Dell 1997 Annual Report Download - page 24

credit facility and a $150 million 3-year revolving credit facility. During
fiscal 1998, the Company replaced the two separate facilities with one $250
million 5-year revolving credit facility. Additionally during fiscal 1996, the
Company entered into a transaction that gives the Company the ability to raise
up to $150 million through a receivables securitization facility. Commitment
fees for each of these facilities are paid quarterly and are based on specific
liquidity requirements. Commitment fees paid in both fiscal 1998 and 1997 were
not material to the Company. At both February 1, 1998 and February 2, 1997,
these facilities were unused.
NOTE 6 -- PREFERRED STOCK
The Company has the authority to issue 5 million shares of preferred stock, par
value $.01 per share.
Series A Convertible Preferred Stock -- During fiscal 1996, the Company offered
to pay a cash premium of $8.25 for each outstanding share of Series A
Convertible Preferred Stock that was converted to common stock. Holders of 1
million shares of Series A Convertible Preferred Stock elected to convert and,
as a result, received an aggregate of approximately 20 million shares of common
stock and $10 million in cash during fiscal 1996. During fiscal 1997, the
remaining 60,000 shares of Series A Convertible Preferred Stock were converted
into common stock in accordance with their terms, resulting in the issuance of
an additional 1 million shares of common stock.
Series A Junior Participating Preferred Stock -- In conjunction with the
distribution of Preferred Share Purchase Rights (see Note 9 -- Preferred Share
Purchase Rights), the Company's Board of Directors designated 200,000 shares of
preferred stock as Series A Junior Participating Preferred Stock ("Junior
Preferred Stock") and reserved such shares for issuance upon exercise of the
Preferred Share Purchase Rights. At February 1, 1998 and February 2, 1997, no
shares of Junior Preferred Stock were issued or outstanding.
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
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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