Dell 1997 Annual Report Download - page 26

FISCAL YEAR ENDED
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FEBRUARY 1, 1998 FEBRUARY 2, 1997 JANUARY 28, 1996
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Expected term:
Stock options................................ 5 years 5 years 5 years
Employee stock purchase plan................. 6 months 6 months 6 months
Interest rate.................................. 6.28% 6.40% 6.20%
Volatility..................................... 54.92% 56.54% 57.36%
Dividends...................................... 0% 0% 0%
Had the Company accounted for its stock option and stock purchase plans by
recording compensation expense based on the fair value at the grant date on a
straight line basis over the vesting period, stock-based compensation costs
would have reduced pretax income by $100 million ($69 million,
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net of taxes), $22 million ($16 million, net of taxes) and $8 million ($6
million, net of taxes) in fiscal 1998, 1997 and 1996, respectively. The pro
forma effect on diluted earnings per common share would have been a reduction of
$0.09, $0.02 and $0.01 for fiscal years 1998, 1997 and 1996, respectively. The
pro forma effect on basic earnings per common share would have been a reduction
of $0.11, $0.02 and $0.01 for fiscal years 1998, 1997 and 1996, respectively.
401(k) Plan -- The Company has a defined contribution retirement plan that
complies with Section 401(k) of the Internal Revenue Code. Substantially all
employees in the U.S. are eligible to participate in the plan. The Company
matches 100% of each participant's voluntary contributions, subject to a maximum
Company contribution of 3% of the participant's compensation. During each of
fiscal 1998, fiscal 1997 and fiscal 1996, the Company made discretionary
contributions for every eligible employee, regardless of whether the employee
was a plan participant, equal to 2% of the employee's actual earnings during
calendar years 1997, 1996 and 1995, respectively. The Company's matching and
discretionary contributions during fiscal years 1998, 1997 and 1996 were $20
million, $13 million and $10 million, respectively.
NOTE 9 -- PREFERRED SHARE PURCHASE RIGHTS
On November 29, 1995, the Company's Board of Directors declared a dividend of
one Preferred Share Purchase Right (a "Right") for each outstanding share of
common stock. The distribution of the Rights was made on December 13, 1995, to
the stockholders of record on that date. Each Right entitles the holder to
purchase one eight-thousandth of a share of Junior Preferred Stock at an
exercise price of $225 per one-thousandth of a share.
If a person or group acquires 15% or more of the outstanding common stock, each
Right will entitle the holder (other than such person or any member of such
group) to purchase, at the Right's then current exercise price, the number of
shares of common stock having a market value of twice the exercise price of the
Right. If exercisable, the Rights contain provisions relating to merger or other
business combinations. In certain circumstances, the Board of Directors may, at
its option, exchange part or all of the Rights (other than Rights held by the
acquiring person or group) for shares of common stock at an exchange rate of one
share of common stock for each Right.
The Company will be entitled to redeem the Rights at $.001 per Right at any time
before a 15% or greater position has been acquired by any person or group.
Additionally, the Company may lower the 15% threshold to not less than the
greater of (a) any percentage greater than the largest percentage of common
stock known by the Company to be owned by any person (other than Michael S.
Dell) or (b) 10%. The Rights expire on November 29, 2005.
Neither the ownership nor the further acquisition of common stock by Michael S.
Dell will cause the Rights to become exercisable or nonredeemable or will
trigger the other features of the Rights.
NOTE 10 -- COMMITMENTS, CONTINGENCIES AND CERTAIN CONCENTRATIONS
Lease Commitments -- During fiscal 1998, the Company entered into a master lease
facility ("Facility"), which provides for the ability to lease certain real
property, buildings and equipment to be constructed or acquired. The lessor has
agreed to fund up to $227 million under this Facility. Rent obligations for the
buildings commence on various dates.
The lease has an initial term of five years with an option to renew for two
successive years, subject to certain conditions. The Company may, at its option,
purchase the buildings during or at the end of the lease term for 100% of the
then outstanding amount expended by the lessor to construct the buildings. If
the Company does not exercise the purchase option, the Company will guarantee a
residual value of the buildings as determined by the agreement (approximately
$36 million at February 1, 1998).