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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED JANUARY 30, 1994
COMMISSION FILE NUMBER: 0-17017
DELL COMPUTER CORPORATION
9505 ARBORETUM BOULEVARD
AUSTIN, TEXAS 78759-7299
(512) 338-4400
A DELAWARE CORPORATION IRS EMPLOYER ID NO. 74-2487834
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES ACT OF 1934 DURING
THE PRECEDING 12 MONTHS, AND (2) IT HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS
FOR THE PAST 90 DAYS. YES /X/ NO / /
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. / /
AS OF MARCH 24, 1994, THE AGGREGATE MARKET VALUE OF THE COMMON STOCK HELD
BY NON-AFFILIATES OF THE REGISTRANT WAS $727,015,985.
AS OF MARCH 24, 1994, THE REGISTRANT HAD OUTSTANDING 38,178,970 SHARES OF
ITS COMMON STOCK, $.01 PAR VALUE. INFORMATION RELATING TO THE COMMON STOCK HAS
BEEN RETROACTIVELY RESTATED TO GIVE EFFECT TO A 3 FOR 2 SPLIT OF THE COMMON
STOCK IN THE FORM OF A 50% STOCK DIVIDEND DECLARED BY THE COMPANY'S BOARD OF
DIRECTORS AS OF MARCH 6, 1992 FOR HOLDERS OF RECORD AS OF MARCH 23, 1992. THE
DISTRIBUTION OF SUCH DIVIDEND OCCURRED ON APRIL 9, 1992.
DOCUMENTS INCORPORATED BY REFERENCE
PART III OF THIS REPORT IS INCORPORATED BY REFERENCE TO THE REGISTRANT'S
DEFINITIVE PROXY STATEMENT RELATING TO ITS ANNUAL MEETING OF STOCKHOLDERS, WHICH
WILL BE FILED WITH THE COMMISSION WITHIN 120 DAYS OF THE END OF FISCAL 1994.
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Unless otherwise indicated, all references to years in connection with
financial information refer to the Company's fiscal years. The Company's fiscal
year ends on the Sunday closest to January 31 of each year. Fiscal 1994 ended on
January 30, 1994, fiscal 1993 ended on January 31, 1993, fiscal 1992 ended on
February 2, 1992, and fiscal 1995 will end on January 29, 1995.
PART I
ITEM 1. BUSINESS
Dell Computer Corporation (the "Company" or "Dell") is the fifth largest
personal computer vendor in the world and had fiscal 1994 consolidated net sales
of $2.87 billion. Dell markets and provides complete personal computer solutions
directly to its customers, which include major corporate, government and
education accounts as well as value-added remarketers, system integrators, small
businesses and individuals. These complete personal computer solutions are
customized to the end-user's specifications and comprise customized hardware,
integrated software and peripherals, tailored maintenance and support, and
value-added services. Information Dell obtains from its direct customer
relationships helps Dell understand and tailor its offerings to end-users'
needs. Dell supplements its direct marketing strategy by selling personal
computer systems through mass merchants in several countries to penetrate
further the individual and small-business market.
A key element in the Company's growth has been the development of the
Dell(R)brand of personal computers, which has become one of the leading brand
names in the industry. All of the 59 personal computer systems currently offered
by the Company have been introduced since August 1, 1993. Many of the systems
can be custom configured with a variety of hardware including multimedia devices
such as CD-ROM and sound cards as well as an assortment of memory, mass storage
and other options. As part of its commitment to complete personal computer
solutions, the Company also markets a wide range of software, peripherals, and
service and support programs.
As the personal computer market has matured it has become more segmented,
with customers seeking distribution channels that provide better overall value.
Buyers' considerations now include the convenience of purchasing the entire
personal computer solution (hardware, software and peripherals) from a single
vendor, the convenience of obtaining support for that entire solution from a
single vendor, and the ability to obtain customized products and services at
competitive prices. The consistency and quality with which a vendor can meet
buyers' needs is also important.
Since incorporating in 1984, the Company has grown rapidly because of the
effectiveness and efficiency of its approach to meeting customer needs. The
Company's effectiveness is driven by its ability to design, package, market and
support computer products; provide customized products and services; and be
accessible and responsive in providing post-sale service and support. The
efficiency of Dell's approach is driven by its direct interaction with the
customer, thus avoiding high inventory and occupancy costs of physical stores.
Dell's approach also generally avoids the inefficiency and mark-ups associated
with the typical industry model, where products move through a multi-step
process involving manufacturers, distributors, retail stores and a variety of
value-added service providers.
Dell Computer Corporation was originally incorporated in Texas in May 1984.
In October 1987, the current Delaware corporation was formed and the renamed
successor to the Texas company became a subsidiary of the Delaware corporation.
Based in Austin, Texas, the Company operates wholly-owned subsidiaries in
Australia, Canada, The Czech Republic, France, Germany, Ireland, Japan, Mexico,
the Netherlands, Norway, Poland, Spain, Sweden, the United Kingdom, and the
United States of America. Dell Computer Corporation's Common Stock, $.01 Par
Value, (the "Common Stock") is quoted on the NASDAQ National Market System under
the trading symbol DELL.
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THE DELL DIRECT RELATIONSHIP MARKETING STRATEGY
Dell's primary strategy is to develop and utilize direct customer
relationships to understand end-users' needs and to deliver high quality
personal computer products and services tailored to meet those needs. The
Company provides its customers with individualized service, from the initial
order to custom configured manufacturing and to post-sale service and support,
including technical support and on-site service. The Company uses feedback from
this broad base of customer contact to refine its product, marketing and
customer support plans.
Although the Company believes its direct marketing strategy offers many
advantages to certain customers, direct marketing does not offer end-users
physical access to products before the purchase decision. A certain portion of
personal computer buyers (primarily medium-to small-sized businesses and
individuals) desire physical access to products, particularly at the time they
make their first personal computer purchase. This is a primary reason the
Company has supplemented its direct marketing strategy through distribution
agreements with mass merchants in several countries, including Best Buy,
CompUSA, and Sam's Clubs in the United States; Price/CostCo in the United
States, Canada and Mexico; Future Shop in Canada; and PC World in the United
Kingdom. Each of these companies operates a chain of stores or clubs through
which the Company sells selected products.
There is no single customer of Dell, or any value added remarketer or
distributor of the Company's products, to which aggregate sales amounted to ten
percent or more of the Company's consolidated revenues for any of the three
years ended in 1994.
INTERNATIONAL OPERATIONS
Dell's direct relationship approach is a worldwide strategy that has been
well received in geographic markets in which it has been introduced. The Company
currently sells personal computer products in more than 115 countries through
selected distributors and wholly-owned and operated subsidiaries in Australia,
Canada, The Czech Republic, France, Germany, Ireland, Japan, Mexico, the
Netherlands, Norway, Poland, Spain, Sweden, and the United Kingdom. Many of the
Company's international subsidiaries were originally formed as stand-alone
businesses providing sales, technical support and customer service. While this
approach facilitated effective and rapid market penetration, it also created
redundant marketing and support programs in the subsidiaries. The Company is in
the process of consolidating common functions, primarily in Europe, to create
regional business units that reduce redundant costs and improve the Company's
ability to deliver quality services in that market.
The Company has maintained a strong focus on local management in its
international operations, retaining experienced professionals to head each of
its subsidiaries. Dell's manufacturing facility in Ireland now supplies
virtually all of the products the Company sells in Europe, the Middle East and
Africa. The Company believes that its international growth affords significant
opportunities to achieve higher levels of operating and economic efficiencies.
The Company is considering several ways to enhance its international presence in
addition to implementing the Company's restructuring announced during 1994. Dell
intends to continue to expand its international activities by increasing market
presence in existing markets, improving support systems, pursuing additional
international manufacturing and distribution opportunities, and entering new
markets primarily through third-party resellers. The success and profitability
of international operations may be adversely affected by conditions that differ
from conditions in the United States, including economic and labor conditions,
political instability, tax laws (including, but not limited to, U.S. taxes on
foreign subsidiaries), and changes in the value of the United States dollar
versus the local currency in which products are sold. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Hedging Activities."
The Company's European operations contributed net revenues of $782 million
for 1994, a 41% increase over $553 million in net revenues for 1993. European
net revenues for 1993 represented a 129% increase over 1992. Other international
sales increased 85% to $136 million for 1994, following a 157% increase in 1993
over 1992. These increases resulted primarily from increased sales in existing
markets and, to a lesser extent, expansion into new markets.
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MARKETING AND SALES
The Company markets its products to businesses, government agencies,
academic institutions and individuals. Specialized marketing approaches are
tailored to meet the needs of each type of customer in a cost effective manner.
During the last half of 1994, Dell began introducing new personal computer
products that targeted distinct markets based on customer usage and buyer
preferences. This allows the Company to meet specific customer needs and desires
more effectively. These new products also help profit margins by reducing price
conflicts inherent in offering similar products in different markets. The new
products include six product lines designed for distinct markets: OmniPlex(TM),
for mission-critical business operations; OptiPlex(TM), for advanced stand-alone
applications; NetPlex, for corporate network environments; Dell Dimension(TM)
XPS, for technologically sophisticated users; and Dell Dimension and Dell
Precision(TM), for value-minded customers. Since January 30, 1994, the Company
has introduced two new personal computer product lines: the PowerEdge(TM) server
line offering performance and reliability for network applications; and the
Latitude(TM) notebook personal computer line, marking the first stage of the
Company's phased re-entry into the notebook computer market.
National Accounts
The Company has developed marketing programs and services specifically
geared to large corporate, government, medical, and education customers. Account
management teams consisting of sales, customer service and technical support
representatives provide each large account with a single source of assistance on
issues ranging from order placement to system configuration and connectivity. To
support these teams, Dell has account executives in many major cities in North
America and Europe. Customers with in-house maintenance organizations can elect
to receive specialized training on Dell's systems, a repair parts assistance
program, and access to high level technical support from the Company. Customized
product delivery and service programs are available on a worldwide basis.
Dell currently has a broad base of business among the Fortune 500(R)
companies and governmental and educational institutions worldwide. The Company's
government customers include the U.S. Federal government and various state and
local governments. The Company has held a U.S. General Services Administration
Schedule contract since June 1987, through which U.S. federal governmental
agencies may purchase the Company's computers and equipment. Consolidated net
sales to major corporate, government and education accounts led sales gains in
1994, increasing 51% to $1.44 billion from $953 million in 1993. U.S. Federal
government sales were stronger than normal in the third quarter of 1994 because
of a surge in buying at the end of the U.S. Federal government's budget year,
which resulted in a larger than normal decline of 58% in the fourth quarter of
1994 as the U.S. Federal government entered a new budget year. Sales to major
corporate, government and education accounts increased 129% in 1993 from $416
million in 1992. Sales to this customer group represented approximately 50% of
consolidated net sales in 1994 and 47% in 1993.
Medium-to Small-Sized Businesses and Individuals
A broad range of medium-to small-sized businesses and individuals have
chosen to buy directly from Dell. The Company provides these customers with
competitive prices, knowledgeable sales assistance, custom configuration and
post-sale service and support. The Company markets to these customers by
advertising in trade and general business publications, participating in
industry trade shows and conferences, and mailing a broad range of direct
marketing publications such as promotional pieces, catalogs and customer
newsletters. Dell also sells its personal computer systems through Best Buy,
CompUSA, and Sam's Clubs in the United States; Price/CostCo in the United
States, Canada, and Mexico; Future Shop in Canada; and PC World in the United
Kingdom. These mass merchants provide end users with physical access to the
Company's products in a showroom setting while the Company is able to maintain
the direct relationship with the end-user through post-sale service and support.
In 1994, sales to medium-to small-businesses and individuals increased 31% to
$1.03 billion from $787 million in 1993. Sales to this customer group
represented 36% of consolidated net sales in 1994 and 39% in 1993.
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Value Added Remarketers and System Integrators ("VARs")
VARs sell computer systems customized to specific end-user applications
through the addition of hardware, software or services. Because VARs package
complete application-specific solutions, they are in an ideal position to
benefit from the Company's custom manufacturing and technical and marketing
support programs. To provide VARs with added flexibility, the Company offers
several programs tailored directly to their needs. For example, VARs can
purchase complete systems from the Company and have them shipped directly to the
user's installation site, allowing VARs to reduce inventory carrying costs,
preserve margins, and avoid the risk of price cuts on systems held in inventory.
The Company has specialized account teams trained to meet the needs of its VARS.
Sales to VARs increased 46% to $401 million in fiscal 1994 from $274 million in
fiscal 1993. Sales to this customer group represented approximately 14% of
consolidated net sales in both 1994 and 1993.
Marketing Information Systems
The Company's information systems enable the Company to track each unit
sold from the initial sales contacts through the manufacturing process and
post-sale service and support. The Company's marketing information systems
assist the Company in tracking key information about many of its customers from
the initial sales contact through the sales, manufacturing and post-sale service
and support processes. The Company is able to target marketing activities
specifically to particular types of customers using its database to assess
purchasing trends, advertising effectiveness, and customer and product
groupings.
SERVICE AND SUPPORT
The Company offers its customers comprehensive service and support programs
tailored to meet varying levels of customer requirements. Customers with
problems or questions may talk to trained Company specialists through a
toll-free telephone number. These specialists maintain close contact with
marketing, manufacturing and product design groups and can obtain the
configuration and prior service history of the customer's system. Customer phone
calls provide direct feedback that the Company uses to update a centralized
database of information. The Company tracks customer support calls by category
in order to spot and correct trends that may signal a design or manufacturing
concern. Many of Dell's currently offered computer systems include software that
enables customers to diagnose and communicate system problems. In addition, a
built-in diagnostics system on many of the Company's newer computer systems
provides on-line information about in-process system operation. The Company's
support offerings in the United States include an automated toll-free, 24-hour
TechFax(SM) service that enables customers to access portions of the Company's
technical database by telephone and to receive technical instructions or
diagrams by facsimile within minutes.
Recognizing that customer requirements vary, Dell introduced SelectCare(SM)
in January 1993. SelectCare offers different service programs that enable
customers to pay only for the level of service they need. The programs cater
primarily to large organizations that have their own service operations or that
need more sophisticated levels of support. These programs include: (i) Dell
Parts Only, which provides up to four additional years of parts warranty
coverage; (ii) Parts and Labor, providing on-site service for up to four
additional years; (iii) Self-Maintainer program, designed for companies with
in-house service capabilities, which provides instruction for servicing of Dell
computers; and (iv) Third-Party Maintenance, designed for companies that retain
an outside service provider but request access to Dell second-level toll-free
technical support, electronic bulletin board and fax services. The Company's
general service programs include unlimited toll-free customer service and
technical support on hardware products, a comprehensive field service program, a
one-year limited warranty on hardware and an unconditional 30-day money back
guarantee on hardware for any end-user buying directly from the Company.
Other new, specialized programs introduced in 1994 include a broad array of
service and support options tailored for advanced systems customers, as well as
programs dedicated for mobile computing customers.
Dell also offers BusinessCare(SM), which is designed specifically for
corporate users involved in local or wide area networks. BusinessCare is a
flexible, multi-faceted three-year service plan that provides next-
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business-day on-site service and next-business-day parts delivery. It also
offers a "Getting Started" helpline, access to technical service information via
Dell's TechFax and bulletin board services, an optional four-hour Critical
Care(R) response system in major metropolitan areas and DirectLine(SM) (an
around-the-clock toll-free support line manned by Novell and Banyan-certified
network engineers).
The Company offers next-day on-site service contracts as part of its
worldwide field service program. This on-site service, which is provided by the
Company or by BancTec Service Corp. ("BancTec"), Digital Equipment Corporation
("DEC") and other service companies, is available to resolve customer problems
that cannot be resolved by telephone. Through its agreement with BancTec, Dell
offers deskside service contracts with four-hour service on certain systems in
major U.S. metropolitan locations. The Company's contract with BancTec
authorizes the Company to offer service contracts on BancTec's behalf to the
Company's customers in the United States. The Company has entered into similar
service agreements for many of its customers outside the United States. The
Company believes that it could offer acceptable replacement services from
another third-party vendor if any of its service agreements were terminated.
PRODUCT DEVELOPMENT
The Company employs a product development team that includes programmers,
technical project managers and engineers experienced in system architecture,
logic board and chip design, sub-system development, mechanical engineering and
operating systems design. This team has progressively assumed control of the
design of several key components for which the Company previously relied on
outside vendors. This design capability has allowed the Company to develop
circuits specific to its system requirements, thereby increasing the
functionality, manufacturability, reliability, serviceability and performance of
its products while keeping costs competitive. All of the Company's 59 personal
computer systems currently offered have been introduced since August 1, 1993.
The Company takes steps to determine that new products are compatible with
industry standards and that they meet cost objectives based on competitive
pricing targets.
The Company's expenditures on research, development and engineering
activities approximated $49 million in fiscal 1994 compared with $42 million for
1993. The Company considers its research, development and engineering activities
to be important to its success and growth.
THE DELL PRODUCT PORTFOLIO
The Company has eight Dell-branded lines of personal computer systems,
including the PowerEdge server line and the Latitude notebook computer line
announced in February 1994. The Company completed the first phase of its
re-entry into the notebook computer market with the introduction on February 21,
1994, of four 486-based Dell Latitude notebook computers.
The Dell PowerEdge line includes sixteen servers consisting of eight
Pentium-based systems and eight 486-based systems. The PowerEdge servers are
intended for resource sharing as well as groupware and database markets. The
OmniPlex line comprises two PentiumTM and five 486-based systems that are
targeted for the corporate user who works in a mission-critical environment
requiring a powerful workstation. The OptiPlex line comprises twelve 486-based
systems that are targeted at corporate customers who require advanced features
and performance. The NetPlex line comprises six 486-based systems that are
targeted at corporate customers looking for an inexpensive network computer. The
Dell Dimension XPS line comprises one Pentium-based and two 486-based systems
that are targeted at technologically sophisticated users. Each Dell Dimension
XPS system can be configured in either a desktop or a floorstanding model. Each
system in these lines is marketed directly to end-users, and certain OmniPlex
and OptiPlex systems are also marketed through CompUSA. Each system can be
custom configured with a variety of hardware including multimedia devices such
as CD-ROM and sound cards as well as an assortment of memory, mass storage and
other options. Each system is backed by Dell's comprehensive service and support
program, which includes compatibility, service and response guarantees.
The Dell Dimension and Dell Precision lines comprise six and five personal
computer systems, respectively. Certain systems can be configured as either
desktop or floorstanding models. The Dell Dimension and the Dell Precision lines
are essentially similar designs. The Dell Dimension line is marketed through the
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Company's direct sales force. The Dell Precision line is marketed through Best
Buy, CompUSA, Price/CostCo and Sam's Clubs. Systems sold by third parties are
sold in set configurations and are supported by the Company's basic service and
support offerings.
In addition to its own branded products, the Company offers a broad range
of software and peripheral products through its DellWare(TM) program. The
DellWare line offers more than 4,000 of the most popular software packages and
hardware peripherals. In February 1993, Dell expanded its third-party
applications software integration capabilities with ReadyWare(TM), a collection
of more than 100 popular software applications that can be factory-installed on
all Dell systems. The Company offers next business day delivery as well as an
extended support program from Software Support, Inc. of Lake Mary, Florida, on
more than 120 of its software offerings. This support program includes a 24-hour
toll-free software support line.
The Company enhances its personal computer systems offerings with a number
of specialized services, including custom hardware and software integration and
network installation and support. For example, the Company offers custom
configuration, installation and support of integrated network solutions based on
Novell's network operating systems. Under this program, the Company offers
turnkey solutions for networking offices that need basic Local Area Networks or
for linking workgroups with more complex networks. The Company offers a number
of other hardware and software integration services tailored to specific
end-user needs.
GOVERNMENT REGULATION
In the United States, the Federal Communications Commission ("FCC")
regulates the radio frequency emissions of personal computing equipment. The FCC
has established two standards for computer products, Class A and Class B. Only
Class B products may be sold for use in a residential environment. Both Class A
and Class B products may be sold for use in a commercial environment. The
Company periodically tests or hires consultants to test its products to ensure
that the products satisfy applicable FCC regulations. All of the Company's
current desktop and portable systems are sold under Class B certification; many
of the network servers sold by the Company are under Class A certification, but
some are sold under Class B certification. From time to time, the Company has
experienced delays in securing FCC certification and there can be no assurance
that such delays will not occur in the future.
The Company is also required to obtain regulatory approvals in other
countries prior to the sale or shipment of personal computing equipment. In
certain jurisdictions such requirements are more stringent than in the United
States. Any delays or failures in obtaining necessary approvals from foreign
jurisdictions may impede or preclude the Company's efforts to penetrate such
markets and there can be no assurance that such failures or delays will not
occur in the future.
THE DELL MANUFACTURING PROCESS
Dell's manufacturing process consists of assembly, functional testing and
quality control of the Company's products and related components, parts and
subassemblies. A flexible manufacturing process allows the Company to
custom-configure personal computer systems to specific customer orders. Although
this custom configuration process offers the Company significant advantages, it
makes it more difficult for it to achieve the same manufacturing efficiencies as
computer manufacturers that sell standardized products in high volume. The
Company's sales representatives enter customer orders into a computerized order
entry system. Once customer credit is approved, the orders are electronically
dispatched to manufacturing for production and shipment. The Company's
information systems allow it to monitor customer orders from order placement to
delivery and assists the Company in tracking key information about many of its
systems sold and its customers from the initial sales contact through the sales,
manufacturing and post-sale service and support processes.
The Company manufactures all of its desktop and server personal computer
systems at its Austin, Texas, and Limerick, Ireland, manufacturing facilities.
The Company contracts with other companies to manufacture unconfigured base
notebook personal computers which the Company configures for shipment to
customers.
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Quality control is maintained through testing of components, parts and
subassemblies at various stages in the manufacturing process. Quality control
also includes a burn-in period for completed units after assembly, on-going
production reliability audits, failure tracking for early identification of
production problems, and information from the Company's customers obtained
through its toll-free telephone support service. Both the U.S. and the Irish
manufacturing facilities have been certified as meeting ISO 9002 quality
standards.
All components, parts and subassemblies are purchased from outside sources
on a purchase order basis and, in certain cases, through supply contracts.
Certain items, including the Pentium and i486(TM) microprocessors, are available
from only one source. However, even when multiple vendors are available, the
Company may establish a working relationship with a single source when the
Company believes it is advantageous for total cost of ownership reasons
including performance, quality, support, delivery and price considerations.
BACKLOG
The Company does not believe that backlog is a meaningful indicator of
sales that can be expected for any time period. In conjunction with its effort
to minimize the time between customer order and product delivery, it is the
Company's policy to hold its backlog of customer orders to a minimum. Backlog
represented $38 million at January 30, 1994. Consistent with the Company's
return policy, customers may cancel or reschedule orders without penalty prior
to commencement of manufacturing.
COMPETITION
The personal computer industry is highly competitive and has been
characterized by frequent introduction of new products, continual improvement in
computer performance characteristics, decreasing average selling prices, and
increased competition at both the manufacturing and retail levels. Pricing is
very competitive and margins have been reduced. The Company's practice is to
price its personal computers so that they present attractive price and
performance characteristics and customer support services when compared to the
products of other leading personal computer makers. The Company expects pricing
pressures to continue, and it may choose to reduce prices when practicable.
These pricing pressures, when not mitigated by cost reductions and a higher
margin product mix, can result in reduced profit margins. Further, some of the
Company's competitors have significantly greater financial, marketing,
manufacturing and technological resources, broader product lines, greater brand
name recognition and larger installed customer bases than the Company. There can
be no assurance that the Company will continue to compete successfully.
PATENTS, TRADEMARKS AND LICENSES
The Company holds thirty United States patents and six issued foreign
patents. As of March 24, 1994, the Company had 188 United States patent
applications pending, and 33 foreign applications pending in several European
and Asian countries. The Company's United States patents expire in 2005 through
2011. The inventions claimed in the applications cover aspects of the Company's
current and possible future personal computer products and related technologies.
The Company is developing a portfolio of patents that are anticipated to be of
value in negotiating intellectual property rights with others in the industry.
The Company has obtained U.S. Federal trademark registration on the mark
DELL, and has pending applications for registration of 10 other trademarks. The
DELL trademark registration in the U.S. may be renewed as long as the mark
continues to be used in commerce. The Company believes that establishment of the
mark DELL in the U.S. is material to the Company's operations. The Company has
also applied for or obtained registration of the DELL mark and several other
marks in approximately 75 other countries where the Company conducts or
anticipates expanding its international business. The Company also has taken
steps to reserve corporate names and to form non-operating subsidiaries in
certain foreign countries where the Company anticipates expanding its
international business. The Company is precluded from obtaining a registration
for trademarks incorporating the term "Dell" in certain foreign countries. The
Company does not believe that its inability to register "Dell" as a trademark in
such countries will have a material adverse effect on its business.
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The Company has entered into a patent license agreement with IBM effective
as of August 1, 1993, under which the parties have licensed to one another
within prescribed fields of use all current patents and all patents entitled to
an effective application filing date prior to February 1, 1999, which are owned
by either of the parties or any of their subsidiaries. Under the agreement, the
Company will also make royalty payments to IBM. The agreement terminates on the
latest expiration date of the patents licensed thereunder.
On March 5, 1993, Dell and Texas Instruments, Inc. ("TI") entered into an
agreement to cross-license their respective patent portfolios. Under the terms
of the agreement, Dell makes annual royalty payments to TI. The agreement
expires on January 31, 1998.
The Company has entered into non-exclusive licensing agreements with
Microsoft Corporation for various software packages, including MS-DOS and
Windows. The license grants the Company the right to distribute copies of MS-DOS
and Windows through March 31, 1996, with the right, at the Company's election,
to extend the license for up to five additional years. In addition, the Company
has entered into a non-exclusive license agreement with Phoenix for basic
input-output system (BIOS) and other software that facilitates compatibility
between the Company's products and products manufactured and sold by other
companies. The license agreement with Phoenix provides for a perpetual license
on a royalty-free basis for a nominal annual maintenance fee.
From time to time, other companies and individuals assert exclusive patent,
copyright, trademark and other intellectual property rights to technologies or
marks that are important to the personal computer industry or the Company's
business. The Company evaluates each claim relating to its products and, if
appropriate, seeks a license to use the protected technology. For example, the
Company has entered into a licensing agreement with IBM providing for a license
under certain IBM computer patents. The licensing agreement with IBM does not
require IBM to assist the Company in duplicating its patented technology and
does not protect the Company from trade secret, copyright or other violations by
the Company or its suppliers in developing or selling these products.
The Company could be at a disadvantage if its competitors obtain licenses
for protected technologies with more favorable terms than does the Company. If
the Company or its suppliers are unable to license protected technology used in
the Company's products, the Company could be prohibited from marketing those
products or may have to market products without desirable features. The Company
could also incur substantial costs to redesign its products or to defend any
legal action taken against the Company. If the Company's products should be
found to infringe protected technology, the Company could be enjoined from
further infringement and required to pay damages to the infringed party. Any of
these results could have a material adverse effect on the Company.
TRADEMARKS
Several United States trademarks appear in this Annual Report. Intel is a
registered trademark and Pentium and i486 are trademarks of Intel Corporation.
Dell, DellWare and Dell System are registered trademarks of the Company. Dell
Dimension, Latitude, OmniPlex, OptiPlex, PowerEdge, Powerline and Precision are
trademarks of the Company. BusinessCare, ReadyWare, SelectCare and TechFax are
service marks of the Company. Other trademarks and tradenames are used to
identify the entities claiming the marks and names of their products. References
herein to Best Buy, Compaq, CompUSA, Future Shop, IBM, Novell, Price/CostCo and
Sam's Clubs mean, respectively, Best Buy Co., Inc., Compaq Computer Corporation,
CompUSA, Inc., Future Shop Discount Superstores, International Business Machines
Corporation, Novell, Inc., Price/CostCo, Inc. and Sam's Clubs, A Division of
WalMart Stores, Inc. The Company disclaims proprietary interest in the marks and
names of others.
EMPLOYEES
As of January 30, 1994, the Company had approximately 5,980 full-time
employees, 4,150 in the United States and 1,830 in other countries. The Company
has never experienced a work stoppage due to labor difficulties and believes
that its employee relations are good.
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SEGMENTS AND SEASONALITY
Dell operates in one industry segment: the design, manufacture, sale and
support of personal computers and related products. The Company experiences
seasonal trends in its U.S. and European corporate and government sectors. The
seasonal trends of these geographical regions have substantially offset each
other in the past, but there can be no assurance that these geographical regions
will continue to offset each other or that the Company will not experience
seasonal trends in the future.
ITEM 2. PROPERTIES
As of January 30, 1994, the Company had approximately 1,900,000 square feet
of space under lease worldwide. Approximately 1,400,000 square feet of this
space is in Austin, Texas. The remaining 500,000 square feet of space is used
for operations in North America, Europe, Mexico, Japan, Australia, and other
international locations.
Dell leases a 150,000 square foot, nine-story office building in Austin for
use as its headquarters. The lease on this building expires on April 30, 1995.
The Company's manufacturing and warehousing activities are conducted at a
700,000 square foot leased facility in Austin, Texas; 190,000 square feet of
leased warehousing facility in Europe, Canada, and other international
locations; and a 140,000 square foot manufacturing center in Limerick, Ireland
owned by the Company.
Although the Company believes that its facilities are adequate to meet
current requirements, Dell is currently expanding its Limerick, Ireland
facilities and has a 224,000 square foot office building under construction on
land owned by Dell in Round Rock, Texas. The Round Rock facility will be used as
a direct sales, marketing and support facility upon occupancy in August 1994.
The Company is evaluating other opportunities to expand facilities in
anticipation of increasing needs. The Company believes that it can readily
obtain appropriate additional space as may be required at competitive rates.
ITEM 3. LEGAL PROCEEDINGS
Set forth below is a discussion of certain legal proceedings involving the
Company, some of which could have a material adverse effect on the Company if
resolved against it. The Company is also party to other legal proceedings
incidental to its business, none of which the Company believes to be material.
The Company and its Chairman, Michael S. Dell, are defendants in nineteen
lawsuits filed between May and November 1993, in the United States District
Court for the Western District of Texas, Austin Division. Thomas J. Meredith,
the Company's Chief Financial Officer, is also a defendant in seven of the
lawsuits. Joel Kocher, Senior Vice President of the Company, is also a defendant
in one of the lawsuits, but the plaintiffs have conditionally agreed to dismiss
him. The suits have been consolidated, an amended and consolidated complaint has
been filed, and the plaintiffs have requested class certification for a class of
persons who purchased or held the Company's common stock between February 24,
1993, and July 14, 1993. In general, the plaintiffs allege that the Company made
overly optimistic forecasts about the Company's prospects without a reasonable
basis and failed to disclose adverse material information about the Company's
business (particularly with regard to problems in its notebook business) on a
timely basis, thereby inducing the plaintiffs to buy Company common stock at
artificially high prices. The plaintiffs also allege that Mr. Dell sold
securities of the Company while in the possession of material, non-public
information about the Company. The consolidated complaint asserts that these
actions or omissions violated various provisions of the federal securities laws,
particularly Section 10(b) of the Exchange Act and Rule 10b-5; that Mr. Dell's
trades violated Section 20A of the Exchange Act; and that the defendants
violated provisions of Texas statutes and common law principles against
negligent misrepresentation and deceit. The complaint seeks unspecified damages.
The Company has moved for dismissal of the complaint and intends to defend
itself and its officers vigorously. It is the Company's policy to make accruals
for potential liability or settlement of litigated matters as appropriate. The
Company believes that its current accruals with respect to these lawsuits are
adequate.
Since August 1992, the Company has been named as a defendant in sixteen
repetitive stress injury lawsuits, all in New York state courts or United States
District Courts for the New York City area. All of
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these lawsuits are similar: each plaintiff alleges that he or she suffers from
symptoms generally known as "repetitive stress injury," which allegedly were
caused by the design or manufacture of the keyboard supplied with the computer
the plaintiff used. The Company has denied or is in the process of denying the
claims and intends to vigorously defend the suits. The suits naming the Company
are just a few of many lawsuits of this type which have been filed, often naming
IBM, Atex, Keytronic and other major suppliers of keyboard products. To date,
the courts assigned to hear six of the cases against Dell have stayed most
activity, pending resolution of several preliminary legal issues related to the
large numbers of cases which have been consolidated for hearing before these
courts. The Company is unable to predict at this time the ultimate outcome of
these suits. It is possible that the Company may be named in additional suits,
but it is impossible to predict how many may be filed. Ultimate resolution of
the litigation against the Company may depend on progress on resolving this type
of litigation overall.
For information about a pending Securities and Exchange Commission informal
inquiry relating to foreign currency hedging and trading activities, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Hedging Activities." By letter dated July 21, 1993, the Commission
notified the Company that it was extending the informal inquiry to the
circumstances and events surrounding the public announcement on July 14, 1993,
about the Company's expected losses for its second quarter of 1994 and into the
Company's procedures for estimating sales. The Company and its independent
accountants are voluntarily cooperating with the Commission in its informal
inquiry.
On August 11, 1993, the Company received a subpoena from the United States
Department of Commerce, Office of Export Enforcement of the Bureau of Export
Administration, requiring the Company to provide all documents relative to any
and all exports of 486/66 personal computers or related components to Russia,
Ireland, Iran or Iraq during the period from January 1992 through August 1993 in
connection with an investigation to enforce regulations under the Export
Administration Act of 1979, as amended. If the Office of Export Enforcement's
investigators determine that the Company has violated applicable regulations,
the government could potentially file civil or criminal charges. The Company is
cooperating in the investigation. The Company does not believe this
investigation or its resolution will have a material adverse effect on the
Company's financial condition or results of operations.
The Company had received a request from the Federal Trade Commission (the
"FTC") dated July 27, 1993, to provide documents and other information in
connection with the FTC's inquiry to determine whether the Company's advertising
and marketing claims regarding upgradeability of its personal computers is in
violation of the Federal Trade Commission Act. On February 10, 1994, the FTC
advised the Company that no violation of the Federal Trade Commission Act had
been found and that the inquiry, as it related to the Company, was being closed.
The Company has received a request from the FTC dated January 5, 1994, to
provide documents and other information in connection with the FTC's inquiry to
determine whether the Company's advertising and marketing claims regarding
cathode ray tube ("CRT") monitor screen sizes are in violation of the Federal
Trade Commission Act. The Company is cooperating with the FTC in this inquiry.
The Company does not believe that the inquiry or its outcome will have a
material adverse effect on the Company's financial condition or results of
operations.
The Company has received a request from the FTC dated November 12, 1993,
requesting the Company's cooperation in an inquiry with respect to whether the
Company may have misrepresented or improperly failed to disclose patent rights
that would conflict with open use of a local high-speed personal computer bus
standard promulgated by the Video Electronics Standards Association (VESA). The
Company intends to cooperate in this inquiry. The Company does not believe that
the inquiry or its outcome will have a material adverse effect on the Company's
financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
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PART II
ITEM 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Common Stock is quoted on the NASDAQ National Market System under the
trading symbol DELL. The following table sets forth, for the fiscal quarters
indicated, the high and low reported closing sale price for the Common Stock as
reported on the NASDAQ National Market System.
HIGH LOW
---- ---
FISCAL 1994
Fourth Quarter
(November 1, 1993, through January 30, 1994).................................... $27-3/4 $20-3/4
Third Quarter
(August 2, 1993, through October 31, 1993)...................................... $21 $16-1/8
Second Quarter
(May 3, 1993, through August 1, 1993)........................................... $34 $15-7/8
First Quarter
(February 1, 1993, through May 2, 1993)......................................... $49 $28
FISCAL 1993
Fourth Quarter
(November 2, 1992, through January 31, 1993).................................... $49-3/8 $33-3/8
Third Quarter
(August 3, 1992, through November 1, 1992)...................................... $35-3/8 $22-5/8
Second Quarter
(May 4, 1992, through August 2, 1992)........................................... $28 $15-3/8
First Quarter
(February 3, 1992, through May 3, 1992)......................................... $28-1/8 $20-1/2
HOLDERS
As of March 24, 1994, there were 4,524 holders of record of the Common
Stock.
DIVIDENDS
The Company did not pay cash dividends on its common stock in 1993 or 1994.
The Company intends to retain earnings for use in its business and, therefore,
does not anticipate paying any cash dividends on common stock for at least the
next twelve months. In addition, the terms of the Company's current loan
agreements and credit facilities place restrictions on the payment of cash
dividends by the Company. Effective March 6, 1992, the Company's Board of
Directors declared a 3 for 2 stock split in the form of a 50% stock dividend for
holders of record as of March 23, 1992. The distribution of such dividend
occurred on April 9, 1992.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the consolidated financial statements, including the Notes to Consolidated
Financial Statements. The information set below is not necessarily indicative of
results of future operations. The information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Future Outlook" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Hedging Activities."
YEAR ENDED
-----------------------------------------------------------------------
JANUARY 30, JANUARY 31, FEBRUARY 2, FEBRUARY 3, FEBRUARY 2,
1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
INCOME STATEMENT DATA
Net Sales:
North America (U.S. and Canada)................... $1,955,223 $1,387,446 $ 619,469 $ 390,705 $ 317,447
Europe............................................ 781,905 552,999 241,857 148,964 71,111
Other International............................... 136,037 73,479 28,613 6,566 --
----------- ----------- ----------- ----------- -----------
Consolidated net sales.......................... 2,873,165 2,013,924 889,939 546,235 388,558
Cost of sales....................................... 2,440,349 1,564,472 607,768 364,183 278,972
----------- ----------- ----------- ----------- -----------
Gross profit.................................. 432,816 449,452 282,171 182,052 109,586
Operating expenses:
Selling, general and administrative............... 422,906 267,982 182,155 115,016 81,103
Research, development and engineering............. 48,934 42,358 33,140 22,444 17,069
----------- ----------- ----------- ----------- -----------
Total operating expenses.................... 471,840 310,340 215,295 137,460 98,172
----------- ----------- ----------- ----------- -----------
Operating income (loss)..................... (39,024) 139,112 66,876 44,592 11,414
Net financing and other income (expenses)........... 258 4,180 6,539 (1,020) (3,144)
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes................. (38,766) 143,292 73,415 43,572 8,270
Provision for income taxes (benefits)............... (2,933) 41,650 22,504 16,340 3,156
----------- ----------- ----------- ----------- -----------
Net income (loss)........................... (35,833) 101,642 50,911 27,232 5,114
Preferred stock dividends........................... (3,743) -- -- -- --
----------- ----------- ----------- ----------- -----------
Net income (loss) applicable to common
stockholders.............................. $ (39,576) $ 101,642 $ 50,911 $ 27,232 $ 5,114
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Earnings (loss) per common share.................... $ (1.06) $ 2.59 $ 1.40 $ .91 $ .18
Shares used in per common share calculation......... 37,333 39,235 36,274 30,064 28,843
BALANCE SHEET DATA:
Working capital..................................... $ 510,397 $ 358,948 $ 282,646 $ 95,163 $ 57,970
Total assets........................................ $1,140,480 $ 927,005 $ 559,563 $ 264,222 $ 171,774
Long-term debt...................................... $ 100,000 $ 48,373 $ 41,450 $ -- $ --
Preferred stock..................................... $ 120,151 $ -- $ -- $ -- $ --
Total stockholders' equity.......................... $ 471,108 $ 369,200 $ 274,180 $ 112,005 $ 79,761
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The Company reported a net loss for 1994 of $35.8 million or $1.06 per
common share on consolidated net sales of $2.87 billion compared with net income
of $101.6 million or $2.59 per common share on consolidated net sales of $2.01
billion for 1993. The Company's results for 1994 included pre-tax charges
totaling $91.4 million associated with inventory writedowns and related costs;
costs associated with delayed and canceled personal computer notebook projects;
and costs associated with the restructuring of operations to consolidate several
common functions and improve efficiency, especially in international markets.
These charges have been included in two items in the Company's consolidated
statement of operations for the year ended January 30, 1994: cost of sales,
$70.3 million and operating expenses, $21.1 million.
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During the first half of 1994, the Company delayed and canceled certain
notebook development projects and reevaluated its probable future sales for the
notebook products then offered. The Company recorded more than $39.3 million of
charges in the first half of 1994 due to the notebook inventory writedowns and
delayed and canceled notebook projects. The Company canceled its notebook
product line in August, 1993 and sold its then remaining inventories of
notebooks at significantly reduced prices. The Company has focused its efforts
on the development of a 486-based notebook product line and is re-entering the
notebook computer market with a phased approach. Completion of the first phase
of the Company's re-entry into the notebook computer market resulted in the
introduction on February 21, 1994 of the 486-based Dell Latitude family of
notebook computers.
During the first half of 1994, the Company also recorded $29.3 million of
other costs, consisting mostly of inventory writedowns and related costs. These
charges arose from the Company's determination that certain products and
inventory were excess or obsolete because the products were scheduled to be
replaced with newer products or because the Company otherwise had lowered its
estimates of expected demand for materials in inventory or under outstanding
purchase commitments.
Also during the first half of 1994, the Company recorded $22.8 million for
the costs of consolidating operations, writing off of certain assets, and making
employee severance payments. Most of the charges in this area were associated
with consolidating certain common functions in the European subsidiaries and
creating regional business units. This consolidation effort is designed to
reduce redundant costs and improve the Company's ability to deliver higher
levels of operational efficiency and higher quality support in European markets.
Operations in some subsidiaries have been closed and transferred to other
subsidiaries, and some consolidation is occurring outside of Europe.
Approximately 60% of the restructuring charges are for cash outlays,
approximately half of which will occur in 1995.
Excluding these charges, net income would have declined by approximately
67% from the prior year primarily due to competitive conditions creating greater
margin pressure; sales of older products at significantly reduced prices to
avoid incurring additional charges for excess and obsolete inventory; the
absence of a major notebook computer product line; and manufacturing and
administrative process inefficiencies resulting in increased manufacturing
spending and operating expenses.
The Company's second half of 1994 was marked by significant challenges and
a period of transition as the Company focused on improving liquidity, improving
profit margins, and balancing growth to allow these improvements. During the
second half of 1994, the Company made progress toward its goals with an increase
in cash and short-term investments from $106 million at August 1, 1993 to $337
million at January 30, 1994; an increase in gross margin from 11.6% for the
first half of 1994 to 18.3% in the second half of 1994; and a reduction in
operating expenses as a percentage of sales from 17.7% for the first half of
1994 to 15.3% for the second half, respectively.
The Company believes that the improvement in its profit margins during the
second half of 1994 compared with the first half of 1994 were partially
attributable to improvements in internal processes. The Company is still
implementing further improvements to these processes. The challenges posed by
these changes and by the highly competitive nature of the personal computer
industry may adversely affect the Company's consolidated net sales and gross
profit margins in future periods. No assurance can be given that the Company's
restructuring efforts will be successful or that significant additional costs
will not be incurred, although the Company believes it has taken adequate
charges for the expected costs associated with its restructuring efforts.
Additionally, there can be no assurance that the Company's notebook computer
development activities will be successful, that new product and software
technologies will be available to the Company, that the Company will be able to
deliver commercial quantities of new products in a timely manner, or that such
products will achieve market acceptance.
For 1993, the Company earned $101.6 million or $2.59 per common share on
consolidated net sales of $2.01 billion compared with the prior-year results of
$51 million or $1.40 per common share on consolidated net sales of $890 million.
This increase in consolidated net sales and net income for 1993 over 1992 was
driven primarily by price reductions, increased customer interest in the
Company's distribution and support programs, and further penetration of
international markets.
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The table below sets forth for the years indicated the percentage of
consolidated net sales represented by certain items in the Company's
consolidated statements of income.
PERCENTAGE OF CONSOLIDATED NET SALES
--------------------------------------
YEAR ENDED
--------------------------------------
JANUARY JANUARY FEBRUARY
30, 31, 2,
1994 1993 1992
---------- ---------- ----------
Net sales:
North America (U.S. and Canada)..................... 68.1% 68.9% 69.6%
Europe.............................................. 27.2 27.5 27.2
Other international................................. 4.7 3.6 3.2
---------- ---------- ----------
Consolidated net sales........................... 100.0 100.0 100.0
Cost of sales......................................... 84.9 77.7 68.3
---------- ---------- ----------
Gross profit..................................... 15.1 22.3 31.7
Operating expenses:
Selling, general and administrative................. 14.7 13.3 20.5
Research, development and engineering............... 1.7 2.1 3.7
---------- ---------- ----------
Total operating expenses......................... 16.4 15.4 24.2
---------- ---------- ----------
Operating income (loss)........................ (1.3) 6.9 7.5
Net financing and other income (expense).............. -- 0.2 0.7
---------- ---------- ----------
Income (loss) before income taxes.............. (1.3) 7.1 8.2
Provision for income taxes (benefit).................. (0.1) 2.1 2.5
---------- ---------- ----------
Net income (loss).............................. (1.2) 5.0 5.7
Preferred stock dividends............................. (0.1) -- --
---------- ---------- ----------
Net income (loss) applicable to common
shareholders................................ (1.3%) 5.0% 5.7%
---------- ---------- ----------
---------- ---------- ----------
Net Sales
The Company's consolidated net sales increased 43% to $2.87 billion in 1994
compared with $2.01 billion for 1993, and $890 million for 1992. Year-to-year
increases in consolidated net sales in 1994, 1993, and 1992 were 43%, 126%, and
63%, respectively.
These increases in sales are primarily due to increased volumes in the
Company's desktop and server products, offset somewhat by the cancellation of
the notebook product line in August 1993. The Company's 1994 second half
consolidated net sales increased 9.3% over 1994's first half consolidated net
sales, reflecting continued sales growth despite the absence of a notebook
product line since mid-fiscal 1994. Unit volumes for 1994 increased 61% (78% for
desktops and servers) over 1993 unit volumes, compared with a 176% (185% for
desktops and servers) increase in unit volumes for 1993 over 1992. Average
revenue per unit of the Company's products for 1994 declined by 12% from 1993
because of shifts in the Company's product mix and industry-wide pricing
practices.
The Company's consolidated net sales (expressed in United States dollars)
were reduced by 3.9% and .4% in 1994 and 1992, respectively, and benefited 2.4%
in 1993 by fluctuations in the average value of the United States dollar,
relative to its average value in the comparable periods of the prior year,
particularly in relation to the British pound. Based on this information, the
Company believes that the increase in consolidated net sales was primarily
caused by an increase in unit sales offset primarily by lower average prices per
unit and, to a lesser extent, changes in foreign currency exchange rates.
Net sales from the Company's 486-based systems continued to increase and
represented 81%, 59%, and 20% of consolidated net sales for 1994, 1993 and 1992,
respectively. The increase in consolidated net sales was led by sales of
486-based mid-size and small-chassis desktop systems, which accounted for 69% of
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consolidated net sales in 1994, 47% in 1993, and 13% in 1992. Sales of servers
and workstations accounted for 13% of consolidated net sales in 1994 compared
with 12% in 1993 and 7% in 1992.
Sales of the Company's notebook systems declined to 2% of consolidated net
sales in 1994, compared with 11% for 1993 and 14% for 1992. The Company canceled
its notebook product line in August 1993. The Company completed the first phase
of its re-entry into the notebook computer market with the introduction on
February 21, 1994, of the 486-based Dell Latitude family of notebook computers.
Sales of 386-and 386SX-based desktop systems (which were discontinued in 1994)
reflected the shift in demand toward 486-based systems by decreasing to 3% of
consolidated net sales in 1994 compared with 17% in 1993 and 50% in 1992.
During 1994, Dell introduced four new families of personal computers
targeted for specific customer markets: NetPlex, OptiPlex and OmniPlex for the
corporate and stand-alone environments and Dell Dimension XPS for
technologically sophisticated individuals. The Company also began shipping three
Pentium-based systems in the second half of 1994. Sales of Pentium-based systems
constituted 4% of revenues for the fourth quarter. Since January 30, 1994, the
Company has introduced two new personal computer product lines: The PowerEdge
server line offering performance and reliability for network applications; and
the Latitude notebook personal computer line, marking the first stage of the
Company's phased re-entry into the notebook computer market. All of the
Company's 59 personal computer systems currently offered have been introduced
since August 1, 1993.
North American sales increased 41% in 1994 to $1.96 billion from $1.39
billion in 1993 compared with a 124% increase in 1993 from $619 million in 1992.
North American sales for the fourth quarter of 1994 declined from the third
quarter due to a 58% decline in U.S. government sales and a softening of demand
as the Company shifted its emphasis from revenue growth driven by aggressive
pricing to improving liquidity, profitability and support systems.
The Company's European operations contributed net revenues of $782 million
for 1994, representing a 41% increase over $553 million in net revenues for
1993. European revenues for 1993 represented a 129% increase over $242 million
in net revenues for 1992. Other international sales increased 85% to $136
million for 1994, following a 157% increase in 1993 over $29 million in 1992.
These increases resulted primarily from existing markets and, to a lesser
extent, expansion into new markets. The Company believes that its international
growth affords significant opportunities to achieve higher levels of operating
and economic efficiencies. The Company is considering several ways to enhance
its international presence in addition to implementing the Company's
restructuring announced during 1994. Dell intends to continue to expand its
international activities by increasing market presence in existing markets,
improving support systems, pursuing additional international manufacturing and
distribution opportunities, and entering new markets primarily through
third-party resellers.
Consolidated net sales to major corporate, government and education
accounts led sales gains in 1994, increasing 51% to $1.44 billion from $953
million in 1993. U.S. Federal government sales were stronger than normal in the
third quarter of 1994 because of a surge in buying at the end of the U.S.
Federal government's budget year, which resulted in a larger than normal
sequential decline of 58% in the fourth quarter of 1994 as the U.S. Federal
government entered a new budget year. Sales to major corporate, government and
education accounts increased 129% in 1993 from $416 million in 1992. Sales to
medium-to small-sized businesses and individuals increased 31% to $1.03 billion
for 1994 from $787 million for 1993 and $337 million in 1992.
Gross Profit Margin
The Company's 1994 gross profit margins continued to decline from 1993 and
1992 levels. The gross margin for 1994 declined to 15.1% from 22.3% in 1993 and
31.7% in 1992. Gross margins for 1994 were affected by $70.3 million of
inventory write-downs and related costs incurred during the first half of 1994.
The decline in gross profit margin was also attributable to significant price
reductions to maintain competitive position; manufacturing inefficiencies
associated with system and process weaknesses; and price reductions on older
products to avoid incurring additional charges for excess and obsolete
inventory. Additional pricing actions may occur as the Company attempts to
maintain its competitive mix of price, performance and customer support
services. The Company attempts to mitigate the effect of its pricing actions
through
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improvements in the product mix, reduced component costs, manufacturing
efficiencies, operating expense controls, and tax planning.
The decline in gross profit margins in 1993 from 1992 was primarily due to
the Company's pricing actions, almost half of which were offset by reduced
component costs and manufacturing efficiencies.
The results of the Company's international operations are subject to
currency fluctuations. However, the Company attempts to reduce its exposure to
currency fluctuations through the use of foreign currency option contracts for
periods not exceeding twelve months and, to a lesser extent, through the use of
forward contracts, generally for periods not exceeding three months, which hedge
certain anticipated intercompany shipments to foreign subsidiaries. Forward
contracts entered into to hedge anticipated intercompany shipments, none of
which were outstanding at the end of 1994, are accounted for on a mark-to-market
basis. The Company has purchased options to hedge a portion of its anticipated,
but not firmly committed, intercompany sales for 1995 and may enter into
additional hedging transactions as management considers appropriate. Based upon
foreign currency exchange rates at the end of 1994, option contracts that hedge
1995 anticipated shipments to international subsidiaries had a combined net
realized and unrealized deferred gain of $2.2 million.
Operating Expenses
Operating expenses for 1994 increased 52% to $472 million from $310 million
in 1993. The 1993 level represented an increase of 44% over 1992. As a
percentage of sales, operating expenses for 1994 increased to 16.4% from 15.4%
for 1993, but declined from 24.2% for 1992. This increase over 1993 was
primarily due to $21.1 million of charges for the costs of consolidating
operations, writing off certain assets and making employee severance payments.
Net Financing and Other Income
Net financing and other income was $.3 million, $4.2 million and $6.5
million for 1994, 1993 and 1992, respectively.
Short-term investment income was $8.8 million in 1994 compared to $12.9
million in 1993 and $6.9 million in 1992. The decrease in 1994 was primarily due
to lower average investment balances as a result of the retirement of the
commercial paper program in the first quarter of 1994, and was also due to lower
rates of return. The increase in 1993 over 1992 was attributable to income
earned from the investment of proceeds from the commercial paper program
initiated in 1993.
In the normal course of business, the Company employs a variety of interest
rate derivative instruments to more efficiently manage its principal, market and
credit risks as well as to enhance its investment yield. Derivative instruments
used include interest rate swaps, written and purchased interest rate options
and swaptions (options to enter into interest rate swaps). The Company
structures derivative instruments in interest rate markets where it has foreign
operations. At January 30, 1994, and January 31, 1993, the Company had
outstanding investment derivative instruments with remaining maturities of less
than five years, which are accounted for on a mark-to-market basis, with a total
notional amount of $355 million and $180 million, respectively. At January 30,
1994, the Company had outstanding interest rate swap and swaption agreements
with maturities of less than five years entered into concurrently with the 11%
Senior Notes issued August 26, 1993, ("Notes") with aggregate notional values of
$100 million and $65 million, respectively. Interest rate derivatives generally
involve exchanges of interest payments based upon fixed and floating interest
rates without exchanges of underlying notional amounts. Consequently, the
Company's exposure to credit loss is significantly less than the stated notional
amounts.
Realized and unrealized net gains on interest rate derivatives recognized
in income were $5.2 million for 1994, compared with $2.5 million for 1993, and
$5.5 million for 1992. The gains recognized in 1994 primarily resulted from
movements in the United States, Canadian, Japanese, and European interest rate
markets. At January 30, 1994, the swaption entered into concurrently with the
issuance of the Notes had an unrealized loss of $.5 million recognized in
income. The value of the Company's short-term and derivative investment
portfolios at January 30, 1994, is subject to movements in the United States,
Canadian, Japanese and
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European interest rate markets and, generally, is adversely affected by
increases in market rates of interest. Since January 30, 1994, the value of the
Company's short-term and investment derivative portfolios has decreased as a
result of interest rate increases in these markets. The Company believes this
increase in interest rates is temporary. However, if interest rates in these
markets do not decline to mid-February 1994 levels, the Company will recognize
material charges on a mark-to-market basis in the first quarter of 1995. If such
higher rates prevail, the Company will recognize additional charges in future
periods. These charges may have an adverse effect on net income in the first
quarter of 1995 and in future periods.
Interest expense in 1994 increased to $8.4 million from $7.9 million in
1993 and $1.8 million in 1992. The increase in 1994 interest expense was
primarily due to higher effective borrowing rates compared to 1993, as
short-term credit facilities were refinanced with long-term debt. The increase
in interest expense for 1993 compared with 1992 was primarily attributable to
the issuance of commercial paper and increased borrowings under Section 84 of
Ireland's Corporation Tax of 1976 ("Section 84 Borrowings").
Net foreign currency gains (losses) were $.8 million, ($.6) million and
($1.6) million for 1994, 1993, and 1992, respectively. During 1993, the Company
entered into foreign currency forward and option contracts with the intent to
profit from anticipated movements in exchange rates. The Company marked the
contracts to market and recognized resulting gains and losses as a component of
net financing and other income. Net foreign exchange losses recognized during
1993 consisted of $9.6 million in losses related to foreign currency trading
activities and $9.0 million in foreign currency transaction gains associated
with unhedged intercompany balances and other foreign currency transactions. The
Company resumed its intercompany hedging practices in the third quarter of 1993.
During 1994, the Company did not enter into foreign currency contracts with the
intent to profit from movements in exchange rates. Accordingly, net foreign
currency gains recognized during 1994 resulted from remeasuring non-functional
currency denominated assets and liabilities, net of transaction hedge results.
All of the Company's foreign exchange and interest rate derivative
instruments involve elements of market and credit risk in excess of the amounts
recognized in the financial statements. The counterparties to financial
instruments consist of a number of major financial institutions. In addition to
limiting the amount of agreements and contracts it enters into with any one
party, the Company regularly monitors the credit quality of the financial
institutions which are counterparties to these financial instruments. The
Company does not anticipate nonperformance by the counterparties.
Financing fees and other expenses increased to $6.1 million in 1994 from
$2.8 million in 1993 and $2.5 million in 1992. The increase in 1994 was
primarily due to fees and other expenses related to the second quarter repayment
of outstanding Section 84 borrowings, renegotiation of the line of credit
facility, and the amortization of financing costs associated with the issuance
of the Notes.
Income Tax
The Company's effective tax rate was 7.6% for 1994 compared with 29.1% and
30.7% for 1993, and 1992, respectively. The change in the effective tax rate
resulted from changes in the geographical distribution of income and losses and
from significant second quarter 1994 losses.
FUTURE OUTLOOK
In the past, Dell has focused on increasing market share by meeting
customers' demands for a wider range of products, services and support at
competitive prices, while managing its costs to achieve a targeted return on
sales (net income as a percentage of consolidated net sales). During Dell's
rapid growth, the personal computer industry has been characterized by frequent
product introductions, continual improvement in computer performance
characteristics, decreasing average selling prices, and increased competition at
both the manufacturing and sales levels. Currently, the Company's objective is
to continue to focus on balancing liquidity and profitability while
restimulating profitable growth.
Dell's substantial growth and increasingly complex activities outpaced some
of Dell's internal business systems and have required the restructuring of some
elements of the organization, the implementation of new or improved management
systems, and the revision of administrative processes. For example, many of
Dell's international subsidiaries were originally formed as stand-alone
businesses providing sales, technical support,
17
19
and customer service for their local markets. While this approach facilitated
effective and rapid market penetration, it also created redundant marketing and
support programs in the subsidiaries. Infrastructure improvements to reduce the
redundancies and control costs will be an important factor in the future. Dell
is in the process of consolidating certain common functions, primarily in
Europe, to create regional business units that reduce redundant costs, and
improve Dell's ability to deliver quality services in that market. Additionally,
the Company is also working to improve key processes that it expects will
improve profitability.
As previously discussed, the Company believes that the absence of a major
notebook computer product offering during 1994 was a contributing factor to its
decreased sales growth. The Company also believes that a significant opportunity
for market expansion lies in the network server market where its presence has
been limited. Although the Company has introduced a 486-based notebook and new
server products in February 1994, there can be no assurance that the Company's
notebook or server development activities will be successful, that notebook or
server product technologies will be available to the Company, that the Company
will be able to deliver commercial quantities of these computer products in a
timely manner, or that such products will achieve market acceptance.
Dell has also acted to manage its future growth by strengthening its
management team. During the last year Dell has hired additional experienced
personnel in several key positions, including information systems, operations,
corporate finance, product development, and portable computers. The strengthened
management team has been focused on improving liquidity, developing the systems
to support Dell's growth and complexity, and rebuilding Dell's profitability.
The personal computer industry is characterized by short product life
cycles resulting from rapid changes in technology and consumer preferences and
declining prices. To retain its competitive position, the Company must continue
to enhance and improve its existing products while developing and introducing
new products and obtaining and incorporating new hardware and software
technologies that others develop, such as notebook computer and Pentium-based
product lines. All of the Company's 59 personal computer systems currently
offered have been introduced since August 1, 1993. There can be no assurance
that the Company's development activities will be successful, that new product
and software technologies will be available to the Company, that the Company
will be able to deliver commercial quantities of new products in a timely
manner, or that such products will achieve market acceptance. Certain new
products introduced by the Company are intended to replace existing products.
Although the Company monitors the products that are intended to be replaced and
attempts to phase out the manufacture of such products in a timely manner, there
can be no assurance that such transitions will be executed without adversely
affecting the Company's results of operations.
Dell's manufacturing process requires a high volume of quality components.
Several microprocessors used in the Company's products are currently available
only from Intel Corporation. In addition, the Company has certain single
supplier relationships that are considered advantageous for total cost of
ownership reasons including performance, quality, support, delivery and price
considerations. Reliance on those vendors, as well as industry supply
conditions, generally involves several risks, including the possibility of a
shortage of components, increases in component costs and reduced control over
delivery schedules, which could adversely affect the Company's financial
results. The Company occasionally experiences delays in receiving certain
components, which can cause delays in the shipment of some products to
customers. There can be no assurance that the Company will be able to continue
to obtain additional supplies in a timely or cost-effective manner.
HEDGING ACTIVITIES
The results of the Company's international operations are affected by
changes in exchange rates between certain foreign currencies and the United
States dollar. The Company's exposure to currency fluctuations has increased as
a result of the expansion of its international operations. The functional
currency for most of the Company's international subsidiaries is the local
currency of the subsidiary. An increase in the value of the United States dollar
increases costs incurred by the Company's international operations because many
of its
18
20
international subsidiaries' component purchases are denominated in the United
States dollar. Changes in exchange rates may negatively affect the Company's
consolidated net sales (as expressed in United States dollars) and gross profit
margins from international operations. The Company monitors this exposure and
attempts to mitigate the exposure through hedging transactions.
Because of the significant growth in the Company's international operations
in recent years, the Company has attempted through various means to mitigate the
effects of currency fluctuations. The purpose of the Company's hedging program
is to protect the Company from the risk that the dollar-equivalent price of
anticipated cash flows resulting from sale of products from its manufacturing
subsidiaries to its international sales subsidiaries will be adversely affected
by changes in foreign currency exchange rates. The Company's hedging activities
consist primarily of hedging anticipated intercompany sales to its international
subsidiaries and resulting intercompany balances through the use of purchased
options for periods not exceeding twelve months and, to a lesser extent, forward
contracts, generally for periods not exceeding three months. The risk of loss
associated with purchased options is limited to the amount of premiums paid for
the option contracts, which could be significant. The premium amounts paid on
purchased options are amortized over the period of the hedged transaction. Gains
and losses incurred on purchased option contracts are deferred until occurrence
of the hedged transaction and recognized as a component of the cost of the
hedged transaction. Gains and losses incurred on forward contracts designated as
hedging contracts of anticipated intercompany shipments are marked-to-market and
recognized as a component of cost of sales in the current period.
When the Company began to hedge anticipated intercompany sales in March
1991, the accounting for foreign currency option contracts, particularly
combination option contracts, had not been specifically addressed in
authoritative accounting literature and was subject to varying interpretations
in practice. From March 1991 until March 20, 1992, the Company principally used
combination foreign currency option contracts to hedge anticipated intercompany
sales to its international subsidiaries. During this period, the accounting for
combination option contracts was actively deliberated by the accounting
profession. The Company closely followed the deliberations of the accounting
profession during this period. After consideration of the deliberations of the
Emerging Issues Task Force, in the fourth quarter of 1992 the Company began to
account on a mark-to-market basis for open combination option contracts entered
into with the same strike prices and maturities ("synthetic forward contracts")
which were originally entered into to hedge anticipated 1993 sales to
international subsidiaries. Accordingly, the Company recognized unrealized
losses of $4.0 million related to open synthetic forward contracts as a
component of cost of sales in its Consolidated Statement of Income for the year
ended February 2, 1992.
In 1992, the Company realized $1.7 million in losses on forward contracts
entered into to hedge anticipated 1993 sales to its international subsidiaries,
which losses were deferred at February 2, 1992, and recognized in the first two
quarters of 1993. Generally accepted accounting principles do not afford hedge
accounting treatment to forward contracts intended to hedge anticipated
transactions. The Company does not believe the losses are material in the
context of the Company's financial condition or results of operations taken as a
whole.
On March 19, 1992, the Chief Accountant of the Securities and Exchange
Commission settled much of the accounting controversy associated with hedge
accounting for anticipated transactions when he issued a letter indicating that
the SEC would object to deferral of realized and unrealized gains or losses
arising from complex options and similar transactions entered into after March
20, 1992. Subsequent to that date, the Company has not entered into any
combination option contracts to hedge anticipated transactions.
On November 30, 1992, the SEC's Division of Enforcement notified the
Company that it was beginning an informal inquiry, which is continuing,
regarding the Company's accounting practices for foreign currency hedging and
trading activities and the completeness of the Company's public disclosure about
those activities. The Company and its independent accountants are voluntarily
cooperating with the SEC in this informal inquiry. The SEC's Division of
Corporation Finance has also indicated it has concerns about the deferred
accounting treatment the Company afforded gains and losses on forward and option
contracts entered into to hedge anticipated transactions and has not expressed
its definitive views about whether the Company's
19
21
accounting for these forward and option contracts complies with generally
accepted accounting principles in all material respects.
The table below shows the effect on income before income taxes, net income
and earnings per common share for each of the four quarters of 1992, 1993, and
1994, if gains and losses on hedging contracts had been accounted for on a
mark-to-market basis. However, if the Company had believed this accounting
treatment to be appropriate, it likely would have followed different hedging
strategies, which could have received differing accounting treatment than
indicated below. Accordingly, the Company does not believe that the net income
on a mark-to-market basis or the earnings per common share on a mark-to-market
basis included in the following table accurately reflect its business results or
the effect of hedging on its net income.
1992
-------------------------------------------------------------------
QUARTER ENDED
---------------------------------------------------- YEAR ENDED
MAY 5, AUGUST 4, NOVEMBER 3, FEBRUARY 2, FEBRUARY
1991 1991 1991 1992 2, 1992
------ --------- ----------- ----------- ----------
Effect on income before income taxes:
Forward contracts................................. $ -- $ (1.2) $ (0.5) $ -- $ (1.7)
Synthetic forward contracts....................... 10.9 (3.8) (12.0) 0.2 (4.7)
Other option contracts............................ -- -- (9.8) (8.9) (18.7)
------ --------- ----------- ----------- ----------
Total effect on income before income
taxes..................................... $10.9 $ (5.0) $ (22.3) $ (8.7) $(25.1)
------ --------- ----------- ----------- ----------
------ --------- ----------- ----------- ----------
Deferred realized and unrealized gain (loss)........ $10.9 $ 5.9 $ (16.4) $ (25.1) $(25.1)
------ --------- ----------- ----------- ----------
------ --------- ----------- ----------- ----------
Effect on net income and earnings per common share:
Net income (loss) on a mark-to-market basis....... $17.3 $ 9.1 $ (1.7) $ 9.7 $ 34.4
Net income as reported............................ $10.1 $ 12.4 $ 13.0 $ 15.4 $ 50.9
Earnings (loss) per common share on a
mark-to-market basis............................ $ .52 $ .25 $ (.05) $ .26 $ .98
Earnings per common share as reported............. $ .30 $ .34 $ .35 $ .41 $ 1.40
1993
-------------------------------------------------------------------
QUARTER ENDED
---------------------------------------------------- YEAR ENDED
MAY 3, AUGUST 2, NOVEMBER 1, JANUARY 31, JANUARY
1992 1992 1992 1993 31, 1993
------ --------- ----------- ----------- ----------
Effect on income before income taxes:
Forward contracts.................................. $ 1.0 $ 0.7 $ -- $ -- $ 1.7
Synthetic forward contracts........................ 1.8 2.0 0.9 -- 4.7
Other option contracts............................. (4.9 ) (13.7) 29.8 9.5 20.7
------ --------- ----------- ----------- ----------
Total effect on income before income taxes... $(2.1 ) $ (11.0) $ 30.7 $ 9.5 $ 27.1
------ --------- ----------- ----------- ----------
------ --------- ----------- ----------- ----------
Deferred realized and unrealized gain (loss)......... $(27.2) $ (38.2) $ (7.5) $ 2.0 $ 2.0
------ --------- ----------- ----------- ----------
------ --------- ----------- ----------- ----------
Effect on net income and earnings per common share:
Net income on a mark-to-market basis............... $18.4 $ 14.7 $ 48.9 $ 38.0 $120.8
Net income as reported............................. $19.8 $ 21.9 $ 28.6 $ 31.3 $101.6
Earnings per common share on a mark-to-market
basis............................................ $ .48 $ .38 $ 1.24 $ .94 $ 3.08
Earnings per common share as reported.............. $ .52 $ .57 $ .72 $ .77 $ 2.59
20
22
1994
--------------------------------------------------------------------
QUARTER ENDED
---------------------------------------------------- YEAR ENDED
MAY 2, AUGUST 1, OCTOBER 31, JANUARY 30, JANUARY 30,
1993 1993 1993 1994 1994
------ --------- ----------- ----------- -----------
Effect on income (loss) before income taxes:
Forward contracts................................. $ -- $ -- $ -- $ -- $ --
Synthetic forward contracts....................... -- -- -- -- --
Other option contracts............................ (0.3) 5.3 (6.4) 1.6 0.2
------ --------- ----------- ----------- -----------
Total effect on income (loss) before
income taxes.............................. $(0.3) $ 5.3 $ (6.4) $ 1.6 $ 0.2
------ --------- ----------- ----------- -----------
------ --------- ----------- ----------- -----------
Deferred realized and unrealized gain (loss)........ $ 1.7 $ 7.0 $ .6 $ 2.2 $ 2.2
------ --------- ----------- ----------- -----------
------ --------- ----------- ----------- -----------
Effect on net income (loss) and earnings (loss)
per common share:
Net income (loss) on a mark-to-market basis....... $10.0 $ (71.8) $ 7.8 $ 18.7 $ (35.6)
Net income (loss) as reported..................... $10.2 $ (75.8) $ 12.0 $ 17.7 $ (35.8)
Earnings (loss) per common share on a
mark-to-market basis............................ $ .25 $ (1.93) $ .16 $ .41 $ (1.06)
Earnings (loss) per common share as reported...... $ .25 $ (2.03) $ .26 $ .39 $ (1.06)
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating results for 1994 generated $113 million of cash, a
$152 million year-to-year increase over 1993, primarily due to record cash flow
from operations. Asset management improvements led the increased operating cash
flow for 1994. The Company experienced a decrease in days in accounts receivable
to 50 days at the end of 1994 from 54 days at the end of 1993. Inventory levels
decreased to 33 days of supply at the end of 1994, a substantial decline from
the 55 days of supply of inventory at the end of 1993. Days in accounts payable
decreased to 42 days at the end of 1994 from 53 days at the end of 1993. The
lower inventory balances resulted from improved controls and demand/supply
process improvements during the year. Although the Company made significant
progress in reducing inventory during 1994, maintaining current inventory levels
is dependent upon the Company's ability to achieve targeted revenues, to further
reduce complexities in its product line, and to increase commonality of parts.
In 1994, approximately $48 million of cash was used for capital
expenditures to expand facilities and to acquire information systems and
personal computer office equipment. Planned capital expenditures for 1995 are
approximately $75 million, primarily related to the acquisition of land and
construction of buildings in Round Rock, Texas, and the acquisition of
information systems and computer equipment for internal use.
On August 26, 1993, the Company issued $100 million of 11% Senior Notes due
August 15, 2000. Interest on the Notes is payable semiannually, commencing
February 15, 1994. The Notes are redeemable, in whole or in part, at the option
of the Company, on and after August 15, 1998 at redemption prices decreasing
from 103.50% to 101.75% of principal, depending upon the redemption date. See
Note 3 to the Consolidated Financial Statements. Concurrent with the issuance of
the Notes, on August 26, 1993, the Company sold 1,250,000 shares of Series A
Convertible Preferred Stock (the "Preferred Stock") generating gross proceeds of
$125 million. Each share of Series A Preferred Stock entitles its holder to
cumulative annual dividends and to convert to shares of common stock. In the
event of voluntary or involuntary liquidation, each share of Preferred Stock
entitles its holder to receive $100 per share liquidation preference plus an
amount equal to accrued and unpaid dividends before any distributions to common
stockholders. See Note 4 to the Consolidated Financial Statements.
The Company's primary source of cash for 1994 came from financing
activities including the issuance of the Notes and the Preferred Stock during
the third quarter of 1993. The primary unused financing sources available at
January 30, 1994, are a bank line of credit and an asset securitization program,
which are described below.
21
23
The Company has a line of credit facility which bears interest at a defined
Base Rate or Eurocurrency Rate with covenants based on minimum pre-tax earnings,
a maximum ratio of total liabilities to tangible net worth, and a maximum
inventory level. Maximum amounts available under the credit facility are limited
to the lesser of $75 million or eligible receivables as defined by the credit
agreement. During the commitment period, the Company is obligated to pay .375%
per annum on the unused portion of the credit facility. No amounts were
outstanding under this credit facility as of January 30, 1994. The maximum
available under this credit facility as of January 30, 1994, totaled $41
million.
In the second quarter of 1994, the Company's subsidiary, Dell Receivables
Corporation, entered into a Receivables Purchase Agreement pursuant to which the
Company may raise up to $100 million through the sale of interests in certain of
its accounts receivable. The funding expense is based on the rate of interest on
commercial paper issued by the purchaser. During 1994, the Company sold $85
million of receivables. As of January 30, 1994, there were no receivables sold
which remain to be collected.
Repayment of the Notes and these credit facilities, together with operating
lease commitments, constitute the Company's long-term commitments to use cash.
The Company is a defendant in several consolidated lawsuits brought by
certain of its stockholders. An unfavorable outcome in these lawsuits could have
a material adverse effect on the Company's financial condition and results of
operations. See "Legal Proceedings."
Management believes that sufficient resources will be available to meet the
Company's cash requirements through at least the next twelve months. Cash
requirements for periods beyond the next twelve months depend on the Company's
profitability, its ability to manage working capital requirements, and its rate
of growth.
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24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Financial Statements:
Report of Independent Accountants.............................................. 24
Consolidated Statement of Financial Position at January 30, 1994 and January
31, 1993...................................................................... 25
Consolidated Statement of Operations for the three years ended January 30,
1994.......................................................................... 26
Consolidated Statement of Cash Flows for the three years
ended January 30, 1994....................................................... 27
Consolidated Statement of Stockholders' Equity for the three years
ended January 30, 1994....................................................... 28
Notes to Consolidated Financial Statements..................................... 29
Financial Statement Schedules:
For the year ended January 30, 1994
Schedule I -- Short-term Investments......................................... 52
Schedule II -- Amounts Receivable from Related Parties....................... 53
For the three years ended January 30, 1994
Schedule VII -- Valuation and Qualifying Accounts............................ 54
Schedule IX -- Short-term Borrowings......................................... 55
Schedule X -- Supplementary Consolidated Statement of Operations
Information................................................................. 56
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
23
25
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Dell Computer Corporation
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of Dell
Computer Corporation and its subsidiaries at January 30, 1994 and January 31,
1993, and the results of their operations and their cash flows for each of the
three years in the period ended January 30, 1994, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE
Austin, Texas
March 2, 1994
24
26
DELL COMPUTER CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
JANUARY 30, JANUARY 31,
1994 1993
---------- ----------
Current assets:
Cash............................................................... $ 3,355 $ 14,948
Short-term investments............................................. 333,667 80,367
Accounts receivable, net........................................... 410,774 374,013
Inventories........................................................ 220,265 303,220
Other current assets............................................... 80,323 80,239
---------- ----------
Total current assets....................................... 1,048,384 852,787
Property and equipment, net.......................................... 86,892 70,462
Other assets......................................................... 5,204 3,756
---------- ----------
$1,140,480 $ 927,005
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $ 282,708 $ 295,133
Accrued liabilities................................................ 237,651 171,473
Income taxes....................................................... 17,628 27,233
---------- ----------
Total current liabilities.................................. 537,987 493,839
Long-term debt....................................................... 100,000 48,373
Other liabilities.................................................... 31,385 15,593
Commitments and contingencies
Stockholders' equity:
Preferred stock: $.01 par value; shares authorized: 5,000,000;
shares outstanding: 1,250,000 at January 30, 1994............... 13 --
Common stock: $.01 par value; shares authorized: 100,000,000;
shares issued and outstanding: 37,929,031 and 36,857,948,
respectively.................................................... 379 369
Additional paid-in capital......................................... 320,041 177,978
Unrealized gain on short-term investments.......................... 3,230 --
Retained earnings.................................................. 170,790 208,544
Cumulative translation adjustment.................................. (23,345) (17,691)
---------- ----------
Total stockholders' equity................................. 471,108 369,200
---------- ----------
$1,140,480 $ 927,005
---------- ----------
---------- ----------
The accompanying notes are an integral part of these consolidated financial
statements.
25
27
DELL COMPUTER CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL YEAR
------------------------------------
1994 1993 1992
---------- ---------- --------
Net sales.................................................. $2,873,165 $2,013,924 $889,939
Cost of sales.............................................. 2,440,349 1,564,472 607,768
---------- ---------- --------
Gross profit..................................... 432,816 449,452 282,171
Operating expenses:
Selling, general and administrative...................... 422,906 267,982 182,155
Research, development and engineering.................... 48,934 42,358 33,140
---------- ---------- --------
Total operating expenses............................ 471,840 310,340 215,295
---------- ---------- --------
Operating income (loss).......................... (39,024) 139,112 66,876
Financing and other income, net............................ 258 4,180 6,539
---------- ---------- --------
Income (loss) before income taxes................ (38,766) 143,292 73,415
Provision for income taxes (benefit)....................... (2,933) 41,650 22,504
---------- ---------- --------
Net income (loss)................................ (35,833) 101,642 50,911
Preferred stock dividends.................................. (3,743) -- --
---------- ---------- --------
Net income (loss) applicable to common stockholders........ $ (39,576) $ 101,642 $ 50,911
---------- ---------- --------
---------- ---------- --------
Earnings (loss) per common share........................... $ (1.06) $ 2.59 $ 1.40
---------- ---------- --------
---------- ---------- --------
Weighted average shares outstanding........................ 37,333 39,235 36,274
---------- ---------- --------
---------- ---------- --------
The accompanying notes are an integral part of these consolidated financial
statements.
26
28
DELL COMPUTER CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
FISCAL YEAR
-----------------------------------------
1994 1993 1992
----------- ----------- -----------
Cash flows from operating activities:
Net income (loss).................................... $ (35,833) $ 101,642 $ 50,911
Charges to income not requiring cash outlays:
Depreciation and amortization..................... 30,646 19,597 13,832
Other............................................. 3,971 149 5,841
Changes in:
Operating working capital......................... 97,008 (162,521) (70,962)
Non-current assets and liabilities................ 17,254 2,111 871
----------- ----------- -----------
Net cash (used in) provided by operating
activities................................. 113,046 (39,022) 493
Cash used in investing activities:
Short-term investments:
Purchases......................................... (2,587,858) (1,808,464) (1,085,024)
Maturities and other redemptions.................. 2,287,998 1,750,919 985,632
Sales............................................. 46,560 76,570 --
Capital expenditures.............................. (48,055) (47,251) (32,630)
----------- ----------- -----------
Net cash used in investing activities........ (301,355) (28,226) (132,022)
Cash flows from financing activities:
Net proceeds from (payments for) short-term
borrowings...................................... (8,500) 8,500 --
Borrowings from long-term debt.................... 96,654 7,270 41,450
Repayments of borrowings.......................... (49,861) (711) (2,577)
Net proceeds from issuance of common stock........ -- -- 105,659
Net proceeds from issuance of preferred stock..... 120,151 -- --
Preferred stock dividends paid.................... (1,921) -- --
Issuance of common stock under employee plans..... 21,935 12,244 6,112
----------- ----------- -----------
Net cash provided by financing activities.... 178,458 27,303 150,644
----------- ----------- -----------
Effect of translation exchange rate changes on cash.... (1,742) (567) (282)
----------- ----------- -----------
Net increase (decrease) in cash........................ (11,593) (40,512) 18,833
Cash at beginning of period............................ 14,948 55,460 36,627
----------- ----------- -----------
Cash at end of period.................................. $ 3,355 $ 14,948 $ 55,460
----------- ----------- -----------
----------- ----------- -----------
See Note 11 for Supplemental Statement of Cash Flow information.
The accompanying notes are an integral part of these financial statements.
27
29
DELL COMPUTER CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
STOCKHOLDERS' EQUITY
-------------------------------------------------------------------
PREFERRED COMMON PAID-IN RETAINED
STOCK STOCK CAPITAL EARNINGS OTHER TOTAL
--------- ------ -------- -------- -------- --------
BALANCES AT FEBRUARY 3, 1991 $ -- $ 290 $ 54,042 $ 55,991 $ 1,682 $112,005
Net income.................... -- -- -- 50,911 -- 50,911
Issuance of 5,762,250 shares
of common stock, net....... -- 58 105,601 -- -- 105,659
Issuance of 1,021,489 shares
of common stock under
employee plans............. -- 10 6,102 -- -- 6,112
Foreign currency translation
adjustment................. -- -- -- -- (507) (507)
--------- ------ -------- -------- -------- --------
BALANCES AT FEBRUARY 2, 1992 -- 358 165,745 106,902 1,175 274,180
Net income.................... -- -- -- 101,642 -- 101,642
Issuance of 1,056,328 shares
of common under employee
plans...................... -- 11 12,233 -- -- 12,244
Foreign currency translation
adjustment................. -- -- -- -- (18,866) (18,866)
--------- ------ -------- -------- -------- --------
BALANCES AT JANUARY 31, 1993 -- 369 177,978 208,544 (17,691) 369,200
Net loss...................... -- -- -- (35,833) -- (35,833)
Issuance of 1,250,000 shares
of preferred stock......... 13 -- 120,138 -- -- 120,151
Issuance of 1,071,083 shares
of common stock under
employee plans............. -- 10 21,925 -- -- 21,935
Preferred stock dividends
paid....................... -- -- -- (1,921) -- (1,921)
Unrealized gain on short-term
investments................ -- -- -- -- 3,230 3,230
Foreign currency translation
adjustment................. -- -- -- -- (5,654) (5,654)
--------- ------ -------- -------- -------- --------
BALANCES AT JANUARY 30, 1994 $ 13 $ 379 $320,041 $170,790 $(20,115) $471,108
--------- ------ -------- -------- -------- --------
--------- ------ -------- -------- -------- --------
The accompanying notes are an integral part of these financial statements.
28
30
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company's consolidated financial statements have been prepared in
accordance with generally accepted accounting principles. The fiscal year of the
Company ends on the Sunday nearest January 31. Unless otherwise indicated, all
references to years in connection with financial information refer to the
Company's fiscal years and all references to quarters refer to the Company's
fiscal quarters. The Company's significant accounting policies are set forth
below.
Principles of Consolidation -- The consolidated financial statements
include the accounts of Dell Computer Corporation and its wholly-owned
subsidiaries. All significant intercompany transactions and balances have been
eliminated. Financial results of the Company's international subsidiaries are
consolidated on a one month delay to facilitate consolidated financial
reporting. Certain prior period amounts have been reclassified for comparative
purposes.
Short-term Investments -- Short-term investments consist primarily of debt
securities and equity securities with readily determinable fair values. The
Company accounts for highly liquid investments with maturities of three months
or less at date of acquisition as short-term investments. Effective January 30,
1994, the Company adopted Statement of Financial Accounting Standards (SFAS) No.
115, "Accounting for Certain Investments in Debt and Equity Securities." In
accordance with SFAS No. 115, the Company's short-term investments classified as
available-for-sale are reported at fair value, with unrealized gains and losses
reported net of taxes in a separate component of stockholder's equity. In
accordance with SFAS 115, investments whose turnover is quick and maturities are
short are reflected as gross purchases and gross maturities and redemptions in
the Consolidated Statement of Cash Flows. The specific identification method is
used to determine the cost of securities sold. Prior to the adoption of SFAS
115, short-term investments were classified as available-for-sale and carried at
the lower of aggregate amortized cost or market, with changes in the valuation
allowance recognized in current period income. Individual securities classified
as available-for-sale with other than a temporary decline in fair value are
written down to fair value with the charge included in income.
Inventories -- Inventories are stated at the lower of cost (based upon a
first-in, first-out valuation) or market. Cost includes the acquisition cost of
purchased components, parts and subassemblies, freight costs, labor and
overhead.
Property and Equipment -- Property and equipment are carried at cost.
Depreciation is provided using the straight-line method over the economic lives
of the assets ranging from ten to thirty years for buildings and two to five
years for all other assets. Leasehold improvements are amortized over the term
of the respective leases.
Foreign Currency Translation -- The financial statements of the Company's
international subsidiaries are generally measured using the local currency as
the functional currency. Accordingly, assets and liabilities of these
subsidiaries are translated at current rates of exchange at the balance sheet
date of the reporting entity. The resultant gains or losses from translation are
included in a separate component of stockholders' equity. Income and expense
items for these subsidiaries are translated using monthly average exchange
rates. Gains or losses resulting from remeasuring monetary asset and liability
accounts that are denominated in currencies other than a subsidiary's functional
currency are included currently as a component of financing and other income in
the consolidated financial statements.
Financial Instruments -- The Company enters into foreign exchange option
and forward contracts to hedge its economic and transaction foreign currency
exposures. Prior to March 21, 1992, the Company principally used combination
option contracts that were designated as hedges of probable anticipated, but not
firmly committed, foreign currency transactions. Gains and losses on such
transactions were deferred and recognized in income in the same period as the
hedged transaction. Subsequent to March 20, 1992, anticipated foreign currency
transactions have been hedged using purchased foreign currency option contracts
29
31
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
for periods not exceeding twelve months and, to a lesser extent, foreign
exchange forward contracts, generally for periods not exceeding three months.
Realized and unrealized gains or losses on foreign currency purchased
option contracts that are designated and effective as hedges of probable
anticipated, but not firmly committed, foreign currency transactions are
deferred and recognized in income in the same period as the hedged transaction.
The risk of loss associated with purchased options is limited to premium amounts
paid for the option contracts, which could be significant. Premium amounts paid
are amortized over the period of the hedged transaction.
Forward contracts designated as hedges of anticipated transactions are
accounted for on a mark-to-market basis and recognized as a component of cost of
sales in the current period. Transaction exposures representing firm foreign
currency commitments are generally hedged using foreign exchange forward
contracts. Realized and unrealized gains or losses on forward contracts that
effectively hedge foreign currency transactions are deferred and included in
income as part of those transactions.
Additionally, during 1993, the Company actively traded foreign currency
forward and option contracts with the intent to profit from anticipated changes
in the financial markets. These contracts were designated at inception as
trading activities and accordingly, were accounted for on a mark-to-market basis
with the realized and unrealized gain or loss recognized as a component of net
financing and other income in the consolidated financial statements.
The Company also employs a variety of interest rate derivative instruments
to more efficiently manage its principal, market and credit risks as well as to
enhance its investment yield. Derivative instruments used include interest rate
swaps, written and purchased interest rate options and swaptions (options to
enter into interest rate swaps). Interest rate differentials to be paid or
received on interest rate swaps which are designated to specific borrowings are
accrued and recognized as an adjustment to interest expense as interest rates
change. Realized gains or losses on terminated interest rate swap positions
designated to specific borrowings are recognized as an adjustment to interest
expense over the remaining life of the obligations. Interest rate derivative
instruments that are not designated to a specific asset or liability are
considered investment derivatives and are accounted for on a mark-to-market
basis, with realized and unrealized gains or losses recognized as incurred and
included as a component of financing and other income in the consolidated
financial statements.
Revenue Recognition -- Sales revenues are recognized at the date of
shipment to customers. Provision is made currently for estimated product
returns. Revenue and costs relating to sales of extended service contracts are
deferred and amortized over the service period on a straight-line basis.
Warranty and Other Post-sales Support Programs -- The Company provides
currently for the estimated costs which may be incurred under its warranty and
other post-sales support programs.
Income Taxes -- The provision for income taxes is based on earnings
reported in the financial statements under an asset and liability approach in
accordance with SFAS No. 109 "Accounting for Income Taxes" that requires the
recognition of deferred tax assets and liabilities and their reported amounts
for financial statement purposes.
Earnings Per Share -- Earnings per share are computed by dividing net
income by the weighted average number of common shares and common share
equivalents outstanding (if dilutive) during each period. Common share
equivalents include stock options. The Company's preferred stock is not a common
share equivalent for earnings per share purposes. The number of common
equivalent shares outstanding relating to stock options is computed using the
treasury stock method.
NOTE 2 -- SHORT-TERM INVESTMENTS
At January 30, 1994, the short-term investment portfolio, consisting
primarily of debt securities and equity securities with readily determinable
fair values, was classified as available-for-sale and measured at fair value in
accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity
30
32
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Securities." Prior to the adoption of this accounting standard and at January
31, 1993, the short-term investments portfolio was carried at the lower of
aggregate amortized cost or market (LCM). Adoption of SFAS No. 115 had no effect
on the Company's results of operations.
Short-term investments at January 30, 1994, and January 31, 1993, consist
of the following:
FISCAL YEAR 1994
-------------------------------------------------------
UNREALIZED UNREALIZED CARRYING AND
COST GAINS LOSSES FAIR VALUE
-------- ---------- ---------- ------------
(IN THOUSANDS)
(carried at fair value)
Preferred stock..................... $ 52,470 $ 484 $3,250 $ 49,704
Mutual Funds........................ 10,000 -- 14 9,986
State and municipal securities...... 133,340 263 17 133,586
U.S. corporate and bank debt........ 136,124 4,345 78 140,391
-------- ---------- ---------- ------------
Total short-term
investments............... $331,934 $5,092 $3,359 $333,667
-------- ---------- ---------- ------------
-------- ---------- ---------- ------------
FISCAL YEAR 1993
-------------------------------------------------------
UNREALIZED UNREALIZED CARRYING AND
COST GAINS LOSSES FAIR VALUE
-------- ---------- ---------- ------------
(IN THOUSANDS)
(carried at aggregate LCM)
Preferred stock..................... $ 36,701 $ 571 $2,848 $ 34,424
Mutual Funds........................ 17,150 -- 1,061 16,089
State and municipal securities...... 20,456 53 5 20,504
U.S. corporate and bank debt........ 10,050 -- 700 9,350
-------- ---------- ---------- ------------
Total short-term
investments............... $ 84,357 $ 624 $4,614 $ 80,367
-------- ---------- ---------- ------------
-------- ---------- ---------- ------------
The Company's gross realized gains on the sale of short-term investments
were $630,000 for 1994 and $595,000 for 1993. Gross realized losses were
$1,133,000 for 1994 and $33,000 for 1993. Gross realized gains and losses for
1992 were insignificant.
A profile of the maturities of debt securities classified as
available-for-sale carried at fair value as of January 30, 1994 is presented in
the following table.
LESS THAN 60 DAYS TO ONE TO
60 DAYS ONE YEAR THREE YEARS TOTAL
--------- ---------- ----------- --------
(IN THOUSANDS)
State and municipal securities........... $68,350 $ 36,548 $28,688 $133,586
U.S. corporate and bank debt............. 23,059 83,701 33,631 140,391
--------- ---------- ----------- --------
Total debt securities.......... $91,409 $ 120,249 $62,319 $273,977
--------- ---------- ----------- --------
--------- ---------- ----------- --------
NOTE 3 -- FINANCING ARRANGEMENTS
On August 26, 1993, the Company issued $100 million of 11% Senior Notes due
August 15, 2000. Interest on the Notes is payable semiannually, commencing
February 15, 1994. The Notes are redeemable, in whole or in part, at the option
of the Company, on and after August 15, 1998 at redemption prices decreasing
from 103.50% to 101.75% of principal, depending upon the redemption date plus
accrued interest to the date of redemption. In addition, the Company may redeem
up to $33.3 million principal amount of the Notes with the proceeds of one or
more equity offerings, at any time as a whole or from time to time in part, at a
redemption price of 110% of principal, if redeemed at any time on or before
February 15, 1995.
31
33
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Indenture governing the Notes contains certain covenants including
limitations on the amount of future indebtedness and restrictions on the payment
of common stock dividends under certain circumstances. However, covenants
limiting future indebtedness may be inapplicable from time to time if the Notes
are assigned an investment grade rating by both of the major rating services.
Concurrently with the issuance of the Notes, the Company entered into
interest rate swap agreements and swaptions to reduce its interest costs
associated with the Notes and to more efficiently manage market risk associated
with changing interest rates. At January 30, 1994, the Company had outstanding
interest rate swaps maturing in fiscal 1999 with an aggregate notional amount of
$100 million and a swaption expiring in fiscal 1999 with a notional amount of
$65 million. The swap agreements effectively change the Company's interest rate
exposure from a fixed-rate to a floating-rate basis and resulted in a weighted
average interest rate of 9.5% on the Notes for 1994. A written swaption executed
by the Company effectively mitigates a portion of the cost associated with the
call feature of the Notes and, providing market rates remain at levels when the
swaption was issued on October 28, 1993, sets a portion of the Company's
interest rate exposure during fiscal 1999 and 2000 to a fixed-rate basis.
The Company has designated the issuance of the Notes and the related
interest rate swap agreements as an integrated transaction. Accordingly, the
differential to be paid or received on the swaps is accrued and recognized as an
adjustment to interest expense as interest rates change. The swaption is
accounted for on a mark-to-market basis and, accordingly, the net unrealized
loss of $.5 million is recognized currently in the statement of operations.
These instruments involve, in varying degrees, elements of credit or interest
rate risk in excess of the amounts recognized in the financial statements. The
Company regularly monitors its positions with, and the credit quality of, the
financial institutions that are counterparties to these financial instruments,
and it does not anticipate nonperformance by the counterparties.
The Company has a $75 million line of credit facility that bears interest
at a defined Base Rate or Eurocurrency Rate with covenants based on minimum
pre-tax earnings, a maximum ratio of total liabilities to tangible net worth,
and a maximum inventory level. No amounts were outstanding under this credit
facility as of January 30, 1994. During the commitment period, the Company is
obligated to pay .375% per annum on the unused portion of the credit facility.
The credit facility contains certain limitations on the Company's ability to pay
dividends with respect to common stock and restricts the payment of dividends on
the Series A Convertible Preferred Stock if an event of default has occurred and
is continuing or would result therefrom. The maximum available under this credit
facility is the lesser of $75 million or eligible receivables as defined in the
credit facility, which totaled $41 million as of January 30, 1994.
During 1993, the Company's subsidiary, Dell Receivables Corporation,
entered into a Receivable Purchase Agreement pursuant to which the Company may
raise up to $100 million through the sale of interests in certain of its
accounts receivable. The funding expense is based on the rate of interest on
commercial paper issued by the purchaser. The discount on sale of receivables is
included in financing and other income (expense). During 1994, the Company sold
$85 million of receivables. As of January 30, 1994, there were no receivables
sold which remain to be collected.
In fiscal 1994, the Company repaid its borrowings under Section 84 of
Ireland's Corporation Tax Act of 1976 and retired its commercial paper program.
NOTE 4 -- STOCKHOLDERS' EQUITY
Preferred Stock -- Simultaneously with the issuance of the Notes on August
26, 1993, the Company sold 1,250,000 shares of Series A Convertible Preferred
Stock (the "Preferred Stock") generating gross proceeds of $125 million.
Preferred stock issuance costs were approximately $4 million. Each share of
Preferred Stock entitles its holder to receive annual cumulative cash dividends
of $7 and to convert it into 4.2105 shares of common stock (equivalent to a
conversion price of $23.75 per share of common stock), subject to adjustment
32
34
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to prevent dilution in certain circumstances. In the event of voluntary or
involuntary liquidation, each share of Preferred Stock entitles its holder to
receive up to $100 per share plus an amount equal to accrued and unpaid
dividends before any distributions to common stock. The aggregate liquidation
preference value of the Preferred Stock at January 30, 1994, was $126.8 million.
The preferred shares are not redeemable before August 25, 1996. On and after
August 25, 1996, the Preferred Stock may be redeemed by the Company, at its
option, in whole or in part at any time at a redemption price per share
decreasing from $104.67 to $100, depending on the redemption date, together in
each case with any accrued and unpaid dividends.
Dividends on the Preferred Stock are cumulative, have priority over
dividends on common stock, and must be paid in the event of liquidation and
before any distribution to holders of common stock. On January 27, 1994, the
Board of Directors declared a $1.75 per share quarterly cash dividend which was
paid on February 15, 1994, to Preferred Stockholders of record on February 4,
1994.
In addition, so long as any Preferred Stock is outstanding, the Company may
not, without the affirmative vote or consent of the holders of at least 66 2/3%
(unless a higher percentage shall then be required by applicable law) of all
outstanding shares of Preferred Stock, voting separately as a class, (i) amend,
alter or repeal any provision of the Company's Certificate of Incorporation or
Bylaws so as to affect adversely the relative rights, preferences,
qualifications, limitations, or restrictions of the Preferred stock, (ii)
create, authorize or issue, or reclassify any authorized stock of the Company
into, or increase the authorized amount of, any series or class of stock that
ranks senior to the Preferred Stock as to dividends or distributions of assets
upon liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, or any security convertible into any such class or series of such
stock, or (iii) enter into a share exchange that affects the Preferred Stock,
consolidate with or merge into another entity, or permit another entity to
consolidate with or merge into the Company, unless in each such case each share
of Preferred Stock remains outstanding and unaffected or is converted into or
exchanged for convertible preferred stock of the surviving entity having powers,
preferences and relative participating optional or other rights and
qualification limitations and restrictions thereof identical to that of a share
of Preferred Stock (except for changes that do not affect the holders of the
Preferred Stock adversely).
The holders of the Preferred Stock have no other voting rights except if
dividends have not been paid in an aggregate amount for at least six quarterly
dividends on such shares. Under these circumstances, the number of members of
the Company's Board of Directors will be increased by two, and the holders of
the Preferred Stock will be entitled to elect two additional directors at any
meeting of stockholders at which directors are to be elected held during the
period such dividends remain in arrears.
Common Stock -- During 1993, the Company's Board of Directors declared a 3
for 2 stock split in the form of a 50% stock dividend. All share and per-share
information has been retroactively restated in the consolidated financial
statements to reflect the stock split. During 1992, the Company issued 5,762,250
shares of $.01 par value common stock in a public offering. The gross proceeds
of the offering amounted to $111,404,000. Common stock issuance costs, which are
netted against paid-in capital, were approximately $5,745,000.
Employee Stock Purchase Plan -- The Company has an Employee Stock Purchase
Plan which permits substantially all employees to acquire the Company's common
stock. Participating employees may acquire common stock at the end of each
period at a purchase price of 85% of the lower of the fair market value at the
beginning or the end of the participation period. Periods are semi-annual and
begin on January 1 and July 1 of each year. Employees may designate up to 10% of
their base compensation for the purchase of common stock. Common stock reserved
for future employee purchases aggregated 1,655,036 shares at January 30, 1994,
and 893,575 shares at January 31, 1993. Shares issued under this plan were
238,539 shares in 1994, 150,326 shares in 1993 and 137,243 shares in 1992. There
have been no charges to income in connection with the issuance of these shares.
33
35
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The 401(k) Plan -- The Company has a defined contribution retirement plan
which complies with section 401(k) of the Internal Revenue Code. Substantially
all employees who have completed six months of service are eligible to
participate in the plan. The plan provides for Company matching contributions of
50% of the employees' voluntary contributions, up to a maximum of 6% of the
employees' compensation. Common stock reserved for issuance under the 401(k)
Plan aggregated 275,605 shares of common stock. The Company has accrued for its
estimated matching amounts to be funded from authorized, previously unissued,
shares of the Company's common stock. Shares are issued to the plan based on the
fair market value of the Company's common stock at the time of issuance. The
amounts expensed for the Company's 50% matching contribution during 1994, 1993,
and 1992, were $3.0 million, $2.0 million and .9 million, respectively.
Stock Option Plans -- In 1993, the Company's Board of Directors voted to
adopt the 1993 Stock Option Plan (the "1993 Plan") with provisions substantially
the same as those of the 1989 Stock Option Plan (the "1989 Plan") which was
adopted by the Board of Directors in 1989, as amended. At January 30, 1994,
substantially all employees and directors are eligible to receive options to
purchase a maximum aggregate of 11.25 million shares of the Company's common
stock under the 1993 Plan and 1989 Plan, as amended. Options granted may be
either incentive stock options within the meaning of Section 422 of the Internal
Revenue Code or nonqualified options. Options under the 1993 Plan and the 1989
Plan must be granted within ten years of the plan adoption date. Stock options
are generally issued at fair market value. The right to purchase shares under
the existing stock option plans typically vest over a five year period beginning
on either the option holder's date of hire or the option's date of grant.
Incentive options must be exercised within ten years from date of grant. For
stock options which have been issued at discounted prices, the Company accrues
compensation expense over the vesting period for the difference between the
exercise price and the fair market value on the measurement date. Options
vesting over a ten year period with an exercise price of $.01 per share were
granted to certain key employees in 1994 and 1993 at fair market values ranging
from $18.50 to $36.50 and $15.75 to $35.88, respectively. Options on 1,046,213
shares were exercisable under the plans at January 30, 1994.
Prior to the adoption of the 1989 Stock Option Plan, the Company had two
incentive stock option plans and a nonqualified stock option plan for its
employees and directors. Options under those plans must be exercised within ten
years from date of grant.
34
36
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes activity under the plans for each of the
three years ended January 30, 1994:
STOCK OPTION PLANS
-------------------------------------------------
NUMBER OF SHARES
PRICE RANGE -------------------------------
OF SHARES UNDER AVAILABLE
UNDER OPTION OPTION FOR GRANT
-------------- ------------- -------------
OUTSTANDING AT FEBRUARY 3, 1991..................... $ .11-$ 8.79 2,811,703 537,118
Authorizations for grant............................ -- -- 4,500,000
Granted............................................. $9.77-$19.55 1,853,625 (1,853,625)
Canceled............................................ $ .11-$17.33 (143,369) 112,568
Exercised........................................... $ .11-$17.33 (794,186) --
------------- -------------
OUTSTANDING AT FEBRUARY 2, 1992..................... $ .11-$19.55 3,727,773 3,296,061
Granted............................................. $ .01-$36.31 2,642,079 (2,642,079)
Canceled............................................ $ .01-$24.69 (475,729) 433,264
Exercised........................................... $ .11-$23.31 (850,135) --
------------- -------------
OUTSTANDING AT JANUARY 31, 1993..................... $ .01-$36.31 5,043,988 1,087,246
Authorizations for grant............................ -- -- 4,500,000
Granted............................................. $ .01-$36.31 2,505,590 (2,505,590)
Canceled............................................ $ .01-$30.69 (1,204,814) 1,197,794
Exercised........................................... $ .01-$23.66 (726,412) --
------------- -------------
OUTSTANDING AT JANUARY 30, 1994..................... $ .01-$36.31 5,618,352 4,279,450
------------- -------------
------------- -------------
On August 24, 1993, the Company granted 390,623 nonqualified options to
purchase its common stock at $18.69 per share under the 1993 Plan in exchange
for cancellation of outstanding options to purchase its common stock for $30.69
which had been previously granted under the 1989 Plan. Pursuant to the exchange
agreement, vesting of these options shall occur on the earlier of August 24,
2002, or the date that the Company's common stock has traded for thirty
consecutive days at or above $32.69 per share.
NOTE 5 -- INCOME TAXES
The provision for income taxes consists of the following:
FISCAL YEAR
--------------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
Current:
U.S. Federal....................................... $ 29,404 $ 42,827 $ 26,200
Foreign............................................ 8,033 12,727 7,357
Prepaid.............................................. (40,370) (13,904) (11,053)
-------- -------- --------
Provision for income taxes (benefit)................. $ (2,933) $ 41,650 $ 22,504
-------- -------- --------
-------- -------- --------
Income (loss) before income taxes included approximately ($32) million, $51
million and $28 million related to foreign operations in the fiscal years ended
January 30, 1994, January 31, 1993, and February 2, 1992, respectively.
The Company has not recorded a deferred income tax liability of $2.7
million for additional U.S. federal income taxes that would result from the
distribution of earnings of its foreign subsidiaries, if they were repatriated.
The Company currently intends to reinvest indefinitely the undistributed
earnings of its foreign subsidiaries.
35
37
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The deferred tax asset is comprised of the following principal temporary
differences:
JANUARY 30, JANUARY 31, FEBRUARY 2,
1994 1993 1992
----------- ----------- -----------
(IN THOUSANDS)
Depreciation........................................ $ (96) $ 1,578 $ 1,398
Provisions for doubtful accounts and returns........ 19,988 13,472 6,395
Inventory and warranty provisions................... 27,626 13,032 9,227
Deferred service contract revenue................... 9,507 3,074 1,386
Other............................................... 7,239 (1,979) 4,680
----------- ----------- -----------
Deferred tax asset.................................. $64,264 $29,177 $23,086
----------- ----------- -----------
----------- ----------- -----------
The difference between the income tax provisions in the consolidated
financial statements and the tax expense computed at the United States statutory
rates are as follows:
FISCAL YEAR
------------------------------
1994 1993 1992
-------- ------- -------
(IN THOUSANDS)
Tax provision (benefit) computed at the U.S. federal
statutory rate of 35%, 34%, and 34%, respectively.... $(13,568) $48,719 $24,963
Research and development credit........................ (1,345) (1,007) (1,072)
Foreign income taxed at different rate................. 10,315 (7,849) (1,831)
Net operating loss carryovers.......................... 3,969 (204) --
Other nondeductible accruals........................... (1,568) -- --
Other.................................................. (736) 1,991 444
-------- ------- -------
Provision (benefit) for income taxes................... $ (2,933) $41,650 $22,504
-------- ------- -------
-------- ------- -------
Effective tax rates.................................... 7.6% 29.1% 30.7%
-------- ------- -------
-------- ------- -------
NOTE 6 -- FINANCIAL INSTRUMENTS
Financial instruments with off-balance sheet risk
Foreign exchange hedging instruments -- The results of the Company's
international operations are affected by changes in exchange rates between
certain foreign currencies and the United States dollar. The financial
statements of the Company's international subsidiaries are generally measured
using the local currency as the functional currency. Accordingly, an increase in
the value of the United States dollar increases the cost of component purchases
made by the Company's international subsidiaries which are denominated in the
United States dollar. The Company's hedging activities primarily consist of
hedging anticipated, but not firmly committed, intercompany sales to its
international subsidiaries and the resulting intercompany balances.
From March 1991 until March 20, 1992, the Company principally used
combination foreign currency option contracts to hedge anticipated intercompany
sales to its international subsidiaries. After consideration of the
deliberations of the Emerging Issues Task Force, in the fourth quarter of fiscal
1992 the Company began to account on a mark-to-market basis for open combination
option contracts entered into with the same strike prices and maturities
("synthetic forward contracts") which were originally entered into to hedge
anticipated fiscal 1993 sales to international subsidiaries. Accordingly, the
Company recognized unrealized losses of $4.0 million related to open synthetic
forward contracts as a component of cost of sales in its consolidated statement
of income for 1992. Based upon foreign currency exchange rates at February 2,
1992, option contracts which hedged anticipated shipments to international
subsidiaries had a combined net realized and unrealized loss of $25.1 million.
36
38
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At January 30, 1994 and January 31, 1993, the Company had no combination
foreign currency contracts outstanding. Based upon foreign currency exchange
rates at January 30, 1994 and January 31, 1993, purchased option contracts which
effectively hedge anticipated, but not firmly committed, foreign currency
transactions had a combined net realized and unrealized gain of $2.2 million and
$2.0 million, respectively. Since March 20, 1992, the Company's use of issued
option contracts in the execution of its hedging program has been limited to
cancellation of previously purchased foreign currency option contracts. Forward
contracts designated to hedge foreign currency transaction exposures with
maturity dates of less than twelve months of $19 million and $15 million were
outstanding at January 30, 1994 and January 31, 1993, respectively.
On November 30, 1992, the Securities and Exchange Commission's (the
"Commission") Division of Enforcement notified the Company that it was beginning
an informal inquiry regarding the Company's accounting practices for foreign
currency hedging and trading activities and the completeness of the Company's
public disclosure about those activities. The Company believes its accounting
treatment for foreign currency hedging and trading activities complies with
generally accepted accounting principles in all material respects and that the
Company has provided appropriate disclosures of its hedging activities.
Interest Rate Derivative Instruments -- The Company utilizes a variety of
interest rate derivative instruments to more efficiently manage its principal,
market and credit risks as well as enhance its investment yield. Derivative
instruments used include interest rate swaps, written and purchased options and
swaptions (options to enter into interest rate swaps). Interest rate derivatives
are financial instruments whose value is "derived" from an underlying interest
rate or a relationship between interest rates. The Company also uses interest
rate derivatives to synthetically create investment securities more economically
than traditionally structured cash investments. The Company structures
derivative instruments in interest rate markets in countries where it has
foreign operations.
At January 30, 1994, and January 31, 1993, the Company had outstanding
interest rate derivative contracts with a total notional amount of $355 million
and $180 million, respectively. Interest rate derivatives generally involve
exchanges of interest payments based upon fixed and floating interest rates
without exchanges of underlying notional amounts. Consequently, the Company's
exposure to credit loss is significantly less than the stated notional amounts.
The Company's investment policy limits the weighted average maturity of its
investment derivative portfolio to a maximum of three years and limits the
maturity of individual positions to a maximum of five years. At January 30,
1994, the weighted average maturity of the investment derivative portfolio was
1.8 years.
The value of the Company's investment derivatives arise principally from
changes in interest rates. At January 30, 1994, the value of Company's
short-term and derivative investment portfolio is subject to movements in United
States, Canadian, Japanese and European interest rate markets and, generally,
would be adversely impacted by increases in market rates of interest. Since
January 30, 1994, the value of the Company's short-term and investment
derivative portfolios has decreased as a result of interest rate increases in
these markets. If interest rate market conditions as of March 2, 1994 prevail,
the Company's investment income, included as a component of financing and other,
will be adversely affected by the recognition of realized and unrealized losses.
The Company has also entered into certain interest rate derivative
instruments as a means of managing its interest rate risk and the interest costs
associated with the Senior Notes issued during 1994 (See Note 3).
37
39
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Fair value of financial instruments
The estimated fair value amounts disclosed under SFAS No. 107 "Disclosures
About Fair Value of Financial Instruments" have been determined by the Company
using available market information and appropriate valuation methodologies as
described below. However, considerable judgment is necessary in interpreting
market data to develop estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts that the Company
could realize in a current market exchange. Changes in assumptions could
significantly affect the estimates. Cash, accounts receivable, short-term
borrowings, accounts payable and accrued liabilities are reflected in the
financial statements at fair value because of the short-term maturity of these
instruments. The estimated fair values of the Company's other financial
instruments as of January 30, 1994, and January 31, 1993, are as follows (in
thousands):
JANUARY 30, 1994 JANUARY 31, 1993
----------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- -------- --------
(IN THOUSANDS)
Short-term investments........................ $ 333,667 $ 333,667 $ 80,367 $ 80,367
Long-term debt................................ (100,000) (105,500) -- --
Foreign currency hedging instruments:
Foreign exchange forward contracts.......... (81) (81) (23,661) (23,661)
Foreign currency option contracts........... 8,035 8,035 38,533 38,533
Interest rate derivative instruments:
Interest rate swaps designated to long-term
debt..................................... -- (1,170) -- --
Unmatched interest rate derivatives --
Interest rate options and swaptions...... (2,444) (2,444) (5,550) (5,550)
Interest rate swaps...................... 812 812 -- --
The fair values of short-term investments, long-term debt and interest rate
derivative instruments were estimated based upon quotes from brokers. Foreign
exchange forward contracts, fair values are estimated using market quoted rates
of exchange at the applicable balance sheet date. The estimated fair value of
foreign currency option contracts is based on market quoted rates of exchange at
the applicable balance sheet date and the Black-Sholes options pricing model.
Concentrations of credit risk
All of the Company's foreign exchange and interest rate derivative
instruments involve elements of market and credit risk in excess of the amounts
recognized in the financial statements. The counterparties to financial
instruments consist of a number of major financial institutions. In addition to
limiting the amount of agreements and contracts it enters into with any one
party, the Company regularly monitors its positions with and the credit quality
of the financial institutions which are counterparties to these financial
instruments, and it does not anticipate nonperformance by the counterparties.
The Company has business activities with large corporate, government and
education customers, medium-to small-sized businesses and individuals and
remarketers. Its receivables from such parties are well diversified. The Company
places its short-term investments with high quality financial institutions and
other companies and currently invests primarily in debt instruments that have
maturities of less than three years and equity securities. In management's
opinion, no significant concentration of credit risk exists for the Company.
NOTE 7 -- COMMITMENTS AND CONTINGENCIES
Legal Matters -- The Company is subject to certain legal proceedings and
claims which arise in the ordinary course of its business. Additionally, the
Company has been made aware of others in the industry who
38
40
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
assert exclusive rights to certain technologies, some of which have offered
related licenses to the Company. Such an offer of a license is usually taken in
the industry as a notice of a patent infringement claim. The Company's policy is
to evaluate such claims on a case-by-case basis and, if appropriate, to enter
into licensing arrangements that appear necessary or desirable. Management does
not believe that the outcome of any of these matters will have a material
adverse effect on the Company's financial condition or results of operations.
The Company and its Chairman, Michael S. Dell, are defendants in nineteen
lawsuits filed between May and November 1993, in the United States District
Court for the Western District of Texas, Austin Division. Thomas J. Meredith,
the Company's Chief Financial Officer, is also a defendant in seven of the
lawsuits. Joel Kocher, Senior Vice President of the Company, is also a defendant
in one of the lawsuits, but the plaintiffs have conditionally agreed to dismiss
him. The suits have been consolidated, an amended and consolidated complaint has
been filed, and the plaintiffs have requested class certification for a class of
persons who purchased or held the Company's common stock between February 24,
1993, and July 14, 1993. In general, the plaintiffs allege that the Company made
overly optimistic forecasts about the Company's prospects without a reasonable
basis and failed to disclose adverse material information about the Company's
business (particularly with regard to problems in its notebook business) on a
timely basis, thereby inducing the plaintiffs to buy Company common stock at
artificially high prices. The plaintiffs also allege that Mr. Dell sold
securities of the Company while in the possession of material, non-public
information about the Company. The consolidated complaint asserts that these
actions or omissions violated various provisions of the federal securities laws,
particularly Section 10(b) of the Exchange Act and Rule 10b-5; that Mr. Dell's
trades violated Section 20A of the Exchange Act; and that the defendants
violated provisions of Texas statutes and common law principles against
negligent misrepresentation and deceit. The complaint seeks unspecified damages.
The Company has moved for dismissal of the complaint and intends to defend
itself and its officers vigorously. It is the Company's policy to make accruals
for potential liability or settlement of litigated matters as appropriate. The
Company believes that its current accruals with respect to these lawsuits are
adequate. However, in the event the Company is ultimately found liable in these
lawsuits, it could have a material adverse effect on the Company's financial
condition and results of operations.
Other Commitments -- The Company is subject to certain patent royalty
agreements that require fixed payments with scheduled increases over the next
five years. The Company is also subject to software royalty agreements that
require cash payments over the next three years. Additionally, the Company
leases property and equipment, manufacturing facilities and office space under
non-cancelable leases. Certain leases obligate the Company to pay taxes,
maintenance and repair costs.
Future minimum payments under these leases at January 30, 1994 are as
follows:
FISCAL OPERATING
YEAR LEASES
- ------ --------------
(IN THOUSANDS)
1995............................................................. $ 13,539
1996............................................................. 9,461
1997............................................................. 5,981
1998............................................................. 4,264
1999............................................................. 2,320
Thereafter....................................................... 1,570
--------------
Total minimum lease payments required............................ $ 37,135
--------------
--------------
Rental expense recorded under all operating leases was $19 million, $14
million and $11 million for the fiscal years ended 1994, 1993, and 1992,
respectively.
39
41
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- RESTRUCTURING AND OTHER CHARGES
During the first half of 1994, the Company delayed and canceled certain
notebook development projects and reevaluated its probable future sales for the
notebook products then offered. The Company recorded over $39.3 million of
charges in the first half of 1994 due to the notebook inventory writedowns and
delayed and canceled notebook projects. The Company canceled its existing
notebook product line in August, 1993 and sold its then-remaining inventories of
notebooks at significantly reduced prices. The Company has focused its efforts
on the development of a 486-based notebook product line and is re-entering the
notebook computer market with a phased approach. Completion of the first phase
of the Company' s re-entry into the notebook computer market resulted in the
introduction on February 21, 1994, of the 486-based Dell Latitude family of
notebook computers.
During the first half of 1994, the Company also recorded $29.3 million of
other costs, consisting mostly of inventory writedowns and related costs. These
charges arose from the Company's determination that certain products and
inventory were excess or obsolete because the products were scheduled to be
replaced with newer products or because the Company otherwise had lowered its
estimates of expected demand for materials in inventory or under outstanding
purchase commitments.
Also during the first half of 1994, the Company recorded $22.8 million for
the costs of consolidating operations, writing off of certain assets, and making
employee severance payments. Most of the charges in this area were associated
with consolidating certain common functions in the European subsidiaries and
creating regional business units. This consolidation effort is designed to
reduce redundant costs and improve the Company's ability to deliver higher
levels of operational efficiency and higher quality support in European markets.
Operations in some subsidiaries have been closed and transferred to other
subsidiaries, and some consolidation is occurring outside of Europe.
Approximately 60% of the restructuring charges are cash provisions,
approximately half of which will be incurred in fiscal 1995.
NOTE 9 -- GEOGRAPHIC AREA INFORMATION
The Company operates in one industry and is engaged in the design,
manufacture, marketing, service and support of personal computers and related
equipment. Transfers between geographic areas are recorded at cost plus a
markup.
FISCAL YEAR 1994
--------------------------------------------------------------------------
NORTH OTHER
AMERICA EUROPE INTERNATIONAL ELIMINATIONS CONSOLIDATED
--------- -------- ------------- ------------ ------------
(IN THOUSANDS)
Sales to unaffiliated
customers..................... $2,012,697 $781,905 $ 78,563 $ -- $ 2,873,165
Transfers between geographic
areas......................... 53,159 -- -- (53,159) --
--------- -------- ------------- ------------ ------------
Total sales........... $2,065,856 $781,905 $ 78,563 $(53,159) $ 2,873,165
--------- -------- ------------- ------------ ------------
--------- -------- ------------- ------------ ------------
Operating income................ $ (34,921) $ 14,610 $ (18,713) $ -- $ (39,024)
--------- -------- ------------- ------------ ------------
--------- -------- ------------- ------------ ------------
Identifiable assets............. $ 881,736 $229,609 $ 29,135 $ -- $ 1,140,480
--------- -------- ------------- ------------ ------------
--------- -------- ------------- ------------ ------------
40
42
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FISCAL YEAR 1993
--------------------------------------------------------------------------
NORTH OTHER
AMERICA EUROPE INTERNATIONAL ELIMINATIONS CONSOLIDATED
--------- -------- ------------- ------------ ------------
(IN THOUSANDS)
Sales to unaffiliated
customers..................... $1,451,801 $552,999 $ 9,124 $ -- $ 2,013,924
Transfers between geographic
areas......................... 42,986 -- $ -- (42,986) --
---------- -------- ------------- ------------ ------------
Total sales........... $1,494,787 $552,999 $ 9,124 $(42,986) $ 2,013,924
---------- -------- ------------- ------------ ------------
---------- -------- ------------- ------------ ------------
Operating income................ $ 110,725 $ 34,668 $ (6,281) $ -- $ 139,112
---------- -------- ------------- ------------ ------------
---------- -------- ------------- ------------ ------------
Identifiable assets............. $ 664,759 $251,633 $ 10,613 $ -- $ 927,005
---------- -------- ------------- ------------ ------------
---------- -------- ------------- ------------ ------------
FISCAL YEAR 1992
--------------------------------------------------------------------------
NORTH OTHER
AMERICA EUROPE INTERNATIONAL ELIMINATIONS CONSOLIDATED
--------- -------- ------------- ------------ ------------
(IN THOUSANDS)
Sales to unaffiliated
customers..................... $ 648,081 $241,858 $ -- $ -- $ 889,939
Transfers between geographic
areas......................... 53,288 -- -- (53,288) --
--------- -------- ------------- ------------ ------------
Total sales........... $ 701,369 $241,858 $ -- $(53,288) $ 889,939
--------- -------- ------------- ------------ ------------
--------- -------- ------------- ------------ ------------
Operating income................ $ 44,742 $ 22,134 $ -- $ -- $ 66,876
--------- -------- ------------- ------------ ------------
--------- -------- ------------- ------------ ------------
Identifiable assets............. $ 410,917 $148,646 $ -- $ -- $ 559,563
--------- -------- ------------- ------------ ------------
--------- -------- ------------- ------------ ------------
41
43
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- SUPPLEMENTAL FINANCIAL INFORMATION
JANUARY JANUARY
30, 31,
1994 1993
-------- --------
(IN THOUSANDS)
SUPPLEMENTAL STATEMENT OF FINANCIAL POSITION INFORMATION
Accounts receivable:
Gross accounts receivable............................................ $436,789 $388,013
Allowance for doubtful accounts...................................... (26,015) (14,000)
-------- --------
$410,774 $374,013
-------- --------
-------- --------
Inventories:
Production materials................................................. $195,744 $281,245
Work-in-process and finished goods................................... 24,521 21,975
-------- --------
$220,265 $303,220
-------- --------
-------- --------
Other current assets:
Deferred premiums and other foreign exchange contracts............... $ 8,035 $ 38,533
Deferred income taxes................................................ 64,264 29,177
Other current assets................................................. 8,024 12,529
-------- --------
$ 80,323 $ 80,239
-------- --------
-------- --------
Property and Equipment:
Land and buildings................................................... $ 12,157 $ 4,433
Computer equipment................................................... 63,531 45,792
Office furniture and fixtures........................................ 20,992 18,587
Machinery and other equipment........................................ 28,377 23,980
Leasehold improvements............................................... 26,645 21,330
-------- --------
Total property and equipment......................................... 151,702 114,122
Accumulated depreciation and amortization............................ (64,810) (43,660)
-------- --------
$ 86,892 $ 70,462
-------- --------
-------- --------
Accrued liabilities:
Royalties and licensing.............................................. $ 50,185 $ 43,172
Payable on foreign exchange forward contracts........................ 81 23,661
Accrued compensation................................................. 14,396 22,310
Accrued warranty costs............................................... 49,201 20,588
Taxes other than income taxes........................................ 18,143 13,357
Deferred profit on warranty contracts................................ 21,106 8,772
Drawdown of line of credit........................................... -- 8,500
Accrued losses on interest rate swaps................................ -- 5,550
Other accrued liabilities............................................ 84,539 25,563
-------- --------
$237,651 $171,473
-------- --------
-------- --------
42
44
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JANUARY JANUARY
30, 31, FEBRUARY 2,
1994 1993 1992
-------- --------- -----------
(IN THOUSANDS)
SUPPLEMENTAL STATEMENT OF OPERATIONS INFORMATION
Research, development and engineering expenses:
Research and development expenses...................... $ 36,338 $ 31,282 $ 24,848
Engineering expenses................................... 12,596 11,076 8,292
-------- --------- -----------
$ 48,934 $ 42,358 $ 33,140
-------- --------- -----------
-------- --------- -----------
Financing and other income (expenses):
Investment income:
Short-term investment income, net................... $ 8,772 $ 12,945 $ 6,931
Interest rate derivatives........................... 5,184 2,505 5,462
Interest expense....................................... (8,350) (7,869) (1,784)
Foreign currency transaction........................... 777 9,084 (451)
Foreign currency trading............................... -- (9,649) (1,123)
Other.................................................. (6,125) (2,836) (2,496)
-------- --------- -----------
$ 258 $ 4,180 $ 6,539
-------- --------- -----------
-------- --------- -----------
JANUARY JANUARY
30, 31, FEBRUARY 2,
1994 1993 1992
-------- --------- -----------
(IN THOUSANDS)
SUPPLEMENTAL STATEMENT OF CASH FLOW INFORMATION
Changes in operating working capital accounts:
Accounts receivable, net............................... $(44,942) $(222,470) $ (79,329)
Inventories............................................ 81,605 (180,517) (38,507)
Accounts payable....................................... (5,260) 208,923 22,898
Accrued liabilities.................................... 70,782 56,208 65,209
Other.................................................. (5,177) (24,665) (41,233)
-------- --------- -----------
$ 97,008 $(162,521) $ (70,962)
-------- --------- -----------
-------- --------- -----------
Changes in non-current assets and liabilities:
Other assets........................................... $ 974 $ (1,116) $ (1,277)
Other liabilities...................................... 16,280 3,227 2,148
-------- --------- -----------
$ 17,254 $ 2,111 $ 871
-------- --------- -----------
-------- --------- -----------
Supplemental cash flow information:
Income taxes paid...................................... $ 6,671 $ 27,233 $ 19,611
Interest paid.......................................... $ 5,024 $ 1,334 $ 882
43
45
DELL COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 -- QUARTERLY RESULTS (UNAUDITED)
The following tables contain selected unaudited consolidated statement of
operations and stock price data for each quarter of fiscal 1994 and 1993. The
Company believes this information reflects all normal recurring adjustments
necessary for a fair presentation of the information for the periods presented.
The operating results for any quarter are not necessarily indicative of results
for any future period.
4TH 3RD 2ND 1ST
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL YEAR 1994
Net sales....................................... $742,948 $757,284 $700,569 $672,364
Gross profit.................................... 138,350 135,568 45,774 113,124
Operating income (loss)......................... 27,156 17,789 (98,118) 14,149
Net income (loss)............................... 17,708 11,982 (75,708) 10,185
Earnings (loss) per common share................ $ .39 $ .26 $ (2.03) $ .25
Shares used in per share calculation............ 39,870 39,653 37,229 40,455
Stock sales prices per share:
High.......................................... $ 27 3/4 $ 21 $ 34 $ 49
Low........................................... $ 20 3/4 $ 16 1/8 $ 15 7/8 $ 28
4TH 3RD 2ND 1ST
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL YEAR 1993
Net sales....................................... $620,306 $570,019 $457,477 $366,122
Gross profit.................................... 127,389 121,998 104,032 96,033
Operating income................................ 44,805 38,490 29,233 26,584
Net income...................................... 31,286 28,625 21,936 19,795
Earnings per share.............................. $ .77 $ .72 $ .57 $ .52
Shares used in per share calculation............ 40,506 39,569 38,460 38,030
Stock sales price per share:
High.......................................... $ 49 3/8 $ 35 3/8 $ 28 $ 28 1/8
Low........................................... $ 33 3/8 $ 22 5/8 $ 15 3/8 $ 20 1/2
Earnings per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly earnings per share may not equal
the annual earnings per share.
44
46
PART III
ITEM 10. DELL'S DIRECTORS AND EXECUTIVE OFFICERS
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for in these four items is incorporated by reference
to Dell Computer Corporation's definitive proxy statement relating to its annual
meeting of stockholders, which will be filed with the Commission within 120 days
of the end of fiscal 1994.
45
47
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following financial statements, financial statement schedules and
exhibits are filed as part of this 10-K.
Financial Statements and Financial Statement Schedules -- See Index to
Consolidated Financial Statements at Item 8 on page 22 of this report.
EXHIBITS
EXHIBIT
NO. DESCRIPTION OF EXHIBIT SOURCE
- --------- -------------------------------------------------------------------------- ------
3.1 -- Certificate of Incorporation of Dell Computer Corporation (the
"Company"), as amended (incorporated by reference to Exhibit 3.1 of the
Company's Annual Report on Form 10-K for the year ended February 2,
1992, Commission File No. 0-17017).....................................
3.2 -- Certificate of Amendment to the Certificate of Incorporation of the
Company (incorporated by reference to Exhibit 3.2 of the Company's
Annual Report on Form 10-K for the year ended January 31, 1993,
Commission File No. 0-17017)...........................................
3.3 -- Certificate of Stock Designation of the Company (incorporated by
reference to Exhibit 3.3 of the Company's Registration Statement on
Form S-4 as filed with the Securities and Exchange Commission on
October 1, 1993, Registration
No. 33-69680)..........................................................
3.4 -- Bylaws of the Company (incorporated by reference to Exhibit 3.2 of the
Company's Annual Report on Form 10-K for the year ended February 2,
1992, Commission File No. 0-17017).....................................
4.1 -- Indenture dated as of August 15, 1993, between the Company and The
First National Bank of Boston regarding 11% Senior Notes Due August 15,
2000 (incorporated by reference to Exhibit 4.1 of the Company's
Registration Statement on Form S-4 as filed with the Securities and
Exchange Commission on October 1, 1993, Registration No. 33-69680).....
4.2 -- Exchange and Registration Rights dated as of August 15, 1993, between
the Company and the purchasers of 11% Senior Notes Due August 15, 2000
(incorporated by reference to Exhibit 4.2 of the Company's Registration
Statement on Form S-4 as filed with the Securities and Exchange
Commission on October 1, 1993, Registration No. 33-69680)..............
10.1 -- Dell Computer Corporation 1986 Incentive Stock Option Plan, as amended
(incorporated by reference to Exhibit 4c of the Company's Registration
Statement on Form S-8 as filed with the Securities and Exchange
Commission on September 20, 1988, Registration No. 33-24621)...........
10.2 -- Dell Computer Corporation 1987 Incentive Stock Option Plan, as amended
(incorporated by reference to Exhibit 4d of the Company's Registration
Statement on Form S-8 as filed with the Securities and Exchange
Commission on September 20, 1988, Registration No. 33-24621)...........
10.3 -- Dell Computer Corporation 1987 Non-qualified Stock Option Plan, as
amended, including the UK Scheme (incorporated by reference to Exhibit
4e of the Company's Registration Statement on Form S-8 as filed with
the Securities and Exchange Commission on September 20, 1988,
Registration No. 33-24621).............................................
46
48
EXHIBIT
NO. DESCRIPTION OF EXHIBIT SOURCE
- --------- -------------------------------------------------------------------------- ------
10.4 -- Dell Computer Corporation 1989 Stock Option Plan, as amended and
restated (incorporated by reference to Exhibit 10.4 of the Company's
Annual Report on Form 10-K for the year ended January 31, 1993,
Commission File No. 0-17017)...........................................
10.5 -- Dell Computer Corporation Employee Stock Purchase Plan (incorporated by
reference to Exhibit 4d of the Company's Registration Statement on Form
S-8 as filed with the Securities and Exchange Commission on October 30,
1989, Registration No. 33-31812).......................................
10.6 -- Dell Computer Corporation 401(k) Plan (incorporated by reference to
Exhibit 10f of the Company's Annual Report on Form 10-K for the year
ended February 2, 1990, Commission File No. 0-17017)...................
10.7 -- First Amendment to Exhibit 10.6, Dell Computer Corporation 401(k) Plan
(incorporated by reference to Exhibit 10.7 of the Company's Annual
Report on Form 10-K for the year ended February 3, 1991, Commission
File
No. 0-17017)...........................................................
10.8 -- Second Amendment to Exhibit 10.6, Dell Computer Corporation 401(k) Plan
(incorporated by reference to Exhibit 10.8 of the Company's Annual
Report on Form 10-K for the year ended January 31, 1993, Commission
File
No. 0-17017)...........................................................
10.9 -- Dell Computer Corporation Deferred Compensation Plan (incorporated by
reference to Exhibit 10.8 of the Company's Annual Report on Form 10-K
for the year ended February 3, 1991, Commission File No. 0-17017)......
10.10 -- Credit Agreement between the Company and Citibank, N.A., for itself and
as agent for the other banks named therein dated June 18, 1993,
together with Amendment No. 1 to Credit Agreement between the Company
and Citibank, N.A., for itself and as agent for the other banks named
therein dated July 30, 1993. A list of schedules and exhibits to the
Credit Agreement is included on page iv of the Credit Agreement. The
Company hereby agrees to furnish supplementally to the Securities and
Exchange Commission on request a copy of any omitted schedule or
exhibit to the Credit Agreement (incorporated by reference to Exhibit
10.19 of the Company's Registration Statement on Form S-4 as filed with
the Securities and Exchange Commission on October 1, 1993, Registration
No. 33-69680)..........................................................
10.11 -- Form of Indemnity Agreement between the Company and certain of its
officers, directors and key employees (incorporated by reference to
Exhibit 10.23 of the Company's Registration Statement on Form S-1 as
filed with the Securities and Exchange Commission on May 12, 1988,
Registration No. 33-21823).............................................
10.12 -- Lease Agreement for Arboretum Point dated July 25, 1987 (incorporated
by reference to Exhibit 10.25 of the Company's Registration Statement
on Form S-1 as filed with the Securities and Exchange Commission on May
12, 1988, Registration No. 33-21823)...................................
10.13 -- First through Fourth Amendments to Exhibit 10.24, Lease Agreement for
Arboretum Point (incorporated by reference to Exhibit 10r of the
Company's Annual Report on Form 10-K for the year ended January 27,
1989, Commission File No. 0-17017).....................................
10.14 -- Fifth Amendment to Exhibit 10.24, Lease Agreement for Arboretum Point
(incorporated by reference to Exhibit 19b of the Company's Quarterly
Report on Form 10-Q for the quarter ended July 28, 1989, Commission
File No. 0-17017)......................................................
47
49
EXHIBIT
NO. DESCRIPTION OF EXHIBIT SOURCE
- --------- -------------------------------------------------------------------------- ------
10.15 -- Sixth Amendment to Exhibit 10.24, Lease Agreement for Arboretum Point
(incorporated by reference to Exhibit 10.25 of the Company's Annual
Report on Form 10-K for the year ended January 31, 1993, Commission
File No. 0-17017)......................................................
10.16 -- Lease Agreement for Building 12 in Braker Center dated January 6, 1989
(incorporated by reference to Exhibit 10s of the Company's Annual
Report on Form 10-K for the year ended January 27, 1989, Commission
File No. 0-17017)......................................................
10.17 -- Two Amendments to Exhibit 10.28 Lease Agreement for Building 12 in
Braker Center (incorporated by reference to Exhibit 10.27 of the
Company's Annual Report on Form 10-K for the year ended January 31,
1993, Commission File No. 0-17017).....................................
10.18 -- Agreement between the Company and Michael S. Dell dated May 12, 1988,
with the Employment Agreement between Michael S. Dell and a predecessor
of Dell Computer Corporation dated May 3, 1984 (incorporated by
reference to Exhibit 10.25 of Amendment No. 3 to the Company's
Registration Statement on Form S-1, as filed with the Securities and
Exchange Commission on March 27, 1991, Registration No. 33-38991)......
10.19 -- Employment Agreement between the Company and Joel Kocher effective as
of December 14, 1987 (incorporated by reference to Exhibit 10.22 of
Amendment No. 3 to the Company's Registration Statement on Form S-1, as
filed with the Securities and Exchange Commission on March 27, 1991,
Registration No. 33-38991).............................................
10.20 -- Employment Agreement between the Company and Savino R. Ferrales
effective as of January 9, 1989 (incorporated by reference to Exhibit
10.21 of Amendment No. 3 to the Company's Registration Statement on
Form S-1, as filed with the Securities and Exchange Commission on March
27, 1991, Registration No. 33-38991)...................................
10.21 -- Employment Agreement between the Company and Richard E. Salwen
effective as of June 12, 1989, with a letter agreement dated May 21,
1989 (incorporated by reference to Exhibit 10.23 of Amendment No. 3 to
the Company's Registration Statement on Form S-1, as filed with the
Securities and Exchange Commission on March 27, 1991, Registration No.
33-38991)..............................................................
10.22 -- Employment Agreement between the Company and Thomas J. Meredith dated
November 16, 1992 (incorporated by reference to Exhibit 10.36 of the
Company's Annual Report on Form 10-K for the year ended January 31,
1993, Commission File No. 0-17017).....................................
10.23 -- Employment Agreement between the Company and L. Scott Flaig dated
December 1, 1992 (incorporated by reference to Exhibit 10.37 of the
Company's Annual Report on Form 10-K for the year ended January 31,
1993, Commission File No. 0-17017).....................................
10.24 -- Form of Stock Option Agreement under the 1989 Stock Option Plan
(incorporated by reference to Exhibit 10.38 of the Company's Annual
Report on Form 10-K for the year ended January 31, 1993, Commission
File No. 0-17017)......................................................
10.25 -- Dell Computer Corporation 1993 Stock Option Plan (incorporated by
reference to Exhibit 10.36 of the Company's Registration Statement on
Form S-4 as filed with the Securities and Exchange Commission on
October 1, 1993, Registration No. 33-69680)............................
48
50
EXHIBIT
NO. DESCRIPTION OF EXHIBIT SOURCE
- --------- -------------------------------------------------------------------------- ------
10.26 -- Form of Incentive Stock Option Agreement and Nonstatutory Stock Option
Agreement under the 1993 Stock Option Plan (incorporated by reference
to Exhibit 10.37 of the Company's Registration Statement on Form S-4 as
filed with the Securities and Exchange Commission on October 1, 1993,
Registration
No. 33-69680)..........................................................
10.27 -- Receivables Purchase Agreement among Dell Receivables Corporation, Dell
USA L.P., Sheffield Receivables Corporation, and Barclays Bank PLC, New
York Branch, dated as of June 23, 1993. A list of schedules and
exhibits to the Receivables Purchase Agreement is included on page iv
of the Receivables Purchase Agreement. The Company hereby agrees to
furnish supplementally to the Securities and Exchange Commission on
request a copy of any omitted schedule or exhibit to the Receivables
Purchase Agreement (incorporated by reference to Exhibit 10.38 of the
Company's Registration Statement on Form S-4 as filed with the
Securities and Exchange Commission on October 1, 1993, Registration
No. 33-69680)..........................................................
21.0 -- Subsidiaries of the Company (incorporated by reference to Exhibit 21.0
of the Company's Registration Statement on Form S-4 as filed with the
Securities and Exchange Commission on October 1, 1993, Registration No.
33-69680)..............................................................
23.1* -- Consent of Price Waterhouse............................................
- ---------------
* Filed herewith.
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EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
(1) Dell Computer Corporation 1986 Incentive Stock Option Plan, as amended
(incorporated by reference to Exhibit 4c of the Company's Registration Statement
on Form S-8 as filed with the Securities and Exchange Commission on September 20,
1988, Registration No. 33-24621)
(2) Dell Computer Corporation 1987 Incentive Stock Option Plan, as amended
(incorporated by reference to Exhibit 4d of the Company's Registration Statement
on Form S-8 as filed with the Securities and Exchange Commission on September 20,
1988, Registration No. 33-24621)
(3) Dell Computer Corporation 1987 Non-qualified Stock Option Plan, as amended,
including the UK Scheme (incorporated by reference to Exhibit 4e of the Company's
Registration Statement on Form S-8 as filed with the Securities and Exchange
Commission on September 20, 1988, Registration No. 33-24621)
(4) Dell Computer Corporation 1989 Stock Option Plan, as amended and restated
(incorporated by reference to Exhibit 10.4 of the Company's Annual Report on Form
10-K for the year ended January 31, 1993, Commission File No. 0-17017)
(5) Dell Computer Corporation Employee Stock Purchase Plan (incorporated by reference
to Exhibit 4d of the Company's Registration Statement on Form S-8 as filed with
the Securities and Exchange Commission on October 30, 1989, Registration No.
33-31812)
(6) Dell Computer Corporation 401(k) Plan (incorporated by reference to Exhibit 10f of
the Company's Annual Report on Form 10-K for the year ended February 2, 1990,
Commission File No. 0-17017)
(7) First Amendment to Exhibit 10.6, Dell Computer Corporation 401(k) Plan
(incorporated by reference to Exhibit 10.7 of the Company's Annual Report on Form
10-K for the year ended February 3, 1991, Commission File No. 0-17017)
(8) Second Amendment to Exhibit 10.6, Dell Computer Corporation 401(k) Plan
(incorporated by reference to Exhibit 10.8 of the Company's Annual Report on Form
10-K for the year ended January 31, 1993, Commission File No. 0-17017)
(9) Dell Computer Corporation Deferred Compensation Plan (incorporated by reference to
Exhibit 10.8 of the Company's Annual Report on Form 10-K for the year ended
February 3, 1991, Commission File No. 0-17017)
(10) Form of Indemnity Agreement between the Company and certain of its officers,
directors and key employees (incorporated by reference to Exhibit 10.23 of the
Company's Registration Statement on Form S-1 as filed with the Securities and
Exchange Commission on May 12, 1988, Registration No. 33-21823)
(11) Agreement between the Company and Michael S. Dell dated May 12, 1988, with the
Employment Agreement between Michael S. Dell and a predecessor of Dell Computer
Corporation dated May 3, 1984 (incorporated by reference to Exhibit 10.25 of
Amendment No. 3 to the Company's Registration Statement on Form S-1, as filed with
the Securities and Exchange Commission on March 27, 1991, Registration No.
33-38991)
(12) Employment Agreement between the Company and Joel Kocher effective as of December
14, 1987 (incorporated by reference to Exhibit 10.22 of Amendment No. 3 to the
Company's Registration Statement on Form S-1, as filed with the Securities and
Exchange Commission on March 27, 1991, Registration No. 33-38991)
(13) Employment Agreement between the Company and Savino R. Ferrales effective as of
January 9, 1989 (incorporated by reference to Exhibit 10.21 of Amendment No. 3 to
the Company's Registration Statement on Form S-1, as filed with the Securities and
Exchange Commission on March 27, 1991, Registration No. 33-38991)
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52
(14) Employment Agreement between the Company and Richard E. Salwen effective as of
June 12, 1989, with a letter agreement dated May 21, 1989 (incorporated by
reference to Exhibit 10.23 of Amendment No. 3 to the Company's Registration
Statement on Form S-1, as filed with the Securities and Exchange Commission on
March 27, 1991, Registration No. 33-38991)
(15) Employment Agreement between the Company and Thomas J. Meredith dated November 16,
1992 (incorporated by reference to Exhibit 10.36 of the Company's Annual Report on
Form 10-K for the year ended January 31, 1993, Commission File No. 0-17017)
(16) Employment Agreement between the Company and L. Scott Flaig dated December 1, 1992
(incorporated by reference to Exhibit 10.37 of the Company's Annual Report on Form
10-K for the year ended January 31, 1993, Commission File No. 0-17017)
(17) Form of Stock Option Agreement under the 1989 Stock Option Plan (incorporated by
reference to Exhibit 10.38 of the Company's Annual Report on Form 10-K for the
year ended January 31, 1993, Commission File No. 0-17017)
(18) Dell Computer Corporation 1993 Stock Option Plan (incorporated by reference to
Exhibit 10.36 of the Company's Registration Statement on Form S-4 as filed with
the Securities and Exchange Commission on October 1, 1993, Registration No.
33-69680)
(19) Form of Incentive Stock Option Agreement and Nonstatutory Stock Option Agreement
under the 1993 Stock Option Plan (incorporated by reference to Exhibit 10.37 of
the Company's Registration Statement on Form S-4 as filed with the Securities and
Exchange Commission on October 1, 1993, Registration No. 33-69680)
REPORTS ON FORM 8-K
Dell Computer Corporation did not file any reports on Form 8-K during the
fourth quarter of fiscal 1994.
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SCHEDULE I
DELL COMPUTER CORPORATION
SHORT-TERM INVESTMENTS
(DOLLARS IN THOUSANDS)
AMOUNT CARRIED
NAME OF ISSUER AND MARKET ON BALANCE
TITLE OF EACH ISSUE(1) PRINCIPAL VALUE COST SHEET
- --------------------------------------------- -------- -------- -------- --------------
Preferred Stock.............................. $ 52,300 $ 49,704 $ 52,470 $ 49,704
Mutual Funds................................. 10,000 9,986 10,000 9,986
State and municipal securities............... 133,350 133,586 133,340 133,586
U.S. corporate and bank debt................. 135,830 140,391 136,124 140,391
-------- -------- -------- --------------
Total........................................ $331,480 $333,667 $331,934 $333,667
-------- -------- -------- --------------
-------- -------- -------- --------------
- ---------------
(1) No individual security or group of securities of an issuer exceeds 2% of
total assets.
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54
SCHEDULE II
DELL COMPUTER CORPORATION
AMOUNTS RECEIVABLE FROM RELATED PARTIES
CURRENT
BALANCE AT BALANCE AT
BEGINNING OF END OF
NAME OF DEBTOR PERIOD ADDITIONS DEDUCTIONS PERIOD
- -------------------------------------------------- ------------ --------- ---------- ----------
Thomas J. Meredith................................ -- $ 224,940 -- $ 224,940
Chief Financial Officer
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SCHEDULE VIII
DELL COMPUTER CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
BALANCE AT CHARGED TO WRITE-OFFS BALANCE AT
FISCAL BEGINNING BAD DEBT CHARGED TO END OF
YEAR DESCRIPTION OF PERIOD EXPENSE ALLOWANCE PERIOD
- ------ --------------------------------------------- ---------- ---------- ---------- ----------
1994 Allowance for doubtful accounts.............. $ 14,000 $ 13,455 $1,440 $ 26,015
1993 Allowance for doubtful accounts.............. $ 7,527 $ 8,141 $1,668 $ 14,000
1992 Allowance for doubtful accounts.............. $ 3,513 $ 5,202 $1,188 $ 7,527
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SCHEDULE IX
DELL COMPUTER CORPORATION
SHORT-TERM BORROWINGS
(DOLLARS IN THOUSANDS)
WEIGHTED
WEIGHTED MAXIMUM AVERAGE AVERAGE
BALANCE AT AVERAGE OUTSTANDING OUTSTANDING RATE
FISCAL CATEGORY OF END OF INTEREST DURING THE DURING THE DURING THE
YEAR SHORT-TERM BORROWINGS(1) PERIOD RATE(2) PERIOD PERIOD(3) PERIOD(4)
- ------ ------------------------------------- ---------- -------- ----------- ----------- ----------
1994 Notes payable to banks............... $ -- -- $ 165,000 $49,878 6.0%
1993 Notes payable to banks............... $8,500 3.4% $ 149,676 $81,239 3.7%
1992 Notes payable to banks............... $ -- -- $ 8,000 $ 667 6.1%
- ---------------
(1) Notes payable to banks result from revolving lines of credit with financial
institutions.
(2) Computed based upon rates existing at year-end for each note outstanding at
that date.
(3) Computed by averaging thirteen month-end balances for each period presented.
(4) The weighted average is computed based upon interest rates and note payable
balances existing at each of thirteen month-end dates for the periods
presented.
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SCHEDULE X
DELL COMPUTER CORPORATION
SUPPLEMENTARY CONSOLIDATED STATEMENT OF INCOME INFORMATION
(DOLLARS IN THOUSANDS)
FISCAL YEAR
-------------------------------
1994 1993 1992
------- -------- -------
Advertising expenses.......................................... $72,121 $54,920 $36,211
Royalties..................................................... $70,929 $45,241 $21,580
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DELL COMPUTER CORPORATION
DATE: April 1, 1994 /s/ MICHAEL S. DELL
By: Michael S. Dell
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
DATE: April 1, 1994 /s/ MICHAEL S. DELL
Michael S. Dell
Chairman of the Board and
Chief Executive Officer
DATE: April 1, 1994 /s/ THOMAS J. MEREDITH
Thomas J. Meredith
Chief Financial Officer
DATE: April 1, 1994 /s/ DONALD J. CARTY
Donald J. Carty
Director
DATE: April 1, 1994 /s/ PAUL O. HIRSCHBIEL, JR.
Paul O. Hirschbiel, Jr.
Director
DATE: April 1, 1994 /s/ MICHAEL H. JORDAN
Michael H. Jordan.
Director
DATE: April 1, 1994 /s/ GEORGE KOZMETSKY
George Kozmetsky
Director
DATE: April 1, 1994 /s/ THOMAS W. LUCE, III
Thomas W. Luce, III
Director
DATE: April 1, 1994 /s/ CLAUDINE B. MALONE
Claudine B. Malone
Director
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59
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DELL COMPUTER CORPORATION
DATE: April 1, 1994 /s/ MICHAEL S. DELL
By: Michael S. Dell
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
DATE: April 1, 1994 /s/ MICHAEL S. DELL
Michael S. Dell
Chairman of the Board and
Chief Executive Officer
DATE: April 1, 1994 /s/ THOMAS J. MEREDITH
Thomas J. Meredith
Chief Financial Officer
DATE: April 1, 1994 /s/ DONALD J. CARTY
Donald J. Carty
Director
DATE: April 1, 1994 /s/ PAUL O. HIRSCHBIEL, JR.
Paul O. Hirschbiel, Jr.
Director
DATE: April 1, 1994 /s/ MICHAEL H. JORDAN
Michael H. Jordan.
Director
DATE: April 1, 1994 /s/ GEORGE KOZMETSKY
George Kozmetsky
Director
DATE: April 1, 1994 /s/ THOMAS W. LUCE, III
Thomas W. Luce, III
Director
DATE: April 1, 1994 /s/ CLAUDINE MALONE
Claudine Malone
Director
58