________________________________________________ identification number (EIN). If you do not have a - - PART II For Payees Exempt From number, see HOW TO GET A TIN below. ---------------------- Backup Withholding (See Part II OR Instructions on page 2) NOTE: If the account is in more than one name, Employee identification see the chart on page 2 for guidelines on whose number _______________________________________________________ number to enter. ---------------------- - ---------------------- ____________________________________________________________________________________________________________________________________ PART III CERTIFICATION ____________________________________________________________________________________________________________________________________ Under penalties of perjury, I certify that: 1. The number shown on this form is my correct taxpayer identification number (or I am waiting for a number to be issued to me), and 2. I am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. CERTIFICATION INSTRUCTIONS.-- You must cross out item 2 above if you have been notified by the IRS that you are currently subject to backup withholding because of underreporting interest or dividends on your tax return. For real estate transactions, item 2 does not apply. For mortgage interest paid, the acquisition or abandonment of secured property, cancellation of debt, contributions to an individual retirement arrangement (IRA), and generally payments other than interest and dividends, you are not required to sign the Certification, but you must provide your correct TIN. (Also see PART III INSTRUCTIONS on page 2). ____________________________________________________________________________________________________________________________________ SIGN HERE SIGNATURE SAMPLE DATE ____________________________________________________________________________________________________________________________________
Section references are to the Internal Revenue Code. PURPOSE OF FORM.-- A person who is required to file an information return with the IRS must get your correct TIN to report income paid to you, real estate transactions, mortgage interest you paid, the acquisition or abandonment of secured property, cancellation of debt, or contributions you made to an IRA. Use Form W-9 to give your correct TIN to the requester (the person requesting your TIN) and, when applicable, (1) to certify the TIN you are giving is correct (or you are waiting for a number to be issued), (2) to certify you are not subject to backup withholding, or (3) to claim exemption from backup withholding if you are an exempt payee. Giving your correct TIN and making the appropriate certifications will prevent certain payments from being subject to backup withholding. NOTE: If a requester gives you a form other than a W-9 to request your TIN, you must use the requester's form if it is substantially similar to this Form W-9. WHAT IS BACKUP WITHHOLDING?--Persons making certain payments to you must withhold and pay to the IRS 31% of such payments under certain conditions. This is called "backup withholding." Payments that could be subject to backup withholding include interest, dividends, broker and barter exchange transactions, rents, royalties, nonemployee pay, and certain payments from fishing boat operators. Real estate transactions are not subject to backup withholding. If you give the requester your correct TIN, make the proper certifications, and report all your taxable interest and dividends on your tax return, your payments will not be subject to backup withholding. Payments you receive will be subject to backup withholding if: 1. You do not furnish your TIN to the requester, or 2. The IRS tells the requester that you furnished an incorrect TIN, or 3. The IRS tells you that you are subject to backup withholding because you did not report all your interest and dividends on your tax return (for reportable interest and dividends only), or 4. You do not certify to the requester that you are not subject to backup withholding under 3 above (for reportable interest and dividend accounts opened after 1983 only), or 5. You do not certify your TIN. See the Part III instructions for exceptions. Certain payees and payments are exempt from backup withholding and information reporting. See the Part II instructions and the separate INSTRUCTIONS FOR THE REQUESTER OF FORM W-9. HOW TO GET A TIN.-- If you do not have a TIN, apply for one immediately. To apply, get FORM SS-5, Application for a Social Security Number Card (for individuals), from your local office of the Social Security Administration, or FORM SS-4, Application for Employer Identification Number (for businesses and all other entities), from your local IRS office. If you do not have a TIN, write "Applied For" in the space for the TIN in Part I, sign and date the form, and give it to the requester. Generally, you will then have 60 days to get a TIN and give it to the requester. If the requester does not receive your TIN within 60 days, backup withholding, if applicable, will begin and continue until you furnish your TIN. NOTE: Writing "Applied for" on the form means that you have already applied for a TIN OR that you intend to apply for one soon. As soon as you receive your TIN, complete another Form W-9, include your TIN, sign and date the form, and give it to the requester. - -------------------------------------------------------------------------------- Cat. No. 10231X Form W-9 (Rev. 3-94) 2 Form W-9 (Rev. 3-94) Page 2 - -------------------------------------------------------------------------------- PENALTIES FAILURE TO FURNISH TIN.-- If you fail to furnish your correct TIN to a requester, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.-- If you make a false statement with no reasonable basis that results in no backup withholding, you are subject to a $500 penalty. CRIMINAL PENALTY FOR FALSIFYING INFORMATION.-- Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. MISUSE OF TINS.-- If the requester discloses or uses TINs in violation of Federal law, the requester may be subject to civil and criminal penalties. SPECIFIC INSTRUCTIONS NAME.-- If you are an individual, you must generally enter the name shown on your social security card. However, if you have changed your last name, for instance, due to marriage, without informing the Social Security Administration of the name change, please enter your first name, the last name shown on your social security card, and your new last name. Sole Proprietor.--You must enter your individual name. (Enter either your SSN or EIN in Part I.) You may also enter your business name or "doing business as" name on the business name line. Enter your name as shown on your social security card and business name as it was used to apply for your EIN on From SS-4. PART I--TAXPAYER IDENTIFICATION NUMBER (TIN) You must enter your TIN in the appropriate box. If you are a sole proprietor, you may enter your SSN or EIN. Also see the chart on this page for further clarification of name and TIN combinations. If you do not have a TIN, follow the instructions under HOW TO GET A TIN on page 1. PART II--FOR PAYEES EXEMPT FROM BACKUP WITHHOLDING Individuals (including sole proprietors) are not exempt from backup withholding. Corporations are exempt from backup withholding for certain payments, such as interest and dividends. For a complete list of exempt payees, see the separate Instructions for the Requester of Form W-9. If you are exempt from backup withholding, you should still complete this form to avoid possible erroneous backup withholding. Enter your correct TIN in Part I, write "Exempt" in Part II, and sign and date the form. If you are a nonresident alien or a foreign entity not subject to backup withholding, give the requester a completed Form W-8, Certificate of Foreign Status. PART III--CERTIFICATION For a joint account, only the person whose TIN is shown in Part I should sign. 1. INTEREST, DIVIDEND, AND BARTER EXCHANGE ACCOUNTS OPENED BEFORE 1984 AND BROKER ACCOUNTS CONSIDERED ACTIVE DURING 1983. You must give your correct TIN, but you do not have to sign the certification. 2. INTEREST, DIVIDEND, BROKER, AND BARTER EXCHANGE ACCOUNTS OPENED AFTER 1983 AND BROKER ACCOUNTS CONSIDERED INACTIVE DURING 1983. You must sign the certification or backup withholding will apply. If you are subject to backup withholding and you are merely providing your correct TIN to the requester, you must cross out item 2 in the certification before signing the form. 3. REAL ESTATE TRANSACTIONS. You must sign the certification. You may cross out item 2 of the certification. 4. OTHER PAYMENTS.You must give your correct TIN, but you do not have to sign the certification unless you have been notified of an incorrect TIN. Other payments include payments made in the course of the requester's trade or business for rents, royalties, goods (other than bills for merchandise), medical and health care services, payments to a nonemployee for services (including attorney and accounting fees), and payments to certain fishing boat crew members. 5. MORTGAGE INTEREST PAID BY YOU, ACQUISITION OR ABANDONMENT OF SECURED PROPERTY, CANCELLATION OF DEBT, OR IRA CONTRIBUTIONS. You must give your correct TIN, but you do not have to sign the certification. PRIVACY ACT NOTICE. Section 6109 requires you to give your correct TIN to persons who must file information returns with the IRS to report interest, dividends, and certain other income paid to you, mortgage interest you paid, the acquisition or abandonment of secured property, cancellation of debt, or contributions you made to an IRA. The IRS uses the numbers for identification purposes and to help verify the accuracy of your tax return. You must provide your TIN whether or not you are required to file a tax return. Payers must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not give a TIN to a payer. Certain penalties may also apply. WHAT NAME AND NUMBER TO GIVE THE REQUESTER - ------------------------------------------- FOR THIS TYPE OF ACCOUNT: GIVE NAME AND SSN OF: - ------------------------------------------- 1. Individual The individual 2. Two or more The actual owner of the individuals (joint account or, if combined account) funds, the first individual on the account.(1) 3. Custodian account of The minor(2) a minor (Uniform Gift to Minors Act) 4. a. The usual The grantor-trustee(1) revocable savings trust (grantor is also trustee) b. So-called trust The actual owner(1) account that is not a legal or valid trust under state law 5. Sole proprietorship The owner(3) - ------------------------------------------- FOR THIS TYPE OF ACCOUNT: GIVE NAME AND EIN OF: - ------------------------------------------- 6. Sole proprietorship The owner(3) 7. A valid trust, Legal entity(4) estate, or pension trust 8. Corporate The corporation 9. Association, club, The organization religious, charitable, educational, or other tax-exempt organization 10. Partnership The partnership 11. A broker or The broker or nominee registered nominee 12. Account with the The public entity Department of Agriculture in the name of a public entity (such as a state or local government, school district, or prison) that receives agricultural program payments - -------------------------------------------
(1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's SSN. (3) You must show your individual name, but you may also enter your business or "doing business as" name. You may use either your SSN or EIN. (4) List first and circle the name of the legal trust, estate, or pension trust. (Do not furnish the TIN of the personal representative or trustee unless the legal entity itself is not designated in the account title.) NOTE: If no name is circled when more than one name is listed, the number will be considered to be that of the first name listed. EX-99.(A)(8) 9 PRESS RELEASE DATED FEBRUARY 21, 1995 1 (Dell Logo) Investor Contacts: Don Collis, Ken Smith (512) 728-8671 (512) 728-4034 Media Contact: Michele Moore (512) 728-4100 DELL COMPUTER CORPORATION ANNOUNCES COMMENCEMENT OF SPECIAL CONVERSION OFFER FOR SERIES A PREFERRED STOCK AUSTIN, TEXAS, FEBRUARY 21, 1995 -- Dell Computer Corporation announced today that it is offering to pay a cash premium of $8.25 for each share of its Series A Convertible Preferred Stock that is converted to Common Stock during the offer period. Dell is also offering to register resales of the shares of Common Stock to be issued in the conversion offer for a 30-day period with the Securities and Exchange Commission. The purpose of the offer is to induce the conversion of the Series A Convertible Preferred Stock into Common Stock. The Company believes the effects of the conversion include strengthening the Company's balance sheet and eliminating or reducing the future dividend payments on the Series A Convertible Preferred Stock. This release shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Common Stock, in any state in which such offer or sale would be unlawful before registration or qualification under the securities laws of any such state. The Common Stock may not be publicly offered for resale except by means of a prospectus. A Global 500(R) Company, Dell Computer Corporation (Nasdaq:DELL) designs, develops, manufactures, markets, services and supports a complete line of personal computers compatible with industry standards. With annual revenues of nearly $3.5 billion, Dell is the world's leading direct marketer of personal computers and one of the top five personal computer vendors in the world. Information on the company and its products can be obtained through its toll-free number: 1-800-BUY-DELL (1-800-289-3355) or by accessing the Dell Worldwide Web server, at http://www.us.dell.com/. # # # Dell is a registered trademark of Dell Computer Corporation. Note to editors: See the accompanying page for offer details. 2 Dell Computer Announces Commencement of Special Conversion Offer SUMMARY OF CONVERSION OFFER The conversion offer commences February 21, 1995, and the offer and withdrawal rights will expire at 12:00 midnight, New York City time, on Wednesday, March 22, 1995, unless the Company extends the offer. A holder of Series A Convertible Preferred Stock who elects to convert during the offer period will receive 4.2105 shares of Common Stock (equivalent to a conversion price of $23.75 per share of Common Stock) and the conversion premium of $8.25 in cash for each share of Series A Preferred Stock converted. At the conclusion of the offer period, a holder of shares of Series A Preferred Stock who did not convert those shares to Common Stock in the conversion offer will no longer be entitled to the conversion premium. Dell will register resales of the shares of Common Stock to be issued in the conversion offer with the Securities and Exchange Commission and state securities authorities. A registration statement for those resales will be filed with the Securities and Exchange Commission but will not become effective until after the closing of the offer to pay the premium. The Company will make the registration statement available for resales only for 30 calendar days. The Common Stock to be issued on conversion may not be sold and offers to buy may not be accepted before that registration statement becomes effective, except in limited circumstances that comply with applicable securities laws and the transfer restrictions on those shares of Common Stock. The offer to pay the premium and register resales of the Common Stock is being made on the terms and subject to the conditions set forth in an Offer of Premium and related documents being sent to holders of Series A Convertible Preferred Stock on February 21, 1995. The Conversion Agent for the offer is Citibank, N.A. (telephone 800-422-2066). The payment of the premium in the Conversion Offer will be treated for accounting purposes as an additional dividend on the Series A Convertible Preferred Stock. Accordingly, the aggregate amount of the conversion premium paid will be deducted from net income to determine the net income available to common stockholders for the period in which the Conversion Offer is completed, which will be in the first quarter of fiscal 1996 unless extended. The maximum amount of the premium could total $10.3 million (note: $8.25 x 1.25 million shares = $10.3 million). In addition, the weighted average shares outstanding used to calculate primary earnings per common share will include the shares of Common Stock issued upon conversion from the closing of the conversion offer to the end of the period. EX-99.(A)(9) 10 ANNUAL REPORT ON FORM 10-K FOR FYE 12-30-94 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR FISCAL YEAR ENDED JANUARY 30, 1994 COMMISSION FILE NUMBER: 0-17017 DELL COMPUTER CORPORATION 9505 ARBORETUM BOULEVARD AUSTIN, TEXAS 78759-7299 (512) 338-4400 A DELAWARE CORPORATION IRS EMPLOYER ID NO. 74-2487834 SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK, $.01 PAR VALUE 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 ACT OF 1934 DURING THE PRECEDING 12 MONTHS, AND (2) IT HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES /X/ NO / / 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. / / AS OF MARCH 24, 1994, THE AGGREGATE MARKET VALUE OF THE COMMON STOCK HELD BY NON-AFFILIATES OF THE REGISTRANT WAS $727,015,985. AS OF MARCH 24, 1994, THE REGISTRANT HAD OUTSTANDING 38,178,970 SHARES OF ITS COMMON STOCK, $.01 PAR VALUE. INFORMATION RELATING TO THE COMMON STOCK HAS BEEN RETROACTIVELY RESTATED TO GIVE EFFECT TO A 3 FOR 2 SPLIT OF THE COMMON STOCK IN THE FORM OF A 50% STOCK DIVIDEND DECLARED BY THE COMPANY'S BOARD OF DIRECTORS AS OF MARCH 6, 1992 FOR HOLDERS OF RECORD AS OF MARCH 23, 1992. THE DISTRIBUTION OF SUCH DIVIDEND OCCURRED ON APRIL 9, 1992. DOCUMENTS INCORPORATED BY REFERENCE PART III OF THIS REPORT IS INCORPORATED BY REFERENCE TO THE REGISTRANT'S DEFINITIVE PROXY STATEMENT RELATING TO ITS ANNUAL MEETING OF STOCKHOLDERS, WHICH WILL BE FILED WITH THE COMMISSION WITHIN 120 DAYS OF THE END OF FISCAL 1994. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 Unless otherwise indicated, all references to years in connection with financial information refer to the Company's fiscal years. The Company's fiscal year ends on the Sunday closest to January 31 of each year. Fiscal 1994 ended on January 30, 1994, fiscal 1993 ended on January 31, 1993, fiscal 1992 ended on February 2, 1992, and fiscal 1995 will end on January 29, 1995. PART I ITEM 1. BUSINESS Dell Computer Corporation (the "Company" or "Dell") is the fifth largest personal computer vendor in the world and had fiscal 1994 consolidated net sales of $2.87 billion. Dell markets and provides complete personal computer solutions directly to its customers, which include major corporate, government and education accounts as well as value-added remarketers, system integrators, small businesses and individuals. These complete personal computer solutions are customized to the end-user's specifications and comprise customized hardware, integrated software and peripherals, tailored maintenance and support, and value-added services. Information Dell obtains from its direct customer relationships helps Dell understand and tailor its offerings to end-users' needs. Dell supplements its direct marketing strategy by selling personal computer systems through mass merchants in several countries to penetrate further the individual and small-business market. A key element in the Company's growth has been the development of the Dell(R)brand of personal computers, which has become one of the leading brand names in the industry. All of the 59 personal computer systems currently offered by the Company have been introduced since August 1, 1993. Many of the systems can be custom configured with a variety of hardware including multimedia devices such as CD-ROM and sound cards as well as an assortment of memory, mass storage and other options. As part of its commitment to complete personal computer solutions, the Company also markets a wide range of software, peripherals, and service and support programs. As the personal computer market has matured it has become more segmented, with customers seeking distribution channels that provide better overall value. Buyers' considerations now include the convenience of purchasing the entire personal computer solution (hardware, software and peripherals) from a single vendor, the convenience of obtaining support for that entire solution from a single vendor, and the ability to obtain customized products and services at competitive prices. The consistency and quality with which a vendor can meet buyers' needs is also important. Since incorporating in 1984, the Company has grown rapidly because of the effectiveness and efficiency of its approach to meeting customer needs. The Company's effectiveness is driven by its ability to design, package, market and support computer products; provide customized products and services; and be accessible and responsive in providing post-sale service and support. The efficiency of Dell's approach is driven by its direct interaction with the customer, thus avoiding high inventory and occupancy costs of physical stores. Dell's approach also generally avoids the inefficiency and mark-ups associated with the typical industry model, where products move through a multi-step process involving manufacturers, distributors, retail stores and a variety of value-added service providers. Dell Computer Corporation was originally incorporated in Texas in May 1984. In October 1987, the current Delaware corporation was formed and the renamed successor to the Texas company became a subsidiary of the Delaware corporation. Based in Austin, Texas, the Company operates wholly-owned subsidiaries in Australia, Canada, The Czech Republic, France, Germany, Ireland, Japan, Mexico, the Netherlands, Norway, Poland, Spain, Sweden, the United Kingdom, and the United States of America. Dell Computer Corporation's Common Stock, $.01 Par Value, (the "Common Stock") is quoted on the NASDAQ National Market System under the trading symbol DELL. 1 3 THE DELL DIRECT RELATIONSHIP MARKETING STRATEGY Dell's primary strategy is to develop and utilize direct customer relationships to understand end-users' needs and to deliver high quality personal computer products and services tailored to meet those needs. The Company provides its customers with individualized service, from the initial order to custom configured manufacturing and to post-sale service and support, including technical support and on-site service. The Company uses feedback from this broad base of customer contact to refine its product, marketing and customer support plans. Although the Company believes its direct marketing strategy offers many advantages to certain customers, direct marketing does not offer end-users physical access to products before the purchase decision. A certain portion of personal computer buyers (primarily medium- to small-sized businesses and individuals) desire physical access to products, particularly at the time they make their first personal computer purchase. This is a primary reason the Company has supplemented its direct marketing strategy through distribution agreements with mass merchants in several countries, including Best Buy, CompUSA, and Sam's Clubs in the United States; Price/CostCo in the United States, Canada and Mexico; Future Shop in Canada; and PC World in the United Kingdom. Each of these companies operates a chain of stores or clubs through which the Company sells selected products. There is no single customer of Dell, or any value added remarketer or distributor of the Company's products, to which aggregate sales amounted to ten percent or more of the Company's consolidated revenues for any of the three years ended in 1994. INTERNATIONAL OPERATIONS Dell's direct relationship approach is a worldwide strategy that has been well received in geographic markets in which it has been introduced. The Company currently sells personal computer products in more than 115 countries through selected distributors and wholly-owned and operated subsidiaries in Australia, Canada, The Czech Republic, France, Germany, Ireland, Japan, Mexico, the Netherlands, Norway, Poland, Spain, Sweden, and the United Kingdom. Many of the Company's international subsidiaries were originally formed as stand-alone businesses providing sales, technical support and customer service. While this approach facilitated effective and rapid market penetration, it also created redundant marketing and support programs in the subsidiaries. The Company is in the process of consolidating common functions, primarily in Europe, to create regional business units that reduce redundant costs and improve the Company's ability to deliver quality services in that market. The Company has maintained a strong focus on local management in its international operations, retaining experienced professionals to head each of its subsidiaries. Dell's manufacturing facility in Ireland now supplies virtually all of the products the Company sells in Europe, the Middle East and Africa. The Company believes that its international growth affords significant opportunities to achieve higher levels of operating and economic efficiencies. The Company is considering several ways to enhance its international presence in addition to implementing the Company's restructuring announced during 1994. Dell intends to continue to expand its international activities by increasing market presence in existing markets, improving support systems, pursuing additional international manufacturing and distribution opportunities, and entering new markets primarily through third-party resellers. The success and profitability of international operations may be adversely affected by conditions that differ from conditions in the United States, including economic and labor conditions, political instability, tax laws (including, but not limited to, U.S. taxes on foreign subsidiaries), and changes in the value of the United States dollar versus the local currency in which products are sold. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Hedging Activities." The Company's European operations contributed net revenues of $782 million for 1994, a 41% increase over $553 million in net revenues for 1993. European net revenues for 1993 represented a 129% increase over 1992. Other international sales increased 85% to $136 million for 1994, following a 157% increase in 1993 over 1992. These increases resulted primarily from increased sales in existing markets and, to a lesser extent, expansion into new markets. 2 4 MARKETING AND SALES The Company markets its products to businesses, government agencies, academic institutions and individuals. Specialized marketing approaches are tailored to meet the needs of each type of customer in a cost effective manner. During the last half of 1994, Dell began introducing new personal computer products that targeted distinct markets based on customer usage and buyer preferences. This allows the Company to meet specific customer needs and desires more effectively. These new products also help profit margins by reducing price conflicts inherent in offering similar products in different markets. The new products include six product lines designed for distinct markets: OmniPlex(TM), for mission-critical business operations; OptiPlex(TM), for advanced stand-alone applications; NetPlex, for corporate network environments; Dell Dimension(TM) XPS, for technologically sophisticated users; and Dell Dimension and Dell Precision(TM), for value-minded customers. Since January 30, 1994, the Company has introduced two new personal computer product lines: the PowerEdge(TM) server line offering performance and reliability for network applications; and the Latitude(TM) notebook personal computer line, marking the first stage of the Company's phased re-entry into the notebook computer market. National Accounts The Company has developed marketing programs and services specifically geared to large corporate, government, medical, and education customers. Account management teams consisting of sales, customer service and technical support representatives provide each large account with a single source of assistance on issues ranging from order placement to system configuration and connectivity. To support these teams, Dell has account executives in many major cities in North America and Europe. Customers with in-house maintenance organizations can elect to receive specialized training on Dell's systems, a repair parts assistance program, and access to high level technical support from the Company. Customized product delivery and service programs are available on a worldwide basis. Dell currently has a broad base of business among the Fortune 500(R) companies and governmental and educational institutions worldwide. The Company's government customers include the U.S. Federal government and various state and local governments. The Company has held a U.S. General Services Administration Schedule contract since June 1987, through which U.S. federal governmental agencies may purchase the Company's computers and equipment. Consolidated net sales to major corporate, government and education accounts led sales gains in 1994, increasing 51% to $1.44 billion from $953 million in 1993. U.S. Federal government sales were stronger than normal in the third quarter of 1994 because of a surge in buying at the end of the U.S. Federal government's budget year, which resulted in a larger than normal decline of 58% in the fourth quarter of 1994 as the U.S. Federal government entered a new budget year. Sales to major corporate, government and education accounts increased 129% in 1993 from $416 million in 1992. Sales to this customer group represented approximately 50% of consolidated net sales in 1994 and 47% in 1993. Medium- to Small-Sized Businesses and Individuals A broad range of medium- to small-sized businesses and individuals have chosen to buy directly from Dell. The Company provides these customers with competitive prices, knowledgeable sales assistance, custom configuration and post-sale service and support. The Company markets to these customers by advertising in trade and general business publications, participating in industry trade shows and conferences, and mailing a broad range of direct marketing publications such as promotional pieces, catalogs and customer newsletters. Dell also sells its personal computer systems through Best Buy, CompUSA, and Sam's Clubs in the United States; Price/CostCo in the United States, Canada, and Mexico; Future Shop in Canada; and PC World in the United Kingdom. These mass merchants provide end users with physical access to the Company's products in a showroom setting while the Company is able to maintain the direct relationship with the end-user through post-sale service and support. In 1994, sales to medium- to small-businesses and individuals increased 31% to $1.03 billion from $787 million in 1993. Sales to this customer group represented 36% of consolidated net sales in 1994 and 39% in 1993. 3 5 Value Added Remarketers and System Integrators ("VARs") VARs sell computer systems customized to specific end-user applications through the addition of hardware, software or services. Because VARs package complete application-specific solutions, they are in an ideal position to benefit from the Company's custom manufacturing and technical and marketing support programs. To provide VARs with added flexibility, the Company offers several programs tailored directly to their needs. For example, VARs can purchase complete systems from the Company and have them shipped directly to the user's installation site, allowing VARs to reduce inventory carrying costs, preserve margins, and avoid the risk of price cuts on systems held in inventory. The Company has specialized account teams trained to meet the needs of its VARS. Sales to VARs increased 46% to $401 million in fiscal 1994 from $274 million in fiscal 1993. Sales to this customer group represented approximately 14% of consolidated net sales in both 1994 and 1993. Marketing Information Systems The Company's information systems enable the Company to track each unit sold from the initial sales contacts through the manufacturing process and post-sale service and support. The Company's marketing information systems assist the Company in tracking key information about many of its customers from the initial sales contact through the sales, manufacturing and post-sale service and support processes. The Company is able to target marketing activities specifically to particular types of customers using its database to assess purchasing trends, advertising effectiveness, and customer and product groupings. SERVICE AND SUPPORT The Company offers its customers comprehensive service and support programs tailored to meet varying levels of customer requirements. Customers with problems or questions may talk to trained Company specialists through a toll-free telephone number. These specialists maintain close contact with marketing, manufacturing and product design groups and can obtain the configuration and prior service history of the customer's system. Customer phone calls provide direct feedback that the Company uses to update a centralized database of information. The Company tracks customer support calls by category in order to spot and correct trends that may signal a design or manufacturing concern. Many of Dell's currently offered computer systems include software that enables customers to diagnose and communicate system problems. In addition, a built-in diagnostics system on many of the Company's newer computer systems provides on-line information about in-process system operation. The Company's support offerings in the United States include an automated toll-free, 24-hour TechFax(SM) service that enables customers to access portions of the Company's technical database by telephone and to receive technical instructions or diagrams by facsimile within minutes. Recognizing that customer requirements vary, Dell introduced SelectCare(SM) in January 1993. SelectCare offers different service programs that enable customers to pay only for the level of service they need. The programs cater primarily to large organizations that have their own service operations or that need more sophisticated levels of support. These programs include: (i) Dell Parts Only, which provides up to four additional years of parts warranty coverage; (ii) Parts and Labor, providing on-site service for up to four additional years; (iii) Self-Maintainer program, designed for companies with in-house service capabilities, which provides instruction for servicing of Dell computers; and (iv) Third-Party Maintenance, designed for companies that retain an outside service provider but request access to Dell second-level toll-free technical support, electronic bulletin board and fax services. The Company's general service programs include unlimited toll-free customer service and technical support on hardware products, a comprehensive field service program, a one-year limited warranty on hardware and an unconditional 30-day money back guarantee on hardware for any end-user buying directly from the Company. Other new, specialized programs introduced in 1994 include a broad array of service and support options tailored for advanced systems customers, as well as programs dedicated for mobile computing customers. Dell also offers BusinessCare(SM), which is designed specifically for corporate users involved in local or wide area networks. BusinessCare is a flexible, multi-faceted three-year service plan that provides next- 4 6 business-day on-site service and next-business-day parts delivery. It also offers a "Getting Started" helpline, access to technical service information via Dell's TechFax and bulletin board services, an optional four-hour Critical Care(R) response system in major metropolitan areas and DirectLine(SM) (an around-the-clock toll-free support line manned by Novell and Banyan-certified network engineers). The Company offers next-day on-site service contracts as part of its worldwide field service program. This on-site service, which is provided by the Company or by BancTec Service Corp. ("BancTec"), Digital Equipment Corporation ("DEC") and other service companies, is available to resolve customer problems that cannot be resolved by telephone. Through its agreement with BancTec, Dell offers deskside service contracts with four-hour service on certain systems in major U.S. metropolitan locations. The Company's contract with BancTec authorizes the Company to offer service contracts on BancTec's behalf to the Company's customers in the United States. The Company has entered into similar service agreements for many of its customers outside the United States. The Company believes that it could offer acceptable replacement services from another third-party vendor if any of its service agreements were terminated. PRODUCT DEVELOPMENT The Company employs a product development team that includes programmers, technical project managers and engineers experienced in system architecture, logic board and chip design, sub-system development, mechanical engineering and operating systems design. This team has progressively assumed control of the design of several key components for which the Company previously relied on outside vendors. This design capability has allowed the Company to develop circuits specific to its system requirements, thereby increasing the functionality, manufacturability, reliability, serviceability and performance of its products while keeping costs competitive. All of the Company's 59 personal computer systems currently offered have been introduced since August 1, 1993. The Company takes steps to determine that new products are compatible with industry standards and that they meet cost objectives based on competitive pricing targets. The Company's expenditures on research, development and engineering activities approximated $49 million in fiscal 1994 compared with $42 million for 1993. The Company considers its research, development and engineering activities to be important to its success and growth. THE DELL PRODUCT PORTFOLIO The Company has eight Dell-branded lines of personal computer systems, including the PowerEdge server line and the Latitude notebook computer line announced in February 1994. The Company completed the first phase of its re-entry into the notebook computer market with the introduction on February 21, 1994, of four 486-based Dell Latitude notebook computers. The Dell PowerEdge line includes sixteen servers consisting of eight Pentium-based systems and eight 486-based systems. The PowerEdge servers are intended for resource sharing as well as groupware and database markets. The OmniPlex line comprises two PentiumTM and five 486-based systems that are targeted for the corporate user who works in a mission-critical environment requiring a powerful workstation. The OptiPlex line comprises twelve 486-based systems that are targeted at corporate customers who require advanced features and performance. The NetPlex line comprises six 486-based systems that are targeted at corporate customers looking for an inexpensive network computer. The Dell Dimension XPS line comprises one Pentium-based and two 486-based systems that are targeted at technologically sophisticated users. Each Dell Dimension XPS system can be configured in either a desktop or a floorstanding model. Each system in these lines is marketed directly to end-users, and certain OmniPlex and OptiPlex systems are also marketed through CompUSA. Each system can be custom configured with a variety of hardware including multimedia devices such as CD-ROM and sound cards as well as an assortment of memory, mass storage and other options. Each system is backed by Dell's comprehensive service and support program, which includes compatibility, service and response guarantees. The Dell Dimension and Dell Precision lines comprise six and five personal computer systems, respectively. Certain systems can be configured as either desktop or floorstanding models. The Dell Dimension and the Dell Precision lines are essentially similar designs. The Dell Dimension line is marketed through the 5 7 Company's direct sales force. The Dell Precision line is marketed through Best Buy, CompUSA, Price/CostCo and Sam's Clubs. Systems sold by third parties are sold in set configurations and are supported by the Company's basic service and support offerings. In addition to its own branded products, the Company offers a broad range of software and peripheral products through its DellWare(TM) program. The DellWare line offers more than 4,000 of the most popular software packages and hardware peripherals. In February 1993, Dell expanded its third-party applications software integration capabilities with ReadyWare(TM), a collection of more than 100 popular software applications that can be factory-installed on all Dell systems. The Company offers next business day delivery as well as an extended support program from Software Support, Inc. of Lake Mary, Florida, on more than 120 of its software offerings. This support program includes a 24-hour toll-free software support line. The Company enhances its personal computer systems offerings with a number of specialized services, including custom hardware and software integration and network installation and support. For example, the Company offers custom configuration, installation and support of integrated network solutions based on Novell's network operating systems. Under this program, the Company offers turnkey solutions for networking offices that need basic Local Area Networks or for linking workgroups with more complex networks. The Company offers a number of other hardware and software integration services tailored to specific end-user needs. GOVERNMENT REGULATION In the United States, the Federal Communications Commission ("FCC") regulates the radio frequency emissions of personal computing equipment. The FCC has established two standards for computer products, Class A and Class B. Only Class B products may be sold for use in a residential environment. Both Class A and Class B products may be sold for use in a commercial environment. The Company periodically tests or hires consultants to test its products to ensure that the products satisfy applicable FCC regulations. All of the Company's current desktop and portable systems are sold under Class B certification; many of the network servers sold by the Company are under Class A certification, but some are sold under Class B certification. From time to time, the Company has experienced delays in securing FCC certification and there can be no assurance that such delays will not occur in the future. The Company is also required to obtain regulatory approvals in other countries prior to the sale or shipment of personal computing equipment. In certain jurisdictions such requirements are more stringent than in the United States. Any delays or failures in obtaining necessary approvals from foreign jurisdictions may impede or preclude the Company's efforts to penetrate such markets and there can be no assurance that such failures or delays will not occur in the future. THE DELL MANUFACTURING PROCESS Dell's manufacturing process consists of assembly, functional testing and quality control of the Company's products and related components, parts and subassemblies. A flexible manufacturing process allows the Company to custom-configure personal computer systems to specific customer orders. Although this custom configuration process offers the Company significant advantages, it makes it more difficult for it to achieve the same manufacturing efficiencies as computer manufacturers that sell standardized products in high volume. The Company's sales representatives enter customer orders into a computerized order entry system. Once customer credit is approved, the orders are electronically dispatched to manufacturing for production and shipment. The Company's information systems allow it to monitor customer orders from order placement to delivery and assists the Company in tracking key information about many of its systems sold and its customers from the initial sales contact through the sales, manufacturing and post-sale service and support processes. The Company manufactures all of its desktop and server personal computer systems at its Austin, Texas, and Limerick, Ireland, manufacturing facilities. The Company contracts with other companies to manufacture unconfigured base notebook personal computers which the Company configures for shipment to customers. 6 8 Quality control is maintained through 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 problems, and information from the Company's customers obtained through its toll-free telephone support service. Both the U.S. and the Irish manufacturing facilities have been certified as meeting ISO 9002 quality standards. All components, parts and subassemblies are purchased from outside sources on a purchase order basis and, in certain cases, through supply contracts. Certain items, including the Pentium and i486(TM) microprocessors, are available from only one source. However, even when multiple vendors are available, the Company may establish a working relationship with a single source when the Company believes it is advantageous for total cost of ownership reasons including performance, quality, support, delivery and price considerations. BACKLOG The Company does not believe that backlog is a meaningful indicator of sales that can be expected for any time period. In conjunction with its effort to minimize the time between customer order and product delivery, it is the Company's policy to hold its backlog of customer orders to a minimum. Backlog represented $38 million at January 30, 1994. Consistent with the Company's return policy, customers may cancel or reschedule orders without penalty prior to commencement of manufacturing. COMPETITION The personal computer industry is highly competitive and has been characterized by frequent introduction of new products, continual improvement in computer performance characteristics, decreasing average selling prices, and increased competition at both the manufacturing and retail levels. Pricing is very competitive and margins have been reduced. The Company's practice is to price its personal computers so that they present attractive price and performance characteristics and customer support services when compared to the products of other leading personal computer makers. The Company expects pricing pressures to continue, and it may choose to reduce prices when practicable. These pricing pressures, when not mitigated by cost reductions and a higher margin product mix, can result in reduced profit margins. Further, some of the Company's competitors have significantly greater financial, marketing, manufacturing and technological resources, broader product lines, greater brand name recognition and larger installed customer bases than the Company. There can be no assurance that the Company will continue to compete successfully. PATENTS, TRADEMARKS AND LICENSES The Company holds thirty United States patents and six issued foreign patents. As of March 24, 1994, the Company had 188 United States patent applications pending, and 33 foreign applications pending in several European and Asian countries. The Company's United States patents expire in 2005 through 2011. The inventions claimed in the applications cover aspects of the Company's current and possible future personal computer products and related technologies. The Company is developing a portfolio of patents that are anticipated to be of value in negotiating intellectual property rights with others in the industry. The Company has obtained U.S. Federal trademark registration on the mark DELL, and has pending applications for registration of 10 other trademarks. The DELL trademark registration in the U.S. may be renewed as long as the mark continues to be used in commerce. The Company believes that establishment of the mark DELL 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 75 other countries where the Company conducts or anticipates expanding its international business. The Company also has 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 is precluded from obtaining a registration for trademarks incorporating the term "Dell" in certain foreign countries. The Company does not believe that its inability to register "Dell" as a trademark in such countries will have a material adverse effect on its business. 7 9 The Company has entered into a patent license agreement with IBM effective as of August 1, 1993, under which the parties have licensed to one another within prescribed fields of use all current patents and all patents entitled to an effective application filing date prior to February 1, 1999, which are owned by either of the parties or any of their subsidiaries. Under the agreement, the Company will also make royalty payments to IBM. The agreement terminates on the latest expiration date of the patents licensed thereunder. On March 5, 1993, Dell and Texas Instruments, Inc. ("TI") entered into an agreement to cross-license their respective patent portfolios. Under the terms of the agreement, Dell makes annual royalty payments to TI. The agreement expires on January 31, 1998. The Company has entered into non-exclusive licensing agreements with Microsoft Corporation for various software packages, including MS-DOS and Windows. The license grants the Company the right to distribute copies of MS-DOS and Windows through March 31, 1996, with the right, at the Company's election, to extend the license for up to five additional years. In addition, the Company has entered into a non-exclusive license agreement with Phoenix for basic input-output system (BIOS) and other software that facilitates compatibility between the Company's products and products manufactured and sold by other companies. The license agreement with Phoenix provides for a perpetual license on a royalty-free basis for a nominal annual maintenance fee. From time to time, other companies and individuals assert exclusive patent, copyright, trademark and other intellectual property rights to technologies or marks that are important to the personal computer 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. For example, the Company has entered into a licensing agreement with IBM providing for a license under certain IBM computer patents. The licensing agreement with IBM does not require IBM to assist the Company in duplicating its patented technology and does not protect the Company from trade secret, copyright or other violations by the Company or its suppliers in developing or selling these products. The Company could be at a disadvantage if its competitors obtain licenses for protected technologies with more favorable terms than does the Company. If the Company or its suppliers are unable to license protected technology used in the Company's products, the Company could be prohibited from marketing those products or may have to market products without desirable features. The Company could also incur substantial costs to redesign its products or to defend any legal action taken against the Company. If the Company's products should be found to infringe protected technology, the Company could be enjoined from further infringement and required to pay damages to the infringed party. Any of these results could have a material adverse effect on the Company. TRADEMARKS Several United States trademarks appear in this Annual Report. Intel is a registered trademark and Pentium and i486 are trademarks of Intel Corporation. Dell, DellWare and Dell System are registered trademarks of the Company. Dell Dimension, Latitude, OmniPlex, OptiPlex, PowerEdge, Powerline and Precision are trademarks of the Company. BusinessCare, ReadyWare, SelectCare and TechFax are service marks of the Company. Other trademarks and tradenames are used to identify the entities claiming the marks and names of their products. References herein to Best Buy, Compaq, CompUSA, Future Shop, IBM, Novell, Price/CostCo and Sam's Clubs mean, respectively, Best Buy Co., Inc., Compaq Computer Corporation, CompUSA, Inc., Future Shop Discount Superstores, International Business Machines Corporation, Novell, Inc., Price/CostCo, Inc. and Sam's Clubs, A Division of WalMart Stores, Inc. The Company disclaims proprietary interest in the marks and names of others. EMPLOYEES As of January 30, 1994, the Company had approximately 5,980 full-time employees, 4,150 in the United States and 1,830 in other countries. The Company has never experienced a work stoppage due to labor difficulties and believes that its employee relations are good. 8 10 SEGMENTS AND SEASONALITY Dell operates in one industry segment: the design, manufacture, sale and support of personal computers and related products. The Company experiences seasonal trends in its U.S. and European corporate and government sectors. The seasonal trends of these geographical regions have substantially offset each other in the past, but there can be no assurance that these geographical regions will continue to offset each other or that the Company will not experience seasonal trends in the future. ITEM 2. PROPERTIES As of January 30, 1994, the Company had approximately 1,900,000 square feet of space under lease worldwide. Approximately 1,400,000 square feet of this space is in Austin, Texas. The remaining 500,000 square feet of space is used for operations in North America, Europe, Mexico, Japan, Australia, and other international locations. Dell leases a 150,000 square foot, nine-story office building in Austin for use as its headquarters. The lease on this building expires on April 30, 1995. The Company's manufacturing and warehousing activities are conducted at a 700,000 square foot leased facility in Austin, Texas; 190,000 square feet of leased warehousing facility in Europe, Canada, and other international locations; and a 140,000 square foot manufacturing center in Limerick, Ireland owned by the Company. Although the Company believes that its facilities are adequate to meet current requirements, Dell is currently expanding its Limerick, Ireland facilities and has a 224,000 square foot office building under construction on land owned by Dell in Round Rock, Texas. The Round Rock facility will be used as a direct sales, marketing and support facility upon occupancy in August 1994. The Company is evaluating other opportunities to expand facilities in anticipation of increasing needs. The Company believes that it can readily obtain appropriate additional space as may be required at competitive rates. ITEM 3. LEGAL PROCEEDINGS Set forth below is a discussion of certain legal proceedings involving the Company, some of which could have a material adverse effect on the Company if resolved against it. The Company is also party to other legal proceedings incidental to its business, none of which the Company believes to be material. The Company and its Chairman, Michael S. Dell, are defendants in nineteen lawsuits filed between May and November 1993, in the United States District Court for the Western District of Texas, Austin Division. Thomas J. Meredith, the Company's Chief Financial Officer, is also a defendant in seven of the lawsuits. Joel Kocher, Senior Vice President of the Company, is also a defendant in one of the lawsuits, but the plaintiffs have conditionally agreed to dismiss him. The suits have been consolidated, an amended and consolidated complaint has been filed, and the plaintiffs have requested class certification for a class of persons who purchased or held the Company's common stock between February 24, 1993, and July 14, 1993. In general, the plaintiffs allege that the Company made overly optimistic forecasts about the Company's prospects without a reasonable basis and failed to disclose adverse material information about the Company's business (particularly with regard to problems in its notebook business) on a timely basis, thereby inducing the plaintiffs to buy Company common stock at artificially high prices. The plaintiffs also allege that Mr. Dell sold securities of the Company while in the possession of material, non-public information about the Company. The consolidated complaint asserts that these actions or omissions violated various provisions of the federal securities laws, particularly Section 10(b) of the Exchange Act and Rule 10b-5; that Mr. Dell's trades violated Section 20A of the Exchange Act; and that the defendants violated provisions of Texas statutes and common law principles against negligent misrepresentation and deceit. The complaint seeks unspecified damages. The Company has moved for dismissal of the complaint and intends to defend itself and its officers vigorously. It is the Company's policy to make accruals for potential liability or settlement of litigated matters as appropriate. The Company believes that its current accruals with respect to these lawsuits are adequate. Since August 1992, the Company has been named as a defendant in sixteen repetitive stress injury lawsuits, all in New York state courts or United States District Courts for the New York City area. All of 9 11 these lawsuits are similar: each plaintiff alleges that he or she suffers from symptoms generally known as "repetitive stress injury," which allegedly were caused by the design or manufacture of the keyboard supplied with the computer the plaintiff used. The Company has denied or is in the process of denying the claims and intends to vigorously defend the suits. The suits naming the Company are just a few of many lawsuits of this type which have been filed, often naming IBM, Atex, Keytronic and other major suppliers of keyboard products. To date, the courts assigned to hear six of the cases against Dell have stayed most activity, pending resolution of several preliminary legal issues related to the large numbers of cases which have been consolidated for hearing before these courts. The Company is unable to predict at this time the ultimate outcome of these suits. It is possible that the Company may be named in additional suits, but it is impossible to predict how many may be filed. Ultimate resolution of the litigation against the Company may depend on progress on resolving this type of litigation overall. For information about a pending Securities and Exchange Commission informal inquiry relating to foreign currency hedging and trading activities, see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Hedging Activities." By letter dated July 21, 1993, the Commission notified the Company that it was extending the informal inquiry to the circumstances and events surrounding the public announcement on July 14, 1993, about the Company's expected losses for its second quarter of 1994 and into the Company's procedures for estimating sales. The Company and its independent accountants are voluntarily cooperating with the Commission in its informal inquiry. On August 11, 1993, the Company received a subpoena from the United States Department of Commerce, Office of Export Enforcement of the Bureau of Export Administration, requiring the Company to provide all documents relative to any and all exports of 486/66 personal computers or related components to Russia, Ireland, Iran or Iraq during the period from January 1992 through August 1993 in connection with an investigation to enforce regulations under the Export Administration Act of 1979, as amended. If the Office of Export Enforcement's investigators determine that the Company has violated applicable regulations, the government could potentially file civil or criminal charges. The Company is cooperating in the investigation. The Company does not believe this investigation or its resolution will have a material adverse effect on the Company's financial condition or results of operations. The Company had received a request from the Federal Trade Commission (the "FTC") dated July 27, 1993, to provide documents and other information in connection with the FTC's inquiry to determine whether the Company's advertising and marketing claims regarding upgradeability of its personal computers is in violation of the Federal Trade Commission Act. On February 10, 1994, the FTC advised the Company that no violation of the Federal Trade Commission Act had been found and that the inquiry, as it related to the Company, was being closed. The Company has received a request from the FTC dated January 5, 1994, to provide documents and other information in connection with the FTC's inquiry to determine whether the Company's advertising and marketing claims regarding cathode ray tube ("CRT") monitor screen sizes are in violation of the Federal Trade Commission Act. The Company is cooperating with the FTC in this inquiry. The Company does not believe that the inquiry or its outcome will have a material adverse effect on the Company's financial condition or results of operations. The Company has received a request from the FTC dated November 12, 1993, requesting the Company's cooperation in an inquiry with respect to whether the Company may have misrepresented or improperly failed to disclose patent rights that would conflict with open use of a local high-speed personal computer bus standard promulgated by the Video Electronics Standards Association (VESA). The Company intends to cooperate in this inquiry. The Company does not believe that the inquiry or its outcome will have a material adverse effect on the Company's financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable. 10 12 PART II ITEM 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION The Common Stock is quoted on the NASDAQ National Market System under the trading symbol DELL. The following table sets forth, for the fiscal quarters indicated, the high and low reported closing sale price for the Common Stock as reported on the NASDAQ National Market System.
HIGH LOW ---- --- FISCAL 1994 Fourth Quarter (November 1, 1993, through January 30, 1994)............................... $27 3/4 $20 3/4 Third Quarter (August 2, 1993, through October 31, 1993)................................. $21 $16 1/8 Second Quarter (May 3, 1993, through August 1, 1993)...................................... $34 $15 7/8 First Quarter (February 1, 1993, through May 2, 1993).................................... $49 $28 FISCAL 1993 Fourth Quarter (November 2, 1992, through January 31, 1993)............................... $49 3/8 $33 3/8 Third Quarter (August 3, 1992, through November 1, 1992)................................. $35 3/8 $22 5/8 Second Quarter (May 4, 1992, through August 2, 1992)...................................... $28 $15 3/8 First Quarter (February 3, 1992, through May 3, 1992).................................... $28 1/8 $20 1/2
HOLDERS As of March 24, 1994, there were 4,524 holders of record of the Common Stock. DIVIDENDS The Company did not pay cash dividends on its common stock in 1993 or 1994. The Company intends to retain earnings for use in its business and, therefore, does not anticipate paying any cash dividends on common stock for at least the next twelve months. In addition, the terms of the Company's current loan agreements and credit facilities place restrictions on the payment of cash dividends by the Company. Effective March 6, 1992, the Company's Board of Directors declared a 3 for 2 stock split in the form of a 50% stock dividend for holders of record as of March 23, 1992. The distribution of such dividend occurred on April 9, 1992. 11 13 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The following selected financial data should be read in conjunction with the consolidated financial statements, including the Notes to Consolidated Financial Statements. The information set below is not necessarily indicative of results of future operations. The information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Future Outlook" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Hedging Activities."
YEAR ENDED ----------------------------------------------------------------------- JANUARY 30, JANUARY 31, FEBRUARY 2, FEBRUARY 3, FEBRUARY 2, 1994 1993 1992 1991 1990 ----------- ----------- ----------- ----------- ----------- (IN THOUSANDS, EXCEPT PER COMMON SHARE DATA) INCOME STATEMENT DATA: Net sales: North America (U.S. and Canada)................... $1,955,223 $1,387,446 $ 619,469 $ 390,705 $ 317,447 Europe............................................ 781,905 552,999 241,857 148,964 71,111 Other International............................... 136,037 73,479 28,613 6,566 -- ---------- ---------- ---------- ---------- ---------- Consolidated net sales.......................... 2,873,165 2,013,924 889,939 546,235 388,558 Cost of sales....................................... 2,440,349 1,564,472 607,768 364,183 278,972 ---------- ---------- ---------- ---------- ---------- Gross profit.................................. 432,816 449,452 282,171 182,052 109,586 Operating expenses: Selling, general and administrative............... 422,906 267,982 182,155 115,016 81,103 Research, development and engineering............. 48,934 42,358 33,140 22,444 17,069 ---------- ---------- ---------- ---------- ---------- Total operating expenses.................... 471,840 310,340 215,295 137,460 98,172 ---------- ---------- ---------- ---------- ---------- Operating income (loss)..................... (39,024) 139,112 66,876 44,592 11,414 Net financing and other income (expenses)........... 258 4,180 6,539 (1,020) (3,144) ---------- ---------- ---------- ---------- ---------- Income (loss) before income taxes........... (38,766) 143,292 73,415 43,572 8,270 Provision for income taxes (benefits)............... (2,933) 41,650 22,504 16,340 3,156 ---------- ---------- ---------- ---------- ---------- Net income (loss)........................... (35,833) 101,642 50,911 27,232 5,114 Preferred stock dividends........................... (3,743) -- -- -- -- ---------- ---------- ---------- ---------- ---------- Net income (loss) applicable to common stockholders.............................. $ (39,576) $ 101,642 $ 50,911 $ 27,232 $ 5,114 ========== ========== ========== ========== ========== Earnings (loss) per common share.................... $ (1.06) $ 2.59 $ 1.40 $ .91 $ .18 Shares used in per common share calculation......... 37,333 39,235 36,274 30,064 28,843 BALANCE SHEET DATA: Working capital..................................... $ 510,397 $ 358,948 $ 282,646 $ 95,163 $ 57,970 Total assets........................................ $1,140,480 $ 927,005 $ 559,563 $ 264,222 $ 171,774 Long-term debt...................................... $ 100,000 $ 48,373 $ 41,450 $ -- $ -- Preferred stock..................................... $ 120,151 $ -- $ -- $ -- $ -- Total stockholders' equity.......................... $ 471,108 $ 369,200 $ 274,180 $ 112,005 $ 79,761
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The Company reported a net loss for 1994 of $35.8 million or $1.06 per common share on consolidated net sales of $2.87 billion compared with net income of $101.6 million or $2.59 per common share on consolidated net sales of $2.01 billion for 1993. The Company's results for 1994 included pre-tax charges totaling $91.4 million associated with inventory writedowns and related costs; costs associated with delayed and canceled personal computer notebook projects; and costs associated with the restructuring of operations to consolidate several common functions and improve efficiency, especially in international markets. These charges have been included in two items in the Company's consolidated statement of operations for the year ended January 30, 1994: cost of sales, $70.3 million and operating expenses, $21.1 million. 12 14 During the first half of 1994, the Company delayed and canceled certain notebook development projects and reevaluated its probable future sales for the notebook products then offered. The Company recorded more than $39.3 million of charges in the first half of 1994 due to the notebook inventory writedowns and delayed and canceled notebook projects. The Company canceled its notebook product line in August, 1993 and sold its then remaining inventories of notebooks at significantly reduced prices. The Company has focused its efforts on the development of a 486-based notebook product line and is re-entering the notebook computer market with a phased approach. Completion of the first phase of the Company's re-entry into the notebook computer market resulted in the introduction on February 21, 1994 of the 486-based Dell Latitude family of notebook computers. During the first half of 1994, the Company also recorded $29.3 million of other costs, consisting mostly of inventory writedowns and related costs. These charges arose from the Company's determination that certain products and inventory were excess or obsolete because the products were scheduled to be replaced with newer products or because the Company otherwise had lowered its estimates of expected demand for materials in inventory or under outstanding purchase commitments. Also during the first half of 1994, the Company recorded $22.8 million for the costs of consolidating operations, writing off of certain assets, and making employee severance payments. Most of the charges in this area were associated with consolidating certain common functions in the European subsidiaries and creating regional business units. This consolidation effort is designed to reduce redundant costs and improve the Company's ability to deliver higher levels of operational efficiency and higher quality support in European markets. Operations in some subsidiaries have been closed and transferred to other subsidiaries, and some consolidation is occurring outside of Europe. Approximately 60% of the restructuring charges are for cash outlays, approximately half of which will occur in 1995. Excluding these charges, net income would have declined by approximately 67% from the prior year primarily due to competitive conditions creating greater margin pressure; sales of older products at significantly reduced prices to avoid incurring additional charges for excess and obsolete inventory; the absence of a major notebook computer product line; and manufacturing and administrative process inefficiencies resulting in increased manufacturing spending and operating expenses. The Company's second half of 1994 was marked by significant challenges and a period of transition as the Company focused on improving liquidity, improving profit margins, and balancing growth to allow these improvements. During the second half of 1994, the Company made progress toward its goals with an increase in cash and short-term investments from $106 million at August 1, 1993 to $337 million at January 30, 1994; an increase in gross margin from 11.6% for the first half of 1994 to 18.3% in the second half of 1994; and a reduction in operating expenses as a percentage of sales from 17.7% for the first half of 1994 to 15.3% for the second half. The Company believes that the improvement in its profit margins during the second half of 1994 compared with the first half of 1994 was partially attributable to improvements in internal processes. The Company is still implementing further improvements to these processes. The challenges posed by these changes and by the highly competitive nature of the personal computer industry may adversely affect the Company's consolidated net sales and gross profit margins in future periods. No assurance can be given that the Company's restructuring efforts will be successful or that significant additional costs will not be incurred, although the Company believes it has taken adequate charges for the expected costs associated with its restructuring efforts. Additionally, there can be no assurance that the Company's notebook computer development activities will be successful, that new product and software technologies will be available to the Company, that the Company will be able to deliver commercial quantities of new products in a timely manner, or that such products will achieve market acceptance. For 1993, the Company earned $101.6 million or $2.59 per common share on consolidated net sales of $2.01 billion compared with the prior-year results of $51 million or $1.40 per common share on consolidated net sales of $890 million. This increase in consolidated net sales and net income for 1993 over 1992 was driven primarily by price reductions, increased customer interest in the Company's distribution and support programs, and further penetration of international markets. 13 15 The table below sets forth for the years indicated the percentage of consolidated net sales represented by certain items in the Company's consolidated statements of operations.
PERCENTAGE OF CONSOLIDATED NET SALES -------------------------------------- YEAR ENDED -------------------------------------- JANUARY 30, JANUARY 31, FEBRUARY 2, 1994 1993 1992 ---------- ---------- ---------- Net sales: North America (U.S. and Canada)..................... 68.1% 68.9% 69.6% Europe.............................................. 27.2 27.5 27.2 Other international................................. 4.7 3.6 3.2 -------- -------- -------- Consolidated net sales........................... 100.0 100.0 100.0 Cost of sales......................................... 84.9 77.7 68.3 -------- -------- -------- Gross profit..................................... 15.1 22.3 31.7 Operating expenses: Selling, general and administrative................. 14.7 13.3 20.5 Research, development and engineering............... 1.7 2.1 3.7 -------- -------- -------- Total operating expenses......................... 16.4 15.4 24.2 -------- -------- -------- Operating income (loss)........................ (1.3) 6.9 7.5 Net financing and other income (expense).............. -- 0.2 0.7 -------- -------- -------- Income (loss) before income taxes.............. (1.3) 7.1 8.2 Provision for income taxes (benefit).................. (0.1) 2.1 2.5 -------- -------- -------- Net income (loss).............................. (1.2) 5.0 5.7 Preferred stock dividends............................. (0.1) -- -- -------- -------- -------- Net income (loss) applicable to common stockholders................................ (1.3%) 5.0% 5.7% ======== ======== ========
Net Sales The Company's consolidated net sales increased 43% to $2.87 billion in 1994 compared with $2.01 billion in 1993, and $890 million in 1992. Year-to-year increases in consolidated net sales in 1994, 1993, and 1992 were 43%, 126%, and 63%, respectively. These increases in sales were primarily due to increased sales volumes of the Company's desktop and server products, offset somewhat by the cancellation of the notebook product line in August 1993. The Company's 1994 second half consolidated net sales increased 9.3% over 1994's first half consolidated net sales, reflecting continued sales growth despite the absence of a notebook product line since mid-fiscal 1994. Unit volumes for 1994 increased 61% (78% for desktops and servers) over 1993 unit volumes, compared with a 176% (185% for desktops and servers) increase in unit volumes for 1993 over 1992. Average revenue per unit of the Company's products for 1994 declined by 12% from 1993 because of shifts in the Company's product mix and industry-wide pricing practices. The Company's consolidated net sales (expressed in United States dollars) were reduced by 3.9% and .4% in 1994 and 1992, respectively, and benefited 2.4% in 1993 by fluctuations in the average value of the United States dollar, relative to its average value in the comparable periods of the prior year, particularly in relation to the British pound. Based on this information, the Company believes that the increase in consolidated net sales was primarily caused by an increase in unit sales offset primarily by lower average prices per unit and, to a lesser extent, changes in foreign currency exchange rates. Net sales from the Company's 486-based systems continued to increase and represented 81%, 59%, and 20% of consolidated net sales for 1994, 1993 and 1992, respectively. The increase in consolidated net sales was led by sales of 486-based mid-size and small-chassis desktop systems, which accounted for 69% of 14 16 consolidated net sales in 1994, 47% in 1993, and 13% in 1992. Sales of servers and workstations accounted for 13% of consolidated net sales in 1994 compared with 12% in 1993 and 7% in 1992. Sales of the Company's notebook systems declined to 2% of consolidated net sales in 1994, compared with 11% in 1993 and 14% in 1992. The Company canceled its notebook product line in August 1993. The Company completed the first phase of its re-entry into the notebook computer market with the introduction on February 21, 1994, of the 486-based Dell Latitude family of notebook computers. Sales of 386- and 386SX-based desktop systems (which were discontinued in 1994) reflected the shift in demand toward 486-based systems by decreasing to 3% of consolidated net sales in 1994 compared with 17% in 1993 and 50% in 1992. During 1994, Dell introduced four new families of personal computers targeted for specific customer markets: NetPlex, OptiPlex and OmniPlex for the corporate and stand-alone environments and Dell Dimension XPS for technologically sophisticated individuals. The Company also began shipping three Pentium-based systems in the second half of 1994. Sales of Pentium-based systems constituted 4% of revenues for the fourth quarter. Since January 30, 1994, the Company has introduced two new personal computer product lines: The PowerEdge server line offering performance and reliability for network applications; and the Latitude notebook personal computer line, marking the first stage of the Company's phased re-entry into the notebook computer market. All of the Company's 59 personal computer systems currently offered have been introduced since August 1, 1993. North American sales increased 41% in 1994 to $1.96 billion from $1.39 billion in 1993 compared with a 124% increase in 1993 from $619 million in 1992. North American sales for the fourth quarter of 1994 declined from the third quarter due to a 58% decline in U.S. government sales and a softening of demand as the Company shifted its emphasis from revenue growth driven by aggressive pricing to improving liquidity, profitability and support systems. The Company's European operations contributed net revenues of $782 million for 1994, representing a 41% increase over $553 million in net revenues for 1993. European revenues for 1993 represented a 129% increase over $242 million in net revenues for 1992. Other international sales increased 85% to $136 million for 1994, following a 157% increase in 1993 over $29 million in 1992. These increases resulted primarily from existing markets and, to a lesser extent, expansion into new markets. The Company believes that its international growth affords significant opportunities to achieve higher levels of operating and economic efficiencies. The Company is considering several ways to enhance its international presence in addition to implementing the Company's restructuring announced during 1994. Dell intends to continue to expand its international activities by increasing market presence in existing markets, improving support systems, pursuing additional international manufacturing and distribution opportunities, and entering new markets primarily through third-party resellers. Consolidated net sales to major corporate, government and education accounts led sales gains in 1994, increasing 51% to $1.44 billion from $953 million in 1993. U.S. Federal government sales were stronger than normal in the third quarter of 1994 because of a surge in buying at the end of the U.S. Federal government's budget year, which resulted in a larger than normal sequential decline of 58% in the fourth quarter of 1994 as the U.S. Federal government entered a new budget year. Sales to major corporate, government and education accounts increased 129% in 1993 from $416 million in 1992. Sales to medium- to small-sized businesses and individuals increased 31% to $1.03 billion for 1994 from $787 million for 1993 and $337 million in 1992. Gross Profit Margin The Company's 1994 gross profit margins continued to decline from 1993 and 1992 levels. The gross margin for 1994 declined to 15.1% from 22.3% in 1993 and 31.7% in 1992. Gross margins for 1994 were affected by $70.3 million of inventory write-downs and related costs incurred during the first half of 1994. The decline in gross profit margin was also attributable to significant price reductions to maintain competitive position; manufacturing inefficiencies associated with system and process weaknesses; and price reductions on older products to avoid incurring additional charges for excess and obsolete inventory. Additional pricing actions may occur as the Company attempts to maintain its competitive mix of price, performance and customer support services. The Company attempts to mitigate the effect of its pricing actions through 15 17 improvements in the product mix, reduced component costs, manufacturing efficiencies, operating expense controls, and tax planning. The decline in gross profit margins in 1993 from 1992 was primarily due to the Company's pricing actions, almost half of which were offset by reduced component costs and manufacturing efficiencies. The results of the Company's international operations are subject to currency fluctuations. However, the Company attempts to reduce its exposure to currency fluctuations through the use of foreign currency option contracts for periods not exceeding twelve months and, to a lesser extent, through the use of forward contracts, generally for periods not exceeding three months, which hedge certain anticipated intercompany shipments to foreign subsidiaries. Forward contracts entered into to hedge anticipated intercompany shipments, none of which were outstanding at the end of 1994, are accounted for on a mark-to-market basis. The Company has purchased options to hedge a portion of its anticipated, but not firmly committed, intercompany sales for 1995 and may enter into additional hedging transactions as management considers appropriate. Based upon foreign currency exchange rates at the end of 1994, option contracts that hedge 1995 anticipated shipments to international subsidiaries had a combined net realized and unrealized deferred gain of $2.2 million. Operating Expenses Operating expenses for 1994 increased 52% to $472 million from $310 million in 1993. The 1993 level represented an increase of 44% over 1992. As a percentage of sales, operating expenses for 1994 increased to 16.4% from 15.4% for 1993, but declined from 24.2% for 1992. This increase over 1993 was primarily due to $21.1 million of charges for the costs of consolidating operations, writing off certain assets and making employee severance payments. Net Financing and Other Income Net financing and other income was $.3 million, $4.2 million and $6.5 million for 1994, 1993 and 1992, respectively. Short-term investment income was $8.8 million in 1994 compared to $12.9 million in 1993 and $6.9 million in 1992. The decrease in 1994 was primarily due to lower average investment balances as a result of the retirement of the commercial paper program in the first quarter of 1994, and was also due to lower rates of return. The increase in 1993 over 1992 was attributable to income earned from the investment of proceeds from the commercial paper program initiated in 1993. In the normal course of business, the Company employs a variety of interest rate derivative instruments to more efficiently manage its principal, market and credit risks as well as to enhance its investment yield. Derivative instruments used include interest rate swaps, written and purchased interest rate options and swaptions (options to enter into interest rate swaps). The Company structures derivative instruments in interest rate markets where it has foreign operations. At January 30, 1994, and January 31, 1993, the Company had outstanding investment derivative instruments with remaining maturities of less than five years, which are accounted for on a mark-to-market basis, with a total notional amount of $355 million and $180 million, respectively. At January 30, 1994, the Company had outstanding interest rate swap and swaption agreements with maturities of less than five years entered into concurrently with the 11% Senior Notes issued August 26, 1993, ("Notes") with aggregate notional values of $100 million and $65 million, respectively. Interest rate derivatives generally involve exchanges of interest payments based upon fixed and floating interest rates without exchanges of underlying notional amounts. Consequently, the Company's exposure to credit loss is significantly less than the stated notional amounts. Realized and unrealized net gains on interest rate derivatives recognized in income were $5.2 million for 1994, compared with $2.5 million for 1993, and $5.5 million for 1992. The gains recognized in 1994 primarily resulted from movements in the United States, Canadian, Japanese, and European interest rate markets. At January 30, 1994, the swaption entered into concurrently with the issuance of the Notes had an unrealized loss of $.5 million recognized in income. The value of the Company's short-term and derivative investment portfolios at January 30, 1994, is subject to movements in the United States, Canadian, Japanese and 16 18 European interest rate markets and, generally, is adversely affected by increases in market rates of interest. Since January 30, 1994, the value of the Company's short-term and investment derivative portfolios has decreased as a result of interest rate increases in these markets. The Company believes this increase in interest rates is temporary. However, if interest rates in these markets do not decline to mid-February 1994 levels, the Company will recognize material charges on a mark-to-market basis in the first quarter of 1995. If such higher rates prevail, the Company will recognize additional charges in future periods. These charges may have an adverse effect on net income in the first quarter of 1995 and in future periods. Interest expense in 1994 increased to $8.4 million from $7.9 million in 1993 and $1.8 million in 1992. The increase in 1994 interest expense was primarily due to higher effective borrowing rates compared to 1993, as short-term credit facilities were refinanced with long-term debt. The increase in interest expense for 1993 compared with 1992 was primarily attributable to the issuance of commercial paper and increased borrowings under Section 84 of Ireland's Corporation Tax of 1976 ("Section 84 Borrowings"). Net foreign currency gains (losses) were $.8 million, ($.6) million and ($1.6) million for 1994, 1993, and 1992, respectively. During 1993, the Company entered into foreign currency forward and option contracts with the intent to profit from anticipated movements in exchange rates. The Company marked the contracts to market and recognized resulting gains and losses as a component of net financing and other income. Net foreign exchange losses recognized during 1993 consisted of $9.6 million in losses related to foreign currency trading activities and $9.0 million in foreign currency transaction gains associated with unhedged intercompany balances and other foreign currency transactions. The Company resumed its intercompany hedging practices in the third quarter of 1993. During 1994, the Company did not enter into foreign currency contracts with the intent to profit from movements in exchange rates. Accordingly, net foreign currency gains recognized during 1994 resulted from remeasuring non-functional currency denominated assets and liabilities, net of transaction hedge results. All of the Company's foreign exchange and interest rate derivative instruments involve elements of market and credit risk in excess of the amounts recognized in the financial statements. The counterparties to 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 regularly monitors the credit quality of the financial institutions which are counterparties to these financial instruments. The Company does not anticipate nonperformance by the counterparties. Financing fees and other expenses increased to $6.1 million in 1994 from $2.8 million in 1993 and $2.5 million in 1992. The increase in 1994 was primarily due to fees and other expenses related to the second quarter repayment of outstanding Section 84 borrowings, renegotiation of the line of credit facility, and the amortization of financing costs associated with the issuance of the Notes. Income Tax The Company's effective tax rate was 7.6% for 1994 compared with 29.1% and 30.7% for 1993, and 1992, respectively. The change in the effective tax rate resulted from changes in the geographical distribution of income and losses and from significant second quarter 1994 losses. FUTURE OUTLOOK In the past, Dell has focused on increasing market share by meeting customers' demands for a wider range of products, services and support at competitive prices, while managing its costs to achieve a targeted return on sales (net income as a percentage of consolidated net sales). During Dell's rapid growth, the personal computer industry has been characterized by frequent product introductions, continual improvement in computer performance characteristics, decreasing average selling prices, and increased competition at both the manufacturing and sales levels. Currently, the Company's objective is to continue to focus on balancing liquidity and profitability while restimulating profitable growth. Dell's substantial growth and increasingly complex activities outpaced some of Dell's internal business systems and have required the restructuring of some elements of the organization, the implementation of new or improved management systems, and the revision of administrative processes. For example, many of Dell's international subsidiaries were originally formed as stand-alone businesses providing sales, technical support, 17 19 and customer service for their local markets. While this approach facilitated effective and rapid market penetration, it also created redundant marketing and support programs in the subsidiaries. Infrastructure improvements to reduce the redundancies and control costs will be an important factor in the future. Dell is in the process of consolidating certain common functions, primarily in Europe, to create regional business units that reduce redundant costs, and improve Dell's ability to deliver quality services in that market. Additionally, the Company is also working to improve key processes that it expects will improve profitability. As previously discussed, the Company believes that the absence of a major notebook computer product offering during 1994 was a contributing factor to its decreased sales growth. The Company also believes that a significant opportunity for market expansion lies in the network server market where its presence has been limited. Although the Company has introduced a 486-based notebook and new server products in February 1994, there can be no assurance that the Company's notebook or server development activities will be successful, that notebook or server product technologies will be available to the Company, that the Company will be able to deliver commercial quantities of these computer products in a timely manner, or that such products will achieve market acceptance. Dell has also acted to manage its future growth by strengthening its management team. During the last year Dell has hired additional experienced personnel in several key positions, including information systems, operations, corporate finance, product development, and portable computers. The strengthened management team has been focused on improving liquidity, developing the systems to support Dell's growth and complexity, and rebuilding Dell's profitability. The personal computer industry is characterized by short product life cycles resulting from rapid changes in technology and consumer preferences and declining prices. To retain its competitive position, the Company must continue to enhance and improve its existing products while developing and introducing new products and obtaining and incorporating new hardware and software technologies that others develop, such as notebook computer and Pentium-based product lines. All of the Company's 59 personal computer systems currently offered have been introduced since August 1, 1993. There can be no assurance that the Company's development activities will be successful, that new product and software technologies will be available to the Company, that the Company will be able to deliver commercial quantities of new products in a timely manner, or that such products will achieve market acceptance. Certain new products introduced by the Company are intended to replace existing products. Although the Company monitors the products that are intended to be replaced and attempts to phase out the manufacture of such products in a timely manner, there can be no assurance that such transitions will be executed without adversely affecting the Company's results of operations. Dell's manufacturing process requires a high volume of quality components. Several microprocessors used in the Company's products are currently available only from Intel Corporation. In addition, the Company has certain single supplier relationships that are considered advantageous for total cost of ownership reasons including performance, quality, support, delivery and price considerations. Reliance on those vendors, as well as industry supply conditions, generally involves several risks, including the possibility of a shortage of components, increases in component costs and reduced control over delivery schedules, which could adversely affect the Company's financial results. The Company occasionally experiences delays in receiving certain components, which can cause delays in the shipment of some products to customers. There can be no assurance that the Company will be able to continue to obtain additional supplies in a timely or cost-effective manner. HEDGING ACTIVITIES The results of the Company's international operations are affected by changes in exchange rates between certain foreign currencies and the United States dollar. The Company's exposure to currency fluctuations has increased as a result of the expansion of its international operations. The functional currency for most of the Company's international subsidiaries is the local currency of the subsidiary. An increase in the value of the United States dollar increases costs incurred by the Company's international operations because many of its 18 20 international subsidiaries' component purchases are denominated in the United States dollar. Changes in exchange rates may negatively affect the Company's consolidated net sales (as expressed in United States dollars) and gross profit margins from international operations. The Company monitors this exposure and attempts to mitigate the exposure through hedging transactions. Because of the significant growth in the Company's international operations in recent years, the Company has attempted through various means to mitigate the effects of currency fluctuations. The purpose of the Company's hedging program is to protect the Company from the risk that the dollar-equivalent price of anticipated cash flows resulting from sale of products from its manufacturing subsidiaries to its international sales subsidiaries will be adversely affected by changes in foreign currency exchange rates. The Company's hedging activities consist primarily of hedging anticipated intercompany sales to its international subsidiaries and resulting intercompany balances through the use of purchased options for periods not exceeding twelve months and, to a lesser extent, forward contracts, generally for periods not exceeding three months. The risk of loss associated with purchased options is limited to the amount of premiums paid for the option contracts, which could be significant. The premium amounts paid on purchased options are amortized over the period of the hedged transaction. Gains and losses incurred on purchased option contracts are deferred until occurrence of the hedged transaction and recognized as a component of the cost of the hedged transaction. Gains and losses incurred on forward contracts designated as hedging contracts of anticipated intercompany shipments are marked-to-market and recognized as a component of cost of sales in the current period. When the Company began to hedge anticipated intercompany sales in March 1991, the accounting for foreign currency option contracts, particularly combination option contracts, had not been specifically addressed in authoritative accounting literature and was subject to varying interpretations in practice. From March 1991 until March 20, 1992, the Company principally used combination foreign currency option contracts to hedge anticipated intercompany sales to its international subsidiaries. During this period, the accounting for combination option contracts was actively deliberated by the accounting profession. The Company closely followed the deliberations of the accounting profession during this period. After consideration of the deliberations of the Emerging Issues Task Force, in the fourth quarter of 1992 the Company began to account on a mark-to-market basis for open combination option contracts entered into with the same strike prices and maturities ("synthetic forward contracts") which were originally entered into to hedge anticipated 1993 sales to international subsidiaries. Accordingly, the Company recognized unrealized losses of $4.0 million related to open synthetic forward contracts as a component of cost of sales in its Consolidated Statement of Income for the year ended February 2, 1992. In 1992, the Company realized $1.7 million in losses on forward contracts entered into to hedge anticipated 1993 sales to its international subsidiaries, which losses were deferred at February 2, 1992, and recognized in the first two quarters of 1993. Generally accepted accounting principles do not afford hedge accounting treatment to forward contracts intended to hedge anticipated transactions. The Company does not believe the losses are material in the context of the Company's financial condition or results of operations taken as a whole. On March 19, 1992, the Chief Accountant of the Securities and Exchange Commission settled much of the accounting controversy associated with hedge accounting for anticipated transactions when he issued a letter indicating that the SEC would object to deferral of realized and unrealized gains or losses arising from complex options and similar transactions entered into after March 20, 1992. Subsequent to that date, the Company has not entered into any combination option contracts to hedge anticipated transactions. On November 30, 1992, the SEC's Division of Enforcement notified the Company that it was beginning an informal inquiry, which is continuing, regarding the Company's accounting practices for foreign currency hedging and trading activities and the completeness of the Company's public disclosure about those activities. The Company and its independent accountants are voluntarily cooperating with the SEC in this informal inquiry. The SEC's Division of Corporation Finance has also indicated it has concerns about the deferred accounting treatment the Company afforded gains and losses on forward and option contracts entered into to hedge anticipated transactions and has not expressed its definitive views about whether the Company's 19 21 accounting for these forward and option contracts complies with generally accepted accounting principles in all material respects. The table below shows the effect on income before income taxes, net income and earnings per common share for each of the four quarters of 1992, 1993, and 1994, if gains and losses on hedging contracts had been accounted for on a mark-to-market basis. However, if the Company had believed this accounting treatment to be appropriate, it likely would have followed different hedging strategies, which could have received differing accounting treatment than indicated below. Accordingly, the Company does not believe that the net income on a mark-to-market basis or the earnings per common share on a mark-to-market basis included in the following table accurately reflect its business results or the effect of hedging on its net income.
1992 ------------------------------------------------------------------- QUARTER ENDED ---------------------------------------------------- YEAR ENDED MAY 5, AUGUST 4, NOVEMBER 3, FEBRUARY 2, FEBRUARY 1991 1991 1991 1992 2, 1992 ------ --------- ----------- ----------- ---------- Effect on income before income taxes: Forward contracts................................. $ -- $ (1.2) $ (0.5) $ -- $ (1.7) Synthetic forward contracts....................... 10.9 (3.8) (12.0) 0.2 (4.7) Other option contracts............................ -- -- (9.8) (8.9) (18.7) ------ --------- ----------- ----------- ---------- Total effect on income before income taxes..................................... $10.9 $ (5.0) $ (22.3) $ (8.7) $(25.1) ====== ======== =========== ========== ========== Deferred realized and unrealized gain (loss)........ $10.9 $ 5.9 $ (16.4) $ (25.1) $(25.1) ====== ======== =========== ========== ========== Effect on net income and earnings per common share: Net income (loss) on a mark-to-market basis....... $17.3 $ 9.1 $ (1.7) $ 9.7 $ 34.4 Net income as reported............................ $10.1 $ 12.4 $ 13.0 $ 15.4 $ 50.9 Earnings (loss) per common share on a mark-to-market basis............................ $ .52 $ .25 $ (.05) $ .26 $ .98 Earnings per common share as reported............. $ .30 $ .34 $ .35 $ .41 $ 1.40
1993 ------------------------------------------------------------------- QUARTER ENDED ---------------------------------------------------- YEAR ENDED MAY 3, AUGUST 2, NOVEMBER 1, JANUARY 31, JANUARY 1992 1992 1992 1993 31, 1993 ------ --------- ----------- ----------- ---------- Effect on income before income taxes: Forward contracts.................................. $ 1.0 $ 0.7 $ -- $ -- $ 1.7 Synthetic forward contracts........................ 1.8 2.0 0.9 -- 4.7 Other option contracts............................. (4.9) (13.7) 29.8 9.5 20.7 ------ -------- ----------- ---------- ---------- Total effect on income before income taxes... $(2.1) $ (11.0) $ 30.7 $ 9.5 $ 27.1 ====== ======== =========== ========== ========== Deferred realized and unrealized gain (loss)......... $(27.2) $ (38.2) $ (7.5) $ 2.0 $ 2.0 ====== ======== =========== ========== ========== Effect on net income and earnings per common share: Net income on a mark-to-market basis............... $ 18.4 $ 14.7 $ 48.9 $ 38.0 $120.8 Net income as reported............................. $ 19.8 $ 21.9 $ 28.6 $ 31.3 $101.6 Earnings per common share on a mark-to-market basis............................................ $ .48 $ .38 $ 1.24 $ .94 $ 3.08 Earnings per common share as reported.............. $ .52 $ .57 $ .72 $ .77 $ 2.59
20 22
1994 -------------------------------------------------------------------- QUARTER ENDED ---------------------------------------------------- YEAR ENDED MAY 2, AUGUST 1, OCTOBER 31, JANUARY 30, JANUARY 30, 1993 1993 1993 1994 1994 ------ --------- ----------- ----------- ----------- Effect on income (loss) before income taxes: Forward contracts................................. $ -- $ -- $ -- $ -- $ -- Synthetic forward contracts....................... -- -- -- -- -- Other option contracts............................ (0.3) 5.3 (6.4) 1.6 0.2 ------ -------- ---------- ---------- ---------- Total effect on income (loss) before income taxes.............................. $(0.3) $ 5.3 $ (6.4) $ 1.6 $ 0.2 ====== ======== ========== ========== ========== Deferred realized and unrealized gain (loss)........ $ 1.7 $ 7.0 $ .6 $ 2.2 $ 2.2 ====== ======== ========== ========== ========== Effect on net income (loss) and earnings (loss) per common share: Net income (loss) on a mark-to-market basis....... $10.0 $ (71.8) $ 7.8 $ 18.7 $ (35.6) Net income (loss) as reported..................... $10.2 $ (75.8) $ 12.0 $ 17.7 $ (35.8) Earnings (loss) per common share on a mark-to-market basis............................ $ .25 $ (1.93) $ .16 $ .41 $ (1.06) Earnings (loss) per common share as reported...... $ .25 $ (2.03) $ .26 $ .39 $ (1.06)
LIQUIDITY AND CAPITAL RESOURCES The Company's operating results for 1994 generated $113 million in cash, a $152 million year-to-year increase over 1993, primarily due to record cash flow from operations. Asset management improvements led the increased operating cash flow for 1994. The Company experienced a decrease in days in accounts receivable to 50 days at the end of 1994 from 54 days at the end of 1993. Inventory levels decreased to 33 days of supply at the end of 1994, a substantial decline from the 55 days of supply of inventory at the end of 1993. Days in accounts payable decreased to 42 days at the end of 1994 from 53 days at the end of 1993. The lower inventory balances resulted from improved controls and demand/supply process improvements during the year. Although the Company made significant progress in reducing inventory during 1994, maintaining current inventory levels is dependent upon the Company's ability to achieve targeted revenues, to further reduce complexities in its product line, and to increase commonality of parts. In 1994, approximately $48 million of cash was used for capital expenditures to expand facilities and to acquire information systems and personal computer office equipment. Planned capital expenditures for 1995 are approximately $75 million, primarily related to the acquisition of land and construction of buildings in Round Rock, Texas, and the acquisition of information systems and computer equipment for internal use. On August 26, 1993, the Company issued $100 million of 11% Senior Notes due August 15, 2000. Interest on the Notes is payable semiannually, commencing February 15, 1994. The Notes are redeemable, in whole or in part, at the option of the Company, on and after August 15, 1998 at redemption prices decreasing from 103.50% to 101.75% of principal, depending upon the redemption date. See Note 3 to the Consolidated Financial Statements. Concurrent with the issuance of the Notes, on August 26, 1993, the Company sold 1,250,000 shares of Series A Convertible Preferred Stock (the "Preferred Stock") generating gross proceeds of $125 million. Each share of Series A Preferred Stock entitles its holder to cumulative annual dividends and to convert to shares of common stock. In the event of voluntary or involuntary liquidation, each share of Preferred Stock entitles its holder to receive $100 per share liquidation preference plus an amount equal to accrued and unpaid dividends before any distributions to common stockholders. See Note 4 to the Consolidated Financial Statements. The Company's primary source of cash for 1994 came from financing activities including the issuance of the Notes and the Preferred Stock during the third quarter of 1993. The primary unused financing sources available at January 30, 1994, are a bank line of credit and an asset securitization program, which are described below. 21 23 The Company has a line of credit facility which bears interest at a defined Base Rate or Eurocurrency Rate with covenants based on minimum pre-tax earnings, a maximum ratio of total liabilities to tangible net worth, and a maximum inventory level. Maximum amounts available under the credit facility are limited to the lesser of $75 million or eligible receivables as defined by the credit agreement. During the commitment period, the Company is obligated to pay .375% per annum on the unused portion of the credit facility. No amounts were outstanding under this credit facility as of January 30, 1994. The maximum available under this credit facility as of January 30, 1994, totaled $41 million. In the second quarter of 1994, the Company's subsidiary, Dell Receivables Corporation, entered into a Receivables Purchase Agreement pursuant to which the Company may raise up to $100 million through the sale of interests in certain of its accounts receivable. The funding expense is based on the rate of interest on commercial paper issued by the purchaser. During 1994, the Company sold $85 million of receivables. As of January 30, 1994, there were no receivables sold which remain to be collected. Repayment of the Notes and these credit facilities, together with operating lease commitments, constitute the Company's long-term commitments to use cash. The Company is a defendant in several consolidated lawsuits brought by certain of its stockholders. An unfavorable outcome in these lawsuits could have a material adverse effect on the Company's financial condition and results of operations. See "Legal Proceedings." Management believes that sufficient resources will be available to meet the Company's cash requirements through at least the next twelve months. Cash requirements for periods beyond the next twelve months depend on the Company's profitability, its ability to manage working capital requirements, and its rate of growth. 22 24 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Financial Statements: Report of Independent Accountants.............................................. 24 Consolidated Statement of Financial Position at January 30, 1994 and January 31, 1993...................................................................... 25 Consolidated Statement of Operations for the three years ended January 30, 1994.......................................................................... 26 Consolidated Statement of Cash Flows for the three years ended January 30, 1994....................................................... 27 Consolidated Statement of Stockholders' Equity for the three years ended January 30, 1994....................................................... 28 Notes to Consolidated Financial Statements..................................... 29 Financial Statement Schedules: For the year ended January 30, 1994 Schedule I -- Short-term Investments......................................... 52 Schedule II -- Amounts Receivable from Related Parties....................... 53 For the three years ended January 30, 1994 Schedule VIII -- Valuation and Qualifying Accounts........................... 54 Schedule IX -- Short-term Borrowings......................................... 55 Schedule X -- Supplementary Consolidated Statement of Operations Information................................................................. 56
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. 23 25 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Dell Computer Corporation 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 January 30, 1994 and January 31, 1993, and the results of their operations and their cash flows for each of the three years in the period ended January 30, 1994, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards 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 the opinion expressed above. PRICE WATERHOUSE Austin, Texas March 2, 1994 24 26 DELL COMPUTER CORPORATION CONSOLIDATED STATEMENT OF FINANCIAL POSITION (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS
JANUARY 30, JANUARY 31, 1994 1993 ---------- ---------- Current assets: Cash............................................................... $ 3,355 $ 14,948 Short-term investments............................................. 333,667 80,367 Accounts receivable, net........................................... 410,774 374,013 Inventories........................................................ 220,265 303,220 Other current assets............................................... 80,323 80,239 ---------- --------- Total current assets....................................... 1,048,384 852,787 Property and equipment, net.......................................... 86,892 70,462 Other assets......................................................... 5,204 3,756 ---------- --------- $1,140,480 $927,005 ========== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable................................................... $ 282,708 $295,133 Accrued liabilities................................................ 237,651 171,473 Income taxes....................................................... 17,628 27,233 ---------- --------- Total current liabilities.................................. 537,987 493,839 Long-term debt....................................................... 100,000 48,373 Other liabilities.................................................... 31,385 15,593 Commitments and contingencies Stockholders' equity: Preferred stock: $.01 par value; shares authorized: 5,000,000; shares outstanding: 1,250,000 at January 30, 1994............... 13 -- Common stock: $.01 par value; shares authorized: 100,000,000; shares issued and outstanding: 37,929,031 and 36,857,948, respectively.................................................... 379 369 Additional paid-in capital......................................... 320,041 177,978 Unrealized gain on short-term investments.......................... 3,230 -- Retained earnings.................................................. 170,790 208,544 Cumulative translation adjustment.................................. (23,345) (17,691) ---------- --------- Total stockholders' equity................................. 471,108 369,200 ---------- --------- $1,140,480 $927,005 ========== ========
The accompanying notes are an integral part of these consolidated financial statements. 25 27 DELL COMPUTER CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL YEAR ------------------------------------ 1994 1993 1992 ---------- ---------- -------- Net sales.................................................. $2,873,165 $2,013,924 $889,939 Cost of sales.............................................. 2,440,349 1,564,472 607,768 ---------- ---------- -------- Gross profit..................................... 432,816 449,452 282,171 Operating expenses: Selling, general and administrative...................... 422,906 267,982 182,155 Research, development and engineering.................... 48,934 42,358 33,140 ---------- ---------- -------- Total operating expenses............................ 471,840 310,340 215,295 ---------- ---------- -------- Operating income (loss).......................... (39,024) 139,112 66,876 Financing and other income, net............................ 258 4,180 6,539 ---------- ---------- -------- Income (loss) before income taxes................ (38,766) 143,292 73,415 Provision for income taxes (benefit)....................... (2,933) 41,650 22,504 ---------- ---------- -------- Net income (loss)................................ (35,833) 101,642 50,911 Preferred stock dividends.................................. (3,743) -- -- ---------- ---------- -------- Net income (loss) applicable to common stockholders................................... $ (39,576) $ 101,642 $ 50,911 ========== ========== ======== Earnings (loss) per common share........................... $ (1.06) $ 2.59 $ 1.40 ========== ========== ======== Weighted average shares outstanding........................ 37,333 39,235 36,274 ========== ========== ========
The accompanying notes are an integral part of these consolidated financial statements. 26 28 DELL COMPUTER CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS)
FISCAL YEAR ----------------------------------------- 1994 1993 1992 ----------- ----------- ----------- Cash flows from operating activities: Net income (loss).................................... $ (35,833) $ 101,642 $ 50,911 Charges to income not requiring cash outlays: Depreciation and amortization..................... 30,646 19,597 13,832 Other............................................. 3,971 149 5,841 Changes in: Operating working capital......................... 97,008 (162,521) (70,962) Non-current assets and liabilities................ 17,254 2,111 871 ----------- ----------- ----------- Net cash (used in) provided by operating activities................................. 113,046 (39,022) 493 Cash used in investing activities: Short-term investments: Purchases......................................... (2,587,858) (1,808,464) (1,085,024) Maturities and other redemptions.................. 2,287,998 1,750,919 985,632 Sales............................................. 46,560 76,570 -- Capital expenditures................................. (48,055) (47,251) (32,630) ----------- ----------- ----------- Net cash used in investing activities........ (301,355) (28,226) (132,022) Cash flows from financing activities: Net proceeds from (payments for) short-term borrowings........................................ (8,500) 8,500 -- Borrowings from long-term debt....................... 96,654 7,270 41,450 Repayments of borrowings............................. (49,861) (711) (2,577) Net proceeds from issuance of common stock........... -- -- 105,659 Net proceeds from issuance of preferred stock........ 120,151 -- -- Preferred stock dividends paid....................... (1,921) -- -- Issuance of common stock under employee plans........ 21,935 12,244 6,112 ----------- ----------- ----------- Net cash provided by financing activities.... 178,458 27,303 150,644 ----------- ----------- ----------- Effect of translation exchange rate changes on cash.... (1,742) (567) (282) ----------- ----------- ----------- Net increase (decrease) in cash........................ (11,593) (40,512) 18,833 Cash at beginning of period............................ 14,948 55,460 36,627 ----------- ----------- ----------- Cash at end of period.................................. $ 3,355 $ 14,948 $ 55,460 =========== =========== ===========
See Note 11 for Supplemental Statement of Cash Flow information. The accompanying notes are an integral part of these financial statements. 27 29 DELL COMPUTER CORPORATION CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
STOCKHOLDERS' EQUITY ------------------------------------------------------------------- PREFERRED COMMON PAID-IN RETAINED STOCK STOCK CAPITAL EARNINGS OTHER TOTAL --------- ------ -------- -------- -------- -------- BALANCES AT FEBRUARY 3, 1991 $ -- $290 $ 54,042 $ 55,991 $ 1,682 $112,005 Net income.................... -- -- -- 50,911 -- 50,911 Issuance of 5,762,250 shares of common stock, net....... -- 58 105,601 -- -- 105,659 Issuance of 1,021,489 shares of common stock under employee plans............. -- 10 6,102 -- -- 6,112 Foreign currency translation adjustment................. -- -- -- -- (507) (507) ------- ------ -------- -------- -------- -------- BALANCES AT FEBRUARY 2, 1992 -- 358 165,745 106,902 1,175 274,180 Net income.................... -- -- -- 101,642 -- 101,642 Issuance of 1,056,328 shares of common stock under employee plans...................... -- 11 12,233 -- -- 12,244 Foreign currency translation adjustment................. -- -- -- -- (18,866) (18,866) ------- ------ -------- -------- -------- -------- BALANCES AT JANUARY 31, 1993 -- 369 177,978 208,544 (17,691) 369,200 Net loss...................... -- -- -- (35,833) -- (35,833) Issuance of 1,250,000 shares of preferred stock......... 13 -- 120,138 -- -- 120,151 Issuance of 1,071,083 shares of common stock under employee plans............. -- 10 21,925 -- -- 21,935 Preferred stock dividends paid....................... -- -- -- (1,921) -- (1,921) Unrealized gain on short-term investments................ -- -- -- -- 3,230 3,230 Foreign currency translation adjustment................. -- -- -- -- (5,654) (5,654) ------- ------ -------- -------- -------- -------- BALANCES AT JANUARY 30, 1994 $ 13 $379 $320,041 $170,790 $(20,115) $471,108 ======= ====== ======== ======== ======== ========
The accompanying notes are an integral part of these financial statements. 28 30 DELL COMPUTER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company's consolidated financial statements have been prepared in accordance with generally accepted accounting principles. The fiscal year of the Company ends on the Sunday nearest January 31. Unless otherwise indicated, all references to years in connection with financial information refer to the Company's fiscal years and all references to quarters refer to the Company's fiscal quarters. The Company's significant accounting policies are set forth below. Principles of Consolidation -- The consolidated financial statements include the accounts of Dell Computer Corporation and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated. Financial results of the Company's international subsidiaries are consolidated on a one month delay to facilitate consolidated financial reporting. Certain prior period amounts have been reclassified for comparative purposes. Short-term Investments -- Short-term investments consist primarily of debt securities and equity securities with readily determinable fair values. The Company accounts for highly liquid investments with maturities of three months or less at date of acquisition as short-term investments. Effective January 30, 1994, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities." In accordance with SFAS No. 115, the Company's short-term investments classified as available-for-sale are reported at fair value, with unrealized gains and losses reported net of taxes in a separate component of stockholder's equity. In accordance with SFAS 115, investments whose turnover is quick and maturities are short are reflected as gross purchases and gross maturities and redemptions in the Consolidated Statement of Cash Flows. The specific identification method is used to determine the cost of securities sold. Prior to the adoption of SFAS 115, short-term investments were classified as available-for-sale and carried at the lower of aggregate amortized cost or market, with changes in the valuation allowance recognized in current period income. Individual securities classified as available-for-sale with other than a temporary decline in fair value are written down to fair value with the charge included in income. Inventories -- Inventories are stated at the lower of cost (based upon a first-in, first-out valuation) or market. Cost includes the acquisition cost of purchased components, parts and subassemblies, freight costs, labor and overhead. Property and Equipment -- Property and equipment are carried at cost. Depreciation is provided using the straight-line method over the economic lives of the assets ranging from ten to thirty years for buildings and two to five years for all other assets. Leasehold improvements are amortized over the term of the respective leases. Foreign Currency Translation -- The financial statements of the Company's international subsidiaries are generally measured using the local currency as the functional currency. Accordingly, assets and liabilities of these subsidiaries are translated at current rates of exchange at the balance sheet date of the reporting entity. The resultant gains or losses from translation are included in a separate component of stockholders' equity. Income and expense items for these subsidiaries are translated using monthly average exchange rates. Gains or losses resulting from remeasuring monetary asset and liability accounts that are denominated in currencies other than a subsidiary's functional currency are included currently as a component of financing and other income in the consolidated financial statements. Financial Instruments -- The Company enters into foreign exchange option and forward contracts to hedge its economic and transaction foreign currency exposures. Prior to March 21, 1992, the Company principally used combination option contracts that were designated as hedges of probable anticipated, but not firmly committed, foreign currency transactions. Gains and losses on such transactions were deferred and recognized in income in the same period as the hedged transaction. Subsequent to March 20, 1992, anticipated foreign currency transactions have been hedged using purchased foreign currency option contracts 29 31 DELL COMPUTER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) for periods not exceeding twelve months and, to a lesser extent, foreign exchange forward contracts, generally for periods not exceeding three months. Realized and unrealized gains or losses 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 in the same period as the hedged transaction. The risk of loss associated with purchased options is limited to premium amounts paid for the option contracts, which could be significant. Premium amounts paid are amortized over the period of the hedged transaction. Forward contracts designated as hedges of anticipated transactions are accounted for on a mark-to-market basis and recognized as a component of cost of sales in the current period. Transaction exposures representing firm foreign currency commitments are generally hedged using foreign exchange forward contracts. Realized and unrealized gains or losses on forward contracts that effectively hedge foreign currency transactions are deferred and included in income as part of those transactions. Additionally, during 1993, the Company actively traded foreign currency forward and option contracts with the intent to profit from anticipated changes in the financial markets. These contracts were designated at inception as trading activities and accordingly, were accounted for on a mark-to-market basis with the realized and unrealized gain or loss recognized as a component of net financing and other income in the consolidated financial statements. The Company also employs a variety of interest rate derivative instruments to more efficiently manage its principal, market and credit risks as well as to enhance its investment yield. Derivative instruments used include interest rate swaps, written and purchased interest rate options and swaptions (options to enter into interest rate swaps). Interest rate differentials to be paid or received on interest rate swaps which are designated to specific borrowings are accrued and recognized as an adjustment to interest expense as interest rates change. Realized gains or losses on terminated interest rate swap positions designated to specific borrowings are recognized as an adjustment to interest expense over the remaining life of the obligations. Interest rate derivative instruments that are not designated to a specific asset or liability are considered investment derivatives and are accounted for on a mark-to-market basis, with realized and unrealized gains or losses recognized as incurred and included as a component of financing and other income in the consolidated financial statements. Revenue Recognition -- Sales revenues are recognized at the date of shipment to customers. Provision is made currently for estimated product returns. Revenue and costs relating to sales of extended service contracts are deferred and amortized over the service period on a straight-line basis. Warranty and Other Post-sales Support Programs -- The Company provides currently for the estimated costs which may be incurred under its warranty and other post-sales support programs. Income Taxes -- The provision for income taxes is based on earnings reported in the financial statements under an asset and liability approach in accordance with SFAS No. 109 "Accounting for Income Taxes" that requires the recognition of deferred tax assets and liabilities and their reported amounts for financial statement purposes. Earnings Per Share -- Earnings per share are computed by dividing net income by the weighted average number of common shares and common share equivalents outstanding (if dilutive) during each period. Common share equivalents include stock options. The Company's preferred stock is not a common share equivalent for earnings per share purposes. The number of common equivalent shares outstanding relating to stock options is computed using the treasury stock method. NOTE 2 -- SHORT-TERM INVESTMENTS At January 30, 1994, the short-term investment portfolio, consisting primarily of debt securities and equity securities with readily determinable fair values, was classified as available-for-sale and measured at fair value in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity 30 32 DELL COMPUTER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Securities." Prior to the adoption of this accounting standard and at January 31, 1993, the short-term investments portfolio was carried at the lower of aggregate amortized cost or market (LCM). Adoption of SFAS No. 115 had no effect on the Company's results of operations. Short-term investments at January 30, 1994, and January 31, 1993, consist of the following:
FISCAL YEAR 1994 ------------------------------------------------------- UNREALIZED UNREALIZED CARRYING AND COST GAINS LOSSES FAIR VALUE -------- ---------- ---------- ------------ (IN THOUSANDS) (carried at fair value) Preferred stock..................... $ 52,470 $ 484 $3,250 $ 49,704 Mutual Funds........................ 10,000 -- 14 9,986 State and municipal securities...... 133,340 263 17 133,586 U.S. corporate and bank debt........ 136,124 4,345 78 140,391 -------- -------- -------- ---------- Total short-term investments............... $331,934 $5,092 $3,359 $333,667 ======== ======== ======== =========
FISCAL YEAR 1993 ------------------------------------------------------- UNREALIZED UNREALIZED CARRYING AND COST GAINS LOSSES FAIR VALUE -------- ---------- ---------- ------------ (IN THOUSANDS) (carried at aggregate LCM) Preferred stock..................... $ 36,701 $ 571 $2,848 $ 34,424 Mutual Funds........................ 17,150 -- 1,061 16,089 State and municipal securities...... 20,456 53 5 20,504 U.S. corporate and bank debt........ 10,050 -- 700 9,350 -------- -------- -------- ---------- Total short-term investments............... $ 84,357 $ 624 $4,614 $ 80,367 ======== ======== ======== =========
The Company's gross realized gains on the sale of short-term investments were $630,000 for 1994 and $595,000 for 1993. Gross realized losses were $1,133,000 for 1994 and $33,000 for 1993. Gross realized gains and losses for 1992 were insignificant. A profile of the maturities of debt securities classified as available-for-sale carried at fair value as of January 30, 1994 is presented in the following table.
LESS THAN 60 DAYS TO ONE TO 60 DAYS ONE YEAR THREE YEARS TOTAL --------- ---------- ----------- -------- (IN THOUSANDS) State and municipal securities........... $68,350 $ 36,548 $28,688 $133,586 U.S. corporate and bank debt............. 23,059 83,701 33,631 140,391 ------- --------- -------- -------- Total debt securities.......... $91,409 $ 120,249 $62,319 $273,977 ======= ======== ======== ========
NOTE 3 -- FINANCING ARRANGEMENTS On August 26, 1993, the Company issued $100 million of 11% Senior Notes due August 15, 2000. Interest on the Notes is payable semiannually, commencing February 15, 1994. The Notes are redeemable, in whole or in part, at the option of the Company, on and after August 15, 1998 at redemption prices decreasing from 103.50% to 101.75% of principal, depending upon the redemption date plus accrued interest to the date of redemption. In addition, the Company may redeem up to $33.3 million principal amount of the Notes with the proceeds of one or more equity offerings, at any time as a whole or from time to time in part, at a redemption price of 110% of principal, if redeemed at any time on or before February 15, 1995. 31 33 DELL COMPUTER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Indenture governing the Notes contains certain covenants including limitations on the amount of future indebtedness and restrictions on the payment of common stock dividends under certain circumstances. However, covenants limiting future indebtedness may be inapplicable from time to time if the Notes are assigned an investment grade rating by both of the major rating services. Concurrently with the issuance of the Notes, the Company entered into interest rate swap agreements and swaptions to reduce its interest costs associated with the Notes and to more efficiently manage market risk associated with changing interest rates. At January 30, 1994, the Company had outstanding interest rate swaps maturing in fiscal 1999 with an aggregate notional amount of $100 million and a swaption expiring in fiscal 1999 with a notional amount of $65 million. The swap agreements effectively change the Company's interest rate exposure from a fixed-rate to a floating-rate basis and resulted in a weighted average interest rate of 9.5% on the Notes for 1994. A written swaption executed by the Company effectively mitigates a portion of the cost associated with the call feature of the Notes and, providing market rates remain at levels when the swaption was issued on October 28, 1993, sets a portion of the Company's interest rate exposure during fiscal 1999 and 2000 to a fixed-rate basis. The Company has designated the issuance of the Notes and the related interest rate swap agreements as an integrated transaction. Accordingly, the differential to be paid or received on the swaps is accrued and recognized as an adjustment to interest expense as interest rates change. The swaption is accounted for on a mark-to-market basis and, accordingly, the net unrealized loss of $.5 million is recognized currently in the statement of operations. These instruments involve, in varying degrees, elements of credit or interest rate risk in excess of the amounts recognized in the financial statements. The Company regularly monitors its positions with, and the credit quality of, the financial institutions that are counterparties to these financial instruments, and it does not anticipate nonperformance by the counterparties. The Company has a $75 million line of credit facility that bears interest at a defined Base Rate or Eurocurrency Rate with covenants based on minimum pre-tax earnings, a maximum ratio of total liabilities to tangible net worth, and a maximum inventory level. No amounts were outstanding under this credit facility as of January 30, 1994. During the commitment period, the Company is obligated to pay .375% per annum on the unused portion of the credit facility. The credit facility contains certain limitations on the Company's ability to pay dividends with respect to common stock and restricts the payment of dividends on the Series A Convertible Preferred Stock if an event of default has occurred and is continuing or would result therefrom. The maximum available under this credit facility is the lesser of $75 million or eligible receivables as defined in the credit facility, which totaled $41 million as of January 30, 1994. During 1993, the Company's subsidiary, Dell Receivables Corporation, entered into a Receivable Purchase Agreement pursuant to which the Company may raise up to $100 million through the sale of interests in certain of its accounts receivable. The funding expense is based on the rate of interest on commercial paper issued by the purchaser. The discount on sale of receivables is included in financing and other income (expense). During 1994, the Company sold $85 million of receivables. As of January 30, 1994, there were no receivables sold which remain to be collected. In fiscal 1994, the Company repaid its borrowings under Section 84 of Ireland's Corporation Tax Act of 1976 and retired its commercial paper program. NOTE 4 -- STOCKHOLDERS' EQUITY Preferred Stock -- Simultaneously with the issuance of the Notes on August 26, 1993, the Company sold 1,250,000 shares of Series A Convertible Preferred Stock (the "Preferred Stock") generating gross proceeds of $125 million. Preferred stock issuance costs were approximately $4 million. Each share of Preferred Stock entitles its holder to receive annual cumulative cash dividends of $7 and to convert it into 4.2105 shares of common stock (equivalent to a conversion price of $23.75 per share of common stock), subject to adjustment 32 34 DELL COMPUTER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) to prevent dilution in certain circumstances. In the event of voluntary or involuntary liquidation, each share of Preferred Stock entitles its holder to receive up to $100 per share plus an amount equal to accrued and unpaid dividends before any distributions to common stock. The aggregate liquidation preference value of the Preferred Stock at January 30, 1994, was $126.8 million. The preferred shares are not redeemable before August 25, 1996. On and after August 25, 1996, the Preferred Stock may be redeemed by the Company, at its option, in whole or in part at any time at a redemption price per share decreasing from $104.67 to $100, depending on the redemption date, together in each case with any accrued and unpaid dividends. Dividends on the Preferred Stock are cumulative, have priority over dividends on common stock, and must be paid in the event of liquidation and before any distribution to holders of common stock. On January 27, 1994, the Board of Directors declared a $1.75 per share quarterly cash dividend which was paid on February 15, 1994, to Preferred Stockholders of record on February 4, 1994. In addition, so long as any Preferred Stock is outstanding, the Company may not, without the affirmative vote or consent of the holders of at least 66 2/3% (unless a higher percentage shall then be required by applicable law) of all outstanding shares of Preferred Stock, voting separately as a class, (i) amend, alter or repeal any provision of the Company's Certificate of Incorporation or Bylaws so as to affect adversely the relative rights, preferences, qualifications, limitations, or restrictions of the Preferred stock, (ii) create, authorize or issue, or reclassify any authorized stock of the Company into, or increase the authorized amount of, any series or class of stock that ranks senior to the Preferred Stock as to dividends or distributions of assets upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, or any security convertible into any such class or series of such stock, or (iii) enter into a share exchange that affects the Preferred Stock, consolidate with or merge into another entity, or permit another entity to consolidate with or merge into the Company, unless in each such case each share of Preferred Stock remains outstanding and unaffected or is converted into or exchanged for convertible preferred stock of the surviving entity having powers, preferences and relative participating optional or other rights and qualification limitations and restrictions thereof identical to that of a share of Preferred Stock (except for changes that do not affect the holders of the Preferred Stock adversely). The holders of the Preferred Stock have no other voting rights except if dividends have not been paid in an aggregate amount for at least six quarterly dividends on such shares. Under these circumstances, the number of members of the Company's Board of Directors will be increased by two, and the holders of the Preferred Stock will be entitled to elect two additional directors at any meeting of stockholders at which directors are to be elected held during the period such dividends remain in arrears. Common Stock -- During 1993, the Company's Board of Directors declared a 3 for 2 stock split in the form of a 50% stock dividend. All share and per-share information has been retroactively restated in the consolidated financial statements to reflect the stock split. During 1992, the Company issued 5,762,250 shares of $.01 par value common stock in a public offering. The gross proceeds of the offering amounted to $111,404,000. Common stock issuance costs, which are netted against paid-in capital, were approximately $5,745,000. Employee Stock Purchase Plan -- The Company has an Employee Stock Purchase Plan which permits substantially all employees to acquire the Company's common stock. Participating employees may acquire common stock at the end of each period at a purchase price of 85% of the lower of the fair market value at the beginning or the end of the participation period. Periods are semi-annual and begin on January 1 and July 1 of each year. Employees may designate up to 10% of their base compensation for the purchase of common stock. Common stock reserved for future employee purchases aggregated 1,655,036 shares at January 30, 1994, and 893,575 shares at January 31, 1993. Shares issued under this plan were 238,539 shares in 1994, 150,326 shares in 1993 and 137,243 shares in 1992. There have been no charges to income in connection with the issuance of these shares. 33 35 DELL COMPUTER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The 401(k) Plan -- The Company has a defined contribution retirement plan which complies with section 401(k) of the Internal Revenue Code. Substantially all employees who have completed six months of service are eligible to participate in the plan. The plan provides for Company matching contributions of 50% of the employees' voluntary contributions, up to a maximum of 6% of the employees' compensation. Common stock reserved for issuance under the 401(k) Plan aggregated 275,605 shares of common stock. The Company has accrued for its estimated matching amounts to be funded from authorized, previously unissued, shares of the Company's common stock. Shares are issued to the plan based on the fair market value of the Company's common stock at the time of issuance. The amounts expensed for the Company's 50% matching contribution during 1994, 1993, and 1992, were $3.0 million, $2.0 million and $.9 million, respectively. Stock Option Plans -- In 1993, the Company's Board of Directors voted to adopt the 1993 Stock Option Plan (the "1993 Plan") with provisions substantially the same as those of the 1989 Stock Option Plan (the "1989 Plan") which was adopted by the Board of Directors in 1989, as amended. At January 30, 1994, substantially all employees and directors are eligible to receive options to purchase a maximum aggregate of 11.25 million shares of the Company's common stock under the 1993 Plan and 1989 Plan, as amended. Options granted may be either incentive stock options within the meaning of Section 422 of the Internal Revenue Code or nonqualified options. Options under the 1993 Plan and the 1989 Plan must be granted within ten years of the plan adoption date. Stock options are generally issued at fair market value. The right to purchase shares under the existing stock option plans typically vest over a five year period beginning on either the option holder's date of hire or the option's date of grant. Incentive options must be exercised within ten years from date of grant. For stock options which have been issued at discounted prices, the Company accrues compensation expense over the vesting period for the difference between the exercise price and the fair market value on the measurement date. Options vesting over a ten year period with an exercise price of $.01 per share were granted to certain key employees in 1994 and 1993 at fair market values ranging from $18.50 to $36.50 and $15.75 to $35.88, respectively. Options on 1,046,213 shares were exercisable under the plans at January 30, 1994. Prior to the adoption of the 1989 Stock Option Plan, the Company had two incentive stock option plans and a nonqualified stock option plan for its employees and directors. Options under those plans must be exercised within ten years from date of grant. 34 36 DELL COMPUTER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table summarizes activity under the plans for each of the three years ended January 30, 1994:
STOCK OPTION PLANS ------------------------------------------------- NUMBER OF SHARES PRICE RANGE ------------------------------- OF SHARES UNDER AVAILABLE UNDER OPTION OPTION FOR GRANT -------------- ------------- ------------- OUTSTANDING AT FEBRUARY 3, 1991..................... $ .11-$ 8.79 2,811,703 537,118 Authorizations for grant............................ -- -- 4,500,000 Granted............................................. $9.77-$19.55 1,853,625 (1,853,625) Canceled............................................ $ .11-$17.33 (143,369) 112,568 Exercised........................................... $ .11-$17.33 (794,186) -- ------------- ------------- OUTSTANDING AT FEBRUARY 2, 1992..................... $ .11-$19.55 3,727,773 3,296,061 Granted............................................. $ .01-$36.31 2,642,079 (2,642,079) Canceled............................................ $ .01-$24.69 (475,729) 433,264 Exercised........................................... $ .11-$23.31 (850,135) -- ------------- ------------- OUTSTANDING AT JANUARY 31, 1993..................... $ .01-$36.31 5,043,988 1,087,246 Authorizations for grant............................ -- -- 4,500,000 Granted............................................. $ .01-$36.31 2,505,590 (2,505,590) Canceled............................................ $ .01-$30.69 (1,204,814) 1,197,794 Exercised........................................... $ .01-$23.66 (726,412) -- ------------- ------------- OUTSTANDING AT JANUARY 30, 1994..................... $ .01-$36.31 5,618,352 4,279,450 ============= =============
On August 24, 1993, the Company granted 390,623 nonqualified options to purchase its common stock at $18.69 per share under the 1993 Plan in exchange for cancellation of outstanding options to purchase its common stock for $30.69 which had been previously granted under the 1989 Plan. Pursuant to the exchange agreement, vesting of these options shall occur on the earlier of August 24, 2002, or the date that the Company's common stock has traded for thirty consecutive days at or above $32.69 per share. NOTE 5 -- INCOME TAXES The provision for income taxes consists of the following:
FISCAL YEAR -------------------------------- 1994 1993 1992 -------- -------- -------- (IN THOUSANDS) Current: U.S. Federal....................................... $ 29,404 $ 42,827 $ 26,200 Foreign............................................ 8,033 12,727 7,357 Prepaid.............................................. (40,370) (13,904) (11,053) -------- -------- -------- Provision for income taxes (benefit)................. $ (2,933) $ 41,650 $ 22,504 ======== ======== ========
Income (loss) before income taxes included approximately ($32) million, $51 million and $28 million related to foreign operations in the fiscal years ended January 30, 1994, January 31, 1993, and February 2, 1992, respectively. The Company has not recorded a deferred income tax liability of $2.7 million for additional U.S. federal income taxes that would result from the distribution of earnings of its foreign subsidiaries, if they were repatriated. The Company currently intends to reinvest indefinitely the undistributed earnings of its foreign subsidiaries. 35 37 DELL COMPUTER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The deferred tax asset is comprised of the following principal temporary differences:
JANUARY 30, JANUARY 31, FEBRUARY 2, 1994 1993 1992 ----------- ----------- ----------- (IN THOUSANDS) Depreciation........................................ $ (96) $ 1,578 $ 1,398 Provisions for doubtful accounts and returns........ 19,988 13,472 6,395 Inventory and warranty provisions................... 27,626 13,032 9,227 Deferred service contract revenue................... 9,507 3,074 1,386 Other............................................... 7,239 (1,979) 4,680 -------- -------- -------- Deferred tax asset.................................. $64,264 $29,177 $23,086 ======== ======== ========
The difference between the income tax provisions in the consolidated financial statements and the tax expense computed at the United States statutory rates are as follows:
FISCAL YEAR ------------------------------ 1994 1993 1992 -------- ------- ------- (IN THOUSANDS) Tax provision (benefit) computed at the U.S. federal statutory rate of 35%, 34%, and 34%, respectively.... $(13,568) $48,719 $24,963 Research and development credit........................ (1,345) (1,007) (1,072) Foreign income taxed at different rate................. 10,315 (7,849) (1,831) Net operating loss carryovers.......................... 3,969 (204) -- Other nondeductible accruals........................... (1,568) -- -- Other.................................................. (736) 1,991 444 -------- ------- ------- Provision (benefit) for income taxes................... $ (2,933) $41,650 $22,504 ======== ======= ======= Effective tax rates.................................... 7.6% 29.1% 30.7% ======== ======= =======
NOTE 6 -- FINANCIAL INSTRUMENTS Financial instruments with off-balance sheet risk Foreign exchange hedging instruments -- The results of the Company's international operations are affected by changes in exchange rates between certain foreign currencies and the United States dollar. The financial statements of the Company's international subsidiaries are generally measured using the local currency as the functional currency. Accordingly, an increase in the value of the United States dollar increases the cost of component purchases made by the Company's international subsidiaries which are denominated in the United States dollar. The Company's hedging activities primarily consist of hedging anticipated, but not firmly committed, intercompany sales to its international subsidiaries and the resulting intercompany balances. From March 1991 until March 20, 1992, the Company principally used combination foreign currency option contracts to hedge anticipated intercompany sales to its international subsidiaries. After consideration of the deliberations of the Emerging Issues Task Force, in the fourth quarter of fiscal 1992 the Company began to account on a mark-to-market basis for open combination option contracts entered into with the same strike prices and maturities ("synthetic forward contracts") which were originally entered into to hedge anticipated fiscal 1993 sales to international subsidiaries. Accordingly, the Company recognized unrealized losses of $4.0 million related to open synthetic forward contracts as a component of cost of sales in its consolidated statement of income for 1992. Based upon foreign currency exchange rates at February 2, 1992, option contracts which hedged anticipated shipments to international subsidiaries had a combined net realized and unrealized loss of $25.1 million. 36 38 DELL COMPUTER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) At January 30, 1994 and January 31, 1993, the Company had no combination foreign currency contracts outstanding. Based upon foreign currency exchange rates at January 30, 1994 and January 31, 1993, purchased option contracts which effectively hedge anticipated, but not firmly committed, foreign currency transactions had a combined net realized and unrealized gain of $2.2 million and $2.0 million, respectively. Since March 20, 1992, the Company's use of issued option contracts in the execution of its hedging program has been limited to cancellation of previously purchased foreign currency option contracts. Forward contracts designated to hedge foreign currency transaction exposures with maturity dates of less than twelve months of $19 million and $15 million were outstanding at January 30, 1994 and January 31, 1993, respectively. On November 30, 1992, the Securities and Exchange Commission's (the "Commission") Division of Enforcement notified the Company that it was beginning an informal inquiry regarding the Company's accounting practices for foreign currency hedging and trading activities and the completeness of the Company's public disclosure about those activities. The Company believes its accounting treatment for foreign currency hedging and trading activities complies with generally accepted accounting principles in all material respects and that the Company has provided appropriate disclosures of its hedging activities. Interest Rate Derivative Instruments -- The Company utilizes a variety of interest rate derivative instruments to more efficiently manage its principal, market and credit risks as well as enhance its investment yield. Derivative instruments used include interest rate swaps, written and purchased options and swaptions (options to enter into interest rate swaps). Interest rate derivatives are financial instruments whose value is "derived" from an underlying interest rate or a relationship between interest rates. The Company also uses interest rate derivatives to synthetically create investment securities more economically than traditionally structured cash investments. The Company structures derivative instruments in interest rate markets in countries where it has foreign operations. At January 30, 1994, and January 31, 1993, the Company had outstanding interest rate derivative contracts with a total notional amount of $355 million and $180 million, respectively. Interest rate derivatives generally involve exchanges of interest payments based upon fixed and floating interest rates without exchanges of underlying notional amounts. Consequently, the Company's exposure to credit loss is significantly less than the stated notional amounts. The Company's investment policy limits the weighted average maturity of its investment derivative portfolio to a maximum of three years and limits the maturity of individual positions to a maximum of five years. At January 30, 1994, the weighted average maturity of the investment derivative portfolio was 1.8 years. The value of the Company's investment derivatives arise principally from changes in interest rates. At January 30, 1994, the value of the Company's short-term and derivative investment portfolio is subject to movements in United States, Canadian, Japanese and European interest rate markets and, generally, would be adversely impacted by increases in market rates of interest. Since January 30, 1994, the value of the Company's short-term and investment derivative portfolios has decreased as a result of interest rate increases in these markets. If interest rate market conditions as of March 2, 1994 prevail, the Company's investment income, included as a component of financing and other, will be adversely affected by the recognition of realized and unrealized losses. The Company has also entered into certain interest rate derivative instruments as a means of managing its interest rate risk and the interest costs associated with the Senior Notes issued during 1994 (See Note 3). 37 39 DELL COMPUTER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Fair value of financial instruments The estimated fair value amounts disclosed under SFAS No. 107 "Disclosures About Fair Value of Financial Instruments" have been determined by the Company using available market information and appropriate valuation methodologies as described below. However, 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, accounts receivable, short-term borrowings, accounts payable and accrued liabilities are reflected in the financial statements at fair value because of the short-term maturity of these instruments. The estimated fair values of the Company's other financial instruments as of January 30, 1994, and January 31, 1993, are as follows (in thousands):
JANUARY 30, 1994 JANUARY 31, 1993 ----------------------- --------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE --------- --------- -------- -------- (IN THOUSANDS) Short-term investments........................ $ 333,667 $ 333,667 $ 80,367 $ 80,367 Long-term debt................................ (100,000) (105,500) -- -- Foreign currency hedging instruments: Foreign exchange forward contracts.......... (81) (81) (23,661) (23,661) Foreign currency option contracts........... 8,035 8,035 38,533 38,533 Interest rate derivative instruments: Interest rate swaps designated to long-term debt..................................... -- (1,170) -- -- Unmatched interest rate derivatives -- Interest rate options and swaptions...... (2,444) (2,444) (5,550) (5,550) Interest rate swaps...................... 812 812 -- --
The fair values of short-term investments, long-term debt and interest rate derivative instruments were estimated based upon quotes from brokers. Foreign exchange forward contracts, fair values are estimated using market quoted rates of exchange at the applicable balance sheet date. The estimated fair value of foreign currency option contracts is based on market quoted rates of exchange at the applicable balance sheet date and the Black-Sholes options pricing model. Concentrations of credit risk All of the Company's foreign exchange and interest rate derivative instruments involve elements of market and credit risk in excess of the amounts recognized in the financial statements. The counterparties to 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 regularly monitors its positions with and the credit quality of the financial institutions which are counterparties to these financial instruments, and it does not anticipate nonperformance by the counterparties. The Company has business activities with large corporate, government and education customers, medium- to small-sized businesses and individuals and remarketers. Its receivables from such parties are well diversified. The Company places its short-term investments with high quality financial institutions and other companies and currently invests primarily in debt instruments that have maturities of less than three years and equity securities. In management's opinion, no significant concentration of credit risk exists for the Company. NOTE 7 -- COMMITMENTS AND CONTINGENCIES Legal Matters -- The Company is subject to certain legal proceedings and claims which arise in the ordinary course of its business. Additionally, the Company has been made aware of others in the industry who 38 40 DELL COMPUTER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) assert exclusive rights to certain technologies, some of which have offered related licenses to the Company. Such an offer of a license is usually taken in the industry as a notice of a patent infringement claim. The Company's policy is to evaluate such claims on a case-by-case basis and, if appropriate, to enter into licensing arrangements that appear necessary or desirable. Management does not believe that the outcome of any of these matters will have a material adverse effect on the Company's financial condition or results of operations. The Company and its Chairman, Michael S. Dell, are defendants in nineteen lawsuits filed between May and November 1993, in the United States District Court for the Western District of Texas, Austin Division. Thomas J. Meredith, the Company's Chief Financial Officer, is also a defendant in seven of the lawsuits. Joel Kocher, Senior Vice President of the Company, is also a defendant in one of the lawsuits, but the plaintiffs have conditionally agreed to dismiss him. The suits have been consolidated, an amended and consolidated complaint has been filed, and the plaintiffs have requested class certification for a class of persons who purchased or held the Company's common stock between February 24, 1993, and July 14, 1993. In general, the plaintiffs allege that the Company made overly optimistic forecasts about the Company's prospects without a reasonable basis and failed to disclose adverse material information about the Company's business (particularly with regard to problems in its notebook business) on a timely basis, thereby inducing the plaintiffs to buy Company common stock at artificially high prices. The plaintiffs also allege that Mr. Dell sold securities of the Company while in the possession of material, non-public information about the Company. The consolidated complaint asserts that these actions or omissions violated various provisions of the federal securities laws, particularly Section 10(b) of the Exchange Act and Rule 10b-5; that Mr. Dell's trades violated Section 20A of the Exchange Act; and that the defendants violated provisions of Texas statutes and common law principles against negligent misrepresentation and deceit. The complaint seeks unspecified damages. The Company has moved for dismissal of the complaint and intends to defend itself and its officers vigorously. It is the Company's policy to make accruals for potential liability or settlement of litigated matters as appropriate. The Company believes that its current accruals with respect to these lawsuits are adequate. However, in the event the Company is ultimately found liable in these lawsuits, it could have a material adverse effect on the Company's financial condition and results of operations. Other Commitments -- The Company is subject to certain patent royalty agreements that require fixed payments with scheduled increases over the next five years. The Company is also subject to software royalty agreements that require cash payments over the next three years. Additionally, the Company leases 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 payments under these leases at January 30, 1994 are as follows:
FISCAL OPERATING YEAR LEASES - ------ -------------- (IN THOUSANDS) 1995............................................................. $ 13,539 1996............................................................. 9,461 1997............................................................. 5,981 1998............................................................. 4,264 1999............................................................. 2,320 Thereafter....................................................... 1,570 ----------- Total minimum lease payments required............................ $ 37,135 ===========
Rental expense recorded under all operating leases was $19 million, $14 million and $11 million for the fiscal years ended 1994, 1993, and 1992, respectively. 39 41 DELL COMPUTER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 8 -- RESTRUCTURING AND OTHER CHARGES During the first half of 1994, the Company delayed and canceled certain notebook development projects and reevaluated its probable future sales for the notebook products then offered. The Company recorded over $39.3 million of charges in the first half of 1994 due to the notebook inventory writedowns and delayed and canceled notebook projects. The Company canceled its existing notebook product line in August, 1993 and sold its then-remaining inventories of notebooks at significantly reduced prices. The Company has focused its efforts on the development of a 486-based notebook product line and is re-entering the notebook computer market with a phased approach. Completion of the first phase of the Company' s re-entry into the notebook computer market resulted in the introduction on February 21, 1994, of the 486-based Dell Latitude family of notebook computers. During the first half of 1994, the Company also recorded $29.3 million of other costs, consisting mostly of inventory writedowns and related costs. These charges arose from the Company's determination that certain products and inventory were excess or obsolete because the products were scheduled to be replaced with newer products or because the Company otherwise had lowered its estimates of expected demand for materials in inventory or under outstanding purchase commitments. Also during the first half of 1994, the Company recorded $22.8 million for the costs of consolidating operations, writing off of certain assets, and making employee severance payments. Most of the charges in this area were associated with consolidating certain common functions in the European subsidiaries and creating regional business units. This consolidation effort is designed to reduce redundant costs and improve the Company's ability to deliver higher levels of operational efficiency and higher quality support in European markets. Operations in some subsidiaries have been closed and transferred to other subsidiaries, and some consolidation is occurring outside of Europe. Approximately 60% of the restructuring charges are cash provisions, approximately half of which will be incurred in fiscal 1995. NOTE 9 -- GEOGRAPHIC AREA INFORMATION The Company operates in one industry and is engaged in the design, manufacture, marketing, service and support of personal computers and related equipment. Transfers between geographic areas are recorded at cost plus a markup.
FISCAL YEAR 1994 -------------------------------------------------------------------------- NORTH OTHER AMERICA EUROPE INTERNATIONAL ELIMINATIONS CONSOLIDATED --------- -------- ------------- ------------ ------------ (IN THOUSANDS) Sales to unaffiliated customers..................... $2,012,697 $781,905 $ 78,563 $ -- $ 2,873,165 Transfers between geographic areas......................... 53,159 -- -- (53,159) -- ---------- -------- --------- --------- ----------- Total sales........... $2,065,856 $781,905 $ 78,563 $(53,159) $ 2,873,165 ========== ======== ========= ========= ========= Operating income................ $ (34,921) $ 14,610 $ (18,713) $ -- $ (39,024) ========== ======== ========= ========= ========= Identifiable assets............. $ 881,736 $229,609 $ 29,135 $ -- $ 1,140,480 ========== ======== ========= ========= =========
40 42 DELL COMPUTER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FISCAL YEAR 1993 -------------------------------------------------------------------------- NORTH OTHER AMERICA EUROPE INTERNATIONAL ELIMINATIONS CONSOLIDATED --------- -------- ------------- ------------ ------------ (IN THOUSANDS) Sales to unaffiliated customers..................... $1,451,801 $552,999 $ 9,124 $ -- $ 2,013,924 Transfers between geographic areas......................... 42,986 -- $ -- (42,986) -- ---------- -------- --------- --------- ----------- Total sales........... $ 1,494,78 $552,999 $ 9,124 $(42,986) $ 2,013,924 ========== ======== ========= ========= =========== Operating income................ $ 110,725 $ 34,668 $ (6,281) $ -- $ 139,112 ========== ======== ========= ========= =========== Identifiable assets............. $ 664,759 $251,633 $ 10,613 $ -- $ 927,005 ========== ======== ========= ========= ===========
FISCAL YEAR 1992 -------------------------------------------------------------------------- NORTH OTHER AMERICA EUROPE INTERNATIONAL ELIMINATIONS CONSOLIDATED --------- -------- ------------- ------------ ------------ (IN THOUSANDS) Sales to unaffiliated customers..................... $ 648,081 $241,858 $ -- $ -- $ 889,939 Transfers between geographic areas......................... 53,288 -- -- (53,288) -- --------- -------- --------- --------- ----------- Total sales........... $ 701,369 $241,858 $ -- $(53,288) $ 889,939 ========= ======== ========= ========= =========== Operating income................ $ 44,742 $ 22,134 $ -- $ -- $ 66,876 ========= ======== ========= ========= =========== Identifiable assets............. $ 410,917 $148,646 $ -- $ -- $ 559,563 ========= ======== ========= ========= ===========
41 43 DELL COMPUTER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 10 -- SUPPLEMENTAL FINANCIAL INFORMATION
JANUARY 30, JANUARY 31, 1994 1993 ----------- ----------- (IN THOUSANDS) SUPPLEMENTAL STATEMENT OF FINANCIAL POSITION INFORMATION Accounts receivable: Gross accounts receivable............................................ $436,789 $388,013 Allowance for doubtful accounts...................................... (26,015) (14,000) -------- -------- $410,774 $374,013 ======== ======== Inventories: Production materials................................................. $195,744 $281,245 Work-in-process and finished goods................................... 24,521 21,975 -------- -------- $220,265 $303,220 ======== ======== Other current assets: Deferred premiums and other foreign exchange contracts............... $ 8,035 $ 38,533 Deferred income taxes................................................ 64,264 29,177 Other current assets................................................. 8,024 12,529 -------- -------- $ 80,323 $ 80,239 ======== ======== Property and Equipment: Land and buildings................................................... $ 12,157 $ 4,433 Computer equipment................................................... 63,531 45,792 Office furniture and fixtures........................................ 20,992 18,587 Machinery and other equipment........................................ 28,377 23,980 Leasehold improvements............................................... 26,645 21,330 -------- -------- Total property and equipment......................................... 151,702 114,122 Accumulated depreciation and amortization............................ (64,810) (43,660) -------- -------- $ 86,892 $ 70,462 ======== ======== Accrued liabilities: Royalties and licensing.............................................. $ 50,185 $ 43,172 Payable on foreign exchange forward contracts........................ 81 23,661 Accrued compensation................................................. 14,396 22,310 Accrued warranty costs............................................... 49,201 20,588 Taxes other than income taxes........................................ 18,143 13,357 Deferred profit on warranty contracts................................ 21,106 8,772 Drawdown of line of credit........................................... -- 8,500 Accrued losses on interest rate swaps................................ -- 5,550 Other accrued liabilities............................................ 84,539 25,563 -------- -------- $237,651 $171,473 ======== ========
42 44 DELL COMPUTER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JANUARY 30, JANUARY 31, FEBRUARY 2, 1994 1993 1992 ----------- ------------ ----------- (IN THOUSANDS) SUPPLEMENTAL STATEMENT OF OPERATIONS INFORMATION Research, development and engineering expenses: Research and development expenses...................... $ 36,338 $ 31,282 $ 24,848 Engineering expenses................................... 12,596 11,076 8,292 -------- --------- --------- $ 48,934 $ 42,358 $ 33,140 ======== ========= ========= Financing and other income (expenses): Investment income: Short-term investment income, net................... $ 8,772 $ 12,945 $ 6,931 Interest rate derivatives........................... 5,184 2,505 5,462 Interest expense....................................... (8,350) (7,869) (1,784) Foreign currency transaction........................... 777 9,084 (451) Foreign currency trading............................... -- (9,649) (1,123) Other.................................................. (6,125) (2,836) (2,496) -------- --------- --------- $ 258 $ 4,180 $ 6,539 ======== ========= =========
JANUARY 30, JANUARY 31, FEBRUARY 2, 1994 1993 1992 ----------- ------------ ----------- (IN THOUSANDS) SUPPLEMENTAL STATEMENT OF CASH FLOWS INFORMATION Changes in operating working capital accounts: Accounts receivable, net............................... $(44,942) $(222,470) $ (79,329) Inventories............................................ 81,605 (180,517) (38,507) Accounts payable....................................... (5,260) 208,923 22,898 Accrued liabilities.................................... 70,782 56,208 65,209 Other.................................................. (5,177) (24,665) (41,233) -------- --------- --------- $ 97,008 $(162,521) $ (70,962) ======== ========= ========= Changes in non-current assets and liabilities: Other assets........................................... $ 974 $ (1,116) $ (1,277) Other liabilities...................................... 16,280 3,227 2,148 -------- --------- --------- $ 17,254 $ 2,111 $ 871 ======== ========= ========= Supplemental cash flow information: Income taxes paid...................................... $ 6,671 $ 27,233 $ 19,611 Interest paid.......................................... $ 5,024 $ 1,334 $ 882
43 45 DELL COMPUTER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 11 -- QUARTERLY RESULTS (UNAUDITED) The following tables contain selected unaudited consolidated statement of operations and stock price data for each quarter of fiscal 1994 and 1993. The Company believes this information reflects all normal recurring adjustments necessary for a fair presentation of the information for the periods presented. The operating results for any quarter are not necessarily indicative of results for any future period.
4TH 3RD 2ND 1ST QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) FISCAL YEAR 1994 Net sales....................................... $742,948 $757,284 $700,569 $672,364 Gross profit.................................... 138,350 135,568 45,774 113,124 Operating income (loss)......................... 27,156 17,789 (98,118) 14,149 Net income (loss)............................... 17,708 11,982 (75,708) 10,185 Earnings (loss) per common share................ $ .39 $ .26 $ (2.03) $ .25 Shares used in per share calculation............ 39,870 39,653 37,229 40,455 Stock sales prices per share: High.......................................... $ 27 3/4 $ 21 $ 34 $ 49 Low........................................... $ 20 3/4 $ 16 1/8 $ 15 7/8 $ 28
4TH 3RD 2ND 1ST QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) FISCAL YEAR 1993 Net sales....................................... $620,306 $570,019 $457,477 $366,122 Gross profit.................................... 127,389 121,998 104,032 96,033 Operating income................................ 44,805 38,490 29,233 26,584 Net income...................................... 31,286 28,625 21,936 19,795 Earnings per share.............................. $ .77 $ .72 $ .57 $ .52 Shares used in per share calculation............ 40,506 39,569 38,460 38,030 Stock sales price per share: High.......................................... $ 49 3/8 $ 35 3/8 $ 28 $ 28 1/8 Low........................................... $ 33 3/8 $ 22 5/8 $ 15 3/8 $ 20 1/2
Earnings per share are computed independently for each of the quarters presented. Therefore, the sum of the quarterly earnings per share may not equal the annual earnings per share. 44 46 PART III ITEM 10. DELL'S DIRECTORS AND EXECUTIVE OFFICERS ITEM 11. EXECUTIVE COMPENSATION ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information called for in these four items is incorporated by reference to Dell Computer Corporation's definitive proxy statement relating to its annual meeting of stockholders, which will be filed with the Commission within 120 days of the end of fiscal 1994. 45 47 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K The following financial statements, financial statement schedules and exhibits are filed as part of this 10-K. Financial Statements and Financial Statement Schedules -- See Index to Consolidated Financial Statements at Item 8 on page 22 of this report. EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT SOURCE - ------------------------------------------------------------------------------------- ------ 3.1 -- Certificate of Incorporation of Dell Computer Corporation (the "Company"), as amended (incorporated by reference to Exhibit 3.1 of the Company's Annual Report on Form 10-K for the year ended February 2, 1992, Commission File No. 0-17017)..................................... 3.2 -- Certificate of Amendment to the Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.2 of the Company's Annual Report on Form 10-K for the year ended January 31, 1993, Commission File No. 0-17017)........................................... 3.3 -- Certificate of Stock Designation of the Company (incorporated by reference to Exhibit 3.3 of the Company's Registration Statement on Form S-4 as filed with the Securities and Exchange Commission on October 1, 1993, Registration No. 33-69680).......................................................... 3.4 -- Bylaws of the Company (incorporated by reference to Exhibit 3.2 of the Company's Annual Report on Form 10-K for the year ended February 2, 1992, Commission File No. 0-17017)..................................... 4.1 -- Indenture dated as of August 15, 1993, between the Company and The First National Bank of Boston regarding 11% Senior Notes Due August 15, 2000 (incorporated by reference to Exhibit 4.1 of the Company's Registration Statement on Form S-4 as filed with the Securities and Exchange Commission on October 1, 1993, Registration No. 33-69680)..... 4.2 -- Exchange and Registration Rights dated as of August 15, 1993, between the Company and the purchasers of 11% Senior Notes Due August 15, 2000 (incorporated by reference to Exhibit 4.2 of the Company's Registration Statement on Form S-4 as filed with the Securities and Exchange Commission on October 1, 1993, Registration No. 33-69680).............. 10.1 -- Dell Computer Corporation 1986 Incentive Stock Option Plan, as amended (incorporated by reference to Exhibit 4c of the Company's Registration Statement on Form S-8 as filed with the Securities and Exchange Commission on September 20, 1988, Registration No. 33-24621)........... 10.2 -- Dell Computer Corporation 1987 Incentive Stock Option Plan, as amended (incorporated by reference to Exhibit 4d of the Company's Registration Statement on Form S-8 as filed with the Securities and Exchange Commission on September 20, 1988, Registration No. 33-24621)........... 10.3 -- Dell Computer Corporation 1987 Non-qualified Stock Option Plan, as amended, including the UK Scheme (incorporated by reference to Exhibit 4e of the Company's Registration Statement on Form S-8 as filed with the Securities and Exchange Commission on September 20, 1988, Registration No. 33-24621).............................................
46 48
EXHIBIT NO. DESCRIPTION OF EXHIBIT SOURCE - ------------------------------------------------------------------------------------- ------ 10.4 -- Dell Computer Corporation 1989 Stock Option Plan, as amended and restated (incorporated by reference to Exhibit 10.4 of the Company's Annual Report on Form 10-K for the year ended January 31, 1993, Commission File No. 0-17017)........................................... 10.5 -- Dell Computer Corporation Employee Stock Purchase Plan (incorporated by reference to Exhibit 4d of the Company's Registration Statement on Form S-8 as filed with the Securities and Exchange Commission on October 30, 1989, Registration No. 33-31812)....................................... 10.6 -- Dell Computer Corporation 401(k) Plan (incorporated by reference to Exhibit 10f of the Company's Annual Report on Form 10-K for the year ended February 2, 1990, Commission File No. 0-17017)................... 10.7 -- First Amendment to Exhibit 10.6, Dell Computer Corporation 401(k) Plan (incorporated by reference to Exhibit 10.7 of the Company's Annual Report on Form 10-K for the year ended February 3, 1991, Commission File No. 0-17017)........................................................... 10.8 -- Second Amendment to Exhibit 10.6, Dell Computer Corporation 401(k) Plan (incorporated by reference to Exhibit 10.8 of the Company's Annual Report on Form 10-K for the year ended January 31, 1993, Commission File No. 0-17017)........................................................... 10.9 -- Dell Computer Corporation Deferred Compensation Plan (incorporated by reference to Exhibit 10.8 of the Company's Annual Report on Form 10-K for the year ended February 3, 1991, Commission File No. 0-17017)...... 10.10 -- Credit Agreement between the Company and Citibank, N.A., for itself and as agent for the other banks named therein dated June 18, 1993, together with Amendment No. 1 to Credit Agreement between the Company and Citibank, N.A., for itself and as agent for the other banks named therein dated July 30, 1993. A list of schedules and exhibits to the Credit Agreement is included on page iv of the Credit Agreement. The Company hereby agrees to furnish supplementally to the Securities and Exchange Commission on request a copy of any omitted schedule or exhibit to the Credit Agreement (incorporated by reference to Exhibit 10.19 of the Company's Registration Statement on Form S-4 as filed with the Securities and Exchange Commission on October 1, 1993, Registration No. 33-69680).......................................................... 10.11 -- Form of Indemnity Agreement between the Company and certain of its officers, directors and key employees (incorporated by reference to Exhibit 10.23 of the Company's Registration Statement on Form S-1 as filed with the Securities and Exchange Commission on May 12, 1988, Registration No. 33-21823)............................................. 10.12 -- Lease Agreement for Arboretum Point dated July 25, 1987 (incorporated by reference to Exhibit 10.25 of the Company's Registration Statement on Form S-1 as filed with the Securities and Exchange Commission on May 12, 1988, Registration No. 33-21823)................................... 10.13 -- First through Fourth Amendments to Exhibit 10.24, Lease Agreement for Arboretum Point (incorporated by reference to Exhibit 10r of the Company's Annual Report on Form 10-K for the year ended January 27, 1989, Commission File No. 0-17017)..................................... 10.14 -- Fifth Amendment to Exhibit 10.24, Lease Agreement for Arboretum Point (incorporated by reference to Exhibit 19b of the Company's Quarterly Report on Form 10-Q for the quarter ended July 28, 1989, Commission File No. 0-17017)......................................................
47 49
EXHIBIT NO. DESCRIPTION OF EXHIBIT SOURCE - ------------------------------------------------------------------------------------- ------ 10.15 -- Sixth Amendment to Exhibit 10.24, Lease Agreement for Arboretum Point (incorporated by reference to Exhibit 10.25 of the Company's Annual Report on Form 10-K for the year ended January 31, 1993, Commission File No. 0-17017)...................................................... 10.16 -- Lease Agreement for Building 12 in Braker Center dated January 6, 1989 (incorporated by reference to Exhibit 10s of the Company's Annual Report on Form 10-K for the year ended January 27, 1989, Commission File No. 0-17017)...................................................... 10.17 -- Two Amendments to Exhibit 10.28 Lease Agreement for Building 12 in Braker Center (incorporated by reference to Exhibit 10.27 of the Company's Annual Report on Form 10-K for the year ended January 31, 1993, Commission File No. 0-17017)..................................... 10.18 -- Agreement between the Company and Michael S. Dell dated May 12, 1988, with the Employment Agreement between Michael S. Dell and a predecessor of Dell Computer Corporation dated May 3, 1984 (incorporated by reference to Exhibit 10.25 of Amendment No. 3 to the Company's Registration Statement on Form S-1, as filed with the Securities and Exchange Commission on March 27, 1991, Registration No. 33-38991)...... 10.19 -- Employment Agreement between the Company and Joel Kocher effective as of December 14, 1987 (incorporated by reference to Exhibit 10.22 of Amendment No. 3 to the Company's Registration Statement on Form S-1, as filed with the Securities and Exchange Commission on March 27, 1991, Registration No. 33-38991).......................................................... 10.20 -- Employment Agreement between the Company and Savino R. Ferrales effective as of January 9, 1989 (incorporated by reference to Exhibit 10.21 of Amendment No. 3 to the Company's Registration Statement on Form S-1, as filed with the Securities and Exchange Commission on March 27, 1991, Registration No. 33-38991).......................................................... 10.21 -- Employment Agreement between the Company and Richard E. Salwen effective as of June 12, 1989, with a letter agreement dated May 21, 1989 (incorporated by reference to Exhibit 10.23 of Amendment No. 3 to the Company's Registration Statement on Form S-1, as filed with the Securities and Exchange Commission on March 27, 1991, Registration No. 33-38991).............................................................. 10.22 -- Employment Agreement between the Company and Thomas J. Meredith dated November 16, 1992 (incorporated by reference to Exhibit 10.36 of the Company's Annual Report on Form 10-K for the year ended January 31, 1993, Commission File No. 0-17017)..................................... 10.23 -- Employment Agreement between the Company and L. Scott Flaig dated December 1, 1992 (incorporated by reference to Exhibit 10.37 of the Company's Annual Report on Form 10-K for the year ended January 31, 1993, Commission File No. 0-17017)..................................... 10.24 -- Form of Stock Option Agreement under the 1989 Stock Option Plan (incorporated by reference to Exhibit 10.38 of the Company's Annual Report on Form 10-K for the year ended January 31, 1993, Commission File No. 0-17017)...................................................... 10.25 -- Dell Computer Corporation 1993 Stock Option Plan (incorporated by reference to Exhibit 10.36 of the Company's Registration Statement on Form S-4 as filed with the Securities and Exchange Commission on October 1, 1993, Registration No. 33-69680)..........................................................
48 50
EXHIBIT NO. DESCRIPTION OF EXHIBIT SOURCE - ------------------------------------------------------------------------------------- ------ 10.26 -- Form of Incentive Stock Option Agreement and Nonstatutory Stock Option Agreement under the 1993 Stock Option Plan (incorporated by reference to Exhibit 10.37 of the Company's Registration Statement on Form S-4 as filed with the Securities and Exchange Commission on October 1, 1993, Registration No. 33-69680).......................................................... 10.27 -- Receivables Purchase Agreement among Dell Receivables Corporation, Dell USA L.P., Sheffield Receivables Corporation, and Barclays Bank PLC, New York Branch, dated as of June 23, 1993. A list of schedules and exhibits to the Receivables Purchase Agreement is included on page iv of the Receivables Purchase Agreement. The Company hereby agrees to furnish supplementally to the Securities and Exchange Commission on request a copy of any omitted schedule or exhibit to the Receivables Purchase Agreement (incorporated by reference to Exhibit 10.38 of the Company's Registration Statement on Form S-4 as filed with the Securities and Exchange Commission on October 1, 1993, Registration No. 33-69680).......................................................... 21.0 -- Subsidiaries of the Company (incorporated by reference to Exhibit 21.0 of the Company's Registration Statement on Form S-4 as filed with the Securities and Exchange Commission on October 1, 1993, Registration No. 33-69680).............................................................. 23.1* -- Consent of Price Waterhouse............................................
- --------------- * Filed herewith. 49 51 EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS (1) Dell Computer Corporation 1986 Incentive Stock Option Plan, as amended (incorporated by reference to Exhibit 4c of the Company's Registration Statement on Form S-8 as filed with the Securities and Exchange Commission on September 20, 1988, Registration No. 33-24621) (2) Dell Computer Corporation 1987 Incentive Stock Option Plan, as amended (incorporated by reference to Exhibit 4d of the Company's Registration Statement on Form S-8 as filed with the Securities and Exchange Commission on September 20, 1988, Registration No. 33-24621) (3) Dell Computer Corporation 1987 Non-qualified Stock Option Plan, as amended, including the UK Scheme (incorporated by reference to Exhibit 4e of the Company's Registration Statement on Form S-8 as filed with the Securities and Exchange Commission on September 20, 1988, Registration No. 33-24621) (4) Dell Computer Corporation 1989 Stock Option Plan, as amended and restated (incorporated by reference to Exhibit 10.4 of the Company's Annual Report on Form 10-K for the year ended January 31, 1993, Commission File No. 0-17017) (5) Dell Computer Corporation Employee Stock Purchase Plan (incorporated by reference to Exhibit 4d of the Company's Registration Statement on Form S-8 as filed with the Securities and Exchange Commission on October 30, 1989, Registration No. 33-31812) (6) Dell Computer Corporation 401(k) Plan (incorporated by reference to Exhibit 10f of the Company's Annual Report on Form 10-K for the year ended February 2, 1990, Commission File No. 0-17017) (7) First Amendment to Exhibit 10.6, Dell Computer Corporation 401(k) Plan (incorporated by reference to Exhibit 10.7 of the Company's Annual Report on Form 10-K for the year ended February 3, 1991, Commission File No. 0-17017) (8) Second Amendment to Exhibit 10.6, Dell Computer Corporation 401(k) Plan (incorporated by reference to Exhibit 10.8 of the Company's Annual Report on Form 10-K for the year ended January 31, 1993, Commission File No. 0-17017) (9) Dell Computer Corporation Deferred Compensation Plan (incorporated by reference to Exhibit 10.8 of the Company's Annual Report on Form 10-K for the year ended February 3, 1991, Commission File No. 0-17017) (10) Form of Indemnity Agreement between the Company and certain of its officers, directors and key employees (incorporated by reference to Exhibit 10.23 of the Company's Registration Statement on Form S-1 as filed with the Securities and Exchange Commission on May 12, 1988, Registration No. 33-21823) (11) Agreement between the Company and Michael S. Dell dated May 12, 1988, with the Employment Agreement between Michael S. Dell and a predecessor of Dell Computer Corporation dated May 3, 1984 (incorporated by reference to Exhibit 10.25 of Amendment No. 3 to the Company's Registration Statement on Form S-1, as filed with the Securities and Exchange Commission on March 27, 1991, Registration No. 33-38991) (12) Employment Agreement between the Company and Joel Kocher effective as of December 14, 1987 (incorporated by reference to Exhibit 10.22 of Amendment No. 3 to the Company's Registration Statement on Form S-1, as filed with the Securities and Exchange Commission on March 27, 1991, Registration No. 33-38991) (13) Employment Agreement between the Company and Savino R. Ferrales effective as of January 9, 1989 (incorporated by reference to Exhibit 10.21 of Amendment No. 3 to the Company's Registration Statement on Form S-1, as filed with the Securities and Exchange Commission on March 27, 1991, Registration No. 33-38991)
50 52 (14) Employment Agreement between the Company and Richard E. Salwen effective as of June 12, 1989, with a letter agreement dated May 21, 1989 (incorporated by reference to Exhibit 10.23 of Amendment No. 3 to the Company's Registration Statement on Form S-1, as filed with the Securities and Exchange Commission on March 27, 1991, Registration No. 33-38991) (15) Employment Agreement between the Company and Thomas J. Meredith dated November 16, 1992 (incorporated by reference to Exhibit 10.36 of the Company's Annual Report on Form 10-K for the year ended January 31, 1993, Commission File No. 0-17017) (16) Employment Agreement between the Company and L. Scott Flaig dated December 1, 1992 (incorporated by reference to Exhibit 10.37 of the Company's Annual Report on Form 10-K for the year ended January 31, 1993, Commission File No. 0-17017) (17) Form of Stock Option Agreement under the 1989 Stock Option Plan (incorporated by reference to Exhibit 10.38 of the Company's Annual Report on Form 10-K for the year ended January 31, 1993, Commission File No. 0-17017) (18) Dell Computer Corporation 1993 Stock Option Plan (incorporated by reference to Exhibit 10.36 of the Company's Registration Statement on Form S-4 as filed with the Securities and Exchange Commission on October 1, 1993, Registration No. 33-69680) (19) Form of Incentive Stock Option Agreement and Nonstatutory Stock Option Agreement under the 1993 Stock Option Plan (incorporated by reference to Exhibit 10.37 of the Company's Registration Statement on Form S-4 as filed with the Securities and Exchange Commission on October 1, 1993, Registration No. 33-69680)
REPORTS ON FORM 8-K Dell Computer Corporation did not file any reports on Form 8-K during the fourth quarter of fiscal 1994. 51 53 SCHEDULE I DELL COMPUTER CORPORATION SHORT-TERM INVESTMENTS (DOLLARS IN THOUSANDS)
AMOUNT CARRIED NAME OF ISSUER AND MARKET ON BALANCE TITLE OF EACH ISSUE(1) PRINCIPAL VALUE COST SHEET - --------------------------------------------- -------- -------- -------- -------------- Preferred Stock.............................. $ 52,300 $ 49,704 $ 52,470 $ 49,704 Mutual Funds................................. 10,000 9,986 10,000 9,986 State and municipal securities............... 133,350 133,586 133,340 133,586 U.S. corporate and bank debt................. 135,830 140,391 136,124 140,391 -------- -------- -------- ----------- Total........................................ $331,480 $333,667 $331,934 $333,667 ======== ======== ======== ===========
- --------------- (1) No individual security or group of securities of an issuer exceeds 2% of total assets. 52 54 SCHEDULE II DELL COMPUTER CORPORATION AMOUNTS RECEIVABLE FROM RELATED PARTIES
CURRENT BALANCE AT BALANCE AT BEGINNING OF END OF NAME OF DEBTOR PERIOD ADDITIONS DEDUCTIONS PERIOD - -------------------------------------------------- ------------ --------- ---------- ---------- Thomas J. Meredith................................ -- $ 224,940 -- $ 224,940 Chief Financial Officer
53 55 SCHEDULE VIII DELL COMPUTER CORPORATION VALUATION AND QUALIFYING ACCOUNTS (DOLLARS IN THOUSANDS)
BALANCE AT CHARGED TO WRITE-OFFS BALANCE AT FISCAL BEGINNING BAD DEBT CHARGED TO END OF YEAR DESCRIPTION OF PERIOD EXPENSE ALLOWANCE PERIOD - ------ --------------------------------------------- ---------- ---------- ---------- ---------- 1994 Allowance for doubtful accounts.............. $ 14,000 $ 13,455 $1,440 $ 26,015 1993 Allowance for doubtful accounts.............. $ 7,527 $ 8,141 $1,668 $ 14,000 1992 Allowance for doubtful accounts.............. $ 3,513 $ 5,202 $1,188 $ 7,527
54 56 SCHEDULE IX DELL COMPUTER CORPORATION SHORT-TERM BORROWINGS (DOLLARS IN THOUSANDS)
WEIGHTED WEIGHTED MAXIMUM AVERAGE AVERAGE BALANCE AT AVERAGE OUTSTANDING OUTSTANDING RATE FISCAL CATEGORY OF END OF INTEREST DURING THE DURING THE DURING THE YEAR SHORT-TERM BORROWINGS(1) PERIOD RATE(2) PERIOD PERIOD(3) PERIOD(4) - ------ ------------------------------------- ---------- -------- ----------- ----------- ---------- 1994 Notes payable to banks............... $ -- -- $ 165,000 $49,878 6.0% 1993 Notes payable to banks............... $8,500 3.4% $ 149,676 $81,239 3.7% 1992 Notes payable to banks............... $ -- -- $ 8,000 $ 667 6.1%
- --------------- (1) Notes payable to banks result from revolving lines of credit with financial institutions. (2) Computed based upon rates existing at year-end for each note outstanding at that date. (3) Computed by averaging thirteen month-end balances for each period presented. (4) The weighted average is computed based upon interest rates and note payable balances existing at each of thirteen month-end dates for the periods presented. 55 57 SCHEDULE X DELL COMPUTER CORPORATION SUPPLEMENTARY CONSOLIDATED STATEMENT OF INCOME INFORMATION (DOLLARS IN THOUSANDS)
FISCAL YEAR ------------------------------- 1994 1993 1992 ------- -------- ------- Advertising expenses.......................................... $72,121 $54,920 $36,211 Royalties..................................................... $70,929 $45,241 $21,580
56 58 SIGNATURES 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 DATE: April 1, 1994 /s/ MICHAEL S. DELL By: 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. DATE: April 1, 1994 /s/ MICHAEL S. DELL Michael S. Dell Chairman of the Board and Chief Executive Officer DATE: April 1, 1994 /s/ THOMAS J. MEREDITH Thomas J. Meredith Chief Financial Officer DATE: April 1, 1994 /s/ DONALD J. CARTY Donald J. Carty Director DATE: April 1, 1994 /s/ PAUL O. HIRSCHBIEL, JR. Paul O. Hirschbiel, Jr. Director DATE: April 1, 1994 /s/ MICHAEL H. JORDAN Michael H. Jordan. Director DATE: April 1, 1994 /s/ GEORGE KOZMETSKY George Kozmetsky Director DATE: April 1, 1994 /s/ THOMAS W. LUCE, III Thomas W. Luce, III Director DATE: April 1, 1994 /s/ CLAUDINE B. MALONE Claudine B. Malone Director
57 EX-99.(A)(10) 11 QUARTERLY REPORT ON FORM 10-Q FOR QPE 10-30-94 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED OCTOBER 30, 1994 COMMISSION FILE NUMBER: 0-17017 DELL COMPUTER CORPORATION (Exact name of registrant as specified in its charter) 9505 ARBORETUM BOULEVARD AUSTIN, TEXAS 78759-7299 (512) 338-4400 (Address, zip code and telephone number of registrant's principal executive offices) A DELAWARE CORPORATION IRS EMPLOYER ID NO. 74-2487834 INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING TWELVE MONTHS AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES /X/ NO / / AS OF DECEMBER 9, 1994, 39,335,124 SHARES OF THE REGISTRANT'S COMMON STOCK, PAR VALUE $.01 PER SHARE, WERE OUTSTANDING. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DELL COMPUTER CORPORATION CONSOLIDATED STATEMENT OF FINANCIAL POSITION (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED) ASSETS
OCTOBER 30, JANUARY 30, 1994 1994 ----------- ----------- Current assets: Cash.............................................................. $ 18,154 $ 3,355 Short-term investments............................................ 381,617 333,667 Accounts receivable, net.......................................... 489,331 410,774 Inventories, net.................................................. 274,520 220,265 Other current assets.............................................. 110,409 80,323 ----------- ----------- Total current assets...................................... 1,274,031 1,048,384 Property and equipment, net......................................... 110,589 86,892 Other assets........................................................ 5,175 5,204 ----------- ----------- $ 1,389,795 $ 1,140,480 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.................................................. $ 362,368 $ 282,708 Accrued liabilities............................................... 252,419 237,651 Income taxes...................................................... 34,655 17,628 ----------- ----------- Total current liabilities................................. 649,442 537,987 Long-term debt...................................................... 100,000 100,000 Other liabilities................................................... 58,532 31,385 Commitments and contingencies Stockholders' equity: Preferred stock: $.01 par value; shares authorized: 5,000,000; shares issued and outstanding: 1,250,000....................... 13 13 Common stock: $.01 par value; shares authorized: 100,000,000; shares issued and outstanding: 39,086,664 and 37,929,031, respectively................................................... 391 379 Additional paid-in capital........................................ 342,909 320,041 Unrealized gain (loss) on short-term investments.................. (2,451) 3,230 Retained earnings................................................. 253,114 170,790 Cumulative translation adjustment................................. (12,155) (23,345) ----------- ----------- Total stockholders' equity................................ 581,821 471,108 ----------- ----------- $ 1,389,795 $ 1,140,480 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 1 3 DELL COMPUTER CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED --------------------------- --------------------------- OCTOBER 30, OCTOBER 31, OCTOBER 30, OCTOBER 31, 1994 1993 1994 1993 ----------- ----------- ----------- ----------- Net sales............................... $ 884,552 $ 757,284 $ 2,442,680 $ 2,130,217 Cost of sales........................... 703,129 621,716 1,921,788 1,835,751 ----------- ----------- ----------- ----------- Gross profit.......................... 181,423 135,568 520,892 294,466 Operating expenses: Selling, general and administrative... 104,861 104,868 302,384 324,368 Research, development and engineering........................ 17,016 12,911 47,916 36,278 ----------- ----------- ----------- ----------- Total operating expenses...... 121,877 117,779 350,300 360,646 ----------- ----------- ----------- ----------- Operating income (loss)....... 59,546 17,789 170,592 (66,180) Financing and other income (expense), net................................... (1,418) 376 (43,620) (1,626) ----------- ----------- ----------- ----------- Income (loss) before income taxes..... 58,128 18,165 126,972 (67,806) Provision for income taxes (benefit).... 16,774 6,183 38,086 (14,265) ----------- ----------- ----------- ----------- Net income (loss)..................... 41,354 11,982 88,886 (53,541) Preferred stock dividends............... 2,187 1,556 6,562 1,556 ----------- ----------- ----------- ----------- Net income (loss) applicable to common stockholders....................... $ 39,167 $ 10,426 $ 82,324 $ (55,097) ========= ========= =========== =========== Primary earnings (loss) per common share................................. $ 0.93 $ .26 $ 2.01 $ (1.48) ========= ========= =========== =========== Fully diluted earnings per common share.......................... $ 0.86 $ -- $ 1.89 $ -- ========= ========= =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 2 4 DELL COMPUTER CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED --------------------------- OCTOBER 30, OCTOBER 31, 1994 1993 ----------- ----------- Cash flows from operating activities: Net income (loss)............................................. $ 88,886 $ (53,541) Charges to income not requiring cash outlays: Depreciation and amortization.............................. 23,624 22,069 Loss on short-term investments............................. 21,218 -- Other...................................................... 1,825 175 Changes in: Operating working capital.................................. (34,389) 49,262 Non-current assets and liabilities......................... 21,257 16,934 ----------- ----------- Net cash provided by operating activities............. 122,421 34,899 Cash flows from investing activities: Short-term investments: Purchases.................................................. (3,202,716) (1,769,552) Maturities and other redemptions........................... 3,011,348 1,579,274 Sales...................................................... 113,406 36,260 Capital expenditures.......................................... (47,007) (38,469) ----------- ----------- Net cash used in investing activities................. (124,969) (192,487) Cash flows from financing activities: Net payments on short-term borrowings......................... (147) (9,231) Repayments on long-term debt.................................. -- (48,865) Preferred stock dividends paid................................ (6,562) -- Net proceeds from issuance of Notes........................... -- 96,654 Net proceeds from issuance of Preferred Stock................. -- 120,151 Issuance of common stock under employee plans................. 21,580 16,587 ----------- ----------- Net cash provided by financing activities............. 14,871 175,296 Effect of exchange rate changes on cash......................... 2,476 (861) ----------- ----------- Net increase in cash............................................ 14,799 16,847 Cash at beginning of period..................................... 3,355 14,948 ----------- ----------- Cash at end of period........................................... $ 18,154 $ 31,795 =========== ===========
See Note 7 for Supplemental Statement of Cash Flow information. The accompanying notes are an integral part of these financial statements. 3 5 DELL COMPUTER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 -- BASIS OF PRESENTATION The accompanying unaudited financial statements should be read in the context of the consolidated financial statements and notes thereto filed with the Securities and Exchange Commission in the Company's fiscal 1994 Annual Report on Form 10-K. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments (consisting only of normal recurring accruals) considered necessary to present fairly the financial position of Dell Computer Corporation and its consolidated subsidiaries at October 30, 1994, and January 30, 1994, and the results of operations for the three-month and nine-month periods ended October 30, 1994, and October 31, 1993. Operating results for the three-month and nine-month periods ended October 30, 1994, are not necessarily indicative of the results that may be expected for the year ending January 29, 1995. Certain prior-period amounts have been reclassified for comparative purposes. Unless otherwise indicated, all references to years in connection with financial information refer to the Company's fiscal years and all references to quarters in connection with financial information refer to the Company's fiscal quarters. NOTE 2 -- SHORT TERM INVESTMENTS The Company realized pretax losses of $23.1 million on certain short-term investments during the first half of 1995. These investment losses were primarily a result of interest rate increases during the first half of 1995 in the United States, Canadian, Japanese, and European interest rate markets. Additionally, at October 30, 1994, other unrealized losses on short-term investments in the amount of $3.8 million ($2.5 million net of tax) were assessed to be temporary and recorded as a separate component of stockholders' equity. NOTE 3 -- COMMITMENTS AND CONTINGENCIES On November 17, 1994, the Company announced that its Chairman, Michael S. Dell, and the Company had reached settlement with plaintiffs in several consolidated lawsuits filed by its stockholders. Under the settlement, the Company and its insurers will pay a total of $13.4 million to the plaintiffs. The settlement did not have a material effect on the Company's financial condition and results of operations because the settlement amount was covered by insurance or previously taken reserves. NOTE 4 -- INVESTMENT DERIVATIVES The Company recognized net pretax losses on interest rate derivatives of $23.9 million in the first half of 1995. The losses resulted primarily from increases in the United States, Canadian, Japanese, and European interest rate markets. NOTE 5 -- WITHDRAWAL FROM THE CONSUMER RETAILER CHANNEL In July 1994, the Company adopted a plan to discontinue traditional sales through consumer retailers. Revenue from consumer retailers represented 1% and 9% of consolidated net sales in the third quarter of 1995 and 1994, respectively, and 3% and 9% of consolidated net sales in the first nine months of 1995 and 1994, respectively. NOTE 6 -- EARNINGS (LOSS) PER COMMON SHARE Earnings or loss per common share are computed by dividing net income available to common stockholders by the weighted average number of common shares and common share equivalents 4 6 DELL COMPUTER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) outstanding (if dilutive) during each period. Common share equivalents include stock options. The Series A Convertible Preferred Stock is not a common share equivalent for purposes of computing primary earnings or loss per common share. The number of common equivalent shares outstanding relating to stock options is computed using the treasury stock method for the primary and fully diluted earnings per share. Shares used in the fully diluted earnings per share have been adjusted for the assumed conversion of the Company's Series A Convertible Preferred Stock. NOTE 7 -- SUPPLEMENTAL FINANCIAL INFORMATION (IN THOUSANDS) Supplemental Consolidated Statement of Financial Position Information:
OCTOBER JANUARY 30, 30, 1994 1994 --------- --------- Inventories: Production materials...................................... $ 242,863 $ 195,744 Work-in-process and finished goods........................ 31,657 24,521 --------- --------- $ 274,520 $ 220,265 ========= =========
Supplemental Consolidated Statement of Operations Information:
THREE MONTHS ENDED NINE MONTHS ENDED --------------------------- --------------------------- OCTOBER 30, OCTOBER 31, OCTOBER 30, OCTOBER 31, 1994 1993 1994 1993 ----------- ----------- ----------- ----------- Financing and other income (expense): Investment income: Short-term investment income (loss), net................ $ 3,679 $ 2,271 $ (12,393) $ 5,450 Interest rate derivatives.... -- 807 (23,948) 2,584 --------- --------- --------- ----------- Total investment income................ 3,679 3,078 (36,341) 8,034 Interest expense............. (3,450) (2,481) (8,008) (5,947) Foreign currency transaction gain (loss)................ (605) 646 1,999 703 Other........................ (1,042) (867) (1,270) (4,416) --------- --------- --------- --------- $ (1,418) $ 376 $ (43,620) $ (1,626) ========= ========= ========= ========= Weighted average shares used to compute earnings per share: Primary......................... 42,091 39,653 41,009 37,227 ========= ========= ========= ========= Fully diluted................... 47,840 -- 46,944 -- ========= ========= ========= =========
5 7 DELL COMPUTER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) Supplemental Consolidated Statement of Cash Flows Information:
NINE MONTHS ENDED --------------------------- OCTOBER 30, OCTOBER 31, 1994 1993 ----------- ----------- Changes in operating working capital accounts: Accounts receivable, net.................................. $ (69,520) $ (77,444) Inventories, net.......................................... (53,486) 71,851 Accounts payable.......................................... 80,418 22,981 Accrued liabilities....................................... 11,224 54,498 Other current assets...................................... (26,858) (2,926) Income taxes payable...................................... 15,954 (17,126) Other, net................................................ 7,879 (2,572) --------- --------- $ (34,389) $ 49,262 ========= ========= Changes in non-current assets and liabilities: Other assets.............................................. 55 75 Other liabilities......................................... 21,202 16,859 --------- --------- $ 21,257 $ 16,934 ========= =========
6 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Unless otherwise indicated, all references to years in connection with financial information refer to the Company's fiscal years and all references to quarters in connection with financial information refer to the Company's fiscal quarters. RESULTS OF OPERATIONS The Company reported net income for the third quarter of 1995 of $41.4 million or $.93 per common share compared with net income of $12.0 million or $.26 per common share for the comparable period in 1994. Net income for the first nine months of 1995 was $88.9 million or $2.01 per common share compared with a net loss of $53.5 million or $1.48 per common share for the first nine months of 1994. During the third quarter of 1995 and all prior periods, the Company consolidated its international operating results on a one-month delay to facilitate consolidated financial reporting. In the fourth quarter of 1995, the Company will conform the international year end with the Company's year end. Accordingly, the Company's income before income taxes for the fourth quarter of 1995 will include one additional month of international operations. The earnings before taxes of these international operations will be included in the consolidated statement of operations in financing and other income (expense). The following table sets forth for the periods indicated the percentage of consolidated net sales represented by certain items in the Company's consolidated statements of operations.
PERCENTAGE OF CONSOLIDATED NET SALES ----------------------------------------------------------- THREE MONTHS ENDED NINE MONTHS ENDED --------------------------- --------------------------- OCTOBER 30, OCTOBER 31, OCTOBER 30, OCTOBER 31, 1994 1993 1994 1993 ----------- ----------- ----------- ----------- Net sales: North America (U.S. and Canada).................... 70.1% 72.1% 67.6% 69.3% Europe........................ 23.5 23.1 26.8 26.2 Other international........... 6.4 4.8 5.6 4.5 -------- --------- --------- --------- Consolidated net sales..... 100.0 100.0 100.0 100.0 Cost of sales................. 79.5 82.1 78.7 86.2 -------- --------- --------- --------- Gross profit............... 20.5 17.9 21.3 13.8 Operating expenses: Selling, general and administrative........... 11.9 13.9 12.4 15.2 Research, development and engineering.............. 1.9 1.7 2.0 1.7 -------- --------- --------- --------- Total operating expenses... 13.8 15.6 14.4 16.9 -------- --------- --------- --------- Operating income (loss)................ 6.7 2.3 6.9 (3.1) Financing and other income (expense), net................ (0.2) 0.1 (1.8) (0.1) -------- --------- --------- --------- Income (loss) before income taxes...................... 6.5 2.4 5.2 (3.2) Provision for income taxes (benefit)..................... 1.9 0.8 1.6 (0.7) -------- --------- --------- --------- Net income (loss)............. 4.6 1.6 3.6 (2.5) Preferred stock dividends....... 0.2 -- 0.3 -- -------- --------- --------- --------- Net income (loss) applicable to common stockholders..... 4.4% 1.6% 3.3% (2.5)% ========= ========= ========= =========
7 9 Net Sales Consolidated net sales increased 17% to $884.6 million for the third quarter of 1995 and increased 15% to $2.44 billion for the first nine months of 1995 over the comparable prior-year periods. Sales growth was led by increases in sales of the Company's notebook computers, substantially offset by decreased sales in the consumer retailer channel that the Company elected to discontinue in the second quarter of 1995. Consolidated net sales (expressed in United States dollars) were increased by 1% for the third quarter of 1995 and were reduced by .2% for the first nine months of 1995 because of fluctuations in the average value of the United States dollar relative to its average value in the comparable periods of the prior year. Based in part on this information, the Company believes that the increase in consolidated net sales was primarily driven by increases in average revenue per unit and unit shipments, though partially affected by changes in foreign currency exchange rates. Since January 30, 1994, the Company has introduced the Latitude(TM) family of notebook computers as well as several Pentium(TM) processor-based systems in its PowerEdge(TM) server line and in its Dimension(TM) and OptiPlex(TM) desktop product lines. Average revenue per unit increased 12% for each of the third quarter and first nine months of 1995, and unit volumes increased 4% for the third quarter and 3% for the first nine months of 1995, over the comparable periods of 1994, primarily because of strong demand for the Company's notebook computers and Pentium processor-based products. The Company believes that revenue growth is largely dependent upon its continued strength in the notebook computer product line and its ability to continue to efficiently manage the transition to Pentium processor-based computers. In November 1994, an inaccuracy in Intel's Pentium microprocessors was publicized that, in rare cases, may cause slight errors in division. Based on information from Intel Corporation, the Company believes only a limited number of its Pentium microprocessor customers perform calculations affected by the inaccuracy. The effect on consolidated net sales and the cost to the Company, if any, is uncertain. There can be no assurance that the Company's notebook, server, or other development activities will be successful, that product technologies will be available to the Company, that the Company will be able to deliver commercial quantities of computer products in a timely manner, or that such products will achieve market acceptance. Consolidated net sales from the Company's Pentium processor-based products represented 28% and 20% of consolidated net sales in the third quarter and the first nine months of 1995, respectively. Sales of the Company's 486-based systems reflected the shift in demand toward Pentium systems and decreased to 60% and 68% of consolidated net sales for the third quarter and the first nine months of 1995, compared with 85% and 80% of consolidated net sales for the third quarter and the first nine months of 1994, respectively. The Company's desktop and workstation systems represented 74% and 78% of consolidated net sales for the third quarter and the first nine months of 1995, respectively, compared with 82% and 80% of consolidated net sales for the comparable periods in 1994. Sales of servers accounted for 6% of consolidated net revenue for the third quarter of 1995 and 5% for the first nine months of 1995, respectively, compared with 5% for each of the third quarter and first nine months of 1994. Sales of notebook computers were 8% and 5% of consolidated net sales in the third quarter and the first nine months of 1995, respectively, compared with 1% and 3% of consolidated net sales for the respective prior-year periods. North American sales increased 13% to $620.1 million for the third quarter of 1995, and 12% to $1.65 billion for the first nine months of 1995 over the comparable prior-year periods. Sales from the Company's European operations increased 19% to $207.9 million for the third quarter of 1995, over the third quarter of 1994 and 17% to $654.9 million for the first nine months of 1995 over the first nine months of 1994. Primarily due to sales growth in Japan, other international sales increased 57% to $56.6 million for the third quarter of 1995 and 43% to $137.6 million for the first nine months of 1995 over the comparable prior-year periods. 8 10 Consolidated net sales to major corporate, government and education accounts increased 28% to $490.3 million for the third quarter of 1995 and 26% to $1.33 billion for the first nine months of 1995 over the comparable prior-year periods. U.S. Federal government sales typically peak in the third quarter primarily due to a surge in federal buying at the end of the government's budget year and represented approximately 14% of consolidated net sales in the third quarter of 1995 and 1994. Federal government sales have historically declined from the third quarter to the fourth quarter as the Federal government enters a new budget year. This decline generally reduces the sequential growth of U.S. sales from the third to the fourth quarter. Sales to medium- and small-sized businesses and individuals increased 5% to $273.7 million for the third quarter of 1995 and 4% to $800.9 million for the first nine months of 1995, despite the decline in sales to consumer retailers to 1% and 3% of consolidated net sales for the third quarter and first nine months of 1995 from 9% of consolidated net sales for the third quarter and first nine months of 1994 due to the discontinuation of consumer retailer sales in July 1994. The Company does not believe that backlog is a meaningful indicator of sales that can be expected for any period. The Company attempts to reduce manufacturing costs by more efficiently managing its flow of customer orders, which resulted in an increase in backlog to $78.2 million at October 30, 1994, compared with $29.4 million at July 31, 1994. Although efforts to minimize the time between customer order and product delivery will be continued, the Company believes that backlog may further increase during the fourth quarter of 1995. Consistent with the Company's unconditional return policy, customers may cancel or reschedule orders without penalty prior to commencement of manufacturing. Gross Profit The Company's gross profit as a percentage of consolidated net sales increased to 20.5% for the third quarter of 1995 from 17.9% for the third quarter of 1994, and increased to 21.3% for the first nine months of 1995 from 13.8% for the comparable period of the prior year. The increase in gross profit is primarily due to higher average revenue per unit resulting from a higher margin sales mix driven by changes in the Company's sales incentive programs and pricing strategies. Gross profit margins also benefited from improvements in manufacturing logistics and efficiencies, in component costs and quality due to the Company's vendor certification and vendor consolidation programs, and lower charges for inventory obsolescence attributable to improved inventory management. Gross profit would have been 17.2% of consolidated net sales for the first nine months of 1994, but was reduced by pre-tax charges of approximately $71 million for the first nine months of 1994 related to notebook computers and other costs, consisting mostly of inventory writedowns and related costs. The personal computer industry is characterized by a highly competitive pricing environment. The Company attempts to mitigate the effect of its pricing actions through improvements in product mix, reduced component costs, manufacturing efficiencies and operating expense controls. Additional pricing actions may occur as the Company attempts to maintain a competitive mix of price, performance and customer support services while managing its liquidity, profitability and growth. There can be no assurance that pricing actions will be effective in stimulating higher levels of sales or that cost reduction efforts will offset the effects of pricing actions on the Company's gross margins. Dell'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, a shortage of components, increases in component costs, and reduced control over delivery schedules, which could adversely affect the Company's financial results. The Company has certain single supplier relationships that are considered advantageous for reasons including performance, quality, support, delivery, price and total cost considerations. For example, several microprocessors used in the Company's products are currently procured only from Intel Corporation, although some comparable 9 11 microprocessors are available from other suppliers. Also, the Company occasionally experiences delays in receiving certain components, which can cause delays in the shipment of some products to customers. Additionally, the Company occasionally experiences certain defective components, which can affect the reliability and reputation of its products. The Company has procedures intended to maximize the deliverability and quality of its products. However, there can be no assurance that the Company will be able to continue to obtain additional supplies of reliable components in a timely or cost-effective manner. The results of the Company's international operations are subject to currency fluctuations. However, the Company attempts to reduce its exposure to currency fluctuations through the use of foreign currency option contracts for periods not exceeding twelve months and, to a lesser extent, through the use of forward contracts, generally for periods not exceeding three months, which hedge certain anticipated intercompany shipments to foreign subsidiaries and certain anticipated purchases of components. Forward contracts entered into to hedge anticipated intercompany shipments and purchases of components, none of which were outstanding at the end of the third quarter of 1995, are accounted for on a mark-to-market basis. The Company has purchased options to hedge a portion of its anticipated, but not firmly committed, intercompany sales for 1995 and certain anticipated purchases of components for 1995 and a portion of 1996. The Company may enter into additional hedging transactions as management considers appropriate. Based upon foreign currency exchange rates at the end of the third quarter of 1995, option contracts that hedge anticipated shipments to international subsidiaries for 1995 and anticipated purchases of certain components for 1995 and a portion of 1996 had a combined net realized and unrealized deferred loss of $7.6 million. Operating Expenses Operating expenses as a percentage of consolidated net sales decreased to 13.8% for the third quarter of 1995 from 15.6% for the third quarter of 1994 and decreased to 14.4% for the first nine months of 1995 from 16.9% for the first nine months of 1994. Operating expenses would have been 15.9% for the first nine months of 1994, but was increased by $21 million of charges for consolidating operations, write-offs of certain assets, and employee severance payments. Operating expenses increased 3% to $121.9 million for the third quarter of 1995 and decreased 3% to $350.3 million for the first nine months of 1995 over the comparable prior-year periods. Excluding the $21 million in prior year charges, operating expenses would have increased 3% for the first nine months of 1995 compared with the first nine months of 1994. This 3% increase in operating expense for each period in 1995 over the comparable prior-year periods is primarily due to the Company's ability to control the growth of selling, general and administrative expenses while realizing higher consolidated net sales partially offset by a 32% increase in research, development and engineering expenses for the third quarter and first nine months of 1995 over the same periods in 1994. The Company believes that its ability to manage operating costs is an important factor in its ability to remain price competitive. No assurance can be given that the Company's efforts to manage future operating expenses will be successful. Net Financing and Other Income (Expense) Net financing and other income (expense) was ($1.4) million in the third quarter of 1995 compared with $.4 million for the third quarter of 1994, and was ($43.6) million for the first nine months of 1995 compared with ($1.6) million for the first nine months of 1994. Short-term investment income (loss) was $3.7 million in the third quarter of 1995 compared with $2.3 million in the third quarter of 1994, and was ($12.4) million for the first nine months of 1995 compared with $5.5 million for the first nine months of 1994. Investment losses for the first nine months of 1995 were primarily due to realized losses of $23.1 million on certain of the Company's short-term investments that were recognized in the first half of 1995, offset by investment income of approximately $10.7 million for the first nine months of 1995. The increase in investment income to 10 12 $10.7 million for the first nine months of 1995 compared with $5.5 million for the first nine months of 1994 was primarily due to higher average investment balances and higher effective interest rates. Other unrealized losses on short-term investments in the amount of $3.8 million ($2.5 million net of tax) at October 30, 1994, were assessed to be temporary and recorded as a separate component of stockholders' equity. The investment losses are primarily a result of interest rate increases in the United States, Canadian, Japanese, and European interest rate markets. In the normal course of business, the Company has historically employed a variety of interest rate derivative instruments to more efficiently manage its principal, market and credit risks as well as to enhance its investment yield. Derivative instruments utilized included interest rate swaps, written and purchased interest rate options and swaptions (options to enter into interest rate swaps). The Company structured derivative instruments in interest rate markets where it has foreign operations. Interest rate derivatives generally involve exchanges of interest payments based upon fixed and floating interest rates without exchanges of underlying notional amounts. Realized and unrealized net gains (losses) on interest rate derivatives recognized in income for the first nine months of 1995 were ($23.9) million compared with $2.6 million for the first nine months of 1994. The Company closed all remaining investment derivatives during the second quarter of 1995. In the future, the Company intends to use derivative contracts only to manage components of its capital structure. Interest expense incurred in the third quarter of 1995 increased to $3.5 million from $2.5 million in the third quarter of 1994, and to $8.0 million for the first nine months of 1995 compared with $5.9 million for the first nine months of 1994. The increase in interest expense in 1995 was primarily due to higher debt balances outstanding and higher net interest costs associated with the 11% Senior Notes (the "Notes") issued in the third quarter of 1994. Concurrently with the issuance of the Notes, the Company entered into interest rate swap agreements to manage the interest costs associated with the Notes. The swap agreements effectively changed the Company's interest rate exposure from a fixed-rate to a floating-rate basis and resulted in a weighted average interest rate of 12.88% and 11.39% on the Notes for the third quarter and the first nine months of 1995, respectively. In August 1994, the Company entered into swap agreements to effectively change its interest rate exposure from a floating-rate basis to a fixed-rate basis with a one-time reset on December 19, 1994. As a result of the swap agreements, the Company is currently paying a net interest cost of 13.63% on the Notes. Pursuant to the terms of the swap agreements, the counterparties may reset the swap rate differential up to a maximum net interest cost of 13.81% on the Notes if market rates have increased on the reset-date or, if interest rates have decreased, the Company may proportionately reduce the net interest cost on an unlimited basis. Financing fees and other income (expense) were ($1.0) million in the third quarter of 1995 compared with ($.9) million in the third quarter of 1994, and ($1.3) million for the first nine months of 1995 compared with ($4.4) million for the first nine months of 1994. The improvement in financing fees and other costs was primarily due to higher financing-related expenses incurred in 1994 in connection with refinancing of debt and credit facilities during the third quarter of 1994. Income Tax The Company's effective tax rate was 29% for the third quarter of 1995 and 30% for the first nine months of 1995, compared with 34% and 21% for the same periods in 1994. Changes in the effective tax rate are a result of the geographical distribution of income and losses. HEDGING ACTIVITIES The results of the Company's international operations are affected by changes in exchange rates between certain foreign currencies and the United States dollar. The Company's exposure to currency fluctuations has increased as a result of the expansion of its international operations. The functional currency for most of the Company's international subsidiaries is the local currency of the subsidiary. An increase in the value of the United States dollar increases costs incurred by the 11 13 Company's international operations because many of its international subsidiaries' component purchases are denominated in the United States dollar. Changes in exchange rates may negatively affect the Company's consolidated net sales (as expressed in United States dollars) and gross profit margins from international operations. The Company monitors this exposure and attempts to mitigate the exposure through hedging transactions. The purpose of the Company's hedging program is to protect the Company from the risk that the dollar-equivalent price of anticipated cash flows resulting from sale of products from its manufacturing subsidiaries to its international sales subsidiaries and from third party purchases in currencies other than an entity's functional currency will be adversely affected by changes in foreign currency exchange rates. The Company's hedging activities consist primarily of hedging anticipated intercompany sales to its international subsidiaries and resulting intercompany balances and, to a lesser extent, anticipated purchases of certain components through the use of purchased options for periods not exceeding twelve months and, to a lesser extent, forward contracts, generally for periods not exceeding three months. The risk of loss associated with purchased options is limited to the amount of premiums paid for the option contracts, which could be significant. The premium amounts paid on purchased options are amortized over the period of the hedged transaction. Gains and losses incurred on purchased option contracts are deferred until occurrence of the hedged transaction and recognized as a component of the cost of the hedged transaction. Gains and losses incurred on forward contracts designated as hedging contracts of anticipated transactions are marked-to-market and recognized as a component of cost of sales in the current period. On November 30, 1992, the SEC's Division of Enforcement notified the Company about an informal inquiry regarding the Company's accounting practices for foreign currency hedging and trading activities and the completeness of the Company's public disclosure about those activities. The SEC's Division of Corporation Finance also indicated it had concerns about the deferred accounting treatment the Company afforded gains and losses on forward and option contracts entered into to hedge anticipated transactions. The table below shows the effect on income before income taxes, net income and earnings per common share for the third quarters and the first nine months of 1995 and 1994, if gains and losses on hedging contracts had been accounted for on a mark-to-market basis.
THREE MONTHS ENDED NINE MONTHS ENDED -------------------------- -------------------------- OCTOBER 30, OCTOBER 31, OCTOBER 30, OCTOBER 31, 1994 1993 1994 1993 ----------- ----------- ----------- ----------- (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) Effect on income before income taxes: Other option contracts............ $ 0.3 $ (6.4) $ (9.8) $ (1.4) ========= ========= ========= ========= Deferred realized and unrealized gain (loss)....................... $ (7.6) $ 0.6 $ (7.6) $ 0.6 ========= ========= ========= ========= Effect on net income and earnings per share: Net income on a mark-to-market basis.......................... $ 41.6 $ 6.2 $ 82.0 $ (56.2) Net income as reported............ $ 41.4 $ 10.4 $ 88.9 $ (55.1) Primary earnings per share on a mark-to-market basis........... $ 0.94 $ 0.16 $ 1.84 $ (1.51) Primary earnings per share as reported....................... $ 0.93 $ 0.26 $ 2.01 $ (1.48)
12 14 LIQUIDITY AND CAPITAL RESOURCES The Company's cash flow from operating activities for the first nine months of 1995 was $122.4 million, which represented the Company's primary source of cash. The Company had 50 days in accounts receivable at the end of the third quarter of 1995 as well as the end of 1994. Inventory levels increased slightly to 35 days of supply at the end of the third quarter of 1995 from 33 days at the end of 1994. Days in accounts payable increased to 46 days at the end of the third quarter of 1995 from 42 days at the end of 1994. Maintaining the Company's current inventory level is dependent upon the Company's ability to achieve targeted revenue and product mix, to further minimize complexities in its product line, and to maximize commonality of parts. There can be no assurance that the Company will be able to maintain these low inventory levels in future periods. The Company utilized $47.0 million of cash during the first nine months of 1995 to construct facilities and to acquire information systems and personal computer office equipment. Capital expenditures for the fourth quarter of 1995 are expected to be approximately $25 million. Capital expenditures for 1996 are expected to be higher than 1995. Effective June 10, 1994, the Company entered into a new line of credit facility which bears interest at a defined Base Rate or Eurocurrency Rate with covenants based on quarterly income, maintenance of net worth, a maximum ratio of total liabilities to tangible net worth, and a maximum inventory level. Maximum amounts available under the credit facility are limited to $90 million less the aggregate of outstanding letters of credit. During the commitment period, the Company is obligated to pay a fee on the unused portion of the credit facility. No amounts are outstanding under this credit facility, and the maximum available totaled $86.3 million as of October 30, 1994. The Company's subsidiary, Dell Receivables Corporation, has a Receivables Purchase Agreement, which was renewed effective May 24, 1994, pursuant to which the Company may raise up to $100 million through the sale of interests in certain of its accounts receivable. The Company is obligated to pay a commitment fee based on the unused portion of the amount available under the Receivable Purchase Agreement. As of October 30, 1994, this facility was unused. Repayment of the Company's $100 million in 11% Senior Notes due August 15, 2000, together with operating lease commitments, constitute the Company's long-term commitments to use cash. The Company is a defendant in several consolidated lawsuits brought by certain of its stockholders. The settlement of these lawsuits announced on November 17, 1994, if approved, will not have a material effect on the Company's financial condition and results of operations. See "Legal Proceedings." 13 15 PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company and its Chairman, Michael S. Dell, are defendants in nineteen lawsuits filed between May and November 1993, in the United States District Court for the Western District of Texas, Austin Division. On November 17, 1994, the Company announced that Mr. Dell and the Company had reached settlement with the plaintiffs. Under the settlement, the Company and its insurers will pay a total of $13.4 million (plus accrued interest from the settlement date) to the plaintiffs. In the settlement, neither the Company nor Mr. Dell admits liability or obligation of any kind in connection with the lawsuit or the underlying allegations. The settlement is subject to review and final approval by the Court. Approval is anticipated early in calendar 1995. Since August 1992, the Company has been named as a defendant in eighteen repetitive stress injury lawsuits, sixteen of which are in New York state courts or United States District Courts for the New York City area. One is in the Federal District Court for the State of Pennsylvania. The final one was in the Federal District Court for the State of Tennessee and has been voluntarily dismissed with prejudice by the plaintiffs, without any payment by the Company or finding any liability. The allegations in all of these lawsuits are similar: each plaintiff alleges that he or she suffers from symptoms generally known as "repetitive stress injury," which allegedly were caused by the design or manufacture of the keyboard supplied with the computer the plaintiff used. The Company has denied or is in the process of denying the claims and intends to vigorously defend the suits. The suits naming the Company are just a few of many lawsuits of this type which have been filed, often naming IBM, Atex, Keytronic and other major suppliers of keyboard products. The Company currently is not able to predict the outcome of these suits. It is possible that the Company may be named in additional suits, but it is impossible to predict how many may be filed. Ultimate resolution of the litigation against the Company may depend on progress in resolving this type of litigation overall. For information about a Securities and Exchange Commission informal inquiry relating to foreign currency hedging and trading activities, see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Hedging Activities." By letter dated July 21, 1993, the Commission notified the Company that it was extending the informal inquiry to the circumstances and events surrounding the public announcement on July 14, 1993, about the Company's expected losses for its second quarter of 1994 and into the Company's procedures for estimating sales. On August 11, 1993, the Department of Commerce ("DOC") served a subpoena on the Company, requesting documents relating to possible prohibited exports of 486/66 MHz personal computers that may have been shipped from Dell to Russia, Ireland, Iran or Iraq during the period from January 1992 through October 1993. Dell formally responded to the DOC in November 1993. The Company did not ship any 486/66 MHz machines to Iran or Iraq and is still awaiting a response from the DOC regarding the Company's authority under the Company's Irish export license to make certain shipments to Russia. If the Office of Export Enforcement's investigators determine that the Company has violated applicable regulations, the government could potentially file civil or criminal charges. The Company is cooperating in the investigation. The Company does not believe this investigation or its outcome will have a material adverse effect on the Company's financial condition or results of operations. The Company has received a request from the Federal Trade Commission ("FTC") dated January 5, 1994, to provide documents and other information in connection with the FTC's inquiry into the computer industry to determine whether the Company's advertising and marketing claims regarding cathode ray tube ("CRT") monitor screen sizes are in violation of the Federal Trade Commission Act. In general, the inquiry focuses on differences between advertising and marketing claims as to the size of CRT monitor screen sizes, and the size of the display area actually viewable 14 16 by the consumer. The Company is cooperating with the FTC in this inquiry. The Company does not believe that the inquiry or its outcome will have a material adverse effect on the Company's financial condition or results of operations. In April 1994 the California Attorney General notified Dell and 12 other PC manufacturers that certain of their advertisements with regard to monitor screen sizes were believed to be deceptive and misleading, based on the same concepts expressed by the FTC. The Company is responding to this investigation in coordination with other companies in the industry. The Company does not believe that the inquiry or its outcome will have a material adverse effect on the Company's financial condition or results of operations. The Company has received a subpoena from the FTC dated July 18, 1994, in connection with an inquiry with respect to whether the Company may have misrepresented or improperly failed to disclose patent rights that would conflict with open use of a local high-speed personal computer bus standard promulgated by the Video Electronics Standards Association (VESA). The Company is cooperating in this inquiry. The Company does not believe that the inquiry or its outcome will have a material adverse effect on the Company's financial condition or results of operations. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits
EXHIBIT NO. DESCRIPTION OF EXHIBIT - --------------------- ---------------------------------------------------------------------- 27* Financial Data Schedule
- --------------- * Filed herewith. (b) Reports on Form 8-K None 15 17 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DELL COMPUTER CORPORATION /s/ THOMAS J. MEREDITH Thomas J. Meredith Chief Financial Officer December 12, 1994 16 EX-99.(A)(11) 12 CURRENT REPORT ON FORM 8-K, DATED 2-21-95 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 February 21, 1995 - -------------------------------------------------------------------------------- Date of Report (Date of earliest event reported) DELL COMPUTER CORPORATION - -------------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) Delaware - -------------------------------------------------------------------------------- (State or other jurisdiction of incorporation) 0-17017 74-2487834 - -------------------------------------------------------------------------------- (Commission File No.) (IRS Employer Identification Number) 2112 Kramer Lane, Building 1 Austin, Texas 78758-4012 (512) 338-4400 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) Not Applicable - -------------------------------------------------------------------------------- (Former name or former address, if changed since last report) 2 Item 5. Other Events. The sole purpose of this Form 8-K is to file a press release issued by Dell Computer Corporation on February 21, 1995 regarding its financial results for the fiscal year ended January 29, 1995. Item 7. Financial Statements and Exhibits. (c) Exhibits 99.1 Press Release, dated February 21, 1995 -2- 3 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. DELL COMPUTER CORPORATION By:/s/ THOMAS J. MEREDITH Thomas J. Meredith Chief Financial Officer Date: February 21, 1995 -3- 4 INDEX TO EXHIBITS Sequentially Exhibit Numbered Number Description Page ----------- -------------------------------------- --------------- 99.1 Press Release, dated February 21, 1995 5 DELL SALES TOP $1 BILLION IN FOURTH QUARTER STRONG SALES OF NOTEBOOKS AND PENTIUM SYSTEMS FUEL GROWTH AUSTIN, TEXAS, FEB. 21, 1995 -- Dell Computer Corporation (Nasdaq: DELL) today reported record sales of $1.03 billion for the fourth quarter ended January 29, 1995, resulting in record earnings of $1.36 per common share. Sales increased 17 percent sequentially from the third quarter, and were up 39 percent over the fourth quarter of the prior year. Earnings included a one-time benefit of $0.10 primary earnings per share from the inclusion of an extra month of international operations as the company unified its domestic and international fiscal year-end. Excluding that benefit, earnings still were a record $1.26 per common share. Worldwide fiscal 1995 sales totaled $3.5 billion, up 21 percent over fiscal 1994. The company earned $3.38 per common share, compared with a loss of $(1.06) per common share in fiscal 1994.
(IN MILLIONS EXCEPT PER SHARE DATA) Q4 FY'95 Q4 FY'94 FY'95 FY'94 Net Sales $1,032.7 $ 742.9 $3,475.3 $2,873.2 Operating Income (Loss) $ 78.7 $ 27.2 $ 249.3 ($ 39.0) Net Income (Loss) $ 60.3 $ 17.7 $ 149.2 ($ 35.8) Earnings per Common Share (Loss) $ 1.36 $ .39 $ 3.38 ($ 1.06) Weighted Average Shares Outstanding 42.9 39.9 41.5 37.3
"We began last year with a renewed focus on our direct model and a strategy to pursue specific opportunities in notebook marketplace penetration, the transition to Pentium processors and geographic expansion," said Michael S. Dell, chairman and chief executive officer. "Our results clearly demonstrate the continued success of our business model. We delivered solid growth, improved profit margins and produced one of the best balance sheets in the industry. "My congratulations go out to all Dell employees worldwide whose spirit, dedication and focus continue to drive our success." -more- 6 2-2-2-2 Strong demand for the company's Latitude family of notebook computers and its higher-end, Pentium processor-based systems keyed Dell's sales growth in the fourth quarter and the fiscal year. Sales of notebook computers represented 14 percent of worldwide sales during the fourth quarter, compared with 9 percent in the previous quarter. Fourth-quarter notebook sales surpassed sales for the previous three quarters combined. "Customer acceptance of our strong notebook product line has been outstanding around the globe and is helping drive our overall momentum," Mr. Dell said. "Our notebook products are hailed by customers and independent reviewers alike. Our commitment to research and development and our focus on quality both contributed to our dramatic success in portables." Since re-entering the notebook market in 1994, Dell has won more than 20 major product awards worldwide, including the "Analysts' Choice" award from PC Week and the "Editor's Choice" award from PC Magazine, both for price/performance; the "Best" award from PC/Computing for durability and reliability; and the "Chairman's Choice" award from Power 94 for technical innovation. Fourth-quarter sales based on the Pentium processor represented 44 percent of worldwide systems sales, compared with 32 percent in the third quarter. Dell has been an industry leader in the shift to Intel's fifth-generation processor, which provides users with the highest available performance and systems capabilities. "Our direct business model and the flexibility it provides enabled us to take the lead in the transition to Pentium processors," said Mr. Dell, who cited the company's low inventory position as a key factor in Dell's ability to rapidly build and deliver products incorporating new technologies. Additionally, the company's momentum in the notebook and Pentium-processor marketplaces helped pace its seventh consecutive quarter of growth in average revenue per unit, which over the past 12 months increased 11 percent. The company's direct, build-to-order model enables it to meet customer demand for more richly configured notebook, desktop and server computers customized with software and peripherals. Fourth-quarter sales in Europe increased 33 percent over the same period in fiscal 1994 reflecting strong acceptance of the company's direct strategy, improvements in cost structure and broadened product offerings. Other international sales increased 69 percent over the fourth quarter of fiscal 94, keyed by strong growth in Japan. "There is increasing opportunity in the years ahead in emerging markets, and we intend to continue to invest in infrastructure and management systems to support business growth in Europe and Asia," said Mort Topfer, vice chairman. During the fourth quarter, the company announced plans to build a manufacturing plant in Penang, Malaysia, and approximately doubled the size of its Limerick, Ireland, manufacturing plant. Gross profit margins rose to 21 percent of sales in the fourth quarter, compared with 20.5 percent of sales in the third quarter of fiscal 1995 and 18.6 percent of sales in the fourth quarter of fiscal 1994. The increase was driven by materials and manufacturing cost reductions and a stable pricing environment. - more - 7 3-3-3-3 Operating expenses decreased to 13.4 percent of sales in the fourth quarter, compared with 13.8 percent of sales in the previous quarter and 15.0 percent of sales in the fourth quarter of fiscal 1994. Fourth-quarter selling, general and administrative expenses, at 11.7 percent of sales, were the lowest as a percentage of sales recorded by the company for two years. The decrease in fiscal 1995 more than offset the company's increased investment in research and development. The company increased research and development spending in fiscal 1995 to $65.4 million, up 34 percent over fiscal 1994. Dell generated $121 million in cash from operations during the fourth quarter, ending the year with $527 million in cash and investments. Over the past 12 months, the company has generated more than $243 million in cash from operations as it has raised profit margins and improved asset management. For the sixth consecutive quarter, Dell maintained inventories representing less than five weeks of sales, one of the lowest inventory positions in the industry as the company continued to use its direct model to efficiently manage assets. "This is further evidence of our execution in balancing growth with liquidity and profitability," Mr. Dell said. "We grew our market share in the fourth quarter and invested in our infrastructure while strengthening one of the strongest liquidity positions in the industry. "In the year ahead, we are focused on leveraging our momentum to increase the size of the direct channel and also to increase our penetration within that channel," Mr. Dell said. For the 12 months ended January 29, 1995, sales were $3.5 billion, up 21 percent from sales of $2.9 billion in fiscal 1994. Net income was $149.2 million, versus a loss of $(35.8) million in the prior fiscal year. Primary earnings per share were $3.38 versus a loss of $(1.06). Consolidated statements of operations and financial position follow. A Global 500(R) company, Dell Computer Corporation (Nasdaq: DELL) designs, develops, manufactures, markets, services and supports a complete line of personal computers compatible with industry standards. With annual revenues of nearly $3.5 billion, Dell is the world's leading direct marketer of personal computers and one of the top five personal computer vendors in the world. Information on the company and its products can be obtained through its toll-free number, 1-800-BUY-DELL (1-800-289-3355) or by accessing the Dell Worldwide Web server, at http://www.us/dell.com/. # # # Dell is a registered trademark of Dell Computer Corporation. Intel is a registered trademark of Intel Corporation, and Pentium is a trademark of Intel Corporation. Dell disclaims any proprietary interest in the marks and names of others. 8 DELL COMPUTER CORPORATION CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (IN THOUSANDS) (UNAUDITED) ================================================================================
JANUARY 29, JANUARY 30, 1995 1994 ----------- ----------- ASSETS: Current assets: Cash $ 42,953 $ 3,355 Short-term Investments 484,294 333,667 Accounts receivable, net 537,974 410,774 Inventories, net 292,925 220,265 Other current assets 112,215 80,323 ---------- ---------- Total current assets 1,470,361 1,048,384 Property and equipment, net 116,981 86,892 Other assets 6,658 5,204 ---------- ---------- $1,594,000 $1,140,480 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Accounts payable $ 447,071 $ 282,708 Accrued liabilities 279,402 237,651 Income taxes 24,937 17,628 ---------- ---------- Total current liabilities 751,410 537,987 Long-term debt 113,429 100,000 Other liabilities 77,425 31,385 Stockholders' equity 651,736 471,108 ---------- ---------- $1,594,000 $1,140,480
========== ========== ================================================================================ 9 DELL COMPUTER CORPORATION CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) ================================================================================
Three Months Ended Fiscal Year Ended -------------------------- -------------------------- January 29, January 30, January 29, January 30, 1995 1994 1995 1994 ----------- ----------- ----------- ----------- Net sales $ 1,032,662 $ 742,948 $3,475,343 $2,873,165 Cost of sales 815,500 604,598 2,737,290 2,440,349 ----------- --------- ---------- ---------- Gross profit 217,162 138,350 738,053 432,816 Operating expenses: Selling, general and administrative 121,050 98,538 423,429 422,906 Research, development and engineering 17,444 12,656 65,361 48,934 ----------- --------- ---------- ---------- Total operating expenses 138,494 111,194 488,790 471,840 ----------- --------- ---------- ---------- Operating income (loss) 78,668 27,156 249,263 (39,024) Financing and other income (expense), net(1) 7,354 1,884 (36,267) 258 ----------- --------- ---------- ---------- Income (loss) before income taxes 86,022 29,040 212,996 (38,766) Provision for income taxes (benefit) 25,731 11,332 63,819 (2,933) ----------- --------- ---------- ---------- Net income (loss) 60,291 17,708 149,177 (35,833) Preferred stock dividends 2,188 2,187 8,750 3,743 ----------- --------- ---------- ---------- Net income (loss) applicable to common stockholders $ 58,103 $ 15,521 $ 140,427 $ (39,576) =========== ========= ========== ========== Earnings (loss) per common share: Primary $ 1.36 $ 0.39 $ 3.38 $ (1.06) =========== ========= ========== ========== Fully diluted $ 1.25 $ -- $ 3.15 $ -- =========== ========= ========== ========== Weighted average shares used to compute earnings per share: Primary 42,862 39,870 41,542 37,333 =========== ========= ========== ========== Fully diluted 48,079 -- 47,322 -- =========== ========= ========== ==========
================================================================================ (1) The three months and twelve months ended January 29, 1995 includes $5,725 pretax income in the financing and other income line for the additional month of international operations as the company unified its domestic and international fiscal year ends. EX-99.(D) 13 OPINION OF BAKER & MCKENZIE 1 BAKER & MCKENZIE ATTORNEYS AT LAW 660 HANSEN WAY PALO ALTO, CALIFORNIA 94304 TELEPHONE (415) 856-2400 FACSIMILE (415) 856-9299 POSTAL OR MAILING ADDRESS P.O. BOX 60309 PALO ALTO, CALIFORNIA 94306-0309 February 21, 1995 Dell Computer Corporation 9505 Arboretum Boulevard Austin, Texas 78759-7299 Gentlemen: We have acted as tax counsel to Dell Computer Corporation, a Delaware corporation (the "Company"), in connection with an offer by the Company to pay a cash premium of $8.25 (the "Conversion Premium") for each share of its Series A Convertible Preferred Stock (the "Series A Preferred Stock") that is converted to common stock, par value $.01 per share (the "Common Stock"), of the Company (the "Conversion Offer"), which is described in the Offer of Premium dated February 21, 1995 (the "Offer of Premium"). The Conversion Offer provides that a holder of Series A Preferred Stock of the Company who elects to convert will receive 4.2105 shares of Common Stock and the Conversion Premium for each share of Series A Preferred Stock converted (the "Conversion"). This opinion is being rendered pursuant to your request. All capitalized terms, unless otherwise specified, have the meaning assigned to them in the Offer of Premium. In connection with this opinion, we have examined and are familiar with originals or copies, certified or otherwise identified to our satisfaction, of the Offer of Premium and such other documents as we have deemed necessary or appropriate in order to enable us to render the opinion below. In our examination, we have assumed the genuineness of all signatures, the legal capacity of all natural persons, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified, conformed or photostatic copies and the authenticity of the originals and such copies. In rendering our opinion, we have considered the applicable provisions of the Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations ("Treas. Reg."), pertinent judicial authorities, interpretive rulings of the Internal Revenue Service and such other authorities as we have considered relevant. Unless otherwise indicated, all Section references herein are to the Code. Based upon and subject to the foregoing, we are of the opinion that: 1. The Conversion will constitute a "recapitalization" of the Company within the meaning of Section 368(a)(1)(E) of the Code. Accordingly, the Conversion will not be a taxable transaction to the Company, but may be a taxable transaction to the stockholders to the extent of the Conversion Premium received, with the consequences described below. 2. A stockholder whose shares of Series A Preferred Stock are converted into Common Stock and the Conversion Premium will be taxable to the extent of the lesser of (i) the excess of the fair market value of the total amount received in the Conversion (i.e., the sum of the value of the Common Stock and the Conversion Premium) over such stockholder's tax basis in the Series A Preferred Stock converted, or (ii) the amount of the Conversion Premium. To the extent that the Conversion Premium exceeds the amount specified in clause (i) of the 2 Dell Computer Corporation February 21, 1995 preceding sentence, such amount will not be currently taxable but will reduce a stockholder's basis in the Common Stock received in the Conversion as discussed below. A stockholder is not allowed to recognize (i.e., take into account for tax purposes) loss on the Conversion. 3. The character of any gain recognized by a stockholder in the Conversion will depend upon whether the receipt of the Conversion Premium by the stockholder has the effect of a dividend distribution as to such stockholder or is treated as a sale or exchange. If the conversion of Series A Preferred Stock and receipt of the Conversion Premium is treated as a sale or exchange, any gain recognized will be capital gain that, in general, will be long-term capital gain if the shares of Series A Preferred Stock have been held for more than one year at the Expiration Date and short-term capital gain if the shares of Series A Preferred Stock have been held for one year or less at such time. If the conversion has the effect of a dividend distribution to a stockholder, the gain recognized by such stockholder will be treated as ordinary dividend income to the extent of the stockholder's ratable share of the Company's accumulated earnings and profits, and the remainder, if any, of the recognized gain will be taxed as gain from the exchange of the Series A Preferred Stock. The conversion of Series A Preferred Stock more likely than not has the effect of a dividend distribution with respect to stockholders who do not dispose of Series A Preferred Stock, Common Stock acquired upon conversion, or other Common Stock in related transactions that are considered to be part of a single integrated plan (including shares constructively owned under Section 318), other than pursuant to the Conversion Offer. No opinion is expressed as to the character of any gain that other stockholders may realize in the Conversion because of the inherently factual nature of the determination that each such stockholder must make. 4. If the conversion of Series A Preferred Stock is treated to any extent as a dividend distribution as to a corporate stockholder, the amount of the distribution which is taxable as a dividend should generally be eligible for the 70 percent dividends received deduction, subject to the limitations of sections 1059, 246A and 246 of the Code. 5. A stockholder's tax basis in the Common Stock received in the Conversion will be equal to the stockholder's tax basis in the Series A Preferred Stock converted in the Conversion, increased by the amount of any gain recognized by the stockholder and decreased by the amount of the Conversion Premium received. The holding period of the Common Stock will include the holding period of the Series A Preferred Stock converted in the Conversion, provided that the Series A Preferred Stock is held as a capital asset. Gain, loss and tax basis, determined as described above, must be calculated separately for each block of Series A Preferred Stock (i.e., Series A Preferred Stock acquired at the same time in a single transaction) held by a stockholder. 6. Stockholders who receive cash in lieu of fractional shares of Common Stock should be treated as having received the cash in redemption of the fractional share interest. The character of the cash received by a stockholder will depend upon whether the redemption is essentially equivalent to a dividend to such stockholder or is treated as a sale or exchange, determined under Section 302 of the Code. 7. In general, a non-United States stockholder is not subject to United States Federal income tax with respect to gain realized on a sale or other disposition of shares of the Company. The Code generally requires withholding at a 30 percent rate on dividends paid by the Company to non-United States stockholders, unless a treaty applies which reduces or Page 2 3 Dell Computer Corporation February 21, 1995 eliminates such withholding. In certain circumstances, backup withholding, as discussed below, at a rate of 31 percent may apply to payments to non-United States stockholders. For purposes of this paragraph, a non-United States stockholder includes a non-resident alien individual (other than certain former United States citizens or residents), a foreign corporation, a foreign partnership and a foreign trust or estate. 8. A holder of Series A Preferred Stock participating in the Conversion may be subject, under certain circumstances, to "backup withholding" at a 31 percent rate on certain payments. This withholding generally applies only if the holder (i) fails to furnish its social security or other taxpayer identification number ("TIN"), (ii) furnishes an incorrect TIN, (iii) fails to properly report interest or dividends and the Internal Revenue Service has notified the Company that the holder is subject to withholding, or (iv) fails, under certain circumstances, to provide a certified statement, signed under penalty of perjury, that the TIN provided is its correct number and that it is not subject to backup withholding. The backup withholding rules may apply to the payment of the Conversion Premium and cash paid in lieu of fractional shares. Any amount withheld from a payment to a holder under the backup withholding rules is allowable as a credit against such holder's federal income tax liability, provided that the required information is furnished to the Internal Revenue Service. Certain holders of Series A Preferred Stock (including, among others, corporations and certain foreign individuals) are not subject to backup withholding. No opinion is expressed as to whether particular holders of Series A Preferred Stock qualify for exemption from backup withholding. Except as otherwise discussed above, the foregoing discussion of the tax consequences to the stockholders is applicable only to stockholders who are citizens or residents of the United States for U.S. tax purposes and to domestic corporations. The discussion may not be applicable with respect to Series A Preferred Stock acquired as compensation, including Series A Preferred Stock acquired upon the exercise of options or Series A Preferred Stock held under the Company's employee benefit plans, or to Series A Preferred Stock held as other than a capital asset. Moreover, the discussion is not applicable to stockholders who hold, or who are related within the meaning of Section 318 of the Code to stockholders who hold, employee stock options of the Company. Except as set forth above, we express no opinion as to the tax consequences to any party, whether Federal, state, local or foreign, of the Conversion or any related transactions contemplated by the Conversion Offer. The foregoing opinion is based on current law. There can be no assurance that a change in the existing statutes, regulations or administrative pronouncements would not occur in the future which may have the effect of altering the tax consequences of the Conversion. This opinion is furnished to you solely for use in connection with the Offer of Premium. We hereby consent to the filing of this opinion as an exhibit to an Issuer Tender Offer Statement on Schedule 13E-4, including any amendments thereof. We also consent to the references to Baker & McKenzie under the heading "Certain Federal Income Tax Considerations" in the Offer of Premium. This opinion may not be used or relied upon for any other purpose and may not be circulated, quoted or otherwise referred to for any other purpose without our express written consent. Very truly yours, Baker & McKenzie Page 3 EX-99.(F) 14 QUESTION & ANSWER 1 QUESTIONS AND ANSWERS FOR USE BY DELL COMPUTER CORPORATION EMPLOYEES ONLY Q.1 WHY IS DELL MAKING THIS OFFER? A.1 Dell is making the Offer to provide an incentive for the immediate conversion of its Series A Preferred Stock into Common Stock. Dell believes it will get three benefits from the conversion. First, it will strengthen Dell's balance sheet by increasing common equity and reducing preferred equity. Second, it will eliminate or reduce the future dividend payments on the Series A Preferred Stock, which may improve Dell's credit-worthiness. Last, conversion will eliminate or reduce the uncertainty and potential effects on the market price of the Common Stock associated with the possible future conversion of the Series A Preferred Stock. [See "The Conversion Offer -- Purpose" in the Offer of Premium.] Q.2 WHY ISN'T DELL SIMPLY CALLING THE SERIES A PREFERRED STOCK FOR REDEMPTION IN ORDER TO FORCE CONVERSION? A.2 Dell is not permitted to call the Series A Preferred Stock for redemption until August 25, 1996. [See "Description of Capital Stock -- Series A Preferred Stock -- Redemption at Option of the Company" in the Offer of Premium.] Q.3 HOW DID DELL ARRIVE AT THE $8.25 CASH PREMIUM? A.3 In arriving at the $8.25 amount, Dell considered the estimated present value of dividend payments that are expected to be declared after February 15, 1995, through August 25, 1996, which is the first date that Dell may call the Series A Preferred Stock for redemption. We discounted those dividend payments at Dell's weighted average cost of capital. We also considered the prices at which shares of Series A Preferred Stock have been sold in private transactions, to the extent we could obtain that information, and the increase in those prices since the date the Series A Preferred Stock was issued. We considered the recent trading prices for Common Stock on the Nasdaq National Market. And we considered the potential benefits of increased liquidity in a public market that Dell could afford holders of Series A Preferred Stock who convert in the offer through Dell's offer to file a registration statement to give them a 30-day resale opportunity. [See "The Conversion Offer -- Conversion" in the Offer of Premium.] Holders should make their own assessment about value and liquidity in deciding whether to accept the offer. Neither Dell nor its Board of Directors makes any recommendation with respect to the offer. [See "The Conversion Offer--No Recommendation or Fairness Opinion" in the Offer of Premium.] Q.4 WILL HOLDERS OF SERIES A PREFERRED STOCK WHO ACCEPT THE CONVERSION OFFER RECEIVE ANY FURTHER SERIES A PREFERRED STOCK DIVIDENDS? A.4 No. The dividend that was paid on February 15, 1995 would be the last dividend that a holder of Series A Preferred Stock who converts would be entitled to receive. [See "The Conversion Offer--Regular Dividend Payments" in the Offer of Premium.]
1 2 Q.5 WHAT LIQUIDITY BENEFITS ARE PROVIDED BY THE OFFER? A.5 Part of the conversion offer is for Dell to file a registration statement with the SEC to allow the holders who convert to resell publicly the Common Stock issued on conversion in ordinary brokers' transactions. We will try to have the registration statement become effective soon after we complete the conversion offer, but Dell has the right to delay the effectiveness in its discretion until a later date as the Company determines may be required or advisable. Dell will keep the registration statement effective for 30 calendar days. [See "The Conversion Offer -- Resale Registration" in the Offer of Premium.] After that, the shares of Common Stock received on conversion cannot be sold publicly, but will be subject to all the transfer restrictions currently on the Series A Preferred Stock. We do not expect a market to develop for this restricted Common Stock. [See "Special Considerations -- Market for the Restricted Common Stock" in the Offer of Premium."] Q.6 WILL THE COMMON STOCK ISSUABLE ON CONVERSION BE FREELY TRADEABLE? A.6 No, not unless you participate in the Resale Registration by signing and returning the Registration Agreement. The Series A Preferred Stock was issued in a private placement, so the Common Stock issued on conversion will be restricted securities subject to the same transfer restrictions as the Series A Preferred Stock has. However, part of Dell's offer is to file a registration statement to allow the holders who convert a 30-day window to resell the Common Stock publicly in ordinary brokers' transactions. We expect the registration statement would become effective soon after Dell completes the conversion offer, but Dell has the right to delay the effectiveness in its discretion until a later date as the Company determines may be required or advisable. In any case, the SEC must approve whether and when the registration statement becomes effective. [See Q.12 and A.12. also.] [See "The Conversion Offer -- Resale Registration" in the Offer of Premium.] Q.7 WHEN WILL THE 30-DAY RESALE WINDOW BEGIN? A.7 We expect the registration statement would become effective soon after Dell completes the conversion offer. However, we may delay effectiveness at our discretion until a later date as we determine may be required or advisable. In any case, the SEC must approve whether and when the registration statement becomes effective. [See "The Conversion Offer -- Resale Registration" in the Offer of Premium.] Q.8 HOW WILL THE PAYMENT OF THE CONVERSION PREMIUM AFFECT DELL'S FINANCIAL STATEMENTS? A.8 The payment of the conversion premium will be treated for accounting purposes as an additional dividend on the Series A Preferred Stock. Accordingly, the aggregate amount of the conversion premium paid will be deducted from net income to determine the net income available to common stockholders for the period in which the offer is completed, which will be in the first quarter of fiscal 1996 unless the offer is extended or terminated. In addition, the weighted average shares outstanding used to calculate primary earnings per common share will include the shares of Common Stock issued upon conversion from the closing of the conversion offer to the end of the period. [See "Summary Consolidated Financial Data" in the Offer of Premium.] Q.9 WHAT IS THE TAX TREATMENT FOR DELL OF THE PREMIUM? A.9 It is a non-deductible dividend or redemption payment.
2 3 Q.10 WHAT IS THE TAX TREATMENT OF THE PREMIUM TO THE PREFERRED STOCKHOLDER? A.10 This is discussed in the Offer of Premium under the heading "Certain Federal Income Tax Considerations." You should read that and consult with your tax advisor. Dell understands it is more likely than not that the payment of the $8.25 cash conversion premium will be treated for tax purposes as ordinary dividend income to a recipient. However, there are a number of factors peculiar to a holder and what the holder does with the Common Stock that could affect this. Again, you should consult with your tax advisor. [See "Special Considerations -- Federal Income Tax Considerations" and "Certain Federal Income Tax Considerations" in the Offer of Premium.] Q.11 HOW MUCH OF THE OUTSTANDING SERIES A PREFERRED STOCK DOES DELL EXPECT TO CONVERT WITH THIS OFFER? A.11 We hope the combination of the $8.25 cash premium and the resale opportunity under the registration statement is attractive enough so that every share will be converted. However, each of the preferred stockholders will make an individual decision. Q.12 IS THERE A MINIMUM PARTICIPATION REQUIREMENT FOR THE OFFER? A.12 No. Dell intends to pay the $8.25 cash premium on any and all shares properly tendered for conversion. But Dell has the right to withdraw the offer at any time before closing without paying the premium. [See "The Conversion Offer -- Conditions" in the Offer of Premium.] Q.13 WHEN WILL THE PREMIUM OFFER END? A.13 The offer and withdrawal rights will end at midnight, New York City time, Wednesday, March 22, 1995, unless Dell extends the offer. Dell also has the right to withdraw the offer at any time before closing without paying the conversion premium. [See "The Conversion Offer -- Expiration and Extension" and "The Conversion Offer -- Modification and Termination" in the Offer of Premium.] Q.14 CAN DELL CHANGE THE TERMS OF THE OFFER AND RESALE? A.14 Yes. Dell has reserved the right to change the terms of the offer and resale, and Dell would give notice of changes in accordance with the SEC's rules. [See "The Conversion Offer -- Modification and Termination" in the Offer of Premium.] Q.15 WHEN WILL STOCKHOLDERS BE ABLE TO USE THE RESALE REGISTRATION STATEMENT [WHEN WILL DELL FILE THE RESALE REGISTRATION STATEMENT?] A.15 [Dell filed the registration statement when it began the conversion offer in order to give the SEC time to review it.] Dell currently intends to use its reasonable commercial efforts to complete the resale registration statement for shares of Common Stock issued in the conversion offer as soon as is reasonably practicable after the end of the conversion offer. Stockholders will not be able to sell that Common Stock publicly under the registration statement until the SEC declares it effective. We expect to try to get the registration statement declared effective shortly after Dell closes the conversion offer in late March, but we may delay the effectiveness in our discretion until a later date as we determine may be required or advisable. Of course, the SEC has discretion whether or not to declare the registration statement effective, so some of the timing is not in Dell's control. See "The Conversion Offer -- Resale Registration" in the Offer of Premium.]
3 4 Q.16 WHAT WILL HAPPEN TO SERIES A PREFERRED STOCK THAT IS NOT CONVERTED IN THE OFFERING? A.16 Series A Preferred Stock that is not converted in the offering will not get the $8.25 cash premium and will not be able to be resold publicly under the registration statement Dell plans to file. That Series A Preferred Stock will remain outstanding, will continue to receive quarterly preferred dividend payments and will keep all the other rights and preferences it currently has. However, there is only a limited private market for the Series A Preferred Stock right now, and any market could be substantially reduced for shares of Series A Preferred Stock remaining outstanding after the offer. You should carefully read "Special Considerations -- Market for the Series A Preferred Stock" in the Offer of Premium. Q.17 WHAT HAPPENS IF A HOLDER OF SERIES A PREFERRED STOCK CHOOSES TO CONVERT BUT NOT TO RESELL UNDER THE REGISTRATION STATEMENT? A.17 The shares of Series A Preferred Stock are not registered securities, and the Common shares to be issued upon conversion will not be registered other than in that registration statement Dell plans to make available for a 30-day period. If a holder of Series A Preferred Stock accepts the conversion offer but does not take advantage of the 30-day resale registration, the person will hold restricted Common Stock with substantial trading limitations. The Series A Preferred Stock currently has a very limited private trading market, and Dell expects the private trading market for the Common Stock issued on conversion of Series A Preferred Stock will be more limited. Dell does not believe there would be a meaningful opportunity for liquidity until the holder could resell under Rule 144. You should carefully read "Special Considerations -- Market for the Series A Preferred Stock" in the Offer of Premium. Q.18 WHEN WILL THE COMMON STOCK ISSUABLE UPON CONVERSION BECOME ELIGIBLE FOR TRADING UNDER RULE 144? A.18 That's a question you should ask your lawyer. For most holders, Dell expects that they will be able to dribble out their Common Stock in broker's transactions after August 26, 1995, but they will have to comply with additional transfer procedures and some specific provisions of Rule 144. After August 26, 1996, stock held by people other than affiliates should be freely tradable. I know I've left out details and procedures in these statements that lawyers would add, and key details are in "Special Considerations -- Market for the Restricted Common Stock" in the Offer of Premium. You should carefully read "Special Considerations" in the Offer of Premium and consult with your legal advisor. Q.19 ARE THERE ANY LIMITATIONS ON TRADING THE COMMON STOCK FOR STOCKHOLDERS WHO ACCEPT THE OFFER AND HAVE THEIR COMMON STOCK REGISTERED IN THE REGISTRATION STATEMENT? A.19 Yes, a few. They are described in the "Special Considerations" section of the Offer of Premium, which holders should read carefully. Also, holders should consult their own legal advisors about these limitations. Let me point out three limitations. First, the Common Stock covered by the registration statement may be sold only in ordinary broker's transactions during a 30-day window. It may not be sold in block trades or other kinds of transactions in which the broker buys as principal or acts as agent for the seller. [See "Special Considerations--Registration Agreement Provisions" in the Offer of Premium.]
4 5 Second, Common Stock to be issued on conversion cannot be used to cover short positions. If the shares are not included in the registration statement, they will be restricted and cannot be delivered to cover the short position. If the shares are included in the registration statement, a short sale would have to occur before the registration statement is effective -- which Dell understands is illegal gun-jumping under federal securities laws. Shares included in the registration statement may be offered or sold publicly only after the registration statement is declared effective and only during the Resale Window. [See "Special Considerations -- Short Sales" in the Offer of Premium.] Third, under SEC Rule 10b-6, any stockholder who decides to sell Common Stock pursuant to a registration statement is not permitted to bid for or buy shares of Common Stock for a period beginning 2 days before the date of sale and ending upon completion of their sales of Common Stock. This cooling-off period also applies to affiliates of the selling stockholder. [See "Special Considerations -- Cooling Off Period" in the Offer of Premium.] Again, read "Special Considerations" in the Offer of Premium and consult your own legal advisor. Q.20 CAN A PREFERRED STOCKHOLDER WITH A SHORT POSITION IN DELL'S COMMON STOCK USE THE COMMON STOCK RECEIVED UPON CONVERSION TO CLOSE OUT THE HOLDER'S SHORT POSITION? A.20 No. If the shares are not included in the registration statement, they will be restricted and cannot be delivered to cover the short position. If the shares are included in the registration statement, a short sale would have to occur before the registration statement is effective--which Dell understands is illegal gunjumping. Shares included in the registration statement may be offered or sold only after the registration statement is declared effective. You should read the discussion in "Special Considerations-Short Sales" and consult your own legal advisor. Q.21 I'M A PREFERRED STOCKHOLDER. HOW DO I GET MATERIALS TO PARTICIPATE IN THE CONVERSION OFFER? A.21 Materials were sent on February 21, 1995 to holders of record. If a broker or other custodian holds your shares registered in its name, the broker should forward materials to you. You then should instruct your broker whether you want to participate in the Conversion Offer. You may also get materials from the Conversion Agent, Citibank, N.A. Citibank's telephone number is (800) 422-2066. Or I can take your address and have the Conversion Agent send the materials to you.
[For all other questions, please direct the person to the relevant portion of the Offer to Purchase or related documents.] 5 -----END PRIVACY-ENHANCED MESSAGE-----