-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PWHG3Ru3Vyo8oOuK20mppQw6m537FSHhQkpQaDzwKdNsxeqaJ/Kgy7HWTvoKhNfi Sb0V4wsXzeEy5xg7aE570A== 0000950134-98-009625.txt : 19981215 0000950134-98-009625.hdr.sgml : 19981215 ACCESSION NUMBER: 0000950134-98-009625 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19981101 FILED AS OF DATE: 19981214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DELL COMPUTER CORP CENTRAL INDEX KEY: 0000826083 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPUTERS [3571] IRS NUMBER: 742487834 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-17017 FILM NUMBER: 98769072 BUSINESS ADDRESS: STREET 1: ONE DELL WAY CITY: ROUND ROCK STATE: TX ZIP: 78682-2244 BUSINESS PHONE: 5123384400 MAIL ADDRESS: STREET 1: ONE DELL WAY CITY: ROUND ROCK STATE: TX ZIP: 78682 10-Q 1 FORM 10-Q FOR QUARTER ENDED NOVEMBER 1, 1998 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 NOVEMBER 1, 1998 --------------------- COMMISSION FILE NUMBER: 0-17017 --------------------- DELL COMPUTER CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 74-2487834 (State of incorporation) (I.R.S. Employer ID No.)
ONE DELL WAY ROUND ROCK, TEXAS 78682 (Address of principal executive offices) (512) 338-4400 (Telephone number) --------------------- INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING TWELVE MONTHS AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] No [ ] AS OF THE CLOSE OF BUSINESS ON DECEMBER 10, 1998, 1,272,252,873 SHARES OF THE REGISTRANT'S COMMON STOCK, PAR VALUE $.01 PER SHARE, WERE OUTSTANDING. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DELL COMPUTER CORPORATION CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (IN MILLIONS AND UNAUDITED) ASSETS
NOVEMBER 1, FEBRUARY 1, 1998 1998 ----------- ----------- Current assets: Cash...................................................... $ 519 $ 320 Marketable securities..................................... 2,278 1,524 Accounts receivable, net.................................. 2,157 1,486 Inventories............................................... 281 233 Other..................................................... 680 349 ------ ------ Total current assets.............................. 5,915 3,912 Property, plant and equipment, net.......................... 511 342 Other....................................................... 16 14 ------ ------ Total assets...................................... $6,442 $4,268 ====== ====== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $2,313 $1,643 Accrued and other......................................... 1,345 1,054 ------ ------ Total current liabilities......................... 3,658 2,697 Long-term debt.............................................. 512 17 Deferred revenue on warranty contracts...................... 247 225 Other....................................................... 78 36 ------ ------ Total liabilities................................. 4,495 2,975 ------ ------ Stockholders' equity: Preferred stock and capital in excess of $.01 par value; shares authorized: 5; shares issued and outstanding: none................................................... -- -- Common stock and capital in excess of $.01 par value; shares issued and outstanding: 1,271 and 1,287, respectively........................................... 1,462 747 Retained earnings........................................... 557 607 Other....................................................... (72) (61) ------ ------ Total stockholders' equity........................ 1,947 1,293 ------ ------ Total liabilities and stockholders' equity........ $6,442 $4,268 ====== ======
The accompanying notes are an integral part of these condensed consolidated financial statements. 1 3 DELL COMPUTER CORPORATION CONDENSED CONSOLIDATED STATEMENT OF INCOME (IN MILLIONS AND UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED ------------------------- ------------------------- NOVEMBER 1, NOVEMBER 2, NOVEMBER 1, NOVEMBER 2, 1998 1997 1998 1997 ----------- ----------- ----------- ----------- Net revenue........................................ $4,818 $3,188 $13,070 $8,590 Cost of revenue.................................... 3,732 2,471 10,125 6,691 ------ ------ ------- ------ Gross margin..................................... 1,086 717 2,945 1,899 ------ ------ ------- ------ Operating expenses: Selling, general and administrative.............. 471 312 1,296 832 Research, development and engineering............ 76 59 198 148 ------ ------ ------- ------ Total operating expenses...................... 547 371 1,494 980 ------ ------ ------- ------ Operating income.............................. 539 346 1,451 919 Financing and other................................ 9 13 26 36 ------ ------ ------- ------ Income before income taxes....................... 548 359 1,477 955 Provision for income taxes......................... 164 111 442 296 ------ ------ ------- ------ Net income....................................... $ 384 $ 248 $ 1,035 $ 659 ====== ====== ======= ====== Basic earnings per common share (in whole dollars)......................................... $ 0.30 $ 0.19 $ 0.82 $ 0.50 ====== ====== ======= ====== Diluted earnings per common share (in whole dollars)......................................... $ 0.28 $ 0.17 $ 0.74 $ 0.45 ====== ====== ======= ====== Weighted average shares outstanding: Basic......................................... 1,264 1,307 1,268 1,325 ====== ====== ======= ====== Diluted....................................... 1,381 1,442 1,396 1,474 ====== ====== ======= ======
The accompanying notes are an integral part of these condensed consolidated financial statements. 2 4 DELL COMPUTER CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (IN MILLIONS AND UNAUDITED)
NINE MONTHS ENDED ------------------------- NOVEMBER 1, NOVEMBER 2, 1998 1997 ----------- ----------- Cash flows from operating activities: Net income................................................ $ 1,035 $ 659 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization........................ 72 48 Other................................................ (5) 17 Changes in: Operating working capital.............................. 520 245 Non-current assets and liabilities..................... 62 33 -------- ------- Net cash provided by operating activities............ 1,684 1,002 -------- ------- Cash flows from investing activities: Marketable securities: Purchases.............................................. (11,293) (8,649) Maturities and sales................................... 10,565 8,492 Capital expenditures...................................... (238) (121) -------- ------- Net cash used in investing activities................ (966) (278) -------- ------- Cash flows from financing activities: Proceeds from issuance of long-term debt, net of issuance costs.................................................. 494 -- Purchase of common stock.................................. (1,128) (710) Issuance of common stock under employee plans............. 130 58 Cash received from sale of equity options................. -- 38 -------- ------- Net cash used in financing activities................ (504) (614) -------- ------- Effect of exchange rate changes on cash..................... (15) (3) -------- ------- Net increase in cash........................................ 199 107 Cash at beginning of period................................. 320 115 -------- ------- Cash at end of period....................................... $ 519 $ 222 ======== =======
The accompanying notes are an integral part of these condensed consolidated financial statements. 3 5 DELL COMPUTER CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 -- BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of Dell Computer Corporation (the "Company") should be read in conjunction with the consolidated financial statements and notes thereto filed with the Securities and Exchange Commission in the Company's Annual Report on Form 10-K for the fiscal year ended February 1, 1998. In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments of a normal recurring nature considered necessary to present fairly the financial position of the Company and its consolidated subsidiaries at November 1, 1998 and February 1, 1998, and the results of their operations and their cash flows for the three-month and nine-month periods ended November 1, 1998 and November 2, 1997. NOTE 2 -- COMMON STOCK On July 17, 1998, the Company's stockholders approved an amendment to the Company's Certificate of Incorporation to increase the number of shares of common stock, par value $.01 per share, that the Company is authorized to issue from one billion to three billion. On September 4, 1998, the Company effected a two-for-one common stock split by paying a 100% stock dividend to stockholders of record as of August 28, 1998. All share and per share information included in the accompanying condensed consolidated financial statements and related notes have been restated to reflect the stock split. NOTE 3 -- INVENTORIES
NOVEMBER 1, FEBRUARY 1, 1998 1998 ----------- ----------- (DOLLARS IN MILLIONS) Inventories: Production materials...................................... $243 $189 Work-in-process and finished goods........................ 38 44 ---- ---- $281 $233 ==== ====
NOTE 4 -- DEBT ISSUANCE In April 1998, the Company issued $200 million 6.55% fixed rate senior notes due April 15, 2008 (the "Senior Notes") and $300 million 7.10% fixed rate senior debentures due April 15, 2028 (the "Senior Debentures"). Interest on the Senior Notes and Senior Debentures is paid semi-annually. The Senior Notes and Senior Debentures are redeemable, in whole or in part, at the election of the Company for principal, any accrued interest and a redemption premium based on the present value of interest to be paid over the term of the debt agreements. The Senior Notes and Senior Debentures generally contain no restrictive covenants, other than a limitation on liens on the Company's assets and a limitation on sale-leaseback transactions. Concurrent with the issuance of the Senior Notes and Senior Debentures, the Company entered into interest rate swap agreements converting the Company's interest rate exposure from a fixed rate to a floating rate basis to better align the associated interest rate characteristics to its cash and marketable securities portfolio. The interest rate swap agreements have an aggregate notional amount of $200 million maturing April 15, 2008 and $300 million maturing April 15, 2028. The floating rates are based on three-month London interbank offered rates ("LIBOR") plus .40% and .79% for the Senior Notes and Senior Debentures, respectively. As a result of the interest rate swap agreements, the Company's effective interest rates for the Senior Notes and Senior Debentures were 6.09% and 6.48%, respectively, for the three-month and nine-month periods ended November 1, 1998. 4 6 DELL COMPUTER CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company has designated the issuance of the Senior Notes and Senior Debentures and the related interest rate swap agreements as an integrated transaction. Accordingly, the differential to be paid or received on the interest rate swap agreements is accrued and recognized as an adjustment to interest expense as interest rates change. NOTE 5 -- COMPREHENSIVE INCOME The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income" during the first quarter of fiscal 1999. SFAS No. 130 establishes new rules for the reporting and presentation of comprehensive income and its components. The Company's comprehensive income is comprised of net income, foreign currency translation adjustments and unrealized gains and losses on marketable securities held as available-for-sale investments. Comprehensive income of $374 million and $234 million, respectively, for the three-month periods ended November 1, 1998 and November 2, 1997, and $1,029 million and $634 million, respectively, for the nine-month periods ended November 1, 1998 and November 2, 1997, was not materially different from reported net income. NOTE 6 -- EARNINGS PER COMMON SHARE Basic earnings per share is based on the weighted effect of all common shares issued and outstanding, and is calculated by dividing net income available to common stockholders by the weighted average shares outstanding during the period. Diluted earnings per share is calculated by dividing net income available to common stockholders by the weighted average number of common shares used in the basic earnings per share calculation plus the number of common shares that would be issued assuming conversion of all potentially dilutive common shares outstanding. The following table sets forth the computation of basic and diluted earnings per share (in millions, except per share amounts):
THREE MONTHS ENDED NINE MONTHS ENDED ------------------------- ------------------------- NOVEMBER 1, NOVEMBER 2, NOVEMBER 1, NOVEMBER 2, 1998 1997 1998 1997 ----------- ----------- ----------- ----------- Net income.................................... $ 384 $ 248 $1,035 $ 659 ====== ====== ====== ====== Weighted average shares outstanding(a): Weighted average shares outstanding -- Basic..................... 1,264 1,307 1,268 1,325 Employee stock options and other............ 117 135 128 149 ------ ------ ------ ------ Weighted average shares outstanding -- Diluted................... 1,381 1,442 1,396 1,474 ====== ====== ====== ====== Earnings per common share(a): Basic....................................... $ 0.30 $ 0.19 $ 0.82 $ 0.50 Diluted..................................... $ 0.28 $ 0.17 $ 0.74 $ 0.45
- --------------- (a) All share and per share information has been retroactively restated to reflect the two-for-one split of the common stock in September 1998. NOTE 7 -- RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" which establishes accounting and reporting standards for derivative instruments and hedging activities. SFAS No. 133 requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. The Company is assessing the impact that the adoption of SFAS No. 133 will have on its consolidated financial statements. 5 7 DELL COMPUTER CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 8 -- LEGAL MATTERS The Company is subject to various legal proceedings and claims arising in the ordinary course of business. The Company's management does not expect that the outcome in any of these legal proceedings, individually or collectively, will have a material adverse effect on the Company's financial condition, results of operations or cash flows. 6 8 ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS All percentage amounts and ratios were calculated using the underlying data in thousands. Operating results for the three-month and nine-month periods ended November 1, 1998, are not necessarily indicative of the results that may be expected for the full fiscal year. RESULTS OF OPERATIONS The following table sets forth for the periods indicated the percentage of consolidated net revenue represented by certain items in the Company's condensed consolidated statement of income.
PERCENTAGE OF CONSOLIDATED NET REVENUE ----------------------------------------------------- THREE MONTHS ENDED NINE MONTHS ENDED ------------------------- ------------------------- NOVEMBER 1, NOVEMBER 2, NOVEMBER 1, NOVEMBER 2, 1998 1997 1998 1997 ----------- ----------- ----------- ----------- Net revenue: Americas.................................... 69.7% 72.0% 68.5% 70.1% Europe...................................... 24.4 22.0 25.2 22.9 Asia Pacific and Japan...................... 5.9 6.0 6.3 7.0 ----- ----- ----- ----- Consolidated net revenue................. 100.0 100.0 100.0 100.0 Cost of revenue............................... 77.5 77.5 77.5 77.9 ----- ----- ----- ----- Gross margin............................. 22.5 22.5 22.5 22.1 Operating expenses: Selling, general and administrative......... 9.8 9.8 9.9 9.7 Research, development and engineering....... 1.6 1.8 1.5 1.7 ----- ----- ----- ----- Total operating expenses................. 11.4 11.6 11.4 11.4 ----- ----- ----- ----- Operating income......................... 11.2 10.9 11.0 10.7 Financing and other........................... 0.2 0.4 0.2 0.4 ----- ----- ----- ----- Income before income taxes.................. 11.4 11.3 11.2 11.1 Provision for income taxes.................... 3.4 3.5 3.3 3.4 ----- ----- ----- ----- Net income.................................. 8.0% 7.8% 7.9% 7.7% ===== ===== ===== =====
Net Revenue Consolidated net revenue increased 51% and 52% in the third quarter and first nine months of fiscal 1999, respectively, over the comparable periods of fiscal 1998, and increased 11% over the second quarter of fiscal 1999. The increase in consolidated net revenue was primarily attributable to increased units sold. Unit sales increased 66% and 68% in the third quarter and first nine months of fiscal 1999, respectively, compared to the same periods of fiscal 1998, and increased 12% over the second quarter of fiscal 1999. Unit sales increased across all product lines for the third quarter and first nine months of fiscal 1999, compared to the same periods of fiscal 1998. Desktop products continue to be the primary component of unit sales, comprising 79% of total units sold during the third quarter and first nine months of fiscal 1999. However, the unit sales growth rate in enterprise systems (which includes servers, storage and workstations) and notebooks exceeded the unit sales growth rate of desktop products. During the third quarter and first nine months of fiscal 1999, enterprise unit sales increased 112% and 165%, respectively, compared to the third quarter and first nine months of fiscal 1998, and increased sequentially 13% over the second quarter of fiscal 1999. Notebook unit sales increased 141% and 123% in the third quarter and first nine months of fiscal 1999, compared to the same period of the prior fiscal year, and increased sequentially 16% over the second quarter of fiscal 1999. The effect of the increased unit sales on consolidated net revenue for the third quarter and first nine months of fiscal 1999 compared to the same periods of fiscal 1998 was partially offset by a decline in average revenue per unit sold of 9% and 10%, respectively. The decrease in average revenue per unit sold was primarily attributable 7 9 to price reductions as a result of component cost declines. On a sequential basis, average revenue per unit sold remained relatively flat in the third quarter of fiscal 1999. Net revenue increased in all geographic regions in the third quarter and the first nine months of fiscal 1999 as compared to the same periods of fiscal 1998. Net revenue for the third quarter of fiscal 1999 compared to the third quarter of fiscal 1998 increased 46% in the Americas, 68% in Europe and 49% in Asia-Pacific and Japan. Net revenue for the first nine months of fiscal 1999 compared to the first nine months of fiscal 1998 increased 48% in the Americas, 67% in Europe and 39% in Asia-Pacific and Japan. The increase in consolidated net revenue of 11% from the second quarter to the third quarter of fiscal 1999 was primarily attributable to revenue growth in the Americas of 13%, while Europe and Asia-Pacific and Japan also experienced sequential growth of 9% and 1%, respectively. Gross Margin The Company's gross margin as a percentage of consolidated net revenue remained flat at 22.5% in the third quarter of fiscal 1999, compared to the same period of fiscal 1998, and increased to 22.5% in the first nine months of fiscal 1999 from 22.1% in the comparable period of the prior fiscal year. The increase resulted primarily from component cost declines, which were generally passed through to customers, resulting in the aforementioned declines in average revenue per unit sold. The Company's gross margin as a percentage of consolidated net revenue decreased from the second quarter to the third quarter of fiscal 1999. Operating Expenses Selling, general and administrative expenses as a percentage of consolidated net revenue remained flat at 9.8% in the third quarter of fiscal 1999, compared to the same period of fiscal 1998, and increased to 9.9% in the first nine months of fiscal 1999 from 9.7% in the comparable period of the prior fiscal year. Selling, general and administrative expenses increased in absolute dollar amounts due primarily to the Company's increased staffing worldwide and increased infrastructure expenses, including those for information systems, to support the Company's continued growth. The Company's selling, general and administrative expenses as a percentage of consolidated net revenue decreased from the second quarter to the third quarter of fiscal 1999. Research, development and engineering expenses increased in absolute dollar amounts due to increased staffing levels and product development costs. Although total operating expenses may continue to increase in absolute dollar terms, the Company's goal is to manage these expenses, over time, relative to its consolidated net revenue and gross margins. Income Taxes The Company's effective tax rate was 30% for the third quarter and first nine months of fiscal 1999, compared with 31% for the third quarter and first nine months of fiscal 1998. The decrease in the Company's effective tax rate resulted from changes in the geographical distribution of its income and losses. LIQUIDITY AND CAPITAL RESOURCES The following table presents selected financial statistics and information:
NOVEMBER 1, FEBRUARY 1, 1998 1998 ----------- ----------- (DOLLARS IN MILLIONS) Cash and marketable securities.............................. $2,797 $1,844 Working capital............................................. $2,257 $1,215 Days of sales in accounts receivable........................ 40 36 Days of supply in inventory................................. 7 7 Days in accounts payable.................................... 56 51
8 10 Cash flow from operating activities was $1.7 billion for the first nine months of fiscal 1999, which resulted primarily from the Company's net income and increase in operating working capital. During the third quarter of fiscal 1999, the Company repurchased 18 million shares of common stock at an average cost of $22 per share. The Company is currently authorized to repurchase up to 100 million additional shares of its available common stock and anticipates that such repurchases will constitute a significant use of future cash resources. At November 1, 1998, the Company had equity option arrangements that entitle it to purchase 40 million additional shares of common stock at an average cost of $28 per share at various times through the third quarter of fiscal 2000. The above share and per share information has been restated to reflect the Company's two-for-one stock split effected on September 4, 1998. The Company utilized $238 million in cash during the first nine months of fiscal 1999 to improve and equip facilities. Cash flows for capital expenditures for fiscal 1999 are expected to be approximately $340 million. During fiscal 1998, the Company entered into a master lease facility providing the capacity to fund up to $227 million. During the third quarter of fiscal 1999, the Company entered into an additional master lease facility providing the capacity to fund up to $593 million. Both agreements provide for the ability to lease certain real property, buildings and equipment to be constructed or acquired. At November 1, 1998, $127 million has been utilized. In April 1998, the Company issued $200 million in Senior Notes and $300 million in Senior Debentures. See Note 4 of Notes to Condensed Consolidated Financial Statements. Management believes that the Company will have sufficient resources available to meet its cash requirements for the foreseeable future, including working capital requirements, planned capital expenditures and stock repurchases. FACTORS AFFECTING THE COMPANY'S BUSINESS AND PROSPECTS There are numerous factors that affect the Company's business and the results of its operations. These factors include general economic and business conditions; the level of demand for personal computers; the level and intensity of competition in the computer industry and the pricing pressures that may result; the ability of the Company to timely and effectively manage periodic product transitions and component availability; the ability of the Company to develop new products based on new or evolving technology and the market's acceptance of those products; the ability of the Company to manage its inventory levels to minimize excess inventory, declining inventory values and obsolescence; the product, customer and geographic sales mix of any particular period; the Company's ability to continue to improve its infrastructure (including personnel and systems) to keep pace with the growth in its overall business activities; and the Company's ability to ensure its products and internal systems and devices will be Year 2000 compliant and to assess the Year 2000 readiness and risk to the Company of its third party providers, and implement effective contingency plans where needed. For a discussion of these and other factors affecting the Company's business and prospects, see "Item 1 -- Business -- Factors Affecting the Company's Business and Prospects" in the Company's Annual Report on Form 10-K for the fiscal year ended February 1, 1998. YEAR 2000 COMPLIANCE Computers, software and other equipment utilizing microprocessors that use only two digits to identify a year in a date field may be unable to process accurately certain date-based information referencing the year 2000. This is commonly referred to as the "Year 2000 issue." The Company is addressing this issue on several different fronts. First, all Dell-branded hardware products shipped since January 1, 1997 are Year 2000 certified; and the Company has provided BIOS upgrades and software utilities to bring earlier Dell-branded hardware products to a level of Year 2000 compliance. The Company has assigned a team to monitor product Year 2000 compliance and has created a website at www.dell.com/year2000 containing additional information about the Year 2000 issue and the Company's Year 2000 program. Second, the Company requires Year 2000 compliance for all hardware and software products through its purchasing process. Third, the Company has assigned a team to assess the Year 2000 readiness and risk to the Company of its critical vendors and 9 11 suppliers, and is in the early phase of developing contingency plans to address potential unanticipated interruptions or down time. Finally, the Company has a team assigned to coordinate the Year 2000 program for its internal systems and devices. At present, Year 2000 compliance of the Company's internal systems and devices is scheduled to be substantially complete by the end of 1998, with continued testing of compliance throughout 1999. The total costs related to the Company's Year 2000 program are not estimated to be material to its financial position or results of operations, and are charged to expense as incurred. The total cost estimate does not include potential costs related to any customer or other claims or the cost of internal software and hardware replaced in the normal course of business. The total cost estimate is based on the current assessment of the Company's Year 2000 program and is subject to change as it progresses. Based on current information and assessment, the Company does not believe that the Year 2000 issue discussed above related to products sold to customers or internal systems will be material to its financial position or results of operations or that its business will be adversely affected in any material respect. Nevertheless, achieving Year 2000 compliance is dependent on many factors, some of which are not completely within the Company's control. Should either the Company's internal systems or one or more critical vendors or suppliers fail due to Year 2000 issues, the Company's business and its results of operations could be adversely affected. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." See Note 7 of Notes to Condensed Consolidated Financial Statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Concurrent with the issuance of the Senior Notes and Senior Debentures, described above, the Company entered into interest rate swap agreements converting the Company's interest rate exposure from a fixed rate to a floating rate basis to better align the associated interest rate characteristics to its cash and marketable securities portfolio. The interest rate swap agreements have an aggregate notional amount of $200 million maturing April 15, 2008 and $300 million maturing April 15, 2028. The floating rates are based on three-month LIBOR rates plus .40% and .79% for the Senior Notes and Senior Debentures, respectively. As a result of the interest rate swap agreements, the Company's effective interest rates for the Senior Notes and Senior Debentures were 6.09% and 6.48%, respectively, for the three-month and nine-month periods ended November 1, 1998. Any basis point increase or decrease in interest rates would result in an equivalent increase or decrease in the Company's effective interest rates for the Senior Notes and Senior Debentures. However, the effects of such changes would be mitigated by offsetting trends in the Company's cash and marketable securities portfolio. For a description of the Company's other market risks, see disclosures in "Item II -- Management's Discussion and Analysis of Financial Condition and Results of Operations -- Market Risk" in the Company's Annual Report on Form 10-K for the fiscal year ended February 1, 1998. 10 12 PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is subject to various legal proceedings and claims arising in the ordinary course of business. The Company's management does not expect that the results in any of these legal proceedings will have a material adverse effect on the Company's financial condition, results of operations or cash flows. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. The following exhibits are filed as part of this Report:
EXHIBIT NO. DESCRIPTION OF EXHIBIT ----------- ---------------------- 99 -- Amended and Restated Dell Computer Corporation 1998 Broad-Based Stock Option Plan, Effective October 30, 1998 27 -- Financial Data Schedule
(b) Reports on Form 8-K. None. 11 13 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 December 14, 1998 /s/ JAMES M. SCHNEIDER ------------------------------------ James M. Schneider Senior Vice President, Finance (On behalf of the registrant and as chief accounting officer) 12 14 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 99 -- Amended and Restated Dell Computer Corporation 1998 Broad-Based Stock Option Plan, Effective October 30, 1998 27 -- Financial Data Schedule
13 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DELL COMPUTER CORPORATION FINANCIAL STATEMENTS AS OF AND FOR THE NINE MONTH PERIOD ENDED NOVEMBER 1, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 9-MOS JAN-31-1999 NOV-01-1998 519 2,278 2,183 26 281 5,915 744 233 6,442 3,658 512 0 0 1,462 485 6,442 13,070 13,070 10,125 10,125 198 0 18 1,477 442 1,035 0 0 0 1,035 .82 .74 Item consists of research, development and engineering.
EX-99 3 AMENDED/RESTATED DELL 1998 BROAD-BASED STOCK PLAN 1 EXHIBIT 99 AMENDED AND RESTATED DELL COMPUTER CORPORATION 1998 BROAD-BASED STOCK OPTION PLAN EFFECTIVE DATE: OCTOBER 30, 1998 I. PURPOSE OF THE PLAN The DELL COMPUTER CORPORATION 1998 BROAD-BASED STOCK OPTION PLAN (the "Plan") is intended to provide a means whereby certain employees of DELL COMPUTER CORPORATION, a Delaware corporation (the "Company"), and its subsidiaries may develop a sense of proprietorship and personal involvement in the development and financial success of the Company, and to encourage them to remain with and devote their best efforts to the business of the Company, thereby advancing the interests of the Company and its stockholders. Accordingly, the Company may grant to certain employees ("Optionees") the option ("Option") to purchase shares of the common stock of the Company ("Stock"), as hereinafter set forth. The only options which may be granted under the Plan shall be options which do not constitute incentive stock options, within the meaning of section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code"). II. ADMINISTRATION The Plan shall be administered by the Office of the Chief Executive Officer of the Company (the "OOC"). The OOC shall have sole authority to select the Optionees from among those individuals eligible hereunder and to establish the number of shares which may be issued under each Option. In selecting the Optionees from among individuals eligible hereunder and in establishing the number of shares that may be issued under each Option, the OOC may take into account the nature of the services rendered by such individuals, their present and potential contributions to the Company's success and such other factors as the OOC in its discretion shall deem relevant. The OOC is authorized to interpret the Plan and may from time to time adopt such rules and regulations, consistent with the provisions of the Plan, as it may deem advisable to carry out the Plan. All decisions made by the OOC in selecting the Optionees, in establishing the number of shares which may be issued under each Option and in construing the provisions of the Plan shall be final. III. OPTION AGREEMENTS (a) Each Option shall be evidenced by a written agreement executed on behalf of the Company ("Option Agreement") which shall contain such terms and conditions as may be approved by the OOC. The terms and conditions of the respective Option Agreements need not be identical. Any question as to the interpretation of any provision of an Option Agreement, including the determination of the existence or nonexistence of a specified condition or circumstance, shall be determined by the OOC, and its determination shall be final. (b) The OOC may at any time and from time to time, in its sole discretion, accelerate the time at which an Option then outstanding may be exercised. Any such action by the OOC may vary among individual Optionees and may vary among Options held by any individual Optionee. 2 (c) For all purposes under the Plan, the fair market value of a share of Stock on a particular date shall be equal to the average of the high and low sales prices of the Stock (i) reported by the Nasdaq National Market on that date or (ii) if the Stock is listed on a national stock exchange, reported on the stock exchange composite tape on that date; or, in either case, if no prices are reported on that date, on the last preceding date on which such prices of the Stock are so reported. If the Stock is traded over the counter at the time a determination of its fair market value is required to be made hereunder, its fair market value shall be deemed to be equal to the average between the reported high and low or closing bid and asked prices of Stock on the most recent date on which Stock was publicly traded. In the event Stock is not publicly traded at the time a determination of its value is required to be made hereunder, the determination of its fair market value shall be made by the OOC in such manner as it deems appropriate. (d) Each Option and all rights granted thereunder shall not be transferable other than by will or the laws of descent and distribution. (e) As used in Option Agreements, the following terms shall have the respective meanings set forth below: (i) "Disability" shall mean, with respect to a person, a physical or mental impairment of sufficient severity that, in the opinion of the Company, the person is unable to continue performing the duties the person performed before such impairment and that impairment or condition is cited by the Company as the reason for termination of the person's employment with the Company and its Subsidiaries (as defined below). (ii) "Normal Retirement" shall mean, with respect to a person, the termination of such person's employment with the Company and its Subsidiaries by reason of retirement at any time on or after the date on which the person reaches age 65 if the person is employed in the United States of America or such other age as provided for by the OOC as the normal retirement age in the country where the person is employed. IV. ELIGIBILITY OF OPTIONEE Options may be granted hereunder to any individual who (a) is an employee of the Company or any Subsidiary of the Company at the time the Option is granted and (b) holds a position with the Company or such Subsidiary that is within or below the grade of "D2" (as specified in the Company's current employee job and pay classification system) or equivalent. For purposes of the Plan, the term "Subsidiary" of the Company shall mean any corporation, limited partnership or other entity of which a majority of the voting power of the voting equity securities or a majority of the equity interests is owned, directly or indirectly, by the Company. V. SHARES SUBJECT TO THE PLAN The aggregate number of shares which may be issued under Options granted under the Plan shall not exceed 7,000,000 shares of Stock. Such shares may consist of authorized but unissued shares of Stock or (where permitted by applicable law) previously issued shares of Stock reacquired by the Company. Any of such shares which remain unissued and which are not subject to outstanding Options at the termination of the Plan shall cease to be subject to the Plan, but, until termination of the Plan, the Company shall at all times make available a sufficient number of shares to meet the requirements of the Plan. Should any Option hereunder expire or terminate prior to its exercise in full, the shares theretofore subject to such 2 3 Option may again be subject to an Option granted under the Plan. The aggregate number of shares which may be issued under the Plan shall be subject to adjustment in the same manner as provided in Paragraph VIII hereof with respect to shares of Stock subject to Options then outstanding. Exercise of an Option in any manner shall result in a decrease in the number of shares of Stock which may thereafter be available by the number of shares as to which the Option is exercised. VI. OPTION PRICE The purchase price of Stock issued under each Option shall be determined by the OOC, but such purchase price shall not be less than 100% of the fair market value of Stock subject to the Option on the date the Option is granted. VII. TERM OF PLAN The Plan shall be effective upon the date of its adoption by the Board of Directors of the Company (the "Board"). Except with respect to Options then outstanding, if not sooner terminated under the provisions of Paragraph IX, the Plan shall terminate upon and no further Options shall be granted after the expiration of ten years from the date of its adoption by the Board. VIII. RECAPITALIZATION OR REORGANIZATION (a) The existence of the Plan and the Options granted hereunder shall not affect in any way the right or power of the Board or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company's capital structure or its business, any merger or consolidation of the Company, any issue of debt or equity securities, the dissolution or liquidation of the Company or any sale, lease, exchange or other disposition of all or any part of its assets or business or any other corporate act or proceeding. (b) The shares with respect to which Options may be granted are shares of Stock as presently constituted, but if, and whenever, prior to the expiration of an Option theretofore granted, the Company shall effect a subdivision or consolidation of shares of Stock or the payment of a stock dividend on Stock without receipt of consideration by the Company, the number of shares of Stock with respect to which such Option may thereafter be exercised (i) in the event of an increase in the number of outstanding shares shall be proportionately increased, and the purchase price per share shall be proportionately reduced, and (ii) in the event of a reduction in the number of outstanding shares shall be proportionately reduced, and the purchase price per share shall be proportionately increased. (c) If the Company recapitalizes, reclassifies its capital stock, or otherwise changes its capital structure (a "recapitalization"), the number and class of shares of Stock covered by an Option theretofore granted shall be adjusted so that such Option shall thereafter cover the number and class of shares of stock and/or securities to which the Optionee would have been entitled pursuant to the terms of the recapitalization if, immediately prior to the recapitalization, the Optionee had been the holder of record of the number of shares of Stock then covered by such Option. If (i) the Company shall not be the surviving entity in any merger, consolidation or other reorganization (or survives only as a subsidiary of an entity), (ii) the Company sells, leases or exchanges all or substantially all of its assets to any other person or entity, (iii) the Company is to be dissolved and liquidated, (iv) any person or entity, including a "group" as contemplated by Section 13(d)(3) of the 1934 Act, acquires or gains ownership 3 4 or control (including, without limitation, power to vote) of more than 50% of the outstanding shares of the Company's voting stock (based upon voting power), or (v) as a result of or in connection with a contested election of directors, the persons who were directors of the Company before such election shall cease to constitute a majority of the Board (each such event is referred to herein as a "Corporate Change"), no later than (a) ten days after the approval by the stockholders of the Company of such merger, consolidation, reorganization, sale, lease or exchange of assets or dissolution or such election of directors or (b) thirty days after a change of control of the type described in Clause (iv), the Board, acting in its sole discretion without the consent or approval of any Optionee, shall act to effect one or more of the following alternatives, which may vary among individual Optionees and which may vary among Options held by any individual Optionee: (1) accelerate the time at which Options then outstanding may be exercised so that such Options may be exercised in full for a limited period of time on or before a specified date (before or after such Corporate Change) fixed by the Board, after which specified date all unexercised Options and all rights of Optionees thereunder shall terminate, (2) require the mandatory surrender to the Company by selected Optionees of some or all of the outstanding Options held by such Optionees (irrespective of whether such Options are then exercisable under the provisions of the Plan) as of a date, before or after such Corporate Change, specified by the Board, in which event the Board shall thereupon cancel such Options and the Company shall pay to each Optionee an amount of cash per share equal to the excess, if any, of the amount calculated in Subparagraph (d) below (the "Change of Control Value") of the shares subject to such Option over the exercise price(s) under such Options for such shares, (3) make such adjustments to Options then outstanding as the Board deems appropriate to reflect such Corporate Change (provided, however, that the Board may determine in its sole discretion that no adjustment is necessary to Options then outstanding) or (4) provide that the number and class of shares of Stock covered by an Option theretofore granted shall be adjusted so that such Option shall thereafter cover the number and class of shares of stock or other securities or property (including, without limitation, cash) to which the Optionee would have been entitled pursuant to the terms of the agreement of merger, consolidation or sale of assets and dissolution if, immediately prior to such merger, consolidation or sale of assets and dissolution, the Optionee had been the holder of record of the number of shares of Stock then covered by such Option. (d) For the purposes of clause (2) in Subparagraph (c) above, the "Change of Control Value" shall equal the amount determined in clause (i), (ii) or (iii), whichever is applicable, as follows: (i) the per share price offered to stockholders of the Company in any such merger, consolidation, reorganization, sale of assets or dissolution transaction, (ii) the price per share offered to stockholders of the Company in any tender offer or exchange offer whereby a Corporate Change takes place, or (iii) if such Corporate Change occurs other than pursuant to a tender or exchange offer, the fair market value per share of the shares into which such Options being surrendered are exercisable, as determined by the Board as of the date determined by the Board to be the date of cancellation and surrender of such Options. In the event that the consideration offered to stockholders of the Company in any transaction described in this Subparagraph (d) or Subparagraph (c) above consists of anything other than cash, the Board shall determine the fair cash equivalent of the portion of the consideration offered which is other than cash. (e) Any adjustment provided for in Subparagraphs (b) or (c) above shall be subject to any required shareholder action. (f) Except as hereinbefore expressly provided, the issuance by the Company of shares of stock of any class or securities convertible into shares of stock of any class, for cash, property, labor or services, upon direct sale, upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into 4 5 such shares or other securities, and in any case whether or not for fair value, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number of shares of Stock subject to Options theretofore granted or the purchase price per share. IX. AMENDMENT OR TERMINATION OF THE PLAN The Board in its discretion may terminate the Plan at any time with respect to any shares for which Options have not theretofore been granted. The Board shall have the right to alter or amend the Plan or any part thereof from time to time. In addition, the OOC (without the necessity of specific Board action) shall have the power and authority to make or approve revisions or modifications to the terms and provisions of the Plan on behalf of the Board and from time to time, so long as such revisions or modifications are (in the judgment of the OOC) necessary, appropriate or desirable to effectuate the purposes of the Plan and do not effect a material change in the structure or purposes of the Plan. Notwithstanding the above, however, no change in any Option theretofore granted may be made which would impair the rights of the Optionee without the consent of such Optionee. X. SECURITIES LAWS (a) The Company shall not be obligated to issue any Stock pursuant to any Option granted under the Plan at any time when the offering of the shares covered by such Option have not been registered under the Securities Act of 1933 (the "Securities Act") and such other state, federal or foreign laws, rules or regulations as the Company or the Board deems applicable and, in the opinion of legal counsel for the Company, there is no exemption from the registration requirements of such laws, rules or regulations available for the offering and sale of such shares. (b) The Company intends to register for issuance under the Securities Act the shares of common stock issuable upon exercise of Options and to keep such registration effective throughout the period any Options are exercisable. In the absence of such effective registration or an available exemption from registration under the Securities Act, issuance of shares of common stock issuable upon exercise of Options may be delayed until registration of such shares is effective or an exemption from registration under the Securities Act is available. The Company intends to use its best efforts to ensure that no such delay will occur. In the event exemption from registration under the Securities Act is available upon an exercise of Options, the Option holder (or the person otherwise permitted to exercise such Options), if requested by the Company to do so, shall execute and deliver to the Company in writing an agreement containing such provisions as the Company may require to assure compliance with applicable securities laws. (c) At the time of any exercise of an Option, the Company may, as a condition precedent to the exercise of such Option, require from the holder of the Option such written representations, if any, concerning the holder's intentions with regard to the retention or disposition of the shares of stock being acquired pursuant to such exercise and such written covenants and agreements, if any, as to the manner of disposal of such shares as, in the opinion of counsel to the Company, may be necessary to ensure that any disposition by that holder will not involve a violation of the Securities Act or any other applicable securities law or regulation. (d) The certificates representing the shares of common stock issued pursuant to an exercise of Options may bear such legend or legends as the OOC deems appropriate in order to assure compliance with applicable securities laws and regulations. The Company may refuse to register the transfer of the shares of common stock issued pursuant to an exercise of 5 6 Options on the stock transfer records of the Company if such proposed transfer would, in the opinion of counsel to the Company, constitute a violation of any applicable securities law or regulation, and the Company may give related instructions to its transfer agent, if any, to stock registration of the transfer of the shares of common stock issued pursuant to an exercise of Options. XI. NON-U.S. EMPLOYEES The OOC shall determine, in its discretion, whether it is desirable or feasible under local law, custom and practice to grant Options under the Plan to eligible employees described in Paragraph IV in countries other than the United States. In order to facilitate the grant of Options under this Paragraph, the OOC may provide for such modifications and additional terms and conditions ("special terms") in Option awards to employees who are employed outside the United States (or who are foreign nationals temporarily within the United States) as the OOC may consider necessary, appropriate or desirable to accommodate differences in local law, policy or custom or to facilitate administration of the Plan. The special terms may provide that the grant of an Option is subject to (a) applicable governmental or regulatory approval or other compliance with local legal requirements or (b) the execution by the employee of a written instrument in the form specified by the OOC, and that in the event such requirements or conditions are not satisfied, the grant shall be void. The special terms may (but need not) also provide that an Option shall become exercisable if an employee's employment with the Company and its Subsidiaries ends as a result of workforce reduction, realignment or similar measure. The OOC may adopt or approve sub-plans, appendices or supplements to, or amendments, restatements or alternative versions of, the Plan as it may consider necessary, appropriate or desirable for purposes of implementing any special terms, without thereby affecting the terms of the Plan as in effect for any other purpose. The special terms and any appendices, supplements, amendments, restatements or alternative versions, however, shall not include any provisions that are inconsistent with the terms of the Plan as then in effect, unless the Plan could have been amended to eliminate such inconsistency without further approval by the Board. XII. GOVERNING LAW The Plan, and all Option Agreements issued under the Plan, shall be governed by, and construed in accordance with, the laws of the State of Delaware. 6 -----END PRIVACY-ENHANCED MESSAGE-----