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UNITED STATES

Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

For the Fiscal Year Ended February 2, 2001

Commission File Number: 0-17017

Dell Computer Corporation

807 Las Cimas Parkway, Building 2, Austin, Texas 78746

(512) 338-4400

Securities Registered Pursuant to Section 12(g) of the Act:

Common Stock, par value $.01 per share

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

DOCUMENTS INCORPORATED BY REFERENCE

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

Statements in this Report that relate to future results and events are based on the Company’s current expectations. Actual results in future periods may differ materially from those currently expected or desired because of a number of risks and uncertainties. For a discussion of factors affecting the Company’s business and prospects, see “Item 1 — Business — Factors Affecting the Company’s Business and Prospects.”

PART I

ITEM 1 — BUSINESS

General

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

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

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

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

Business Strategy

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

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

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

The Internet

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

Comprehensive Customer Relationships

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

Cooperative Research and Development

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

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Custom-Built Computer Systems

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

Custom-Tailored Service and Support Programs

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

Geographic Areas of Operations

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

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

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

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

Products and Services

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

Enterprise Systems

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

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

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

Notebook Computers

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

Desktop Computers

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

Beyond the Box Products and Services

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

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

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

Sales and Marketing

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

Relationship Customers

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

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

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

Transactional Customers

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

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Internet Customers

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

Leasing and Asset Management Services

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

Service and Support

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

Technical Support and Warranty Programs

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

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

Additional Options

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

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

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

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

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

Consulting Services

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

Manufacturing

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

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

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Product Development

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

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

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

Dell Ventures

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

Patents, Trademarks and Licenses

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

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

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

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

Infrastructure

Management Information Systems

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

Employees

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

Government Regulation

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

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

Backlog

The Company does not believe that backlog is a meaningful indicator of sales that can be expected for any period, and there can be no assurance that the backlog at any point in time will translate into sales in any subsequent period. At the end of fiscal year 2001, 2000, and 1999, backlog was not material.

Factors Affecting the Company’s Business and Prospects

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

General economic and industry conditions

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

Competition

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

International activities

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

Product, customer and geographic mix

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

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Seasonal trends

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

Technological changes and product transitions

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

Inventory management/supplies

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

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

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

Risk on financial instruments

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

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Strength of infrastructure

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

Patent rights

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

Equity investments

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

Trademarks and Service Marks

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

Executive Officers of the Company

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

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

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

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

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

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

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

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

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

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

ITEM 2 — PROPERTIES

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

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

Domestic Properties

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

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

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

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

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

International Properties

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

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

ITEM 3 — 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 4 — SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

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

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PART II

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

Market Information

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

Holders

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

Dividends

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

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ITEM 6 — SELECTED FINANCIAL DATA

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

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Description of Business

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

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

The following discussion highlights the Company’s performance in the context of these priorities. This discussion should be read in conjunction with the Consolidated Financial Statements, including the related notes. Statements in this Report that relate to future results and events are based on the Company’s current expectations. Actual results in future periods may differ materially from those currently expected or desired because of a number of risks and uncertainties. For a discussion of factors affecting the Company’s business and prospects, see “Item 1 — Business — Factors Affecting the Company’s Business and Prospects.”

Results of Operations

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

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Net Revenue

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

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

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

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

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

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Gross Margin

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

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

Operating Expenses

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

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

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

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

Income Taxes

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

Investment and Other Income, Net

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

Liquidity and Capital Resources

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

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During fiscal year 2001, 2000, and 1999, the Company generated $4.2 billion, $3.9 billion, and $2.4 billion, respectively, in cash flows from operating activities, which represents the Company’s principal source of cash. Cash flows from operating activities resulted primarily from the Company’s net income, changes in operating working capital, and income tax benefits that resulted from the exercise of employee stock options.

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

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

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

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

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

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

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

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

Market Risk

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

Foreign Currency Hedging Activities

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

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

Investments

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

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

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 the Company’s products and services; the level and intensity of competition in the technology industry and the pricing pressures that have resulted; the ability of the Company to timely and effectively manage periodic product transitions, as well as component availability and cost; the ability of the Company to develop new products based on new or evolving technology and the market’s acceptance of those products; the ability of the Company to manage its inventory levels to minimize excess inventory, declining inventory values and obsolescence; the product, customer and geographic sales mix of any particular period; the Company’s ability to recover its investments in venture capital activities; and the Company’s ability to effectively manage its operating costs. For a discussion of these and other factors affecting the Company’s business and prospects, see “Item 1 — Business — Factors Affecting the Company’s Business and Prospects.”

Recently Issued Accounting Pronouncements

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

ITEM 7A — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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ITEM 8 — FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

All other schedules are omitted because they are not applicable.

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REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of

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

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

PRICEWATERHOUSECOOPERS LLP

Austin, Texas

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DELL COMPUTER CORPORATION

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

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DELL COMPUTER CORPORATION

CONSOLIDATED STATEMENT OF INCOME

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

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DELL COMPUTER CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS