Part 2 on Dell options
Stock-Based Compensation -- The Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," in the
fiscal year ended February 2, 1997. On adoption, the Company continued to apply
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," in accounting for its stock option and stock purchase plans. As a
result, no expense has been recognized for options granted with an exercise
price equal to market value at the date of grant or in connection with the
employee stock purchase plan. For stock options that have been issued at
discounted prices, the Company accrues for compensation expense over the vesting
period for the difference between the exercise price and fair market value on
the measurement date.
FISCAL YEAR ENDED
-----------------------------------------
FEBRUARY 1, FEBRUARY 2, JANUARY 28,
1998 1997 1996
----------- ----------- -----------
(IN MILLIONS, EXCEPT PER SHARE DATA)
Net income.............................................. $ 944 $ 518 $ 272
Less: preferred stock dividends......................... -- -- (12)
----- ----- -----
Net income available to common stockholders............. $ 944 $ 518 $ 260
===== ===== =====
Weighted average shares outstanding -- Basic............ 658 710 716
Employee stock options and other........................ 80 72 74
----- ----- -----
Weighted average shares outstanding -- Diluted.......... 738 782 790
===== ===== =====
Earnings per common share:
Basic................................................. $1.44 $0.73 $0.36
Diluted............................................... $1.28 $0.66 $0.33
NOTE 7 -- COMMON STOCK
Authorized Shares -- During fiscal 1998, the Company's stockholders approved an
increase in the number of authorized shares of common stock to one billion from
three hundred million at the end of fiscal 1997.
Stock Split -- On each of March 6, 1998 and July 25, 1997, the Company effected
a two-for-one common stock split by paying a 100% stock dividend to stockholders
of record as of February 27, 1998 and July 18, 1997, respectively. All share and
per share information has been retroactively restated in the Consolidated
Financial Statements to reflect these stock splits.
Stock Repurchase Program -- The Board of Directors has authorized the Company to
repurchase up to 250 million shares of its common stock in open market or
private transactions. During fiscal 1998 and fiscal 1997, the Company
repurchased 69 million and 81 million shares of its common stock, respectively,
for an aggregate cost of $1.0 billion and $503 million, respectively. The
Company utilizes equity instrument contracts to facilitate its repurchase of
common stock. At
February 1, 1998 and February 2, 1997, the Company held equity instrument
contracts that relate to the purchase of 50 million and 36 million shares of
common stock, respectively, at an average cost of $44 and $9 per share,
respectively. Additionally, at February 1, 1998 and February 2, 1997, the
Company has sold put obligations covering 55 million and 34 million shares,
respectively, at an average exercise price of $39 and $8, respectively. The
equity instruments are exercisable only at expiration, with the expiration dates
ranging from the first quarter of fiscal 1999 through the third quarter of
fiscal 2000.
At February 2, 1997, certain outstanding put obligations contained net cash
settlement or physical settlement terms thus resulting in a reclassification of
the maximum potential repurchase obligation of $279 million from stockholders'
equity to put warrants. The outstanding put obligations at February 1, 1998
permitted net-share settlement at the Company's option and, therefore, did not
result in a put warrant liability on the balance sheet. The equity instruments
did not have a material dilutive effect on earnings per common share for fiscal
1998 or fiscal 1997.
NOTE 8 -- BENEFIT PLANS
Incentive and Employee Stock Purchase Plans -- The Dell Computer Corporation
Incentive Plan (the "Incentive Plan"), which is administered by the Compensation
Committee of the Board of Directors, provides for the granting of incentive
awards in the form of stock options, stock appreciation rights ("SARs"),
restricted stock, stock and cash to directors, executive officers and key
employees of the Company and its subsidiaries, and certain other persons who
provide consulting or advisory services to the Company.
Options granted may be either incentive stock options within the meaning of
Section 422 of the Internal Revenue Code or nonqualified options. The right to
purchase shares under the existing stock option agreements typically vests
pro-rata at each option anniversary date over a five-year period. Stock options
must be exercised within ten years from date of grant. Stock options are
generally issued at fair market value. Under the Incentive Plan, each
nonemployee director of the Company automatically receives nonqualified stock
options annually.
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