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0000950134-07-022267.txt : 20071030
0000950134-07-022267.hdr.sgml : 20071030
20071030161128
ACCESSION NUMBER: 0000950134-07-022267
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 9
CONFORMED PERIOD OF REPORT: 20070202
FILED AS OF DATE: 20071030
DATE AS OF CHANGE: 20071030
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: DELL INC
CENTRAL INDEX KEY: 0000826083
STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPUTERS [3571]
IRS NUMBER: 742487834
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0129
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-17017
FILM NUMBER: 071199721
BUSINESS ADDRESS:
STREET 1: ONE DELL WAY
STREET 2: STED
CITY: ROUND ROCK
STATE: TX
ZIP: 78682-2244
BUSINESS PHONE: 5127284737
MAIL ADDRESS:
STREET 1: ONE DELL WAY
CITY: ROUND ROCK
STATE: TX
ZIP: 78682
FORMER COMPANY:
FORMER CONFORMED NAME: DELL COMPUTER CORP
DATE OF NAME CHANGE: 19920703
10-K
1
d48366e10vk.htm
FORM 10-K
e10vk
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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(Mark One)
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended:
February 2, 2007
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
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Commission file
number: 0-17017
Dell
Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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74-2487834
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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One Dell Way, Round Rock, Texas 78682
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area
code: (512) 338-4400
Securities registered pursuant to Section 12(b) of the
Act:
Common Stock, par value $.01 per share
Securities registered pursuant to Section 12(g) of the
Act: None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes o No þ
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 registrants 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. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
of the Exchange Act. (Check One):
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Large accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the
Act). Yes o No þ
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Approximate aggregate market value of the registrants
common stock held by non-affiliates as of August 3, 2007,
based upon the closing price reported for such date on The
NASDAQ Stock Market
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$54.0 billion
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Number of shares of common stock outstanding as of
October 19, 2007
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2,235,866,516
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This report contains forward-looking statements that are
based on Dells current expectations. Actual results in
future periods may differ materially from those expressed or
implied by those forward-looking statements because of a number
of risks and uncertainties. For a discussion of risk factors
affecting our business and prospects, see
Part I Item 1A
Risk Factors.
All percentage amounts and ratios were calculated using
the underlying data in thousands. Unless otherwise noted, all
references to industry share and total industry growth data are
for personal computers (including desktops, notebooks, and x86
servers), and are based on information provided by IDC Worldwide
Quarterly PC Tracker, September 2007. Share data is for the full
calendar year and all our growth rates are on a fiscal
year-over-year basis. Unless otherwise noted, all references to
time periods refer to our fiscal periods.
Special Note
Along with this report, we are filing our amended quarterly
report for the first quarter of Fiscal 2007 and our delayed
quarterly reports for the second and third quarters of Fiscal
2007 and the first and second quarters of Fiscal 2008. These
reports were amended or delayed due to questions raised in an
independent investigation into certain accounting and financial
reporting matters conducted by our Audit Committee. That
investigation has been completed, and the investigator has
reported the results to the Audit Committee. As a result of
issues identified in that investigation, as well as issues
identified in additional reviews and procedures conducted by
management, the Audit Committee, in consultation with management
and PricewaterhouseCoopers LLP, our independent registered
public accounting firm, concluded on August 13, 2007 that
our previously issued financial statements for Fiscal 2003,
2004, 2005, and 2006 (including the interim periods within those
years), and the first quarter of Fiscal 2007, should no longer
be relied upon because of certain accounting errors and
irregularities in those financial statements. Accordingly, we
have restated our previously issued financial statements for
those periods. The adjustments made as a result of the
restatement are more fully discussed in Note 2 of Notes to
Consolidated Financial Statements included in
Part II Item 8 Financial
Statements and Supplementary Data, and the cumulative
impact of the restated financial results at the beginning of
Fiscal 2003 is presented in Part II
Item 6 Selected Financial Data. For
additional discussion of the investigation, the accounting
errors and irregularities identified, and the restatement
adjustments, see Part II
Item 7 Managements Discussion and
Analysis of Financial Condition and Results of
Operations Audit Committee Independent Investigation
and Restatement and Note 2 of Notes to Consolidated
Financial Statements included in Part II
Item 8 Financial Statements and Supplementary
Data. For a description of the control deficiencies
identified by management as a result of the investigation and
our internal reviews, and managements plan to remediate
those deficiencies, see Part II
Item 9A Controls and Procedures.
General
Dell listens to customers and delivers innovative technology and
services they trust and value. As a leading technology company,
we offer a broad range of product categories, including desktop
computer systems, storage, servers and networking products,
mobility products, software and peripherals, and enhanced
services. We are the number one supplier of personal computer
systems in the United States, and the number two supplier
worldwide.
Our company is a Delaware corporation and was founded in 1984 by
Michael Dell on a simple concept: by selling computer systems
directly to customers, we can best understand their needs and
efficiently provide the most effective computing solutions to
meet those needs. Our corporate headquarters are located in
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Round Rock, Texas, and we conduct operations worldwide through
subsidiaries. When we refer to our company and its business in
this report, we are referring to the business and activities of
our consolidated subsidiaries. We operate principally in one
industry, and we manage our business in three geographic
regions: the Americas; Europe, Middle East and Africa
(EMEA); and Asia Pacific-Japan (APJ).
See Part I Item 1
Business Geographic Areas of Operations.
We are committed to managing and operating our business in a
responsible and sustainable manner around the globe. This
includes our commitment to environmental responsibility in all
areas of our business. We recently set an ambitious long-term
goal to be the greenest technology company on the
planet, and have a number of efforts that take the
environment into account at every stage of the product
lifecycle. See Part I
Item 1 Business Sustainability.
This also includes our renewed focus on achieving and
maintaining a strong control environment, high ethical
standards, and financial reporting integrity. See
Part II Item 9A Controls
and Procedures.
Business
Strategy
Our business strategy is evolving as we combine our direct
customer model with relevant technologies and solutions, highly
efficient manufacturing and logistics, and new distribution
channels to reach commercial customers and individual consumers
around the world. Using this strategy, we strive to provide the
best possible customer experience by offering superior value;
high-quality, relevant technology; customized systems; superior
service and support; and differentiated products and services
that are easy to buy and use. Historically, our growth has been
driven organically from our core businesses. Recently, we have
begun to pursue a targeted acquisition strategy designed to
augment areas of our business to gain more access to products,
services, and technology that our customers value.
Our core values include the following:
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We simplify information technology for
customers. Making quality personal computers, servers,
storage, and services affordable is Dells legacy. We are
focused on making information technology affordable for millions
of customers around the world. As a result of our direct
relationships with customers, or customer intimacy,
we are best positioned to simplify how customers implement and
maintain information technology and deliver hardware, services,
and software solutions tailored for their businesses and homes.
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We offer customers choice. Customers can purchase
systems and services from Dell via telephone, kiosks, and our
website, www.dell.com, where they may review, configure, and
price systems within our entire product line; order systems
online; and track orders from manufacturing through shipping.
Customers may offer suggestions for current and future Dell
products and services through an interactive portion of our
website called Dell IdeaStorm. Commercial customers also can
interact with dedicated account teams. We have recently launched
a retail initiative and plan to expand that initiative by adding
new distribution channels to reach additional consumers and
small businesses through retail partners and value-added
resellers globally.
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Customers can purchase custom-built products and
custom-tailored services. Historically our flexible,
build-to-order manufacturing process enabled us to turn over
inventory every five days on average, thereby reducing inventory
levels, and rapidly bring the latest technology to our
customers. The market and our competition has evolved, and we
are now exploring the utilization of original design
manufacturers and new distribution strategies to better meet
customer needs and reduce product cycle times. Our goal is to
introduce the latest relevant technology more quickly and to
rapidly pass on component cost savings to a broader set of our
customers worldwide.
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We are committed to being environmentally responsible in all
areas of our business. We have built environmental
consideration into every stage of the Dell product life
cycle from developing and designing energy-efficient
products, to reducing the footprint of our manufacturing and
operations, to customer use and product recovery.
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Product
Development
We focus on developing standards-based technologies that
incorporate highly desirable features and capabilities at
competitive prices. We employ a collaborative approach to
product design and development, where our engineers, with direct
customer input, design innovative solutions and work with a
global network of technology companies to architect new system
designs, influence the direction of future development, and
integrate new technologies into our products. Through this
collaborative, customer-focused approach, we strive to deliver
new and relevant products and services to the market quickly and
efficiently. Our research, development, and engineering expenses
were $498 million for Fiscal 2007, $458 million for
Fiscal 2006, and $460 million for Fiscal 2005.
Products and
Services
We design, develop, manufacture, market, sell, and support a
wide range of products that in many cases are customized to
individual customer requirements. Our product categories include
desktop computer systems, servers and networking products,
storage, mobility products, and software and peripherals. In
addition, we offer a wide range of enhanced services. See
Part II Item 7
Managements Discussion and Analysis of Financial Condition
and Results of Operations Revenue by Product and
Service Categories and Note 10 of Notes to
Consolidated Financial Statements included in
Part II Item 8 Financial
Statements and Supplementary Data.
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Desktop PCs Our customers can select from
five lines of desktop computer systems. The
OptiPlextm
line is designed to help business, government, and institutional
customers manage their total cost of ownership by offering
stability, security, and managed product transitions. The
Dimensiontm
line is designed for small businesses and home users requiring
the latest features for their productivity and entertainment
needs. The
XPStm
and Alienware lines are targeted at customers who require the
highest performance gaming or entertainment experience
available. In July 2007, we introduced the
Vostrotm
line, which is designed to provide technology and services to
suit the specific needs of small businesses.
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Dell
Precisiontm
and Alienware
MJ-12®
workstations are intended for professional users who demand
exceptional performance from hardware platforms optimized and
certified to run sophisticated applications, such as
three-dimensional computer-aided design, digital content
creation, geographic information systems, computer animation,
software development, computer-aided engineering, game
development, and financial analysis.
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Servers and Networking Our standards-based
PowerEdgetm
line of servers is designed to offer customers affordable
performance, reliability, and scalability. Options include high
performance rack, blade, and tower servers for enterprise
customers and aggressively priced tower servers for small
organizations, networks, and remote offices.
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Our
PowerConnecttm
switches connect computers and servers in small-to-medium-sized
networks.
PowerConnecttm
products offer customers enterprise-class features and
reliability at a low cost.
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Storage We offer a comprehensive portfolio of
advanced storage solutions, including storage area networks,
network-attached storage, direct-attached storage, disk and tape
backup systems, and removable disk backup. With our advanced
storage solutions for mainstream buyers, we offer customers
functionality and value while reducing complexity in the
enterprise. Our storage systems are easy to deploy, manage, and
maintain. The flexibility and scalability offered by
Dell | EMC and Dell
PowerVaulttm
storage systems helps organizations optimize storage for diverse
environments with varied requirements.
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Mobility The
XPStm
and Alienware lines of notebook computers are targeted at
customers who require the highest performance gaming or
entertainment experience available. In Fiscal 2007, we
introduced the XPS M2010, an innovative mobile platform
featuring a
20-inch high
definition display that received awards for its unique design.
The
Latitudetm
line is designed to help business, government, and institutional
customers manage their total cost of ownership through managed
product lifecycles and the latest offerings in performance,
security, and communications. The
Inspirontm
line is targeted at
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consumers desiring the latest technology in a range of form
factors to meet different usage needs. The new
Vostrotm
line, introduced in July 2007, is designed to customize
technology, services, and expertise to suit the specific needs
of small businesses.
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Software and Peripherals We offer
Dell-branded printers and displays and a multitude of
competitively priced third-party peripheral products, including
software titles, printers, televisions, notebook accessories,
networking and wireless products, digital cameras, power
adapters, scanners, and other products.
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Software. We sell a wide range of third-party
software products, including operating systems, business and
office applications, anti-virus and related security software,
entertainment software, and products in various other categories.
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Printers. We offer a wide array of Dell-branded
printers, ranging from ink-jet
all-in-one
printers for consumers to large multifunction devices for
corporate workgroups. Our printer product line is focused on
making printing easier to buy, own, and use. All of our printers
feature the Dell Ink and Toner Management
Systemtm,
which simplifies the purchasing process for supplies by
displaying ink or toner levels on the status window during every
print job and proactively prompting users to order replacement
cartridges directly from Dell.
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Displays. We offer a broad line of branded and
non-branded display products, including flat panel monitors and
projectors. In Fiscal 2007, we continued our leadership position
in the flat panel monitor category with the introductions of new
Dell 22-, 24-, 27-, and
30-inch wide
screens. The Dell projector line was expanded with the
introductions of the 1200MP, 1800MP, and 2400MP projectors. We
are no longer developing Dell-branded TVs and will
continue to sell our current models through the end of Fiscal
2008. We have, however, introduced several third-party LCD TV
offerings this year.
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Enhanced Services Leveraging our experience
and expertise in lowering the cost of hardware, providing
industry leading value, and simplifying the ability of customers
to acquire and maintain systems, our global services business
offers a full range of flexible, tailored solutions that help
customers lower the cost of their services environment and
maximize system performance, efficiency, and return on
investment.
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Infrastructure Consulting Services. We provide a
customer-focused approach to designing and implementing
non-proprietary standards-based infrastructures to enhance
performance, scalability, and efficiency while helping to
minimize expenses and disruption to business operations.
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Deployment Services. Our deployment services can
simplify and accelerate the deployment and utilization of new
systems in customers information technology environments.
We offer scalable processes and technology to get our systems up
and running quickly.
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Asset Recovery and Recycling Services. We offer
capabilities for secure and environmentally safe recovery and
disposal of owned and leased information technology equipment.
Various options, including resale, recycling, donation,
redeployment, employee purchase, and lease return, help
customers retain value while avoiding regulatory fines and
storage costs.
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Training Services. We help customers develop the
skills that increase productivity with a comprehensive and
flexible suite of training services. Courses include hardware
and software training as well as PC skills and professional
development classes available through instructor-led, virtual,
or self-directed online courses. The courses are designed for
all skill levels and range from personal finance to business
productivity to IT certification.
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Enterprise Support Services. We help customers
obtain maximum performance and availability from their server
and storage systems. We operate Global Command Centers in the
U.S., Ireland, China, Japan, and Malaysia to provide rapid,
around-the-clock support for critical enterprise systems. Our
enterprise support services include warranty services and
provide proactive maintenance to help prevent problems as well
as rapid response and resolution of problems when they do occur.
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Client Support Services. Our suite of scalable
support services is designed for IT professionals and end-users
whose needs range from basic phone support to rapid response and
resolution of complex problems. We offer flexible levels of
support that help keep desktop and notebook PCs up and running
so customers remain productive.
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Managed Lifecycle Services. We offer a full suite of
services for companies who need to outsource all or part of
their IT management. From planning to deployment to ongoing
technical support, we can deliver the services our customers
need when they need them. Our Managed Lifecycle Services are
modular in nature so that customers can customize a plan based
on their current and future needs. We can manage a portion of
their IT tasks or provide an end-to-end solution.
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Financial
Services
We offer various customer financial services for our business
and consumer customers in the U.S. through Dell Financial
Services L.P. (DFS), a joint venture between Dell
and CIT Group, Inc. Financing through DFS is one of many sources
of funding that our customers may select. For additional
information about our financing arrangements, see
Part II Item 7
Managements Discussion and Analysis of Financial Condition
and Results of Operations Off-Balance Sheet
Arrangements and Note 7 of Notes to Consolidated
Financial Statements included in Part II
Item 8 Financial Statements and Supplementary
Data.
Sales and
Marketing
We sell our products and services directly to customers through
dedicated sales representatives, telephone-based sales, and
online at www.dell.com. Our customers include large corporate,
government, healthcare, and education accounts, as well as
small-to-medium businesses and individual consumers. Within each
of our geographic regions, we have divided our sales and
marketing resources among these various customer groups. No
single customer accounted for more than 10% of our consolidated
net revenue during any of the last three fiscal years.
Our sales and marketing efforts are organized around the needs,
trends, and characteristics of our customers. Our direct
business model provides direct and continuous feedback from
customers, thereby allowing us to develop and refine our
products and marketing programs for specific customer groups.
Customers may offer suggestions for current and future Dell
products, services, and operations on an interactive portion of
our website called Dell IdeaStorm. This constant flow of
communication, which is unique to our direct business model,
also allows us to rapidly gauge customer satisfaction and target
new or existing products.
For large business and institutional customers, we maintain a
field sales force throughout the world. Dedicated account teams,
which include field-based system engineers and consultants, form
long-term relationships to provide our largest customers with a
single source of assistance and develop specific tailored
solutions for these customers. For large, multinational
customers, we offer several programs designed to provide single
points of contact and accountability with global account
specialists, special global pricing, consistent service and
support programs across global regions, and access to central
purchasing facilities. We also maintain specific sales and
marketing programs targeted at federal, state, and local
governmental agencies as well as specific healthcare and
educational markets.
We market our products and services to small-to-medium
businesses and consumers primarily by advertising on television
and the Internet, advertising in a variety of print media, and
by mailing a broad range of direct marketing publications, such
as promotional pieces, catalogs, and customer newsletters. In
certain locations, we also operate Dell stores or kiosks,
typically located within shopping centers, that allow customers
to view our products in person and purchase online with the
assistance of a Dell expert.
Although the focus of our business strategy is selling directly
to customers, we also utilize some indirect sales channels when
there is a business need. In the U.S. we sell products
indirectly through third-party solution providers, system
integrators, and third-party resellers. During Fiscal 2008, we
began offering Dell
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Dimensiontm
desktop computers and
Inspirontm
notebook computers in retail stores in the Americas and
announced partnerships with retailers in the U.K., Japan, and
China. These actions represent the first steps in our retail
strategy, which will allow us to extend our business model and
reach customers that we have not been able to reach directly.
Outside the U.S., we sell products indirectly through selected
partners to benefit from the partners existing customer
relationships and valuable knowledge of traditional customs and
logistics in the country, to mitigate credit and country risk,
and because sales in some countries may be too small to warrant
a direct sales business unit.
Competition
We face intense price and product feature competition from
branded and generic competitors when selling our products and
services. In addition to several large branded companies, there
are other smaller branded and generic competitors. Historically,
we competed primarily based on the customer value that a direct
relationship can bring, technology, performance, customer
service, quality, and reliability. Our general practice is to
rapidly pass on cost declines to our customers to enhance
customer value.
As a result of the intensely competitive environment during
Fiscal 2007, as well as our decisions to de-emphasize lower
priced, entry-level products, we lost 1.1 points of share
during calendar 2006, finishing the year as the number two
supplier of personal computer systems worldwide and the number
one supplier in the U.S. This was principally the result of
share loss in the U.S. Consumer segment.
We expect that the competitive pricing environment will continue
to be challenging. However, we believe that the strength of our
evolving business strategy and indirect distribution channels,
as well as our strong liquidity position, makes us well
positioned to continue profitable growth over the long term in
any business climate. For consumers, we recognize the increasing
importance of product ID, which is the appearance,
ease of use, and ability to interact with peripheral products
like cameras and MP3 players, and are focusing more resources on
being competitive in this area.
Manufacturing and
Materials
We manufacture most of the products we sell and have
manufacturing locations worldwide to service our global customer
base. See Part I Item 2
Properties for information about our manufacturing
locations. We believe that our manufacturing processes and
supply-chain management techniques provide us a distinct
competitive advantage. Our build-to-order manufacturing process
is designed to allow us to significantly reduce cost while
simultaneously providing customers the ability to customize
their product purchases.
Our manufacturing process consists of assembly, software
installation, functional testing, and quality control. Testing
and quality control processes are also applied to components,
parts, and subassemblies obtained from third-party suppliers.
Quality control is maintained through the testing of components,
subassemblies, and systems 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 and component problems, and information from
customers obtained through services and support programs. We are
certified, worldwide, by the International Standards
Organization to the requirements of ISO 9001: 2000. This
certification includes our design, manufacture, and service of
computer products in all of our locations.
Although we manufacture most of our products, we have
relationships with third-party original equipment manufacturers
that build some of our products (such as printers and
projectors) to our specifications. In addition, we are exploring
the expanded use of original design manufacturing partnerships
and manufacturing outsourcing relationships in order to deliver
products faster and better serve our customers in certain
segments and geographies.
We purchase materials, supplies, product components, and
products from a large number of suppliers. In some cases,
multiple sources of supply are not available and we have to rely
on single source suppliers. In other cases, we may establish a
working relationship with a single source or a limited number of
sources if
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we believe it is advantageous due to performance, quality,
support, delivery, capacity, or price considerations. This
relationship and dependency has not caused material disruptions
in the past, and we believe that any disruptions that may occur
because of our dependency on single- or limited-source suppliers
would not disproportionately disadvantage us relative to our
competitors. See Part I
Item 1A Risk Factors for information
about the risks associated with single- or limited-sourced
suppliers.
Patents,
Trademarks, and Licenses
As of October 12, 2007, we held a worldwide portfolio of
1,890 patents and had an additional 2,001 patent applications
pending. We also hold licenses to use numerous third party
patents. To replace expiring patents, we obtain new patents
through our ongoing research and development activities. The
inventions claimed in our patents and patent applications cover
aspects of our current and possible future computer system
products, manufacturing processes, and related technologies. Our
product, business method, and manufacturing process patents may
establish barriers to entry in many product lines. While we use
our patented inventions and also license them to others, we are
not substantially dependent on any single patent or group of
related patents. We have entered into a variety of intellectual
property licensing and cross-licensing agreements. We have also
entered into various software licensing agreements with other
companies. We anticipate that our worldwide patent portfolio
will be of value in negotiating intellectual property rights
with others in the industry.
We have obtained U.S. federal trademark registration for
the DELL word mark and the Dell logo mark. We own registrations
for 56 of our other marks in the U.S. At October 12,
2007, we had pending applications for registration of 31 other
trademarks. We believe that establishment of the DELL word mark
and logo mark in the U.S. is material to our operations. We
have also applied for or obtained registration of the DELL mark
and several other marks in approximately 195 other countries.
We have entered into a variety of intellectual property
licensing and cross-licensing agreements. We have also entered
into various software licensing agreements with a variety of
other companies.
From time to time, other companies and individuals assert
exclusive patent, copyright, trademark, or other intellectual
property rights to technologies or marks that are important to
the technology industry or our business. We evaluate each claim
relating to our products and, if appropriate, seek a license to
use the protected technology. The licensing agreements generally
do not require the licensor to assist us in duplicating its
patented technology, nor do these agreements protect us from
trade secret, copyright, or other violations by us or our
suppliers in developing or selling these products.
Employees
At the end of Fiscal 2007, we had approximately 90,500 total
employees (consisting of 82,200 regular employees, 7,200
temporary employees, and 1,100 DFS employees), compared to
approximately 73,500 total employees (consisting of 65,200
regular employees, 7,200 temporary employees, and 1,100 DFS
employees) at the end of Fiscal 2006. Approximately 29,100 of
the regular employees at the end of Fiscal 2007 were located in
the U.S., and approximately 53,100 were located in other
countries. While our workforce located both inside and outside
the U.S. continued to increase during Fiscal 2007, the
proportion of our workforce located outside the
U.S. increased due to a number of factors, including our
rapid international growth. We have never experienced a work
stoppage due to labor difficulties, and believe that our
employee relations are good.
Workforce diversity is an essential part of our commitment to
quality and the future of our company. In Fiscal 2006, we
received the 2005 Secretary of Labor Opportunity Award, which is
the highest award given by the Department of Labor to federal
contractors for their voluntary diversity efforts. In addition,
we rank number two on DiversityBusiness.coms list of
Top Organizations for Multicultural Business Opportunities
of 2006, which represents the top 50 Fortune
500 companies that best promote multicultural business
opportunities. We have also been recognized as one of the best
places to work by the Human Rights Campaign.
7
On May 31, 2007, we announced that we had initiated a
comprehensive review of costs across all processes and
organizations, from product development and procurement through
service and support delivery, with the goal to simplify
structure, eliminate redundancies, and better align operating
expenses with the current business environment and strategic
growth opportunities. As part of this overall effort, we expect
to reduce headcount and infrastructure costs over the next
12 months. Our management teams are presently finalizing
transformation plans which include headcount and infrastructure
cost reduction goals.
Government
Regulation and Environment
Our business is subject to regulation by various federal and
state governmental agencies. Such regulation includes the radio
frequency emission regulatory activities of the
U.S. Federal Communications Commission, the anti-trust
regulatory activities of the U.S. Federal Trade Commission
and Department of Justice, the consumer protection laws of the
Federal Trade Commission, the export regulatory activities of
the U.S. Department of Commerce and the
U.S. Department of Treasury, the import regulatory
activities of U.S. Customs and Border Protection, the
product safety regulatory activities of the U.S. Consumer
Product Safety Commission, and environmental regulation by a
variety of regulatory authorities in each of the areas in which
we conduct business. We are also subject to regulation in other
countries where we conduct business. We did not have any
material environmental remediation or other environmental costs
during Fiscal 2007.
Sustainability
Our focus on business efficiencies and customer satisfaction
drives our environmental stewardship program in all areas of our
business reducing product energy consumption,
reducing or eliminating materials for disposal, prolonging
product life spans, and providing effective and convenient
equipment recovery solutions. During Fiscal 2007, we voluntarily
initiated a no-charge recycling program for our
U.S. customers. This recycling offer is designed for
consumers and includes responsible recycling of used
Dell-branded computers and peripheral equipment at no-charge;
this service does not require a replacement purchase. Since
November 2003, we have offered a no-charge recycling program for
Dell-branded products in Europe and also currently offer
no-charge consumer recycling in Canada. Since 2004, we have
offered U.S. consumers no-charge recycling of any brand of
used computer or printer with the purchase of a new Dell
computer or printer. By the end of Fiscal 2007, we expanded both
free recycling programs to additional countries, including
Brazil, China, India, South Korea, Mexico, and Taiwan. Recycling
services for consumers were either added or enhanced in
Australia, Malaysia, New Zealand, Singapore, and Thailand. We
are committed to making recycling free and easy and remain
focused on raising consumer awareness about the importance of
recycling and increasing the volume of products we recover from
consumers.
Backlog
We believe that backlog is not a meaningful indicator of net
revenue that can be expected for any period. There can be no
assurance that the backlog at any point in time will translate
into net revenue in any subsequent period, as unfilled orders
can generally be canceled at any time by the customer. Our
business model generally gives us flexibility to manage backlog
at any point in time by expediting shipping or prioritizing
customer orders toward products that have shorter lead times,
thereby reducing backlog and increasing current period revenue.
At the end of Fiscal 2007, 2006, and 2005, backlog was not
material.
Geographic Areas
of Operations
We conduct operations worldwide, and we manage our business in
three geographic regions: the Americas, EMEA, and APJ. The
Americas region, which is based in Round Rock, Texas, covers the
U.S., Canada, and Latin America. Within the Americas, our
business is further segmented into Americas Business and
U.S. Consumer. The Americas Business segment includes sales
to corporate, government, healthcare, and education customers,
while the U.S. Consumer segment includes sales primarily to
individual consumers. The EMEA region, which is based in
Bracknell, England, encompasses Europe, the
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Middle East, and Africa. The APJ region, based in Singapore,
covers the Asian countries of the Pacific Rim as well as
Australia, New Zealand, and India.
We have invested in high growth countries such as China, India,
and Brazil to design, manufacture, and support our customers,
and we expect to continue our global expansion in the years
ahead. Our investment in international growth opportunities
contributed to an increase in
non-U.S. revenue,
as a percentage of consolidated net revenue, from 41% in Fiscal
2006 to 44% during Fiscal 2007, representing 10% year-over-year
growth. Our continued expansion outside of the U.S. creates
additional complexity in coordinating the design, development,
procurement, manufacturing, distribution, and support of our
increasingly complex product and service offerings. As a result,
we plan to add additional resources to our offices in Singapore
to better coordinate certain global activities, including the
utilization of
non-U.S. production
capacity where most needed in light of product demand levels
that vary by region. The expanded global operations in Singapore
also coordinate product design and development efforts with
procurement activities and sources of supply. We intend to
continue to expand our global infrastructure as our
international business continues to grow. For financial
information about the results of our reportable operating
segments for each of the last three fiscal years, see
Note 10 of Notes to Consolidated Financial Statements
included in Part II
Item 8 Financial Statements and Supplementary
Data.
Our corporate headquarters are located in Round Rock, Texas. Our
manufacturing and distribution facilities are located in Austin,
Texas; Winston-Salem, North Carolina; Lebanon and Nashville,
Tennessee; West Chester, Ohio; Miami, Florida; El Dorado do Sul,
Brazil; Limerick and Athlone, Ireland; Penang, Malaysia; and
Xiamen, China. Manufacturing plants in Chennai, India opened in
the first half of Fiscal 2008 and Lodz, Poland will open later
in Fiscal 2008. See Part I
Item 2 Properties.
Trademarks and
Service Marks
Unless otherwise noted, trademarks appearing in this report are
trademarks owned by us. We disclaim proprietary interest in the
marks and names of others. EMC is a registered trademark of EMC
Corporation.
Available
Information
We maintain an Internet website at www.dell.com. All of our
reports filed with the U.S. Securities and Exchange
Commission (SEC) (including annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and Section 16 filings) are accessible through the Investor
Relations section of our website at www.dell.com/investor, free
of charge, as soon as reasonably practicable after electronic
filing. The public may read and copy any materials that we file
with the SEC at the SECs Public Reference Room at
100 F Street, NE, Room 1580, Washington, DC
20549. You may obtain information on the operation of the Public
Reference Room by calling the SEC at
1-800-SEC-0330.
The SEC maintains an Internet site that contains reports, proxy
and information statements, and other information regarding
issuers that file electronically with the SEC at www.sec.gov.
Information on our website is not incorporated by reference into
this report.
There are many risk factors that affect our business and results
of operations, some of which are beyond our control. The
following is a description of some of the important risk factors
that may cause our actual results in future periods to differ
substantially from those we currently expect or desire.
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Declining general economic, business, or industry conditions
may cause reduced net revenue. We are a global company
with customers in virtually every business and industry. If the
economic climate in the U.S. or abroad deteriorates,
customers or potential customers could reduce or delay their
technology investments, which could decrease our net revenue and
profitability.
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Failure to maintain a cost advantage may result in reduced
market share, revenue, and profitability. Our success
has historically been based on our ability to profitably offer
products at a lower price than our competitors. However, we
compete with many companies globally in all aspects of our
business. Our
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profitability is also affected by our ability to negotiate
favorable pricing with our vendors, including vendor rebates,
marketing funds, and other vendor funding. Because these
supplier negotiations are continuous and reflect the ongoing
competitive environment, the variability in timing and amount of
incremental vendor discounts and rebates can affect our
profitability. We cannot guarantee that we will be able to
maintain our cost advantage if our competitors improve their
cost structure or business model, if we are not able to
negotiate favorable pricing or rebate arrangements with our
vendors, or if our competitors take other actions that affect
our current competitive advantage. An inability to maintain our
cost advantage or determine alternative means to deliver value
to our customers may adversely affect our market share, revenue,
and profitability.
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Our ability to generate substantial
non-U.S. net
revenue faces many additional risks and
uncertainties. Sales outside the U.S. accounted
for approximately 44% of our consolidated net revenue in Fiscal
2007. Our future growth rates and success are dependent on
continued growth in international markets. Our international
operations face many risks and uncertainties, including varied
local economic and labor conditions, political instability, and
unexpected changes in the regulatory environment, trade
protection measures, tax laws (including U.S. taxes on
foreign operations), copyright levies, and foreign currency
exchange rates. Any of these factors could adversely affect our
operations and profitability.
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Our profitability may be affected by our product, customer,
and geographic sales mix and by seasonal sales
trends. Our profit margins vary among products,
customers, and geographies. In addition, our business is subject
to certain seasonal sales trends. For example, sales to
government customers (particularly the U.S. federal
government) are typically stronger in our third fiscal quarter,
sales in EMEA are often weaker in our third fiscal quarter, and
consumer sales are typically strongest during our fourth fiscal
quarter. As a result of these factors, our overall profitability
for any particular period will be affected by the mix of
products, customers, and geographies reflected in our sales for
that period, as well as by seasonality trends.
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Infrastructure failures could harm our business. We
depend on our information technology and manufacturing
infrastructure to achieve our business objectives. If a problem,
such as a computer virus, intentional disruption by a third
party, natural disaster, manufacturing failure, or telephone
system failure impairs our infrastructure, we may be unable to
book or process orders, manufacture, and ship in a timely manner
or otherwise carry on our business. An infrastructure disruption
could cause us to lose customers and revenue and could require
us to incur significant expense to eliminate these problems and
address related security concerns. The harm to our business
could be even greater if it occurs during a period of
disproportionately heavy demand.
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Our failure to effectively manage a product transition could
reduce the demand for our products and the profitability of our
operations. Continuing improvements in technology mean
frequent new product introductions, short product life cycles,
and improvement in product performance characteristics. Product
transitions present execution challenges and risks for any
company. If we are unable to effectively manage a product
transition, our business and results of operations could be
unfavorably affected.
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Disruptions in component availability could unfavorably
affect our performance. Our direct business model, as
well as our manufacturing and supply chain efficiencies, give us
the ability to operate with reduced levels of component and
finished goods inventories. Our financial success is partly due
to our supply chain management practices, including our ability
to achieve rapid inventory turns. Because we maintain minimal
levels of component inventory, a disruption in component
availability could harm our financial performance and our
ability to satisfy customer needs.
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Our reliance on suppliers creates risks and
uncertainties. Our manufacturing process requires a
high volume of quality components from third-party suppliers.
Defective parts received from these suppliers could reduce
product reliability and harm the reputation of our products.
Reliance on suppliers subjects us to possible industry shortages
of components and reduced control over delivery schedules (which
can harm our manufacturing efficiencies), as well as increases
in component costs (which can harm our profitability).
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We could experience manufacturing interruptions, delays, or
inefficiencies if we are unable to timely and reliably procure
components from single-source or limited-source
suppliers. We maintain several single-source or
limited-source supplier relationships, either because multiple
sources are not available or the relationship is advantageous
due to performance, quality, support, delivery, capacity, or
price considerations. If the supply of a critical single- or
limited-source material or component is delayed or curtailed, we
may not be able to ship the related product in desired
quantities and in a timely manner. Even where multiple sources
of supply are available, qualification of the alternative
suppliers and establishment of reliable supplies could result in
delays and a possible loss of sales, which could harm operating
results.
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Our business is increasingly dependent on our ability to
access the capital markets. We will increasingly rely
upon access to the capital markets to fund financing for our
customers and to provide sources of liquidity in the
U.S. for general corporate purposes, including funding DFS
growth. If we are unable to access the capital markets, we may
not be able to fully fund customer financing opportunities or
planned share repurchases without repatriation of foreign cash
balances. See Part II
Item 7 Managements Discussion and
Analysis of Financial Condition and Results of
Operations Liquidity, Capital Commitments, and
Contractual Cash Obligations Liquidity.
Although we believe that we will be able to maintain sufficient
access to the capital markets, adverse changes in the economy,
deterioration in our business performance, or changes in our
credit ratings could limit our access to these markets.
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We face risks relating to our ineffective internal
controls. As a result of our review of issues
identified during the recently completed independent Audit
Committee investigation into certain accounting and financial
reporting matters, as well as our internal review, management
has identified several deficiencies in our control environment
that constitute material weaknesses and, consequently, has
concluded that our internal control over financial reporting was
not effective at February 2, 2007. In addition, management
has concluded, based primarily on the identification of the
material weaknesses, that our disclosure controls and procedures
were not effective at February 2, 2007. See
Part II Item 9A Controls
and Procedures. If we are unable to successfully remediate
these material weaknesses in a timely manner, investors may lose
confidence in our reported financial information, which could
lead to a decline in our stock price, limit our ability to
access the capital markets in the future, and require us to
incur additional costs to improve our internal control systems
and procedures.
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Litigation and governmental investigations or proceedings
arising out of or related to our recent accounting and financial
reporting investigation could result in substantial
costs. We could incur substantial costs to defend and
resolve litigation or governmental investigations or proceedings
arising out of or related to the recently completed Audit
Committee investigation into certain accounting and financial
reporting matters. See Part II
Item 7 Managements Discussion and
Analysis of Financial Condition and Results of
Operations Audit Committee Independent Investigation
and Restatement. In addition, we could be exposed to
enforcement or other actions with respect to these matters by
the SECs Division of Enforcement or the
U.S. Department of Justice. For a description of pending
litigation and governmental proceedings and investigations see
Part I Item 3 Legal
Proceedings Investigations and Related
Litigation.
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The acquisition of other companies may present new
risks. We recently began to pursue a targeted
acquisition strategy designed to augment areas of our business.
These acquisitions may involve significant new risks and
uncertainties, including distraction of management attention
away from our current business operations, insufficient new
revenue to offset expenses, inadequate return of capital,
integration challenges, new regulatory requirements, and
unidentified issues not discovered in our due diligence process.
No assurance can be given that such acquisitions will be
successful and will not adversely affect our profitability or
operations.
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Failure to properly manage the distribution of our products
and services may result in reduced revenue and
profitability. We use a variety of distribution methods
to sell our products and services, including directly to
customers and through retail partners and third-party
value-added resellers. Our inability to properly manage and
balance these various distribution methods could harm our
operating results.
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Failure to effectively hedge our exposure to fluctuations in
foreign currency exchange rates and interest rates could
unfavorably affect our performance. We utilize
derivative instruments to hedge our exposure to fluctuations in
foreign currency exchange rates and interest rates. Some of
these instruments and contracts may involve elements of market
and credit risk in excess of the amounts recognized in our
financial statements. Further, revenue from our international
operations may decrease if we do not effectively hedge our
exposure to currency fluctuations.
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Our continued business success may depend on obtaining
licenses to intellectual property developed by others on
commercially reasonable and competitive terms. If we or
our suppliers are unable to obtain desirable technology
licenses, we may be prevented from marketing products, could be
forced to market products without desirable features, or could
incur substantial costs to redesign products, defend legal
actions, or pay damages. While our suppliers may be
contractually obligated to indemnify us against such expenses,
those suppliers could be unable to meet their obligations. Also,
our operating costs could increase because of copyright levies
or similar fees by rights holders and collection agencies in
European and other countries. For a description of potential
claims related to copyright levies, see
Part I Item 3 Legal
Proceedings Copyright Levies.
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Our success depends on our ability to attract, retain, and
motivate our key employees. We rely on key personnel to
support anticipated continued rapid international growth and
increasingly complex product and service offerings. There can be
no assurance that we will be able to attract, retain, and
motivate the key professional, technical, marketing, and staff
resources we need, particularly in light of the reduction in the
total number of equity shares granted to employees as part of
their total compensation packages. New regulations and other
factors could make it harder or more expensive for us to grant
equity-based awards to employees in the future, putting us at a
competitive disadvantage or forcing us to increase cash
compensation.
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Loss of government contracts could harm our
business. Government contracts are subject to future
funding that may affect the extension or termination of programs
and are subject to the right of the government to terminate for
convenience or non-appropriation. In addition, if we violate
legal or regulatory requirements, the government could suspend
or disbar us as a contractor, which would unfavorably affect our
net revenue and profitability.
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The expiration of tax holidays or favorable tax rate
structures could result in an increase of our effective tax rate
in the future. Portions of our operations are subject
to a reduced tax rate or are free of tax under various tax
holidays that expire in whole or in part during Fiscal 2010
through Fiscal 2019. Many of these holidays may be extended when
certain conditions are met. If they are not extended, then our
effective tax rate could increase in the future. See Note 4
of Notes to Consolidated Financial Statements included in
Part II Item 8 Financial
Statements and Supplementary Data.
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Current environmental laws, or laws enacted in the future,
may harm our business. Our operations are subject to
environmental regulation in all of the areas in which we conduct
business. Our product design and procurement operations must
comply with new and future requirements relating to the
materials composition of our electronics products, including
restrictions on lead, cadmium, and other substances. On
July 1, 2006, the European Union adopted the Restriction of
Hazardous Substances Directive. The labeling provisions of
similar legislation in China became effective on March 1,
2007. If we fail to comply with the rules and regulations
regarding the use and sale of such regulated substances, we
could be subject to liability. Beginning in August 2005, we
became subject to the European Union Waste Electrical and
Electronic Equipment Directive as enacted by individual member
states of the European Union (WEEE Legislation). The
WEEE Legislation makes producers of electrical goods, including
computers and printers, responsible for collection, recycling,
treatment, and disposal of recovered products. While we do not
expect that the impact of these environmental laws and other
similar legislation adopted in the U.S. and other countries
will have a substantial unfavorable impact on our business, the
costs and timing of costs under environmental laws are difficult
to predict.
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Armed hostilities, terrorism, natural disasters, or public
health issues could harm our business. Armed
hostilities, terrorism, natural disasters, or public health
issues, whether in the U.S. or abroad, could
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cause damage or disruption to us, our suppliers or customers, or
could create political or economic instability, any of which
could harm our business. These events could cause a decrease in
demand for our products, could make it difficult or impossible
for us to deliver products or for our suppliers to deliver
components, and could create delay and inefficiencies in our
supply chain.
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ITEM 1B
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UNRESOLVED
STAFF COMMENTS
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None.
At February 2, 2007, we owned or leased a total of
approximately 16 million square feet of office,
manufacturing, and warehouse space worldwide, approximately
8 million square feet of which is located in the
U.S. and the remainder located in other countries. We
believe our properties are suitable and adequate for our current
needs and that we can readily meet our requirements for
additional space at competitive rates by extending expiring
leases or by finding alternative space.
Americas
Properties
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Description
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Principal
Locations
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Owned (square
feet)
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Leased (square
feet)
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Headquarters
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Round Rock, Texas
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2.1 million
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Business
Centers(a)
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Canada Edmonton and Ottawa
El Salvador San Salvador
Oklahoma Oklahoma City
Panama Panama City
Tennessee Nashville
Texas Austin and Round Rock
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1.3 million
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1.4 million
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Manufacturing and Distribution
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Brazil El Dorado do Sul
Florida Miami (Alienware)
North Carolina Winston-Salem
Ohio West Chester
Tennessee Lebanon and Nashville
Texas Austin
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2.5 million
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1.0 million
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Design Centers
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Texas Austin and Round Rock
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800,000
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EMEA
Properties
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Description
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Principal
Locations
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Owned (square
feet)
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Leased (square
feet)
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Headquarters
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Bracknell, England
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100,000
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50,000
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Business
Centers(a)
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England Bracknell
France Montpellier
Ireland Dublin and Limerick
Morocco Casablanca
Slovakia Bratislava
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400,000
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1.5 million
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Manufacturing and Distribution
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Ireland Limerick and Athlone (Alienware)
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400,000
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APJ
Properties
|
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|
|
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Description
|
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Principal
Locations
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|
Owned (square
feet)
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Leased (square
feet)
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Headquarters
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Singapore
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100,000
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Business
Centers(a)
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China Dalian and Xiamen
India Bangalore, Gurgaon, Hyderabad and Mohali
Japan Kawasaki Malaysia Penang Philippines Pasay
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200,000
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3.1 million
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|
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Manufacturing and Distribution
|
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China Xiamen
Malaysia Penang
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1.0 million
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Design Centers
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China Shanghai
India Bangalore
Singapore
Taiwan Taipei
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150,000
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(a)
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Business center locations include
facilities with capacity greater than 1,000 people.
Operations within these centers include sales, technical
support, administrative, and support functions. Locations of
smaller business centers are not listed; however, the smaller
centers are included in the square footage.
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We currently have approximately 750,000 square feet of
manufacturing and business center space under construction. The
manufacturing plants constructed in Hortolandia, Brazil, and
Chennai, India opened in the first half of Fiscal 2008 and our
manufacturing plant in Lodz, Poland is expected to begin
operations later this year. Our business centers located in
Quezon City, Philippines and Kuala Lumpur, Malaysia also opened
in the first half of Fiscal 2008, while a second building in
Ottawa, Canada is expected to begin operations in Fiscal 2008.
Additionally, we recently completed an expansion of a design
center in India.
In general, our Americas, EMEA, and APJ regions use properties
within their geographies. However, business centers in the
Philippines and India, which house sales, customer care,
technical support, and administrative support functions, are
used by each of our geographic regions.
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ITEM 3
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LEGAL
PROCEEDINGS
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We are involved in various claims, suits, investigations, and
legal proceedings that arise from time to time in the ordinary
course of our business. As required by Statement of Financial
Accounting Standards No. 5, Accounting for
Contingencies, we accrue a liability when we believe that it
is both probable that a liability has been incurred and we can
reasonably estimate the amount of the loss. The following is a
discussion of our significant legal matters.
Investigations
and Related Litigation
In August 2005, the U.S. Securities and Exchange Commission
(SEC) initiated an inquiry into certain of our
accounting and financial reporting matters and requested that we
provide certain documents. The SEC expanded that inquiry in June
2006 and entered a formal order of investigation in October
2006. The SECs requests for information were joined by a
similar request from the United States Attorney for the Southern
District of New York (SDNY), who subpoenaed
documents related to our financial reporting from and after
2002. In August 2006, because of potential issues identified in
the course of responding to the SECs requests for
information, our Audit Committee, on the recommendation of
management and in consultation with PricewaterhouseCoopers LLP,
initiated an independent investigation, which was recently
completed. For information regarding the Audit Committees
investigation, the accounting errors and irregularities
identified, and the restatement adjustments, see
Part II Item 7
Managements Discussion and Analysis of Financial Condition
and Results of Operations Audit Committee
Independent Investigation and Restatement and Note 2
of Notes to Consolidated Financial Statements included in
Part II Item 8 Financial
Statements and Supplementary Data. For a description of
the control
14
deficiencies identified by management as a result of the
investigation and our internal reviews, and managements
plan to remediate those deficiencies, see
Part II Item 9A Controls
and Procedures. Although the Audit Committee investigation
has been completed, the investigations being conducted by the
SEC and the SDNY are ongoing. We continue to cooperate with the
SEC and the SDNY.
Dell and several of our current and former directors and
officers are parties to securities, Employee Retirement Income
Security Act of 1974 (ERISA), and shareholder
derivative lawsuits all arising out of the same events and
facts. Four putative securities class actions that were filed in
the Western District of Texas, Austin Division, against Dell and
certain of our current and former officers have been
consolidated as In re Dell Inc. Securities Litigation,
and a lead plaintiff has been appointed by the court. The lead
plaintiff has asserted claims under sections 10(b), 20(a),
and 20A of the Securities Exchange Act of 1934 based on alleged
false and misleading disclosures or omissions regarding our
financial statements, governmental investigations, known battery
problems, business model, and insiders sales of our
securities. This action also includes our independent registered
public accounting firm, PricewaterhouseCoopers LLP, as a
defendant. Four other putative class actions that were also
filed in the Western District by purported participants in the
Dell Inc. 401(k) Plan have been consolidated as In re Dell
Inc. ERISA Litigation, and lead plaintiffs have been
appointed by the court. The lead plaintiffs have asserted claims
under ERISA based on allegations that Dell, certain current
officers, and certain current and former directors imprudently
invested and managed participants funds and failed to
disclose information regarding our stock held in the 401(k)
Plan. In addition, seven shareholder derivative lawsuits that
were filed in three separate jurisdictions (the Western District
of Texas, Austin Division; the Delaware Chancery Court; and the
state district court in Travis County, Texas) have been
consolidated into three actions, one in each of the respective
jurisdictions, as In re Dell Inc. Derivative Litigation,
and name various current and former officers and directors
as defendants and Dell as a nominal defendant. On
October 8, 2007, the shareholder derivative lawsuit filed
in the Western District of Texas was dismissed without prejudice
by the court. The Travis County, Texas action has been
transferred to the state district court in Williamson County,
Texas. The shareholder derivative lawsuits assert claims
derivatively on behalf of Dell under state law, including
breaches of fiduciary duties. Finally, one purported shareholder
has filed an action against us in Delaware Chancery Court under
Section 220 of the Delaware General Corporation Law,
Baltimore County Employees Retirement System v.
Dell Inc., seeking inspection of certain of our books and
records related to the internal investigation and government
investigations. We intend to defend all of these lawsuits
vigorously.
Copyright
Levies
Proceedings against the IT industry in Germany seek to impose
levies on equipment, such as personal computers, multifunction
devices, and printers that facilitate making private copies of
copyrighted materials. The total levies due, if imposed, would
be based on the number of products sold and the per-product
amounts of the levies, which vary. We, along with other
companies and various industry associations, are opposing these
levies and instead are advocating compensation to rights holders
through digital rights management systems.
There are currently three levy cases involving other equipment
manufacturers pending before the German Federal Supreme Court.
Adverse decisions in these cases could ultimately impact us. The
cases involve personal computers, printers, and multifunctional
devices. The equipment manufacturers in these cases recently
lost in the lower courts and have appealed. The amount allowed
by the lower courts with respect to PCs is 12 per personal
computer sold, for reprographic copying capabilities. The
amounts claimed with respect to printers and multifunctional
devices depend on speed and color and vary between 10 and
300 for printers and between 38 and 600 for
multifunctional devices. On December 29, 2005,
Zentralstelle Für private Überspielungsrechte
(ZPÜ), a joint association of various German
collection societies, instituted arbitration proceedings against
our German subsidiary before the Arbitration Body in Munich.
ZPÜ claims a levy of 18.4 per PC that we sold in
Germany from January 1, 2002 through December 31,
2005. On July 31, 2007, the Arbitration Body recommended a
levy of 15 on each PC sold during that period, for audio
and visual copying capabilities. Dell and ZPÜ rejected the
recommendation and we expect that the matter will proceed to
court. We will continue to defend this claim vigorously.
15
Lucent v.
Dell
In February 2003, Lucent Technologies, Inc. filed a lawsuit
against us in the United States District Court for Delaware, and
the lawsuit was subsequently transferred to the United States
District Court for the Southern District of California. The
lawsuit alleges that we infringed 12 patents owned by Lucent and
seeks monetary damages and injunctive relief. In April 2003,
Microsoft Corporation filed a declaratory judgment action
against Lucent in the United States District Court for the
Southern District of California, asserting that Microsoft
products do not infringe patents held by Lucent, including 10 of
the 12 patents at issue in the lawsuit involving us and
Microsoft. These actions were consolidated for discovery
purposes with a previous suit that Lucent filed against Gateway,
Inc. In September 2005, the court granted a summary judgment of
invalidity with respect to one of the Lucent patents asserted
against us. In addition, in decisions made through May 2007, the
court granted summary judgment of non-infringement with respect
to five more of the Lucent patents asserted against us. The
court has ordered invalidity briefing with regard to other
patents at issue in view of the April 30, 2007,
U.S. Supreme Court decision in KSR v. Teleflex.
Fact and expert discovery has closed, and the three actions have
been consolidated. Trial is scheduled to begin in February 2008.
We are defending these claims vigorously. Separately, we have
filed a lawsuit against Lucent in the United District Court for
the Eastern District of Texas, alleging that Lucent infringes
two patents owned by us and seeking monetary damages and
injunctive relief. That litigation is pending and discovery is
proceeding.
Sales Tax
Claims
Several state and local taxing jurisdictions have asserted
claims against Dell Catalog Sales L.P. (DCSLP), an
indirect wholly-owned subsidiary of ours, alleging that DCSLP
had an obligation to collect tax on sales made into those
jurisdictions because of its alleged nexus, or physical
presence, in those jurisdictions. During the first and second
quarter of Fiscal 2008, we settled suits filed by the State of
Louisiana and the Secretary of the Louisiana Department of
Revenue and Taxation in the 19th Judicial District Court of
the State of Louisiana, and by two Louisiana parishes, Orleans
Parish and Jefferson Parish, in the State of Louisiana
24th Judicial District Court. We also settled similar
claims made by a number of other Louisiana parishes and by the
State of Massachusetts. These settlement amounts did not have a
material adverse effect on our financial condition, results of
operations, or cash flows. While there are ongoing claims by
certain other state and local taxing authorities, DCSLP disputes
the allegation that it had nexus in any of these other
jurisdictions during the periods in issue, and is defending the
claims vigorously. We do not expect that the outcome of these
other claims, individually or collectively, will have a material
adverse effect on our financial condition, results of
operations, or cash flows.
We are involved in various other claims, suits, investigations,
and legal proceedings that arise from time to time in the
ordinary course of our business. Although we do not expect that
the outcome in any of these other legal proceedings,
individually or collectively, will have a material adverse
effect on our financial condition or results of operations,
litigation is inherently unpredictable. Therefore, we could
incur judgments or enter into settlements of claims that could
adversely affect our operating results or cash flows in a
particular period.
|
|
ITEM 4
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
No matter was submitted to a vote of our stockholders, through
the solicitation of proxies or otherwise, during the fourth
quarter of Fiscal 2007.
16
|
|
ITEM 5
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Market
Information
Our common stock is listed on The NASDAQ Stock Market under the
symbol DELL. Information regarding the market prices of our
common stock may be found in Note 12 of Notes to
Consolidated Financial Statements included in
Part II Item 8 Financial
Statements and Supplementary Data.
On September 15, 2006, we received a NASDAQ Staff
Determination letter indicating that we were not in compliance
with NASDAQs requirements for continued listing because of
our inability to timely file our quarterly report on
Form 10-Q
for the second quarter of Fiscal 2007. We received similar
letters relating to our inability to timely file subsequent
periodic reports. Following receipt of the September 15,
2006 letter, we have been involved in a hearing and review
process before several adjudicative bodies appointed by NASDAQ.
That process is ongoing, and any action to delist our common
stock has stayed pending completion of that process. We believe,
with the filing of this
Form 10-K
and the
Form 10-Qs
for Fiscal 2007 and the first and second quarters of Fiscal
2008, that we will achieve compliance with NASDAQs
continued listing requirements, and we expect that NASDAQ will
send us an acknowledgement to that effect in the near future.
Holders
At October 1, 2007, there were 30,630 holders of record of
Dell common stock.
Dividends
We have never declared or paid any cash dividends on shares of
our common stock and currently do not anticipate paying any cash
dividends in the immediate future. Any future determination to
pay cash dividends will be at the discretion of our Board of
Directors.
Issuance of
Unregistered Securities
Internal
Restructuring
We have modified the corporate organizational structure of
certain of our subsidiaries to achieve more integrated global
operations and to provide various financial, operational, and
tax efficiencies. In connection with this internal
restructuring, on December 28, 2006 we issued approximately
475 million shares of our common stock valued at
$12.0 billion based on the closing price on The NASDAQ
Stock Market on that date, to a wholly-owned subsidiary in
return for an equivalent value in equity interests in the
subsidiary. As part of the restructuring, the subsidiary used
these shares to acquire a controlling interest in another
wholly-owned subsidiary. Because all the shares issued as part
of this restructuring are held by one or more of our
wholly-owned subsidiaries, the shares are not considered
outstanding in our consolidated financial statements or for
voting purposes. We continue to be the ultimate beneficial owner
of all subsidiaries involved in the internal restructuring.
These shares have not been registered under the Securities Act
of 1933, as amended, and were issued in a transaction not
involving a public offering pursuant to the exemption under
Section 4(2) of the Securities Act. The shares may not be
resold absent registration or an applicable exemption from the
registration requirements under the Securities Act or other
applicable law.
Certain Employee
Benefit Plan Securities
As a result of our inability to file our Annual Report on
Form 10-K
for Fiscal 2007 on its due date (April 3, 2007), we
suspended our sale of Dell securities under our various employee
benefit plans. In preparing for
17
that suspension, we discovered that we had inadvertently failed
to file with the SEC certain registration statements relating to
securities under the plans.
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|
|
Employee Stock Purchase Plan We maintain an
Employee Stock Purchase Plan that is available to substantially
all our employees worldwide. In 1994, stockholders approved
additional shares for issuance under our Employee Stock Purchase
Plan. We recently discovered that the issuance of these
additional shares was never registered. Consequently, we have
inadvertently issued approximately 54 million unregistered
shares under this plan since 1996.
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|
|
Retirement Plans We maintain a 401(k)
retirement savings plan that is available to substantially all
of our U.S. employees and a separate retirement plan that
is available to our employees in Canada. Both of those plans
contain a Dell Stock Fund, and both plans allow
participants to allocate some or all of their account balances
to interests in the Dell Stock Fund. The Dell common stock held
in the Dell Stock Funds is not purchased from Dell; rather, the
plan trustees accumulate the plan contributions that are
directed to the Dell Stock Funds and purchase for the Dell Stock
Funds shares of Dell common stock in open market transactions.
Nevertheless, because we sponsor the plans, we are required to
register certain transactions in the plans related to shares of
Dell common stock. We recently discovered that we may be deemed
to have been required to file a
Form S-8
in July 2003 to register additional share transactions in the
401(k) Plan, and we should have filed a
Form S-8
to register share transactions in the Canada retirement plan in
1999. Consequently, we may be deemed to have inadvertently
failed to register transactions in the two plans relating to up
to approximately 37 million shares.
|
We intend to file registration statements on
Form S-8
to register future transactions in these plans as soon as
practicable. Nonetheless, we may be subject to civil and other
penalties by regulatory authorities as a result of the failure
to register. We have implemented monitoring and reporting
procedures to ensure that in the future we timely meet our
registration obligations with respect to these and other
employee benefit plans.
The failure to file registration statements noted above was
inadvertent, and we have always treated the shares issued under
the Employee Stock Purchase Plan or held in the Dell Stock Funds
under the retirement plans as outstanding for financial
reporting purposes. Consequently, these unregistered
transactions do not represent any additional dilution. We
believe that we have always provided the employee-participants
in these plans with the same information they would have
received had the registration statements been filed. The
outstanding shares subject to potential rescission rights are
reflected as redeemable common stock on our Consolidated
Statement of Financial Position.
Purchases of
Common Stock
Cash Payments for
Certain Employee Stock Options
As a result of our inability to timely file our Annual Report on
Form 10-K
for Fiscal 2007, we suspended the exercise of employee stock
options. As a result, stock options held by current and former
employees expired while the holders had no ability to exercise
them or otherwise prevent their expiration. Therefore, we agreed
to pay cash to certain current and former employees who held
in-the-money stock options that expired during the period of
unexercisability.
If an in-the-money stock option expired during the period in
which it was not exercisable because of our filing delinquency,
we will pay to the holder in cash an amount of up to the
difference between the calculated value of the
option and its exercise price. For this purpose, the
calculated value is equal to the average closing
price of Dell common stock during the week immediately preceding
the week in which the expiration date occurred. Payment will be
made within 45 days after the date this report is filed, so
long as the holder has executed an agreement providing for a
release of any claims the holder may have against us and
obligating the holder to return the cash to us if the holder,
while employed by us or within one year following receipt of the
payment, engages in certain conduct that is detrimental to us
(such as serious misconduct or breach of confidentiality,
non-competition or non-solicitation obligations). Cash payments
related to stock options that expired in the second and third
quarters of Fiscal 2008 will be paid to
18
approximately 1,100 current and former employees, including
certain executive and former executive officers, and are
expected to total approximately $113 million.
Share Repurchase
Program
We have a share repurchase program that authorizes us to
purchase shares of common stock in order to increase shareholder
value and manage dilution resulting from shares issued under our
equity compensation plans. However, we do not currently have a
policy that requires the repurchase of common stock in
conjunction with share-based payment arrangements. As of
February 2, 2007, our share repurchase program authorized
the purchase of shares of common stock at an aggregate cost not
to exceed $30.0 billion, and through that date,
$28.6 billion had been spent to repurchase shares. We
suspended our share repurchase program in September 2006 pending
completion of the Audit Committee investigation. During the
fourth quarter of Fiscal 2007, no shares were repurchased under
this program; however, shares were withheld from certain
employees to pay taxes and fees associated with the
employees exercise of stock options or the vesting of
restricted stock. The following table sets forth information
regarding our repurchases or acquisitions of common stock during
the fourth quarter of Fiscal 2007:
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|
|
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|
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|
|
|
|
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|
Total
|
|
|
Approximate
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Dollar Value
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
of Shares that
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|
|
|
|
|
|
|
|
|
Repurchased
|
|
|
May Yet Be
|
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|
|
|
|
|
|
|
|
as Part of
|
|
|
Repurchased
|
|
|
|
Total Number
|
|
|
Average
|
|
|
Publicly
|
|
|
Under the
|
|
|
|
of Shares
|
|
|
Price Paid
|
|
|
Announced
|
|
|
Announced
|
|
Period
|
|
Repurchased
|
|
|
per
Share
|
|
|
Plan
|
|
|
Plan(b)
|
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|
|
|
|
|
|
|
|
|
|
|
(in
millions)
|
|
|
Repurchases from November 4, 2006 through December 1,
2006
|
|
|
|
|
|
|
N/A
|
|
|
|
|
|
|
$
|
1,415
|
|
Repurchases from December 2, 2006 through December 29,
2006
|
|
|
870
|
(a)
|
|
$
|
25.72
|
|
|
|
|
|
|
$
|
1,415
|
|
Repurchases from December 30, 2006 through February 2,
2007
|
|
|
|
|
|
|
N/A
|
|
|
|
|
|
|
$
|
1,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
870
|
|
|
$
|
25.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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(a)
|
|
These shares were not purchased
pursuant to our share repurchase program, but were withheld from
employees upon the exercise of stock options or the vesting of
restricted stock in order to pay the exercise price and required
tax withholding.
|
|
(b)
|
|
Our share repurchase program was
announced on February 20, 1996, and the program authorizes
us to purchase shares at an aggregate cost not to exceed
$30.0 billion.
|
19
Stock Performance
Graph
The following graph compares the cumulative total return on
Dells common stock during the last five fiscal years with
the S&P 500 Index and the Dow Jones Computer Index
during the same period. The graph shows the value, at the end of
each of the last five fiscal years, of $100 invested in Dell
common stock or the indices on February 1, 2002, and
assumes the reinvestment of all dividends. The graph depicts the
change in the value of common stock relative to the indices at
the end of each fiscal year and not for any interim period.
Historical stock price performance is not necessarily indicative
of future stock price performance.
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|
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|
|
|
|
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|
End of Fiscal
Year
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
Dell
|
|
$
|
100
|
|
|
$
|
89
|
|
|
$
|
125
|
|
|
$
|
153
|
|
|
$
|
109
|
|
|
$
|
88
|
|
S&P 500 Index
|
|
|
100
|
|
|
|
76
|
|
|
|
101
|
|
|
|
104
|
|
|
|
113
|
|
|
|
129
|
|
Dow Jones Computer Index
|
|
|
100
|
|
|
|
69
|
|
|
|
96
|
|
|
|
101
|
|
|
|
115
|
|
|
|
131
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ITEM 6
|
SELECTED
FINANCIAL DATA
|
We have restated the selected financial data presented in this
report as of February 3, 2006, January 28, 2005,
January 30, 2004, and January 31, 2003, for the fiscal
years ended on those dates, and for the first quarter of Fiscal
2007. The restatement reflects the results of the independent
investigation by the Audit Committee, as well as other
adjustments identified by management.
This Part II Item 6
Selected Financial Data, includes the following:
|
|
|
The restated selected financial data for the annual periods
described above;
|
|
|
The annual financial data for the year ended February 2,
2007;
|
|
|
Restated quarterly selected financial data for those years being
restated; and
|
|
|
Schedules presenting details of the nature and impact of the
restatement adjustments. Additional information regarding these
adjustments can be found in Note 2 of Notes to Consolidated
Financial Statements included in Part II
Item 8 Financial Statements and Supplementary
Data. The adjustments that relate to fiscal years prior to
Fiscal 2003 are reflected in beginning retained earnings
|
20
|
|
|
for Fiscal 2003. The cumulative impact of these adjusting
entries increased retained earnings by $59 million, net of
tax, at the beginning of Fiscal 2003.
|
The following balance sheet data as of February 2, 2007 and
February 3, 2006, and results of operations for the fiscal
years ended February 2, 2007, February 3, 2006 and
January 28, 2005 are derived from our audited financial
statements included in Part II
Item 8 Financial Statements and
Supplementary Data. The data for the remaining periods is
derived from our unaudited financial statements for the
respective periods.
In addition to the adjustments described in Note 2 of Notes
to Consolidated Financial Statements, there were errors and
irregularities identified with respect to certain restructuring
charges that we recorded in the fourth quarter of Fiscal 2001
and the second quarter of Fiscal 2002 that have been corrected
in these selected financial data tables. It was determined that
components of certain charges were not approved and finalized in
a timely fashion in order for them to be properly included in
the charges, certain items in the charges should have been
accrued for in a different period, and in some cases, ineligible
items were included in the restructuring charges. Additionally,
on some occasions, once excess restructuring charge amounts were
identified, the excess amounts were not released to the income
statement in a timely fashion, or with appropriate disclosures.
The necessary adjustments to correct these errors and
irregularities are included in the beginning retained earnings
adjustment and restatement adjustments.
Selected
Financial Data
The following table should be read in conjunction with
Part II Item 7
Managements Discussion and Analysis of Financial Condition
and Results of Operations and
Part II Item 8 Financial
Statements and Supplementary Data.
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
Ended
|
|
|
February 2,
|
|
February 3,
|
|
January 28,
|
|
January 30,
|
|
January 31,
|
|
|
2007
|
|
2006(c)
|
|
2005(d)
|
|
2004
|
|
2003(e)
|
|
|
|
|
As
|
|
As
|
|
As
|
|
As
|
|
As
|
|
As
|
|
As
|
|
As
|
|
|
|
|
Reported
|
|
Restated
|
|
Reported
|
|
Restated
|
|
Reported
|
|
Restated
|
|
Reported
|
|
Restated
|
|
|
(in millions,
except per share data)
|
|
Results of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
57,420
|
|
|
$
|
55,908
|
|
|
$
|
55,788
|
|
|
$
|
49,205
|
|
|
$
|
49,121
|
|
|
$
|
41,444
|
|
|
$
|
41,327
|
|
|
$
|
35,404
|
|
|
$
|
35,262
|
|
Gross margin
|
|
$
|
9,516
|
|
|
$
|
9,950
|
|
|
$
|
9,891
|
|
|
$
|
9,015
|
|
|
$
|
9,018
|
|
|
$
|
7,552
|
|
|
$
|
7,563
|
|
|
$
|
6,349
|
|
|
$
|
6,438
|
|
Operating income
|
|
$
|
3,070
|
|
|
$
|
4,347
|
|
|
$
|
4,382
|
|
|
$
|
4,254
|
|
|
$
|
4,206
|
|
|
$
|
3,544
|
|
|
$
|
3,525
|
|
|
$
|
2,844
|
|
|
$
|
2,738
|
|
Income before income taxes
|
|
$
|
3,345
|
|
|
$
|
4,574
|
|
|
$
|
4,608
|
|
|
$
|
4,445
|
|
|
$
|
4,403
|
|
|
$
|
3,724
|
|
|
$
|
3,711
|
|
|
$
|
3,027
|
|
|
$
|
2,907
|
|
Net income
|
|
$
|
2,583
|
|
|
$
|
3,572
|
|
|
$
|
3,602
|
|
|
$
|
3,043
|
|
|
$
|
3,018
|
|
|
$
|
2,645
|
|
|
$
|
2,625
|
|
|
$
|
2,122
|
|
|
$
|
2,031
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.15
|
|
|
$
|
1.49
|
|
|
$
|
1.50
|
|
|
$
|
1.21
|
|
|
$
|
1.20
|
|
|
$
|
1.03
|
|
|
$
|
1.02
|
|
|
$
|
0.82
|
|
|
$
|
0.79
|
|
Diluted
|
|
$
|
1.14
|
|
|
$
|
1.46
|
|
|
$
|
1.47
|
|
|
$
|
1.18
|
|
|
$
|
1.18
|
|
|
$
|
1.01
|
|
|
$
|
1.00
|
|
|
$
|
0.80
|
|
|
$
|
0.77
|
|
Number of weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
2,255
|
|
|
|
2,403
|
|
|
|
2,403
|
|
|
|
2,509
|
|
|
|
2,509
|
|
|
|
2,565
|
|
|
|
2,565
|
|
|
|
2,584
|
|
|
|
2,584
|
|
Diluted
|
|
|
2,271
|
|
|
|
2,449
|
|
|
|
2,449
|
|
|
|
2,568
|
|
|
|
2,568
|
|
|
|
2,619
|
|
|
|
2,619
|
|
|
|
2,644
|
|
|
|
2,644
|
|
Cash Flow & Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities(f)
|
|
$
|
3,969
|
|
|
$
|
4,839
|
|
|
$
|
4,751
|
|
|
$
|
5,310
|
|
|
$
|
5,821
|
|
|
$
|
3,670
|
|
|
$
|
4,064
|
|
|
$
|
3,538
|
|
|
$
|
3,908
|
|
Cash, cash equivalents and investments
|
|
$
|
12,445
|
|
|
$
|
11,749
|
|
|
$
|
11,756
|
|
|
$
|
14,101
|
|
|
$
|
14,101
|
|
|
$
|
11,922
|
|
|
$
|
11,921
|
|
|
$
|
9,905
|
|
|
$
|
9,910
|
|
Total assets
|
|
$
|
25,635
|
|
|
$
|
23,109
|
|
|
$
|
23,252
|
|
|
$
|
23,215
|
|
|
$
|
23,318
|
|
|
$
|
19,311
|
|
|
$
|
19,340
|
|
|
$
|
15,470
|
|
|
$
|
15,540
|
|
Short-term
borrowings(a)
|
|
$
|
188
|
|
|
$
|
|
|
|
$
|
65
|
|
|
$
|
|
|
|
$
|
74
|
|
|
$
|
|
|
|
$
|
157
|
|
|
$
|
|
|
|
$
|
129
|
|
Long-term
debt(b)
|
|
$
|
569
|
|
|
$
|
504
|
|
|
$
|
625
|
|
|
$
|
505
|
|
|
$
|
662
|
|
|
$
|
505
|
|
|
$
|
645
|
|
|
$
|
506
|
|
|
$
|
581
|
|
Total stockholders equity
|
|
$
|
4,328
|
|
|
$
|
4,129
|
|
|
$
|
4,047
|
|
|
$
|
6,485
|
|
|
$
|
6,412
|
|
|
$
|
6,280
|
|
|
$
|
6,238
|
|
|
$
|
4,873
|
|
|
$
|
4,846
|
|
|
|
|
(a)
|
|
The restated amounts for short-term
borrowings reflect (1) a correction in classification from
accounts payable regarding a vendor financing arrangement during
Fiscal 2002 until termination in the first quarter of Fiscal
2006, and (2) a correction in classification from other
current liabilities for the short-term portion of outstanding
advances under the DFS Credit Facilities for the periods from
the third quarter of Fiscal 2004 through Fiscal 2007.
|
21
|
|
|
(b)
|
|
The restated amounts for long-term
debt reflect (1) adjustments to record changes in the fair
value of the debt where the interest rate is hedged with
interest rate swap agreements for all periods restated and
(2) a correction in classification from both other current
liabilities and other non-current liabilities related to the
long-term portion of outstanding advances under the DFS Credit
Facilities for the periods from the third quarter of Fiscal 2004
through Fiscal 2007.
|
|
(c)
|
|
Results for Fiscal 2006 include
charges aggregating $421 million ($338 million of
other product charges and $83 million in selling, general
and administrative expenses) related to the cost of servicing or
replacing certain
OptiPlextm
systems that
include a vendor part that failed to perform to our
specifications, workforce realignment, product rationalizations,
excess facilities, and a write-off of goodwill recognized in the
third quarter. The related tax effect of these items was
$96 million. Fiscal 2006 also includes an $85 million
income tax benefit related to a revised estimate of taxes on the
repatriation of earnings under the American Jobs Creation Act of
2004 recognized in the second quarter.
|
|
(d)
|
|
Results for Fiscal 2005 include an
income tax charge of $280 million related to the
repatriation of earnings under the American Jobs Creation Act of
2004 recorded in the fourth quarter.
|
|
(e)
|
|
The adjustments relating to fiscal
years prior to Fiscal 2003 are reflected in beginning retained
earnings. The cumulative impact of these adjusting entries
increased beginning retained earnings by $59 million, net
of tax.
|
|
(f)
|
|
The cash flows have been revised to
reflect a closer approximation of the weighted-average exchange
rates during the reporting periods. For most periods, this
revision reduced the previously reported effect of exchange rate
changes on cash and cash equivalents with an offsetting change
in effects of exchange rate changes on monetary assets and
liabilities denominated in foreign currencies and changes in
operating working capital included in cash flows from operating
activities.
|
Cumulative
Restatement Adjustments to Previously Reported Retained
Earnings
The following tables present the impact of the restatement
adjustments on previously reported retained earnings for Fiscal
2006, Fiscal 2005, Fiscal 2004 and Fiscal 2003. See Note 2
of Notes to Consolidated Financial Statements included in
Part II Item 8 Financial
Statements and Supplementary Data for further discussion
of the restatement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 3,
|
|
|
January 28,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(in
millions)
|
|
|
Retained earnings as reported
|
|
$
|
12,746
|
|
|
$
|
9,174
|
|
|
$
|
6,131
|
|
|
$
|
3,486
|
|
Cumulative restatement adjustments
|
|
|
(47
|
)
|
|
|
(77
|
)
|
|
|
(52
|
)
|
|
|
(32
|
)(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings as restated
|
|
$
|
12,699
|
|
|
$
|
9,097
|
|
|
$
|
6,079
|
|
|
$
|
3,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Includes a $59 million
increase in beginning retained earnings at January 31, 2003
for the pre- Fiscal 2003 cumulative impact of the adjustments.
|
Cumulative
Restatement Adjustments to Previously Reported Beginning
Retained Earnings and Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 3,
|
|
|
January 28,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(in
millions)
|
|
|
Retained earnings as restated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning retained earnings as reported
|
|
$
|
9,174
|
|
|
$
|
6,131
|
|
|
$
|
3,486
|
|
|
$
|
1,364
|
|
Cumulative adjustments to beginning retained earnings
|
|
|
(77
|
)
|
|
|
(52
|
)
|
|
|
(32
|
)
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning retained earnings as restated
|
|
|
9,097
|
|
|
|
6,079
|
|
|
|
3,454
|
|
|
|
1,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income as reported
|
|
|
3,572
|
|
|
|
3,043
|
|
|
|
2,645
|
|
|
|
2,122
|
|
Net income restatement adjustments
|
|
|
30
|
|
|
|
(25
|
)
|
|
|
(20
|
)
|
|
|
(91
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income as restated
|
|
|
3,602
|
|
|
|
3,018
|
|
|
|
2,625
|
|
|
|
2,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings as restated
|
|
$
|
12,699
|
|
|
$
|
9,097
|
|
|
$
|
6,079
|
|
|
$
|
3,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
Cumulative
Restatement Adjustments to Previously Reported Beginning
Retained Earnings by Category
The following table presents the impact of the restatement
adjustments on previously reported beginning retained earnings
for Fiscal 2006, Fiscal 2005, Fiscal 2004, and Fiscal 2003, with
the adjustments broken down by the nature of the error. See
Note 2 of Notes to Consolidated Financial Statements
included in Part II
Item 8 Financial Statements and Supplementary
Data for further discussion of the restatement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 3,
|
|
|
January 28,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(in
millions)
|
|
|
Beginning retained earnings as reported
|
|
$
|
9,174
|
|
|
$
|
6,131
|
|
|
$
|
3,486
|
|
|
$
|
1,364
|
|
Revenue Recognition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
|
|
|
(21
|
)
|
|
|
(9
|
)
|
|
|
(7
|
)
|
|
|
(2
|
)
|
Other
|
|
|
(216
|
)
|
|
|
(217
|
)
|
|
|
(102
|
)
|
|
|
(64
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Recognition
|
|
|
(237
|
)
|
|
|
(226
|
)
|
|
|
(109
|
)
|
|
|
(66
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warranty Liabilities
|
|
|
202
|
|
|
|
223
|
|
|
|
129
|
|
|
|
31
|
|
Restructuring Reserves
|
|
|
(18
|
)
|
|
|
(18
|
)
|
|
|
(14
|
)
|
|
|
80
|
|
Other
|
|
|
(45
|
)
|
|
|
(35
|
)
|
|
|
(49
|
)
|
|
|
32
|
|
(Provision) benefit for income taxes
|
|
|
21
|
|
|
|
4
|
|
|
|
11
|
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative adjustments to beginning retained earnings
|
|
|
(77
|
)
|
|
|
(52
|
)
|
|
|
(32
|
)
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning retained earnings as restated
|
|
$
|
9,097
|
|
|
$
|
6,079
|
|
|
$
|
3,454
|
|
|
$
|
1,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
Impact of
Restatement Adjustments on Fiscal 2006 Net Income
The following table presents the impact of the restatement
adjustments on our Consolidated Statement of Income for the
fiscal year ended February 3, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2006
|
|
|
|
|
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
Other
|
|
|
Provision
|
|
|
|
|
|
|
|
|
|
recognition
|
|
|
|
|
|
|
|
|
reserves
|
|
|
for
|
|
|
|
|
|
|
As
|
|
|
Software
|
|
|
|
|
|
Warranty
|
|
|
Restruc-
|
|
|
and
|
|
|
income
|
|
|
As
|
|
|
|
Reported
|
|
|
sales
|
|
|
Other
|
|
|
liabilities
|
|
|
turing
|
|
|
accruals
|
|
|
tax(a)
|
|
|
Restated
|
|
|
|
(in millions,
except per share data)
|
|
|
Net revenue
|
|
$
|
55,908
|
|
|
$
|
(248
|
)
|
|
$
|
130
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(2
|
)
|
|
$
|
|
|
|
$
|
55,788
|
|
Cost of net revenue
|
|
|
45,958
|
|
|
|
(244
|
)
|
|
|
124
|
|
|
|
52
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
45,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
9,950
|
|
|
|
(4
|
)
|
|
|
6
|
|
|
|
(52
|
)
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
9,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative
|
|
|
5,140
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
(90
|
)
|
|
|
|
|
|
|
5,051
|
|
Research, development, and engineering
|
|
|
463
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
5,603
|
|
|
|
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(94
|
)
|
|
|
|
|
|
|
5,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
4,347
|
|
|
|
(4
|
)
|
|
|
5
|
|
|
|
(51
|
)
|
|
|
|
|
|
|
85
|
|
|
|
|
|
|
|
4,382
|
|
Investment and other income, net
|
|
|
227
|
|
|
|
|
|
|
|
11
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
4,574
|
|
|
|
(4
|
)
|
|
|
16
|
|
|
|
(55
|
)
|
|
|
|
|
|
|
77
|
|
|
|
|
|
|
|
4,608
|
|
Income tax provision
|
|
|
1,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
1,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
1.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
2,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,403
|
|
Diluted
|
|
|
2,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,449
|
|
|
|
|
(a)
|
|
Primarily represents the aggregate
tax impact of the adjustments.
|
24
Impact of
Restatement Adjustments on Fiscal 2006 Quarterly Financial
Data
The following tables present selected quarterly financial data
for Fiscal 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
Second
Quarter(c)
|
|
|
April 29,
2005
|
|
July 29,
2005
|
|
|
As
|
|
|
|
As
|
|
As
|
|
|
|
As
|
Fiscal
2006
|
|
Reported
|
|
Adjustments
|
|
Restated
|
|
Reported
|
|
Adjustments
|
|
Restated
|
|
|
(in millions,
expect per share data)
|
|
Results of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
13,386
|
|
|
$
|
(86
|
)
|
|
$
|
13,300
|
|
|
$
|
13,428
|
|
|
$
|
(46
|
)
|
|
$
|
13,382
|
|
Gross margin
|
|
$
|
2,491
|
|
|
$
|
(39
|
)
|
|
$
|
2,452
|
|
|
$
|
2,499
|
|
|
$
|
(68
|
)
|
|
$
|
2,431
|
|
Operating income
|
|
$
|
1,174
|
|
|
$
|
(37
|
)
|
|
$
|
1,137
|
|
|
$
|
1,173
|
|
|
$
|
(60
|
)
|
|
$
|
1,113
|
|
Income before income taxes
|
|
$
|
1,233
|
|
|
$
|
(45
|
)
|
|
$
|
1,188
|
|
|
$
|
1,234
|
|
|
$
|
(47
|
)
|
|
$
|
1,187
|
|
Net income
|
|
$
|
934
|
|
|
$
|
(26
|
)
|
|
$
|
908
|
|
|
$
|
1,020
|
|
|
$
|
(38
|
)
|
|
$
|
982
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.38
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.37
|
|
|
$
|
0.42
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.41
|
|
Diluted
|
|
$
|
0.37
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.36
|
|
|
$
|
0.41
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.40
|
|
Number of weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
2,456
|
|
|
|
|
|
|
|
2,456
|
|
|
|
2,418
|
|
|
|
|
|
|
|
2,418
|
|
Diluted
|
|
|
2,515
|
|
|
|
|
|
|
|
2,515
|
|
|
|
2,478
|
|
|
|
|
|
|
|
2,478
|
|
Cash Flow and Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities(d)
|
|
$
|
1,190
|
|
|
$
|
84
|
|
|
$
|
1,274
|
|
|
$
|
919
|
|
|
$
|
(58
|
)
|
|
$
|
861
|
|
Cash, cash equivalents and investments
|
|
$
|
13,374
|
|
|
$
|
4
|
|
|
$
|
13,378
|
|
|
$
|
12,624
|
|
|
$
|
6
|
|
|
$
|
12,630
|
|
Total assets
|
|
$
|
22,687
|
|
|
$
|
82
|
|
|
$
|
22,769
|
|
|
$
|
22,611
|
|
|
$
|
107
|
|
|
$
|
22,718
|
|
Short-term
borrowings(a)
|
|
$
|
|
|
|
$
|
81
|
|
|
$
|
81
|
|
|
$
|
|
|
|
$
|
77
|
|
|
$
|
77
|
|
Long-term
debt(b)
|
|
$
|
504
|
|
|
$
|
140
|
|
|
$
|
644
|
|
|
$
|
504
|
|
|
$
|
135
|
|
|
$
|
639
|
|
Total stockholders equity
|
|
$
|
5,624
|
|
|
$
|
(100
|
)
|
|
$
|
5,524
|
|
|
$
|
5,509
|
|
|
$
|
(144
|
)
|
|
$
|
5,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third
Quarter(c)
|
|
Fourth
Quarter
|
|
|
October 28,
2005
|
|
February 3,
2006
|
|
|
As
|
|
|
|
As
|
|
As
|
|
|
|
As
|
Fiscal
2006
|
|
Reported
|
|
Adjustments
|
|
Restated
|
|
Reported
|
|
Adjustments
|
|
Restated
|
|
|
(in millions,
expect per share data)
|
|
Results of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
13,911
|
|
|
$
|
(31
|
)
|
|
$
|
13,880
|
|
|
$
|
15,183
|
|
|
$
|
43
|
|
|
$
|
15,226
|
|
Gross margin
|
|
$
|
2,251
|
|
|
$
|
14
|
|
|
$
|
2,265
|
|
|
$
|
2,709
|
|
|
$
|
34
|
|
|
$
|
2,743
|
|
Operating income
|
|
$
|
754
|
|
|
$
|
38
|
|
|
$
|
792
|
|
|
$
|
1,246
|
|
|
$
|
94
|
|
|
$
|
1,340
|
|
Income before income taxes
|
|
$
|
804
|
|
|
$
|
39
|
|
|
$
|
843
|
|
|
$
|
1,303
|
|
|
$
|
87
|
|
|
$
|
1,390
|
|
Net income
|
|
$
|
606
|
|
|
$
|
29
|
|
|
$
|
635
|
|
|
$
|
1,012
|
|
|
$
|
65
|
|
|
$
|
1,077
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.25
|
|
|
$
|
0.02
|
|
|
$
|
0.27
|
|
|
$
|
0.43
|
|
|
$
|
0.03
|
|
|
$
|
0.46
|
|
Diluted
|
|
$
|
0.25
|
|
|
$
|
0.01
|
|
|
$
|
0.26
|
|
|
$
|
0.43
|
|
|
$
|
0.02
|
|
|
$
|
0.45
|
|
Number of weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
2,395
|
|
|
|
|
|
|
|
2,395
|
|
|
|
2,350
|
|
|
|
|
|
|
|
2,350
|
|
Diluted
|
|
|
2,435
|
|
|
|
|
|
|
|
2,435
|
|
|
|
2,375
|
|
|
|
|
|
|
|
2,375
|
|
Cash Flow and Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities(d)
|
|
$
|
1,148
|
|
|
$
|
(42
|
)
|
|
$
|
1,106
|
|
|
$
|
1,582
|
|
|
$
|
(72
|
)
|
|
$
|
1,510
|
|
Cash, cash equivalents and investments
|
|
$
|
12,233
|
|
|
$
|
4
|
|
|
$
|
12,237
|
|
|
$
|
11,749
|
|
|
$
|
7
|
|
|
$
|
11,756
|
|
Total assets
|
|
$
|
22,874
|
|
|
$
|
163
|
|
|
$
|
23,037
|
|
|
$
|
23,109
|
|
|
$
|
143
|
|
|
$
|
23,252
|
|
Short-term
borrowings(a)
|
|
$
|
|
|
|
$
|
74
|
|
|
$
|
74
|
|
|
$
|
|
|
|
$
|
65
|
|
|
$
|
65
|
|
Long-term
debt(b)
|
|
$
|
504
|
|
|
$
|
113
|
|
|
$
|
617
|
|
|
$
|
504
|
|
|
$
|
121
|
|
|
$
|
625
|
|
Total stockholders equity
|
|
$
|
4,821
|
|
|
$
|
(113
|
)
|
|
$
|
4,708
|
|
|
$
|
4,129
|
|
|
$
|
(82
|
)
|
|
$
|
4,047
|
|
25
|
|
|
(a)
|
|
The restated amounts for short-term
borrowings reflect (1) a correction in classification from
accounts payable for vendor financing for the periods from the
end of Fiscal 2002 until termination in the first quarter of
Fiscal 2006, and (2) a correction in classification from
other current liabilities for the short-term portion of
outstanding advances under the DFS Credit Facilities for the
periods from the third quarter of Fiscal 2004 through Fiscal
2007.
|
|
(b)
|
|
The restated amounts for long-term
debt reflect (1) adjustments to record changes in the fair
value of the debt where the interest rate is hedged with
interest rate swap agreements for all periods restated and
(2) a correction in classification from both other current
liabilities and other non-current liabilities related to the
long-term portion of outstanding advances under the DFS Credit
Facilities for the periods from the third quarter of Fiscal 2004
through Fiscal 2007.
|
|
(c)
|
|
Results for the third quarter of
Fiscal 2006 include charges aggregating $421 million
($338 million of other product charges and $83 million
in selling, general and administrative expenses) related to the
cost of servicing or replacing certain
OptiPlexTM
systems that include a vendor part that failed to perform to our
specifications, workforce realignment, product rationalizations,
excess facilities, and a write-off of goodwill recognized in the
third quarter. The related tax effect of these items was
$96 million. The second quarter of Fiscal 2006 includes an
$85 million income tax benefit related to a revised
estimate of taxes on the repatriation of earnings under the
American Jobs Creation Act of 2004 recognized in the second
quarter.
|
|
(d)
|
|
The cash flows have been revised to
reflect a closer approximation of the weighted-average exchange
rates during the reporting periods. For most periods, this
revision reduced the previously reported effect of exchange rate
changes on cash and cash equivalents with an offsetting change
in effects of exchange rate changes on monetary assets and
liabilities denominated in foreign currencies and changes in
operating working capital included in cash flows from operating
activities.
|
Fiscal 2006
Restatement Adjustments to Previously Reported Net
Income
The following table presents the impact of the restatement on
our previously reported net income for each quarter of Fiscal
2006. See Note 2 of Notes to Consolidated Financial
Statements included in Part II
Item 8 Financial Statements and Supplementary
Data for further discussion of the restatement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Fiscal
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Year
|
|
|
|
April 29,
|
|
|
July 29,
|
|
|
October 28,
|
|
|
February 3,
|
|
|
February 3,
|
|
Fiscal 2006 (As
Restated)
|
|
2005
|
|
|
2005
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
|
(in
millions)
|
|
|
Net income as reported
|
|
$
|
934
|
|
|
$
|
1,020
|
|
|
$
|
606
|
|
|
$
|
1,012
|
|
|
$
|
3,572
|
|
Revenue recognition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software sales
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
3
|
|
|
|
(1
|
)
|
|
|
(4
|
)
|
Other revenue recognition
|
|
|
(20
|
)
|
|
|
(3
|
)
|
|
|
9
|
|
|
|
30
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue recognition
|
|
|
(23
|
)
|
|
|
(6
|
)
|
|
|
12
|
|
|
|
29
|
|
|
|
12
|
|
Warranty liabilities
|
|
|
(14
|
)
|
|
|
(52
|
)
|
|
|
(14
|
)
|
|
|
25
|
|
|
|
(55
|
)
|
Restructuring reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other reserves and accruals
|
|
|
(8
|
)
|
|
|
11
|
|
|
|
41
|
|
|
|
33
|
|
|
|
77
|
|
(Provision) benefit for income taxes
|
|
|
19
|
|
|
|
9
|
|
|
|
(10
|
)
|
|
|
(22
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impact of adjustments
|
|
|
(26
|
)
|
|
|
(38
|
)
|
|
|
29
|
|
|
|
65
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income as restated
|
|
$
|
908
|
|
|
$
|
982
|
|
|
$
|
635
|
|
|
$
|
1,077
|
|
|
$
|
3,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
Impact of
Restatement Adjustments on Fiscal 2005 Net Income
The following table presents the impact of the restatement
adjustments on our Consolidated Statement of Income for the
fiscal year ended January 28, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2005
|
|
|
|
|
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
Other
|
|
|
Provision
|
|
|
|
|
|
|
|
|
|
recognition
|
|
|
|
|
|
|
|
|
reserves
|
|
|
for
|
|
|
|
|
|
|
As
|
|
|
Software
|
|
|
|
|
|
Warranty
|
|
|
Restruc-
|
|
|
and
|
|
|
income
|
|
|
As
|
|
|
|
Reported
|
|
|
sales
|
|
|
Other
|
|
|
liabilities
|
|
|
turing
|
|
|
accruals
|
|
|
tax(a)
|
|
|
Restated
|
|
|
|
(in millions,
except per share data)
|
|
|
Net revenue
|
|
$
|
49,205
|
|
|
$
|
(105
|
)
|
|
$
|
21
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
49,121
|
|
Cost of net revenue
|
|
|
40,190
|
|
|
|
(93
|
)
|
|
|
21
|
|
|
|
21
|
|
|
|
|
|
|
|
(36
|
)
|
|
|
|
|
|
|
40,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
9,015
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
(21
|
)
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
9,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative
|
|
|
4,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54
|
|
|
|
|
|
|
|
4,352
|
|
Research, development, and engineering
|
|
|
463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
4,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
|
|
|
|
|
|
|
|
4,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
4,254
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
(21
|
)
|
|
|
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
4,206
|
|
Investment and other income, net
|
|
|
191
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
4,445
|
|
|
|
(12
|
)
|
|
|
1
|
|
|
|
(21
|
)
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
4,403
|
|
Income tax provision
|
|
|
1,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17
|
)
|
|
|
1,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
1.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
2,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,509
|
|
Diluted
|
|
|
2,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,568
|
|
|
|
|
(a)
|
|
Primarily represents the aggregate
tax impact of the adjustments.
|
27
Impact of
Restatement Adjustments on Fiscal 2005 Quarterly Financial
Data
The following tables present selected quarterly financial data
for Fiscal 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
|
April 30,
2004
|
|
July 30,
2004
|
|
|
As
|
|
|
|
As
|
|
As
|
|
|
|
As
|
Fiscal
2005
|
|
Reported
|
|
Adjustments
|
|
Restated
|
|
Reported
|
|
Adjustments
|
|
Restated
|
|
|
(in millions,
expect per share data)
|
|
Results of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
11,540
|
|
|
$
|
44
|
|
|
$
|
11,584
|
|
|
$
|
11,706
|
|
|
$
|
(56
|
)
|
|
$
|
11,650
|
|
Gross margin
|
|
$
|
2,073
|
|
|
$
|
(14
|
)
|
|
$
|
2,059
|
|
|
$
|
2,134
|
|
|
$
|
59
|
|
|
$
|
2,193
|
|
Operating income
|
|
$
|
966
|
|
|
$
|
(34
|
)
|
|
$
|
932
|
|
|
$
|
1,006
|
|
|
$
|
59
|
|
|
$
|
1,065
|
|
Income before income taxes
|
|
$
|
1,015
|
|
|
$
|
(15
|
)
|
|
$
|
1,000
|
|
|
$
|
1,052
|
|
|
$
|
54
|
|
|
$
|
1,106
|
|
Net income
|
|
$
|
731
|
|
|
$
|
(10
|
)
|
|
$
|
721
|
|
|
$
|
799
|
|
|
$
|
41
|
|
|
$
|
840
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.29
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.28
|
|
|
$
|
0.32
|
|
|
$
|
0.01
|
|
|
$
|
0.33
|
|
Diluted
|
|
$
|
0.28
|
|
|
$
|
|
|
|
$
|
0.28
|
|
|
$
|
0.31
|
|
|
$
|
0.02
|
|
|
$
|
0.33
|
|
Number of weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
2,539
|
|
|
|
|
|
|
|
2,539
|
|
|
|
2,518
|
|
|
|
|
|
|
|
2,518
|
|
Diluted
|
|
|
2,593
|
|
|
|
|
|
|
|
2,593
|
|
|
|
2,574
|
|
|
|
|
|
|
|
2,574
|
|
Cash Flow and Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities(d)
|
|
$
|
1,002
|
|
|
$
|
135
|
|
|
$
|
1,137
|
|
|
$
|
703
|
|
|
$
|
62
|
|
|
$
|
765
|
|
Cash, cash equivalents and investments
|
|
$
|
11,886
|
|
|
$
|
|
|
|
$
|
11,886
|
|
|
$
|
11,810
|
|
|
$
|
|
|
|
$
|
11,810
|
|
Total assets
|
|
$
|
19,709
|
|
|
$
|
10
|
|
|
$
|
19,719
|
|
|
$
|
19,932
|
|
|
$
|
17
|
|
|
$
|
19,949
|
|
Short-term
borrowings(a)
|
|
$
|
|
|
|
$
|
101
|
|
|
$
|
101
|
|
|
$
|
|
|
|
$
|
80
|
|
|
$
|
80
|
|
Long-term
debt(b)
|
|
$
|
505
|
|
|
$
|
126
|
|
|
$
|
631
|
|
|
$
|
505
|
|
|
$
|
133
|
|
|
$
|
638
|
|
Total stockholders equity
|
|
$
|
6,105
|
|
|
$
|
(61
|
)
|
|
$
|
6,044
|
|
|
$
|
6,207
|
|
|
$
|
(20
|
)
|
|
$
|
6,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third
Quarter
|
|
Fourth
Quarter(c)
|
|
|
October 29,
2004
|
|
January 28,
2005
|
|
|
As
|
|
|
|
As
|
|
As
|
|
|
|
As
|
Fiscal
2005
|
|
Reported
|
|
Adjustments
|
|
Restated
|
|
Reported
|
|
Adjustments
|
|
Restated
|
|
|
(in millions,
expect per share data)
|
|
Results of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
12,502
|
|
|
$
|
11
|
|
|
$
|
12,513
|
|
|
$
|
13,457
|
|
|
$
|
(83
|
)
|
|
$
|
13,374
|
|
Gross margin
|
|
$
|
2,313
|
|
|
$
|
(11
|
)
|
|
$
|
2,302
|
|
|
$
|
2,495
|
|
|
$
|
(31
|
)
|
|
$
|
2,464
|
|
Operating income
|
|
$
|
1,095
|
|
|
$
|
(20
|
)
|
|
$
|
1,075
|
|
|
$
|
1,187
|
|
|
$
|
(53
|
)
|
|
$
|
1,134
|
|
Income before income taxes
|
|
$
|
1,143
|
|
|
$
|
(21
|
)
|
|
$
|
1,122
|
|
|
$
|
1,235
|
|
|
$
|
(60
|
)
|
|
$
|
1,175
|
|
Net income
|
|
$
|
846
|
|
|
$
|
(14
|
)
|
|
$
|
832
|
|
|
$
|
667
|
|
|
$
|
(42
|
)
|
|
$
|
625
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.34
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.33
|
|
|
$
|
0.27
|
|
|
$
|
(0.02
|
)
|
|
$
|
0.25
|
|
Diluted
|
|
$
|
0.33
|
|
|
$
|
|
|
|
$
|
0.33
|
|
|
$
|
0.26
|
|
|
$
|
(0.02
|
)
|
|
$
|
0.24
|
|
Number of weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
2,493
|
|
|
|
|
|
|
|
2,493
|
|
|
|
2,485
|
|
|
|
|
|
|
|
2,485
|
|
Diluted
|
|
|
2,546
|
|
|
|
|
|
|
|
2,546
|
|
|
|
2,553
|
|
|
|
|
|
|
|
2,553
|
|
Cash Flow and Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities(d)
|
|
$
|
1,787
|
|
|
$
|
83
|
|
|
$
|
1,870
|
|
|
$
|
1,818
|
|
|
$
|
231
|
|
|
$
|
2,049
|
|
Cash, cash equivalents and investments
|
|
$
|
12,436
|
|
|
$
|
|
|
|
$
|
12,436
|
|
|
$
|
14,101
|
|
|
$
|
|
|
|
$
|
14,101
|
|
Total assets
|
|
$
|
21,054
|
|
|
$
|
73
|
|
|
$
|
21,127
|
|
|
$
|
23,215
|
|
|
$
|
103
|
|
|
$
|
23,318
|
|
Short-term
borrowings(a)
|
|
$
|
|
|
|
$
|
79
|
|
|
$
|
79
|
|
|
$
|
|
|
|
$
|
74
|
|
|
$
|
74
|
|
Long-term
debt(b)
|
|
$
|
505
|
|
|
$
|
154
|
|
|
$
|
659
|
|
|
$
|
505
|
|
|
$
|
157
|
|
|
$
|
662
|
|
Total stockholders equity
|
|
$
|
5,880
|
|
|
$
|
(35
|
)
|
|
$
|
5,845
|
|
|
$
|
6,485
|
|
|
$
|
(73
|
)
|
|
$
|
6,412
|
|
28
|
|
|
(a)
|
|
The restated amounts for short-term
borrowings reflect (1) a correction in classification from
accounts payable for vendor financing for the periods from the
end of Fiscal 2002 until termination in the first quarter of
Fiscal 2006, and (2) a correction in classification from
other current liabilities for the short-term portion of
outstanding advances under the DFS Credit Facilities for the
periods from the third quarter of Fiscal 2004 through Fiscal
2007.
|
|
(b)
|
|
The restated amounts for long-term
debt reflect (1) adjustments to record changes in the fair
value of the debt where the interest rate is hedged with
interest rate swap agreements for all periods restated and
(2) a correction in classification from both other current
liabilities and other non-current liabilities related to the
long-term portion of outstanding advances under the DFS Credit
Facilities for the periods from the third quarter of Fiscal 2004
through Fiscal 2007.
|
|
(c)
|
|
Results include an income tax
charge of $280 million related to the repatriation of
earnings under the American Jobs Creation Act of 2004 recorded
in the fourth quarter.
|
|
(d)
|
|
The cash flows have been revised to
reflect a closer approximation of the weighted-average exchange
rates during the reporting periods. For most periods, this
revision reduced the previously reported effect of exchange rate
changes on cash and cash equivalents with an offsetting change
in effects of exchange rate changes on monetary assets and
liabilities denominated in foreign currencies and changes in
operating working capital included in cash flows from operating
activities.
|
Fiscal 2005
Restatement Adjustments to Previously Reported Net
Income
The following table presents the impact of the restatement on
our previously reported net income for each quarter of Fiscal
2005. See Note 2 of Notes to Consolidated Financial
Statements included in Part II
Item 8 Financial Statements and Supplementary
Data for further discussion of the restatement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Fiscal
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Year
|
|
|
|
April 30,
|
|
|
July 30,
|
|
|
October 29,
|
|
|
January 28,
|
|
|
January 28,
|
|
Fiscal 2005 (As
Restated)
|
|
2004
|
|
|
2004
|
|
|
2004
|
|
|
2005
|
|
|
2005
|
|
|
|
(in
millions)
|
|
|
Net income as reported
|
|
$
|
731
|
|
|
$
|
799
|
|
|
$
|
846
|
|
|
$
|
667
|
|
|
$
|
3,043
|
|
Revenue recognition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software sales
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
(3
|
)
|
|
|
(5
|
)
|
|
|
(12
|
)
|
Other revenue recognition
|
|
|
11
|
|
|
|
(2
|
)
|
|
|
6
|
|
|
|
(14
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue recognition
|
|
|
9
|
|
|
|
(4
|
)
|
|
|
3
|
|
|
|
(19
|
)
|
|
|
(11
|
)
|
Warranty liabilities
|
|
|
1
|
|
|
|
24
|
|
|
|
(21
|
)
|
|
|
(25
|
)
|
|
|
(21
|
)
|
Restructuring reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other reserves and
accruals(a)
|
|
|
(25
|
)
|
|
|
34
|
|
|
|
(3
|
)
|
|
|
(16
|
)
|
|
|
(10
|
)
|
(Provision) benefit for income taxes
|
|
|
5
|
|
|
|
(13
|
)
|
|
|
7
|
|
|
|
18
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impact of adjustments
|
|
|
(10
|
)
|
|
|
41
|
|
|
|
(14
|
)
|
|
|
(42
|
)
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income as restated
|
|
$
|
721
|
|
|
$
|
840
|
|
|
$
|
832
|
|
|
$
|
625
|
|
|
$
|
3,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Reflects an adjustment of an amount
of vendor funding recognized in the first quarter of Fiscal 2005
but earned in the second quarter of Fiscal 2005.
|
29
Impact of
Restatement Adjustments on Fiscal 2004 Net Income
The following table presents the impact of the restatement
adjustments on our Consolidated Statement of Income for the
fiscal year ended January 30, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2004
|
|
|
|
|
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
Other
|
|
|
Provision
|
|
|
|
|
|
|
|
|
|
recognition
|
|
|
|
|
|
|
|
|
reserves
|
|
|
for
|
|
|
|
|
|
|
As
|
|
|
Software
|
|
|
|
|
|
Warranty
|
|
|
Restruc-
|
|
|
and
|
|
|
income
|
|
|
As
|
|
|
|
Reported
|
|
|
sales
|
|
|
Other(a)
|
|
|
liabilities
|
|
|
turing
|
|
|
accruals
|
|
|
tax(b)
|
|
|
Restated
|
|
|
|
(in millions,
except per share data)
|
|
|
Net revenue
|
|
$
|
41,444
|
|
|
$
|
4
|
|
|
$
|
(121
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
41,327
|
|
Cost of net revenue
|
|
|
33,892
|
|
|
|
6
|
|
|
|
(6
|
)
|
|
|
(94
|
)
|
|
|
|
|
|
|
(34
|
)
|
|
|
|
|
|
|
33,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
7,552
|
|
|
|
(2
|
)
|
|
|
(115
|
)
|
|
|
94
|
|
|
|
|
|
|
|
34
|
|
|
|
|
|
|
|
7,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative
|
|
|
3,544
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
4
|
|
|
|
57
|
|
|
|
|
|
|
|
3,604
|
|
Research, development, and engineering
|
|
|
464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30
|
)
|
|
|
|
|
|
|
434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
4,008
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
4
|
|
|
|
27
|
|
|
|
|
|
|
|
4,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
3,544
|
|
|
|
(2
|
)
|
|
|
(114
|
)
|
|
|
94
|
|
|
|
(4
|
)
|
|
|
7
|
|
|
|
|
|
|
|
3,525
|
|
Investment and other income, net
|
|
|
180
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
3,724
|
|
|
|
(2
|
)
|
|
|
(115
|
)
|
|
|
94
|
|
|
|
(4
|
)
|
|
|
14
|
|
|
|
|
|
|
|
3,711
|
|
Income tax provision
|
|
|
1,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
1,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
1.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
2,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,565
|
|
Diluted
|
|
|
2,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,619
|
|
|
|
|
(a)
|
|
Primarily includes adjustments to
the deferral and amortization of revenue from extended warranty
and enhanced service level agreements, and adjustments to the
period end in-transit revenue deferrals. See Note 2 of
Notes to Consolidated Financial Statements included in
Part II Item 8 Financial
Statements and Supplementary Data for additional detail.
|
|
(b)
|
|
Primarily represents the aggregate
tax impact of the adjustments.
|
30
Impact of
Restatement Adjustments on Fiscal 2004 Quarterly Financial
Data
The following tables present selected quarterly financial data
for Fiscal 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
|
May 2,
2003
|
|
August 1,
2003
|
|
|
As
|
|
|
|
As
|
|
As
|
|
|
|
As
|
Fiscal
2004
|
|
Reported
|
|
Adjustments
|
|
Restated
|
|
Reported
|
|
Adjustments
|
|
Restated
|
|
|
(in millions,
expect per share data)
|
|
Results of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
9,532
|
|
|
$
|
(11
|
)
|
|
$
|
9,521
|
|
|
$
|
9,778
|
|
|
$
|
(98
|
)
|
|
$
|
9,680
|
|
Gross margin
|
|
$
|
1,748
|
|
|
$
|
9
|
|
|
$
|
1,757
|
|
|
$
|
1,778
|
|
|
$
|
(69
|
)
|
|
$
|
1,709
|
|
Operating income
|
|
$
|
811
|
|
|
$
|
18
|
|
|
$
|
829
|
|
|
$
|
840
|
|
|
$
|
(92
|
)
|
|
$
|
748
|
|
Income before income taxes
|
|
$
|
854
|
|
|
$
|
20
|
|
|
$
|
874
|
|
|
$
|
887
|
|
|
$
|
(87
|
)
|
|
$
|
800
|
|
Net income
|
|
$
|
598
|
|
|
$
|
11
|
|
|
$
|
609
|
|
|
$
|
621
|
|
|
$
|
(63
|
)
|
|
$
|
558
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.23
|
|
|
$
|
0.01
|
|
|
$
|
0.24
|
|
|
$
|
0.24
|
|
|
$
|
(0.02
|
)
|
|
$
|
0.22
|
|
Diluted
|
|
$
|
0.23
|
|
|
$
|
|
|
|
$
|
0.23
|
|
|
$
|
0.24
|
|
|
$
|
(0.03
|
)
|
|
$
|
0.21
|
|
Number of weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
2,572
|
|
|
|
|
|
|
|
2,572
|
|
|
|
2,567
|
|
|
|
|
|
|
|
2,567
|
|
Diluted
|
|
|
2,614
|
|
|
|
|
|
|
|
2,614
|
|
|
|
2,624
|
|
|
|
|
|
|
|
2,624
|
|
Cash Flow and Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities(c)
|
|
$
|
812
|
|
|
$
|
117
|
|
|
$
|
929
|
|
|
$
|
740
|
|
|
$
|
134
|
|
|
$
|
874
|
|
Cash, cash equivalents and investments
|
|
$
|
10,332
|
|
|
$
|
(2
|
)
|
|
$
|
10,330
|
|
|
$
|
10,618
|
|
|
$
|
(1
|
)
|
|
$
|
10,617
|
|
Total assets
|
|
$
|
15,712
|
|
|
$
|
70
|
|
|
$
|
15,782
|
|
|
$
|
16,540
|
|
|
$
|
53
|
|
|
$
|
16,593
|
|
Short-term
borrowings(a)
|
|
$
|
|
|
|
$
|
134
|
|
|
$
|
134
|
|
|
$
|
|
|
|
$
|
81
|
|
|
$
|
81
|
|
Long-term
debt(b)
|
|
$
|
506
|
|
|
$
|
81
|
|
|
$
|
587
|
|
|
$
|
506
|
|
|
$
|
42
|
|
|
$
|
548
|
|
Total stockholders equity
|
|
$
|
5,076
|
|
|
$
|
(19
|
)
|
|
$
|
5,057
|
|
|
$
|
5,506
|
|
|
$
|
(85
|
)
|
|
$
|
5,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
|
October 31,
2003
|
|
January 30,
2004
|
|
|
As
|
|
|
|
As
|
|
As
|
|
|
|
As
|
Fiscal
2004
|
|
Reported
|
|
Adjustments
|
|
Restated
|
|
Reported
|
|
Adjustments
|
|
Restated
|
|
|
(in millions,
expect per share data)
|
|
Results of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
10,622
|
|
|
$
|
7
|
|
|
$
|
10,629
|
|
|
$
|
11,512
|
|
|
$
|
(15
|
)
|
|
$
|
11,497
|
|
Gross margin
|
|
$
|
1,935
|
|
|
$
|
23
|
|
|
$
|
1,958
|
|
|
$
|
2,091
|
|
|
$
|
48
|
|
|
$
|
2,139
|
|
Operating income
|
|
$
|
912
|
|
|
$
|
5
|
|
|
$
|
917
|
|
|
$
|
981
|
|
|
$
|
50
|
|
|
$
|
1,031
|
|
Income before income taxes
|
|
$
|
953
|
|
|
$
|
7
|
|
|
$
|
960
|
|
|
$
|
1,030
|
|
|
$
|
47
|
|
|
$
|
1,077
|
|
Net income
|
|
$
|
677
|
|
|
$
|
2
|
|
|
$
|
679
|
|
|
$
|
749
|
|
|
$
|
30
|
|
|
$
|
779
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.26
|
|
|
$
|
|
|
|
$
|
0.26
|
|
|
$
|
0.29
|
|
|
$
|
0.01
|
|
|
$
|
0.30
|
|
Diluted
|
|
$
|
0.26
|
|
|
$
|
|
|
|
$
|
0.26
|
|
|
$
|
0.29
|
|
|
$
|
0.01
|
|
|
$
|
0.30
|
|
Number of weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
2,563
|
|
|
|
|
|
|
|
2,563
|
|
|
|
2,557
|
|
|
|
|
|
|
|
2,557
|
|
Diluted
|
|
|
2,623
|
|
|
|
|
|
|
|
2,623
|
|
|
|
2,616
|
|
|
|
|
|
|
|
2,616
|
|
Cash Flow and Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities(c)
|
|
$
|
1,060
|
|
|
$
|
(119
|
)
|
|
$
|
941
|
|
|
$
|
1,058
|
|
|
$
|
262
|
|
|
$
|
1,320
|
|
Cash, cash equivalents and investments
|
|
$
|
11,032
|
|
|
$
|
(2
|
)
|
|
$
|
11,030
|
|
|
$
|
11,922
|
|
|
$
|
(1
|
)
|
|
$
|
11,921
|
|
Total assets
|
|
$
|
18,125
|
|
|
$
|
14
|
|
|
$
|
18,139
|
|
|
$
|
19,311
|
|
|
$
|
29
|
|
|
$
|
19,340
|
|
Short-term
borrowings(a)
|
|
$
|
|
|
|
$
|
176
|
|
|
$
|
176
|
|
|
$
|
|
|
|
$
|
157
|
|
|
$
|
157
|
|
Long-term
debt(b)
|
|
$
|
506
|
|
|
$
|
132
|
|
|
$
|
638
|
|
|
$
|
505
|
|
|
$
|
140
|
|
|
$
|
645
|
|
Total stockholders equity
|
|
$
|
5,878
|
|
|
$
|
(78
|
)
|
|
$
|
5,800
|
|
|
$
|
6,280
|
|
|
$
|
(42
|
)
|
|
$
|
6,238
|
|
31
|
|
|
(a)
|
|
The restated amounts for short-term
borrowings reflect (1) a correction in classification from
accounts payable for vendor financing for the periods from the
end of Fiscal 2002 until termination in the first quarter of
Fiscal 2006, and (2) a correction in classification from
other current liabilities for the short-term portion for
outstanding advances under the DFS Credit Facilities for the
periods from the third quarter of Fiscal 2004 through Fiscal
2007.
|
|
(b)
|
|
The restated amounts for long-term
debt reflect (1) adjustments to record changes in the fair
value of the debt where the interest rate is hedged with
interest rate swap agreements for all periods restated and
(2) a correction in classification from both other current
liabilities and other non-current liabilities related to the
long-term portion of outstanding advances under the DFS Credit
Facilities for the periods from the third quarter of Fiscal 2004
through Fiscal 2007.
|
|
(c)
|
|
The cash flows have been revised to
reflect a closer approximation of the weighted-average exchange
rates during the reporting periods. For most periods, this
revision reduced the previously reported effect of exchange rate
changes on cash and cash equivalents with an offsetting change
in effects of exchange rate changes on monetary assets and
liabilities denominated in foreign currencies and changes in
operating working capital included in cash flows from operating
activities.
|
Fiscal 2004
Restatement Adjustments to Previously Reported Net
Income
The following table presents the impact of the restatement on
our previously reported net income for each quarter of Fiscal
2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Fiscal
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Year
|
|
|
|
May 2,
|
|
|
August 1,
|
|
|
October 31,
|
|
|
January 30,
|
|
|
January 30,
|
|
Fiscal 2004 (As
Restated)
|
|
2003
|
|
|
2003
|
|
|
2003
|
|
|
2004
|
|
|
2004
|
|
|
|
(in
millions)
|
|
|
Net income as reported
|
|
$
|
598
|
|
|
$
|
621
|
|
|
$
|
677
|
|
|
$
|
749
|
|
|
$
|
2,645
|
|
Revenue recognition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software sales
|
|
|
|
|
|
|
(1
|
)
|
|
|
2
|
|
|
|
(3
|
)
|
|
|
(2
|
)
|
Other revenue
recognition(a)
|
|
|
(31
|
)
|
|
|
(58
|
)
|
|
|
(6
|
)
|
|
|
(20
|
)
|
|
|
(115
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue recognition
|
|
|
(31
|
)
|
|
|
(59
|
)
|
|
|
(4
|
)
|
|
|
(23
|
)
|
|
|
(117
|
)
|
Warranty liabilities
|
|
|
11
|
|
|
|
5
|
|
|
|
35
|
|
|
|
43
|
|
|
|
94
|
|
Restructuring reserves
|
|
|
(3
|
)
|
|
|
(2
|
)
|
|
|
1
|
|
|
|
|
|
|
|
(4
|
)
|
Other reserves and accruals
|
|
|
43
|
|
|
|
(31
|
)
|
|
|
(24
|
)
|
|
|
26
|
|
|
|
14
|
|
(Provision) benefit for income taxes
|
|
|
(9
|
)
|
|
|
24
|
|
|
|
(6
|
)
|
|
|
(16
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impact of adjustments
|
|
|
11
|
|
|
|
(63
|
)
|
|
|
2
|
|
|
|
30
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income as restated
|
|
$
|
609
|
|
|
$
|
558
|
|
|
$
|
679
|
|
|
$
|
779
|
|
|
$
|
2,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Primarily includes adjustments to
the deferral and amortization of revenue from extended warranty
and enhanced service level agreements, and adjustments to the
period end in-transit revenue deferrals. See Note 2 of
Notes to Consolidated Financial Statements included in
Part II Item 8 Financial
Statements and Supplementary Data for additional detail.
|
32
Impact of
Restatement Adjustments on Fiscal 2003 Net Income
The following table presents the impact of the restatement
adjustments on our Consolidated Statement of Income for the
fiscal year ended January 31, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2003
|
|
|
|
|
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
Other
|
|
|
Provision
|
|
|
|
|
|
|
|
|
|
recognition
|
|
|
|
|
|
|
|
|
reserves
|
|
|
for
|
|
|
|
|
|
|
As
|
|
|
Software
|
|
|
|
|
|
Warranty
|
|
|
Restruc-
|
|
|
and
|
|
|
income
|
|
|
As
|
|
|
|
Reported
|
|
|
sales
|
|
|
Other(b)
|
|
|
liabilities
|
|
|
turing
|
|
|
accruals(a)
|
|
|
tax(c)
|
|
|
Restated
|
|
|
|
(in millions,
except per share data)
|
|
|
Net revenue
|
|
$
|
35,404
|
|
|
$
|
(78
|
)
|
|
$
|
(64
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
35,262
|
|
Cost of net revenue
|
|
|
29,055
|
|
|
|
(73
|
)
|
|
|
(26
|
)
|
|
|
(98
|
)
|
|
|
22
|
|
|
|
(56
|
)
|
|
|
|
|
|
|
28,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
6,349
|
|
|
|
(5
|
)
|
|
|
(38
|
)
|
|
|
98
|
|
|
|
(22
|
)
|
|
|
56
|
|
|
|
|
|
|
|
6,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative
|
|
|
3,050
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
72
|
|
|
|
128
|
|
|
|
|
|
|
|
3,245
|
|
Research, development, and engineering
|
|
|
455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
3,505
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
72
|
|
|
|
128
|
|
|
|
|
|
|
|
3,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
2,844
|
|
|
|
(5
|
)
|
|
|
(33
|
)
|
|
|
98
|
|
|
|
(94
|
)
|
|
|
(72
|
)
|
|
|
|
|
|
|
2,738
|
|
Investment and other income, net
|
|
|
183
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
3,027
|
|
|
|
(5
|
)
|
|
|
(38
|
)
|
|
|
98
|
|
|
|
(94
|
)
|
|
|
(81
|
)
|
|
|
|
|
|
|
2,907
|
|
Income tax provision
|
|
|
905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29
|
)
|
|
|
876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
2,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,584
|
|
Diluted
|
|
|
2,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,644
|
|
|
|
|
(a)
|
|
Primarily includes adjustments in
the recognition of the benefit of certain vendor funding
arrangements, and adjustments to the lease accruals for certain
Dell facilities. See Note 2 of Notes to Consolidated
Financial Statements included in Part II
Item 8 Financial Statements and Supplementary
Data for additional details.
|
|
(b)
|
|
Other revenue recognition primarily
includes adjustments to the recognition of deferred warranty
revenue associated with the sale of extended warranties and
enhanced service level agreements. See Note 2 of Notes to
Consolidated Financial Statements included in
Part II Item 8 Financial
Statements and Supplementary Data for additional details.
|
|
(c)
|
|
Primarily represents the aggregate
tax impact of the adjustments.
|
33
Impact of
Restatement Adjustments on Fiscal 2003 Quarterly Financial
Data
The following table presents selected quarterly financial data
for Fiscal 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
|
May 3,
2002
|
|
August 2,
2002
|
|
|
As
|
|
|
|
As
|
|
As
|
|
|
|
As
|
Fiscal
2003
|
|
Reported
|
|
Adjustments
|
|
Restated
|
|
Reported
|
|
Adjustments
|
|
Restated
|
|
|
(in millions,
expect per share data)
|
|
Results of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
8,066
|
|
|
$
|
17
|
|
|
$
|
8,083
|
|
|
$
|
8,459
|
|
|
$
|
(49
|
)
|
|
$
|
8,410
|
|
Gross margin
|
|
$
|
1,391
|
|
|
$
|
(1
|
)
|
|
$
|
1,390
|
|
|
$
|
1,515
|
|
|
$
|
41
|
|
|
$
|
1,556
|
|
Operating income
|
|
$
|
590
|
|
|
$
|
(73
|
)
|
|
$
|
517
|
|
|
$
|
677
|
|
|
$
|
9
|
|
|
$
|
686
|
|
Income before income taxes
|
|
$
|
638
|
|
|
$
|
(77
|
)
|
|
$
|
561
|
|
|
$
|
726
|
|
|
$
|
|
|
|
$
|
726
|
|
Net income
|
|
$
|
457
|
|
|
$
|
(56
|
)
|
|
$
|
401
|
|
|
$
|
501
|
|
|
$
|
|
|
|
$
|
501
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.18
|
|
|
$
|
(0.03
|
)
|
|
$
|
0.15
|
|
|
$
|
0.19
|
|
|
$
|
|
|
|
$
|
0.19
|
|
Diluted
|
|
$
|
0.17
|
|
|
$
|
(0.02
|
)
|
|
$
|
0.15
|
|
|
$
|
0.19
|
|
|
$
|
|
|
|
$
|
0.19
|
|
Number of weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
2,595
|
|
|
|
|
|
|
|
2,595
|
|
|
|
2,586
|
|
|
|
|
|
|
|
2,586
|
|
Diluted
|
|
|
2,672
|
|
|
|
|
|
|
|
2,672
|
|
|
|
2,649
|
|
|
|
|
|
|
|
2,649
|
|
Cash Flow and Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities(d)
|
|
$
|
579
|
|
|
$
|
(1
|
)
|
|
$
|
578
|
|
|
$
|
868
|
|
|
$
|
130
|
|
|
$
|
998
|
|
Cash, cash equivalents and investments
|
|
$
|
8,194
|
|
|
$
|
1
|
|
|
$
|
8,195
|
|
|
$
|
8,633
|
|
|
$
|
1
|
|
|
$
|
8,634
|
|
Total assets
|
|
$
|
13,316
|
|
|
$
|
46
|
|
|
$
|
13,362
|
|
|
$
|
14,062
|
|
|
$
|
55
|
|
|
$
|
14,117
|
|
Short-term
borrowings(a)
|
|
$
|
|
|
|
$
|
162
|
|
|
$
|
162
|
|
|
$
|
|
|
|
$
|
161
|
|
|
$
|
161
|
|
Long-term
debt(b)
|
|
$
|
520
|
|
|
$
|
21
|
|
|
$
|
541
|
|
|
$
|
516
|
|
|
$
|
48
|
|
|
$
|
564
|
|
Total stockholders
equity(c)
|
|
$
|
4,521
|
|
|
$
|
5
|
|
|
$
|
4,526
|
|
|
$
|
4,566
|
|
|
$
|
10
|
|
|
$
|
4,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
|
November 1,
2002
|
|
January 31,
2003
|
|
|
As
|
|
|
|
As
|
|
As
|
|
|
|
As
|
Fiscal
2003
|
|
Reported
|
|
Adjustments
|
|
Restated
|
|
Reported
|
|
Adjustments
|
|
Restated
|
|
|
(in millions,
expect per share data)
|
|
Results of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
9,144
|
|
|
$
|
40
|
|
|
$
|
9,184
|
|
|
$
|
9,735
|
|
|
$
|
(150
|
)
|
|
$
|
9,585
|
|
Gross margin
|
|
$
|
1,662
|
|
|
$
|
60
|
|
|
$
|
1,722
|
|
|
$
|
1,781
|
|
|
$
|
(11
|
)
|
|
$
|
1,770
|
|
Operating income
|
|
$
|
758
|
|
|
$
|
(4
|
)
|
|
$
|
754
|
|
|
$
|
819
|
|
|
$
|
(38
|
)
|
|
$
|
781
|
|
Income before income taxes
|
|
$
|
802
|
|
|
$
|
(12
|
)
|
|
$
|
790
|
|
|
$
|
861
|
|
|
$
|
(31
|
)
|
|
$
|
830
|
|
Net income
|
|
$
|
561
|
|
|
$
|
(11
|
)
|
|
$
|
550
|
|
|
$
|
603
|
|
|
$
|
(24
|
)
|
|
$
|
579
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.22
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.21
|
|
|
$
|
0.23
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.22
|
|
Diluted
|
|
$
|
0.21
|
|
|
$
|
|
|
|
$
|
0.21
|
|
|
$
|
0.23
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.22
|
|
Number of weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
2,582
|
|
|
|
|
|
|
|
2,582
|
|
|
|
2,576
|
|
|
|
|
|
|
|
2,576
|
|
Diluted
|
|
|
2,634
|
|
|
|
|
|
|
|
2,634
|
|
|
|
2,621
|
|
|
|
|
|
|
|
2,621
|
|
Cash Flow and Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities(d)
|
|
$
|
954
|
|
|
$
|
126
|
|
|
$
|
1,080
|
|
|
$
|
1,137
|
|
|
$
|
115
|
|
|
$
|
1,252
|
|
Cash, cash equivalents and investments
|
|
$
|
9,059
|
|
|
$
|
1
|
|
|
$
|
9,060
|
|
|
$
|
9,905
|
|
|
$
|
5
|
|
|
$
|
9,910
|
|
Total assets
|
|
$
|
14,712
|
|
|
$
|
22
|
|
|
$
|
14,734
|
|
|
$
|
15,470
|
|
|
$
|
70
|
|
|
$
|
15,540
|
|
Short-term
borrowings(a)
|
|
$
|
|
|
|
$
|
101
|
|
|
$
|
101
|
|
|
$
|
|
|
|
$
|
129
|
|
|
$
|
129
|
|
Long-term
debt(b)
|
|
$
|
514
|
|
|
$
|
64
|
|
|
$
|
578
|
|
|
$
|
506
|
|
|
$
|
75
|
|
|
$
|
581
|
|
Total stockholders
equity(c)
|
|
$
|
4,648
|
|
|
$
|
3
|
|
|
$
|
4,651
|
|
|
$
|
4,873
|
|
|
$
|
(27
|
)
|
|
$
|
4,846
|
|
|
|
|
(a)
|
|
The restated amounts for short-term
borrowings reflect (1) a correction in classification from
accounts payable for vendor financing for the periods from the
end of Fiscal 2002 until termination in the first quarter of
Fiscal 2006, and (2) a correction in
|
34
|
|
|
|
|
classification from other current
liabilities for the short-term portion of outstanding advances
under the DFS Credit Facilities for the periods from the third
quarter of Fiscal 2004 through Fiscal 2007.
|
|
(b)
|
|
The restated amounts for long-term
debt reflect (1) adjustments to record changes in the fair
value of the debt where the interest rate is hedged with
interest rate swap agreements for all periods restated and
(2) a correction in classification from other current
liabilities of the long-term portion of outstanding advances
under the DFS Credit Facilities for the periods from the third
quarter of Fiscal 2004 through Fiscal 2007.
|
|
(c)
|
|
The adjustments relating to fiscal
years prior to Fiscal 2003 are reflected in beginning retained
earnings. The cumulative impact of these adjusting entries
increased beginning retained earnings by $59 million, net
of tax.
|
|
(d)
|
|
The cash flows have been revised to
reflect a closer approximation of the weighted-average exchange
rates during the reporting periods. For most periods, this
revision reduced the previously reported effect of exchange rate
changes on cash and cash equivalents with an offsetting change
in effects of exchange rate changes on monetary assets and
liabilities denominated in foreign currencies and changes in
operating working capital included in cash flows from operating
activities.
|
Fiscal 2003
Restatement Adjustments to Previously Reported Net
Income
The following table presents the impact of the restatement on
our previously reported net income for each quarter of Fiscal
2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Fiscal
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Year
|
|
|
|
May 3,
|
|
|
August 2,
|
|
|
November 1,
|
|
|
January 30,
|
|
|
January 30,
|
|
Fiscal 2003 (As
Restated)
|
|
2002
|
|
|
2002
|
|
|
2002
|
|
|
2003
|
|
|
2003
|
|
|
|
(in
millions)
|
|
|
Net income as reported
|
|
$
|
457
|
|
|
$
|
501
|
|
|
$
|
561
|
|
|
$
|
603
|
|
|
$
|
2,122
|
|
Revenue recognition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software sales
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(4
|
)
|
|
|
(5
|
)
|
Other revenue
recognition(a)
|
|
|
12
|
|
|
|
20
|
|
|
|
15
|
|
|
|
(85
|
)
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue recognition
|
|
|
13
|
|
|
|
19
|
|
|
|
14
|
|
|
|
(89
|
)
|
|
|
(43
|
)
|
Warranty liabilities
|
|
|
10
|
|
|
|
13
|
|
|
|
21
|
|
|
|
54
|
|
|
|
98
|
|
Restructuring reserves
|
|
|
(37
|
)
|
|
|
(12
|
)
|
|
|
(17
|
)
|
|
|
(28
|
)
|
|
|
(94
|
)
|
Other reserves and
accruals(b)
|
|
|
(63
|
)
|
|
|
(19
|
)
|
|
|
(30
|
)
|
|
|
31
|
|
|
|
(81
|
)
|
(Provision) benefit for income taxes
|
|
|
21
|
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
8
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impact of adjustments
|
|
|
(56
|
)
|
|
|
|
|
|
|
(11
|
)
|
|
|
(24
|
)
|
|
|
(91
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income as restated
|
|
$
|
401
|
|
|
$
|
501
|
|
|
$
|
550
|
|
|
$
|
579
|
|
|
$
|
2,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Other revenue recognition primarily
includes adjustments to the recognition of deferred warranty
revenue associated with the sale of extended warranties and
enhanced service level agreements. See Note 2 of Notes to
Consolidated Financial Statements included in
Part II Item 8 Financial
Statements and Supplementary Data for additional details.
|
|
(b)
|
|
Other reserves and accruals
primarily include adjustments in the recognition of the benefit
of certain vendor funding arrangements, and adjustments to the
lease accruals for certain Dell facilities. See Note 2 of
Notes to Consolidated Financial Statements included in
Part II Item 8 Financial
Statements and Supplementary Data for additional details.
|
35
|
|
ITEM 7
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
SPECIAL NOTE: This section,
Managements Discussion and Analysis of Financial
Condition and Results of Operations, contains
forward-looking statements that are based on our current
expectations. Actual results in future periods may differ
materially from those expressed or implied by those
forward-looking statements because of a number of risks and
uncertainties. For a discussion of risk factors affecting our
business and prospects, see Part I
Item 1A Risk
Factors.
AUDIT COMMITTEE
INDEPENDENT INVESTIGATION AND RESTATEMENT
Background
In August 2005, the Division of Enforcement of the United States
Securities and Exchange Commission (the SEC)
initiated an inquiry into certain of our accounting and
financial reporting matters and requested that we provide
certain documents. Over the course of several months, we
produced documents and provided information in response to the
SECs initial request and subsequent requests.
In June 2006, the SEC sent us an additional request for
documents and information that appeared to expand the scope of
the inquiry, with respect to both issues and periods. As
documents and information were collected in response to this
additional request, our management was made aware of information
that raised significant accounting and financial reporting
concerns, including whether accruals, reserves, and other
balance sheet items had been recorded and reported properly.
After evaluating this information and in consultation with
PricewaterhouseCoopers LLP, our independent registered public
accounting firm, management determined that the identified
issues warranted an independent investigation and recommended
such to the Audit Committee of our Board of Directors.
On August 16, 2006, the Audit Committee, acting on
managements recommendation, approved the initiation of an
independent investigation. The Audit Committee engaged Willkie
Farr & Gallagher LLP (Willkie Farr) to
lead the investigation as independent legal counsel to the Audit
Committee. Willkie Farr in turn engaged KPMG LLP
(KPMG) to serve as its independent forensic
accountants.
Scope of the
Investigation
The scope of the investigation was determined by Willkie Farr,
in consultation with the Audit Committee and KPMG. The
investigation involved a program of forensic analysis and
inquiry directed to aspects of our accounting and financial
reporting practices throughout the world, and evaluated aspects
of our historical accounting and financial reporting practices
since Fiscal 2002 and, with respect to certain issues, prior
fiscal years.
Willkie Farr and KPMG assembled an investigative team that
ultimately consisted of more than 375 professionals,
including more than 125 lawyers and 250 accountants.
Investigative teams were deployed in our three geographic
regions Americas (including our corporate
functions), EMEA, and APJ. Information and documents were
gathered from company personnel worldwide. Using proprietary
search software, the investigative team evaluated over five
million documents. Investigative counsel also conducted over 200
interviews of approximately 150 individuals, and the KPMG
accountants, in connection with their forensic work, conducted
numerous less formal discussions with various company employees.
In addition, using a proprietary software tool designed to
identify potentially questionable journal entries based on
selected criteria (for example, entries made late in the
quarterly close process, entries containing round dollar line
items between $3 million and $50 million, and
liability-to-liability transfers), KPMG selected and reviewed in
excess of 2,600 journal entries that were highlighted by
the tool or specifically identified by the forensic teams
investigating specific issues.
36
Summary of
Investigation Findings
The investigation raised questions relating to numerous
accounting issues, most of which involved adjustments to various
reserve and accrued liability accounts, and identified evidence
that certain adjustments appear to have been motivated by the
objective of attaining financial targets. According to the
investigation, these activities typically occurred in the days
immediately following the end of a quarter, when the accounting
books were being closed and the results of the quarter were
being compiled. The investigation found evidence that, in that
timeframe, account balances were reviewed, sometimes at the
request or with the knowledge of senior executives, with the
goal of seeking adjustments so that quarterly performance
objectives could be met. The investigation concluded that a
number of these adjustments were improper, including the
creation and release of accruals and reserves that appear to
have been made for the purpose of enhancing internal performance
measures or reported results, as well as the transfer of excess
accruals from one liability account to another and the use of
the excess balances to offset unrelated expenses in later
periods. The investigation found that sometimes business unit
personnel did not provide complete information to corporate
headquarters and, in a number of instances, purposefully
incorrect or incomplete information about these activities was
provided to internal or external auditors.
The investigation identified evidence that accounting
adjustments were viewed at times as an acceptable device to
compensate for earnings shortfalls that could not be closed
through operational means. Often, these adjustments were several
hundred thousand or several million dollars, in the context of a
company with annual revenues ranging from $35.3 billion to
$55.8 billion and annual net income ranging from
$2.0 billion to $3.6 billion for the periods in
question. The errors and irregularities identified in the course
of the investigation revealed deficiencies in our accounting and
financial control environment, some of which were determined to
be material weaknesses, that require corrective and remedial
actions. For a description of the control deficiencies
identified by management as a result of the investigation and
our internal reviews described below, as well as
managements plan to remediate those deficiencies, see
Part II Item 9A Controls
and Procedures.
Other Company
Identified Adjustments
Concurrently with the investigation, we also conducted extensive
internal reviews for the purpose of the preparation and
certification of our Fiscal 2007 and prior financial statements
and our assessment of internal controls over financial
reporting. Our procedures included expanded account reviews and
expanded balance sheet reconciliations to ensure all accounts
were fully reconciled, supported, and appropriately documented.
We also implemented improvements to our quarterly and annual
accounting close process to provide for more complete review of
the various business unit financial results. These additional
reviews identified issues involving, among other things, revenue
recognition in connection with sales of third party software,
amortization of revenue related to after-point-of-sale extended
warranties, and accounting for certain vendor reimbursement
agreements.
Restatement
As a result of issues identified in the Audit Committee
investigation, as well as issues identified in the additional
reviews and procedures conducted by management, the Audit
Committee, in consultation with management and
PricewaterhouseCoopers LLP, our independent registered public
accounting firm, concluded on August 13, 2007 that our
previously issued financial statements for Fiscal 2003, 2004,
2005, and 2006 (including the interim periods within those
years), and the first quarter of Fiscal 2007, should no longer
be relied upon because of certain accounting errors and
irregularities in those financial statements. Accordingly, we
have restated our previously issued financial statements for
those periods. See Note 2 of Notes to Consolidated
Financial Statements included in Part II
Item 8 Financial Statements and Supplementary
Data.
37
Overview
Our
Company
As a leading technology company, we offer a broad range of
product categories, including desktop computer systems, mobility
products, servers, storage, software and peripherals, and
services. We are the number one supplier of desktop and notebook
systems in the United States, and the number two supplier
worldwide. Our past performance has been the result of a
persistent focus on delivering directly to our customers
relevant technology and services at the best value.
Our business strategy is evolving. Historically we utilized our
direct customer model and highly efficient manufacturing and
logistics to lower the cost of technology for our customers. We
are now simplifying information technology for our customers
from point of sale to the usability of our products to the
service solutions we sell. Using this strategy, we strive to
provide the best possible customer experience by offering
superior value; high-quality; relevant technology; customized
systems; superior service and support; and differentiated
products and services that are easy to buy and use. We also
offer various financing alternatives, asset management services,
and other customer financial services for business and consumer
customers. To reach even more customers globally we have
launched new distribution channels to reach commercial customers
and individual consumers around the world.
Although the focus of our business strategy is selling directly
to customers, we also utilize indirect sales channels when there
is a business need. During Fiscal 2008, we began offering Dell
Dimensiontm
desktop computers and
Inspirontm
notebook computers in retail stores in the Americas and
announced partnerships with retailers in the U.K., Japan, and
China. These actions represent one of the first steps in our
retail strategy, which will allow us to extend our model and
reach customers that we have not been able to reach directly.
We manufacture most of the products we sell and have
manufacturing locations worldwide to service our global customer
base. Our build-to-order manufacturing process is designed to
allow us to significantly reduce cost while simultaneously
providing customers the ability to customize their product
purchases. We also have relationships with third-party original
equipment manufacturers that build some of our products (such as
printers and projectors) to our specifications, and we are
exploring the expanded use of original design manufacturing
partnerships and manufacturing outsourcing relationships in
order to deliver products faster and better serve our customers
in certain markets.
Current Business
Environment
We participate in a highly competitive industry that is subject
to aggressive pricing and strong competitive pressures; however,
we believe that our growth potential remains strong. In the
U.S., rising energy prices, weakening real estate markets, and
inflationary pressures may lead to slower economic growth, which
may affect IT and consumer spending during the fourth quarter of
Fiscal 2008. A slow down in the U.S. economy could
adversely impact other regional markets. Economic conditions in
our international markets, which are key to our expansion goals,
are highlighted by growing economies in Central and Eastern
Europe, expansion in Asia Pacific-Japan (APJ), and
continued development in Latin America. Overall, expected
industry growth is in line with prior year growth.
38
Fiscal 2007
Performance
|
|
|
|
|
Share position
|
|
|
|
According to IDC, we shipped an industry record of
39.1 million units for calendar year 2006, resulting in a
worldwide PC share position of 17.1%. However, we lost share in
the U.S. Consumer segment, which slowed our overall growth in
unit shipments, revenue, and profitability. This was mainly due
to intense competitive pressure, particularly in the lower
priced desktops and notebooks where competitors offered
aggressively priced products with better product recognition and
more relevant feature sets.
|
Net revenue
|
|
|
|
Fiscal 2007 revenue increased 3% year-over-year to
$57.4 billion, with unit shipments up 2% year-over-year, as
compared to Fiscal 2006 revenue which increased 14%
year-over-year to $55.8 billion on unit growth of 19% over
Fiscal 2005 revenue of $49.1 billion.
|
Operating income
|
|
|
|
Operating income was $3.1 billion for Fiscal 2007, or 5.4%
of revenue, compared to $4.4 billion or 7.9% of revenue in
Fiscal 2006 and $4.2 billion or 8.6% of revenue in Fiscal
2005.
|
Net income
|
|
|
|
Net income was $2.6 billion for Fiscal 2007, or 4.5% of
revenue, compared to $3.6 billion or 6.5% of revenue in
Fiscal 2006 and $3.0 billion or 6.1% of revenue in Fiscal
2005.
|
Earnings per share
|
|
|
|
Earnings per share decreased 23% to $1.14 for Fiscal 2007,
compared to $1.47 for Fiscal 2006 and $1.18 for Fiscal 2005.
|
Results of
Operations
The following table summarizes our consolidated results of
operations for each of the past three fiscal years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
Ended
|
|
|
|
February 2,
2007(a)
|
|
|
February 3,
2006(b)
|
|
|
January 28,
2005(c)
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
Dollars
|
|
|
Revenue
|
|
|
Dollars
|
|
|
Revenue
|
|
|
Dollars
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
As
|
|
|
As
|
|
|
As
|
|
|
As
|
|
|
|
|
|
|
|
|
|
Restated
|
|
|
Restated
|
|
|
Restated
|
|
|
Restated
|
|
|
|
(in millions,
except per share amounts and percentages)
|
|
|
Net revenue
|
|
$
|
57,420
|
|
|
|
100.0
|
%
|
|
$
|
55,788
|
|
|
|
100.0
|
%
|
|
$
|
49,121
|
|
|
|
100.0
|
%
|
Gross margin
|
|
$
|
9,516
|
|
|
|
16.6
|
%
|
|
$
|
9,891
|
|
|
|
17.7
|
%
|
|
$
|
9,018
|
|
|
|
18.4
|
%
|
Operating expenses
|
|
$
|
6,446
|
|
|
|
11.2
|
%
|
|
$
|
5,509
|
|
|
|
9.8
|
%
|
|
$
|
4,812
|
|
|
|
9.8
|
%
|
Operating income
|
|
$
|
3,070
|
|
|
|
5.4
|
%
|
|
$
|
4,382
|
|
|
|
7.9
|
%
|
|
$
|
4,206
|
|
|
|
8.6
|
%
|
Income tax provision
|
|
$
|
762
|
|
|
|
1.3
|
%
|
|
$
|
1,006
|
|
|
|
1.8
|
%
|
|
$
|
1,385
|
|
|
|
2.8
|
%
|
Net income
|
|
$
|
2,583
|
|
|
|
4.5
|
%
|
|
$
|
3,602
|
|
|
|
6.5
|
%
|
|
$
|
3,018
|
|
|
|
6.1
|
%
|
Earnings per share diluted
|
|
$
|
1.14
|
|
|
|
N/A
|
|
|
$
|
1.47
|
|
|
|
N/A
|
|
|
$
|
1.18
|
|
|
|
N/A
|
|
|
|
|
(a)
|
|
Results for Fiscal 2007 include
stock-based compensation expense of $368 million, or
$258 million ($0.11 per share) net of tax, due to the
implementation of Statement of Financial Accounting Standards
No. 123 (revised 2004), Share-Based Payment,
(SFAS 123(R)). We implemented
SFAS 123(R) using the modified prospective method effective
February 4, 2006. For additional information, see
Note 6 of Notes to Consolidated Financial Statements
included in Part II
Item 8 Financial Statements and Supplementary
Data.
|
|
(b)
|
|
Results for Fiscal 2006 include
charges aggregating $421 million ($338 million of
other product charges and $83 million in selling, general,
and administrative expenses) related to the cost of servicing or
replacing certain
OptiPlextm
systems that include a vendor part that failed to perform to our
specifications, workforce realignment, product rationalizations,
excess facilities, and a write-off of goodwill recognized in the
third quarter. The related tax effect of these items was
$96 million. Fiscal 2006 also includes an $85 million
income tax benefit related to a revised estimate of taxes on the
repatriation of earnings under the American Jobs Creation Act of
2004 recognized in the second quarter.
|
|
(c)
|
|
Results for Fiscal 2005 include an
income tax charge of $280 million related to the
repatriation of earnings under the American Jobs Creation Act of
2004 recorded in the fourth quarter.
|
39
Consolidated
Operations
Fiscal 2007 revenue increased 3% year-over-year to
$57.4 billion, with unit shipments up 2% year-over-year.
Revenue grew across the EMEA and APJ regions by 6% and 12%,
respectively, while the Americas region revenue remained flat
year-over-year. Revenue outside the U.S. represented
approximately 44% of Fiscal 2007 consolidated revenue, compared
to approximately 41% in the prior year. Outside the U.S., we
produced 10% year-over-year revenue growth for Fiscal 2007.
During Fiscal 2007, Americas Business revenue grew by 3% and
U.S. Consumer revenue declined by 11%. All product
categories grew revenue over the prior year periods, other than
desktop PCs. Desktop PC revenue in the Americas and EMEA regions
declined 12% and 6% year-over-year, respectively. This decline
in desktop PC revenue reflects an industry-wide shift to
mobility products. During Fiscal 2006, revenue increased 14%
year-over-year to $55.8 billion, with unit shipments up 19%
year-over-year. This included an extra week of operations that
contributed almost one percentage point of added revenue growth.
Revenue outside the U.S. represented 41% of Fiscal 2006
consolidated revenue compared to 38% in the prior year. Outside
the U.S., we produced 21% year-over-year revenue growth for
Fiscal 2006.
Operating and net income for Fiscal 2007, Fiscal 2006, and
Fiscal 2005 were $3.1 billion and $2.6 billion,
$4.4 billion and $3.6 billion, $4.2 billion and
$3.0 billion, respectively. Net income for Fiscal 2006 and
Fiscal 2005 includes an income tax repatriation benefit of
$85 million and a charge of $280 million,
respectively, pursuant to a favorable tax incentive provided by
the American Jobs Creation Act of 2004. This tax benefit and
charge is related to the Fiscal 2006 repatriation of
$4.1 billion in foreign earnings.
Our average selling price in Fiscal 2007 increased 1%
year-over-year, which primarily resulted from our pricing
strategy, compared to a 4% year-over-year decrease for Fiscal
2006. In Fiscal 2007 we continued to see intensive competitive
pressure, particularly for lower priced desktops and notebooks,
as competitors offered aggressively priced products with better
product recognition and more relevant feature sets. As a result,
particularly in the U.S., we lost share in the consumer segment
in notebooks and desktops, which slowed our overall growth in
unit shipments, revenue, and profitability. We currently expect
that our pricing environment will likely continue for the
foreseeable future.
Revenues by
Segment
We conduct operations worldwide and manage our business in three
geographic regions: the Americas, EMEA, and APJ. The Americas
region covers the U.S., Canada, and Latin America. Within the
Americas, we are further segmented into Business and
U.S. Consumer. The Business segment includes sales to
corporate, government, healthcare, education, and small and
medium business customers within the Americas region, while the
U.S. Consumer segment primarily includes sales to
individual consumers within the U.S. The EMEA region covers
Europe, the Middle East, and Africa. The APJ region covers the
Asian countries of the Pacific Rim as well as Australia, New
Zealand, and India.
40
The following table summarizes our revenue by reportable segment
for each of the past three fiscal years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
Ended
|
|
|
|
February 2,
2007
|
|
|
February 3,
2006
|
|
|
January 28,
2005
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
Dollars
|
|
|
Revenue
|
|
|
Dollars
|
|
|
Revenue
|
|
|
Dollars
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
As
|
|
|
As
|
|
|
As
|
|
|
As
|
|
|
|
|
|
|
|
|
|
Restated
|
|
|
Restated
|
|
|
Restated
|
|
|
Restated
|
|
|
|
(in millions,
except percentages)
|
|
|
Net revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
$
|
29,311
|
|
|
|
51.1
|
%
|
|
$
|
28,365
|
|
|
|
50.8
|
%
|
|
$
|
25,289
|
|
|
|
51.5
|
%
|
U.S. Consumer
|
|
|
7,069
|
|
|
|
12.3
|
%
|
|
|
7,960
|
|
|
|
14.3
|
%
|
|
|
7,614
|
|
|
|
15.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
36,380
|
|
|
|
63.4
|
%
|
|
|
36,325
|
|
|
|
65.1
|
%
|
|
|
32,903
|
|
|
|
67.0
|
%
|
EMEA
|
|
|
13,682
|
|
|
|
23.8
|
%
|
|
|
12,887
|
|
|
|
23.1
|
%
|
|
|
10,753
|
|
|
|
21.9
|
%
|
APJ
|
|
|
7,358
|
|
|
|
12.8
|
%
|
|
|
6,576
|
|
|
|
11.8
|
%
|
|
|
5,465
|
|
|
|
11.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
57,420
|
|
|
|
100.0
|
%
|
|
$
|
55,788
|
|
|
|
100.0
|
%
|
|
$
|
49,121
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas Americas revenues remained
flat year-over-year as units decreased 4% in Fiscal 2007,
compared to revenue and unit growth of 10% and 13%,
respectively, in Fiscal 2006. Americas Business represented the
majority of our absolute dollar revenue growth in both Fiscal
2007 and Fiscal 2006. This was offset by a decline in the
U.S. Consumer business during Fiscal 2007 and slowed growth
during Fiscal 2006. Revenue from the sale of mobility products
led the segments growth in both Fiscal 2007 and Fiscal
2006, and grew by single digits in both Americas Business and
U.S. Consumer in Fiscal 2007. However, this growth was
offset by the continuing trend of declines in desktop PC sales
as wireless capabilities, falling prices, and a growing need for
mobility have increased demand for notebooks.
|
|
|
|
|
-
|
Business Americas Business grew
revenue by 3% on flat unit growth in Fiscal 2007, compared to
12% revenue growth on 15% unit growth in Fiscal 2006. The slow
down of revenue growth was due to desktop weakness. Americas
International, which includes countries in North America and
Latin America other than the U.S., drove the majority of the
increase in revenue in the Americas; however, this growth was
offset by overall weakness in demand for U.S. Business,
with our Public business contributing to declines
year-over-year. Americas International produced revenue growth
of 19% year-over-year for Fiscal 2007 as compared to 30% revenue
growth year-over-year in Fiscal 2006.
|
|
|
-
|
U.S. Consumer U.S. Consumer
revenue and unit volume decreased 11% and 14% in Fiscal 2007,
respectively, compared to revenue growth of 5% on unit growth of
9% in Fiscal 2006. U.S. Consumer revenue growth slowed as
compared to Fiscal 2006 primarily due to a 25% decline in both
desktop revenue and unit volume. This segments average
selling price in Fiscal 2007 increased 3% year-over-year, which
principally resulted from our pricing strategy, compared to a 4%
year-over-year decline from a year ago. We continue to see a
shift to mobility products in U.S. Consumer and our other
segments as notebooks become more affordable. Our
U.S. Consumer business continues to face a competitive
pricing environment. Consequently, we experienced growth
significantly slower than the U.S. sales growth. Revenue
from the sale of mobility products increased 1% in Fiscal 2007
on unit growth of 3%, as compared to 27% revenue growth on 55%
unit growth in Fiscal 2006. This environment has led the
U.S. Consumer business to update its business model and
enter into a limited number of retail distribution arrangements
to complement and extend the existing direct business.
|
|
|
|
EMEA EMEA produced positive results
with 6% revenue growth on 7% unit growth in Fiscal 2007,
compared to 20% revenue growth on 28% unit growth in Fiscal
2006. In Fiscal 2007, the segments performance was largely
attributed to mobility products, where year-over-year unit
volumes and revenue grew 29% and 15%, respectively, compared to
49% and 23% in Fiscal 2006, respectively. This sustained growth
occurred primarily in France and Germany in Fiscal 2007, with
Germany leading the regions progress. United Kingdom
experienced weak demand in the consumer business, resulting in a
2% year-over-year decline in revenue for Fiscal 2007, as
compared to year-over-year growth of 12% in Fiscal
|
41
|
|
|
2006. With the exception of desktop PCs, all product categories
in this region experienced growth for Fiscal 2007 with mobility,
storage, and enhanced services revenues posting strong gains.
This continues the general trend from Fiscal 2006 where
EMEAs revenue growth was strongest in mobility, enhanced
services, and software and peripherals.
|
|
|
|
Asia Pacific-Japan APJ continued
to build a substantial presence, with 12% revenue growth on 20%
unit growth in Fiscal 2007 and 20% revenue growth on 30% unit
growth in Fiscal 2006. The region was led by 26% year-over-year
revenue growth in China during Fiscal 2007 and a 13% revenue
growth in Japan during Fiscal 2006. Fiscal 2007s improved
performance was partially offset by Japans results, which
saw revenue decline 5% year-over-year. In Fiscal 2007, India,
South Korea, Singapore, and Malaysia produced significant
year-over-year revenue growth at a higher rate than the overall
region. All product categories in this region experienced
revenue growth during Fiscal 2007 and Fiscal 2006. Mobility
revenue grew 12% on unit growth of 31% during Fiscal 2007
compared to 24% revenue growth on 48% unit growth during Fiscal
2006. Also driving this growth were increases in enhanced
services, software and peripherals, and storage, which
approximates the growth trends from Fiscal 2006.
|
For additional information regarding our reportable segments,
see Note 10 of Notes to Consolidated Financial Statements
included in Part II
Item 8 Financial Statements and Supplementary
Data.
Revenue by
Product and Service Categories
We design, develop, manufacture, market, sell, and support a
wide range of products that in many cases are customized to
individual customer requirements. Our product categories include
desktop computer systems, mobility products, software and
peripherals, servers and networking products, and storage
products. In addition, we offer a range of enhanced services.
In the fourth quarter of Fiscal 2007, we performed an analysis
of our enhanced services revenue and determined that certain
items previously classified as enhanced services revenue were
more appropriately categorized within product revenue. Fiscal
2007 balances reflect the revised revenue classifications, and
prior periods have been revised to conform to the current period
classification. The change in classification of prior period
amounts resulted in an increase of $395 million and
$340 million to desktop PCs, $225 million and
$171 million to mobility, $10 million and
$16 million to software and peripherals, $16 million
and $16 million to servers and networking, and
$6 million and $4 million to storage in Fiscal 2006
and 2005, respectively. This change in classification was offset
by a decrease in enhanced services of $652 million and
$547 million in Fiscal 2006 and 2005, respectively.
The following table summarizes our net revenue by product
category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
Ended
|
|
|
|
February 2,
2007
|
|
|
February 3,
2006
|
|
|
January 28,
2005
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
Dollars
|
|
|
Revenue
|
|
|
Dollars
|
|
|
Revenue
|
|
|
Dollars
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
As
|
|
|
As
|
|
|
As
|
|
|
As
|
|
|
|
|
|
|
|
|
|
Restated
|
|
|
Restated
|
|
|
Restated
|
|
|
Restated
|
|
|
|
(in millions,
except percentage)
|
|
|
Net revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Desktop PCs
|
|
$
|
19,815
|
|
|
|
34
|
%
|
|
$
|
21,568
|
|
|
|
39
|
%
|
|
$
|
21,141
|
|
|
|
43
|
%
|
Mobility
|
|
|
15,480
|
|
|
|
27
|
%
|
|
|
14,372
|
|
|
|
25
|
%
|
|
|
12,001
|
|
|
|
25
|
%
|
Software and peripherals
|
|
|
9,001
|
|
|
|
16
|
%
|
|
|
8,329
|
|
|
|
15
|
%
|
|
|
6,626
|
|
|
|
13
|
%
|
Servers and networking
|
|
|
5,805
|
|
|
|
10
|
%
|
|
|
5,449
|
|
|
|
10
|
%
|
|
|
4,880
|
|
|
|
10
|
%
|
Enhanced services
|
|
|
5,063
|
|
|
|
9
|
%
|
|
|
4,207
|
|
|
|
8
|
%
|
|
|
3,121
|
|
|
|
6
|
%
|
Storage
|
|
|
2,256
|
|
|
|
4
|
%
|
|
|
1,863
|
|
|
|
3
|
%
|
|
|
1,352
|
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
57,420
|
|
|
|
100
|
%
|
|
$
|
55,788
|
|
|
|
100
|
%
|
|
$
|
49,121
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Desktop PCs In Fiscal 2007, revenue
from desktop PCs (which includes desktop computer systems and
workstations) decreased 8% year-over-year on unit decline of 5%,
compared to a 2% revenue increase on unit growth of 10%
year-over-year in Fiscal 2006. Desktop PCs in the Americas
declined
|
42
|
|
|
year-over-year during both Fiscal 2007 and Fiscal 2006 which was
offset by single-digit growth in the APJ region during the same
period. Desktop PCs, as compared to mobility products, led
Fiscal 2007 in volume; however, business and consumer demand
continues to shift toward mobility products. Desktop PC average
selling price decreased 3% from Fiscal 2006 to Fiscal 2007 and
decreased 7% from Fiscal 2005 to Fiscal 2006. In Fiscal 2007, we
launched Quad-core processors on our XPS 710 Extreme desktop as
well as on Dell
Precisiontm
workstations. In addition, we introduced our 64-bit dual core
Dimensiontm
and
Optiplextm
systems featuring AMD processors. In Fiscal 2008, we introduced
Vostrotm
desktops specifically designed to meet the needs of small
business customers. We will likely see rising user demand for
mobility products in the foreseeable future that will contribute
to a slowing demand for desktop PCs.
|
|
|
|
Mobility In Fiscal 2007, revenue from
mobility products (which includes notebook computers, mobile
workstations, and Dell-branded MP3 players) grew by 8%
year-over-year, on unit growth of 18%, compared to a 20% revenue
increase on unit growth of 43% year-over-year in Fiscal 2006.
The impact of this declining growth was particularly acute in
the U.S. and led to a loss of share as compared to the same
period last year. The slow growth resulted from both our product
feature set and related value offering, particularly in the
consumer business, as well as our inability to reach certain
customer sets. Our EMEA region led the growth in our mobility
product category with 15% and 23% increases in Fiscal 2007 and
Fiscal 2006, respectively. During the year, we introduced Dell
Latitudetm
and Dell
Inspirontm
notebooks featuring AMD processors and in Fiscal 2008, we
introduced
Vostrotm
notebooks, specifically designed to meet the needs of small
business customers. As notebooks become more affordable and
wireless products become standardized, demand for our mobility
products continues to be strong, producing robust year-over-year
revenue and unit growth. We are likely to see sustained growth
in our mobility products in the foreseeable future due to the
continued industry-wide migration from desktop PCs to mobility
products.
|
|
|
Software and Peripherals In Fiscal
2007 revenue from software and peripherals
(S&P) (which includes Dell-branded printers,
monitors not sold with systems, plasma and LCD televisions,
projectors, and a multitude of competitively priced third-party
printers, televisions, software, digital cameras, and other
products) increased 8% year-over-year, compared to a 26%
increase in Fiscal 2006. The overall improvement in Fiscal 2007
S&P revenue was led by the APJ region with growth of 38%
while U.S. consumer sales declined 8%. This increase was
primarily attributable to a 12% year-over-year increase in
software revenue that was offset by declines in our imaging
product revenue. We experienced strong performance in Fiscal
2006 where software, imaging, and other hardware accessories
produced double-digit growth.
|
|
|
Servers and Networking In Fiscal 2007,
servers and networking revenue grew 7% on unit growth of 6%
year-over-year, compared to a 12% revenue increase in Fiscal
2006 on 20% unit growth year-over-year. Servers and networking
remains a strategic focus area. We competitively price our
server products to facilitate additional sales of storage
products and higher margin enhanced services. During the year we
introduced our new ninth generation (9G) PowerEdge servers with
Intels latest Xeon 5100 series processors, and we began
shipping two new PowerEdge servers featuring AMD
Opterontm
processors, providing our customers with an additional choice
for high-performance two-socket and four-socket systems. We also
launched the industrys first standards-based Quad-Core
processors for two-socket blade, rack, and tower servers. These
additions contributed to the 6% year-over-year revenue increase
in Fiscal 2007 in the Americas Business segment and in Fiscal
2006 we experienced close to 30% unit growth in our APJ region.
We now provide the broadest selection of industry-standard
servers in our history.
|
|
|
Enhanced Services In Fiscal 2007,
revenue from enhanced services (which includes the sale and
servicing of our extended product warranties) increased 20%
year-over-year compared to a 35% increase in Fiscal 2006. As a
result of expanding our services offerings and capabilities
globally, we experienced a 26% and 58% year-over-year growth in
revenues outside the Americas during Fiscal 2007 and Fiscal
2006, respectively. This growth increased our deferred revenue
by $514 million in Fiscal 2007, a 14% increase, and
$803 million in Fiscal 2006, a 27% increase, to
approximately $4.2 billion and
|
43
|
|
|
$3.7 billion, respectively. We introduced our new Platinum
Plus offering during Fiscal 2007, which contributed to an
increase in our premium service contracts.
|
|
|
|
Storage In Fiscal 2007, storage
revenue sustained double-digit growth with a 21% year-over-year
increase as compared to a 38% year-over-year increase in Fiscal
2006. The Americas led the revenue growth in Fiscal 2007 and
Fiscal 2006 with year-over-year increases of 21% and 40%,
respectively. In Fiscal 2008, we expect to continue to expand
both our PowerVault and Dell | EMC solutions that
will utilize new technologies intended to drive both additional
increases in performance and customer value. In Fiscal 2007, we
also announced a five-year extension to our partnership with
EMC. These portfolio enhancements continue to deliver lower cost
solutions for our customers.
|
Gross
Margin
The following table presents information regarding our gross
margin during each of the past three fiscal years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
Ended
|
|
|
|
February 2,
2007
|
|
|
February 3,
2006
|
|
|
January 28,
2005
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
Dollars
|
|
|
Revenue
|
|
|
Dollars
|
|
|
Revenue
|
|
|
Dollars
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
As
|
|
|
As
|
|
|
As
|
|
|
As
|
|
|
|
|
|
|
|
|
|
Restated
|
|
|
Restated
|
|
|
Restated
|
|
|
Restated
|
|
|
|
(in millions,
except percentages)
|
|
|
Net revenue
|
|
$
|
57,420
|
|
|
|
100.0
|
%
|
|
$
|
55,788
|
|
|
|
100.0
|
%
|
|
$
|
49,121
|
|
|
|
100.0
|
%
|
Gross margin
|
|
$
|
9,516
|
|
|
|
16.6
|
%
|
|
$
|
9,891
|
|
|
|
17.7
|
%
|
|
$
|
9,018
|
|
|
|
18.4
|
%
|
In Fiscal 2007, our gross margin declined as compared to Fiscal
2006, while revenue increased year-over-year. Throughout Fiscal
2007 industry-wide competition put pressure on average selling
prices while our pricing and product strategy evolved. In Fiscal
2007, we added a second source of micro processors (chip
sets) ending a long-standing practice of sourcing from
only one manufacturer. We believe that moving to more than one
supplier of chip sets is beneficial for customers long term, as
it adds choice and ensures access to the most current
technologies. We now sell the chip sets from a second source
across all of our hardware product categories. During the
transition from sole to dual sourcing of chip sets, gross and
operating income margins were negatively impacted as we
re-balanced our product and category mix. In addition, commodity
price declines stalled during Fiscal 2007. We continuously
negotiate with our suppliers in a variety of areas including
availability of supply, quality, and cost. These real-time,
continuous supplier negotiations support our business model,
which is able to respond quickly to changing market conditions
due to our direct customer model and real-time manufacturing.
Our component costs reflect both ongoing supplier discount
arrangements as well as shorter-term incremental discounts and
rebates based on such factors as volume, product offerings and
transitions, supply conditions, and joint activities. Because of
the fluid nature of these ongoing negotiations, the timing and
amount of supplier discounts and rebates vary from time to time.
Gross margin as a percent of revenue improved in the second half
of the year, with the fourth quarter of Fiscal 2007 ending at
17.1%. In Fiscal 2006, our gross margin declined as a percentage
of revenue while gross margin increased in absolute dollars as
compared to Fiscal 2005. Our year-over-year decline was
primarily due to a product charge of $338 million for
estimated warranty costs of servicing or replacing certain
OptiPlextm
systems that included a vendor part that failed to perform to
our specifications, as well as additional charges for product
rationalizations and workforce realignment recognized in the
third quarter of Fiscal 2006. These charges were offset by
favorable pricing on certain commodity components, higher
revenue to leverage fixed production costs, and a favorable
shift in product mix as compared to the prior year periods.
44
Operating
Expenses
The following table presents information regarding our operating
expenses during each of the past three fiscal years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
Ended
|
|
|
|
February 2,
2007
|
|
|
February 3,
2006
|
|
|
January 28,
2005
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
Dollars
|
|
|
Revenue
|
|
|
Dollars
|
|
|
Revenue
|
|
|
Dollars
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
As
|
|
|
As
|
|
|
As
|
|
|
As
|
|
|
|
|
|
|
|
|
|
Restated
|
|
|
Restated
|
|
|
Restated
|
|
|
Restated
|
|
|
|
(in millions,
except percentages)
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative
|
|
$
|
5,948
|
|
|
|
10.3
|
%
|
|
$
|
5,051
|
|
|
|
9.0
|
%
|
|
$
|
4,352
|
|
|
|
8.9
|
%
|
Research, development, and engineering
|
|
|
498
|
|
|
|
0.9
|
%
|
|
|
458
|
|
|
|
0.8
|
%
|
|
|
460
|
|
|
|
0.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
$
|
6,446
|
|
|
|
11.2
|
%
|
|
$
|
5,509
|
|
|
|
9.8
|
%
|
|
$
|
4,812
|
|
|
|
9.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General, and
Administrative During Fiscal 2007,
selling, general, and administrative expenses increased 18% to
$5.9 billion, compared to $5.1 billion for Fiscal
2006. The increase in Fiscal 2007 as compared to Fiscal 2006 was
primarily attributed to increased compensation costs and outside
consulting services. This increase was largely due to increased
stock-based compensation expense due to the adoption of
SFAS 123(R) ($272 million), and costs related to the
Audit Committee investigation and related restatement
($100 million). In addition, during Fiscal 2007, we made
incremental customer experience investments of $150 million
to improve customer satisfaction, repurchase preferences, as
well as technical support. As a result, we increased our
headcount through direct hiring and replacing of temporary staff
with regular employees. During Fiscal 2006, selling, general,
and administrative expenses as a percentage of revenue increased
compared to Fiscal 2005. The increase over Fiscal 2005 primarily
related to increased advertising costs, headcount growth, as
well as charges of $83 million related to workforce
realignment costs ($50 million), costs of operating leases
on office space no longer utilized ($4 million) and a
write-off of goodwill ($29 million).
|
|
|
Research, Development, and
Engineering During Fiscal 2007,
research, development, and engineering expenses increased
slightly in absolute dollars, but remained consistent with
Fiscal 2006 and 2005 as percentage of net revenue. We continue
to fund research, development, and engineering activities to
meet the demand for swift product cycles. As a result, Fiscal
2007 research, development, and engineering expenses increased
in absolute dollars due to increased staffing levels, product
development costs, and stock-based compensation expense
resulting from the adoption of SFAS 123(R). Fiscal 2006 as
compared to Fiscal 2005 experienced a slight decrease in the
percentage of net revenue primarily attributed to our revenue
growth. We manage our research, development, and engineering
spending by targeting those innovations and products most
valuable to our customers, and by relying upon the capabilities
of our strategic partners. We will continue to invest in
research, development, and engineering activities to support our
growth and to provide for new, competitive products. We obtained
1,759 worldwide patents and have applied for 1,824 additional
worldwide patents at February 2, 2007.
|
On May 31, 2007, we announced that we had initiated a
comprehensive review of costs across all processes and
organizations with the goal to simplify structure, eliminate
redundancies, and better align operating expenses with the
current business environment and strategic growth opportunities.
As part of this overall effort, we expect to reduce headcount
and infrastructure costs over the next 12 months. Our
management teams are presently finalizing transformation plans
which include headcount and infrastructure cost reduction goals.
This headcount reduction is expected to impact both cost of
goods sold and operating expenses worldwide.
45
Stock-Based
Compensation
We have four stock-based compensation plans, in addition to an
employee stock purchase plan, with outstanding stock or stock
options. We currently use the 2002 Long-Term Incentive Plan for
stock-based incentive awards. These awards can be in the form of
stock options, stock appreciation rights, stock bonuses,
restricted stock, restricted stock units, performance units, or
performance shares.
Stock-based compensation expense totaled $368 million for
Fiscal 2007, compared to $17 million and $18 million
for Fiscal 2006 and Fiscal 2005, respectively. The increase is
due to the implementation of SFAS 123(R). We adopted
SFAS 123(R) using the modified prospective transition
method under SFAS 123(R) effective the first quarter of
Fiscal 2007. Included in stock-based compensation for Fiscal
2007 is the fair value of stock-based awards earned during the
year, including restricted stock, restricted stock units, and
stock options, as well as the discount associated with stock
purchased under our employee stock purchase plan. Prior to the
adoption of SFAS 123(R), we accounted for our equity
incentive plans under the intrinsic value recognition and
measurement principles of Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees,
(APB 25) and its related interpretations.
Accordingly, stock-based compensation for the fair value of
employee stock options with no intrinsic value at the grant date
and the discount associated with the stock purchase under our
employee stock purchase plan was not recognized in net income
prior to Fiscal 2007. For further discussion on stock-based
compensation, see Note 6 of Notes to Consolidated Financial
Statement included in Part II
Item 8 Financial Statements and Supplementary
Data.
At February 2, 2007 there was $139 million and
$356 million of total unrecognized stock-based compensation
expense related to stock options and non-vested restricted
stock, respectively, with the unrecognized stock-based
compensation expense expected to be recognized over a
weighted-average period of 1.7 years and 2.4 years,
respectively.
As a result of our inability to timely file our Annual Report on
Form 10-K
for Fiscal 2007, we suspended the exercise of employee stock
options, the vesting of restricted stock units, and the purchase
of shares under our employee stock purchase plan. With the
filing of this report and our other past due periodic reports,
we are again current in our periodic reporting obligations and,
accordingly, expect to resume the exercise of employee stock
options by employees, the vesting of restricted stock units, and
the purchase of shares under our employee stock purchase plan.
We agreed to pay cash to certain current and former employees
who held in-the-money stock options (options that have an
exercise price less than the current stock market price) that
expired during the period of unexercisability. Within
45 days after we file this report, we will make payments
relating to in-the-money stock options that expired in the
second and third quarters of Fiscal 2008, which are expected to
total approximately $113 million. We will not continue to
pay cash for expired in-the-money stock options once the options
again become exercisable.
46
Investment and
Other Income, net
The table below provides a detailed presentation of investment
and other income, net for Fiscal 2007, Fiscal 2006, and Fiscal
2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
January 28,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
As
|
|
|
As
|
|
|
|
|
|
|
Restated
|
|
|
Restated
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
Investment and other income, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income, primarily interest
|
|
$
|
368
|
|
|
$
|
308
|
|
|
$
|
226
|
|
Gains (losses) on investments, net
|
|
|
(5
|
)
|
|
|
(2
|
)
|
|
|
6
|
|
Interest expense
|
|
|
(45
|
)
|
|
|
(29
|
)
|
|
|
(15
|
)
|
CIT minority interest
|
|
|
(23
|
)
|
|
|
(27
|
)
|
|
|
(17
|
)
|
Foreign exchange
|
|
|
(37
|
)
|
|
|
3
|
|
|
|
16
|
|
Gain on sale of building
|
|
|
36
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
(19
|
)
|
|
|
(27
|
)
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment and other income, net
|
|
$
|
275
|
|
|
$
|
226
|
|
|
$
|
197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In Fiscal 2007 and Fiscal 2006, investment income increased
year-over-year primarily due to rising interest rates, partially
offset by a decrease in interest income earned on lower average
balances of cash equivalents and investments.
Income
Taxes
Our effective tax rate was 22.8%, 21.8%, and 31.5% for Fiscal
2007, 2006 and 2005, respectively. We expect our Fiscal 2008
effective tax rate to trend upwards primarily due to the impact
of new U.S. transfer pricing rules and the impact of FASB
Interpretation No. 48, Accounting for Uncertainty in
Income Taxes an Interpretation of FASB
Statement No. 109 (FIN 48).
On October 22, 2004, the American Jobs Creation Act of 2004
was signed into law. Among other items, that act created a
temporary incentive for U.S. multinationals to repatriate
accumulated income earned outside the U.S. at an effective
tax rate of 5.25%, versus the U.S. federal statutory rate
of 35%. In the fourth quarter of Fiscal 2005, we recorded an
initial estimated income tax charge of $280 million based
on the decision to repatriate $4.1 billion of foreign
earnings. This tax charge included an amount relating to a
drafting oversight that Congressional leaders expected to
correct in calendar year 2005. On May 10, 2005, the
Department of Treasury issued further guidance that addressed
the drafting oversight. In the second quarter of Fiscal 2006, we
reduced our original estimate of the tax charge by
$85 million as a result of the guidance issued by the
Treasury Department. At February 3, 2006, we had completed
the repatriation of the $4.1 billion in foreign earnings.
The differences between our effective tax rate and the
U.S. federal statutory rate of 35% principally result from
our geographical distribution of taxable income and permanent
differences between the book and tax treatment of certain items.
We reported an effective tax rate of approximately 22.8% for
Fiscal 2007, as compared to 21.8% for Fiscal 2006. The increase
in our effective tax rate is primarily due to the
$85 million tax expense reduction discussed above and
regulatory guidance issued by the IRS, offset by a higher
proportion of our operating profits being generated in lower
foreign tax jurisdictions during Fiscal 2007 as compared to the
previous year. Our foreign earnings are generally taxed at lower
rates than in the United States.
We adopted FIN 48 effective February 3,
2007. FIN 48 clarifies the accounting and reporting
for uncertainties in income tax law. FIN 48 prescribes a
comprehensive model for the financial statement recognition,
measurement, presentation, and disclosure of uncertain tax
positions taken or expected to be
47
taken in income tax returns. The adoption of FIN 48
resulted in a cumulative effect decrease to stockholders
equity of approximately $62 million in the first quarter of
Fiscal 2008.
Off-Balance Sheet
Arrangements
Asset Securitization During Fiscal 2007, we
continued to sell customer financing receivables to
unconsolidated qualifying special purpose entities. The
qualifying special purpose entities are bankruptcy remote legal
entities with assets and liabilities separate from ours. The
sole purpose of the qualifying special purpose entities is to
facilitate the funding of finance receivables in the capital
markets. We determined the amount of receivables to securitize
based on our funding requirements in conjunction with specific
selection criteria designed for the transaction. The qualifying
special purpose entities have entered into financing
arrangements with three multi-seller conduits that, in turn,
issue asset-backed debt securities in the capital markets.
Transfers of financing receivables are recorded in accordance
with the provisions of Statement of Financial Accounting
Standards No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities.
During Fiscal 2007 and Fiscal 2006, we sold
$1.1 billion and $586 million, respectively, of
customer receivables to unconsolidated qualifying special
purpose entities. The principal balance of the securitized
receivables at the end of Fiscal 2007 and Fiscal 2006 was
$979 million and $552 million, respectively.
We retain the right to receive collections on securitized
receivables in excess of amounts needed to pay interest and
principal as well as other required fees. Upon the sale of the
financing receivables, we record the present value of the excess
cash flows as a retained interest, which typically results in a
gain that ranges from 2% to 4% of the customer receivables sold.
We service these securitized contracts and earn a servicing fee.
Our securitization transactions generally do not result in
servicing assets and liabilities, as the contractual fees are
adequate compensation in relation to the associated servicing
cost.
In estimating the value of the retained interest, we make a
variety of financial assumptions, including pool credit losses,
payment rates, and discount rates. These assumptions are
supported by both our historical experience and anticipated
trends relative to the particular receivable pool. We review our
investments in retained interests periodically for impairment,
based on their estimated fair value. Any resulting losses
representing the excess of carrying value over estimated fair
value that are other-than-temporary are recorded in earnings.
However, unrealized gains are reflected in stockholders
equity as part of accumulated other comprehensive income. In the
first quarter of Fiscal 2008 we adopted SFAS 155 and, as a
result, all gains and losses are recognized in income
immediately and are no longer included in accumulated other
comprehensive income. Retained interest balances and assumptions
are disclosed in Note 7 of Notes to Consolidated Financial
Statements included in Part II
Item 8 Financial Statements and Supplementary
Data.
Our securitization program contains structural features that
could prevent further funding if the credit losses or
delinquencies on the pool of sold receivables exceed specified
levels. These structural features are within normal industry
practice and are similar to comparable securitization programs
in the marketplace. We do not expect that any of these features
will have a material adverse impact on our ability to securitize
financing receivables. We closely monitor our entire portfolio,
including subprime assets, and take action relative to
underwriting standards as necessary.
Liquidity,
Capital Commitments, and Contractual Cash Obligations
Liquidity
Our cash balances are held in numerous locations throughout the
world, including substantial amounts held outside of the
U.S. Most of the amounts held outside of the
U.S. could be repatriated to the U.S., but under current
law, would be subject to U.S. federal income taxes, less
applicable foreign tax credits. Repatriation of some foreign
balances is restricted by local laws. We have provided for the
U.S. federal tax liability on these amounts for financial
statement purposes except for foreign earnings that are
considered indefinitely reinvested outside of the
U.S. Repatriation could result in additional
U.S. federal income tax payments in future years. Where
local restrictions prevent an efficient intercompany transfer of
funds, our
48
intent is that those cash balances would remain outside of the
U.S., and we would meet our U.S. liquidity needs through
operating cash flows, external borrowings, or both. We utilize a
variety of tax planning and financing strategies with the
objective of having our worldwide cash available in the
locations in which it is needed.
In Fiscal 2007, we continued to maintain strong liquidity with
cash flows from operations of $4.0 billion, compared to
$4.8 billion in Fiscal 2006. We ended Fiscal 2007 with
$12.4 billion in cash and investments, an increase of
$689 million over the prior fiscal year-end. The following
table summarizes our ending cash, cash equivalents, and
investments and contains a summary of our Consolidated
Statements of Cash Flows for the past three fiscal years:
|
|
|
|
|
|
|
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
As
|
|
|
|
|
|
|
Restated
|
|
|
|
(in
millions)
|
|
|
Cash, cash equivalents, and investments:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
9,546
|
|
|
$
|
7,054
|
|
Debt securities
|
|
|
2,784
|
|
|
|
4,606
|
|
Equity and other securities
|
|
|
115
|
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and investments
|
|
$
|
12,445
|
|
|
$
|
11,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
January 28,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
As
|
|
|
As
|
|
|
|
|
|
|
Restated
|
|
|
Restated
|
|
|
|
(in
millions)
|
|
|
Net cash flow provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
3,969
|
|
|
$
|
4,751
|
|
|
$
|
5,821
|
|
Investing activities
|
|
|
1,003
|
|
|
|
4,149
|
|
|
|
(1,678
|
)
|
Financing activities
|
|
|
(2,551
|
)
|
|
|
(6,252
|
)
|
|
|
(3,129
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
71
|
|
|
|
(73
|
)
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
$
|
2,492
|
|
|
$
|
2,575
|
|
|
$
|
1,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Activities Cash flows from
operating activities during Fiscal 2007, 2006, and 2005 resulted
primarily from net income, which represents our principal source
of cash. In Fiscal 2007, the decrease in operating cash flows
was primarily led by a decrease in net income slightly offset by
changes in working capital. In Fiscal 2006, the decrease in cash
provided by operating activities versus Fiscal 2005 is primarily
due to changes in operating working capital accounts and
slightly offset by an increase in net income.
|
Upon adopting SFAS 123(R) in the first quarter of Fiscal
2007, the excess tax benefits associated with employee stock
compensation are classified as a financing activity; however,
the offset reduces cash flows from operations. In Fiscal 2007,
the excess tax benefit was $80 million. Prior to adopting
SFAS 123(R), operating cash flows were impacted by income
tax benefits that resulted from the exercise of employee stock
options. These tax benefits totaled $224 million and
$249 million in Fiscal 2006 and 2005, respectively. These
benefits are the tax effects of corporate income tax deductions
(that are considered taxable income to the employee) that
represent the amount by which the fair value of our stock
exceeds the option strike price on the day the employee
exercises a stock option. The decline in tax benefits in Fiscal
2007 from Fiscal 2006 is due to fewer stock option exercises.
Key Performance Metrics Our direct business
model allows us to maintain an efficient asset management system
in comparison to our major competitors. We are capable of
minimizing inventory risk while collecting amounts due from
customers before paying vendors, thus allowing us to generate
49
annual cash flows from operating activities that typically
exceed net income. The following table presents the components
of our cash conversion cycle for each of the past three fiscal
years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
January 28,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
As
|
|
|
As
|
|
|
|
|
|
|
Restated
|
|
|
Restated
|
|
|
Days of sales
outstanding(a)(d)
|
|
|
31
|
|
|
|
29
|
|
|
|
27
|
|
Days of supply in
inventory(b)
|
|
|
5
|
|
|
|
5
|
|
|
|
4
|
|
Days in accounts
payable(c)
|
|
|
(78
|
)
|
|
|
(77
|
)
|
|
|
(73
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash conversion cycle
|
|
|
(42
|
)
|
|
|
(43
|
)
|
|
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Days of sales outstanding (DSO) is based on the
ending net trade receivables and most recent quarterly revenue
for each period. DSO includes the effect of product costs
related to customer shipments not yet recognized as revenue that
are classified in other current assets. At February 2,
2007, February 3, 2006, and January 28, 2005, DSO and
days of customer shipments not yet recognized were 28 and
3 days, 26 and 3 days, and 24 and 3 days,
respectively.
|
|
|
(b)
|
Days of supply in inventory is based on ending inventory and
most recent quarterly cost of sales for each period.
|
|
|
|
|
(c)
|
Days in accounts payable is based on ending accounts payable and
most recent quarterly cost of sales for each period.
|
|
|
|
|
(d)
|
Financing receivables have been separately classified on the
balance sheet beginning February 3, 2006. As a result, days
of sales outstanding has been recalculated for January 28,
2005 to reflect the change in classification of certain items
previously included in accounts receivable to financing
receivables.
|
|
|
|
Our cash conversion cycle decreased one day at February 2,
2007 from February 3, 2006. This decline was driven by a
two-day
increase in days of sales outstanding largely attributed to
higher percentage of our revenue coming from outside the U.S.,
where payment terms are customarily longer and a higher
percentage of revenue occurring at the end of the period. This
decline was offset by a
one-day
increase in days in accounts payable largely attributed to an
increase in the number of suppliers with extended payment terms
as compared to Fiscal 2006.
|
We defer the cost of revenue associated with customer shipments
not yet recognized as revenue until they are delivered. These
deferred costs are included in our reported days of sales
outstanding because we believe it presents a more accurate
presentation of our days of sales outstanding and cash
conversion cycle. These deferred costs are recorded in other
current assets in our Consolidated Statements of Financial
Position and totaled $424 million, $417 million, and
$361 million at February 2, 2007, February 3,
2006 and January 28, 2005, respectively.
|
|
|
Investing Activities Cash provided by
investing activities during Fiscal 2007 was $1.0 billion,
as compared to $4.1 billion provided in Fiscal 2006 and
$1.7 billion used in Fiscal 2005. Cash generated or used in
investing activities principally consists of net maturities and
sales or purchases of investments, net of capital expenditures
for property, plant, and equipment. In Fiscal 2007 compared to
Fiscal 2006, we had a lower amount of proceeds from maturities
and sales of investments, and this was partially offset by an
increase in capital expenditures as we continued to focus on
investing in our global infrastructure in order to support our
rapid global growth.
|
|
|
Financing Activities Cash used in
financing activities during Fiscal 2007 was $2.6 billion,
as compared to $6.3 billion in Fiscal 2006 and
$3.1 billion in Fiscal 2005. Financing activities primarily
consist of the repurchase of our common stock, partially offset
by proceeds from the issuance of common stock under employee
stock plans and other items. In Fiscal 2007, the year-over-year
decrease in cash used in financing activities is due primarily
to the suspension of our share repurchase program in September
2006. During Fiscal 2007, we repurchased approximately
118 million shares at an aggregate cost of
$3.0 billion compared to 204 million shares at an
aggregate cost of $7.2 billion in Fiscal 2006 and
119 million shares at an aggregate cost of
$4.2 billion in Fiscal 2005. In Fiscal 2006, the increase
in share repurchases compared to Fiscal 2005 drove the
year-over-year increase in cash used in financing activities.
|
We believe our ability to generate cash flows from operations on
an annual basis will continue to be strong, driven mainly by our
profitability, efficient cash conversion cycle, and the growth
in our deferred enhanced
50
services offerings. In order to augment our liquidity and
provide us with additional flexibility, we implemented a
commercial paper program with a supporting credit facility on
June 1, 2006. Under the commercial paper program, we issue,
from time-to-time, short-term unsecured notes in an aggregate
amount not to exceed $1.0 billion. We use the proceeds for
general corporate purposes, including funding Dell Financial
Services L.P. (DFS) growth. At February 2,
2007, $100 million was outstanding under the program and
due within 90 days. The weighted-average interest rate on
these outstanding short-term borrowings was 5.3% at
February 2, 2007. There were no outstanding advances under
the commercial paper program as of October 26, 2007. See
Note 3 of Notes to Consolidated Financial Statements
included in Part II
Item 8 Financial Statements and Supplementary
Data for further discussion of our commercial paper
program.
Capital
Commitments
Redeemable Common Stock We inadvertently
failed to register with the SEC the sale of some shares under
certain employee benefit plans. As a result, certain purchasers
of common stock pursuant to those plans may have the right to
rescind their purchases for an amount equal to the purchase
price paid for the shares, plus interest from the date of
purchase. At February 2, 2007, we have classified
approximately 5 million shares ($111 million) that may
be subject to the rescissionary rights outside
stockholders equity, because the redemption features are
not within our control. These shares have always been treated as
outstanding for financial reporting purposes. Certain purchasers
of common stock pursuant to these plans who sold their shares
for less than the purchase price may have the right to rescind
their purchases for an amount of cash equal to the purchase
price plus interest minus the proceeds of the sale.
Share Repurchase Program We have a share
repurchase program that authorizes us to purchase shares of
common stock in order to increase shareholder value and manage
dilution resulting from shares issued under our equity
compensation plans. However, we do not currently have a policy
that requires the repurchase of common stock in conjunction with
share-based payment arrangements. At February 2, 2007, our
share repurchase program authorized the purchase of common stock
at an aggregate cost not to exceed $30.0 billion, of which
we have already repurchased $28.6 billion.
We typically repurchase shares of common stock through a
systematic program of open market purchases. The significant
decrease in share repurchases during Fiscal 2007 as compared to
Fiscal 2006 was due to the temporary suspension of our share
repurchase program in September 2006. We anticipate recommencing
our share repurchase program in the fourth quarter of Fiscal
2008. For more information regarding share repurchases, see
Part II Item 5 Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.
Capital Expenditures During Fiscal 2007, we
spent $896 million on property, plant, and equipment
primarily on our global expansion efforts and infrastructure
investments in order to support future growth. Product demand
and mix, as well as ongoing efficiencies in operating and
information technology infrastructure, influence the level and
prioritization of our capital expenditures. Capital expenditures
for Fiscal 2008 (related to our continued expansion worldwide,
the need to increase manufacturing capacity, and leasing
arrangements to facilitate customer sales) are currently
expected to reach approximately $900 million. These
expenditures are expected to be funded from our cash flows from
operating activities.
Restricted Cash Pursuant to an agreement
between DFS and CIT, we are required to maintain escrow cash
accounts associated with certain reserves related to finance
receivables funded by CIT and serviced by DFS. Specific to the
consolidation of DFS, $416 million and $453 million in
restricted cash is included in other current assets at
February 2, 2007 and February 3, 2006, respectively.
51
Contractual Cash
Obligations
The following table summarizes our contractual cash obligations
at February 2, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by
Period
|
|
|
|
|
|
|
Fiscal
|
|
|
Fiscal 2009-
|
|
|
Fiscal 2011-
|
|
|
|
|
|
|
Total
|
|
|
2008
|
|
|
2010
|
|
|
2012
|
|
|
Beyond
|
|
|
|
(in
millions)
|
|
|
Contractual cash obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, including current
portion(b)
|
|
$
|
502
|
|
|
$
|
1
|
|
|
$
|
204
|
|
|
$
|
|
|
|
$
|
297
|
|
Operating leases
|
|
|
450
|
|
|
|
79
|
|
|
|
128
|
|
|
|
82
|
|
|
|
161
|
|
Advances under credit facilities
|
|
|
222
|
|
|
|
187
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
Purchase obligations
|
|
|
570
|
|
|
|
532
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
DFS purchase commitment
|
|
|
345
|
|
|
|
|
|
|
|
345
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
590
|
|
|
|
73
|
|
|
|
129
|
|
|
|
43
|
|
|
|
345
|
|
Current portion of uncertain tax
positions(a)
|
|
|
22
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual cash obligations
|
|
$
|
2,701
|
|
|
$
|
894
|
|
|
$
|
879
|
|
|
$
|
125
|
|
|
$
|
803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
The current portion of uncertain
tax positions does not include approximately $1.1 billion
in additional liabilities associated with uncertain tax
positions. We are unable to reliably estimate the expected
payment dates for these additional liabilities.
|
|
(b)
|
|
Changes in the fair value of the
debt where the interest rate is hedged with interest rate swap
agreements are not included in the contractual cash obligations
for debt as the debt is expected to be settled at par at its
scheduled maturity date.
|
Long-Term Debt At February 2, 2007, we
had outstanding $200 million in Senior Notes with the
principal balance due April 15, 2008 and $300 million
in Senior Debentures with the principal balance due
April 15, 2028. For additional information regarding these
issuances, see Note 3 of Notes to Consolidated Financial
Statements included in Part II
Item 8 Financial Statements and Supplementary
Data.
Concurrent with the issuance of the Senior Notes and Senior
Debentures, we entered into interest rate swap agreements
converting our interest rate exposure from a fixed rate to a
floating rate basis to better align the associated interest rate
characteristics to our cash and investments portfolio. The
interest rate swap agreements have an aggregate notional amount
of $200 million maturing April 15, 2008 and
$300 million maturing April 15, 2028. The floating
rates are based on three-month London Interbank Offered Rates
plus 0.41% and 0.79% for the Senior Notes and Senior Debentures,
respectively. As a result of the interest rate swap agreements,
our effective interest rates for the Senior Notes and Senior
Debentures were 5.8% and 6.1%, respectively, for Fiscal 2007.
Operating Leases We lease property and
equipment, manufacturing facilities, and office space under
non-cancellable leases. Certain of these leases obligate us to
pay taxes, maintenance, and repair costs.
Advances Under Credit Facilities DFS
maintains credit facilities with CIT that provide a maximum
capacity of $750 million to fund leased equipment. These
borrowings are secured by DFS assets and contain certain
customary restrictive covenants. Interest on the outstanding
loans is paid quarterly and calculated based on an average of
the two- and three-year U.S. Treasury Notes plus 4.45%. DFS
is required to make quarterly principal payments if the value of
the leased equipment securing the loans is less than the
outstanding principal balance. At February 2, 2007 and
February 3, 2006, outstanding advances from CIT totaled
$122 million and $133 million, respectively, of which
$87 million and $63 million, respectively, is included
in short-term borrowings and $35 million and
$70 million, respectively, is included in long-term debt on
our Consolidated Statement of Financial Position. The credit
facilities expire on the earlier of (i) the dissolution of
DFS; (ii) the purchase of CITs ownership interest in
DFS; or (iii) the acceleration of the maturity of the debt
by CIT arising from a default.
During Fiscal 2007, we implemented a $1.0 billion
commercial paper program with a supporting $1.0 billion
senior unsecured revolving credit facility. This program allows
us to obtain favorable short-term borrowing rates. At
February 2, 2007, $100 million was outstanding under
the commercial paper program and is included in short-term
borrowings on our Consolidated Statement of Financial Position.
52
Purchase Obligations Purchase obligations are
defined as contractual obligations to purchase goods or services
that are enforceable and legally binding on us. These
obligations specify all significant terms, including fixed or
minimum quantities to be purchased; fixed, minimum, or variable
price provisions; and the approximate timing of the transaction.
Purchase obligations do not include contracts that may be
cancelled without penalty.
We utilize several suppliers to manufacture sub-assemblies for
our products. Our efficient supply chain management allows us to
enter into flexible and mutually beneficial purchase
arrangements with our suppliers in order to minimize inventory
risk. Consistent with industry practice, we acquire raw
materials or other goods and services, including product
components, by issuing suppliers authorizations to purchase
based on our projected demand and manufacturing needs. These
purchase orders are typically fulfilled within 30 days and
are entered into during the ordinary course of business in order
to establish best pricing and continuity of supply for our
production. Purchase orders are not included in the table above
as they typically represent our authorization to purchase rather
than binding purchase obligations.
DFS Purchase Commitment Included in the table
above is our maximum purchase obligation to purchase CITs
30% interest in DFS at the expiration of the joint venture on
January 29, 2010, for a purchase price ranging from
approximately $100 million to $345 million. We
currently expect that the purchase price will likely be towards
the upper end of the range. See Note 7 of Notes to
Consolidated Financial Statements included in
Part II Item 8 Financial
Statements and Supplementary Data.
Interest See Note 3 of Notes to the
Consolidated Financial Statements included in
Part II Item 8 Financial
Statements and Supplementary Data for further discussion
of our long-term debt and related interest expense.
Market
Risk
We are exposed to a variety of risks, including foreign currency
exchange rate fluctuations and changes in the market value of
our investments. In the normal course of business, we employ
established policies and procedures to manage these risks.
Foreign Currency
Hedging Activities
Our objective in managing our exposures to foreign currency
exchange rate fluctuations is to reduce the impact of adverse
fluctuations on earnings and cash flows associated with foreign
currency exchange rate changes. Accordingly, we utilize foreign
currency option contracts and forward contracts to hedge our
exposure on forecasted transactions and firm commitments in over
20 currencies in which we transact business. The principal
currencies hedged during Fiscal 2007 were the Euro, British
Pound, Japanese Yen, and Canadian Dollar. We monitor our foreign
currency exchange exposures to ensure the overall effectiveness
of our foreign currency hedge positions. However, there can be
no assurance that our foreign currency hedging activities will
substantially offset the impact of fluctuations in currency
exchange rates on our results of operations and financial
position.
Based on our foreign currency cash flow hedge instruments
outstanding at February 2, 2007 and February 3, 2006,
we estimate a maximum potential
one-day loss
in fair value of approximately $41 million and
$46 million, respectively, using a
Value-at-Risk
(VAR) model. The VAR model estimates were made
assuming normal market conditions and a 95% confidence level. We
used a Monte Carlo simulation type model that valued our foreign
currency instruments against a thousand randomly generated
market price paths. Forecasted transactions, firm commitments,
fair value hedge instruments, and accounts receivable and
payable denominated in foreign currencies were excluded from the
model. The VAR model is a risk estimation tool, and as such, is
not intended to represent actual losses in fair value that will
be incurred. Additionally, as we utilize foreign currency
instruments for hedging forecasted and firmly committed
transactions, a loss in fair value for those instruments is
generally offset by increases in the value of the underlying
exposure. As a result of our hedging activities, foreign
currency fluctuations did not have a material impact on our
results of operations and financial position during Fiscal 2007,
2006, and 2005.
53
Cash and
Investments
At February 2, 2007, we had $12.4 billion of total
cash, cash equivalents and investments, all of which are
recorded at fair value. Our investment policy is to manage our
total cash and investments balances to preserve principal and
maintain liquidity while maximizing the return on the investment
portfolio through the full investment of available funds. We
diversify our investment portfolio by investing in multiple
types of investment-grade securities and through the use of
third-party investment managers. Based on our investment
portfolio and interest rates at February 2, 2007, a
100 basis point increase or decrease in interest rates
would result in a decrease or increase of approximately
$46 million in the fair value of the investment portfolio.
Changes in interest rates may affect the fair value of the
investment portfolio; however, unrealized gains or losses are
not recognized in net income unless the investments are sold or
the loss is considered to be other than temporary.
Debt
We have entered into interest rate swap arrangements that
convert our fixed interest rate expense to a floating rate basis
to better align the associated interest rate characteristics to
our cash and investments portfolio. The interest rate swaps
qualify for hedge accounting treatment pursuant to
SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, as amended. We have designated the
issuance of the Senior Notes and Senior Debentures and the
related interest rate swap agreements as an integrated
transaction. The changes in the fair value of the interest rate
swaps are reflected in the carrying value of the interest rate
swap on the balance sheet. The carrying value of the debt on the
balance sheet is adjusted by an equal and offsetting amount. The
differential to be paid or received on the interest rate swap
agreements is accrued and recognized as an adjustment to
interest expense as interest rates change.
We have a $1.0 billion commercial paper program with a
supporting $1.0 billion senior unsecured revolving credit
facility. This program allows us to obtain favorable short-term
borrowing rates. At February 2, 2007, $100 million was
outstanding under the commercial paper program, and the
weighted-average interest rate on these outstanding short-term
borrowings was 5.3%. There were no outstanding advances under
the commercial paper program as of October 26, 2007. We use
the proceeds of the program and facility for general corporate
purposes, including funding DFS growth.
Risk Factors
Affecting Our Business and Prospects
There are numerous risk factors that affect our business and the
results of our operations. Some of these risks are beyond our
control. These risk factors include:
|
|
|
general economic, business, and industry conditions;
|
|
|
our ability to maintain a cost advantage over our competitors,
|
|
|
local economic and labor conditions, political instability,
unexpected regulatory changes, trade protection measures, tax
laws, copyright levies, and fluctuations in foreign currency
exchange rates;
|
|
|
our ability to accurately predict product, customer, and
geographic sales mix and seasonal sales trends;
|
|
|
information technology and manufacturing infrastructure failures;
|
|
|
our ability to effectively manage periodic product transitions;
|
|
|
our ability to successfully remediate identified internal
control deficiencies;
|
|
|
our reliance on third-party suppliers for quality product
components, including reliance on several single-source or
limited-source suppliers;
|
|
|
our ability to access the capital markets;
|
|
|
litigation and governmental investigations or proceedings
arising out of or related to accounting and financial reporting
matters;
|
54
|
|
|
our acquisition of other companies may present new risks;
|
|
|
our ability to properly manage the distribution of our products
and services;
|
|
|
effective hedging of our exposure to fluctuations in foreign
currency exchange rates and interest rates;
|
|
|
obtaining licenses to intellectual property developed by others
on commercially reasonable and competitive terms;
|
|
|
our ability to attract, retain, and motivate key personnel;
|
|
|
loss of government contracts;
|
|
|
expiration of tax holidays or favorable tax rate structures;
|
|
|
changing environmental laws; and
|
|
|
the effect of armed hostilities, terrorism, natural disasters;
and public health issues.
|
For a discussion of these risk factors affecting our business
and prospects, see Part I
Item 1A Risk Factors.
Critical
Accounting Policies
We prepare our financial statements in conformity with
accounting principles generally accepted in the United States of
America (GAAP). The preparation of financial
statements in accordance with GAAP requires certain estimates,
assumptions, and judgments to be made that may affect our
Consolidated Statement of Financial Position and Consolidated
Statement of Income. We believe our most critical accounting
policies relate to revenue recognition, warranty accruals, and
income taxes. We have discussed the development, selection, and
disclosure of our critical accounting policies with the Audit
Committee of our Board of Directors. These critical accounting
policies and our other accounting policies are also described in
Note 1 of Notes to Consolidated Financial Statements
included in Part II
Item 8 Financial Statements and Supplementary
Data.
Revenue Recognition and Related Allowances We
frequently enter into sales arrangements with customers that
contain multiple elements or deliverables such as hardware,
software, peripherals, and services. Judgments and estimates are
necessary to ensure compliance with GAAP. These judgments relate
to the allocation of the proceeds received from an arrangement
to the multiple elements, the determination of whether any
undelivered elements are essential to the functionality of the
delivered elements, and the appropriate timing of revenue
recognition. We offer extended warranty and service contracts to
customers that extend
and/or
enhance the technical support, parts, and labor coverage offered
as part of the base warranty included with the product. Revenue
from extended warranty and service contracts, for which we are
obligated to perform, is recorded as deferred revenue and
subsequently recognized over the term of the contract or when
the service is completed. Revenue from sales of third-party
extended warranty and service contracts, for which we are not
obligated to perform, is recognized on a net basis at the time
of sale, as we do not meet the criteria for gross recognition
under Emerging Issues Task Force
99-19,
Reporting Revenue Gross as a Principal versus Net as an
Agent.
Estimates that further impact revenue recognition relate
primarily to customer sales returns and allowance for doubtful
accounts. Both estimates are reasonably predictable based on
historical experience. The primary factors affecting our accrual
for estimated customer returns include estimated return rates as
well as the number of units shipped that still have a right of
return as of the balance sheet date. Factors affecting our
allowance for doubtful accounts include historical and
anticipated customer default rates of the various aging
categories of accounts receivable. Each quarter, we reevaluate
our estimates to assess the adequacy of our recorded accruals
for customer returns and allowance for doubtful accounts and
adjust the amounts as necessary. The expense associated with the
allowance for doubtful accounts is recognized as sales, general,
and administrative expense.
55
Warranty We record warranty liabilities at
the time of sale for the estimated costs that may be incurred
under the terms of the limited warranty. The specific warranty
terms and conditions vary depending upon the product sold and
country in which we do business, but generally include technical
support, parts, and labor over a period ranging from one to
three years. Factors that affect our warranty liability include
the number of installed units currently under warranty,
historical and anticipated rates of warranty claims on those
units, and cost per claim to satisfy our warranty obligation.
The anticipated rate of warranty claims is the primary factor
impacting our estimated warranty obligation. The other factors
are less significant due to the fact that the average remaining
aggregate warranty period of the covered installed base is
approximately 20 months, repair parts are generally already
in stock or available at pre-determined prices, and labor rates
are generally arranged at pre-established amounts with service
providers. Warranty claims are reasonably predictable based on
historical experience of failure rates. If actual results differ
from our estimates, we revise our estimated warranty liability
to reflect such changes. Each quarter, we reevaluate our
estimates to assess the adequacy of the recorded warranty
liabilities and adjust the amounts as necessary.
Income Taxes We calculate a provision for
income taxes using the asset and liability method, under which
deferred tax assets and liabilities are recognized by
identifying the temporary differences arising from the different
treatment of items for tax and accounting purposes. In
determining the future tax consequences of events that have been
recognized in our financial statements or tax returns, judgment
is required. Differences between the anticipated and actual
outcomes of these future tax consequences could have a material
impact on our consolidated results of operations or financial
position.
Recently Issued
Accounting Pronouncements
See Note 1 of Notes to Consolidated Financial Statements
included in Part II
Item 8 Financial Statements and Supplementary
Data for a description of recently issued accounting
pronouncements, including the expected dates of adoption and
estimated effects on our results of operations, financial
position, and cash flows.
|
|
ITEM 7A
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Response to this item is included in
Part II Item 7
Managements Discussion and Analysis of Financial Condition
and Results of Operations Market Risk.
56
|
|
ITEM 8
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
Financial Statements:
|
Report of Independent Registered Public Accounting Firm
|
|
|
58
|
|
Consolidated Statements of Financial Position at
February 2, 2007 and February 3, 2006 (Restated)
|
|
|
61
|
|
Consolidated Statements of Income for the fiscal years ended
February 2, 2007, February 3, 2006 (Restated), and
January 28, 2005 (Restated)
|
|
|
62
|
|
Consolidated Statements of Cash Flows for the fiscal years ended
February 2, 2007, February 3, 2006 (Restated), and
January 28, 2005 (Restated)
|
|
|
63
|
|
Consolidated Statements of Stockholders Equity for the
fiscal years ended February 2, 2007, February 3, 2006
(Restated), and January 28, 2005 (Restated)
|
|
|
64
|
|
Notes to Consolidated Financial Statements
|
|
|
65
|
|
Financial Statement Schedule:
|
|
|
|
|
Schedule II Valuation and Qualifying Accounts
for the fiscal years ended February 2, 2007,
February 3, 2006, (Restated) and January 28, 2005
(Restated)
|
|
|
151
|
|
All other schedules are omitted because they are not applicable.
57
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Dell Inc.:
We have completed integrated audits of Dell Inc.s
consolidated financial statements and of its internal control
over financial reporting as of February 2, 2007, in
accordance with the standards of the Public Company Accounting
Oversight Board (United States). Our opinions, based on our
audits, are presented below.
Consolidated
financial statements and financial statement
schedule
In our opinion, the consolidated financial statements listed in
the accompanying index present fairly, in all material respects,
the financial position of Dell Inc. and its subsidiaries (the
Company) at February 2, 2007 and
February 3, 2006, and the results of their operations and
their cash flows for each of the three years in the period ended
February 2, 2007 in conformity with accounting principles
generally accepted in the United States of America. In addition,
in our opinion, the financial statement schedule listed in the
accompanying index presents fairly, in all material respects,
the information set forth therein when read in conjunction with
the related consolidated financial statements. These financial
statements and financial statement schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits of these statements in accordance with
the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit of financial statements includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As discussed in Note 2 to the consolidated financial
statements, the Company has restated its fiscal 2006 and 2005
consolidated financial statements.
As discussed in Note 1 to the consolidated financial
statements, the Company changed the manner in which it accounts
for share-based compensation in fiscal 2007.
Internal
control over financial reporting
Also, we have audited managements assessment, included in
Managements Report on Internal Control Over Financial
Reporting appearing under Item 9A, that the Company did not
maintain effective internal control over financial reporting as
of February 2, 2007, because the Company did not maintain
an effective control environment due to the failure to maintain
a tone and control consciousness that consistently emphasized
strict adherence to accounting principles generally accepted in
the United States of America and the failure to maintain a
sufficient complement of personnel with an appropriate level of
accounting knowledge, experience and training, and because the
Company did not maintain effective controls over the period-end
reporting process, including journal entries, account
reconciliations, and the accounting for accrued liabilities,
reserves and operating expenses, based on criteria established
in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Companys management is
responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting. Our responsibility
is to express opinions on managements assessment and on
the effectiveness of the Companys internal control over
financial reporting based on our audit.
We conducted our audit of internal control over financial
reporting in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over
financial reporting was maintained in all material respects. An
audit of internal control over financial reporting
58
includes obtaining an understanding of internal control over
financial reporting, evaluating managements assessment,
testing and evaluating the design and operating effectiveness of
internal control, and performing such other procedures as we
consider necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinions.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
A material weakness is a control deficiency, or combination of
control deficiencies, that results in more than a remote
likelihood that a material misstatement of the annual or interim
financial statements will not be prevented or detected. The
following material weaknesses as of February 2, 2007 have
been identified and included in managements assessment:
Control environment The Company did not
maintain an effective control environment. The control
environment, which is the responsibility of senior management,
sets the tone of the organization, influences the control
consciousness of its people, and is the foundation for all other
components of internal control over financial reporting.
Specifically:
|
|
|
|
-
|
The Company did not maintain a tone and control consciousness
that consistently emphasized strict adherence to accounting
principles generally accepted in the United States of America.
This control deficiency, in some instances, included
inappropriate accounting decisions and entries that appear to
have been largely motivated to achieve desired accounting
results and management override of controls. In a number of
instances, information critical to an effective review of
transactions and accounting entries was not disclosed to
internal and external auditors.
|
|
|
-
|
The Company did not maintain a sufficient complement of
personnel with an appropriate level of accounting knowledge,
experience, and training in the application of accounting
principles generally accepted in the United States of America
commensurate with the Companys financial reporting
requirements and business environment.
|
The control environment material weaknesses described above
contributed to the material weaknesses related to the
Companys period-end financial reporting process described
below.
Period-end financial reporting process The
Company did not maintain effective controls over the period-end
financial reporting process, including controls with respect to
the review, supervision, and monitoring of accounting
operations. Specifically:
|
|
|
|
-
|
Journal entries, both recurring and nonrecurring, were not
always accompanied by sufficient supporting documentation and
were not adequately reviewed and approved for validity,
completeness and accuracy;
|
|
|
-
|
Account reconciliations over balance sheet accounts were not
always properly and timely performed, and the reconciliations
and their supporting documentation were not consistently
reviewed for completeness, accuracy and timely resolution of
reconciling items; and
|
59
|
|
|
|
-
|
The Company did not design and maintain effective controls to
ensure the completeness, accuracy and timeliness of the
recording of accrued liabilities, reserves and operating
expenses.
|
These material weaknesses resulted in the restatement of the
Companys fiscal 2006 and 2005 annual and interim financial
statements and resulted in adjustments, including audit
adjustments, to the Companys fiscal 2007 annual and
interim financial statements. Additionally, these material
weaknesses could result in misstatements of substantially all of
the Companys financial statement accounts that would
result in a material misstatement of the Companys annual
or interim consolidated financial statements that would not be
prevented or detected.
These material weaknesses were considered in determining the
nature, timing, and extent of audit tests applied in our audit
of the fiscal 2007 consolidated financial statements, and our
opinion regarding the effectiveness of the Companys
internal control over financial reporting does not affect our
opinion on those consolidated financial statements.
In our opinion, managements assessment that the Company
did not maintain effective internal control over financial
reporting as of February 2, 2007, is fairly stated, in all
material respects, based on criteria established in Internal
Control Integrated Framework issued by the COSO.
Also, in our opinion, because of the effects of the material
weaknesses described above on the achievement of the objectives
of the control criteria, the Company has not maintained
effective internal control over financial reporting as of
February 2, 2007, based on criteria established in
Internal Control Integrated Framework issued
by the COSO.
PricewaterhouseCoopers LLP
Austin, Texas
October 29, 2007
60
DELL INC.
CONSOLIDATED
STATEMENTS OF FINANCIAL POSITION
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
As
|
|
|
|
|
|
|
Restated
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
9,546
|
|
|
$
|
7,054
|
|
Short-term investments
|
|
|
752
|
|
|
|
2,016
|
|
Accounts receivable, net
|
|
|
4,622
|
|
|
|
4,082
|
|
Financing receivables, net
|
|
|
1,530
|
|
|
|
1,366
|
|
Inventories
|
|
|
660
|
|
|
|
588
|
|
Other
|
|
|
2,829
|
|
|
|
2,688
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
19,939
|
|
|
|
17,794
|
|
Property, plant, and equipment, net
|
|
|
2,409
|
|
|
|
1,993
|
|
Investments
|
|
|
2,147
|
|
|
|
2,686
|
|
Long-term financing receivables, net
|
|
|
323
|
|
|
|
325
|
|
Other non-current assets
|
|
|
817
|
|
|
|
454
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
25,635
|
|
|
$
|
23,252
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
$
|
188
|
|
|
$
|
65
|
|
Accounts payable
|
|
|
10,430
|
|
|
|
9,868
|
|
Accrued and other
|
|
|
7,173
|
|
|
|
6,240
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
17,791
|
|
|
|
16,173
|
|
Long-term debt
|
|
|
569
|
|
|
|
625
|
|
Other non-current liabilities
|
|
|
2,836
|
|
|
|
2,407
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
21,196
|
|
|
|
19,205
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable common stock and capital in excess of $.01 par
value; 5 shares issued and outstanding (Note 5)
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock and capital in excess of $.01 par value;
shares issued and outstanding: none
|
|
|
|
|
|
|
|
|
Common stock and capital in excess of $.01 par value;
shares authorized: 7,000; shares issued: 3,307 and 2,818,
respectively; shares outstanding: 2,226 and 2,330, respectively
|
|
|
10,107
|
|
|
|
9,503
|
|
Treasury stock at cost: 606 and 488 shares, respectively
|
|
|
(21,033
|
)
|
|
|
(18,007
|
)
|
Retained earnings
|
|
|
15,282
|
|
|
|
12,699
|
|
Accumulated other comprehensive loss
|
|
|
(28
|
)
|
|
|
(101
|
)
|
Other
|
|
|
|
|
|
|
(47
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
4,328
|
|
|
|
4,047
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
25,635
|
|
|
$
|
23,252
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
61
DELL INC.
CONSOLIDATED
STATEMENTS OF INCOME
(in millions,
except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
January 28,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
As
|
|
|
As
|
|
|
|
|
|
|
Restated
|
|
|
Restated
|
|
|
Net revenue
|
|
$
|
57,420
|
|
|
$
|
55,788
|
|
|
$
|
49,121
|
|
Cost of net
revenue(1)
|
|
|
47,904
|
|
|
|
45,897
|
|
|
|
40,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
9,516
|
|
|
|
9,891
|
|
|
|
9,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and
administrative(1)
|
|
|
5,948
|
|
|
|
5,051
|
|
|
|
4,352
|
|
Research, development, and
engineering(1)
|
|
|
498
|
|
|
|
458
|
|
|
|
460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
6,446
|
|
|
|
5,509
|
|
|
|
4,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
3,070
|
|
|
|
4,382
|
|
|
|
4,206
|
|
Investment and other income, net
|
|
|
275
|
|
|
|
226
|
|
|
|
197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
3,345
|
|
|
|
4,608
|
|
|
|
4,403
|
|
Income tax provision
|
|
|
762
|
|
|
|
1,006
|
|
|
|
1,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,583
|
|
|
$
|
3,602
|
|
|
$
|
3,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.15
|
|
|
$
|
1.50
|
|
|
$
|
1.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
1.14
|
|
|
$
|
1.47
|
|
|
$
|
1.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
2,255
|
|
|
|
2,403
|
|
|
|
2,509
|
|
Diluted
|
|
|
2,271
|
|
|
|
2,449
|
|
|
|
2,568
|
|
|
|
|
(1)
|
|
Cost of revenue and operating
expenses for the fiscal year ended February 2, 2007 include
stock-based compensation expense pursuant to Statement of
Financial Accounting Standards No. 123 (revised 2004),
Share-Based Payment. See Note 6 of Notes to
Consolidated Financial Statements for additional information.
|
The accompanying notes are an integral part of these
consolidated financial statements.
62
DELL INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
January 28,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
As
|
|
|
As
|
|
|
|
|
|
|
Restated
|
|
|
Restated
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,583
|
|
|
$
|
3,602
|
|
|
$
|
3,018
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
471
|
|
|
|
394
|
|
|
|
331
|
|
Stock-based compensation
|
|
|
368
|
|
|
|
17
|
|
|
|
18
|
|
Excess tax benefits from stock-based compensation
|
|
|
(80
|
)
|
|
|
|
|
|
|
|
|
Tax benefits from employee stock plans
|
|
|
|
|
|
|
224
|
|
|
|
249
|
|
Effects of exchange rate changes on monetary assets and
liabilities denominated in foreign currencies
|
|
|
37
|
|
|
|
(3
|
)
|
|
|
(16
|
)
|
Other
|
|
|
61
|
|
|
|
157
|
|
|
|
61
|
|
Changes in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating working capital
|
|
|
397
|
|
|
|
(53
|
)
|
|
|
1,772
|
|
Non-current assets and liabilities
|
|
|
132
|
|
|
|
413
|
|
|
|
388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
3,969
|
|
|
|
4,751
|
|
|
|
5,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
|
|
|
(8,343
|
)
|
|
|
(6,796
|
)
|
|
|
(13,006
|
)
|
Maturities and sales
|
|
|
10,320
|
|
|
|
11,692
|
|
|
|
11,843
|
|
Capital expenditures
|
|
|
(896
|
)
|
|
|
(747
|
)
|
|
|
(515
|
)
|
Acquisition of business, net of cash received
|
|
|
(118
|
)
|
|
|
|
|
|
|
|
|
Proceeds from sale of building
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
1,003
|
|
|
|
4,149
|
|
|
|
(1,678
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock
|
|
|
(3,026
|
)
|
|
|
(7,249
|
)
|
|
|
(4,219
|
)
|
Issuance of common stock under benefit plans
|
|
|
314
|
|
|
|
1,051
|
|
|
|
1,112
|
|
Excess tax benefits from stock-based compensation
|
|
|
80
|
|
|
|
|
|
|
|
|
|
Issuance of commercial paper, net
|
|
|
100
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
(19
|
)
|
|
|
(54
|
)
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(2,551
|
)
|
|
|
(6,252
|
)
|
|
|
(3,129
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
71
|
|
|
|
(73
|
)
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
2,492
|
|
|
|
2,575
|
|
|
|
1,060
|
|
Cash and cash equivalents at beginning of year
|
|
|
7,054
|
|
|
|
4,479
|
|
|
|
3,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
9,546
|
|
|
$
|
7,054
|
|
|
$
|
4,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
63
DELL, INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital in Excess
of
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Par
Value
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
|
|
|
Treasury
Stock
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Earnings
|
|
|
Loss
|
|
|
Other
|
|
|
Total
|
|
|
Balances at January 30, 2004 (Reported)
|
|
|
2,721
|
|
|
$
|
6,823
|
|
|
|
165
|
|
|
$
|
(6,539
|
)
|
|
$
|
6,131
|
|
|
$
|
(83
|
)
|
|
$
|
(52
|
)
|
|
$
|
6,280
|
|
Cumulative impact of restatement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52
|
)
|
|
|
10
|
|
|
|
|
|
|
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at January 30, 2004 (Restated)
|
|
|
2,721
|
|
|
|
6,823
|
|
|
|
165
|
|
|
|
(6,539
|
)
|
|
|
6,079
|
|
|
|
(73
|
)
|
|
|
(52
|
)
|
|
|
6,238
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,018
|
|
|
|
|
|
|
|
|
|
|
|
3,018
|
|
Change in net unrealized loss on investments, net of taxes of $16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52
|
)
|
|
|
|
|
|
|
(52
|
)
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Change in net unrealized loss on derivative instruments, net of
taxes of $21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,013
|
|
Stock issuances under employee plans, including tax benefits
|
|
|
48
|
|
|
|
1,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,372
|
|
Repurchases
|
|
|
|
|
|
|
|
|
|
|
119
|
|
|
|
(4,219
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,219
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at January 28, 2005 (Restated)
|
|
|
2,769
|
|
|
|
8,195
|
|
|
|
284
|
|
|
|
(10,758
|
)
|
|
|
9,097
|
|
|
|
(78
|
)
|
|
|
(44
|
)
|
|
|
6,412
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,602
|
|
|
|
|
|
|
|
|
|
|
|
3,602
|
|
Change in net unrealized loss on investments, net of taxes of $1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24
|
)
|
|
|
|
|
|
|
(24
|
)
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
(8
|
)
|
Change in net unrealized loss on derivative instruments, net of
taxes of $4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,579
|
|
Stock issuances under employee plans, including tax benefits
|
|
|
49
|
|
|
|
1,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,308
|
|
Repurchases
|
|
|
|
|
|
|
|
|
|
|
204
|
|
|
|
(7,249
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,249
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at February 3, 2006 (Restated)
|
|
|
2,818
|
|
|
|
9,503
|
|
|
|
488
|
|
|
|
(18,007
|
)
|
|
|
12,699
|
|
|
|
(101
|
)
|
|
|
(47
|
)
|
|
|
4,047
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,583
|
|
|
|
|
|
|
|
|
|
|
|
2,583
|
|
Change in net unrealized loss on investments, net of taxes of $12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
|
|
|
|
31
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
(11
|
)
|
Change in net unrealized gain on derivative instruments, net of
taxes of $11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
30
|
|
Valuation of retained interests in securitized assets, net of
taxes of $7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,656
|
|
Stock issuances under employee plans
|
|
|
14
|
|
|
|
196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
196
|
|
Repurchases
|
|
|
|
|
|
|
|
|
|
|
118
|
|
|
|
(3,026
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,026
|
)
|
Stock-based compensation expense under SFAS 123(R)
|
|
|
|
|
|
|
368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
368
|
|
Tax benefit from employee stock plans
|
|
|
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56
|
|
Other and shares issued to subsidiaries
|
|
|
475
|
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at February 2, 2007
|
|
|
3,307
|
|
|
$
|
10,107
|
|
|
|
606
|
|
|
$
|
(21,033
|
)
|
|
$
|
15,282
|
|
|
$
|
(28
|
)
|
|
$
|
|
|
|
$
|
4,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
64
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
NOTE 1
|
Description of
Business and Summary of Significant Accounting
Policies
|
Description of Business Dell Inc., a Delaware
corporation, and its consolidated subsidiaries (collectively
referred to as Dell) designs, develops,
manufactures, markets, sells, and supports a wide range of
computer systems and services that are customized to customer
requirements. Dell offers a broad range of product categories,
including desktop computer systems, servers and networking
products, mobility products, software and peripherals, and
enhanced services. Dell markets and sells its products and
services directly to its customers, which include large
corporate, government, healthcare, and education accounts, as
well as small-to-medium businesses and individual customers.
Fiscal Year Dells fiscal year is the
52- or 53-week period ending on the Friday nearest
January 31. The fiscal year ending February 2, 2007
included 52 weeks. The fiscal year ending February 3,
2006 included 53 weeks, and the fiscal year ending
January 28, 2005 included 52 weeks.
Principles of Consolidation The accompanying
consolidated financial statements include the accounts of Dell
and its wholly-owned and controlled majority-owned subsidiaries
and have been prepared in accordance with accounting principles
generally accepted in the United States of America
(GAAP). All significant intercompany transactions
and balances have been eliminated.
Dell is currently a partner in Dell Financial Services L.P.
(DFS), a joint venture with CIT Group, Inc.
(CIT). The joint venture allows Dell to provide its
customers with various financing alternatives. Dell consolidates
DFS financial results in accordance with Financial
Accounting Standards Board (FASB) Interpretation
No. 46R (FIN 46R) as Dell is the primary
beneficiary. See Note 7 of Notes to Consolidated Financial
Statements.
Use of Estimates The preparation of financial
statements in accordance with GAAP requires the use of
managements estimates. These estimates are subjective in
nature and involve judgments that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and
liabilities at fiscal year-end, and the reported amounts of
revenues and expenses during the fiscal year. Actual results
could differ from those estimates.
Cash and Cash Equivalents All highly liquid
investments, including credit card receivables, with original
maturities of three months or less at date of purchase are
carried at cost, which approximates fair value, and are
considered to be cash equivalents. All other investments not
considered to be cash equivalents are separately categorized as
investments.
Investments Dells investments in debt
securities and publicly traded equity securities are classified
as available-for-sale and are reported at fair value (based on
quoted market prices) using the specific identification method.
Unrealized gains and losses, net of taxes, are reported as a
component of stockholders equity. Realized gains and
losses on investments are included in investment and other
income, net when realized. All other investments are initially
recorded at cost, and any impairment loss to reduce an
investments carrying amount to its fair market value is
recognized in income when a decline in the fair market value of
an individual security below its cost or carrying value is
determined to be other than temporary.
Financing Receivables Financing receivables
primarily consist of fixed-term loans and leases and revolving
loans. Dell sells certain finance receivables to unconsolidated
qualifying special purpose entities in securitization
transactions. These receivables are removed from the
Consolidated Statement of Financial Position at the time they
are sold. Receivables are considered sold when the receivables
are transferred beyond the reach of Dells creditors, the
transferee has the right to pledge or exchange the assets, and
Dell has surrendered control over the rights and obligations of
the receivables. Gains and losses from the sale of fixed-term
loans and leases and revolving loans are recognized in the
period the sale occurs, based upon the relative fair value of
the assets sold and the remaining retained interests.
65
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
Inventories Inventories are stated at the
lower of cost or market with cost being determined on a
first-in,
first-out basis.
Property, Plant, and Equipment Property,
plant, and equipment are carried at depreciated cost.
Depreciation is provided using the straight-line method over the
estimated economic lives of the assets, which range from ten to
thirty years for buildings and two to five years for all other
assets. Leasehold improvements are amortized over the shorter of
five years or the lease term. Gains or losses related to
retirements or disposition of fixed assets are recognized in the
period incurred. Dell performs reviews for the impairment of
fixed assets whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. Dell capitalizes eligible internal-use software
development costs incurred subsequent to the completion of the
preliminary project stage. Development costs are amortized over
the shorter of the expected useful life of the software or five
years.
Foreign Currency Translation The majority of
Dells international sales are made by international
subsidiaries, most of which have the U.S. dollar as their
functional currency. Dells subsidiaries that do not have
the U.S. dollar as their functional currency translate
assets and liabilities at current rates of exchange in effect at
the balance sheet date. Revenue and expenses from these
international subsidiaries are translated using the monthly
average exchange rates in effect for the period in which the
items occur. The resulting gains and losses from these foreign
currency translation adjustments totaled a $33 million
loss, $22 million loss, and $14 million loss at
February 2, 2007, February 3, 2006 and
January 28, 2005, respectively, and are included as a
component of accumulated other comprehensive income (loss) in
stockholders equity.
Local currency transactions of international subsidiaries that
have the U.S. dollar as the functional currency are
remeasured into U.S. dollars using current rates of
exchange for monetary assets and liabilities and historical
rates of exchange for nonmonetary assets and liabilities. Gains
and losses from remeasurement of monetary assets and liabilities
are included in investment and other income, net.
Hedging Instruments Dell applies Statement of
Financial Accounting Standards (SFAS) No. 133
(SFAS 133), Accounting for Derivative
Instruments and Hedging Activities, as amended, which
establishes accounting and reporting standards for derivative
instruments and hedging activities. SFAS 133 requires Dell
to recognize all derivatives as either assets or liabilities in
its Consolidated Statements of Financial Position and measure
those instruments at fair value. Dell uses derivative
instruments to hedge foreign exchange risk and interest rate
risk.
Dell uses purchased option and forward contracts designated as
cash flow hedges to protect against the foreign currency
exchange risk inherent in its forecasted transactions
denominated in currencies other than the U.S. dollar.
According to SFAS 133, designated hedging instruments
qualify for cash flow hedge accounting if all of the following
criteria are met: at inception of the hedge, there is formal
documentation of the hedging relationship and the entitys
risk management objective for undertaking the hedge; both at
hedge inception and on an ongoing basis, the hedging
relationship is expected to be highly effective; the forecasted
transaction is specifically identified; the occurrence of the
forecasted transaction is probable; and the forecasted
transaction is a transaction with a party external to the
reporting entity. If the derivative qualifies for cash flow
hedge accounting, the effective portion of the change in the
fair value of the derivative is initially deferred in
comprehensive income (loss), net of tax. The ineffective portion
of the change in the fair value of a cash flow hedge is
recognized currently in earnings and is reported as a component
of investment and other income, net. Dell also uses forward
contracts to hedge monetary assets and liabilities, primarily
receivables and payables, denominated in a foreign currency.
These contracts are not designated as hedging instruments under
SFAS 133, and therefore, the change in the
instruments fair value is recognized currently in earnings
and is reported as a component of investment and other income,
net.
66
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
Dells interest rate swap agreements are designated as fair
value hedges. See Note 3 of Notes to Consolidated Financial
Statements below for further discussion of hedging instruments.
Treasury Stock Effective with the beginning
of the second quarter of Fiscal 2002, Dell began holding
repurchased shares of its common stock as treasury stock. Prior
to that date, Dell retired all such repurchased shares, which
were recorded as a reduction to retained earnings. Dell accounts
for treasury stock under the cost method and includes treasury
stock as a component of stockholders equity.
Revenue Recognition Net revenue includes
sales of hardware, software and peripherals, and services
(including extended service contracts and professional
services). These products and services are sold either
separately or as part of a multiple-element arrangement. Dell
allocates revenue from multiple-element arrangements to the
elements based on the relative fair value of each element, which
is generally based on the relative sales price of each element
when sold separately. The allocation of fair value for a
multiple-element arrangement involving software is based on
vendor specific objective evidence (VSOE), or in the
absence of VSOE for delivered elements, the residual method.
Under the residual method, Dell allocates revenue to software
licenses at the inception of the license term when VSOE for all
undelivered elements, such as Post Contract Customer Support
(PCS), exists and all other revenue recognition
criteria have been satisfied. In the absence of VSOE for
undelivered elements, revenue is deferred and subsequently
recognized over the term of the arrangement. For sales of
extended warranties with a separate contract price, Dell defers
revenue equal to the separately stated price. Revenue associated
with undelivered elements is deferred and recorded when delivery
occurs. Product revenue is recognized, net of an allowance for
estimated returns, when both title and risk of loss transfer to
the customer, provided that no significant obligations remain.
Revenue from extended warranty and service contracts, for which
Dell is obligated to perform, is recorded as deferred revenue
and subsequently recognized over the term of the contract or
when the service is completed. Revenue from sales of third-party
extended warranty and service contracts or software PCS, for
which Dell is not obligated to perform, and for which Dell does
not meet the criteria for gross revenue recognition under
EITF 99-19
is recognized on a net basis. All other revenue is recognized on
a gross basis.
Dell defers the cost of shipped products awaiting revenue
recognition until the goods are delivered and revenue is
recognized. In-transit product shipments to customers totaled
$424 million and $417 million as of February 2,
2007 and February 3, 2006, respectively, and are included
in other current assets on Dells Consolidated Statement of
Financial Position.
Warranty Dell records warranty liabilities at
the time of sale for the estimated costs that may be incurred
under its limited warranty. The specific warranty terms and
conditions vary depending upon the product sold and country in
which Dell does business, but generally includes technical
support, parts, and labor over a period ranging from one to
three years. Factors that affect Dells warranty liability
include the number of installed units currently under warranty,
historical and anticipated rates of warranty claims on those
units, and cost per claim to satisfy Dells warranty
obligation. The anticipated rate of warranty claims is the
primary factor impacting the estimated warranty obligation. The
other factors are less significant due to the fact that the
average remaining aggregate warranty period of the covered
installed base is approximately 20 months, repair parts are
generally already in stock or available at pre-determined
prices, and labor rates are generally arranged at
pre-established amounts with service providers. Warranty claims
are relatively predictable based on historical experience of
failure rates. If actual results differ from the estimates, Dell
revises its estimated warranty liability. Each quarter, Dell
reevaluates its estimates to assess the adequacy of its recorded
warranty liabilities and adjusts the amounts as necessary.
Vendor Rebates Dell may receive consideration
from vendors in the normal course of business. Certain of these
funds are rebates of purchase price paid and others are related
to reimbursement of costs incurred by Dell to sell the
vendors products. Dells policy for accounting for
these funds is in accordance with
EITF 02-16,
Accounting by a Customer (Including a Reseller) for Certain
Consideration Received
67
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
from a Vendor. The funds are recognized as a reduction of
cost of goods sold and inventory if the funds are a reduction of
the price of the vendors products. If the consideration is
a reimbursement of costs incurred by Dell to sell or develop the
vendors products, then the consideration is classified as
a reduction of that cost in the income statement, most often
operating expenses. In order to be recognized as a reduction of
operating expenses, the reimbursement must be for a specific,
incremental, identifiable cost incurred by Dell in selling or
developing the vendors products or services.
Shipping Costs Dells shipping and
handling costs are included in cost of sales in the accompanying
Consolidated Statements of Income for all periods presented.
Selling, General, and Administrative Selling
expenses include items such as sales commissions, marketing and
advertising costs, and contractor services. Advertising costs
are expensed as incurred and were $836 million,
$773 million, and $582 million during Fiscal 2007,
2006, and 2005, respectively. General and administrative
expenses include items for Dells administrative functions,
such as Finance, Legal, Human Resources, and information
technology support. These functions include costs for items such
as salaries, maintenance and supplies, insurance, depreciation
expense, and allowance for doubtful accounts.
Research, Development, and Engineering Costs
Research, development, and engineering costs are expensed as
incurred, in accordance with SFAS 2, Accounting for
Research and Development Costs. Research, development, and
engineering expenses primarily include payroll and headcount
related costs, contractor fees, infrastructure costs, and
administrative expenses directly related to research and
development support.
Website Development Costs Dell expenses, as
incurred, the costs of maintenance and minor enhancements to the
features and functionality of its websites.
Income Taxes Deferred tax assets and
liabilities are recorded based on the difference between the
financial statement and tax basis of assets and liabilities
using enacted tax rates in effect for the year in which the
differences are expected to reverse.
Comprehensive Income Dells
comprehensive income is comprised of net income, unrealized
gains and losses on marketable securities classified as
available-for-sale, unrealized gains and losses related to the
change in valuation of retained interests in securitized assets,
foreign currency translation adjustments, and unrealized gains
and losses on derivative financial instruments related to
foreign currency hedging. Upon the adoption of SFAS 155,
all gains and losses in valuation of retained interests in
securitized assets are recognized in income immediately and no
longer included in accumulated other comprehensive income
beginning the first quarter Fiscal 2008.
Earnings Per Common Share Basic earnings per
share is based on the weighted-average effect of all common
shares issued and outstanding, and is calculated by dividing net
income by the weighted-average shares outstanding during the
period. Diluted earnings per share is calculated by dividing net
income by the weighted-average number of common shares used in
the basic earnings per share calculation plus the number of
common shares that would be issued assuming exercise or
conversion of all potentially dilutive common shares
outstanding. Dell excludes equity instruments from the
calculation of diluted earnings per share if the effect of
including such instruments is antidilutive. Accordingly, certain
employee stock options have been excluded from the calculation
of diluted earnings per share totaling 268 million,
127 million, and 103 million shares during Fiscal
2007, 2006, and 2005, respectively.
In December 2006, Dell modified the organizational structure of
certain subsidiaries to achieve more integrated Dell global
operations and to provide various financial, operational, and
tax efficiencies. In connection with this internal
restructuring, Dell issued 475 million shares of common
stock to a wholly-
68
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
owned subsidiary. Pursuant to Accounting Research
Bulletin 51, Consolidated Financial Statements (as
amended), these shares are not considered to be outstanding
on Dells consolidated financial statements.
The following table sets forth the computation of basic and
diluted earnings per share for each of the past three fiscal
years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
January 28,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
As
|
|
|
As
|
|
|
|
|
|
|
Restated
|
|
|
Restated
|
|
|
|
(in millions,
except per share amounts)
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,583
|
|
|
$
|
3,602
|
|
|
$
|
3,018
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
2,255
|
|
|
|
2,403
|
|
|
|
2,509
|
|
Effect of dilutive options, restricted stock units, restricted
stock, and other
|
|
|
16
|
|
|
|
46
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
2,271
|
|
|
|
2,449
|
|
|
|
2,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.15
|
|
|
$
|
1.50
|
|
|
$
|
1.20
|
|
Diluted
|
|
$
|
1.14
|
|
|
$
|
1.47
|
|
|
$
|
1.18
|
|
Stock-Based Compensation At February 2,
2007, Dell had four stock-based compensation plans and an
employee stock purchase plan with outstanding stock or stock
options.
Effective February 4, 2006, Dell adopted
SFAS No. 123 (revised 2004), Share-Based Payment
(SFAS 123(R)), using the modified
prospective transition method which does not require revising
the presentation in prior periods for stock-based compensation.
Under this transition method, stock-based compensation expense
for Fiscal 2007 includes compensation expense for all
stock-based compensation awards granted prior to, but not yet
vested at February 4, 2006, based on the grant date fair
value estimated in accordance with the original provisions of
SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS 123). Stock-based
compensation expense for all stock-based compensation awards
granted after February 3, 2006 is based on the grant-date
fair value estimated in accordance with the provisions of
SFAS 123(R). Dell recognizes this compensation expense net
of an estimated forfeiture rate over the requisite service
period of the award, which is generally the vesting term of five
years for stock options and five-to-seven years for restricted
stock awards. In March 2005, the Securities and Exchange
Commission (SEC) issued Staff Accounting
Bulletin No. 107 (SAB 107) regarding
the SECs interpretation of SFAS 123(R) and the
valuation of share-based payments for public companies. Dell has
applied the provisions of SAB 107 in its adoption of
SFAS 123(R). See Note 6 of Notes to Consolidated
Financial Statements for further discussion of stock-based
compensation.
Prior to the adoption of SFAS 123(R), Dell measured
compensation expense for its employee stock-based compensation
plans using the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees (APB 25). Dell applied the
disclosure provisions of SFAS 123 such that the fair value
of employee stock-based compensation was disclosed in the notes
to its financial statements. Under APB 25, when the exercise
price of Dells employee stock options equaled the market
price of the underlying stock at the date of the grant, no
compensation expense was recognized.
Recently Issued Accounting
Pronouncements In February 2006, the FASB
issued SFAS No. 155, Accounting for Certain Hybrid
Instruments (SFAS 155), which is an
amendment of SFAS 133, and SFAS No. 140,
Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of
69
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
Liabilities a replacement of FASB
Statement No. 125 (SFAS 140).
SFAS 155 allows Dell to elect to account for financial
instruments with embedded derivatives as a whole on a fair value
basis, instead of bifurcating the derivative from the host
financial instrument. This statement also requires Dell to
evaluate its interest in securitized financial assets to
identify any freestanding derivatives and embedded derivatives,
and clarifies that concentrations of credit risk in the form of
subordination are not embedded derivatives. SFAS 155 is
effective for all financial instruments acquired, issued, or
subject to a remeasurement event after the beginning of
Dells Fiscal 2008. Dell determined that its retained
interest in securitized assets contains embedded derivatives and
elected to account for the entire asset on a fair value basis.
The fair value basis did not have a material effect on
Dells results of operations, financial position, or cash
flows.
In March 2006, the FASB issued SFAS No. 156,
Accounting for Servicing of Financial Assets an
amendment of FASB Statement No. 140
(SFAS 156). SFAS 156 requires an
entity to recognize a servicing asset or servicing liability
each time it undertakes an obligation to service a financial
asset by entering into a servicing contract in specific
situations. Additionally, the servicing asset or servicing
liability is initially measured at fair value; however, an
entity may elect the amortization method or
fair value method for subsequent reporting periods.
SFAS 156 is effective beginning Dells Fiscal 2008.
Adoption of SFAS 156 did not have a material effect on
Dells results of operations, financial position, or cash
flows.
In June 2006, the Emerging Issues Task Force reached a consensus
on Issue
No. 06-3,
Disclosure Requirements for Taxes Assessed by a Governmental
Authority on Revenue-Producing Transactions
(EITF 06-3).
The consensus allows an entity to choose between two acceptable
alternatives based on their accounting policies for transactions
in which the entity collects taxes on behalf of a governmental
authority, such as sales taxes. Under the gross method, taxes
collected are accounted for as a component of revenue with an
offsetting expense. Conversely, the net method excludes such
taxes from revenue. Companies are required to disclose the
method selected pursuant to APB Opinion No. 22,
Disclosure of Accounting Policies. If such taxes are
reported gross and are significant, companies are required to
disclose the amount of those taxes. The guidance should be
applied to financial reports through retrospective application
for all periods presented, if amounts are significant, for
interim and annual reporting periods beginning after
December 15, 2006, which is Dells Fiscal 2008. Dell
records revenue net of such taxes.
In July 2006, the FASB issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement No. 109
(FIN 48). FIN 48 clarifies the accounting
and reporting for uncertainties in income tax law. This
Interpretation prescribes a comprehensive model for the
financial statement recognition, measurement, presentation, and
disclosure of uncertain tax positions taken or expected to be
taken in income tax returns. Dell adopted this Interpretation in
the first quarter of Fiscal 2008, and this adoption resulted in
a decrease to stockholders equity of approximately
$62 million. In addition, consistent with the provisions of
FIN 48, Dell changed the classification of
$1.1 billion of income tax liabilities from current to
non-current liabilities because payment of cash is not
anticipated within one year of the balance sheet date. In
September 2006, the SEC issued Staff Accounting
Bulletin No. 108, Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current
Year Financial Statements (SAB 108).
SAB 108 addresses the process of quantifying financial
statement misstatements; however, it does not address how to
assess materiality in interim financial statements. SAB 108
establishes the dual approach for the evaluation of the impact
of financial statement misstatements. SAB 108 was effective
for Dells Fiscal 2007. There was no impact on Dells
results of operations, financial position, or cash flows due to
the adoption of SAB 108. However, this guidance was
considered in the determination by Dell to restate its
previously issued financial statements as discussed in
Note 2 of Notes to Consolidated Financial Statements.
70
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements (SFAS 157),
which defines fair value, provides a framework for measuring
fair value, and expands the disclosures required for assets and
liabilities measured at fair value. SFAS 157 applies to
existing accounting pronouncements that require fair value
measurements; it does not require any new fair value
measurements. SFAS 157 is effective for fiscal years
beginning after November 15, 2007 and is required to be
adopted by Dell beginning in the first quarter of Fiscal 2009.
Management is currently evaluating the impact that SFAS 157
may have on Dells results of operations, financial
position, and cash flows.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities
(SFAS 159), which provides companies with
an option to report selected financial assets and liabilities at
fair value with the changes in fair value recognized in earnings
at each subsequent reporting date. SFAS 159 provides an
opportunity to mitigate potential volatility in earnings caused
by measuring related assets and liabilities differently, and it
may reduce the need for applying complex hedge accounting
provisions. If elected, SFAS 159 is effective for fiscal
years beginning after November 15, 2007, which is
Dells Fiscal 2009. Management is currently evaluating the
impact that this statement may have on Dells results of
operations and financial position, and has yet to make a
decision on the elective adoption of SFAS 159.
Reclassifications To maintain comparability
among the periods presented, Dell has revised the presentation
of certain prior period amounts reported within the Notes to
Consolidated Financial Statements. For further discussion
regarding the presentation of service obligations honored, see
Note 8 of Notes to Consolidated Financial Statements and
for a detailed discussion addressing the change in
classification of enhanced services see Note 10 of Notes to
Consolidated Financial Statements.
|
|
NOTE 2
|
Audit Committee
Independent Investigation and Restatement
|
Background and
Scope of the Investigation
In August 2005, the Division of Enforcement of the SEC initiated
an inquiry into certain of Dells accounting and financial
reporting matters and requested that Dell provide certain
documents. Over the course of several months, Dell produced
documents and provided information in response to the SECs
initial request and subsequent requests.
In June 2006, the SEC sent Dell an additional request for
documents and information that appeared to expand the scope of
the inquiry, with respect to both issues and periods. As
documents and information were collected in response to this
additional request, Dells management was made aware of
information that raised significant accounting and financial
reporting concerns, including whether accruals, reserves, and
other balance sheet items had been recorded and reported
properly. After evaluating this information and in consultation
with PricewaterhouseCoopers LLP, Dells independent
registered public accounting firm, management determined that
the identified issues warranted an independent investigation and
recommended such to the Audit Committee of Dells Board of
Directors.
On August 16, 2006, the Audit Committee, acting on
managements recommendation, approved the initiation of an
independent investigation. The Audit Committee engaged Willkie
Farr & Gallagher LLP (Willkie Farr) to
lead the investigation as the independent legal counsel to the
Audit Committee. Willkie Farr in turn engaged KPMG LLP
(KPMG) to serve as its independent forensic
accountants.
The scope of the investigation was determined by Willkie Farr,
in consultation with the Audit Committee and KPMG. The
investigation involved a program of forensic analysis and
inquiry directed to aspects of Dells accounting and
financial reporting practices throughout the world, and
evaluated aspects of its historical accounting and financial
reporting practices since Fiscal 2002 and, with respect to
certain issues, prior fiscal years.
71
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
Summary of
Investigation Findings
The investigation raised questions relating to numerous
accounting issues, most of which involved adjustments to various
reserve and accrued liability accounts, and identified evidence
that certain adjustments appear to have been motivated by the
objective of attaining financial targets. According to the
investigation, these activities typically occurred in the days
immediately following the end of a quarter, when the accounting
books were being closed and the results of the quarter were
being compiled. The investigation found evidence that, in that
timeframe, account balances were reviewed, sometimes at the
request or with the knowledge of senior executives, with the
goal of seeking adjustments so that quarterly performance
objectives could be met. The investigation concluded that a
number of these adjustments were improper, including the
creation and release of accruals and reserves that appear to
have been made for the purpose of enhancing internal performance
measures or reported results, as well as the transfer of excess
accruals from one liability account to another and the use of
the excess balances to offset unrelated expenses in later
periods. The investigation found that sometimes business unit
personnel did not provide complete information to corporate
headquarters and, in a number of instances, purposefully
incorrect or incomplete information about these activities was
provided to internal or external auditors.
The investigation identified evidence that accounting
adjustments were viewed at times as an acceptable device to
compensate for earnings shortfalls that could not be closed
through operational means. Often, these adjustments ranged from
several hundred thousand to several million dollars, in the
context of a company with annual revenues ranging from
$35.3 billion to $55.8 billion and annual net income
ranging from $2.0 billion to $3.6 billion for the
periods in question. The errors and irregularities identified in
the course of the investigation revealed deficiencies in
Dells accounting and financial control environment, some
of which were determined to be material weaknesses, that require
corrective and remedial actions.
Other Company
Identified Adjustments
Concurrently with the investigation, Dell also conducted
extensive internal reviews for the purpose of the preparation
and certification of Dells Fiscal 2007 financial
statements and its assessment of internal controls over
financial reporting. Dells procedures included expanded
account reviews and expanded balance sheet reconciliations to
ensure all accounts were fully reconciled, supported, and
appropriately documented. Dell also implemented improvements to
its quarterly and annual accounting close process to provide for
more complete review of the various business unit financial
results.
Restatement
Adjustments
As a result of the issues identified in the Audit Committee
independent investigation, as well as issues identified in
additional reviews and procedures conducted by management, the
Audit Committee, in consultation with management and
PricewaterhouseCoopers LLP, concluded on August 13, 2007
that Dells previously issued financial statements for
Fiscal 2003, 2004, 2005, and 2006 (including the interim periods
within those years), and the first quarter of Fiscal 2007,
should no longer be relied upon because of certain accounting
errors and irregularities in those financial statements.
Accordingly, Dell has restated its previously issued financial
statements for those periods. Restated financial information is
presented in this report.
The cumulative adjustments required to correct the errors and
irregularities in the financial statements prior to Fiscal 2005
are reflected in the restated retained earnings as of the end of
Fiscal 2004, as shown in the Statement of Stockholders
Equity. The cumulative effect of those adjustments reduced
retained earnings by $52 million at January 31, 2004.
72
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
The nature of the restatement adjustments and the impact of the
adjustments to Fiscal 2006 are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2006
|
|
|
|
|
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
Other
|
|
|
Provision
|
|
|
|
|
|
|
|
|
|
recognition
|
|
|
|
|
|
reserves
|
|
|
for
|
|
|
|
|
|
|
As
|
|
|
Software
|
|
|
|
|
|
Warranty
|
|
|
and
|
|
|
income
|
|
|
As
|
|
|
|
Reported
|
|
|
sales
|
|
|
Other
|
|
|
liabilities
|
|
|
accruals
|
|
|
tax(a)
|
|
|
Restated
|
|
|
|
(in millions,
except per share data)
|
|
|
Net revenue
|
|
$
|
55,908
|
|
|
$
|
(248
|
)
|
|
$
|
130
|
|
|
$
|
|
|
|
$
|
(2
|
)
|
|
$
|
|
|
|
$
|
55,788
|
|
Cost of net revenue
|
|
|
45,958
|
|
|
|
(244
|
)
|
|
|
124
|
|
|
|
52
|
|
|
|
7
|
|
|
|
|
|
|
|
45,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
9,950
|
|
|
|
(4
|
)
|
|
|
6
|
|
|
|
(52
|
)
|
|
|
(9
|
)
|
|
|
|
|
|
|
9,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative
|
|
|
5,140
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
(90
|
)
|
|
|
|
|
|
|
5,051
|
|
Research, development, and engineering
|
|
|
463
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
5,603
|
|
|
|
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
(94
|
)
|
|
|
|
|
|
|
5,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
4,347
|
|
|
|
(4
|
)
|
|
|
5
|
|
|
|
(51
|
)
|
|
|
85
|
|
|
|
|
|
|
|
4,382
|
|
Investment and other income, net
|
|
|
227
|
|
|
|
|
|
|
|
11
|
|
|
|
(4
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
4,574
|
|
|
|
(4
|
)
|
|
|
16
|
|
|
|
(55
|
)
|
|
|
77
|
|
|
|
|
|
|
|
4,608
|
|
Income tax provision
|
|
|
1,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
1,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
1.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
2,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,403
|
|
Diluted
|
|
|
2,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,449
|
|
|
|
|
(a)
|
|
Primarily represents the aggregate
tax impact of the adjustments.
|
73
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
The nature of the restatement adjustments and the impact of the
adjustments to Fiscal 2005 are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2005
|
|
|
|
|
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
Other
|
|
|
Provision
|
|
|
|
|
|
|
|
|
|
recognition
|
|
|
|
|
|
reserves
|
|
|
for
|
|
|
|
|
|
|
As
|
|
|
Software
|
|
|
|
|
|
Warranty
|
|
|
and
|
|
|
income
|
|
|
As
|
|
|
|
Reported
|
|
|
sales
|
|
|
Other
|
|
|
liabilities
|
|
|
accruals
|
|
|
tax(a)
|
|
|
Restated
|
|
|
|
(in millions,
except per share data)
|
|
|
Net revenue
|
|
$
|
49,205
|
|
|
$
|
(105
|
)
|
|
$
|
21
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
49,121
|
|
Cost of net revenue
|
|
|
40,190
|
|
|
|
(93
|
)
|
|
|
21
|
|
|
|
21
|
|
|
|
(36
|
)
|
|
|
|
|
|
|
40,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
9,015
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
(21
|
)
|
|
|
36
|
|
|
|
|
|
|
|
9,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative
|
|
|
4,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54
|
|
|
|
|
|
|
|
4,352
|
|
Research, development, and engineering
|
|
|
463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
4,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
|
|
|
|
|
|
|
|
4,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
4,254
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
(21
|
)
|
|
|
(15
|
)
|
|
|
|
|
|
|
4,206
|
|
Investment and other income, net
|
|
|
191
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
4,445
|
|
|
|
(12
|
)
|
|
|
1
|
|
|
|
(21
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
4,403
|
|
Income tax provision
|
|
|
1,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17
|
)
|
|
|
1,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
1.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
2,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,509
|
|
Diluted
|
|
|
2,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,568
|
|
|
|
|
(a)
|
|
Primarily represents the aggregate
tax impact of the adjustments
|
Revenue
Recognition Adjustments
Software Sales The largest revenue
recognition adjustment relates to correcting the timing and
amount of revenue recognized on the sale of certain software
products. Dell is a reseller of a broad array of third-party
developed software. Individually significant categories of
software are analyzed for application of the appropriate
accounting under American Institute of Certified Public
Accountants (AICPA) Statement of Position
No. 97-2,
Software Revenue Recognition
(SOP 97-2).
However, the allocation of software sales revenue between the
software license (recognized at point of sale) and post-contract
support (deferred and recognized over time) for other high
volume, lower dollar value software products has historically
been assessed as a group and the post-contract support revenue
was deferred based on an estimate of average Vendor
Specific Objective Evidence (VSOE). During the
course of its internal reviews, Dell determined
74
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
that its application of
SOP 97-2
for these high volume software products was not correct. Dell
has determined that the most appropriate application of
SOP 97-2
is to defer all of the revenue from these other
software offerings and amortize the revenue over the
post-contract support period as VSOE has not been appropriately
established. Additionally, during the course of its reviews,
Dell identified certain software offerings where it had
previously recognized the gross amount of revenue from the sale
but where it functions more as a selling agent as opposed to the
principal in the sale to the customer. In those cases Dell
should have recognized the revenue net of the related cost
pursuant to EITF Issue
No. 99-19,
Reporting Revenue Gross as a Principal vs. Net as an
Agent.
Other The other revenue recognition
adjustments include cases where Dell recognized revenue in the
incorrect periods or recognized the incorrect amount of revenue
on certain transactions, and cases where the allocation of
revenue among the individual elements of the sale was not
correct. The primary categories of other revenue recognition
adjustments include the following:
|
|
|
SAB 104 Deferrals Instances were
identified where Dell prematurely recognized revenue prior to
finalization of the terms of sale with the customer, or prior to
title and/or
risk of loss having been passed to the customer. Sometimes these
situations involved warehousing arrangements. Additionally,
there were situations where revenue was incorrectly deferred to
later periods despite title
and/or risk
of loss having passed to the end customer. Under SAB 104,
there were also cases where the in-transit deferral calculation
for the period end was not appropriately calculated or was based
on incorrect assumptions.
|
|
|
Deferred Warranty Revenue Pursuant to
FASB Technical Bulletin No.
90-1,
Accounting for Separately Priced Extended Warranty and
Product Maintenance Contracts, Dell defers and amortizes the
revenue from the sale of extended warranties and enhanced
service level agreements over the service period of the
associated agreement. In some instances Dells accounting
estimates of the agreement durations were not correct, resulting
in revenue being recognized over a shorter time period than the
actual contract durations. Additionally, an error was identified
in the amount of deferred revenue recognized and amortized
during the restatement period.
|
|
|
Customer Rebate Accruals Dells
U.S. Consumer segment and small business group historically
offered various forms of rebates to stimulate sales, including
mail-in rebates. The rebate redemption liability is estimated at
the time of sale based on historical redemption rates for the
various types of promotions. Dell has determined that this
liability was overstated due to a number of factors, including
failure to update redemption rates when appropriate, additional
amounts accrued for expected customer satisfaction costs, and
unsupported incremental accruals recorded in addition to the
calculated redemption liability estimate.
|
|
|
Japan Services Transactions In late
January 2007, a Japanese systems integrator with whom
Dells Japanese services division did business, filed for
bankruptcy. The bankruptcy trustee publicly indicated that the
systems integrator had engaged in fictitious transactions. Dell
promptly commenced an internal investigation led by Dells
Ethics Office to determine whether its Japanese business unit
had engaged in any fictitious transactions with the systems
integrator. Dell hired independent outside counsel who retained
independent accountants to lead the investigation. The
investigation determined that almost all of the transactions of
the Japan services business involving the systems integrator
likely were fabricated, as were certain additional smaller
transactions involving two other Japanese systems integrators.
The impact of the adjustments reduced net revenue and cost of
revenue to eliminate the effect of the fictitious transactions.
|
|
|
Sales Reflected in Cost of Sales There
were transactions identified involving the sale of certain
computer component commodities and parts where the net proceeds
were presented as a reduction of cost of sales rather than as
revenue.
|
75
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
Warranty
Liabilities
The issues related to Dells warranty liabilities include
situations where certain vendor reimbursement agreements were
incorrectly accounted for as a reduction in the estimate of the
outstanding warranty liabilities. There were also instances
where warranty reserves in excess of the estimated warranty
liability, as calculated by the warranty liability estimation
process, were retained and not released to the income statement
as appropriate. Additionally, certain adjustments in the
warranty liability estimation process were identified where
expected future costs or estimated failure rates were not
accurate.
Other Reserves
and Accruals
Many of the restatement adjustments relate to the estimates and
reconciliation of various reserves and accrued liabilities,
including employee benefits, accounts payable, litigation, sales
commissions, payroll, employee bonuses, and supplier rebates.
Dell extensively reviewed its accruals and underlying estimates,
giving consideration to subsequent developments after the date
of the financial statements, to assess whether any of the
previously recorded amounts required adjustment. Dell conducted
expanded account reviews and expanded balance sheet
reconciliations to ensure that all accounts were fully
reconciled, supported, and appropriately documented. As a result
of this review, Dell determined that a number of its accruals
required adjustment across various accounting periods. The
largest of these adjustments are described in more detail below:
|
|
|
Employee Bonuses Certain employee bonuses
were not accrued correctly, including the timing of the
recording of the accrual for the employee bonuses. Additionally,
in certain cases when excess accruals resulted from differences
in the actual bonus payments, the excess accruals were not
adjusted as appropriate.
|
|
|
Vendor Funding Arrangements In some
instances vendor funding arrangements were not accounted for
appropriately under EITF Issue No.
02-16,
Accounting by a Customer (Including a Reseller) for Certain
Consideration Received from a Vendor. Certain amounts
received from vendors were recorded as a reduction in operating
expenses instead of being correctly recorded as a reduction of
cost of goods sold. Additionally, certain amounts received were
retained on the balance sheet and released in future periods
despite the earnings process having been complete in the earlier
period. Finally, there were instances where the benefit of
certain vendor funding was recorded prior to the completion of
the earnings process.
|
|
|
Unsubstantiated Accruals and Inadequately Reconciled
Accounts In some instances accrual and reserve
accounts lacked justification or supporting documentation. In
certain cases these accounts were used to accumulate excess
amounts from other reserve and accrual accounts. However, these
excess reserves were not released to the income statement in the
appropriate reporting period or were released for other
purposes. In some instances accounts had incorrect balances
because they had not been properly reconciled or because
reconciling items had not been adjusted timely.
|
76
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
The table below summarizes the effects of the restatement
adjustments on the Consolidated Statement of Financial Position
at February 3, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 3,
|
|
|
|
2006
|
|
|
|
As
|
|
|
|
|
|
As
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
Restated
|
|
|
|
(in
millions)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
7,042
|
|
|
$
|
12
|
|
|
$
|
7,054
|
|
Short-term investments
|
|
|
2,016
|
|
|
|
|
|
|
|
2,016
|
|
Accounts receivable, net
|
|
|
4,089
|
|
|
|
(7
|
)
|
|
|
4,082
|
|
Financing receivables, net
|
|
|
1,363
|
|
|
|
3
|
|
|
|
1,366
|
|
Inventories
|
|
|
576
|
|
|
|
12
|
|
|
|
588
|
|
Other
|
|
|
2,620
|
|
|
|
68
|
|
|
|
2,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
17,706
|
|
|
|
88
|
|
|
|
17,794
|
|
Property, plant, and equipment, net
|
|
|
2,005
|
|
|
|
(12
|
)
|
|
|
1,993
|
|
Investments
|
|
|
2,691
|
|
|
|
(5
|
)
|
|
|
2,686
|
|
Long-term financing receivables, net
|
|
|
325
|
|
|
|
|
|
|
|
325
|
|
Other non-current assets
|
|
|
382
|
|
|
|
72
|
|
|
|
454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
23,109
|
|
|
$
|
143
|
|
|
$
|
23,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
$
|
|
|
|
$
|
65
|
|
|
$
|
65
|
|
Accounts payable
|
|
|
9,840
|
|
|
|
28
|
|
|
|
9,868
|
|
Accrued and other
|
|
|
6,087
|
|
|
|
153
|
|
|
|
6,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
15,927
|
|
|
|
246
|
|
|
|
16,173
|
|
Long-term debt
|
|
|
504
|
|
|
|
121
|
|
|
|
625
|
|
Other non-current liabilities
|
|
|
2,549
|
|
|
|
(142
|
)
|
|
|
2,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
18,980
|
|
|
|
225
|
|
|
|
19,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable common stock and capital in excess of par value
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock and capital in excess of par
|
|
|
9,540
|
|
|
|
(37
|
)
|
|
|
9,503
|
|
Treasury stock
|
|
|
(18,007
|
)
|
|
|
|
|
|
|
(18,007
|
)
|
Retained earnings
|
|
|
12,746
|
|
|
|
(47
|
)
|
|
|
12,699
|
|
Accumulated other comprehensive loss
|
|
|
(103
|
)
|
|
|
2
|
|
|
|
(101
|
)
|
Other
|
|
|
(47
|
)
|
|
|
|
|
|
|
(47
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
4,129
|
|
|
|
(82
|
)
|
|
|
4,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
23,109
|
|
|
$
|
143
|
|
|
$
|
23,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of
Financial Position Adjustments
In addition to the income statement adjustments described above,
certain Statement of Financial Position classification
adjustments were also identified. These include
(i) correcting the classification of advances under credit
facilities by DFS from other current and non-current liabilities
to short-term borrowings and long-term debt as appropriate;
(ii) correcting the presentation of liabilities for
estimated litigation settlements by presenting estimated
insurance recoveries as a receivable from the insurance carriers
rather
77
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
than as a reduction of the estimated settlement liability;
(iii) correcting an error in the calculation and recording
of the tax benefit of employee stock options which had an
offsetting impact on accrued and other liabilities and
stockholders equity; (iv) adjusting the fair value of
long-term debt, where the interest rate is hedged with interest
rate swap agreements; and (v) adjusting deferred revenue to
record professional and deployment services impacting accounts
receivable and accrued and other liabilities. These balance
sheet corrections in classifications are included in the
adjustments column above.
Statement of Cash
Flows
The following table presents the major subtotals for Dells
Consolidated Statement of Cash Flows and the related impact of
the restatement adjustments discussed above for Fiscal 2006 and
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
Ended
|
|
|
|
February 3,
2006
|
|
|
January 28,
2005
|
|
|
|
As
|
|
|
As
|
|
|
As
|
|
|
As
|
|
|
|
Reported
|
|
|
Restated
|
|
|
Reported
|
|
|
Restated
|
|
|
|
(in
millions)
|
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,572
|
|
|
$
|
3,602
|
|
|
$
|
3,043
|
|
|
$
|
3,018
|
|
Non-cash adjustments
|
|
|
912
|
|
|
|
789
|
|
|
|
59
|
|
|
|
643
|
|
Changes in working capital
|
|
|
(67
|
)
|
|
|
(53
|
)
|
|
|
1,755
|
|
|
|
1,772
|
|
Changes in noncurrent assets and liabilities
|
|
|
422
|
|
|
|
413
|
|
|
|
453
|
|
|
|
388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
4,839
|
|
|
|
4,751
|
|
|
|
5,310
|
|
|
|
5,821
|
|
Investing activities
|
|
|
3,878
|
|
|
|
4,149
|
|
|
|
(2,317
|
)
|
|
|
(1,678
|
)
|
Financing activities
|
|
|
(6,226
|
)
|
|
|
(6,252
|
)
|
|
|
(3,128
|
)
|
|
|
(3,129
|
)
|
Effect of exchange rate changes on cash and cash
equivalents(a)
|
|
|
(196
|
)
|
|
|
(73
|
)
|
|
|
565
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
2,295
|
|
|
|
2,575
|
|
|
|
430
|
|
|
|
1,060
|
|
Cash and cash equivalents at beginning of year
|
|
|
4,747
|
|
|
|
4,479
|
|
|
|
4,317
|
|
|
|
3,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
7,042
|
|
|
$
|
7,054
|
|
|
$
|
4,747
|
|
|
$
|
4,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
The cash flows have been revised to
reflect a closer approximation of the weighted-average exchange
rates during the reporting periods. For most periods, this
revision reduced the previously reported effect of exchange rate
changes on cash and cash equivalents with an offsetting change
in effects of exchange rate changes on monetary assets and
liabilities denominated in foreign currencies and changes in
operating working capital included in cash flows from operating
activities.
|
78
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
Comprehensive
Income
The following table presents the impact of the restatement
adjustments discussed above on Dells comprehensive income
for Fiscal 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
Ended
|
|
|
|
February 3,
2006
|
|
|
January 28,
2005
|
|
|
|
As
|
|
|
As
|
|
|
As
|
|
|
As
|
|
|
|
Reported
|
|
|
Restated
|
|
|
Reported
|
|
|
Restated
|
|
|
|
(in
millions)
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,572
|
|
|
$
|
3,602
|
|
|
$
|
3,043
|
|
|
$
|
3,018
|
|
Unrealized gains on foreign currency hedging instruments
|
|
|
11
|
|
|
|
9
|
|
|
|
52
|
|
|
|
46
|
|
Unrealized losses on marketable securities
|
|
|
(24
|
)
|
|
|
(24
|
)
|
|
|
(52
|
)
|
|
|
(52
|
)
|
Foreign currency translations adjustments
|
|
|
(8
|
)
|
|
|
(8
|
)
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
3,551
|
|
|
$
|
3,579
|
|
|
$
|
3,044
|
|
|
$
|
3,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Restatement Adjustments to Previously Reported
Beginning Retained Earnings by Category
The following table presents the impact of adjustments on
previously reported beginning retained earnings for Fiscal 2006,
Fiscal 2005, Fiscal 2004, and Fiscal 2003.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 3,
|
|
|
January 28,
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(in
millions)
|
|
|
Beginning retained earnings as reported
|
|
$
|
9,174
|
|
|
$
|
6,131
|
|
|
$
|
3,486
|
|
|
$
|
1,364
|
|
Revenue Recognition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
|
|
|
(21
|
)
|
|
|
(9
|
)
|
|
|
(7
|
)
|
|
|
(2
|
)
|
Other
|
|
|
(216
|
)
|
|
|
(217
|
)
|
|
|
(102
|
)
|
|
|
(64
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Recognition
|
|
|
(237
|
)
|
|
|
(226
|
)
|
|
|
(109
|
)
|
|
|
(66
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warranty Liabilities
|
|
|
202
|
|
|
|
223
|
|
|
|
129
|
|
|
|
31
|
|
Restructuring Reserves
|
|
|
(18
|
)
|
|
|
(18
|
)
|
|
|
(14
|
)
|
|
|
80
|
|
Other
|
|
|
(45
|
)
|
|
|
(35
|
)
|
|
|
(49
|
)
|
|
|
32
|
|
(Provision) benefit for income taxes
|
|
|
21
|
|
|
|
4
|
|
|
|
11
|
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative adjustments to beginning retained earnings
|
|
|
(77
|
)
|
|
|
(52
|
)
|
|
|
(32
|
)
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning retained earnings as restated
|
|
$
|
9,097
|
|
|
$
|
6,079
|
|
|
$
|
3,454
|
|
|
$
|
1,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 3
|
Financial
Instruments
|
Disclosures About
Fair Values of Financial Instruments
The fair value of investments and related interest rate
derivative instruments has been estimated based upon market
quoted rates. The fair value of foreign currency forward
contracts has been estimated using market quoted rates of
foreign currencies at the applicable balance sheet date. The
estimated fair value of foreign currency purchased option
contracts is based on market quoted rates at the applicable
balance sheet date and the Black-Scholes option pricing model.
The estimates presented herein are not necessarily indicative of
the amounts that Dell could realize in a current market
exchange. Changes in assumptions could significantly affect the
estimates.
79
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
Cash and cash equivalents, accounts receivable, accounts
payable, and accrued and other liabilities are reflected in the
accompanying Consolidated Statements of Financial Position at
cost, which approximates fair value because of the short-term
maturity of these assets and liabilities.
Investments
The following table summarizes by major security type the fair
value and cost of Dells investments. All investments with
remaining maturities in excess of one year are recorded as
long-term investments in the accompanying Consolidated
Statements of Financial Position.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2,
2007
|
|
|
February 3,
2006
|
|
|
|
Fair
|
|
|
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Cost
|
|
|
Gain
(Loss)
|
|
|
Value
|
|
|
Cost
|
|
|
Gain
(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
As
Restated
|
|
|
|
(in
millions)
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agencies
|
|
$
|
1,424
|
|
|
$
|
1,449
|
|
|
$
|
(25
|
)
|
|
$
|
2,501
|
|
|
$
|
2,547
|
|
|
$
|
(46
|
)
|
U.S. corporate
|
|
|
1,163
|
|
|
|
1,170
|
|
|
|
(7
|
)
|
|
|
1,638
|
|
|
|
1,657
|
|
|
|
(19
|
)
|
International corporate
|
|
|
156
|
|
|
|
159
|
|
|
|
(3
|
)
|
|
|
352
|
|
|
|
359
|
|
|
|
(7
|
)
|
State and municipal governments
|
|
|
41
|
|
|
|
41
|
|
|
|
|
|
|
|
115
|
|
|
|
115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities
|
|
|
2,784
|
|
|
|
2,819
|
|
|
|
(35
|
)
|
|
|
4,606
|
|
|
|
4,678
|
|
|
|
(72
|
)
|
Equity and other securities
|
|
|
115
|
|
|
|
109
|
|
|
|
6
|
|
|
|
96
|
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
$
|
2,899
|
|
|
$
|
2,928
|
|
|
$
|
(29
|
)
|
|
$
|
4,702
|
|
|
$
|
4,774
|
|
|
$
|
(72
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
|
|
$
|
752
|
|
|
$
|
756
|
|
|
$
|
(4
|
)
|
|
$
|
2,016
|
|
|
$
|
2,028
|
|
|
$
|
(12
|
)
|
Long-term
|
|
|
2,147
|
|
|
|
2,172
|
|
|
|
(25
|
)
|
|
|
2,686
|
|
|
|
2,746
|
|
|
|
(60
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
$
|
2,899
|
|
|
$
|
2,928
|
|
|
$
|
(29
|
)
|
|
$
|
4,702
|
|
|
$
|
4,774
|
|
|
$
|
(72
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At February 2, 2007, Dell had 762 debt investment positions
that had fair values below their carrying values for a period of
less than 12 months. The fair value and unrealized losses
on these debt investment positions totaled $1.5 billion and
$21 million, respectively, at February 2, 2007. At
February 2, 2007, Dell had 329 investment positions that
had fair values below their carrying values for a period of more
than 12 months. The fair value and unrealized losses on
these investment positions totaled $800 million and
$15 million, respectively, at February 2, 2007. The
unrealized losses are due to changes in interest rates and are
expected to be recovered over the contractual term of the
instruments.
The following table summarizes Dells realized gains and
losses on investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
January 28,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
As
|
|
|
As
|
|
|
|
|
|
|
Restated
|
|
|
Restated
|
|
|
|
(in
millions)
|
|
|
Gains
|
|
$
|
9
|
|
|
$
|
13
|
|
|
$
|
40
|
|
Losses
|
|
|
(14
|
)
|
|
|
(15
|
)
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized (loss) gain
|
|
$
|
(5
|
)
|
|
$
|
(2
|
)
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dell routinely enters into securities lending agreements with
financial institutions in order to enhance investment income.
Dell requires that the loaned securities be collateralized in
the form of cash or securities for values which generally exceed
the value of the loaned security. At February 2, 2007,
there were no securities on loan.
80
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
Foreign Currency
Instruments
Dell uses purchased option contracts and forward contracts
designated as cash flow hedges to protect against the foreign
currency exchange risk inherent in its forecasted transactions
denominated in currencies other than the U.S. dollar.
Hedged transactions include international sales by
U.S. dollar functional currency entities, foreign currency
denominated purchases of certain components, and intercompany
shipments to some international subsidiaries. The risk of loss
associated with purchased options is limited to premium amounts
paid for the option contracts. The risk of loss associated with
forward contracts is equal to the exchange rate differential
from the time the contract is entered into until the time it is
settled. These contracts typically expire in 12 months or
less.
If the derivative is designated as a cash flow hedge and
qualifies for hedge accounting, the effective portion of the
change in the fair value of the derivative is initially deferred
in comprehensive income (loss) net of tax. These amounts are
subsequently recognized in income as a component of net revenue
or cost of revenue in the same period the hedged transaction
affects earnings. The ineffective portion of the change in fair
value of a cash flow hedge is recognized currently in earnings
and is reported as a component of investment and other income,
net. Dell assesses hedge effectiveness both at the onset of the
hedge as well as at the end of each fiscal quarter throughout
the life of the derivative. Hedge ineffectiveness is measured by
comparing the hedging instruments cumulative change in
fair value from inception to maturity relative to the cumulative
change in fair value of the forecasted transaction. Dell
recorded hedge ineffectiveness income of $2 million,
$3 million, and $5 million during Fiscal 2007, Fiscal
2006, and Fiscal 2005, respectively. During Fiscal 2007, 2006,
and 2005, Dell did not discontinue any cash flow hedges that had
a material impact on Dells results of operations as
substantially all forecasted foreign currency transactions were
realized in Dells actual results.
At February 2, 2007, Dell held purchased foreign currency
option contracts with a notional amount of approximately
$3.4 billion, a net asset value of $90 million, and a
net unrealized loss of $14 million, net of taxes. At
February 2, 2007, Dell held foreign currency forward
contracts with a notional amount of approximately
$3.0 billion, a net liability value of $15 million and
a net unrealized gain of $27 million, net of taxes.
At February 3, 2006, Dell held purchased foreign currency
option contracts with a notional amount of approximately
$3.3 billion, a net asset value of $145 million and a
net unrealized gain of $1 million, net of taxes. At
February 3, 2006, Dell held foreign currency forward
contracts with a notional amount of approximately
$3.3 billion, a net asset value of $1 million and a
net unrealized loss of $18 million, net of taxes. Changes
in the aggregate unrealized net gain (loss) of Dells cash
flow hedges that are recorded as a component of comprehensive
income (loss), net of tax are presented in the table below. Dell
expects to reclassify substantially all of the amount recorded
in comprehensive income (loss) at February 2, 2007 into
earnings during the next fiscal year providing an offsetting
economic impact against the underlying transactions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
January 28,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
As
|
|
|
As
|
|
|
|
|
|
|
Restated
|
|
|
Restated
|
|
|
|
(in
millions)
|
|
|
Aggregate unrealized net loss at beginning of year
|
|
$
|
(17
|
)
|
|
$
|
(26
|
)
|
|
$
|
(72
|
)
|
Net (losses) gains reclassified to earnings
|
|
|
(260
|
)
|
|
|
225
|
|
|
|
(356
|
)
|
Change in fair value of cash flow hedges
|
|
|
290
|
|
|
|
(216
|
)
|
|
|
402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate unrealized net gain (loss) at end of year
|
|
$
|
13
|
|
|
$
|
(17
|
)
|
|
$
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
Dell also uses forward contracts to hedge monetary assets and
liabilities, primarily receivables and payables, denominated in
a foreign currency. These contracts are not designated as
hedging instruments under SFAS 133, and therefore, the
change in the instruments fair value is recognized
currently in earnings and is reported as a component of
investment and other income, net. The change in the fair value
of these instruments represents a natural hedge as their gains
and losses offset the changes in the underlying fair value of
the monetary assets and liabilities due to movements in currency
exchange rates. These contracts generally expire in three months
or less.
Commercial
Paper
On June 1, 2006 Dell implemented a $1.0 billion
commercial paper program with a supporting $1.0 billion
senior unsecured revolving credit facility. This program allows
Dell to obtain favorable short-term borrowing rates. Dell pays
facility commitment and letter of credit participation fees at
rates based upon Dells credit rating. Unless extended,
this facility expires on June 1, 2011, at which time any
outstanding amounts under the facility will be due and payable.
The facility requires compliance with conditions that must be
satisfied prior to any borrowing, as well as ongoing compliance
with specified affirmative and negative covenants, including
maintenance of a minimum interest coverage ratio. Amounts
outstanding under the facility may be accelerated for typical
defaults, including failure to pay principal or interest,
breaches of covenants, non-payment of judgments or debt
obligations in excess of $200 million, occurrence of a
change of control, and certain bankruptcy events.
At February 2, 2007 $100 million was outstanding under
the commercial paper program and was due within 90 days.
The weighted-average interest rate on these outstanding
short-term borrowings was 5.3% at February 2, 2007. There
were no outstanding advances under the commercial paper program
as of October 26, 2007. Dell uses the proceeds of the
program and facility for general corporate purposes, including
funding DFS growth.
DFS Credit
Facilities
DFS maintains credit facilities with CIT that provide a maximum
capacity of $750 million to fund leased equipment. These
borrowings are secured by DFS assets and contain certain
customary restrictive covenants. Interest on the outstanding
loans is paid quarterly and calculated based on an average of
the two- and three-year U.S. Treasury Notes plus 4.45%. DFS
is required to make quarterly payments if the value of the
leased equipment securing the loans is less than the outstanding
principal balance. At February 2, 2007 and February 3,
2006, outstanding advances from CIT totaled $122 million
and $133 million, respectively, of which $87 million
and $63 million, respectively, is included in short-term
borrowings and $35 million and $70 million,
respectively, is included in long-term debt on Dells
Consolidated Statements of Financial Position. The credit
facilities expire on the earlier of (i) the dissolution of
DFS; (ii) the purchase of CITs ownership interest in
DFS; or (iii) the acceleration of the maturity of the debt
by CIT arising from a default.
Vendor
Financing
Dell had a vendor financing plan with a third party where
participating vendors could elect to have their payables paid
early by the third party as compared to Dells standard
payment terms. Vendors who elected to participate in this plan
could take a discount on their invoices to accelerate the timing
of payment. This discount, net of the third partys cost of
funds, was allocated between the third party and Dell. This plan
was terminated in the first quarter of Fiscal 2006. Discounted
invoices paid by the program are estimated to be
$200 million and $1.0 billion in Fiscal 2006 and 2005,
respectively. Dell recognized the amounts due to the third party
as short-term borrowings in the Consolidated Statement of
Financial Position and the payments
82
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
to the third party were recognized as cash outflows from
operating activities in the Consolidated Statement of Cash Flows.
Long-Term Debt
and Interest Rate Risk Management
In April 1998, Dell issued $200 million 6.55% fixed rate
senior notes with the principal balance due April 15, 2008
(the Senior Notes) and $300 million 7.10% fixed
rate senior debentures with the principal balance due
April 15, 2028 (the Senior Debentures).
Interest on the Senior Notes and Senior Debentures is paid
semi-annually, on April 15 and October 15. The Senior Notes
and Senior Debentures rank equally and are redeemable, in whole
or in part, at the election of Dell for principal, any accrued
interest, and a redemption premium based on the present value of
interest to be paid over the term of the debt agreements. The
Senior Notes and Senior Debentures generally contain no
restrictive covenants, other than a limitation on liens on
Dells assets and a limitation on sale-leaseback
transactions involving Dell property.
Dells inability to timely file its periodic reports with
the SEC constituted a technical breach of the covenants to which
the Senior Notes and the Senior Debentures are subject. Those
covenants specify that a Notice of Default must be
issued, and Dell must have failed to cure the deficiency within
90 days of the notice, before the debt is callable by the
holders. Because Dell has not received a Notice of
Default, Dell is not in default of these debt covenants;
therefore, the Senior Notes and the Senior Debentures are
classified as long-term liabilities at February 2, 2007.
With the filing of its past due periodic reports with the SEC,
Dell is no longer in breach of the covenants.
Concurrent with the issuance of the Senior Notes and Senior
Debentures, Dell entered into interest rate swap agreements
converting Dells interest rate exposure from a fixed rate
to a floating rate basis to better align the associated interest
rate characteristics to its cash and investments portfolio. The
interest rate swap agreements have an aggregate notional amount
of $200 million maturing April 15, 2008 and
$300 million maturing April 15, 2028. The floating
rates are based on three-month London Interbank Offered Rates
plus 0.4% and 0.8% for the Senior Notes and Senior Debentures,
respectively. As a result of the interest rate swap agreements,
Dells effective interest rates for the Senior Notes and
Senior Debentures were 5.8% and 6.1%, respectively, for Fiscal
2007.
The interest rate swap agreements are designated as fair value
hedges. Although the Senior Notes and Senior Debentures allow
for settlement before their stated maturity, such settlement
would always be at an amount greater than the fair value of the
Senior Notes and Senior Debentures. Accordingly, the Senior
Notes and Senior Debentures are not considered to be pre-payable
as defined by SFAS 133 and related interpretations. The
changes in the fair value of the interest rate swaps are
assessed in accordance with SFAS 133.
83
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
The provision for income taxes consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
January 28,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
As
|
|
|
As
|
|
|
|
|
|
|
Restated
|
|
|
Restated
|
|
|
|
(in
millions)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
846
|
|
|
$
|
1,141
|
|
|
$
|
881
|
|
Foreign
|
|
|
178
|
|
|
|
263
|
|
|
|
215
|
|
Tax repatriation (benefit) charge
|
|
|
|
|
|
|
(85
|
)
|
|
|
280
|
|
Deferred
|
|
|
(262
|
)
|
|
|
(313
|
)
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
762
|
|
|
$
|
1,006
|
|
|
$
|
1,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes included approximately
$2.6 billion, $3.0 billion, and $2.3 billion
related to foreign operations in Fiscal 2007, 2006, and 2005,
respectively. On October 22, 2004, the American Jobs
Creation Act of 2004 (the Act) was signed into law.
Among other items, the Act created a temporary incentive for
U.S. multinationals to repatriate accumulated income earned
outside the U.S. at an effective tax rate of 5.25%, versus
the U.S. federal statutory rate of 35%. In the fourth
quarter of Fiscal 2005, Dell recorded an initial estimated
income tax charge of $280 million based on the decision to
repatriate $4.1 billion of foreign earnings. This tax
charge included an amount relating to a drafting oversight that
Congressional leaders expected to correct in calendar year 2005.
On May 10, 2005, the Department of Treasury issued further
guidance that addressed the drafting oversight. In the second
quarter of Fiscal 2006, Dell reduced its original estimate of
the tax charge by $85 million as a result of the guidance
issued by the Treasury Department in May 2005. As of
February 3, 2006, Dell had completed the repatriation of
the $4.1 billion in foreign earnings. No foreign income was
repatriated during Fiscal 2007.
Deferred taxes have not been recorded on the excess book basis
in the amount of approximately $7.9 billion in the shares
of certain foreign subsidiaries because these basis differences
are not expected to reverse in the foreseeable future and are
expected to be permanent in duration. These basis differences
arose primarily through the undistributed book earnings of the
subsidiaries that Dell intends to reinvest indefinitely. The
basis differences could reverse through a sale of the
subsidiaries, the receipt of dividends from the subsidiaries as
well as various other events. Net of available foreign tax
credits, residual income tax of approximately $2.4 billion
would be due upon a reversal of this excess book basis.
84
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
The components of Dells net deferred tax asset are as
follows:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
As
|
|
|
|
|
|
|
Restated
|
|
|
|
(in
millions)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
$
|
440
|
|
|
$
|
408
|
|
Inventory and warranty provisions
|
|
|
128
|
|
|
|
169
|
|
Investment impairments and unrealized gains
|
|
|
|
|
|
|
21
|
|
Provisions for product returns and doubtful accounts
|
|
|
51
|
|
|
|
46
|
|
Capital loss
|
|
|
13
|
|
|
|
15
|
|
Leasing and financing
|
|
|
222
|
|
|
|
120
|
|
Credit carryforwards
|
|
|
22
|
|
|
|
|
|
Stock-based and deferred compensation
|
|
|
145
|
|
|
|
32
|
|
Other
|
|
|
159
|
|
|
|
93
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
1,180
|
|
|
|
904
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
(96
|
)
|
|
|
(108
|
)
|
Acquired intangibles
|
|
|
(16
|
)
|
|
|
|
|
Other
|
|
|
(39
|
)
|
|
|
(33
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
(151
|
)
|
|
|
(141
|
)
|
Valuation allowance
|
|
|
(28
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
1,001
|
|
|
$
|
756
|
|
|
|
|
|
|
|
|
|
|
Current portion (included in other current assets)
|
|
$
|
445
|
|
|
$
|
442
|
|
Non-current portion (included in other non-current assets)
|
|
|
556
|
|
|
|
314
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
1,001
|
|
|
$
|
756
|
|
|
|
|
|
|
|
|
|
|
A portion of Dells foreign operations operate at a reduced
tax rate or free of tax under various tax holidays which expire
in whole or in part during Fiscal 2010 through 2019. Many of
these holidays may be extended when certain conditions are met.
The income tax benefits attributable to the tax status of these
subsidiaries were estimated to be approximately
$282 million ($0.13 per share) in Fiscal 2007,
$368 million ($0.15 per share) in Fiscal 2006, and
$279 million ($0.11 per share) in Fiscal 2005.
In March 2007, China announced a broad program to reform tax
rates and incentives effective January 1, 2008, including
introduction of phased-in transition rules that could
significantly alter the Chinese tax landscape for
U.S. companies operating in China. Clarification of the
rules is expected to be issued in late Fiscal 2008.
85
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
The effective tax rate differed from the statutory
U.S. federal income tax rate as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
January 28,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
As
|
|
|
As
|
|
|
|
|
|
|
Restated
|
|
|
Restated
|
|
|
Effective tax rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Foreign income taxed at different rates
|
|
|
(17.8
|
)
|
|
|
(13.9
|
)
|
|
|
(11.7
|
)
|
Tax repatriation (benefit) charge
|
|
|
|
|
|
|
(1.9
|
)
|
|
|
6.4
|
|
Foreign earnings subject to U.S. taxation
|
|
|
2.9
|
|
|
|
1.6
|
|
|
|
0.7
|
|
Imputed intercompany charges
|
|
|
2.0
|
|
|
|
1.2
|
|
|
|
|
|
Other
|
|
|
0.7
|
|
|
|
(0.2
|
)
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
22.8
|
%
|
|
|
21.8
|
%
|
|
|
31.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in Dells Fiscal 2007 effective tax rate,
compared to Fiscal 2006, is due to the $85 million tax
reduction in the second quarter of Fiscal 2006 offset by a
higher proportion of its operating profits being generated in
lower foreign tax jurisdictions during Fiscal 2007 as compared
to a year ago. The decrease in Dells Fiscal 2006 effective
tax rate, compared to Fiscal 2005, is due to the aforementioned
tax repatriation charge and a higher proportion of operating
profits attributable to foreign jurisdictions which are taxed at
lower rates.
Preferred
Stock
Authorized Shares Dell has the authority to
issue five million shares of preferred stock, par value $.01 per
share. At February 2, 2007 and February 3, 2006, no
shares of preferred stock were issued or outstanding.
Series A Junior Participating Preferred
Stock In conjunction with the distribution of
Preferred Share Purchase Rights (see below), Dells 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. The Preferred Share Purchase Rights expired on
November 29, 2005, and Dells Board of Directors
eliminated the previously designated and reserved shares on
February 1, 2006. At February 2, 2007 and
February 3, 2006, no shares of Junior Preferred Stock were
issued or outstanding.
Redeemable Common
Stock
Dell inadvertently failed to register with the SEC the sale of
some shares under certain employee benefit plans. As a result,
certain purchasers of common stock pursuant to those plans may
have the right to rescind their purchases for an amount equal to
the purchase price paid for the shares, plus interest from the
date of purchase. At February 2, 2007, Dell has classified
5 million shares ($111 million) that may be subject to
the rescissionary rights outside stockholders equity,
because the redemption features are not within the control of
Dell. These shares have always been treated as outstanding for
financial reporting purposes.
Common
Stock
Authorized Shares At February 2, 2007,
Dell is authorized to issue 7.0 billion shares of common
stock, par value $.01 per share.
86
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
Share Repurchase Program Dell has a share
repurchase program that authorizes it to purchase shares of
common stock in order to increase shareholder value and manage
dilution resulting from shares issued under Dells equity
compensation plans. However, Dell does not currently have a
policy that requires the repurchase of common stock in
conjunction with stock-based payment arrangements. At
February 2, 2007, Dells share repurchase program
authorized the purchase of common stock at an aggregate cost not
to exceed $30.0 billion. As of the end of Fiscal 2007, Dell
had cumulatively repurchased 1.5 billion shares for an
aggregate cost of approximately $28.6 billion. During
Fiscal 2007, Dell repurchased approximately 118 million
shares of common stock for an aggregate cost of
$3.0 billion before temporarily suspending the share
repurchase program in September 2006. Dell expects to recommence
its share repurchase program in the fourth quarter of Fiscal
2008.
Preferred Share
Purchase Rights
In December 1995, Dell distributed a dividend of one Preferred
Share Repurchase Right for each outstanding share of common
stock. Dell issued shares of common stock with accompanying
Preferred Share Purchase Rights until the rights expired on
November 29, 2005.
Description of
the Plans
Employee Stock Purchase Plan Dell has a
shareholder approved employee stock purchase plan
(ESPP) that permits substantially all employees to
purchase shares of Dells common stock. Prior to
July 1, 2005, participating employees were permitted to
purchase common stock through payroll deductions at the end of
each six-month participation period at a purchase price equal to
85% of the lower of the fair market value of the common stock at
the beginning or the end of the participation period. Effective
July 1, 2005, the plan was amended to allow participating
employees to purchase common stock through payroll deductions at
the end of each three-month participation period at a purchase
price equal to 85% of the fair market value of the common stock
at the end of the participation period. Upon adoption of
SFAS 123(R) in Fiscal 2007, Dell began recognizing
compensation expense for the 15% discount received by the
participating employees. Common stock reserved for future
employee purchases under the plan aggregated 10 million
shares at February 2, 2007, 16 million shares at
February 3, 2006, and 21 million shares at
January 28, 2005. Common stock issued under this plan
totaled 6 million shares in Fiscal 2007, 5 million
shares in Fiscal 2006, and 4 million shares in Fiscal 2005.
The weighted-average fair value of the purchase rights under the
ESPP during Fiscal 2007, Fiscal 2006, and Fiscal 2005 was $3.89,
$6.30, and $9.77 per right, respectively.
Employee Stock Plans Dell has the following
four employee stock plans (collectively referred to as the
Stock Plans) under which options, restricted stock,
and restricted stock units were outstanding at February 2,
2007:
|
|
|
The Dell Computer Corporation 1989 Stock Option Plan (the
1989 Option Plan)
|
|
|
The Dell Computer Corporation Incentive Plan (the 1994
Incentive Plan)
|
|
|
The Dell Computer Corporation 1998 Broad-Based Stock Option Plan
(the 1998 Broad-Based Plan),
|
|
|
The Dell Computer Corporation 2002 Long-Term Incentive Plan (the
2002 Incentive Plan)
|
The Stock Plans are administered by the Leadership Development
and Compensation Committee of Dells Board of Directors.
The 1989 Option Plan, the 1994 Incentive Plan, and the 1998
Broad-Based Plan have been terminated (except for options
previously granted under those plans that are still
outstanding). Consequently, awards are currently only being
granted under the 2002 Incentive Plan.
87
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
The 2002 Incentive Plan provides for the granting of stock-based
incentive awards to Dells employees, non-employee
directors, and certain consultants and advisors to Dell. Awards
may be incentive stock options within the meaning of
Section 422 of the Internal Revenue Code, nonqualified
stock options, restricted stock, or restricted stock units.
There were approximately 271 million, 272 million, and
291 million shares of Dells common stock available
for future grants under the Stock Plans at February 2,
2007, February 3, 2006, and January 28, 2005,
respectively. To satisfy stock option exercises, Dell has a
policy of issuing new shares as opposed to repurchasing shares
on the open market.
Stock Option Agreements The right to purchase
shares pursuant to existing stock option agreements typically
vests pro-rata at each option anniversary date over a five-year
period. The options, which are granted with option exercise
prices equal to the fair market value of Dells common
stock on the date of grant, generally expire within ten to
twelve years from the date of grant. Dell has not issued any
options to consultants or advisors to Dell since Fiscal 1999. In
conjunction with the adoption of SFAS 123(R) in the first
quarter of Fiscal 2007, Dell changed its method of attributing
the value of stock-based compensation expense from an
accelerated approach to a straight-line method. Compensation
expense for all stock option awards granted on or prior to
February 3, 2006 is recognized using an accelerated
approach with the exception of stock options granted in Fiscal
2002 and Fiscal 2003, for which compensation expense is
recognized using a straight-line method.
Restricted Stock Awards Awards of restricted
stock may be either grants of restricted stock, restricted stock
units, or performance-based stock units that are issued at no
cost to the recipient. For restricted stock grants, at the date
of grant, the recipient has all rights of a stockholder, subject
to certain restrictions on transferability and a risk of
forfeiture. Restricted stock grants typically vest over a five-
to seven-year period beginning on the date of grant. For
restricted stock units, legal ownership of the shares is not
transferred to the employee until the unit vests, which is
generally over a five-year period. Dell also grants
performance-based restricted stock units as a long-term
incentive in which an award recipient receives shares contingent
upon Dell achieving performance objectives and the
employees continuing employment through the vesting
period, which is generally over a five-year period. Compensation
expense recorded in connection with these performance-based
restricted stock units is based on Dells best estimate of
the number of shares that will eventually be issued upon
achievement of the specified performance criteria and when it
becomes probable that certain performance goals will be
achieved. The cost of these awards is determined using the fair
market value of Dells common stock on the date of the
grant. Compensation expense for restricted stock awards with a
service condition is recognized on a straight-line basis over
the vesting term. Compensation expense for performance-based
restricted stock awards is recognized on an accelerated
multiple-award approach based on the most probable outcome of
the performance condition. In accordance with SFAS 123(R),
deferred compensation related to restricted stock awards issued
prior to Fiscal 2007, which was previously classified as
other in stockholders equity, was classified
as capital in excess of par value upon adoption.
Temporary Suspension of Option Exercises, Vesting of
Restricted Stock Units, and ESPP Purchases As a
result of Dells inability to timely file its Annual Report
on
Form 10-K
for Fiscal 2007, Dell suspended the exercise of employee stock
options, the vesting of restricted stock units, and the purchase
of shares under the ESPP. Dell expects to resume the exercise of
employee stock options by employees, the vesting of restricted
stock units, and the purchase of shares under the ESPP when it
is again current in its reporting obligations under the
Securities Exchange Act of 1934.
Dell agreed to pay cash to certain current and former employees
who held in-the-money stock options (options that have an
exercise price less than the current stock market price) that
expired during the period of unexercisability. Within
45 days after Dell files its Annual Report on
Form 10-K
for Fiscal 2007, Dell will make payments relating to
in-the-money stock options that expired in the second and third
quarters of
88
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
Fiscal 2008, which are expected to total approximately
$113 million. Dell will not continue to pay cash for
expired in-the-money stock options once the options again become
exercisable.
General
Information
Stock Option Activity The following table
summarizes stock option activity for the Stock Plans during
Fiscal 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
|
|
|
Options
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
|
|
|
|
|
(in
millions)
|
|
|
(per
share)
|
|
|
(in
years)
|
|
|
(in
millions)
|
|
|
|
|
|
Options outstanding February 3, 2006
|
|
|
343
|
|
|
$
|
31.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
10
|
|
|
|
25.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(13
|
)
|
|
|
14.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(4
|
)
|
|
|
25.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled/expired
|
|
|
(22
|
)
|
|
|
36.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding February 2, 2007
|
|
|
314
|
|
|
$
|
32.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest (net of estimated
forfeitures) February 2,
2007(a)
|
|
|
309
|
|
|
$
|
32.26
|
|
|
|
5.2
|
|
|
$
|
148
|
|
|
|
|
|
Exercisable February 2,
2007(a)
|
|
|
284
|
|
|
$
|
32.74
|
|
|
|
5.1
|
|
|
$
|
145
|
|
|
|
|
|
|
|
|
(a)
|
|
For options vested and expected to
vest and options exercisable, the aggregate intrinsic value in
the table above represents the total pre-tax intrinsic value
(the difference between Dells closing stock price on
February 2, 2007 and the exercise price, multiplied by the
number of in-the-money options) that would have been received by
the option holders had the holders exercised their options on
February 2, 2007. The intrinsic value changes based on
changes in the fair market value of Dells common stock.
|
Other information pertaining to stock options for Fiscal 2007,
Fiscal 2006, and Fiscal 2005 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years
Ended
|
|
|
February 2,
|
|
February 3,
|
|
January 28,
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
(in millions,
except per option data)
|
|
Weighted-average grant date fair value of stock options granted
per option
|
|
$
|
6.90
|
|
|
$
|
10.22
|
|
|
$
|
10.72
|
|
Total fair value of options vested
|
|
$
|
415
|
|
|
$
|
2,029
|
|
|
$
|
1,028
|
|
Total intrinsic value of options
exercised(a)
|
|
$
|
171
|
|
|
$
|
688
|
|
|
$
|
697
|
|
|
|
|
(a)
|
|
The total intrinsic value of
options exercised represents the total pre-tax intrinsic value
(the difference between the stock price at exercise and the
exercise price, multiplied by the number of options exercised)
that was received by the option holders who exercised their
options during Fiscal 2007.
|
At February 2, 2007, $139 million of total
unrecognized stock-based compensation expense, net of estimated
forfeitures, related to stock options is expected to be
recognized over a weighted-average period of approximately
1.7 years.
89
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
Non-vested Restricted Stock Activity
Non-vested restricted stock awards at
February 2, 2007 and activities during Fiscal 2007 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
Number
|
|
|
Average
|
|
|
|
of
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair
Value
|
|
|
|
(in
millions)
|
|
|
(per
share)
|
|
|
Non-vested restricted stock February 3, 2006
|
|
|
2
|
|
|
$
|
34.66
|
|
Granted
|
|
|
21
|
|
|
|
28.36
|
|
Vested
|
|
|
(1
|
)
|
|
|
28.84
|
|
Forfeited
|
|
|
(5
|
)
|
|
|
29.29
|
|
|
|
|
|
|
|
|
|
|
Non-vested restricted stock February 2, 2007
|
|
|
17
|
|
|
$
|
28.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years
Ended
|
|
|
February 2,
|
|
February 3,
|
|
January 28,
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
(in millions,
except per share data)
|
|
Weighted-average grant date fair value of restricted stock
awards granted
|
|
$
|
28.36
|
|
|
$
|
39.70
|
|
|
$
|
35.23
|
|
Total estimated fair value of restricted stock awards vested
|
|
$
|
16
|
|
|
$
|
|
|
|
$
|
|
|
At February 2, 2007 $356 million of unrecognized
stock-based compensation expense, net of estimated forfeitures,
related to non-vested restricted stock awards is expected to be
recognized over a weighted-average period of approximately
2.4 years.
Expense
Information under SFAS 123(R)
For Fiscal 2007, stock-based compensation expense, net of income
taxes, was allocated as follows:
|
|
|
|
|
|
|
Fiscal Year
Ended
|
|
|
|
February 2,
|
|
|
|
2007
|
|
|
|
(in
millions)
|
|
|
Stock-based compensation expense:
|
|
|
|
|
Cost of net revenue
|
|
$
|
59
|
|
Operating expenses
|
|
|
309
|
|
|
|
|
|
|
Stock-based compensation expense before taxes
|
|
|
368
|
|
Income tax benefit
|
|
|
(110
|
)
|
|
|
|
|
|
Stock-based compensation expense, net of income taxes
|
|
$
|
258
|
|
|
|
|
|
|
Prior to the adoption of SFAS 123(R), net income included
compensation expense related to restricted stock awards but did
not include stock-based compensation expense for employee stock
options or the purchase discount under Dells ESPP. Total
stock-based compensation expense was $368 million for the
fiscal year ended February 2, 2007. As a result of adopting
SFAS 123(R), income before income taxes and net income were
lower by $272 million and $191 million, respectively,
for Fiscal 2007 as compared to Fiscal 2006, than if Dell had not
adopted SFAS 123(R). The impact on both basic and diluted
earnings per share for the fiscal year ended February 2,
2007 was $0.08 per share. The remaining $96 million of
pre-tax stock compensation expense for the fiscal year ended
February 2, 2007, is associated with restricted stock
awards that, consistent with APB 25, are expensed over the
associated vesting period. Stock-based compensation expense
recognized for Fiscal 2007 is based on awards expected to vest,
reduced for estimated forfeitures. SFAS 123(R) requires
forfeitures to be estimated at the time of grant and revised, if
90
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
necessary, in subsequent periods if actual forfeitures differ
from those estimates. In the pro forma information required
under SFAS 123, forfeitures were accounted for as they
occurred.
Prior to the adoption of SFAS 123(R), tax benefits
resulting from tax deductions in excess of the stock-based
compensation expense recognized for those options were
classified as operating cash flows. These excess tax benefits
are now classified as a source of financing cash flows, with an
offsetting amount classified as a use of operating cash flows.
This amount was $80 million in Fiscal 2007. In addition, there
was no material stock-based compensation expense capitalized as
part of the cost of an asset.
Pro Forma
Information under SFAS 123 for Periods Prior to Fiscal
2007
Prior to the adoption of SFAS 123(R), Dell measured
compensation expense for its employee stock-based compensation
plans using the intrinsic value method prescribed by APB 25.
Under APB 25, when the exercise price of Dells employee
stock options equaled or exceeded the market price of the
underlying stock on the date of the grant, no compensation
expense was recognized. Dell applied the disclosure provisions
of SFAS 123 as amended by SFAS 148, as if the
fair-value based method had been applied in measuring
compensation expense.
The following table illustrates the effect on net income and
earnings per share for the fiscal years ended February 3,
2006 and January 28, 2005, as if Dell had applied the fair
value recognition provisions of SFAS 123 to stock-based
employee compensation:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
Ended
|
|
|
|
February 3,
|
|
|
January 28,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
As
|
|
|
As
|
|
|
|
Restated
|
|
|
Restated
|
|
|
|
(in millions,
except per share data)
|
|
|
Net income
|
|
$
|
3,602
|
|
|
$
|
3,018
|
|
Deduct: Total share-based employee compensation determined under
fair value method for all awards, net of related tax effects
|
|
|
(1,094
|
)
|
|
|
(812
|
)
|
|
|
|
|
|
|
|
|
|
Net income pro forma
|
|
$
|
2,508
|
|
|
$
|
2,206
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
Basic as restated
|
|
$
|
1.50
|
|
|
$
|
1.20
|
|
Basic pro forma
|
|
$
|
1.04
|
|
|
$
|
0.88
|
|
|
|
|
|
|
|
|
|
|
Diluted as restated
|
|
$
|
1.47
|
|
|
$
|
1.18
|
|
Diluted pro forma
|
|
$
|
1.02
|
|
|
$
|
0.86
|
|
On January 5, 2006, Dells Board of Directors approved
the acceleration of vesting of certain unvested and
out-of-the-money stock options with exercise prices
equal to or greater than $30.75 per share previously awarded
under equity compensation plans. Options to purchase
approximately 101 million shares of common stock, or 29% of
the outstanding unvested options, were subject to the
acceleration. The weighted-average exercise price of the options
that were accelerated was $36.37. The purpose of the
acceleration was to enable Dell to reduce future compensation
expense associated with these options upon the adoption of
SFAS 123(R).
Valuation
Information
SFAS 123(R) requires the use of a valuation model to
calculate the fair value of stock option awards. Dell has
elected to use the Black-Scholes option pricing model, which
incorporates various assumptions, including volatility, expected
term, and risk-free interest rates. The volatility is based on a
blend of implied
91
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
and historical volatility of Dells common stock over the
most recent period commensurate with the estimated expected term
of Dells stock options. Dell uses this blend of implied
and historical volatility, as well as other economic data,
because management believes such volatility is more
representative of prospective trends. The expected term of an
award is based on historical experience and on the terms and
conditions of the stock awards granted to employees. The
dividend yield of zero is based on the fact that Dell has never
paid cash dividends and has no present intention to pay cash
dividends.
The weighted-average fair value of stock options and purchase
rights under the employee stock purchase plan was determined
based on the Black-Scholes option pricing model weighted for all
grants during Fiscal 2007, 2006, and 2005, utilizing the
assumptions in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years
Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
January 28,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Expected term:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
3.6 years
|
|
|
|
3.8 years
|
|
|
|
3.8 years
|
|
Employee stock purchase plan
|
|
|
3 months
|
|
|
|
3 months
|
|
|
|
6 months
|
|
Risk-free interest rate (U.S. Government Treasury Note)
|
|
|
4.8
|
%
|
|
|
3.9
|
%
|
|
|
2.9
|
%
|
Volatility
|
|
|
26
|
%
|
|
|
25
|
%
|
|
|
36
|
%
|
Dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
401(k) Plan Dell has a defined contribution
retirement plan (the 401(k) 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. Effective January 1, 2005, Dell matches 100% of
each participants voluntary contributions, subject to a
maximum contribution of 4% of the participants
compensation, and participants vest immediately in all Dell
contributions to the Plan. Prior to January 1, 2005, Dell
matched 100% of each participants voluntary contributions,
subject to a maximum contribution of 3% of the
participants compensation. Dells contributions
during Fiscal 2007, 2006, and 2005 were $70 million,
$66 million, and $48 million, respectively.
Dells contributions are invested according to each
participants elections in the investment options provided
under the Plan. Investment options include Dell stock, but
neither participant nor Dell contributions are required to be
invested in Dell stock. As a result of Dells failure to
file its Annual Report on
Form 10-K
for Fiscal 2007 by the original due date, April 3, 2007,
Dell suspended the right of Plan participants to invest
additional contributions in Dell stock on April 4, 2007.
Deferred Compensation Plan Dell has a
nonqualified deferred compensation plan (the Deferred
Compensation Plan) for the benefit of certain management
employees and non-employee directors. The Deferred Compensation
Plan permits the deferral of base salary and annual incentive
bonus. The deferrals are held in a separate trust, which has
been established by Dell to administer the Plan. The assets of
the trust are subject to the claims of Dells creditors in
the event that Dell becomes insolvent. Consequently, the trust
qualifies as a grantor trust for income tax purposes (i.e. a
Rabbi Trust). In accordance with the provisions of
EITF
No. 97-14,
Accounting for Deferred Compensation Arrangements Where
Amounts Earned are Held in a Rabbi Trust and Invested
(EITF 97-14),
the assets and liabilities of the Plan are presented in
investments and accrued and other liabilities in the
accompanying Consolidated Statements of Financial Position,
respectively. The assets held by the trust are classified as
trading securities, with changes in the deferred compensation
charged to compensation expense.
|
|
NOTE 7
|
Financial
Services
|
Joint Venture
Agreement
Dell offers various customer financial services for its business
and consumer customers in the U.S. through DFS, a joint
venture with CIT. Loan and lease financing through DFS is one of
many sources of financing that Dells customers may select.
Dell recognized revenue from the sale of products financed
through DFS
92
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
of $6.1 billion, $6.5 billion, and $5.6 billion
during the fiscal years ended February 2, 2007,
February 3, 2006, and January 28, 2005, respectively.
On September 8, 2004, Dell and CIT executed an agreement
that extended the term of the joint venture to January 29,
2010, and modified certain terms of the relationship. In
accordance with the extension agreement, net income and losses
generated by DFS are currently allocated 70% to Dell and 30% to
CIT. At February 2, 2007 and February 3, 2006,
CITs equity ownership in the net assets of DFS was
$33 million and $14 million, respectively, which is
recorded as minority interest and included in other non-current
liabilities.
The extension agreement provides Dell with the option to
purchase CITs 30% interest in DFS in February 2008, for a
purchase price ranging from approximately $100 million to
$345 million. Dell currently expects that the purchase
price will likely be towards the upper end of that range. If
Dell does not exercise this purchase option, Dell is obligated
to purchase CITs 30% interest upon the occurrence of
certain termination events, or upon the expiration of the joint
venture on January 29, 2010.
Dell is dependent upon DFS to facilitate financing for a
significant number of customers who elect to finance products
sold by Dell. Dell also purchases loan and lease receivables
facilitated by DFS on substantially the same terms and
conditions as CIT. Dells purchase of these assets allows
Dell to retain a greater portion of the assets future
earnings. During Fiscal 2007, Dell funded approximately 35% of
these financing transactions. The percentage of transactions
that Dell will purchase under the extension agreement is
expected to be approximately 50% in Fiscal 2008.
DFS is a full service financial services entity; key activities
include the origination, collection, and servicing of financing
receivables related to the purchase of Dell products. While DFS
services CIT funded receivables, Dells obligation related
to the performance of these receivables is limited to the cash
funded reserves established at the time of funding.
Financing
Receivables
The following table summarizes the components of Dells
financing receivables, net of the allowance for estimated
uncollectible amounts:
|
|
|
|
|
|
|
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
As
|
|
|
|
|
|
|
Restated
|
|
|
|
(in
millions)
|
|
|
Financing receivables, net:
|
|
|
|
|
|
|
|
|
Customer receivables:
|
|
|
|
|
|
|
|
|
Revolving loans, net
|
|
$
|
771
|
|
|
$
|
1,025
|
|
Leases and loans, net
|
|
|
627
|
|
|
|
302
|
|
|
|
|
|
|
|
|
|
|
Customer receivables, net
|
|
|
1,398
|
|
|
|
1,327
|
|
Residual interest
|
|
|
296
|
|
|
|
274
|
|
Retained interest
|
|
|
159
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
Financing receivables, net
|
|
$
|
1,853
|
|
|
$
|
1,691
|
|
|
|
|
|
|
|
|
|
|
Short-term
|
|
$
|
1,530
|
|
|
$
|
1,366
|
|
Long-term
|
|
|
323
|
|
|
|
325
|
|
|
|
|
|
|
|
|
|
|
Financing receivables, net
|
|
$
|
1,853
|
|
|
$
|
1,691
|
|
|
|
|
|
|
|
|
|
|
Financing receivables primarily consist of revolving loans and
fixed-term leases and loans resulting from the sale of Dell
products. If customers desire revolving or term loan financing,
Dell sells equipment directly
93
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
to customers who, in turn, enter into agreements to finance
their purchases. For customers who desire lease financing, Dell
sells the equipment to DFS, and DFS enters into direct financing
lease arrangements with the customers.
|
|
|
Customer receivables are presented net of allowance for
uncollectible accounts. The allowance is based on factors
including historical trends and the composition and credit
quality of the customer receivables. The composition and credit
quality varies from investment grade commercial customers to
subprime consumers. Customer receivables are charged to the
allowance at the earlier of when an account is deemed to be
uncollectible or when the account is 180 days delinquent.
Recoveries on customer receivables previously charged off as
uncollectible are adjusted to the allowance for uncollectible
accounts. The following is a description of the components of
financing receivables.
|
|
|
|
|
-
|
Revolving loans offered under private label credit financing
programs provide qualified customers with a revolving credit
line for the purchase of products and services offered by Dell.
From time to time, account holders may have the opportunity to
finance their Dell purchases with special programs during which,
if the outstanding balance is paid in full, no interest is
charged. These special programs generally range from 3 to
18 months and have an average original term of
approximately 13 months. Revolving loans bear interest at a
variable annual percentage rate that is tied to the prime rate.
|
|
|
-
|
Leases with business customers generally have fixed terms of two
to three years. Future maturities of minimum lease payments at
February 2, 2007 are as follows: 2008: $55 million;
2009: $36 million; 2010: $13 million; and 2011:
$1 million. Fixed-term loans are also offered to qualified
small businesses for the purchase of products sold by Dell.
|
|
|
|
Dell retains a residual interest in the leased equipment. The
amount of the residual interest is established at the inception
of the lease based upon estimates of the value of the equipment
at the end of the lease term using historical studies, industry
data, and future
value-at-risk
demand valuation methods. On a periodic basis, Dell assesses the
carrying amount of its recorded residual values for impairment.
Anticipated declines in specific future residual values that are
considered to be other than temporary are recorded in current
earnings.
|
|
|
Retained interests represent the residual beneficial interest
Dell retains in certain pools of securitized finance
receivables. Retained interests are stated at the present value
of the estimated net beneficial cash flows after payment of all
senior interests. In estimating the value of retained interests,
Dell makes a variety of financial assumptions, including pool
credit losses, payment rates, and discount rates. These
assumptions are supported by both Dells historical
experience and anticipated trends relative to the particular
receivable pool. Dell reviews its investments in retained
interests periodically for impairment, based on estimated fair
value. Any resulting losses representing the excess of carrying
value over estimated fair value that are other-than-temporary
are recorded in earnings. However, unrealized gains are
reflected in stockholders equity as part of accumulated
other comprehensive income. In the first quarter of Fiscal 2008
Dell adopted SFAS 155 and, as a result, all gains and
losses are recognized in income immediately and are no longer
included in accumulated other comprehensive income.
|
94
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table summarizes the components of retained
interest balances and related cash flows:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
As
|
|
|
|
|
|
|
Restated
|
|
|
|
(in
millions)
|
|
|
Retained interest:
|
|
|
|
|
|
|
|
|
Retained interest at beginning of year
|
|
$
|
90
|
|
|
$
|
24
|
|
New sales
|
|
|
167
|
|
|
|
97
|
|
Distributions from conduits
|
|
|
(142
|
)
|
|
|
(37
|
)
|
Net accretion
|
|
|
17
|
|
|
|
4
|
|
Change in fair value for the period
|
|
|
27
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Retained interest at end of year
|
|
$
|
159
|
|
|
$
|
90
|
|
|
|
|
|
|
|
|
|
|
Cash flows during the periods:
|
|
|
|
|
|
|
|
|
Proceeds from new securitizations
|
|
$
|
607
|
|
|
$
|
446
|
|
Other cash flows received on retained interests
|
|
|
142
|
|
|
|
36
|
|
Servicing fees received
|
|
|
9
|
|
|
|
|
|
Repurchases of ineligible contracts
|
|
|
(7
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows during the period
|
|
$
|
751
|
|
|
$
|
478
|
|
|
|
|
|
|
|
|
|
|
The table below summarizes the key assumptions used to measure
the retained interest at the date of the securitizations for
transactions completed in Fiscal 2007 and the assumptions used
in calculating the fair value of the retained interest in
securitized assets at February 2, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Key
Assumptions
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
Average
|
|
Weighted-
|
|
Weighted-
|
|
Weighted-
|
|
|
Monthly
|
|
Average
|
|
Average
|
|
Average
|
|
|
Payment
Rates
|
|
Credit
Losses
|
|
Discount
Rates
|
|
Life
|
|
|
|
|
(lifetime)
|
|
(annualized)
|
|
(months)
|
|
Time of Sale Valuation of Retained Interest
|
|
|
8
|
%
|
|
|
9
|
%
|
|
|
15
|
%
|
|
|
12
|
|
Valuation of Retained Interests
|
|
|
7
|
%
|
|
|
9
|
%
|
|
|
14
|
%
|
|
|
12
|
|
The impact of adverse changes to the key assumptions of the fair
value of retained interest at February 2, 2007 is shown in
the following table:
|
|
|
|
|
|
|
February 2,
|
|
|
2007
|
|
|
(in
millions)
|
|
Adverse Change of:
|
|
|
|
|
Expected Prepayment Speed: 10%
|
|
$
|
(2
|
)
|
Expected Prepayment Speed: 20%
|
|
$
|
(4
|
)
|
Expected Credit Losses: 10%
|
|
$
|
(7
|
)
|
Expected Credit Losses: 20%
|
|
$
|
(14
|
)
|
Discount Rate: 10%
|
|
$
|
(4
|
)
|
Discount Rate: 20%
|
|
$
|
(8
|
)
|
These sensitivity analyses are hypothetical in nature and should
be used with caution. The analyses utilized 10 percent and
20 percent adverse variation in assumptions to assess the
sensitivities in fair values of the retained interest. However,
these changes generally cannot be extrapolated because the
relationship of the change in assumptions to the change in fair
value may not be linear. Further, the effect of a
95
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
variation in a particular assumption on the fair value is
calculated without giving effect to any other assumption
changes. It should be noted that changes in one factor may
result in changes in another factor (for example, increases in
market interest rates may result in lower prepayments and
increased credit losses) that may magnify or counteract the
other factors sensitivities. The effect of multiple factor
changes were not considered in this analysis.
DFS Servicing
Liability
DFS has collection and servicing responsibilities for the
finance receivables purchased by CIT and has recorded a
servicing liability associated with its obligation to provide
such services. DFS establishes the liability based upon the
estimated fair value upon transfer of the related financed
receivable, which is amortized over the related servicing
period. DFS validates that it is receiving fair value for its
servicing efforts by performing market comparisons. The
servicing liability is included in other current and non-current
liabilities on Dells Consolidated Statements of Financial
Position. At February 2, 2007 and February 3, 2006,
the servicing liability was $13 million and
$15 million, respectively.
Asset
Securitization
During Fiscal 2007 and Fiscal 2006, Dell sold $1.1 billion
and $586 million, respectively, of fixed-term leases and
loans and revolving loans to unconsolidated qualifying special
purpose entities. The qualifying special purpose entities are
bankruptcy remote legal entities with assets and liabilities
separate from those of Dell. The sole purpose of the qualifying
special purpose entities is to facilitate the funding of finance
receivables in the capital markets. Dell determines the amount
of receivables to securitize based on its funding requirements
in conjunction with specific selection criteria designed for the
transaction. The qualifying special purpose entities have
entered into financing arrangements with three multi-seller
conduits that, in turn, issue asset-backed debt securities in
the capital markets. Transfers of financing receivables are
recorded in accordance with the provisions of SFAS 140. The
principal balance of the securitized receivables at the end of
Fiscal 2007 and Fiscal 2006 were $979 million and
$552 million, respectively.
Dell retains the right to receive collections on securitized
receivables in excess of amounts needed to pay interest and
principal as well as other required fees. Upon the sale of the
financing receivables, Dell records the present value of the
excess cash flows as a retained interest, which typically
results in a gain that ranges from 2% to 4% of the customer
receivables sold. Dell services the securitized contracts and
earns a servicing fee. Dells securitization transactions
generally do not result in servicing assets and liabilities, as
the contractual fees are adequate compensation in relation to
the associated servicing cost.
Dells securitization program contains structural features
that could prevent further funding if the credit losses or
delinquencies on the pool of sold receivables exceed specified
levels. These structural features are within normal industry
practice and are similar to comparable securitization programs
in the marketplace. Dell does not currently expect that any of
these features will have a material adverse impact on its
ability to securitize financing receivables.
96
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table presents the net credit losses and accounts
60 days or more past due of the securitized finance
receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2,
2007
|
|
February 3,
2006
|
|
|
Dollars
|
|
%(a)
|
|
Dollars
|
|
%(a)
|
|
|
|
|
|
|
As
|
|
As
|
|
|
|
|
|
|
Restated
|
|
Restated
|
|
|
(in millions,
except percentages)
|
|
Net credit losses of securitized finance receivables
|
|
$
|
30.9
|
|
|
|
4
|
%
|
|
$
|
6.2
|
|
|
|
2
|
%
|
Securitized finance receivables 60 days or more delinquent
|
|
$
|
33.2
|
|
|
|
3
|
%
|
|
$
|
5.5
|
|
|
|
1
|
%
|
|
|
|
(a)
|
|
Net credit losses as a percent of
the outstanding financing receivable balance.
|
|
|
NOTE 8
|
Warranty
Liability and Related Deferred Revenue
|
Revenue from extended warranty and service contracts, for which
Dell is obligated to perform, is recorded as deferred revenue
and subsequently recognized over the term of the contract or
when the service is completed. Dell records warranty liabilities
at the time of sale for the estimated costs that may be incurred
under its limited warranty. Changes in Dells deferred
revenue for extended warranties and warranty liability for
standard warranties, which are included in other current and
non-current liabilities on Dells Consolidated Statements
of Financial Position, are presented in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
January 28,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
As
|
|
|
As
|
|
|
|
|
|
|
Restated
|
|
|
Restated
|
|
|
|
(in
millions)
|
|
|
Deferred revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue at beginning of year
|
|
$
|
3,707
|
|
|
$
|
2,904
|
|
|
$
|
2,053
|
|
Revenue deferred for new extended warranty and service contracts
sold(a)
|
|
|
3,135
|
|
|
|
2,830
|
|
|
|
2,135
|
|
Revenue
recognized(a)
|
|
|
(2,621
|
)
|
|
|
(2,027
|
)
|
|
|
(1,284
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue at end of year
|
|
$
|
4,221
|
|
|
$
|
3,707
|
|
|
$
|
2,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion
|
|
$
|
2,032
|
|
|
$
|
1,842
|
|
|
$
|
1,473
|
|
Non-current portion
|
|
|
2,189
|
|
|
|
1,865
|
|
|
|
1,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue at end of year
|
|
$
|
4,221
|
|
|
$
|
3,707
|
|
|
$
|
2,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
January 28,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
As
|
|
|
As
|
|
|
|
|
|
|
Restated
|
|
|
Restated
|
|
|
|
(in
millions)
|
|
|
Warranty liability:
|
|
|
|
|
|
|
|
|
|
|
|
|
Warranty liability at beginning of year
|
|
$
|
951
|
|
|
$
|
722
|
|
|
$
|
633
|
|
Costs accrued for new warranty contracts and changes in
estimates for pre-existing
warranties(b)
|
|
|
1,242
|
|
|
|
1,391
|
|
|
|
852
|
|
Service obligations
honored(a)
|
|
|
(1,235
|
)
|
|
|
(1,162
|
)
|
|
|
(763
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warranty liability at end of year
|
|
$
|
958
|
|
|
$
|
951
|
|
|
$
|
722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion
|
|
$
|
768
|
|
|
$
|
714
|
|
|
$
|
463
|
|
Non-current portion
|
|
|
190
|
|
|
|
237
|
|
|
|
259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warranty liability at end of year
|
|
$
|
958
|
|
|
$
|
951
|
|
|
$
|
722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Prior period amounts have been
changed to reflect the current year presentation of service
obligations honored. There is no impact to the Consolidated
Statements of Financial Position or Consolidated Statements of
Income as a result of this change.
|
|
(b)
|
|
Changes in cost estimates related
to pre-existing warranties are aggregated with accruals for new
warranty contracts. Dells warranty liability process does
not differentiate between estimates made for pre-existing
warranties and new warranty obligations.
|
On August 14, 2006, Dell announced a voluntary recall of
approximately 4.2 million Dell-branded lithium-ion
batteries with cells manufactured by a supplier. From
April 1, 2004, through July 18, 2006, Dell sold or
provided these batteries individually or as part of a service
replacement with notebook computers. This recall has not had a
material impact on Dells results of operations, financial
position, or cash flows, as Dell was indemnified by the
manufacturer of these batteries.
|
|
NOTE 9
|
Commitments and
Contingencies
|
Lease Commitments Dell leases property and
equipment, manufacturing facilities, and office space under
non-cancelable leases. Certain of these leases obligate Dell to
pay taxes, maintenance, and repair costs. At February 2,
2007, future minimum lease payments under these non-cancelable
leases are as follows: $79 million in Fiscal 2008;
$72 million in Fiscal 2009; $56 million in Fiscal
2010; $47 million in Fiscal 2011; $35 million in
Fiscal 2012; and $161 million thereafter.
Rent expense under all leases totaled $78 million,
$70 million, and $60 million for Fiscal 2007, 2006,
and 2005, respectively.
DFS Purchase Commitment Pursuant to the
joint venture agreement between Dell and CIT, Dell has an
obligation to purchase CITs 30% interest in DFS at the
expiration of the joint venture on January 29, 2010, for a
purchase price ranging from approximately $100 million to
$345 million. Dell currently expects that the purchase
price will likely be towards the upper end of the range. See
Note 7 of Notes to Consolidated Financial Statements.
Restricted Cash Pursuant to an agreement
between DFS and CIT, Dell is required to maintain escrow cash
accounts that are held as recourse reserves for credit losses,
performance fee deposits related to Dells private label
credit card, and deferred servicing revenue. Restricted cash
specific to the consolidation of DFS in the amount of
$416 million and $453 million is included in other
current assets on Dells Consolidated Statements of
Financial Position at February 2, 2007 and February 3,
2006, respectively.
98
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
Legal Matters Dell is involved in various
claims, suits, investigations, and legal proceedings that arise
from time to time in the ordinary course of its business. As
required by SFAS No. 5, Accounting for
Contingencies (SFAS 5), Dell accrues a
liability when it believes that it is both probable that a
liability has been incurred and that it can reasonably estimate
the amount of the loss. The following is a discussion of
Dells significant legal matters.
|
|
|
Investigations and Related Litigation In
August 2005, the SEC initiated an inquiry into certain of
Dells accounting and financial reporting matters and
requested that Dell provide certain documents. The SEC expanded
that inquiry in June 2006 and entered a formal order of
investigation in October 2006. The SECs requests for
information were joined by a similar request from the United
States Attorney for the Southern District of New York
(SDNY), who subpoenaed documents related to
Dells financial reporting from and after Fiscal 2002. In
August 2006, because of potential issues identified in the
course of responding to the SECs requests for information,
Dells Audit Committee, on the recommendation of management
and in consultation with PricewaterhouseCoopers LLP, Dells
independent registered public accounting firm, initiated an
independent investigation, which was recently completed. For
information regarding the Audit Committees investigation,
the accounting errors and irregularities identified, and the
restatement adjustments see Note 2 of Notes to Consolidated
Financial Statements. Although the Audit Committee investigation
has been completed, the investigations being conducted by the
SEC and the SDNY are ongoing. Dell continues to cooperate with
the SEC and the SDNY.
|
Dell and several of its current and former directors and
officers are parties to securities, Employee Retirement Income
Security Act of 1974 (ERISA), and shareholder
derivative lawsuits all arising out of the same events and
facts. Four putative securities class actions that were filed in
the Western District of Texas, Austin Division, against Dell and
certain of its current and former officers have been
consolidated as In re Dell Inc. Securities Litigation,
and a lead plaintiff has been appointed by the court. The lead
plaintiff has asserted claims under sections 10(b), 20(a), and
20A of the Securities Exchange Act of 1934 based on alleged
false and misleading disclosures or omissions regarding
Dells financial statements, governmental investigations,
known battery problems, business model, and insiders sales
of its securities. This action also includes Dells
independent registered public accounting firm,
PricewaterhouseCoopers LLP, as a defendant. Four other putative
class actions that were also filed in the Western District by
purported participants in the Dell Inc. 401(k) Plan have been
consolidated as In re Dell Inc. ERISA Litigation, and
lead plaintiffs have been appointed by the court. The lead
plaintiffs have asserted claims under ERISA based on allegations
that Dell, certain current officers, and certain current and
former directors imprudently invested and managed
participants funds and failed to disclose information
regarding its stock held in the 401(k) Plan. In addition, seven
shareholder derivative lawsuits that were filed in three
separate jurisdictions (the Western District of Texas, Austin
Division; the Delaware Chancery Court; and the state district
court in Travis County, Texas) have been consolidated into three
actions, one in each of the respective jurisdictions, as In
re Dell Inc. Derivative Litigation, and name various current
and former officers and directors as defendants and Dell as a
nominal defendant. On October 8, 2007, the shareholder
derivative lawsuit filed in the Western District of Texas was
dismissed without prejudice by the court. The Travis County,
Texas action has been transferred to the state district court in
Williamson County, Texas. The shareholder derivative lawsuits
assert claims derivatively on behalf of Dell under state law,
including breaches of fiduciary duties. Finally, one purported
shareholder has filed an action against Dell in Delaware
Chancery Court under Section 220 of the Delaware General
Corporation Law, Baltimore County Employees Retirement
System v. Dell Inc., seeking inspection of certain of
Dells books and records related to the internal
investigation and government investigations. Dell intends to
defend all of these lawsuits vigorously.
|
|
|
Copyright Levies Proceedings against the IT
industry in Germany seek to impose levies on equipment, such as
personal computers, multifunction devices, and printers that
facilitate making private copies of copyrighted materials. The
total levies due, if imposed, would be based on the number of
|
99
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
|
products sold and the per-product amounts of the levies, which
vary. Dell, along with other companies and various industry
associations are opposing these levies and instead are
advocating compensation to rights holders through digital rights
management systems.
|
There are currently three levy cases involving other equipment
manufacturers pending before the German Federal Supreme Court.
Adverse decisions in these cases could ultimately impact Dell.
The cases involve personal computers, printers, and
multifunctional devices. The equipment manufacturers in these
cases recently lost in lower courts and have appealed. The
amount allowed by the lower courts with respect to PCs is
12 per personal computer sold for reprographic copying
capabilities. The amounts claimed with respect to printers and
multifunctional devices depend on speed and color and vary
between 10 and 300 for printers and between 38
and 600 for multifunctional devices. On December 29,
2005, Zentralstelle Für private Überspielungrechte
(ZPÜ), a joint association of various German
collection societies, instituted arbitration proceedings against
Dells German subsidiary before the Arbitration Body in
Munich. ZPÜ claims a levy of 18.4 per PC that Dell
sold in Germany from January 1, 2002 through
December 31, 2005. On July 31, 2007, the Arbitration
Body recommended a levy of 15 on each PC sold during that
period, for audio and visual copying capabilities. Dell and
ZPÜ rejected the recommendation and Dell expects that the
matter will proceed to court. Dell will continue to defend this
claim vigorously.
|
|
|
Lucent v. Dell In February 2003, Lucent
Technologies, Inc. filed a lawsuit against Dell in the United
States District Court for Delaware, and the lawsuit was
subsequently transferred to the United States District Court for
the Southern District of California. The lawsuit alleges that
Dell infringed 12 patents owned by Lucent and seeks monetary
damages and injunctive relief. In April 2003, Microsoft
Corporation filed a declaratory judgment action against Lucent
in the United States District Court for the Southern District of
California, asserting that Microsoft products do not infringe
patents held by Lucent, including 10 of the 12 patents at issue
in the lawsuit involving Dell and Microsoft. These actions were
consolidated for discovery purposes with a previous suit that
Lucent filed against Gateway, Inc. In September 2005, the court
granted a summary judgment of invalidity with respect to one of
the Lucent patents asserted against Dell. In addition, in
decisions made through May 2007, the court granted summary
judgment of non-infringement with respect to five more of the
Lucent patents asserted against Dell. The court has ordered
invalidity briefing with regard to other patents at issue in
view of the April 30, 2007, U.S. Supreme Court
decision in KSR v. Teleflex. Fact and expert
discovery has closed, and the three actions have been
consolidated. Trial is scheduled to begin in February 2008. Dell
is defending these claims vigorously. Separately, Dell has filed
a lawsuit against Lucent in the United States District Court for
the Eastern District of Texas, alleging that Lucent infringes
two patents owned by Dell and seeking monetary damages and
injunctive relief. That litigation is pending and discovery is
proceeding.
|
|
|
Sales Tax Claims Several state and local
taxing jurisdictions have asserted claims against Dell Catalog
Sales L.P. (DCSLP), an indirect wholly-owned
subsidiary of Dell, alleging that DCSLP had an obligation to
collect tax on sales made into those jurisdictions because of
its alleged nexus, or physical presence, in those jurisdictions.
During the first and second quarter of Fiscal 2008, Dell settled
suits filed by the State of Louisiana and the Secretary of the
Louisiana Department of Revenue and Taxation in the
19th Judicial District Court of the State of Louisiana, and
by two Louisiana parishes, Orleans Parish and Jefferson Parish,
in the State of Louisiana 24th Judicial District Court.
Dell also settled similar claims made by a number of other
Louisiana parishes and by the State of Massachusetts. These
settlement amounts did not have a material adverse effect on
Dells financial condition, results of operations, or cash
flows. While there are ongoing claims by certain other state and
local taxing authorities, DCSLP disputes the allegation that it
had nexus in any of these other jurisdictions during the periods
in issue, and is defending the claims vigorously. Dell does not
expect that the outcome of these other claims, individually or
collectively, will have a material adverse effect on its
financial condition, results of operations, or cash flows.
|
100
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
|
Income Tax Dell is currently under audit in
various jurisdictions, including the United States. The tax
periods open to examination by the major taxing jurisdictions to
which Dell is subject include Fiscal 1999 through Fiscal 2007.
Dell does not anticipate a significant change to the total
amount of unrecognized benefits within the next 12 months.
|
Dell is involved in various other claims, suits, investigations,
and legal proceedings that arise from time to time in the
ordinary course of its business. Although Dell does not expect
that the outcome in any of these other legal proceedings,
individually or collectively, will have a material adverse
effect on its financial condition or results of operations,
litigation is inherently unpredictable. Therefore, Dell could
incur judgments or enter into settlements of claims that could
adversely affect its operating results or cash flows in a
particular period.
Certain Concentrations All of Dells
foreign currency exchange and interest rate derivative
instruments involve elements of market and credit risk in excess
of the amounts recognized in the consolidated financial
statements. The counterparties to the 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, Dell monitors its positions with, and
the credit quality of the counterparties to, these financial
instruments. Dell does not anticipate nonperformance by any of
the counterparties.
Dells investments in debt securities are placed with high
quality financial institutions and companies. As part of its
cash and risk management processes, Dell performs periodic
evaluations of the credit standing of the institutions in
accordance with its investment policy. Dells investments
in debt securities have effective maturities of less than five
years. Management believes that no significant concentration of
credit risk for investments exists for Dell.
Dell markets and sells its products and services to large
corporate clients, governments, healthcare and education
accounts, as well as small-to-medium businesses and individuals.
Dell purchases a number of components from single or limited
sources. In some cases, alternative sources of supply are not
available. In other cases, Dell may establish a working
relationship with a single source or a limited number of sources
if Dell believes it is advantageous due to performance, quality,
support, delivery, capacity, or price considerations. If the
supply of a critical single- or limited-source material or
component were delayed or curtailed, Dells ability to ship
the related product in desired quantities and in a timely manner
could be adversely affected. Even where alternative sources of
supply are available, qualification of the alternative suppliers
and establishment of reliable supplies could result in delays
and a possible loss of sales, which may have an adverse effect
on Dells operating results.
|
|
NOTE 10
|
Segment
Information
|
Dell conducts operations worldwide and is managed in three
geographic regions: the Americas; Europe, Middle East and Africa
(EMEA); and Asia Pacific-Japan (APJ).
The Americas region, which is based in Round Rock, Texas, covers
the U.S., Canada, and Latin America. Within the Americas, Dell
is further segmented into Business and U.S. Consumer. The
Americas Business (Business) segment includes sales
to corporate, government, healthcare, education, and small and
medium business customers, while the U.S. Consumer segment
includes sales primarily to individual consumers. The EMEA
segment, based in Bracknell, England, covers Europe, the Middle
East, and Africa. The APJ region, based in Singapore, covers the
Asian countries of the Pacific Rim as well as Australia, New
Zealand, and India.
Corporate expenses are included in Dells measure of
segment operating income for management reporting purposes;
however, with the adoption of SFAS 123(R), beginning in
Fiscal 2007, stock-based compensation expense is not allocated
to Dells reportable segments. The asset totals disclosed
by geography are directly managed by those regions and include
accounts receivable, inventory, certain fixed assets, and
certain other assets. Assets are not allocated specifically to
the Business and U.S. Consumer
101
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
segments within the Americas. Corporate assets primarily include
cash and cash equivalents, investments, deferred tax assets, and
other assets.
The following tables present revenue by Dells reportable
segments as well as a reconciliation of consolidated segment
operating income to Dells consolidated income for Fiscal
2007, Fiscal 2006, and Fiscal 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
January 28,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
As
|
|
|
As
|
|
|
|
|
|
|
Restated
|
|
|
Restated
|
|
|
|
(in
millions)
|
|
|
Net revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas:
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
$
|
29,311
|
|
|
$
|
28,365
|
|
|
$
|
25,289
|
|
U.S. Consumer
|
|
|
7,069
|
|
|
|
7,960
|
|
|
|
7,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
36,380
|
|
|
|
36,325
|
|
|
|
32,903
|
|
EMEA
|
|
|
13,682
|
|
|
|
12,887
|
|
|
|
10,753
|
|
APJ
|
|
|
7,358
|
|
|
|
6,576
|
|
|
|
5,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
57,420
|
|
|
$
|
55,788
|
|
|
$
|
49,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
January 28,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
As
|
|
|
As
|
|
|
|
|
|
|
Restated
|
|
|
Restated
|
|
|
|
(in
millions)
|
|
|
Consolidated operating income
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas:
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
$
|
2,388
|
|
|
$
|
2,956
|
|
|
$
|
2,534
|
|
U.S. Consumer
|
|
|
135
|
|
|
|
452
|
|
|
|
414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
2,523
|
|
|
|
3,408
|
|
|
|
2,948
|
|
EMEA
|
|
|
583
|
|
|
|
871
|
|
|
|
815
|
|
APJ
|
|
|
332
|
|
|
|
524
|
|
|
|
443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated segment operating income
|
|
|
3,438
|
|
|
|
4,803
|
|
|
|
4,206
|
|
Stock-based compensation
expense(a)
|
|
|
(368
|
)
|
|
|
|
|
|
|
|
|
Other product
charges(b)
|
|
|
|
|
|
|
(338
|
)
|
|
|
|
|
Selling, general, and administrative
charges(c)
|
|
|
|
|
|
|
(83
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated operating income
|
|
$
|
3,070
|
|
|
$
|
4,382
|
|
|
$
|
4,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Stock compensation of
$17 million and $18 million for Fiscal 2006 and Fiscal
2005, respectively, is included in the total consolidated
segment operating income.
|
|
(b)
|
|
Other product charges include
$307 million for estimated warranty costs of servicing or
replacing certain
OptiPlextm
systems that include a vendor part that failed to perform to
Dells specifications, as well as additional charges for
product rationalizations and workforce realignment.
|
|
(c)
|
|
Charges relate to workforce
realignment expenses, primarily for severance and related costs
of $50 million, cost of operating leases on office space no
longer utilized of $4 million, and a write-off of goodwill
of $29 million.
|
102
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following tables present depreciation and amortization
expense and capital expenditures by Dells reportable
segments for Fiscal 2007, Fiscal 2006, and Fiscal 2005 and
assets for Fiscal 2007 and Fiscal 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
January 28,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
As
|
|
|
As
|
|
|
|
|
|
|
Restated
|
|
|
Restated
|
|
|
|
(in
millions)
|
|
|
Depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas:
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
$
|
211
|
|
|
$
|
156
|
|
|
$
|
125
|
|
U.S. Consumer
|
|
|
62
|
|
|
|
53
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
273
|
|
|
|
209
|
|
|
|
175
|
|
EMEA
|
|
|
114
|
|
|
|
106
|
|
|
|
88
|
|
APJ
|
|
|
84
|
|
|
|
79
|
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
$
|
471
|
|
|
$
|
394
|
|
|
$
|
331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
January 28,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
As
|
|
|
As
|
|
|
|
|
|
|
Restated
|
|
|
Restated
|
|
|
|
(in
millions)
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas:
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
$
|
489
|
|
|
$
|
408
|
|
|
$
|
268
|
|
U.S. Consumer
|
|
|
141
|
|
|
|
140
|
|
|
|
113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
630
|
|
|
|
548
|
|
|
|
381
|
|
EMEA
|
|
|
144
|
|
|
|
91
|
|
|
|
74
|
|
APJ
|
|
|
122
|
|
|
|
108
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
896
|
|
|
$
|
747
|
|
|
$
|
515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
As
|
|
|
|
|
|
|
Restated
|
|
|
|
(in
millions)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Corporate
|
|
$
|
16,694
|
|
|
$
|
15,433
|
|
Americas
|
|
|
4,981
|
|
|
|
4,410
|
|
EMEA
|
|
|
2,401
|
|
|
|
1,971
|
|
APJ
|
|
|
1,559
|
|
|
|
1,438
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
25,635
|
|
|
$
|
23,252
|
|
|
|
|
|
|
|
|
|
|
103
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following is net revenue and long-lived asset information by
geographic region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
January 28,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
As
|
|
|
As
|
|
|
|
|
|
|
Restated
|
|
|
Restated
|
|
|
|
(in
millions)
|
|
|
Net revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
32,361
|
|
|
$
|
32,949
|
|
|
$
|
30,311
|
|
Foreign countries
|
|
|
25,059
|
|
|
|
22,839
|
|
|
|
18,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
57,420
|
|
|
$
|
55,788
|
|
|
$
|
49,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
January 28,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
As
|
|
|
As
|
|
|
|
|
|
|
Restated
|
|
|
Restated
|
|
|
|
(in
millions)
|
|
|
Long-lived assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
1,538
|
|
|
$
|
1,440
|
|
|
$
|
1,248
|
|
Foreign countries
|
|
|
871
|
|
|
|
553
|
|
|
|
420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets
|
|
$
|
2,409
|
|
|
$
|
1,993
|
|
|
$
|
1,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The allocation between domestic and foreign net revenue is based
on the location of the customers. Net revenue and long-lived
assets from no single foreign country comprised more than 10% of
Dells consolidated net revenues or long-lived assets
during Fiscal 2007, 2006, and 2005. No single customer accounted
for more than 10% of Dells consolidated net revenue during
Fiscal 2007, 2006 and 2005.
In the fourth quarter of Fiscal 2007, Dell performed an analysis
of its enhanced services revenue and determined that certain
items previously classified as enhanced services revenue were
more appropriately categorized within product revenue. Fiscal
2007 balances reflect the revised revenue classifications, and
prior periods have been revised to conform to the current period
classification. The change in classification of prior period
amounts resulted in an increase of $395 million and
$340 million to desktop PCs, $225 million and
$171 million to mobility, $10 million and
$16 million to software and peripherals, $16 million
and $16 million to servers and networking, and
$6 million and $4 million to storage in Fiscal 2006
and 2005, respectively. This change in classification was
completely offset by a decrease in
104
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
enhanced services of $652 million and $547 million in
Fiscal 2006 and 2005, respectively. The following is net revenue
by product groups:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
January 28,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
As
|
|
|
As
|
|
|
|
|
|
|
Restated
|
|
|
Restated
|
|
|
|
(in
millions)
|
|
|
Net revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Desktop PCs
|
|
$
|
19,815
|
|
|
$
|
21,568
|
|
|
$
|
21,141
|
|
Mobility
|
|
|
15,480
|
|
|
|
14,372
|
|
|
|
12,001
|
|
Software and peripherals
|
|
|
9,001
|
|
|
|
8,329
|
|
|
|
6,626
|
|
Servers and networking
|
|
|
5,805
|
|
|
|
5,449
|
|
|
|
4,880
|
|
Enhanced services
|
|
|
5,063
|
|
|
|
4,207
|
|
|
|
3,121
|
|
Storage
|
|
|
2,256
|
|
|
|
1,863
|
|
|
|
1,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
57,420
|
|
|
$
|
55,788
|
|
|
$
|
49,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
NOTE 11
|
Supplemental
Consolidated Financial Information
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
As
|
|
|
|
|
|
|
Restated
|
|
|
|
(in
millions)
|
|
|
Supplemental Consolidated Statements of Financial Position
Information:
|
|
|
|
|
|
|
|
|
Accounts receivable:
|
|
|
|
|
|
|
|
|
Gross accounts receivable
|
|
$
|
4,748
|
|
|
$
|
4,179
|
|
Allowance for doubtful accounts
|
|
|
(126
|
)
|
|
|
(97
|
)
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
4,622
|
|
|
$
|
4,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Production materials
|
|
$
|
361
|
|
|
$
|
325
|
|
Work-in-process
|
|
|
61
|
|
|
|
43
|
|
Finished goods
|
|
|
238
|
|
|
|
220
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
660
|
|
|
$
|
588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant, and equipment:
|
|
|
|
|
|
|
|
|
Computer equipment
|
|
$
|
1,596
|
|
|
$
|
1,275
|
|
Land and buildings
|
|
|
1,480
|
|
|
|
1,372
|
|
Machinery and other equipment
|
|
|
973
|
|
|
|
910
|
|
|
|
|
|
|
|
|
|
|
Total property, plant, and equipment
|
|
|
4,049
|
|
|
|
3,557
|
|
Accumulated depreciation and amortization
|
|
|
(1,640
|
)
|
|
|
(1,564
|
)
|
|
|
|
|
|
|
|
|
|
Property, plant, and equipment
|
|
$
|
2,409
|
|
|
$
|
1,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued and other current liabilities:
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
$
|
2,032
|
|
|
$
|
1,842
|
|
Warranty liability
|
|
|
768
|
|
|
|
714
|
|
Income taxes
|
|
|
1,141
|
|
|
|
877
|
|
Compensation
|
|
|
861
|
|
|
|
838
|
|
Other
|
|
|
2,371
|
|
|
|
1,969
|
|
|
|
|
|
|
|
|
|
|
Accrued and other current liabilities
|
|
$
|
7,173
|
|
|
$
|
6,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-current liabilities:
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
$
|
2,189
|
|
|
$
|
1,865
|
|
Warranty liability
|
|
|
190
|
|
|
|
237
|
|
Other
|
|
|
457
|
|
|
|
305
|
|
|
|
|
|
|
|
|
|
|
Other non-current liabilities
|
|
$
|
2,836
|
|
|
$
|
2,407
|
|
|
|
|
|
|
|
|
|
|
106
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
The table below provides a detailed presentation of investment
and other income, net for Fiscal 2007, Fiscal 2006, and Fiscal
2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
January 28,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
As
|
|
|
As
|
|
|
|
|
|
|
Restated
|
|
|
Restated
|
|
|
|
(in
millions)
|
|
|
Supplemental Consolidated Statements of Income
Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment and other income, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income, primarily interest
|
|
$
|
368
|
|
|
$
|
308
|
|
|
$
|
226
|
|
Gains (losses) on investments, net
|
|
|
(5
|
)
|
|
|
(2
|
)
|
|
|
6
|
|
Interest expense
|
|
|
(45
|
)
|
|
|
(29
|
)
|
|
|
(15
|
)
|
CIT minority interest
|
|
|
(23
|
)
|
|
|
(27
|
)
|
|
|
(17
|
)
|
Foreign exchange
|
|
|
(37
|
)
|
|
|
3
|
|
|
|
16
|
|
Gain on sale of building
|
|
|
36
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
(19
|
)
|
|
|
(27
|
)
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment and other income, net
|
|
$
|
275
|
|
|
$
|
226
|
|
|
$
|
197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
January 28,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
As
|
|
|
As
|
|
|
|
|
|
|
Restated
|
|
|
Restated
|
|
|
|
(in
millions)
|
|
|
Supplemental Consolidated Statements of Cash Flows
Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in operating working capital accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
$
|
(542
|
)
|
|
$
|
(602
|
)
|
|
$
|
(566
|
)
|
Financing receivables, net
|
|
|
(165
|
)
|
|
|
(378
|
)
|
|
|
(275
|
)
|
Inventories
|
|
|
(72
|
)
|
|
|
(72
|
)
|
|
|
(183
|
)
|
Accounts payable
|
|
|
505
|
|
|
|
1,018
|
|
|
|
1,661
|
|
Accrued and other liabilities
|
|
|
955
|
|
|
|
853
|
|
|
|
1,611
|
|
Other, net
|
|
|
(284
|
)
|
|
|
(872
|
)
|
|
|
(476
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in operating working capital accounts
|
|
$
|
397
|
|
|
$
|
(53
|
)
|
|
$
|
1,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
652
|
|
|
$
|
996
|
|
|
$
|
575
|
|
Interest paid
|
|
$
|
57
|
|
|
$
|
39
|
|
|
$
|
31
|
|
107
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
NOTE 12
|
Unaudited
Quarterly Results and Stock Prices
|
Unaudited Quarterly Results The following
tables present selected unaudited Consolidated Statements of
Income data for each quarter of Fiscal 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
2007(a)
|
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
|
As
|
|
As
|
|
|
|
|
|
|
|
|
Reported
|
|
Restated
|
|
|
|
|
|
|
|
|
(in millions,
except per share data)
|
|
Net revenue
|
|
$
|
14,216
|
|
|
$
|
14,320
|
|
|
$
|
14,211
|
|
|
$
|
14,419
|
|
|
$
|
14,470
|
|
Gross margin
|
|
$
|
2,472
|
|
|
$
|
2,508
|
|
|
$
|
2,138
|
|
|
$
|
2,391
|
|
|
$
|
2,479
|
|
Net income
|
|
$
|
762
|
|
|
$
|
776
|
|
|
$
|
480
|
|
|
$
|
601
|
|
|
$
|
726
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.33
|
|
|
$
|
0.34
|
|
|
$
|
0.21
|
|
|
$
|
0.27
|
|
|
$
|
0.33
|
|
Diluted
|
|
$
|
0.33
|
|
|
$
|
0.33
|
|
|
$
|
0.21
|
|
|
$
|
0.27
|
|
|
$
|
0.32
|
|
Weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
2,297
|
|
|
|
2,297
|
|
|
|
2,264
|
|
|
|
2,229
|
|
|
|
2,230
|
|
Diluted
|
|
|
2,318
|
|
|
|
2,318
|
|
|
|
2,278
|
|
|
|
2,238
|
|
|
|
2,251
|
|
|
|
|
(a)
|
|
Results for Fiscal 2007 include
stock-based compensation expense due to the implementation of
SFAS 123(R). Dell implemented SFAS 123(R) using the
modified prospective method effective February 4, 2006. See
Note 6 of Notes to Consolidated Financial Statements for
further discussion.
|
The following tables present selected unaudited Consolidated
Statements of Income data for each quarter of Fiscal 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
2006
|
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
|
Quarter
|
|
Quarter(a)
|
|
Quarter(b)
|
|
Quarter
|
|
|
As
|
|
As
|
|
As
|
|
As
|
|
As
|
|
As
|
|
As
|
|
As
|
|
|
Reported
|
|
Restated
|
|
Reported
|
|
Restated
|
|
Reported
|
|
Restated
|
|
Reported
|
|
Restated
|
|
|
(in millions,
except per share data)
|
|
Net revenue
|
|
$
|
13,386
|
|
|
$
|
13,300
|
|
|
$
|
13,428
|
|
|
$
|
13,382
|
|
|
$
|
13,911
|
|
|
$
|
13,880
|
|
|
$
|
15,183
|
|
|
$
|
15,226
|
|
Gross margin
|
|
$
|
2,491
|
|
|
$
|
2,452
|
|
|
$
|
2,499
|
|
|
$
|
2,431
|
|
|
$
|
2,251
|
|
|
$
|
2,265
|
|
|
$
|
2,709
|
|
|
$
|
2,743
|
|
Net income
|
|
$
|
934
|
|
|
$
|
908
|
|
|
$
|
1,020
|
|
|
$
|
982
|
|
|
$
|
606
|
|
|
$
|
635
|
|
|
$
|
1,012
|
|
|
$
|
1,077
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.38
|
|
|
$
|
0.37
|
|
|
$
|
0.42
|
|
|
$
|
0.41
|
|
|
$
|
0.25
|
|
|
$
|
0.27
|
|
|
$
|
0.43
|
|
|
$
|
0.46
|
|
Diluted
|
|
$
|
0.37
|
|
|
$
|
0.36
|
|
|
$
|
0.41
|
|
|
$
|
0.40
|
|
|
$
|
0.25
|
|
|
$
|
0.26
|
|
|
$
|
0.43
|
|
|
$
|
0.45
|
|
Weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
2,456
|
|
|
|
2,456
|
|
|
|
2,418
|
|
|
|
2,418
|
|
|
|
2,395
|
|
|
|
2,395
|
|
|
|
2,350
|
|
|
|
2,350
|
|
Diluted
|
|
|
2,515
|
|
|
|
2,515
|
|
|
|
2,478
|
|
|
|
2,478
|
|
|
|
2,435
|
|
|
|
2,435
|
|
|
|
2,375
|
|
|
|
2,375
|
|
|
|
|
(a)
|
|
Results for the second quarter
include the impact of an $85 million income tax benefit
related to a revised estimate of taxes on the repatriation of
earnings under the American Jobs Creation Act of 2004.
|
|
(b)
|
|
Results for the third quarter
include charges of $421 million related to the cost of
servicing certain
OptiPlextm
systems that include a vendor part that failed to perform to
Dells specifications, workforce realignment, product
rationalizations, excess facilities, and the write-off of
goodwill.
|
108
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following tables present the impact of the restatement
adjustments described in Note 2 of Notes to Consolidated
Financial Statements on Dells previously reported net
earnings for the first quarter of Fiscal 2007 and for each
quarter of Fiscal 2006 and Fiscal 2005:
|
|
|
|
|
|
|
First
|
|
First Quarter of
Fiscal 2007 (As Restated)
|
|
Quarter
|
|
|
|
(In millions,
|
|
|
|
except per
|
|
|
|
share
data)
|
|
|
Net income as reported
|
|
$
|
762
|
|
Revenue recognition:
|
|
|
|
|
Software sales
|
|
|
(2
|
)
|
Other revenue recognition
|
|
|
(8
|
)
|
|
|
|
|
|
Revenue recognition
|
|
|
(10
|
)
|
Warranty liabilities
|
|
|
33
|
|
Other reserves and accruals
|
|
|
(3
|
)
|
(Provision) benefit for income taxes
|
|
|
(6
|
)
|
|
|
|
|
|
Net impact of adjustments
|
|
|
14
|
|
|
|
|
|
|
Net income as restated
|
|
$
|
776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
Fiscal 2006 (As
Restated)
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
(In millions,
except per share data)
|
|
|
Net income as reported
|
|
$
|
934
|
|
|
$
|
1,020
|
|
|
$
|
606
|
|
|
$
|
1,012
|
|
Revenue recognition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software sales
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
3
|
|
|
|
(1
|
)
|
Other revenue recognition
|
|
|
(20
|
)
|
|
|
(3
|
)
|
|
|
9
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue recognition
|
|
|
(23
|
)
|
|
|
(6
|
)
|
|
|
12
|
|
|
|
29
|
|
Warranty liabilities
|
|
|
(14
|
)
|
|
|
(52
|
)
|
|
|
(14
|
)
|
|
|
25
|
|
Other reserves and accruals
|
|
|
(8
|
)
|
|
|
11
|
|
|
|
41
|
|
|
|
33
|
|
(Provision) benefit for income taxes
|
|
|
19
|
|
|
|
9
|
|
|
|
(10
|
)
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impact of adjustments
|
|
|
(26
|
)
|
|
|
(38
|
)
|
|
|
29
|
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income as restated
|
|
$
|
908
|
|
|
$
|
982
|
|
|
$
|
635
|
|
|
$
|
1,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Prices The following table contains
stock sales price data for each quarter of Fiscal 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
|
Price Per
Share
|
|
Price Per
Share
|
|
Price Per
Share
|
|
Price Per
Share
|
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
Fiscal 2007
|
|
$
|
32.00
|
|
|
$
|
25.32
|
|
|
$
|
26.43
|
|
|
$
|
19.91
|
|
|
$
|
24.62
|
|
|
$
|
20.99
|
|
|
$
|
27.62
|
|
|
$
|
23.52
|
|
Fiscal 2006
|
|
$
|
41.76
|
|
|
$
|
34.83
|
|
|
$
|
41.54
|
|
|
$
|
34.96
|
|
|
$
|
40.84
|
|
|
$
|
31.06
|
|
|
$
|
32.89
|
|
|
$
|
29.00
|
|
109
DELL INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
NOTE 13
|
Subsequent
Events
|
On August 2, 2007, Dell announced the planned acquisition
of ASAP Software, a leading software solutions and licensing
services provider, and currently a subsidiary of Corporate
Express. The acquisition will strengthen Dells existing
software business by integrating ASAPs complementary
expertise in managing software licensing, purchasing, renewals,
and compliance. The acquisition is anticipated to close during
Dells fourth quarter of Fiscal 2008.
On August 13, 2007, Dell completed its previously announced
acquisition of ZING Systems, Inc., a consumer technology and
services company that focuses on always-connected audio and
entertainment devices. ZING Systems, Inc. will be integrated
into Dells Consumer Product Group and will be used to
continue improving the entertainment experiences provided to
customers.
110
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ITEM 9
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CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
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Not applicable.
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ITEM 9A
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CONTROLS
AND PROCEDURES
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This Report includes the certifications of our Chief Executive
Officer and Chief Financial Officer required by
Rule 13a-14
of the Securities Exchange Act of 1934 (the Exchange
Act). See Exhibits 31.1 and 31.2. This Item 9A
includes information concerning the controls and control
evaluations referred to in those certifications.
Background
The Audit Committee of our Board of Directors has completed an
independent investigation into certain accounting and financial
reporting matters. As a result of issues identified in that
investigation, as well as issues identified in additional
reviews and procedures conducted by management, the Audit
Committee, in consultation with management and
PricewaterhouseCoopers LLP, our independent registered public
accounting firm, concluded on August 13, 2007 that our
previously issued financial statements for Fiscal 2003, 2004,
2005, and 2006 (including the interim periods within those
years), and the first quarter of Fiscal 2007, should no longer
be relied upon because of certain accounting errors and
irregularities in those financial statements. Accordingly, we
have restated our previously issued financial statements for
those periods. See Part II
Item 7 Managements Discussion and
Analysis of Financial Condition and Results of
Operations Audit Committee Independent Investigation
and Restatement and Note 2 of Notes to Consolidated
Financial Statements included in Part II
Item 8 Financial Statements and Supplementary
Data.
As a result of managements review of the investigation
issues and its other internal reviews, we have identified
several deficiencies in our internal control over financial
reporting, including our control environment and period-end
financial reporting process, which are discussed more fully
below. The control deficiencies failed to prevent or detect a
number of accounting errors and irregularities, which led to the
restatement described above. The control deficiencies represent
material weaknesses in our internal control over financial
reporting and require corrective and remedial actions.
Evaluation of
Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Exchange Act) are designed to ensure that information
required to be disclosed in reports filed or submitted under the
Exchange Act is recorded, processed, summarized, and reported
within the time periods specified in SEC rules and forms and
that such information is accumulated and communicated to
management, including the chief executive officer and the chief
financial officer, to allow timely decisions regarding required
disclosures.
In connection with the preparation of this Report, Dells
management, under the supervision and with the participation of
the current Chief Executive Officer and current Chief Financial
Officer, conducted an evaluation of the effectiveness of the
design and operation of our disclosure controls and procedures
as of February 2, 2007. Based on that evaluation, the
restatement of previously issued financial statements described
above, and the identification of certain material weaknesses in
internal control over financial reporting (described below),
which we view as an integral part of our disclosure controls and
procedures, our Chief Executive Officer and Chief Financial
Officer have concluded that our disclosure controls and
procedures were not effective as of February 2, 2007.
Nevertheless, based on a number of factors, including the
completion of the Audit Committees investigation, our
internal review that identified revisions to our previously
issued financial statements, efforts to remediate the material
weaknesses in internal control over financial reporting
described below, and the performance of additional procedures by
management designed to ensure the reliability of our financial
reporting, we believe that the consolidated financial statements
in this Report fairly present, in all material respects, our
financial position, results of
111
operations and cash flows as of the dates, and for the periods,
presented, in conformity with generally accepted accounting
principles in the United States of America (GAAP).
Managements
Report on Internal Control Over Financial Reporting
Management, under the supervision of the Chief Executive Officer
and the Chief Financial Officer, is responsible for establishing
and maintaining adequate internal control over financial
reporting. Internal control over financial reporting (as defined
in
Rules 13a-15(f)
and 15d(f) under the Exchange Act) is a process designed to
provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements
for external purposes in accordance with GAAP. Internal control
over financial reporting includes those policies and procedures
which (a) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the
transactions and dispositions of assets, (b) provide
reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance with
GAAP, (c) provide reasonable assurance that receipts and
expenditures are being made only in accordance with appropriate
authorization of management and the board of directors, and
(d) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition
of assets that could have a material effect on the financial
statements. A material weakness is a deficiency, or a
combination of deficiencies, in internal control over financial
reporting such that there is more than a remote likelihood that
a material misstatement of the annual or interim financial
statements will not be prevented or detected.
In connection with the preparation of this Report, Dells
management, under the supervision and with the participation of
the current Chief Executive Officer and current Chief Financial
Officer, conducted an evaluation of the effectiveness of our
internal control over financial reporting as of February 2,
2007 based on the criteria established in Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). As a result of that evaluation, management
identified the following control deficiencies as of
February 2, 2007 that constituted material weaknesses:
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Control environment We did not maintain an
effective control environment. Specifically:
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We did not maintain a tone and control consciousness that
consistently emphasized strict adherence to GAAP. This control
deficiency resulted in an environment in which accounting
adjustments were viewed at times as an acceptable device to
compensate for operational shortfalls, which in certain
instances led to inappropriate accounting decisions and entries
that appear to have been largely motivated to achieve desired
accounting results and, in some instances, involved management
override of controls. In a number of instances, information
critical to an effective review of transactions and accounting
entries was not disclosed to internal and external auditors.
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We did not maintain a sufficient complement of personnel with an
appropriate level of accounting knowledge, experience, and
training in the application of GAAP commensurate with our
financial reporting requirements and business environment.
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The control environment, which is the responsibility of senior
management, sets the tone of the organization, influences the
control consciousness of its people, and is the foundation for
all other components of internal control over financial
reporting. The control environment material weaknesses described
above contributed to the material weaknesses related to our
period-end financial reporting process described below.
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Period-end financial reporting process We did
not maintain effective controls over the period-end reporting
process, including controls with respect to the review,
supervision, and monitoring of accounting operations.
Specifically:
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Journal entries, both recurring and nonrecurring, were not
always accompanied by sufficient supporting documentation and
were not always adequately reviewed and approved for validity,
completeness, and accuracy;
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Account reconciliations over balance sheet accounts were not
always properly and timely performed, and the reconciliations
and their supporting documentation were not consistently
reviewed for completeness, accuracy, and timely resolution of
reconciling items; and
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We did not design and maintain effective controls to ensure the
completeness, accuracy, and timeliness of the recording of
accrued liabilities, reserves, and operating expenses, primarily
related to our accrued warranty obligations, goods and services
received but not invoiced, customer rebates, and nonproduction
operating expenses.
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These material weaknesses resulted in the restatement of our
annual and interim financial statements for Fiscal 2003, 2004,
2005, and 2006 and the first quarter of Fiscal 2007, and
resulted in adjustments, including audit adjustments, to our
annual and other interim financial statements for Fiscal 2007.
Additionally, these material weaknesses could result in
misstatements of substantially all of our financial statement
accounts that would result in a material misstatement of our
annual or interim consolidated financial statements that would
not be prevented or detected on a timely basis.
Based on managements evaluation, because of the material
weaknesses described above, management has concluded that our
internal control over financial reporting was not effective as
of February 2, 2007. Our independent registered public
accounting firm, PricewaterhouseCoopers LLP, has audited
managements assessment of the effectiveness of our
internal control over financial reporting as of February 2,
2007, and that report appears in this Report.
Remediation
Plan
Our management, under new leadership as described below, has
been actively engaged in the planning for, and implementation
of, remediation efforts to address the material weaknesses, as
well as other identified areas of risk. These remediation
efforts, outlined below, are intended both to address the
identified material weaknesses and to enhance our overall
financial control environment. In January 2007, Michael S. Dell
re-assumed the position of Chief Executive Officer and Donald J.
Carty assumed the position of Chief Financial Officer. The
design and implementation of these and other remediation efforts
are the commitment and responsibility of this new leadership
team.
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Our new leadership team, together with other senior executives,
is committed to achieving and maintaining a strong control
environment, high ethical standards, and financial reporting
integrity. This commitment will be communicated to and
reinforced with every Dell employee and to external
stakeholders. This commitment is accompanied by a renewed
management focus on decision-making and processes that are
intended to achieve maximum shareholder value over the long-term
and a decreased focus on short-term,
quarter-by-quarter
operating results.
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As a result of the initiatives already underway to address the
control deficiencies described above, we have effected personnel
changes in our accounting and financial reporting functions.
Consequently, many of the employees involved in the accounting
processes in which errors and irregularities were made are no
longer involved in the accounting or financial reporting
functions. In addition, we have taken, or will take, appropriate
remedial actions with respect to certain employees, including
terminations, reassignments, reprimands, increased supervision,
training, and imposition of financial penalties in the form of
compensation adjustments.
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We are in the process of reorganizing the Finance Department,
segregating accounting and financial reporting responsibility
from planning and forecasting responsibility, with a renewed
commitment to accounting and financial reporting integrity. We
have appointed a new Chief Accounting Officer and have
strengthened that position, making it directly responsible for
all accounting and financial reporting functions worldwide. In
addition, we are implementing personnel resource plans, and
training and retention programs, that are designed to ensure
that we have sufficient personnel with knowledge, experience,
and training in the application of GAAP commensurate with our
financial reporting requirements.
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We will continue our efforts to establish or modify specific
processes and controls to provide reasonable assurance with
respect to the accuracy and integrity of accounting entries and
the appropriate documentation, review, and approval of those
entries. These efforts include:
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Centralization of the development, oversight, and monitoring of
accounting policies and standardized processes in all critical
accounting areas, including areas involving management judgment
and discretion;
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Implementation and clarification of specific accounting and
finance policies, applicable worldwide, regarding the
establishment, increase, and release of accrued liability and
other balance sheet reserve accounts;
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Creation of a revenue recognition accounting resource function
to coordinate complex revenue recognition matters and to provide
oversight and guidance on the design of controls and processes
to enhance and standardize revenue recognition accounting
procedures;
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Improving the processes and procedures around the completion and
review of quarterly management representation letters, in which
our various business and finance leaders make full and complete
representations concerning, and assume accountability for, the
accuracy and integrity of their submitted financial results;
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Extending the time between the end of a financial reporting
period and the public release of financial and operating data
with respect to that period, giving our accounting organization
more time to appropriately process the close of the accounting
records and analyze the reported results prior to public
announcement;
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Enhancing the development, communication, and monitoring of
processes and controls to ensure that appropriate account
reconciliations are performed, documented, and reviewed as part
of standardized procedures; and
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Increasing the focus by the internal audit function and the
Chief Accounting Officer on the review and monitoring of key
accounting processes, including journal entries and supporting
documentation, revenue recognition processes, account
reconciliations, and management representation letter controls
and processes.
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We will implement company-wide training (led by the Chief
Accounting Officer and other finance executives with appropriate
accounting expertise) to enhance awareness and understanding of
standards and principles for accounting and financial reporting.
This training will include:
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Development and communication of an accounting code of conduct
that will serve as a set of guiding principles emphasizing our
commitment to accounting and financial reporting integrity, as
well as transparency and robust and complete communications
with, and disclosures to, internal and external auditors;
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Comprehensive programs for all finance personnel globally (with
initial focus on personnel directly responsible for accounting
and financial reporting) covering all fundamental accounting and
financial reporting matters, including accounting policies,
financial reporting requirements, income statement
classification, revenue recognition, vendor funding, accounting
for reserves and accrued liabilities, and account reconciliation
and documentation requirements; and
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Appropriate programs for other company personnel, including
senior management, to emphasize the importance of accounting and
financial reporting integrity.
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We will invest in the design and implementation of additional
and enhanced information technology systems and user
applications commensurate with the complexity of our business
and our financial reporting requirements. It is expected that
these investments will improve the reliability of our financial
reporting by reducing the need for manual processes, subjective
assumptions, and management discretion; by reducing the
opportunities for errors and omissions; and by decreasing our
reliance on manual controls to detect and correct accounting and
financial reporting inaccuracies.
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We will reemphasize and invigorate our communications to all
Dell employees regarding the availability of our Ethics Hotline,
through which employees at all levels can anonymously submit
information or express concerns regarding accounting, financial
reporting, or other irregularities they have become aware of or
have observed. In addition, these communications will emphasize
the existence and availability of other reporting avenues or
forums for all employees, such as their management chain, their
Human Resources representatives, the Ethics Office, the
Ombudsmans Office, the Legal Department, and direct
contact with the Chief Financial Officer or the Audit Committee.
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The Audit Committee has directed management to develop a
detailed plan and timetable for the implementation of the
foregoing remedial measures (to the extent not already
completed) and will monitor their implementation. In addition,
under the direction of the Audit Committee, management will
continue to review and make necessary changes to the overall
design of our internal control environment, as well as policies
and procedures to improve the overall effectiveness of internal
control over financial reporting.
We believe the remediation measures described above will
remediate the control deficiencies we have identified and
strengthen our internal control over financial reporting. We are
committed to continuing to improve our internal control
processes and will continue to diligently and vigorously review
our financial reporting controls and procedures. As we continue
to evaluate and work to improve our internal control over
financial reporting, we may determine to take additional
measures to address control deficiencies or determine to modify,
or in appropriate circumstances not to complete, certain of the
remediation measures described above.
Inherent
Limitations over Internal Controls
Our system of controls is designed to provide reasonable, not
absolute, assurance regarding the reliability and integrity of
accounting and financial reporting. Management does not expect
that our disclosure controls and procedures or our internal
control over financial reporting will prevent or detect all
errors and all fraud. A control system, no matter how well
designed and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system
will be met. These inherent limitations include the following:
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Judgments in decision-making can be faulty, and control and
process breakdowns can occur because of simple errors or
mistakes.
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Controls can be circumvented by individuals, acting alone or in
collusion with each other, or by management override.
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The design of any system of controls is based in part on certain
assumptions about the likelihood of future events, and there can
be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions.
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Over time, controls may become inadequate because of changes in
conditions or deterioration in the degree of compliance with
associated policies or procedures.
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The design of a control system must reflect the fact that
resources are constrained, and the benefits of controls must be
considered relative to their costs.
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Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, have been
detected.
Changes in
Internal Control Over Financial Reporting
During the third and fourth quarters, and since the end, of
Fiscal 2007, we have begun the implementation of some of the
remedial measures described above, including
(a) communication, both internally and externally, of our
commitment to a strong control environment, high ethical
standards, and financial reporting integrity; (b) certain
personnel actions; (c) the reorganization of the Finance
Department to separate accounting and financial reporting
responsibility from planning and forecasting responsibility and
to strengthen the Chief Accounting Officer role, giving it
direct and centralized responsibility for all
115
accounting and financial reporting functions worldwide;
(d) the design and implementation of a comprehensive
training program for all Finance Department personnel;
(e) the implementation of more rigorous period-end
financial reporting policies and processes involving
journal-entry approval, supporting documentation, account
reconciliations, and management representation letters;
(f) an increased corporate audit focus on key accounting
controls and processes, including documentation requirements;
(g) extension of the time between the end of reporting
periods and earnings release dates to give the accounting
organization more time to close the books and process and
analyze results; and (h) the design and implementation of a
new internal global ethics awareness campaign, including
refreshed tools, resources, and policies.
In addition to continuing the actions we implemented in the
third quarter of Fiscal 2007, we took the following specific
actions in the fourth quarter of Fiscal 2007: Implemented
certain personnel actions; further enhanced of our management
representation letter process; and began the centralization of
the accounting functions.
ITEM 9B
OTHER INFORMATION
None.
ITEM 10
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Board of
Directors
The following is a list of the persons who, as of
October 15, 2007, constituted our Board of Directors and
their ages and committee assignments as of that date.
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Name
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Age
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Committees
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Donald J. Carty
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61
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Michael S. Dell
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42
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William H. Gray, III
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66
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Audit, Governance and Nominating
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Sallie L. Krawcheck
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42
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Finance
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Alan (A.G.) Lafley
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60
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Finance, Leadership Development and Compensation
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Judy C. Lewent
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58
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Finance (Chair), Leadership Development and Compensation
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Thomas W. Luce, III
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67
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Audit (Chair)
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Klaus S. Luft
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65
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Leadership Development and Compensation
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Alex J. Mandl
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63
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Audit
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Michael A. Miles
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68
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Governance and Nominating, Leadership Development and
Compensation (Chair)
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Sam Nunn
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69
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Audit, Governance and Nominating (Chair),
Presiding Director
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Set forth below is biographical information about each of our
directors.
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Donald J. Carty Mr. Carty joined us as
Vice Chairman and Chief Financial Officer in January 2007. In
that role, he is responsible for all finance functions,
including controller, corporate planning, tax, treasury
operations, investor relations, corporate development, real
estate, risk management, and internal audit. Mr. Carty has
served as a member of our Board of Directors since 1992 and
continues to serve in that capacity. Mr. Carty was the
Chairman and Chief Executive Officer of AMR Corporation and
American Airlines from 1998 until his retirement in 2003. Prior
to that he served in a variety of executive positions with AMR
Airline Group and American Airlines from 1978 to 1985 and from
1987 to 1999. Mr. Carty was President and Chief Executive
Officer of CP Air in Canada from 1985 to 1987. After his
retirement from AMR and American in 2003, Mr. Carty engaged
in numerous business and private investment activities with a
variety of companies. Mr. Carty is a graduate of
Queens University in Kingston, Ontario and of the
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Harvard Graduate School of Business Administration. He is also a
director of CHC Helicopter Corp. and Barrick Gold Corporation
and serves as Chairman of the Board of Virgin America Airlines.
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Michael S. Dell Mr. Dell currently
serves as Chairman of the Board of Directors and Chief Executive
Officer. He has held the title of Chairman of the Board since he
founded the company in 1984. Mr. Dell served as Chief
Executive Officer of Dell from 1984 until July 2004 and resumed
that role in January 2007. He serves on the Foundation Board of
the World Economic Forum, serves on the executive committee of
the International Business Council, and is a member of the
U.S. Business Council. He also serves on the
U.S. Presidents Council of Advisors on Science and
Technology and sits on the governing board of the Indian School
of Business in Hyderabad, India.
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William H. Gray, III Mr. Gray has
been a director since November 2000. He is Chairman of the Amani
Group (a consulting and advisory firm), a position he has held
since August 2004. Mr. Gray was President and Chief
Executive Officer of The College Fund/UNCF (educational
assistance) from 1991 until he retired in June 2004. He was a
member of the United States House of Representatives from 1979
to 1991. During his tenure, he was Chairman of the House Budget
Committee, a member of the Appropriations Committee, Chairman of
the House Democratic Caucus, and Majority Whip. He is an
ordained Baptist Minister and last pastored at Bright Hope
Baptist Church of Philadelphia from 1972 until 2007.
Mr. Gray is also a director of J.P. Morgan
Chase & Co., Prudential Financial Inc., Visteon
Corporation, and Pfizer Inc.
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Sallie L. Krawcheck Ms. Krawcheck has
been a director since July 2006. She is the Chairman and Chief
Executive Officer, Citi Global Wealth Management. Until March
2007, Ms. Krawcheck served as Chief Financial Officer and
Head of Strategy for Citigroup Inc. She is also a member of the
Citi Management, Operating and Business Heads Committees, as
well as the Citi Foundation Board and the Citi Business
Practices Committee. Ms. Krawcheck joined Citi in October
2002 as Chairman and Chief Executive Officer of Smith Barney.
Prior to joining Citi, Ms. Krawcheck was Chairman and Chief
Executive Officer of Sanford C. Bernstein & Company.
She also served as an Executive Vice President of
Bernsteins parent company, Alliance Capital Management,
from 1999 to 2001. Ms. Krawcheck is a member of the Board
of Directors of the University of North Carolina at Chapel Hill
Foundations, Inc., the Board of Directors of Carnegie Hall, the
Board of Overseers of Columbia Business School, and the Board of
Trustees for the Economic Club of New York.
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Alan (A.G.) Lafley Mr. Lafley has been a
director since July 2006. He is the Chairman of the Board and
Chief Executive Officer of The Procter & Gamble
Company. Mr. Lafley joined Procter & Gamble in
1977, and has served in a variety of executive level positions
since 1992. He was named President and Chief Executive in 2000
and Chairman of the Board in 2002. Mr. Lafley also serves
on the Board of General Electric Company, and on the Board of
the Cincinnati Center City Development Corporation. He is a
Trustee of Hamilton College and is a member of the Business
Roundtable and the Business Council.
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Judy C. Lewent Ms. Lewent has been a
director since May 2001. Until her retirement in September 2007,
she served as the Executive Vice President, Chief Financial
Officer of Merck & Co., Inc. She served as Chief
Financial Officer of Merck starting in 1990 and also held
various other financial and management positions since joining
Merck in 1980. Ms. Lewent is also a director of Motorola,
Inc. Ms. Lewent is a trustee of the Rockefeller Family
Trust, a life member of the Massachusetts Institute of
Technology Corporation, and a member of the American Academy of
Arts and Sciences.
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Thomas W. Luce, III Mr. Luce served
as a director from November 1991 to September 2005 and rejoined
the Board in September 2006. He currently serves as President,
Chief Executive Officer, and Director of the National Math and
Science Initiative Inc., a not-for-profit organization dedicated
to expanding programs that have a proven impact on math and
science. He served as United States Assistant Secretary of
Education for Planning, Evaluation and Policy Development from
July 1, 2005 until his resignation September 1, 2006.
From 1997 until 2005, Mr. Luce was a partner of the
business advisory firm Luce & Williams, Ltd. Before
then, Mr. Luce was a founding partner and managing partner
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of the law firm of Hughes & Luce, LLP from 1973 until
his retirement from the firm in 1997, and was Of Counsel with
that law firm until December 2003.
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Klaus S. Luft Mr. Luft has been a
director since March 1995. He is the founder and Chairman of the
Supervisory Board of Artedona AG, a privately held mail order
e-commerce
company established in 1999 and headquartered in Munich,
Germany. He is also owner and President of Munich-based
MATCH Market Access Services GmbH & Co.,
KG. Since August 1990, Mr. Luft has served and continues to
serve as Vice Chairman and International Advisor to Goldman
Sachs Europe Limited. From March 1986 to November 1989, he was
Chief Executive Officer of Nixdorf Computer AG, where he served
for more than 17 years in a variety of executive positions
in marketing, manufacturing, and finance. Mr. Luft is the
Honorary Consul of the Republic of Estonia in the State of
Bavaria.
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Alex J. Mandl Mr. Mandl has been a
director since November 1997. In June 2006, he became Executive
Chairman of Gemalto, a company resulting from the merger of
Axalto Holding N.V. and Gemplus International S.A. Before June
2006, Mr. Mandl was President and Chief Executive Officer
and a member of the Board of Directors of Gemplus, positions he
held since August 2002. He has served as Principal of ASM
Investments, a company focusing on early stage funding in the
technology sector since April 2001. From 1996 to March 2001,
Mr. Mandl was Chairman and CEO of Teligent, Inc., which
offered business customers an alternative to the Bell Companies
for local, long distance and data communication services.
Mr. Mandl was AT&Ts President and Chief
Operating Officer from 1994 to 1996, and its Executive Vice
President and Chief Financial Officer from 1991 to 1993. From
1988 to 1991, Mr. Mandl was Chairman of the Board and Chief
Executive Officer of
Sea-Land
Services Inc. Mr. Mandl is also a board member of Hewitt
Associates, Inc., Horizon Lines, Inc., and Willamette University.
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Michael A. Miles Mr. Miles has been a
director since February 1995. He is a special limited partner
and a member of the Advisory Board of the investment firm
Forstmann Little and Co. He is the former Chairman of the Board
and Chief Executive Officer of Philip Morris Companies Inc.,
having served in those positions from September 1991 to July
1994. Prior to September 1991, Mr. Miles was Vice Chairman
and a member of the board of directors of Philip Morris
Companies Inc. Mr. Miles is also a director of Time Warner
Inc., AMR Corporation, and Citadel Broadcasting Corp. and a
trustee of Northwestern University.
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Sam Nunn Mr. Nunn has been a director
since December 1999. He is Co-Chairman and Chief Executive
Officer of the Nuclear Threat Initiative (NTI), a charitable
organization working to reduce the global threats from nuclear,
biological, and chemical weapons. He was a Senior Partner at the
law firm of King & Spalding, Atlanta, Georgia, from
1997 until 2003. From 1972 through 1996, he served as a United
States Senator from Georgia. During his tenure as Senator, he
served as Chairman of the Senate Armed Services Committee and
the Permanent Subcommittee on Investigations. He also served on
the Intelligence and Small Business Committees. Mr. Nunn
also serves as a director of Chevron Corporation, The
Coca-Cola
Company, and General Electric Company.
|
118
Executive
Officers
The following table sets forth the name, age, and position of
each of the persons who were serving as our executive officers
as of October 15, 2007.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
|
Title
|
|
Michael S. Dell
|
|
|
42
|
|
|
Chairman of the Board and Chief Executive Officer
|
Donald J. Carty
|
|
|
61
|
|
|
Vice Chairman and Chief Financial Officer
|
Bradley R. Anderson
|
|
|
48
|
|
|
Senior Vice President, Business Product Group
|
Paul D. Bell
|
|
|
47
|
|
|
Senior Vice President and President, Americas
|
Michael R. Cannon
|
|
|
54
|
|
|
President, Global Operations
|
Jeffrey W. Clarke
|
|
|
44
|
|
|
Senior Vice President, Business Product Group
|
Andrew C. Esparza
|
|
|
49
|
|
|
Senior Vice President, Human Resources
|
Stephen J. Felice
|
|
|
50
|
|
|
Senior Vice President and President, Asia Pacific-Japan
|
Ronald G. Garriques
|
|
|
43
|
|
|
President, Global Consumer Group
|
Mark Jarvis
|
|
|
44
|
|
|
Senior Vice President, Chief Marketing Officer
|
David A. Marmonti
|
|
|
48
|
|
|
Senior Vice President and President, Europe, Middle East, and
Africa
|
Stephen F. Schuckenbrock
|
|
|
47
|
|
|
Senior Vice President and President, Global Services and Chief
Information Officer
|
Lawrence P. Tu
|
|
|
53
|
|
|
Senior Vice President, General Counsel and Secretary
|
Set forth below is biographical information about each of our
executive officers, except for Mr. Dell and Mr. Carty,
whose biographical information is included under Board of
Directors above.
|
|
|
Bradley R. Anderson Mr. Anderson joined
us in July 2005 and serves as Senior Vice President, Business
Product Group. In this role, he is responsible for worldwide
engineering, design, development, and marketing of our
enterprise products, including servers, networking, and storage
systems. Prior to joining Dell, Mr. Anderson was Senior
Vice President and General Manager of the Industry Standard
Servers business at Hewlett-Packard Company (HP),
where he was responsible for HPs server solutions.
Previously, he was Vice President of Server, Storage and
Infrastructure for HP, where he led the team responsible for
server, storage, peripheral, and infrastructure products. Before
joining HP in 1996, Mr. Anderson held top management
positions at Cray Research in executive staff, field marketing,
sales, finance, and corporate marketing. Mr. Anderson
earned a bachelor of science in Petroleum Engineering from Texas
A&M University and a Master of Business Administration from
Harvard University. He serves on the Texas A&M Look College
of Engineering Advisory Council.
|
|
|
Paul D. Bell Mr. Bell has been with us
since 1996 and has served as Senior Vice President and
President, Americas since March 2007. In this role,
Mr. Bell is responsible for all sales, and customer support
operations across the Americas region (other than our consumer
business). From February 2000 until March 2007, Mr. Bell
served as Senior Vice President and President, Europe, Middle
East, and Africa. Prior to this, Mr. Bell served as Senior
Vice President, Home and Small Business. Prior to joining Dell
in July 1996, Mr. Bell was a management consultant with
Bain & Company for six years, including two years as a
consultant on our account. Mr. Bell received
bachelors degrees in Fine Arts and Business Administration
from Pennsylvania State University and a Master of Business
Administration degree from the Yale School of Organization and
Management.
|
|
|
Michael R. Cannon Mr. Cannon joined us
in February 2007 as President, Global Operations. In this role,
he is responsible for our manufacturing, procurement, and supply
chain activities worldwide. Prior to joining Dell,
Mr. Cannon was President, Chief Executive Officer, and a
director of Solectron Corporation from January 2003 to February
2007, and President, Chief Executive Officer, and a director of
Maxtor Corporation (now a part of Seagate Technology) from July
1996 to January 2003. Mr. Cannon has also worked at
IBMs Storage Systems Division. He began his career in
engineering at The Boeing Company, where he held a management
position with the Manufacturing Research and Development
organization. Mr. Cannon studied mechanical engineering at
Michigan State University and completed
|
119
|
|
|
Harvard Business Schools Advanced Management Program. He
currently serves on the board of Adobe Systems.
|
|
|
|
Jeffrey W. Clarke Mr. Clarke has served
as Senior Vice President, Business Product Group since January
2003. In this role, he is responsible for worldwide engineering,
design, development, and marketing of our business client
products, including Dell
OptiPlextm
Desktops,
Latitudetm
Notebooks,
Precisiontm
Workstations, and
Vostrotm
desktops and notebooks. Mr. Clarke joined Dell in 1987 as a
quality engineer and has served in a variety of engineering and
management roles. In 1995 Mr. Clarke became the director of
desktop development, and from November 2001 to January 2003 he
served as Vice President and General Manager, Relationship
Product Group. Mr. Clarke received a bachelors degree
in Electrical Engineering from the University of Texas at
San Antonio.
|
|
|
Andrew C. Esparza Mr. Esparza joined us
in 1997 as a director of Human Resources in the Product Group.
He was named Senior Vice President, Human Resources in March
2007 and was named an executive officer in September 2007. In
this role, he is responsible for driving the strategy and
supporting initiatives to attract, motivate, develop, and retain
world-class talent in support of our business goals and
objectives. He also has responsibility for corporate security on
a worldwide basis. He currently sits on the board of directors
for aDellante, our internal networking group responsible for the
development of Hispanic employees within the company. Prior to
joining Dell, he held human resource positions with NCR
Corporation from 1985 until 1997 and Bechtel Power Corporation
from 1981 until 1985. Mr. Esparza earned a bachelors
degree in business administration with a concentration in human
resource management from San Diego State University.
|
|
|
Stephen J. Felice Mr. Felice serves
as Senior Vice President and President, Asia Pacific-Japan. He
was named Senior Vice President in March 2007, after having
served as Vice President, Asia Pacific-Japan since August 2005.
Mr. Felice leads our operations throughout the APJ region,
including sales and customer service centers in Penang,
Malaysia, and Xiamen, China. Mr. Felice joined us in
February 1999 and has held various executive roles in our sales
and consulting services organizations. From February 2002 until
July 2005, Mr. Felice was Vice President, Corporate
Business Group, Dell Americas. Prior to joining Dell,
Mr. Felice served as Chief Executive Officer and President
of DecisionOne Corp. Mr. Felice also served as Vice
President, Planning and Development, with Bell Atlantic Customer
Services. He spent five years with Shell Oil in Houston.
Mr. Felice holds a bachelors degree in business
administration from the University of Iowa and a Master of
Business Administration degree from the University of Houston.
|
|
|
Ronald G. Garriques Mr. Garriques
joined us in February 2007 as President, Global Consumer Group.
In this role he is responsible for all aspects of our consumer
business, including sales, marketing, and product design. Before
joining Dell, Mr. Garriques served in various leadership
roles at Motorola from February 2001 to February 2007, where he
was most recently Executive Vice President and President,
responsible for the Mobile Devices division. He also was Senior
Vice President and General Manager of the Europe, Middle East,
and Africa region for the Personal Communications Services
division, as well as Senior Vice President and General Manager
of Worldwide Products Line Management for the Personal
Communications Services division. Prior to joining Motorola,
Mr. Garriques held management positions at AT&T
Network Systems, Lucent Technologies, and Philips Consumer
Communications. Mr. Garriques holds a masters degree
in business administration from The Wharton School at the
University of Pennsylvania, a masters degree in mechanical
engineering from Stanford University, and a bachelors
degree in mechanical engineering from Boston University.
|
|
|
Mark Jarvis Mr. Jarvis joined us in
October 2007 as Senior Vice President, Chief Marketing Officer.
In this role he is responsible for the companys global
marketing effort, spanning consumer and commercial businesses,
including global brand, online, and communications. From April
2007 until October 2007, Mr. Jarvis served as a consultant
to Dell in the Chief Marketing Officer role. From 2003 until
2007, Mr. Jarvis served as a marketing consultant to
numerous Bay Area startups. From 1989 until 2003,
Mr. Jarvis held various roles at Oracle, last serving as
Chief Marketing Officer.
|
120
|
|
|
David A. Marmonti Mr. Marmonti
serves as Senior Vice President and President, Europe, Middle
East, and Africa, having been appointed to that position in
March 2007. In this role he is responsible for all business
operations across the EMEA region, including sales and customer
call centers in the region. Mr. Marmonti joined us in 1998
and has held a variety of roles, including Vice President and
General Manager of our Public Business Group; Vice President and
General Manger of our Mid-Markets and Preferred Corporate
Accounts segments; Vice President and General Manager of our
EMEA Home and Small Business division; Vice President of
Marketing &
e-business
for the U.S. Consumer segment; and Director and General
Manger of the U.S. Asset Recovery Business. Prior to
joining Dell, Mr. Marmonti spent 16 years at AT&T
in a variety of senior roles, including executive positions in
sales and marketing, serving corporate customers.
Mr. Marmonti holds a bachelors degree in business
administration and marketing from the University of Missouri at
St. Louis.
|
|
|
Stephen F.
Schuckenbrock Mr. Schuckenbrock joined
us in January 2007 as Senior Vice President and President,
Global Services. In September 2007, he assumed the additional
role of Chief Information Officer. He is responsible for all
aspects of our services business, with worldwide responsibility
for Dell enterprise service offerings, and is also responsible
for our global information systems and technology structure.
Prior to joining us, Mr. Schuckenbrock served as Co-Chief
Operating Officer and Executive Vice President of Global Sales
and Services for Electronic Data Systems Corporation. Before
joining EDS in 2003, he was Chief Operating Officer of The Feld
Group, an information technology consulting organization.
Mr. Schuckenbrock served as Global Chief Information
Officer for PepsiCo from 1998 to 2000. Mr. Schuckenbrock
earned a bachelors degree in business administration from
Elon University.
|
|
|
Lawrence P. Tu Mr. Tu joined us as
Senior Vice President, General Counsel and Secretary in July
2004, and is responsible for overseeing Dells global legal
department and governmental affairs. Before joining Dell,
Mr. Tu served as Executive Vice President and General
Counsel at NBC Universal for three years. Prior to his position
at NBC, he was a partner with the law firm of
OMelveny & Myers LLP, where he focused on high
technology, Internet, and media related transactions. He also
served five years as managing partner of the firms Hong
Kong office. Mr. Tus prior experience also includes
serving as General Counsel Asia-Pacific for Goldman Sachs,
attorney for the U.S. State Department, and law clerk for
U.S. Supreme Court Justice Thurgood Marshall. Mr. Tu
holds Juris Doctor and bachelor of arts degrees from Harvard
University, as well as a masters degree from Oxford
University, where he was a Rhodes Scholar.
|
Section 16(a)
Beneficial Ownership Reporting Compliance
In December 2006, Joan Hooper, former chief accounting officer,
inadvertently failed to timely report the withholding of
870 shares to settle the withholding taxes on a vesting of
restricted shares on December 27, 2006. The report was
filed on January 3, 2007, two days after the deadline.
Code of
Conduct
We maintain a Code of Conduct (entitled Winning with
Integrity) that is applicable to all of our employees
worldwide, including the Chief Executive Officer, the Chief
Financial Officer, and the Chief Accounting Officer. That Code
of Conduct, which satisfies the requirements of a code of
ethics under applicable SEC rules, contains written
standards that are designed to deter wrongdoing and to promote
honest and ethical conduct, including the ethical handling of
actual or apparent conflicts of interest; full, fair, accurate,
timely, and understandable public disclosures and
communications, including financial reporting; compliance with
applicable laws, rules, and regulations; prompt internal
reporting of violations of the code; and accountability for
adherence to the code. A copy of the Code of Conduct is posted
on our website at www.dell.com/codeofconduct.
We will post any waivers of the Code of Conduct or amendments to
the Code of Conduct that are applicable to our Chief Executive
Officer, Chief Financial Officer, or Chief Accounting Officer on
our website at www.dell.com/codeofconduct.
121
Corporate
Governance
Corporate Governance Principles The Board of
Directors believes that adherence to sound corporate governance
policies and practices is important in ensuring that our company
is governed and managed with the highest standards of
responsibility, ethics, and integrity and in the best interests
of the stockholders. The Board maintains a set of Corporate
Governance Principles intended to reflect a set of core values
that provide the foundation for our governance and management
systems and our interactions with others. A copy of those
principles can be found on our website at
www.dell.com/corporategovernance.
Board Committees The Board maintains the
following committees to assist it in discharging its oversight
responsibilities. The current membership of each committee is
indicated in the list of directors set forth under Board
of Directors above.
|
|
|
Audit Committee The Audit Committee assists
the Board in fulfilling its responsibility to provide oversight
with respect to our financial statements and reports and other
disclosures provided to stockholders, the system of internal
controls, the audit process, and legal and ethical compliance.
Its primary duties include reviewing the scope and adequacy of
our internal and financial controls; reviewing the scope and
results of the audit plans of our independent and internal
auditors; reviewing the objectivity, effectiveness, and
resources of the internal audit function; appraising our
financial reporting activities and the accounting standards and
principles followed; and reviewing and approving ethics and
compliance policies. The Audit Committee also selects, engages,
compensates, and oversees our independent auditor and
pre-approves all services to be performed by that firm.
|
The Audit Committee is comprised entirely of directors who
satisfy the standards of independence established under our
Corporate Governance Principles, as well as additional or
supplemental independence standards applicable to audit
committee members established under applicable law and NASDAQ
listing requirements. The Board has determined that each Audit
Committee member meets the NASDAQ financial literacy
requirement and that Mr. Mandl is a financial
expert within the meaning of the current rules of the SEC.
|
|
|
Leadership Development and Compensation Committee
The Leadership Development and Compensation Committee
reviews and approves, on behalf of the Board, the amounts and
types of compensation to be paid to our executive officers and
the non-employee directors; reviews and approves, on behalf of
the Board, all bonus and equity compensation to be paid to our
other employees; and administers our stock-based compensation
plans. The Leadership Development and Compensation Committee is
comprised entirely of directors who satisfy the standards of
independence established in our Corporate Governance Principles,
as well as additional or supplemental independence standards
applicable to compensation committee members established under
applicable law and NASDAQ listing requirements.
|
|
|
Governance and Nominating Committee The
Governance and Nominating Committee oversees all matters of
corporate governance, including formulating and recommending to
the full Board governance policies and processes and monitoring
and safeguarding the independence of the Board, and selects,
evaluates, and recommends to the full Board qualified candidates
for election or appointment to the Board. This committee also
recommends the structure and membership of the Board committees
and administers an annual self-evaluation of Board performance.
This committee is also responsible for monitoring, on behalf of
the Board, our sustainability and corporate responsibility
activities and initiatives. The Governance and Nominating
Committee is comprised entirely of directors who satisfy the
standards of independence established in our Corporate
Governance Principles, as well as additional or supplemental
independence standards applicable to nominating committee
members established under applicable law and NASDAQ listing
requirements.
|
The Governance and Nominating Committees policies and
processes for identifying, evaluating, and selecting director
candidates, including candidates recommended by stockholders,
are set forth in the companys proxy statement relating to
the annual meeting of stockholders.
122
|
|
|
Finance Committee The Finance Committee
oversees all areas of corporate finance, including capital
structure, equity and debt financings, capital expenditures,
merger and acquisition activity, cash management, banking
activities and relationships, investments, foreign exchange
activities, and share repurchase activities. A majority of the
members of the Finance Committee is comprised of directors who
satisfy the standards of independence established in our
Corporate Governance Principles.
|
Each committee is governed by a written charter approved by the
full Board. These charters form an integral part of the
Corporate Governance Principles, and a copy of each charter can
be found on our website at www.dell.com/corporategovernance.
|
|
ITEM 11
|
EXECUTIVE
COMPENSATION
|
Director
Compensation
Mr. Dell and Mr. Carty are currently the only members
of the Board who are also Dell employees, and they do not
receive any additional compensation for serving on the Board.
Kevin B. Rollins, the companys former President and Chief
Executive Officer, served as a member of the Board during Fiscal
2007 but received no additional compensation for such service.
This section describes the compensation earned by Mr. Carty
during Fiscal 2007 in his capacity as a director and prior to
his becoming an executive officer. Details regarding
Mr. Cartys compensation as an executive officer can
be found under Compensation of Executive Officers
below.
Annual Retainer Fee Each non-employee
director receives an annual retainer fee, which was $75,000
during Fiscal 2007. In addition, the chair of the Audit
Committee receives an additional annual retainer of $20,000; the
chair of each of the other Board committees receives an
additional annual retainer of $15,000; and the Presiding
Director receives an additional annual retainer of $15,000 if he
or she is not the chair of a Board committee. Each director can
receive the retainer in cash, defer all or a portion into a
deferred compensation plan, or receive fair market value stock
options or restricted stock in lieu of cash. Amounts deferred
into the deferred compensation plan are payable in a lump sum or
in installments beginning upon termination of service as a
director. The number of options or shares of restricted stock
received in lieu of the annual retainer fee (or the method of
computing the number) and the terms and conditions of those
awards are determined from time to time by the Leadership
Development and Compensation Committee. The annual retainers are
payable at the first Board meeting after the annual
stockholders meeting for all members elected by the
stockholders. For new members appointed by the Board, the
retainer is payable at the first Board meeting attended by the
new director.
Option and Stock Awards The non-employee
directors are also eligible for stock option and restricted
stock awards. The number of options and shares awarded, as well
as the other terms and conditions of the awards (such as vesting
and exercisability schedules and termination provisions), are
generally within the discretion of the Leadership Development
and Compensation Committee, except that (a) no non-employee
director may receive awards (not including awards in lieu of
annual cash retainer) covering more than 50,000 shares of
common stock in any year (other than the year the director joins
the Board, when the limit is two times the normal annual limit),
(b) no more than 20% of the awards granted to a
non-employee director during a year (not including awards in
lieu of annual cash retainer) may consist of restricted stock,
(c) the exercise price of any option cannot be less than
the fair market value of the common stock on the date of grant,
and (d) no option can become exercisable, and no share of
restricted stock can become transferable, earlier than six
months from the date of grant. Management has proposed that the
restriction described in clause (b) above be removed,
giving the Leadership Development and Compensation Committee
authority to approve any mix of restricted stock and stock
options, subject to the other conditions. We intend to submit
that proposal to a stockholder vote at the next annual meeting
of stockholders.
Option and restricted stock awards are granted at the first
Board meeting after the annual stockholders meeting for
all members elected by the stockholders. For new members
appointed by the Board, option and restricted stock awards are
granted on the date of the first Board meeting attended by the
new director.
123
Other Benefits We reimburse directors for
their reasonable expenses associated with attending Board
meetings and provide them with liability insurance coverage for
their activities as directors.
Under our Certificate of Incorporation and Bylaws, the directors
are entitled to indemnification from Dell to the fullest extent
permitted by Delaware corporate law. We have entered into
indemnification agreements with each of the non-employee
directors. Those agreements do not increase the extent or scope
of the indemnification provided, but were entered into to
establish processes and procedures for indemnification claims.
Director Compensation During Fiscal 2007 The
following table sets forth the compensation paid to the
non-employee directors for Fiscal 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or
|
|
Equity
Awards(a)
|
|
|
Name
|
|
Paid in
Cash
|
|
Stock
|
|
Option
|
|
Total
|
|
Mr.
Carty(b)
|
|
$
|
20,000
|
|
|
$
|
112,597
|
|
|
$
|
122,728
|
|
|
$
|
255,325
|
|
Mr. Gray
|
|
|
37,500
|
|
|
|
75,100
|
|
|
|
122,728
|
|
|
|
235,328
|
|
Ms. Krawcheck
|
|
|
75,000
|
|
|
|
26,336
|
|
|
|
27,161
|
|
|
|
128,497
|
|
Mr. Lafley
|
|
|
75,000
|
|
|
|
26,336
|
|
|
|
27,161
|
|
|
|
128,497
|
|
Ms. Lewent
|
|
|
15,000
|
|
|
|
112,597
|
|
|
|
210,298
|
|
|
|
337,895
|
|
Mr. Luce
|
|
|
95,000
|
|
|
|
4,887
|
|
|
|
23,003
|
|
|
|
122,890
|
|
Mr. Luft
|
|
|
|
|
|
|
112,597
|
(c)
|
|
|
138,343
|
|
|
|
250,940
|
|
Mr. Mandl
|
|
|
75,000
|
|
|
|
37,603
|
|
|
|
128,798
|
|
|
|
241,401
|
|
Mr. Miles
|
|
|
90,000
|
|
|
|
37,603
|
|
|
|
135,450
|
|
|
|
263,053
|
|
Mr. Nunn
|
|
|
15,000
|
|
|
|
112,597
|
|
|
|
141,519
|
|
|
|
269,116
|
|
|
|
|
(a)
|
|
Represents the dollar amount of
equity compensation cost recognized for financial statement
reporting purposes with respect to Fiscal 2007, computed in
accordance with SFAS 123(R), excluding the impact of
estimated forfeitures for service-based vesting conditions. See
Note 6 of Notes to Consolidated Financial Statements
included in Part II
Item 8 Financial Statements and Supplementary
Data for a description of the assumptions used in that
computation. The actual value realized by the director with
respect to stock awards will depend on the market value of Dell
common stock on the date the stock is sold, and the actual value
realized by the director with respect to option awards will
depend on the difference between the market value of Dell common
stock on the date the option is exercised and the exercise price.
|
|
|
|
The following table sets forth the
number of shares covered by awards made in Fiscal 2007. All of
these awards, other than those made to Mr. Luce, were made
on July 21, 2006, the date of the first Board meeting
following last years annual meeting of stockholders. The
awards to Mr. Luce were made on December 7, 2006, the
date of the first Board meeting Mr. Luce attended after his
reappointment to the Board in September 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual
|
|
Annual
|
|
Restricted
|
|
New Director
|
|
New Director
|
|
|
Restricted
Stock
|
|
Stock Option
|
|
Stock in Lieu
|
|
Restricted
|
|
Stock Option
|
Name
|
|
Award
|
|
Award
|
|
of
Retainer
|
|
Stock
Award
|
|
Award
|
|
Mr. Carty
|
|
|
3,944
|
|
|
|
15,775
|
|
|
|
3,836
|
|
|
|
|
|
|
|
|
|
Mr. Gray
|
|
|
3,944
|
|
|
|
15,775
|
|
|
|
1,918
|
|
|
|
|
|
|
|
|
|
Ms. Krawcheck
|
|
|
3,944
|
|
|
|
15,775
|
|
|
|
|
|
|
|
7,888
|
|
|
|
31,550
|
|
Mr. Lafley
|
|
|
3,944
|
|
|
|
15,775
|
|
|
|
|
|
|
|
7,888
|
|
|
|
31,550
|
|
Ms. Lewent
|
|
|
3,944
|
|
|
|
15,775
|
|
|
|
3,836
|
|
|
|
|
|
|
|
|
|
Mr. Luce
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,850
|
|
|
|
23,399
|
|
Mr. Luft
|
|
|
3,944
|
|
|
|
15,775
|
|
|
|
3,836
|
|
|
|
|
|
|
|
|
|
Mr. Mandl
|
|
|
3,944
|
|
|
|
15,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Miles
|
|
|
3,944
|
|
|
|
15,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Nunn
|
|
|
3,944
|
|
|
|
15,775
|
|
|
|
3,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The restricted stock included in
the Annual Restricted Stock Award column and the New Director
Restricted Stock Award column vests ratably over five years (20%
per year), so long as the director remains a member of the
Board. The portion that is unvested at the time the director
ceases to be a member of the Board (other than by reason of
death or permanent disability) is forfeited. All unvested
restricted stock vests immediately upon death or permanent
disability. The grant date fair value for these awards, computed
in accordance with SFAS 123(R), was $77,105 for each of the
Annual Restricted Stock Awards; $154,211 for each of the New
Director Restricted Stock Awards granted to Ms. Krawcheck
and Mr. Lafley; and $154,206 for the New Director
Restricted Stock Award granted to Mr. Luce.
|
|
|
|
The stock options included in the
Annual Stock Option Award column and the New Director Stock
Option Award column vest ratably over five years (20% per year),
so long as the director remains a member of the Board. The
portion that is unvested at the time the director ceases to be a
member of the Board (other than by reason of death or permanent
disability) terminates. All
|
124
|
|
|
|
|
unvested options vest immediately
upon death or permanent disability. The options terminate ten
years from the date of grant unless terminated earlier as
follows: all options (vested and unvested) terminate immediately
if the director resigns at the request or demand of the Board or
is otherwise removed from the Board; if the director ceases to
be a member of the Board by reason of death, permanent
disability, or retirement after attaining the age of 72, vested
options remain exercisable for one year; if the director resigns
for any other reason, vested options remain exercisable for
90 days. The options are transferable to family members
under specified conditions. The exercise price of the options is
the fair market value of Dell common stock on the date of grant
($26.36 for the award to Mr. Luce on December 7, 2006,
and $19.55 for the awards to the other non-employee directors on
July 21, 2006). The grant date fair value for these awards,
computed in accordance with SFAS 123(R), was $104,367 for
each of the Annual Stock Option Awards; $208,735 for each of the
New Director Stock Option Awards granted to Ms. Krawcheck
and Mr. Lafley; and $174,884 for the New Director Stock
Option Award granted to Mr. Luce.
|
|
|
|
The restricted stock included in
the Restricted Stock in Lieu of Retainer column was granted
pursuant to the directors election to receive restricted
stock in lieu of some or all of the $75,000 annual cash
retainer. This stock was fully vested at grant, but may not be
sold or transferred for six months following the grant. The
number of shares was determined by dividing the foregone
retainer amount by the fair market value of Dell common stock on
the date of grant ($19.55). The grant date fair value for these
awards, computed in accordance with SFAS 123(R), was equal
to the amount of the foregone retainer ($37,500 in the case of
Mr. Gray and $75,000 in the case of each other director who
elected this option).
|
|
|
|
The following table sets forth the
number of shares of restricted stock and the number of shares
underlying stock options held by each of the non-employee
directors as of the end of Fiscal 2007:
|
|
|
|
|
|
|
|
|
|
Name
|
|
Restricted
Stock
|
|
Stock
Options
|
|
Mr. Carty
|
|
|
6,576
|
|
|
|
342,376
|
|
Mr. Gray
|
|
|
6,576
|
|
|
|
83,375
|
|
Ms. Krawcheck
|
|
|
11,832
|
|
|
|
47,325
|
|
Mr. Lafley
|
|
|
11,832
|
|
|
|
47,325
|
|
Ms. Lewent
|
|
|
6,576
|
|
|
|
157,669
|
|
Mr. Luce
|
|
|
5,850
|
|
|
|
37,208
|
|
Mr. Luft
|
|
|
6,576
|
|
|
|
165,091
|
|
Mr. Mandl
|
|
|
6,576
|
|
|
|
167,704
|
|
Mr. Miles
|
|
|
6,576
|
|
|
|
361,402
|
|
Mr. Nunn
|
|
|
6,576
|
|
|
|
182,549
|
|
|
|
|
|
|
The information for Mr. Carty
reflects awards he received in his capacity as a director, prior
to becoming an executive officer. For information regarding
awards he received as an executive officer, see
Compensation of Executive Officers below.
|
|
(b)
|
|
These awards were made to
Mr. Carty as a member of the Board prior to his becoming an
executive officer. As an executive officer, he is no longer
eligible for additional compensation for service on the Board.
For a description of Mr. Cartys compensation as an
executive officer, see Compensation of Executive
Officers below.
|
|
(c)
|
|
To afford Mr. Luft, a resident
of Germany, a comparable compensation benefit under local law,
all awards designated as restricted stock awards were made in
the form of restricted stock units with the same vesting and
expiration provisions as the restricted stock.
|
Compensation of
Executive Officers
Compensation
Discussion and Analysis
Introduction
This Compensation Discussion and Analysis is designed to provide
stockholders with an understanding of our compensation
philosophy, core principles, and decision making process. It
discusses the Leadership Development and Compensation
Committees determinations of how and why, in addition to
what, compensation actions were taken for the executive officers
who are identified in the Summary Compensation Table below (the
Named Executive Officers).
Specifically, the Leadership Development and Compensation
Committee has the responsibilities listed below. For more
information about the committees role, see the
committees charter, which can be found on our website at
www.dell.com/corporategovernance.
|
|
|
Reviewing with management and approving the compensation
philosophy and core objectives for executive officers;
|
|
|
Evaluating the performance of the Chairman and Chief Executive
Officer in light of the current business environment and our
strategic objectives;
|
125
|
|
|
Reviewing with management and approving all forms of
compensation to be provided to the executive officers, including
establishing target opportunity levels, setting performance
goals, and determining results;
|
|
|
Acting as administrator of our compensation plans, including
granting awards to executive officers; and
|
|
|
Evaluating the need for, and provisions of, employment contracts
or severance arrangements for the executive officers.
|
The Leadership Development and Compensation Committee has
delegated its authority with respect to compensation decisions
for non-executive officer employees to the Chairman and Chief
Executive Officer, subject to periodic review by the committee.
The sections presented will follow in the order of the duties
listed above.
Executive
Compensation Philosophy and Core Objectives
We seek profitable revenue growth in a highly competitive
industry that includes several other large branded competitors
as well as a number of smaller branded and generic competitors.
Our business strategy is evolving as we combine our direct
customer model with relevant technologies and solutions, highly
efficient manufacturing and logistics, and new distribution
channels to reach commercial customers and individual consumers
around the world. Accordingly, the Board and the Chief Executive
Officer have defined the following four multi-year strategic
corporate priorities:
|
|
|
Globalization Focus on accelerating profitable
revenue growth in developing areas of the world;
|
|
|
Product Leadership Design and innovate around
non-proprietary standards-based technologies to offer customers
what they want, when they want it, and at a level of value they
consider to be unparalleled;
|
|
|
Customer Experience Focus on product quality and
customer service to instill customer satisfaction, trust, and
loyalty; and
|
|
|
Winning Culture Recruit and develop a diverse
workforce globally and provide a positive work environment,
including recognition based on merit, a focus on customer
commitment, the highest standards of integrity and ethical
behavior, and community leadership.
|
The Leadership Development and Compensation Committee is
committed to and responsible for designing, implementing, and
administering a compensation program for executive officers that
ensures appropriate linkage between pay, company performance,
and results for shareholders. The committee seeks to increase
shareholder value by rewarding performance with cost-effective
compensation and ensuring that we can attract and retain the
best executive talent through adherence to the following core
compensation objectives:
|
|
|
Providing compensation commensurate with the level of success
achieved, ranging from above-average overall rewards for
performance that exceeds that of our peers to below-average
compensation for below-average performance;
|
|
|
Providing a total compensation opportunity that is competitive
with similar high-tech and other large global general industry
companies that we compete with for talent;
|
|
|
Managing fixed costs by combining a conservative approach to
base salaries and benefits, with more aggressive
performance-dependent short- and long-term incentives;
|
|
|
Recognizing and rewarding the achievement of corporate,
regional/business unit, and individual performance
goals; and
|
|
|
Heavily weighting the compensation package towards long-term,
performance-dependent incentives to better align the interests
of executives with shareholders.
|
126
Our compensation programs are designed to reward achievement of
corporate priorities, and these programs will change from time
to time as necessary to support corporate priorities and as
those priorities change. The specific principles, components,
and decisions used in Fiscal 2007 to manage the compensation of
executive officers are discussed in more detail below.
Evaluating
Chairman and CEO Performance
Process
All decisions relating to the compensation of the Chairman and
the Chief Executive Officer are made by the Leadership
Development and Compensation Committee in executive session,
without management present. In assessing the compensation of the
Chairman and Chief Executive Officer, the committee considers
the performance of the company, the executives
contribution to that performance, and other factors (including
tenure and experience, retention concerns, and historical
compensation) in the same manner as for any other executive
officer.
Results
Fiscal 2007 was a challenging year for us in many ways.
Increased pressure from competitors combined with poor execution
led to an erosion of market share and ultimately culminated in a
change of leadership. A number of long-term strategic
initiatives, aimed at driving long-term sustainable performance
and improving areas such as customer satisfaction, began to show
positive results during the year; however, these positive
results were overshadowed by our relatively weak financial
performance. The compensation actions taken for the Chairman and
the Chief Executive Officer and the other Named Executive
Officers based on these results are discussed in the next
section.
Executive Officer
Compensation
The Total
Compensation Package
Process When making individual compensation
decisions for executive officers, the committee takes many
factors into account, including the individuals
performance, tenure, and experience; the performance of the
company overall; any retention concerns; the recommendations of
management; the individuals historical compensation; and
comparisons to other executive officers (both those of the
company and those of our peer group).
Elements of the Total Compensation Package
The key elements of the compensation program for our
executive officers are base salary, annual incentive bonus,
long-term incentives, and benefits, and perquisites.
127
The chart below is representative of the overall pay mix for our
Named Executive Officers. The committee takes a holistic
approach to executive compensation and balances the individual
compensation elements for each executive officer individually.
For example, because he is the companys largest
stockholder, Mr. Dell does not receive any long-term
incentive compensation.
Pay Mix for Named
Executive Officers
Pay Mix Because executive officers are in a
position to directly influence the overall performance of the
company, and in alignment with our highly-leveraged
pay-for-performance philosophy, a significant portion of their
compensation is delivered in the form of performance-dependent,
short- and long-term incentive programs. The level of
performance-dependent pay varies for each executive based on
level of responsibility, market practices, and internal equity
considerations, as well as total share ownership.
Competitive Market Assessment The Leadership
Development and Compensation Committee annually reviews market
compensation levels for executive officers at similar high-tech
and other large global general industry companies to determine
whether the compensation components for our executive officers
remain in the targeted ranges described below under Market
Positioning. With the assistance of the human resources
department, management collects and presents to the Leadership
Development and Compensation Committee compensation data for the
top five most highly-paid executive officers from a list of
targeted comparator companies as well as data for all executive
officers from published compensation surveys. These compensation
surveys include data on high-tech and general industry pay
practices for each executive position at companies similar in
size and complexity to Dell. The compensation assessment
includes an evaluation of base salary, target annual incentive
opportunities, long-term incentive grant values, and benefits
for each of our executive officers relative to similar positions
in the market.
Each year, management develops the peer group for evaluating pay
for the executive officers (excluding, in Fiscal 2007,
Mr. Dell, who served as executive Chairman of the Board)
based on those companies with which we compete for talent. The
committee reviews and approves the peer group annually using an
assessment of sales volumes, market capitalization, employment
levels, product mix, and business
128
results. The peer group used to evaluate executive pay practices
at the beginning of Fiscal 2007 consisted of the following
23 companies:
|
|
|
Advanced Micro Devices, Inc.
Apple Inc.
Applied Materials Inc.
Best Buy Co., Inc.
CDW Corp.
Cisco Systems Inc.
Citigroup Inc.
Computer Sciences Corp.
Electronic Data Systems Corp.
EMC Corp.
General Electric Company
Hewlett Packard Co.
|
|
Home Depot Inc.
Honeywell International Inc.
Intel Corp.
International Business Machines Corp.
Johnson & Johnson
Lexmark International Inc.
Microsoft Corp.
Oracle Corp.
Procter & Gamble Co.
Texas Instruments Inc.
Wal Mart Stores Inc.
|
Because only four of the above comparable companies employ
full-time, non-CEO, Chairman of the Board positions, the
Leadership Development and Compensation Committee included
additional data from other large global general industry
companies to evaluate market pay practices for Mr. Dell,
who held such a position at Dell for most of Fiscal 2007.
Specifically, the comparator group for the Chairman position
consisted of 12 companies with annual revenues of at least
$10 billion, as follows:
|
|
|
Anheuser-Busch Companies Inc.
Best Buy Co., Inc.
Citigroup Inc.
Coca-Cola
Company
ConocoPhillips Company
Costco Wholesale Corporation
|
|
D R Horton, Inc.
Kroger Co.
Oracle Corp.
Pulte Homes Inc.
The Travelers Companies Inc.
Texas Instruments Inc.
|
Market Positioning The Leadership Development
and Compensation Committee targets base salary and benefits at
the median of competitive market practices and variable
compensation (annual incentives and the grant value of long-term
incentives) at the 75th percentile of the market for each
component. The committee believes that above-average overall pay
positioning will allow us to attract and retain the appropriate
level of executive talent while appropriately rewarding high
performance through stretch performance objectives. The actual
target compensation for each individual executive may be higher
or lower than the targeted market position based on such factors
as individual skills, experience, contribution and performance,
internal equity, or other factors that the committee may take
into account that are relevant to the individual executive. In
addition, actual compensation results (e.g., amounts earned and
paid each year) may be higher or lower than target based on
corporate, regional/business unit, and individual performance.
Individual
Compensation Components
Base
Salary
Design Our philosophy is that base salaries
should meet the objectives of attracting and retaining the
executive officers needed to run the business. The base salaries
are targeted at market median levels, although each executive
officer may have a base salary above or below the median of the
market. Actual individual salary amounts are not objectively
determined, but instead reflect the committees judgment
with respect to each executive officers responsibility,
performance, experience, and other factors, including any
retention concerns, the individuals historical
compensation, and internal equity considerations. During Fiscal
2007, the Leadership Development and Compensation Committee
relied significantly on the input and recommendations of
Mr. Dell as Chairman and Mr. Rollins as Chief
Executive Officer when evaluating factors relative to the other
executive officers in order to approve salary adjustments.
129
Results As noted above, in recent years the
Leadership Development and Compensation Committee made a
decision to allocate more compensation to the
performance-dependent elements of the total compensation
package. As a result, in Fiscal 2006 and Fiscal 2007, annual
salary increases among executive officers generally were
somewhat modest as more focus was placed on the annual incentive
bonus. The Named Executive Officer salaries are all below the
median of the market, and other than Mr. Dell, each Named
Executive Officer received a modest raise for Fiscal 2007
designed to keep the salary close to the market median.
Mr. Dell did not receive a raise because the committee
determined that the key component of his compensation was
performance-based bonus.
Annual Incentive
Bonus
Design The annual incentive bonus plan is
designed to align executive officer pay with overall company
financial performance, as well as performance against strategic
initiatives in the short-term. The plan provides a reward based
on the achievement of corporate, regional/business unit, and
individual performance objectives.
Annual incentives for executive officers are subject to the
Executive Annual Incentive Bonus Plan. This plan was designed to
qualify as tax-deductible under Section 162(m) of the
Internal Revenue Code, and was approved by stockholders at the
2003 annual meeting.
The Leadership Development and Compensation Committee
establishes a target incentive opportunity for each executive
officer expressed as a percent of base salary. As explained in
the chart under Elements of the Total Compensation
Package above, the base salary and annual incentive bonus
components of the pay mix are generally equal in amount, each
comprising approximately 10% of the pay mix. Therefore, most
Named Executive Officers were granted a target incentive
opportunity equal to their base salary. Mr. Dell and
Mr. Rollins, the individuals with the greatest overall
responsibility for company performance, were granted larger
incentive opportunities in comparison to their base salaries in
order to weight their overall pay mix even more heavily towards
performance-based compensation. For the Named Executive
Officers, the target annual incentives for Fiscal 2007 were as
follows:
|
|
|
|
|
|
|
Target Incentive
as a
|
Named Executive
Officer
|
|
% of Base
Salary(a)
|
|
Mr. Dell
|
|
|
200
|
%
|
Mr. Carty
|
|
|
|
%(b)
|
Mr. Bell
|
|
|
100
|
%
|
Mr. Felice
|
|
|
100
|
%
|
Mr. Rollins
|
|
|
300
|
%
|
Mr. Schneider
|
|
|
100
|
%
|
Mr. Parra
|
|
|
100
|
%
|
|
|
|
(a)
|
|
To qualify for tax deductibility
under Section 162(m) of the Internal Revenue Code, the
maximum payout was capped at 0.10% of consolidated net income
for each executive, with the exception of Mr. Dell and
Mr. Rollins, whose payouts were capped at 0.20% of
consolidated net income.
|
|
(b)
|
|
Mr. Carty joined the company
as an executive officer in January 2007 and was not eligible for
an annual incentive bonus for Fiscal 2007.
|
To arrive at a payout number, the target percentage of salary
for each executive officer is multiplied by a formula based on
corporate performance, regional or business unit performance,
and the achievement of individual performance goals. The formula
is illustrated below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Target Annual
Incentive
|
|
|
X
|
|
Corporate Performance
Modifier
(0%-300%)
|
|
|
X
|
|
Regional/Business
Unit Performance
Modifier
(50%-150%)
|
|
|
X
|
|
Individual
Performance
Modifier
(0%-150%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Performance Target At the end of
the year, the Leadership Development and Compensation Committee
evaluates company performance against specific financial and
strategic performance targets set at the beginning of the year
and modifies the bonus payout to 0% to 300% of the target. For
Fiscal 2007,
130
the financial performance objectives were revenue growth and
operating income margin objectives, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Revenue Growth
|
|
|
5.0
|
%
|
|
|
10.0
|
%
|
|
|
20.0
|
%
|
Operating Income Margin
|
|
|
7.0
|
%
|
|
|
7.8
|
%
|
|
|
8.6
|
%
|
Results For Fiscal 2007, we did not achieve
either revenue growth or operating income margin at the
threshold level. Consequently, the committee set the corporate
performance modifier at 0%, the other modifiers were not
applied, and the formulaic payout results were zero.
Regional/Business Unit and Individual Performance
After the corporate performance modifier is set, the
following additional modifiers are applied to determine
individual payout amounts:
|
|
|
Performance of the executives regional/business
unit; and
|
|
|
A subjective evaluation of each executives individual
performance and contribution during the year.
|
Each of these factors can result in further modification of the
executives payout as indicated. Upward adjustments must be
offset by downward adjustments for other executives, as the
aggregate payouts cannot exceed the total amount funded and
approved by the Leadership Development and Compensation
Committee based on corporate performance. As mentioned above,
the regional/business unit and individual performance modifiers
were not applied for Fiscal 2007 as we did not meet the
corporate performance thresholds.
Strategic Priorities Targets The Leadership
Development and Compensation Committee has the discretion to
adjust the formulaic payout results based on company performance
against specific strategic priorities established for the year.
For Fiscal 2007, these included objectives in the areas of
Customer Experience, Winning Culture, and Global Growth.
|
|
|
|
|
Fiscal 2007
|
|
|
|
|
Strategic
Initiatives(a)
|
|
Fiscal 2007
Goal
|
|
Fiscal 2007
Results
|
|
Customer Experience:
|
|
|
|
|
Customer Satisfaction score
|
|
90% Positive
|
|
75% Positive
|
Online Customer Satisfaction score
|
|
90% Positive
|
|
<90% Positive
|
Winning Culture:
|
|
|
|
|
All Tell Dell Metrics
|
|
>75% Positive
|
|
76% Positive
|
Leadership Imperative Participation
|
|
100%
|
|
88%
|
Global
Growth(b)
|
|
|
|
|
|
|
|
(a)
|
|
The committee believes that the
performance objectives established for each of these strategic
initiatives represent meaningful improvements for the
organization and, therefore, are reasonably difficult to attain.
|
|
(b)
|
|
Management believes, and the
committee concurs, that the specific strategic initiatives and
performance goals established for the Global Growth
strategic priority during Fiscal 2007 represent confidential
business information, the disclosure of which would result in
meaningful competitive harm.
|
Based on the results described above, the Leadership Development
and Compensation Committee did not adjust the formulaic payout
results, and no annual incentive payments were made to the
executive officers.
Long-Term
Incentives
Design Long-term incentives are the most
significant element of total executive officer compensation.
Performance-dependent components of compensation comprise much
of this element, consistent with our philosophy of driving
performance and thereby aligning the interests of executives
with other stockholders. These incentives are designed to
motivate executive officers to improve financial performance and
stockholder value, as well as encouraging the long-term
employment of the executive officers. These incentives include a
variety of stock and cash vehicles, such as:
131
|
|
|
Stock options
|
|
|
Restricted stock units (RSUs)
|
|
|
Performance-based restricted stock units (PBUs)
|
|
|
Long-term cash awards
|
Historically, we relied primarily on stock option awards in
granting long-term incentives. However, in Fiscal 2007 the
Leadership Development and Compensation Committee redesigned the
long-term incentives for the executive officers. In addition to
using stock options, the committee introduced PBUs that reward
the achievement of specific business objectives as well as stock
appreciation, and approved new long-term cash engagement awards
to introduce an additional incentive for executive officers to
remain with the company over the next four years.
The specific mix of options and PBUs as a percent of total
long-term incentives varied for each executive officer based on
the Chairmans and the Chief Executive Officers
assessments of the perceived value of each vehicle for each
executive officer.
In awarding new long-term incentives, the Leadership Development
and Compensation Committee also considers level of
responsibility, prior experience, and individual performance
criteria, as well as the compensation practices of the peer
group of companies used to evaluate total compensation. The
objective is to provide executive officers with above-average
long-term incentive award opportunities targeted at the
75th percentile of peer practices for on-going, annual
awards, while also offering additional cash retention incentives
to executive officers other than the Chairman and the Chief
Executive Officer. The long-term incentive program is designed
to be highly leveraged, ensuring that if our stockholder returns
exceed industry norms, actual gains will exceed industry norms,
while also meeting our needs to retain executive talent in a
highly competitive market.
We do not backdate options or grant options or other equity
awards retroactively. In addition, we do not purposely schedule
option awards or other equity grants prior to the disclosure of
favorable information or after the announcement of unfavorable
information. Options are generally granted at fair market value
on a fixed or predetermined date. All equity grants to executive
officers require the approval of the Leadership Development and
Compensation Committee. In general, awards under our annual
long-term incentive grant process are made on predetermined
Board meeting dates.
Fiscal 2007 Equity Opportunities In Fiscal
2007 the Leadership Development and Compensation Committee
established the following target long-term equity incentive
opportunities (estimated value at grant and granted in the
indicated combination of stock options and PBUs) for each Named
Executive Officer:
|
|
|
|
|
|
|
|
|
|
|
Target
|
|
|
|
|
|
|
Fiscal 2007
|
|
Award
Mix
|
Named Executive
Officer
|
|
Grant
Value
|
|
Options
|
|
PBUs
|
|
Mr. Dell
|
|
|
(a)
|
|
|
|
|
|
Mr. Carty
|
|
|
(b)
|
|
|
|
|
|
Mr. Bell
|
|
$
|
4,500,000
|
|
|
40%
|
|
60%
|
Mr. Felice
|
|
|
4,500,000
|
|
|
51%
|
|
49%
|
Mr. Rollins
|
|
|
9,360,000
|
|
|
52%
|
|
48%
|
Mr. Schneider
|
|
|
4,500,000
|
|
|
51%
|
|
49%
|
Mr. Parra
|
|
|
4,500,000
|
|
|
51%
|
|
49%
|
|
|
|
(a)
|
|
As Dells founder and largest
individual stockholder, Mr. Dell does not receive any
long-term incentive compensation.
|
|
(b)
|
|
Mr. Carty joined the company
as an executive officer in January 2007 and was not eligible for
long-term awards as part of the annual grant for Fiscal 2007. He
did receive stock option and RSU awards as part of his new hire
compensation package. See Summary Compensation Table
below.
|
132
|
|
|
Stock Options Stock options are designed to
reward executive officers for the increase in Dells stock
price over time. Options represent the high-risk and potential
high-return component of our total long-term incentive program,
as the realizable value of each option can fall to zero if the
stock price is lower than the exercise price established on the
date of grant.
|
The size of stock option grants for executive officers is based
primarily on the target dollar value of the award translated
into a number of option shares based on the estimated economic
value on the date of grant, as determined using the
Black-Scholes option pricing formula. As a result, the number of
shares underlying stock option awards will typically vary from
year to year, as it is dependent on the price of Dell common
stock on the date of grant. In addition, the size of the award
will vary based on the target mix of options and PBUs, which
varies for each executive officer.
In March 2006, the Leadership Development and Compensation
Committee approved grants of stock options to each of the
executive officers (other than Mr. Dell) as part of our
annual stock option grants. These options had an exercise price
equal to the fair market value of Dell common stock on the date
of grant (determined as the average of the high and low stock
price on The NASDAQ Stock Market on the date of grant) and vest
ratably over five years (20% per year) beginning on the first
anniversary of the date of grant. Because the exercise price of
these options is equal to the fair market value of Dells
common stock on the date of grant, these stock options will
deliver a reward only if the stock price appreciates from the
price on the date the stock options were granted. This design is
intended to focus the executive officers on the long-term
enhancement of stockholder value.
After we delayed the filing of our Annual Report on
Form 10-K
for Fiscal 2007, we suspended the exercise of employee stock
options. As a result, some stock options expired while the
holders had no ability to exercise them or otherwise prevent
their expiration. The Leadership Development and Compensation
Committee determined that we should nevertheless provide certain
of the affected individuals with the value that they would have
received had they been permitted to exercise the options.
Therefore, we agreed to pay those individuals cash payments
generally equal to the in-the-money value of the options at
expiration. We will make those payments within 45 days
after we file our Annual Report on
Form 10-K
for Fiscal 2007. The group of affected individuals included
current and former executive officers. Because these payments
are intended to compensate the affected individuals for the
value they would have received had their options been
exercisable, the payments were not considered in making other
compensation decisions.
|
|
|
RSUs Like stock options, RSUs are designed to
reward executives for increases in our stock price over time.
RSUs also provide a deferral of vesting and payout to help
retain executive officers. RSUs are denominated in full shares
of the companys common stock and, therefore, have a more
stable value over time as the stock price goes up or down (as
compared to options, which only have value if the stock price
increases).
|
|
|
PBUs PBUs are designed to reward participants
for the achievement of near-term financial objectives, while
also providing a deferral of vesting and payout to help retain
executive officers. Like RSUs, PBUs are denominated in full
shares of the companys common stock and, therefore, have a
more stable value over time as the stock price goes up or down.
|
The size of PBU grants is based on a target dollar value of the
award divided by the stock price on the date of grant. The
actual number of shares earned is determined based on company
performance measured over a one-year period against
predetermined performance goals. Shares granted in Fiscal 2007
vest ratably over a five-year period beginning on the date of
grant.
For Fiscal 2007, the following revenue growth and minimum
operating margin goals were used as performance measures. Even
if the revenue growth goal is achieved, the minimum operating
margin goal must also be achieved at or above the threshold for
any shares to be earned. The table below provides the threshold,
target, and maximum performance levels and the percentage of
shares earned
133
at these levels: The percentage of shares earned is prorated
within the ranges below based on performance level.
|
|
|
|
|
|
|
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Performance Goals:
|
|
|
|
|
|
|
Revenue (in billions)
|
|
$57.6
|
|
$61.5
|
|
$64.3
|
(Year-over-year revenue growth)
|
|
3%
|
|
10%
|
|
15%
|
Minimum operating margin
|
|
6%
|
|
6%
|
|
6%
|
Shares Earned
(Percent of Initial Shares Granted)
|
|
0%
|
|
100%
|
|
120%
|
Since none of the performance goals were achieved during Fiscal
2007, no PBU shares were earned by any of the executive officers.
|
|
|
2003 and 2006 Long-Term Cash Incentive Bonus
Awards The Named Executive Officers, other than
Mr. Dell, Mr. Carty, and Mr. Rollins, are
eligible for payments under these previously approved programs.
Because we did not achieve the threshold targets for corporate
performance specified in the programs, no amounts were earned
under either program for Fiscal 2007. Amounts earned under these
programs for prior years will be paid in Fiscal 2008 or Fiscal
2009.
|
|
|
2007 Long-Term Cash Incentive Awards In March
2006, the Leadership Development and Compensation Committee
implemented the 2007 Long-Term Cash Award Program. All executive
officers employed at that time other than Mr. Dell and
Mr. Rollins were eligible for cash engagement awards under
this program. As Dell has become recognized for our high-quality
leaders, our executives have increasingly become targets for
recruitment to key positions in other organizations. This
program is intended to better balance our existing long-term
compensation programs between cash and equity awards, and to
enhance the overall holding power of our compensation package.
|
These cash awards vest and will be paid out in increments over a
four-year period and represent compensation in addition to
targeted market pay positioning for each executive officer.
These awards are contingent only upon continued employment
through the annual vesting period, which ends in March of each
fiscal year. If the executive officers employment
terminates, other than due to death or permanent disability, the
executive forfeits all subsequent payouts. The value of the
award for each executive officer was determined at the
recommendation of the Chairman and the Chief Executive Officer
based on an assessment of the holding power of current long-term
incentives for each executive officer, retention risk, and each
individuals impact on the organization.
The following table sets forth the awards and vesting periods
for each of the Named Executive Officers under this program.
Neither Mr. Dell nor Mr. Rollins was eligible for
these cash awards. Mr. Carty joined the company as an
executive in January 2007 and thus did not receive an award
under this program.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2008
|
|
Fiscal 2009
|
|
Fiscal 2010
|
|
Fiscal 2011
|
Named Executive
Officer
|
|
Total
Grant
|
|
Vesting
|
|
Vesting
|
|
Vesting
|
|
Vesting
|
|
Mr. Bell
|
|
$
|
4,000,000
|
|
|
$
|
|
|
|
$
|
1,200,000
|
|
|
$
|
1,300,000
|
|
|
$
|
1,500,000
|
|
Mr. Felice
|
|
|
5,000,000
|
|
|
|
800,000
|
|
|
|
1,000,000
|
|
|
|
1,400,000
|
|
|
|
1,800,000
|
|
Mr.
Schneider(a)
|
|
|
8,000,000
|
|
|
|
|
|
|
|
2,666,667
|
|
|
|
2,666,667
|
|
|
|
2,666,666
|
|
Mr.
Parra(a)
|
|
|
4,000,000
|
|
|
|
|
|
|
|
1,200,000
|
|
|
|
1,300,000
|
|
|
|
1,500,000
|
|
|
|
|
(a)
|
|
Both Mr. Schneider and
Mr. Parra resigned from the company before the first
vesting date and, therefore, forfeited these amounts.
|
Benefits and
Perquisites
Our policy is to provide limited benefits and perquisites for
executive officers. While perquisites do not constitute a
significant part of executive officer compensation, the
Leadership Development and Compensation Committee believes that
limited benefits and perquisites are generally a typical
component of
134
total remuneration for executives in industries similar to ours
and that providing such benefits is important to delivering a
competitive package to retain executive officers. Specific
perquisites and benefits include:
Deferred Compensation Plan We maintain a
nonqualified deferred compensation plan that is available to all
Dell executives. For a description of the terms of this plan, as
well as information about the account balances held by each of
the Named Executive Officers, see Other Benefit
Plans Deferred Compensation Plan below.
Financial counseling and tax preparation
services Each executive officer is entitled to
reimbursement, up to $12,500 annually, for financial counseling
services (including tax preparation). Actual costs are
reimbursed, and the income is imputed to the executive officer
for federal income tax purposes.
Annual physical We pay for a comprehensive
annual physical for each executive officer and his or her spouse
and reimburse for associated travel and lodging, all subject an
annual maximum of $5,000 per person.
Technical Support We provide our executive
officers with technical support (personal and business) and, in
some cases, certain home network equipment. The incremental
costs of providing these services is limited to the cost of
hardware provided and is insignificant.
Other The executive officers participate in
our other benefit plans on the same terms as other employees.
These plans include medical, dental, and life insurance
benefits; our 401(k) retirement savings plan; and our employee
stock purchase plan. See Other Benefit Plans below.
Stock Ownership
Guidelines
The Board has established stock ownership guidelines for
themselves and our executive officers to more closely link their
interests with those of other Dell stockholders. Under those
guidelines, non-employee directors must maintain ownership of
Dell common stock having an aggregate value equal to at least
300% of their annual retainer, the Chairman and Chief Executive
Officer must maintain ownership of stock having an aggregate
value equal to at least 500% of base salary, and all other
executive officers must maintain ownership of stock having an
aggregate value equal to at least 400% of base salary. A person
has three years after becoming subject to the guidelines to
attain the specified minimum ownership position. Unvested
restricted stock or stock units may be used to satisfy these
minimum ownership requirements, but unexercised stock options
may not. We believe these ownership guidelines to be in line
with the prevalent ownership guidelines among our recognized
peer companies.
Compliance with these guidelines is evaluated once each year
using the average closing price of Dell common stock during the
previous fiscal year. As of the last evaluation in May 2007, all
directors and executive officers met their ownership
requirements.
Administration of
Compensation Plans
The Leadership Development and Compensation Committee approves
every compensation action for executive officers, including
equity awards, which are effective on the day of approval. In
addition, the committee annually conducts a comprehensive review
of all compensation and benefit plans for the company, with a
view to ensuring compliance, fairness, cost competitiveness, and
adherence to our pay-for-performance philosophy. While the
committee was expecting better company performance in the past
year, it is confident that the executive officers reaped rewards
commensurate with their individual and Dells overall
performance.
Employment
Agreements, Severance, and
Change-in-Control
Arrangements
Substantially all of Dells employees enter into a standard
employment agreement upon commencement of their employment. The
standard employment agreement primarily addresses intellectual
property and confidential and proprietary information matters
and does not contain provisions regarding compensation or
continued employment.
135
We did not have any special employment agreement with any of our
executive officers, nor did we provide them with any kind of
contractual severance or
change-in-control
benefits, during Fiscal 2007. We have recently begun to
implement special employment agreements with our executive
officers that contain non-solicitation and non-competition
agreements and also provide for the payment of specified
severance upon termination of employment. On September 6,
2007, the Leadership Development and Compensation Committee
approved new severance arrangements for the executive officers
other than Mr. Dell. Under the new agreements, if an
executive officers employment is terminated without cause,
the executive will receive a severance payment equal to
12 months base salary and target bonus. The
agreements also obligate each executive officer to comply with
certain noncompetition and nonsolicitation obligations for a
period of 12 months following termination of employment. We
previously entered into separate severance arrangements with
Michael R. Cannon and Ronald G. Garriques upon the commencement
of their employment in February 2007. The new severance
arrangements will not be applicable to either Mr. Cannon or
Mr. Garriques until the expiration of their current
arrangements. No executive officer severance payments would have
been required as of the last business day of Fiscal 2007.
All of our equity awards contain provisions that accelerate the
vesting of the awards upon the death or permanent disability of
the holder. These provisions are generally applicable to all
Dell employees, including the executive officers. In addition,
the Leadership Development and Compensation Committee has
authority under our stock plans to issue awards with provisions
that accelerate vesting and exercisability in the event of a
change-in-control
and to amend existing awards to provide for such acceleration.
To date, the committee has not elected to include
change-in-control
acceleration provisions in any awards.
Other Factors
Affecting Compensation
In establishing total compensation for the executive officers,
the Leadership Development and Compensation Committee considered
the effect of Section 162(m) of the Internal Revenue Code,
which limits the deductibility of compensation paid to each
covered employee (generally, the chief executive
officer and the three other highest paid officers other than the
chief financial officer) to $1 million, unless it is
performance based. To the extent practical, the committee
intends to preserve deductibility, but may choose to provide
compensation that is not deductible if necessary to attract,
retain, and reward high-performing executives.
Compensation
Committee Report
The Leadership Development and Compensation Committee has
reviewed and discussed the foregoing Compensation Discussion and
Analysis with management. Based on that review and those
discussions, the committee recommended to the Board of Directors
that the Compensation Discussion and Analysis be included in
Dells Annual Report on
Form 10-K
for the fiscal year ended February 2, 2007, and Dells
2007 proxy statement. This report is provided by the following
independent directors, who comprise the committee.
THE LEADERSHIP DEVELOPMENT AND
COMPENSATION COMMITTEE
Michael A. Miles,
Chair
Alan (A.G.) Lafley
Judy C. Lewent
Klaus S. Luft
136
Summary
Compensation Table
The following table summarizes the total compensation for Fiscal
2007 for the following persons: Michael S. Dell (who served as
Chairman of the Board and, beginning January 31, 2007,
principal executive officer), Kevin B. Rollins (who served as
principal executive officer until January 31, 2007), Donald
J. Carty and James M. Schneider (each of whom served as
principal financial officer during a portion of the year), and
Paul D. Bell, Stephen J. Felice, and Rosendo G. Parra (the three
other most highly compensated individuals who were serving as
executive officers at the end of Fiscal 2007). These persons are
referred to as the Named Executive Officers.
FISCAL 2007
SUMMARY COMPENSATION TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
|
|
|
Name and
|
|
Fiscal
|
|
|
|
|
|
Stock
|
|
Option
|
|
Incentive Plan
|
|
All Other
|
|
|
Principal
Position
|
|
Year
|
|
Salary
|
|
Bonus
|
|
Awards(a)
|
|
Awards(a)
|
|
Compensation(b)
|
|
Compensation(c)
|
|
Total
|
|
Michael S. Dell
|
|
|
2007
|
|
|
$
|
950,000
|
|
|
|
|
|
|
|
|
|
|
$
|
2,485,008
|
|
|
|
|
|
|
$
|
1,060,881
|
|
|
$
|
4,495,889
|
|
Chairman and Chief
Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donald J.
Carty(d)
|
|
|
2007
|
|
|
|
51,154
|
|
|
|
|
|
|
$
|
133,655
|
|
|
|
146,320
|
|
|
|
|
|
|
|
20,000
|
|
|
|
351,129
|
|
Vice Chairman and
Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul D. Bell
|
|
|
2007
|
|
|
|
594,231
|
|
|
|
|
|
|
|
|
|
|
|
2,815,494
|
|
|
|
|
|
|
|
5,414,916
|
|
|
|
8,824,641
|
|
Senior Vice President and
President, Americas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen J. Felice
|
|
|
2007
|
|
|
|
491,346
|
|
|
|
|
|
|
|
113,264
|
|
|
|
1,043,080
|
|
|
|
|
|
|
|
5,559,474
|
|
|
|
7,207,164
|
|
Senior Vice President and
President, Asia-Pacific/Japan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kevin B. Rollins
|
|
|
2007
|
|
|
|
950,000
|
|
|
|
|
|
|
|
|
|
|
|
7,574,388
|
|
|
|
|
|
|
|
23,950
|
|
|
|
8,548,338
|
|
Former President and
Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James M. Schneider
|
|
|
2007
|
|
|
|
614,231
|
|
|
|
|
|
|
|
|
|
|
|
2,652,274
|
|
|
|
|
|
|
|
8,025,211
|
(e)
|
|
|
11,291,716
|
|
Former Senior Vice President
and Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rosendo G. Parra
|
|
|
2007
|
|
|
|
594,231
|
|
|
|
|
|
|
|
|
|
|
|
1,651,650
|
|
|
|
|
|
|
|
4,018,205
|
(e)
|
|
|
6,264,086
|
|
Former Senior Vice
President, Americas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Represents the dollar amount of
equity compensation cost recognized for financial reporting
purposes with respect to Fiscal 2007, computed in accordance
with SFAS 123(R), excluding the impact of estimated
forfeitures for service-based vesting conditions. See
Note 6 of Notes to Consolidated Financial Statements
included in Part II
Item 8 Financial Statements and Supplementary
Data for a description of the assumptions used in that
computation. The actual value realized by the Named Executive
Officer with respect to stock awards will depend on the market
value of Dell common stock on the date the stock is sold, and
with respect to option awards, will depend on the difference
between the market value of Dell common stock on the date the
option is exercised and the exercise price. The terms of these
awards are described in footnote (g) to the Grants of
Plan Based Awards table below.
|
|
(b)
|
|
Represents amounts earned under the
Executive Annual Incentive Bonus Plan, the 2006 Long-Term Cash
Incentive Bonus Program and the 2003 Long-Term Cash Incentive
Bonus Program. Because we did not achieve the threshold targets
for corporate performance specified in the plans, no amounts
were earned under these plans in Fiscal 2007.
|
|
(c)
|
|
Includes cash engagement awards.
See Compensation Discussion and Analysis
Long-Term Incentives 2007 Long-Term Cash Incentive
Awards. Payouts of these awards are contingent upon
continued employment through the vesting and payout dates.
|
Also includes the cost of providing various perquisites and
personal benefits, as well the value of our contributions to the
company-sponsored 401(k) plan and deferred compensation plan,
and the amount we paid for term life insurance coverage under
health and welfare plans. See Compensation Discussion and
Analysis Benefits and Perquisites. In
addition, during Fiscal 2007, Mr. Bell and Mr. Felice
received payments in connection with their expatriate
assignments to cover housing, automobile, and other expenses, as
well as tax equalization.
137
The following table provides detail for the aggregate All
Other Compensation for each of the Named Executive
Officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr.
Dell
|
|
|
Mr.
Carty
|
|
|
Mr.
Bell
|
|
|
Mr.
Felice
|
|
|
Mr.
Rollins
|
|
|
Mr.
Schneider
|
|
|
Mr.
Parra
|
|
|
Engagement awards
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,000,000
|
|
|
$
|
5,000,000
|
|
|
$
|
|
|
|
$
|
8,000,000
|
|
|
$
|
4,000,000
|
|
401(k) matching contributions
|
|
|
8,800
|
|
|
|
|
|
|
|
8,800
|
|
|
|
8,800
|
|
|
|
8,800
|
|
|
|
8,800
|
|
|
|
8,800
|
|
Term life insurance
|
|
|
1,081
|
|
|
|
|
|
|
|
|
|
|
|
828
|
|
|
|
2,650
|
|
|
|
1,663
|
|
|
|
980
|
|
Financial counseling/tax prep
|
|
|
|
|
|
|
|
|
|
|
2,350
|
|
|
|
4,400
|
|
|
|
12,500
|
|
|
|
12,500
|
|
|
|
|
|
Annual physical exam
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,248
|
|
|
|
1,794
|
|
Security
|
|
|
1,051,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales award trip
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,631
|
|
Director retainer
|
|
|
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expat expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile expenses
|
|
|
|
|
|
|
|
|
|
|
77,370
|
|
|
|
44,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Housing and furnishings
|
|
|
|
|
|
|
|
|
|
|
300,075
|
|
|
|
195,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses
|
|
|
|
|
|
|
|
|
|
|
40,216
|
|
|
|
50,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes
|
|
|
|
|
|
|
|
|
|
|
104,893
|
|
|
|
115,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax gross up
|
|
|
|
|
|
|
|
|
|
|
150,340
|
|
|
|
140,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK National Insurance
|
|
|
|
|
|
|
|
|
|
|
730,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount shown for
Mr. Dells security costs represents the amount of
company-paid expenses relating to personal and residential
security. This security is provided to Mr. Dell pursuant to
a Board-authorized security program. The Board believes that
Mr. Dells personal safety and security are of vital
importance to the companys business and prospects and,
therefore, that these costs are appropriate corporate business
expenses. Nevertheless, because these costs can be viewed as
conveying personal benefits to Mr. Dell, they are reported
as perquisites in this column. In conjunction with our security
operations, we also provide certain security services to members
of Mr. Dells immediate family and at locations other
than Mr. Dells principal residence. Mr. Dell
fully reimburses the company for the incremental costs
attributable to such services.
|
|
(d)
|
|
Mr. Carty joined the company
as Vice Chairman and Chief Financial Officer in January 2007,
and is no longer eligible for any additional compensation for
his Board service. Amounts in this table reflect his director
compensation earned for Fiscal 2007. The amount shown in the
Stock Awards column represents $112,597 for his director grants
and $21,058 for his employee grants, and the amount under Option
Awards represents $122,728 for his director grants and $23,592
for his employee grants. Mr. Cartys
$20,000 director retainer fee for Fiscal 2007 is reflected
under All Other Compensation.
|
|
(e)
|
|
Mr. Schneider and
Mr. Parra both resigned from the company before the first
vesting date and, therefore, forfeited their cash engagement
awards. Mr. Schneider actually only received $25,211 and
Mr. Parra actually received only $18,205 of All Other
Compensation.
|
Incentive Plan
Based Awards
The following table sets forth certain information about plan
based awards that were made to the Named Executive Officers
during Fiscal 2007. For more information about the plan under
which these awards were granted, see Compensation
Discussion and Analysis above.
GRANTS OF
PLAN-BASED AWARDS IN FISCAL 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
Number of
|
|
Exercise or
|
|
|
|
|
|
|
Estimated Future
Payouts Under Non-
|
|
Estimated Future
Payouts Under
|
|
Number of
|
|
Securities
|
|
Base Price
|
|
|
|
|
Grant
|
|
equity Incentive
Plan
Awards(a)
|
|
Equity Incentive
Plan Awards
|
|
Shares of
|
|
Underlying
|
|
of Option
|
|
Grant Date
|
Name
|
|
Date
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Stock
Units
|
|
Options
|
|
Awards(b)
|
|
Fair
Value
|
|
Mr. Dell
|
|
|
3/9/06
|
|
|
$
|
0
|
|
|
$
|
1,900,000
|
|
|
$
|
12,825,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Carty
|
|
|
7/21/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,775
|
(c)
|
|
$
|
19.55
|
|
|
$
|
104,367
|
|
|
|
|
7/21/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,780
|
(c)
|
|
|
|
|
|
|
|
|
|
|
152,099
|
|
|
|
|
1/2/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
190,000
|
(d)
|
|
|
25.27
|
|
|
|
1,414,984
|
|
|
|
|
1/2/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
(e)
|
|
|
|
|
|
|
|
|
|
|
1,263,500
|
|
Mr. Bell
|
|
|
3/9/06
|
|
|
|
0
|
|
|
|
550,000
|
|
|
|
3,712,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/9/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
90,000
|
(f)
|
|
|
108,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,605,500
|
|
|
|
|
3/9/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
220,000
|
(g)
|
|
|
28.95
|
|
|
|
1,543,080
|
|
Mr. Felice
|
|
|
3/9/06
|
|
|
|
0
|
|
|
|
425,000
|
|
|
|
2,868,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/9/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
75,000
|
(f)
|
|
|
90,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,171,250
|
|
|
|
|
3/9/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
280,000
|
(g)
|
|
|
28.95
|
|
|
|
1,963,920
|
|
Mr. Rollins
|
|
|
3/9/06
|
|
|
|
0
|
|
|
|
2,850,000
|
|
|
|
19,237,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/9/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
150,000
|
(f)
|
|
|
180,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,342,500
|
|
|
|
|
3/9/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
600,000
|
(g)
|
|
|
28.95
|
|
|
|
4,208,400
|
|
Mr. Schneider
|
|
|
3/9/06
|
|
|
|
0
|
|
|
|
570,000
|
|
|
|
3,847,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/9/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
75,000
|
(f)
|
|
|
90,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,171,250
|
|
|
|
|
3/9/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
280,000
|
(g)
|
|
|
28.95
|
|
|
|
1,963,920
|
|
Mr. Parra
|
|
|
3/9/06
|
|
|
|
0
|
|
|
|
550,000
|
|
|
|
3,712,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/9/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
75,000
|
(f)
|
|
|
90,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,171,250
|
|
|
|
|
3/9/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
280,000
|
(g)
|
|
|
28.95
|
|
|
|
1,963,920
|
|
138
|
|
|
(a)
|
|
Because we did not achieve either
revenue growth or operating income margin threshold goals, no
annual incentive payouts were made for Fiscal 2007. See
Compensation Discussion and Analysis
Individual Compensation Components Annual Incentive
Bonus.
|
|
(b)
|
|
The exercise price is calculated
using the average of the high and low sales prices for Dell
common stock on the date of grant. The closing sales price of
Dell common stock on March 9, 2006 was $28.90, the closing
price on July 21, 2006 was $19.91, and the closing price on
December 29, 2006 (the last trading day prior to the
January 2, 2007 grant date) was $25.09.
|
|
(c)
|
|
These awards were made to
Mr. Carty in his capacity as a member of the Board of
Directors prior to his becoming an executive officer. These
awards are subject to the same vesting and expiration terms as
the director awards described under Director Compensation
During Fiscal 2007. The stock award includes
3,944 shares of restricted stock granted as an annual
restricted stock award and 3,836 shares of restricted stock
granted in lieu of Mr. Cartys $75,000 annual
retainer. As an executive officer, he will no longer receive
additional compensation for serving on the Board of Directors.
|
|
(d)
|
|
Mr. Cartys equity awards
have the same expiration provisions as described in note (g),
except that all unvested awards will continue to vest upon
Mr. Cartys termination of employment so long as he
remains a member of the Board of Directors.
|
|
(e)
|
|
Represents restricted stock that
vests ratably over five years (20% per year) beginning on the
first anniversary of the date of grant. All unvested restricted
stock will be forfeited upon Mr. Cartys resignation
or termination as a Dell employee and member of the Board of
Directors.
|
|
(f)
|
|
Represents PBUs granted, assuming
shares were earned at the target level. The actual number of
shares earned was zero because the company failed to achieve the
applicable performance targets. See Compensation
Discussion and Analysis Long-Term
Incentives PBUs.
|
|
(g)
|
|
Represents stock options with an
exercise price equal to the fair market value of Dell common
stock on the date of grant. These options vest and become
exercisable ratably over five years (20% per year) beginning on
the first anniversary of the date of grant. All unvested options
expire upon the termination of employment for any reason other
than death or permanent disability. All unvested options vest
immediately upon death or permanent disability, and all options
expire one year later. If employment is terminated for conduct
detrimental to the company, all options (whether or not vested)
expire immediately. If employment is terminated as a result of
normal retirement, vested options expire the third year after
such retirement. If employment is terminated for any other
reason, all vested options expire 90 days after such
termination. In any event, the options expire ten years from the
date of grant unless otherwise expired as described above. All
options are transferable to family members under specified
circumstances.
|
The following table sets forth certain information about
outstanding option and stock awards held by the Named Executive
Officers as of the end of Fiscal 2007.
OUTSTANDING
EQUITY AWARDS AT FISCAL 2007 YEAR-END
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
Awards
|
|
|
Stock
Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Incentive
Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payout
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Value of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned
|
|
|
Unearned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
|
|
|
|
|
|
Shares,
|
|
|
Shares,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
or
|
|
|
Market Value
|
|
|
Units or
|
|
|
Units or
|
|
|
|
Number of
Securities Underlying Unexercised Options
|
|
|
|
|
|
Units
of
|
|
|
of Shares or
|
|
|
Other
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Option
|
|
|
Option
|
|
|
Stock
that
|
|
|
Units of Stock
|
|
|
Rights That
|
|
|
Rights That
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
Expiration
|
|
|
Have
Not
|
|
|
that Have Not
|
|
|
Have Not
|
|
|
Have Not
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
Price
|
|
|
Date
|
|
|
Vested
|
|
|
Vested(a)
|
|
|
Vested
|
|
|
Vested(a)
|
|
|
Mr. Dell
|
|
|
4,800,000
|
|
|
|
|
|
|
$
|
28.90
|
|
|
|
7/17/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
805,595
|
|
|
|
|
|
|
|
44.69
|
|
|
|
9/23/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
900,000
|
|
|
|
|
|
|
|
43.44
|
|
|
|
3/2/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
145,555
|
|
|
|
|
|
|
|
45.90
|
|
|
|
3/24/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
350,000
|
|
|
|
|
|
|
|
37.59
|
|
|
|
8/22/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500,000
|
|
|
|
|
|
|
|
22.94
|
|
|
|
2/12/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
307,285
|
|
|
|
|
|
|
|
21.72
|
|
|
|
3/23/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500,000
|
|
|
|
|
|
|
|
24.09
|
|
|
|
6/18/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400,000
|
|
|
|
100,000
|
(b)
|
|
|
27.64
|
|
|
|
3/7/12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,940
|
|
|
|
|
|
|
|
21.39
|
|
|
|
3/22/12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
240,000
|
|
|
|
160,000
|
(c)
|
|
|
26.19
|
|
|
|
3/6/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400,000
|
|
|
|
|
|
|
|
34.24
|
|
|
|
9/4/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400,000
|
|
|
|
|
|
|
|
32.99
|
|
|
|
3/4/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
Awards
|
|
|
Stock
Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Incentive
Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payout
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Value of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned
|
|
|
Unearned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
|
|
|
|
|
|
Shares,
|
|
|
Shares,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
or
|
|
|
Market Value
|
|
|
Units or
|
|
|
Units or
|
|
|
|
Number of
Securities Underlying Unexercised Options
|
|
|
|
|
|
Units
of
|
|
|
of Shares or
|
|
|
Other
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Option
|
|
|
Option
|
|
|
Stock
that
|
|
|
Units of Stock
|
|
|
Rights That
|
|
|
Rights That
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
Expiration
|
|
|
Have
Not
|
|
|
that Have Not
|
|
|
Have Not
|
|
|
Have Not
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
Price
|
|
|
Date
|
|
|
Vested
|
|
|
Vested(a)
|
|
|
Vested
|
|
|
Vested(a)
|
|
|
Mr. Carty
|
|
|
192,000
|
(d)
|
|
|
|
|
|
|
9.26
|
|
|
|
7/18/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,492
|
(d)
|
|
|
|
|
|
|
28.90
|
|
|
|
7/17/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,284
|
(d)
|
|
|
|
|
|
|
43.91
|
|
|
|
7/16/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,298
|
(d)
|
|
|
|
|
|
|
52.16
|
|
|
|
7/20/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,080
|
(d)
|
|
|
|
|
|
|
28.24
|
|
|
|
7/19/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,420
|
(d)
|
|
|
|
|
|
|
26.32
|
|
|
|
7/18/12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,996
|
(d)
|
|
|
|
|
|
|
33.35
|
|
|
|
7/18/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,492
|
(d)
|
|
|
|
|
|
|
35.60
|
|
|
|
7/16/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,539
|
(d)
|
|
|
|
|
|
|
40.91
|
|
|
|
7/15/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,775
|
(d)
|
|
|
|
|
|
|
19.55
|
|
|
|
7/21/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
190,000
|
(e)
|
|
|
25.27
|
|
|
|
1/2/17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,576
|
(f)
|
|
$
|
1,330,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Bell
|
|
|
36,800
|
|
|
|
|
|
|
|
9.26
|
|
|
|
7/18/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,996
|
|
|
|
|
|
|
|
16.67
|
|
|
|
3/5/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
346,060
|
|
|
|
|
|
|
|
28.90
|
|
|
|
7/17/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58,461
|
|
|
|
|
|
|
|
30.43
|
|
|
|
3/26/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,700
|
|
|
|
|
|
|
|
44.69
|
|
|
|
9/23/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400,000
|
|
|
|
|
|
|
|
43.44
|
|
|
|
3/2/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,679
|
|
|
|
|
|
|
|
45.90
|
|
|
|
3/24/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
|
|
|
|
37.59
|
|
|
|
8/22/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
|
|
|
|
22.94
|
|
|
|
2/12/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82,656
|
|
|
|
|
|
|
|
21.72
|
|
|
|
3/23/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
24.09
|
|
|
|
6/18/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
|
|
|
|
22.10
|
|
|
|
9/6/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160,000
|
|
|
|
40,000
|
(b)
|
|
|
27.64
|
|
|
|
3/7/12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160,000
|
|
|
|
40,000
|
(g)
|
|
|
25.45
|
|
|
|
9/5/12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,000
|
|
|
|
60,000
|
(c)
|
|
|
26.19
|
|
|
|
3/6/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,000
|
|
|
|
|
|
|
|
34.24
|
|
|
|
9/4/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,000
|
|
|
|
|
|
|
|
32.99
|
|
|
|
3/4/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,000
|
|
|
|
|
|
|
|
35.35
|
|
|
|
9/2/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
|
|
|
|
40.17
|
|
|
|
3/3/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
220,000
|
(h)
|
|
|
28.95
|
|
|
|
3/9/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,000
|
(i)
|
|
|
2,116,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Felice
|
|
|
80,000
|
|
|
|
|
|
|
|
41.13
|
|
|
|
2/22/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
|
|
|
|
|
41.00
|
|
|
|
8/12/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,350
|
|
|
|
|
|
|
|
44.69
|
|
|
|
9/23/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76,191
|
|
|
|
|
|
|
|
45.94
|
|
|
|
3/3/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,686
|
|
|
|
|
|
|
|
45.90
|
|
|
|
3/24/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
158,600
|
|
|
|
|
|
|
|
37.59
|
|
|
|
8/22/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,796
|
|
|
|
|
|
|
|
22.94
|
|
|
|
2/12/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
24.09
|
|
|
|
6/18/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,774
|
|
|
|
|
|
|
|
22.10
|
|
|
|
9/6/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,567
|
|
|
|
7,567
|
(b)
|
|
|
27.64
|
|
|
|
3/7/12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,144
|
|
|
|
21,572
|
(g)
|
|
|
25.45
|
|
|
|
9/5/12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,120
|
|
|
|
16,240
|
(c)
|
|
|
26.19
|
|
|
|
3/6/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72,280
|
|
|
|
|
|
|
|
34.24
|
|
|
|
9/4/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,515
|
|
|
|
|
|
|
|
32.99
|
|
|
|
3/4/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,705
|
|
|
|
|
|
|
|
35.35
|
|
|
|
9/2/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,635
|
|
|
|
|
|
|
|
40.17
|
|
|
|
3/3/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,000
|
|
|
|
|
|
|
|
40.63
|
|
|
|
8/1/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
280,000
|
(h)
|
|
|
28.95
|
|
|
|
3/9/16
|
|
|
|
|
|
|
|
|
|
|
|
75,000
|
(i)
|
|
|
1,764,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,893
|
(j)
|
|
$
|
279,723
|
|
|
|
|
|
|
|
|
|
140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
Awards
|
|
|
Stock
Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Incentive
Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payout
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Value of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned
|
|
|
Unearned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
|
|
|
|
|
|
Shares,
|
|
|
Shares,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
or
|
|
|
Market Value
|
|
|
Units or
|
|
|
Units or
|
|
|
|
Number of
Securities Underlying Unexercised Options
|
|
|
|
|
|
Units
of
|
|
|
of Shares or
|
|
|
Other
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Option
|
|
|
Option
|
|
|
Stock
that
|
|
|
Units of Stock
|
|
|
Rights That
|
|
|
Rights That
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
Expiration
|
|
|
Have
Not
|
|
|
that Have Not
|
|
|
Have Not
|
|
|
Have Not
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
Price
|
|
|
Date
|
|
|
Vested
|
|
|
Vested(a)
|
|
|
Vested
|
|
|
Vested(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr.
Rollins(m)
|
|
|
400,000
|
(k)
|
|
|
|
|
|
|
9.26
|
|
|
|
7/18/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,200,000
|
|
|
|
|
|
|
|
10.16
|
|
|
|
12/22/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
353,584
|
|
|
|
|
|
|
|
12.74
|
|
|
|
3/20/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
259,540
|
(l)
|
|
|
|
|
|
|
28.90
|
|
|
|
7/17/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
201,577
|
|
|
|
|
|
|
|
30.45
|
|
|
|
3/26/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116,365
|
|
|
|
|
|
|
|
44.69
|
|
|
|
9/23/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
174,545
|
(l)
|
|
|
|
|
|
|
44.69
|
|
|
|
9/23/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
750,000
|
|
|
|
|
|
|
|
43.44
|
|
|
|
3/2/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94,727
|
|
|
|
|
|
|
|
45.90
|
|
|
|
3/24/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500,000
|
|
|
|
|
|
|
|
37.59
|
|
|
|
8/22/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
350,000
|
|
|
|
|
|
|
|
22.94
|
|
|
|
2/12/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
213,442
|
|
|
|
|
|
|
|
21.72
|
|
|
|
3/23/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,800,000
|
|
|
|
|
|
|
|
24.09
|
|
|
|
6/18/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,200,000
|
(l)
|
|
|
|
|
|
|
24.09
|
|
|
|
6/18/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400,000
|
|
|
|
100,000
|
(b)
|
|
|
27.64
|
|
|
|
3/7/12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,586
|
|
|
|
|
|
|
|
21.39
|
|
|
|
3/22/12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
240,000
|
|
|
|
160,000
|
(c)
|
|
|
26.19
|
|
|
|
3/6/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400,000
|
|
|
|
|
|
|
|
34.24
|
|
|
|
9/4/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400,000
|
|
|
|
|
|
|
|
32.99
|
|
|
|
3/4/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
800,000
|
|
|
|
|
|
|
|
35.60
|
|
|
|
7/16/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
650,000
|
|
|
|
|
|
|
|
40.17
|
|
|
|
3/3/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
600,000
|
(h)
|
|
|
28.95
|
|
|
|
3/9/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,000
|
(i)
|
|
$
|
3,528,000
|
|
Mr. Schneider
|
|
|
121,600
|
|
|
|
|
|
|
|
3.33
|
|
|
|
3/21/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
179,940
|
(l)
|
|
|
|
|
|
|
12.74
|
|
|
|
3/20/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,376
|
|
|
|
|
|
|
|
28.90
|
|
|
|
5/3/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,870
|
|
|
|
|
|
|
|
30.43
|
|
|
|
3/26/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78,320
|
|
|
|
|
|
|
|
44.69
|
|
|
|
5/3/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400,000
|
|
|
|
|
|
|
|
43.44
|
|
|
|
5/3/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,339
|
|
|
|
|
|
|
|
45.90
|
|
|
|
3/24/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
|
|
|
|
37.59
|
|
|
|
5/3/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
|
|
|
|
22.94
|
|
|
|
5/3/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
140,000
|
|
|
|
|
|
|
|
22.10
|
|
|
|
5/3/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
|
|
|
|
|
|
27.64
|
|
|
|
5/3/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,000
|
|
|
|
|
|
|
|
25.45
|
|
|
|
5/3/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
|
|
|
|
|
26.19
|
|
|
|
5/3/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,000
|
|
|
|
|
|
|
|
34.24
|
|
|
|
5/3/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,000
|
|
|
|
|
|
|
|
32.99
|
|
|
|
5/3/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,000
|
|
|
|
|
|
|
|
35.35
|
|
|
|
5/3/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
|
|
|
|
40.17
|
|
|
|
5/3/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
Awards
|
|
|
Stock
Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Incentive
Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payout
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Value of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned
|
|
|
Unearned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
|
|
|
|
|
|
Shares,
|
|
|
Shares,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
or
|
|
|
Market Value
|
|
|
Units or
|
|
|
Units or
|
|
|
|
Number of
Securities Underlying Unexercised Options
|
|
|
|
|
|
Units
of
|
|
|
of Shares or
|
|
|
Other
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Option
|
|
|
Option
|
|
|
Stock
that
|
|
|
Units of Stock
|
|
|
Rights That
|
|
|
Rights That
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
Expiration
|
|
|
Have
Not
|
|
|
that Have Not
|
|
|
Have Not
|
|
|
Have Not
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
Price
|
|
|
Date
|
|
|
Vested
|
|
|
Vested(a)
|
|
|
Vested
|
|
|
Vested(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr.
Parra(n)
|
|
|
17,304
|
(l)
|
|
|
|
|
|
|
28.90
|
|
|
|
7/17/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89,510
|
(l)
|
|
|
|
|
|
|
44.69
|
|
|
|
9/23/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
350,000
|
(l)
|
|
|
|
|
|
|
43.44
|
|
|
|
3/2/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,679
|
(l)
|
|
|
|
|
|
|
45.90
|
|
|
|
3/24/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
(l)
|
|
|
|
|
|
|
37.59
|
|
|
|
8/22/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
(l)
|
|
|
|
|
|
|
22.94
|
|
|
|
2/12/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
(l)
|
|
|
|
|
|
|
24.09
|
|
|
|
6/18/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,000
|
(l)
|
|
|
|
|
|
|
22.10
|
|
|
|
9/6/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,000
|
(l)
|
|
|
40,000
|
(b)
|
|
|
27.64
|
|
|
|
3/7/12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120,000
|
(l)
|
|
|
40,000
|
(g)
|
|
|
25.45
|
|
|
|
9/5/12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
(l)
|
|
|
60,000
|
(c)
|
|
|
26.19
|
|
|
|
3/6/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,000
|
(l)
|
|
|
|
|
|
|
34.24
|
|
|
|
9/4/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,000
|
(l)
|
|
|
|
|
|
|
32.99
|
|
|
|
3/4/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,000
|
(l)
|
|
|
|
|
|
|
35.35
|
|
|
|
9/2/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
|
|
|
|
40.17
|
|
|
|
3/3/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
280,000
|
(h)
|
|
|
28.95
|
|
|
|
3/9/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,000
|
(i)
|
|
|
1,764,000
|
|
|
|
|
(a)
|
|
Value is based on the closing price
of Dell common stock on February 2, 2007 ($23.52).
|
|
(b)
|
|
These options became exercisable on
March 7, 2007.
|
|
(c)
|
|
Of these options, 50% became
exercisable on March 6, 2007 and 50% become exercisable on
March 6, 2008.
|
|
(d)
|
|
These awards were granted to
Mr. Carty in his capacity as a member of the Board of
Directors prior to his becoming an executive officer.
|
|
(e)
|
|
These options become exercisable
ratably on January 2 of 2008 through 2012.
|
|
(f)
|
|
Represents unvested restricted
stock. Of these shares, 6,576 shares were granted to
Mr. Carty in his capacity as a member of the Board of
Directors prior to his becoming an executive officer, and vest
as follows: 1,165 shares vested on July 1, 2007;
374 shares vested on July 16, 2007; 375 shares
will vest on July 16 of 2008 and 2009; 1,166 shares will
vest on July 1 of 2008, 2009, and 2010; and 789 shares will
vest on July 1, 2011. The remaining 50,000 shares were
granted to Mr. Carty as an employee and will vest ratably
on January 2 of 2008, 2009, 2010, 2011 and 2012.
|
|
(g)
|
|
Options became exercisable on
September 5, 2007.
|
|
(h)
|
|
Of these options, 20% became
exercisable on March 9, 2007 and the remainder become
exercisable ratably on March 9 of 2008 through 2011.
|
|
(i)
|
|
Represents the target number of
PBUs assuming shares are earned at the target level pursuant to
established performance targets. The actual number of units
earned was zero because the performance targets were not
achieved.
|
|
(j)
|
|
Restricted stock vesting ratably on
March 3 of 2009 through 2012.
|
|
(k)
|
|
These options were transferred
without consideration to an irrevocable trust for the benefit of
Mr. Rollins children.
|
|
(l)
|
|
These options were transferred
without consideration to a limited partnership wholly owned by
the executives family members, entities wholly owned by
family members, or trusts for the benefit of family members.
|
|
(m)
|
|
Mr. Rollins employment
terminated on May 4, 2007 and all unvested options expired
on that date. The grants with expiration dates of 3/20/2008,
3/26/2009, 3/24/2010, 3/23/2011, and 3/22/2012, were unaffected
by his termination. All other grants expired unexercised
pursuant to the terms of the option agreements. Mr. Rollins
was not able to exercise the options prior to expiration because
we suspended option exercises once we were unable to file our
Annual Report on
Form 10-K
for Fiscal 2007 on a timely basis. We agreed to pay cash for
those expired options, as described in Compensation
Discussion and Analysis.
|
|
(n)
|
|
Mr. Parras employment
terminated on April 20, 2007 and all unvested options
expired on that date. The grant with an expiration date of
3/24/2010 was unaffected by his termination. All other grants
expired unexercised pursuant to the terms of the option
agreements. Mr. Parra was not able to exercise the options
prior to expiration because we suspended option exercises once
we were unable to file our Annual Report on Form
10-K for
Fiscal 2007 on a timely basis. We agreed to pay cash for those
expired options, as described in Compensation Discussion
and Analysis.
|
142
The following table sets forth certain information about option
exercises and vesting of restricted stock during Fiscal 2007 for
the Named Executive Officers.
OPTION EXERCISES
AND STOCK VESTED DURING FISCAL 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
Awards
|
|
Stock
Awards
|
|
|
Number of
Shares
|
|
|
|
|
|
|
|
|
Acquired on
|
|
Value Realized
upon
|
|
Number of
Shares
|
|
Value Realized
on
|
Name
|
|
Exercise
|
|
Exercise(a)
|
|
Acquired on
Vesting
|
|
Vesting(b)
|
|
Mr. Dell
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr.
Carty(c)
|
|
|
384,000
|
|
|
$
|
7,634,995
|
|
|
|
2,585
|
|
|
$
|
70,723
|
|
Mr. Bell
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Felice
|
|
|
|
|
|
|
|
|
|
|
7,556
|
|
|
|
196,415
|
|
Mr.
Rollins(d)
|
|
|
1,120,000
|
|
|
|
25,826,752
|
|
|
|
|
|
|
|
|
|
Mr. Schneider
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Parra
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Computed using the fair market
value of the stock on the date of exercise.
|
|
(b)
|
|
Computed using the fair market
value of the stock on the date of vesting.
|
|
(c)
|
|
Represents the exercise of options
granted to Mr. Carty in his capacity as a member of the
Board of Directors prior to his becoming an executive officer.
Mr. Carty paid cash to exercise these options and continues
to hold the shares.
|
|
(d)
|
|
Mr. Rollins paid cash to
exercise these options.
|
Other Benefit
Plans
401(k) Retirement Plan We maintain a 401(k)
retirement savings plan that is available to substantially all
U.S. employees. We match 100% of each participants
voluntary contributions up to 4% of the participants
compensation, and a participant vests immediately in the
matching contributions. Participants may invest their
contributions and the matching contributions in a variety of
investment choices, including a Dell common stock fund, but are
not required to invest any of their contributions in Dell common
stock.
Deferred Compensation Plan We also maintain a
nonqualified deferred compensation plan that is available to
executives. Under the terms of this plan, we match 100% of each
participants voluntary deferrals up to 3% of the
participants compensation. A participant may defer up to
50% of their base salary and up to 100% of their annual
incentive bonus. Matching contributions vest ratably over the
first five years of employment (20% per year). A
participants funds are distributed upon the
participants death or retirement (at age 65 or older)
or, under certain circumstances, at the request of the
participant during the participants employment and can be
taken in a lump sum or installments (monthly, quarterly, or
annually) over a period of up to 10 years. Vested funds may
be withdrawn, with potential penalties, at the
participants request or proof of financial hardship. The
investment choices for the deferred compensation plan
contributions generally are the same as those available in the
broader 401(k) retirement savings plan. There is no Dell common
stock fund in this plan. Upon a corporate merger, consolidation,
liquidation, or other type of reorganization that constitutes a
change of control under the plan, the plan will be terminated
and all benefits will be paid.
143
The following table describes the contributions, earnings, and
balance at the end of Fiscal 2007 for each of the Named
Executive Officers who participate in the deferred compensation
plan.
NONQUALIFIED
DEFERRED COMPENSATION PLAN AT FISCAL YEAR-END 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
Aggregate
|
|
|
|
|
Executive
|
|
Company
|
|
Earnings in
|
|
Withdrawals/
|
|
|
|
|
Contributions
in
|
|
Contributions
in
|
|
Last Fiscal
|
|
Distributions
in
|
|
Aggregate
Balance
|
Name
|
|
Last Fiscal
Year
|
|
Last Fiscal
Year
|
|
Year(a)
|
|
Last Fiscal
Year
|
|
at Fiscal
Year-End
|
|
Mr. Dell
|
|
|
|
|
|
|
|
|
|
$
|
714,365
|
|
|
|
|
|
|
$
|
5,843,235
|
|
Mr. Carty
|
|
|
|
|
|
|
|
|
|
|
134,564
|
|
|
|
|
|
|
|
985,723
|
|
Mr. Rollins
|
|
|
|
|
|
|
|
|
|
|
5,858
|
|
|
|
|
|
|
|
339,151
|
|
Mr. Parra
|
|
|
|
|
|
|
|
|
|
|
23,993
|
|
|
|
|
|
|
|
393,378
|
|
|
|
|
(a)
|
|
Not reported as compensation to the
Named Executive Officers for tax purposes.
|
Certain Termination Benefits All of our
equity awards contain provisions that accelerate the vesting of
the awards upon the death or permanent disability of the holder.
These provisions are generally applicable to all Dell employees,
including the executive officers. The following table sets
forth, for each of the Named Executive Officers, the aggregate
value of the awards that were subject to such vesting
acceleration at the end of Fiscal 2007.
|
|
|
|
|
|
|
Acceleration
Benefit on
|
Named Executive
Officer
|
|
Death or
Permanent
Disability(a)
|
|
Mr. Dell
|
|
$ |
|
|
Mr. Carty
|
|
|
1,393,294
|
|
Mr. Bell
|
|
|
2,116,800
|
|
Mr. Felice
|
|
|
2,043,723
|
|
Mr. Rollins
|
|
|
3,528,000
|
|
Mr. Schneider
|
|
|
|
|
Mr. Parra
|
|
|
1,764,000
|
|
|
|
|
(a)
|
|
Represents the sum of (1) the
in-the-money value of unvested stock options that were subject
to vesting acceleration in the event of death or permanent
disability and (2) the value of unvested restricted stock,
restricted stock units, and performance-based units that were
subject to vesting acceleration in the event of death or
permanent disability. All values were computed as of the end of
Fiscal 2007 based on the closing price of Dell common stock on
the last day of Fiscal 2007 ($23.52).
|
|
|
ITEM 12
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
Equity
Compensation Plans
Equity
Compensation Plans Approved by Stockholders
Stock Option Plans Stockholders have approved
the 1989 Stock Option Plan, the 1994 Incentive Plan and the 2002
Long-Term Incentive Plan. Although options are still outstanding
under the 1989 and 1994 plans, no shares are available for
future awards. We currently use the 2002 Long-Term Incentive
Plan for stock-based incentive awards. These awards can be in
the form of stock options, stock appreciation rights, stock
bonuses, restricted stock, restricted stock units, performance
units, or performance shares.
Employee Stock Purchase Plan We maintain an
employee stock purchase plan that is available to substantially
all employees. This plan has been approved by stockholders.
Under the plan, participating employees may contribute up to 15%
of their base compensation (subject to certain IRS limits) to
purchase common stock at the end of each participation period.
The participation periods are three-month periods running from
January to March, April to June, July to September, and October
to December each year and the purchase price is equal to 85% of
the fair market value of the stock on the last day of the
purchase period.
144
Equity
Compensation Plans Not Approved by Stockholders
Broad Based Stock Option Plan In October
1998, the Board approved the Broad Based Stock Option Plan,
which permitted awards of fair market value stock options to
non-executive employees. While there are still shares
outstanding in this plan, the plan was terminated by the Board
in November 2002, and options are no longer being awarded under
this plan.
EQUITY
COMPENSATION PLANS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Securities
|
|
|
|
|
|
|
Remaining
Available for
|
|
|
|
|
|
|
Future Issuance
Under
|
|
|
|
|
|
|
Equity
Compensation
|
|
|
Number of
Securities to
|
|
Weighted-Average
Exercise
|
|
Plans
(excluding
|
|
|
be Issued Upon
Exercise
|
|
Price of
Outstanding
|
|
securities
reflected in
|
Plan
Category
|
|
of Outstanding
Options
|
|
Options
|
|
first
column)
|
|
Plans approved by stockholders
|
|
|
328,698,214
|
|
|
$
|
32.03
|
|
|
|
281,961,451
|
(a)
|
Plans not approved by stockholders
|
|
|
4,963,167
|
(b)
|
|
$
|
34.65
|
|
|
|
0
|
(c)
|
|
|
|
(a)
|
|
This number includes
10,611,746 shares that were available for issuance under
the Employee Stock Purchase Plan and 271,349,705 shares
that were available for issuance under the 2002 Long-Term
Incentive Plan. Of the shares available under the 2002 plan,
173,040,042 shares were available to be issued in the form
of restricted stock. All information is as of the end of Fiscal
2007.
|
|
(b)
|
|
This is the number of shares that
were issuable pursuant to options granted under the Broad Based
Stock Option Plan that were outstanding as of the end of Fiscal
2007.
|
|
(c)
|
|
The Broad Based Stock Option Plan
was terminated in November 2002, and consequently, no shares are
available for future awards.
|
145
Stock
Ownership
The following table sets forth certain information, as of
October 1, 2007 (except as otherwise noted below), about
the ownership of Dell common stock by (i) the directors
(including the persons nominated to be directors),
(ii) each Named Executive Officer, (iii) all current
directors and executive officers as a group, and (iv) each
person known to us to be the beneficial owner of more than 5% of
the total number of shares outstanding. Unless otherwise
indicated, each person named below holds sole investment and
voting power over the shares shown.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total as a
|
|
|
|
|
Options
|
|
|
|
Percentage of
|
|
|
Number of
|
|
Exercisable
|
|
Total
|
|
Shares
|
|
|
Shares
|
|
Within 60
|
|
Beneficial
|
|
Outstanding
|
Beneficial
Owner
|
|
Owned
|
|
Days
|
|
Ownership
|
|
(if 1% or
more)(a)
|
|
Michael S. Dell
|
|
|
217,739,415
|
(b)
|
|
|
9,993,375
|
|
|
|
227,732,790
|
|
|
|
10.14
|
%
|
One Dell Way
Round Rock, Texas 78682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southeastern Asset Management, Inc.
|
|
|
126,067,420
|
|
|
|
|
|
|
|
126,067,420
|
|
|
|
5.5
|
%
|
6410 Poplar Avenue, Suite 900
Memphis, Tennessee 38119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donald J. Carty
|
|
|
602,907
|
|
|
|
137,756
|
|
|
|
740,663
|
|
|
|
|
|
William H. Gray, III
|
|
|
12,380
|
|
|
|
70,755
|
|
|
|
83,135
|
|
|
|
|
|
Sallie L. Krawcheck
|
|
|
11,832
|
|
|
|
9,465
|
|
|
|
21,297
|
|
|
|
|
|
Alan (A.G.) Lafley
|
|
|
11,832
|
|
|
|
9,465
|
|
|
|
21,297
|
|
|
|
|
|
Judy C. Lewent
|
|
|
15,057
|
|
|
|
145,049
|
|
|
|
160,106
|
|
|
|
|
|
Thomas W. Luce, III
|
|
|
47,688
|
(c)
|
|
|
13,809
|
|
|
|
61,497
|
|
|
|
|
|
Klaus S. Luft
|
|
|
8,481
|
|
|
|
152,435
|
|
|
|
160,916
|
|
|
|
|
|
Alex J. Mandl
|
|
|
11,088
|
(d)
|
|
|
155,084
|
|
|
|
166,172
|
|
|
|
|
|
Michael A. Miles
|
|
|
562,003
|
|
|
|
149,894
|
|
|
|
711,897
|
|
|
|
|
|
Sam Nunn
|
|
|
15,371
|
|
|
|
169,929
|
|
|
|
185,300
|
|
|
|
|
|
Paul D. Bell
|
|
|
7,761
|
|
|
|
3,855,352
|
|
|
|
3,863,113
|
|
|
|
|
|
Stephen J. Felice
|
|
|
16,106
|
|
|
|
894,050
|
|
|
|
910,156
|
|
|
|
|
|
Kevin B.
Rollins(f)
|
|
|
1,259,658
|
(e)
|
|
|
908,916
|
|
|
|
2,168,574
|
|
|
|
|
|
James M.
Schneider(f)
|
|
|
28,850
|
|
|
|
230,149
|
|
|
|
258,999
|
|
|
|
|
|
Rosendo G.
Parra(f)
|
|
|
19,802
|
|
|
|
|
|
|
|
19,802
|
|
|
|
|
|
Directors and executive officers as a group (24 persons)
|
|
|
220,585,584
|
|
|
|
19,973,178
|
|
|
|
240,543,767
|
|
|
|
10.7
|
%
|
|
|
|
(a)
|
|
Other than the percentage reported
for Southeastern Asset Management, Inc., the percentage is based
on the number of shares outstanding (2,235,801,991) at the close
of business on October 1, 2007. The percentage reported for
Southeastern Asset Management, Inc. is based on their
Form 13G filed with the Securities and Exchange Commission
on February 12, 2007.
|
|
(b)
|
|
Includes 1,482,435 shares held
is a trust for the benefit of his children of which
Mr. Dell is the trustee. Does not include
26,449,112 shares held in a separate property trust for
Mr. Dells spouse and 1,482,434 shares held in a
trust for the benefit of his children of which his spouse is
trustee.
|
|
(c)
|
|
Includes 39,778 shares held in
a personal retirement plan.
|
|
(d)
|
|
Includes 400 shares held by
Mr. Mandls spouse and 1,300 shares held in an
IRA for Mr. Mandls spouse.
|
|
(e)
|
|
Includes 1,120,000 shares that
have been pledged as collateral for a loan as of May 4,
2007.
|
|
(f)
|
|
The Number of Shares Owned reported
for Mr. Rollins, Mr. Schneider, and Mr. Parra are
as of the date of their retirement (May 4, 2007 for
Mr. Rollins, January 31, 2007 for Mr. Schneider,
and April 20, 2007 for Mr. Parra.)
|
|
|
ITEM 13
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
Related Party
Transactions
We purchase services, supplies, and equipment in the normal
course of business from many suppliers and sell or lease
products and services to many customers. In some instances,
these transactions occur with
146
companies with which members of our Board of Directors have
relationships as directors or executive officers. For Fiscal
2007, none of these transactions was material, either
individually or collectively.
Certain of our executive officers own private aircraft, either
outright or through fractional share ownership arrangements.
Under our executive travel policy, which has been approved by
the Leadership Development and Compensation Committee of the
Board of Directors, we reimburse certain executive officers for
the cost of using their private aircraft while traveling on Dell
business. Our reimbursement covers the variable costs, plus a
pro rata portion of the management fees, attributable to the
executives Dell business travel, but does not cover any
depreciation or other reimbursement for capital costs or
purchase price. During Fiscal 2007, we reimbursed the following
executive officers (or wholly-owned entities through which they
own their aircraft) the following amounts:
|
|
|
|
|
Executive
Officer
|
|
Reimbursement
Amount
|
|
Mr. Dell
|
|
$
|
1,861,356
|
|
Mr. Parra
|
|
|
206,423
|
|
Mr. Rollins
|
|
|
2,489,321
|
|
Mr. Schneider
|
|
|
199,294
|
|
The Audit Committee of the Board of Directors, pursuant to its
written charter, is charged with the responsibility of reviewing
and approving or ratifying any transaction required to be
disclosed as a related party transaction under
applicable law, rules, or regulations, including the rules and
regulations of the SEC. The Audit Committee has not adopted any
specific procedures for conducting such reviews and considers
each transaction in light of the specific facts and
circumstances presented. Other than as described above, no such
transactions occurred during Fiscal 2007 that were submitted to
the Audit Committee for approval as a related party
transaction.
Director
Independence
The Board of Directors believes that the interests of the
stockholders are best served by having a substantial number of
objective, independent representatives on the Board. For this
purpose, a director will be considered to be
independent only if the Board affirmatively
determines that the director does not have any direct or
indirect material relationship with Dell that may impair, or
appear to impair, the directors ability to make
independent judgments.
The Board recently evaluated all relationships between each
director and Dell and has made the following determinations with
respect to each directors independence:
DIRECTOR
INDEPENDENCE
|
|
|
Director
|
|
Status(a)
|
|
Mr. Carty
|
|
Not
independent(b)
|
Mr. Dell
|
|
Not
independent(c)
|
Mr. Gray
|
|
Independent
|
Ms. Krawcheck
|
|
Independent(d)
|
Mr. Lafley
|
|
Independent(e)
|
Ms. Lewent
|
|
Independent(f)
|
Mr. Luce
|
|
Independent(g)
|
Mr. Luft
|
|
Independent(h)
|
Mr. Mandl
|
|
Independent(i)
|
Mr. Miles
|
|
Independent
|
Mr. Nunn
|
|
Independent
|
|
|
|
(a)
|
|
Unless otherwise noted, the
Boards determination that a director is independent was
made on the basis of the standards set forth in the Corporate
Governance Principles, which is available on our website at
www.dell.com/corporategovernance.
|
|
(b)
|
|
Mr. Carty is the Vice Chairman
and Chief Financial Officer of Dell and, therefore, is not
independent in accordance with the standards set forth in the
Corporate Governance Principles.
|
147
|
|
|
(c)
|
|
Mr. Dell is the Chairman of
the Board and Chief Executive Officer of Dell and, therefore, is
not independent in accordance with the standards set forth in
the Corporate Governance Principles.
|
|
(d)
|
|
Ms. Krawcheck serves as Chairman
and Chief Executive Officer of Citi Global Wealth Management,
and during Fiscal 2007 served as Chief Financial Officer and
Head of Strategy for Citigroup Inc. During Fiscal 2007, Dell was
both a customer of and a supplier to Citigroup, and the Board
considered those relationships in assessing
Ms. Krawchecks independence.
|
|
(e)
|
|
Mr. Lafley serves as Chairman
and Chief Executive Officer of The Procter & Gamble
Co., and during Fiscal 2007, Dell was a supplier to
Procter & Gamble. In addition, Mr. Lafley is a
director of the United Negro College Fund, and Dell made
contributions to the UNCF during Fiscal 2007. The Board
considered those relationships in assessing
Mr. Lafleys independence.
|
|
(f)
|
|
Until September 2007,
Ms. Lewent served as Executive Vice President and Chief
Financial Officer of Merck & Co., Inc. During Fiscal
2007, Dell was a supplier to Merck. The Board considered this
relationship in assessing Ms. Lewents independence.
|
|
(g)
|
|
Mr. Luce serves as the
President and Chief Executive Officer and a director of the
National Math and Science Initiative, Inc. (NMSI), a
not-for-profit organization dedicated to expanding programs that
have a proven impact on math and science. The Michael and Susan
Dell Foundation has pledged a contribution to NMSI in the amount
of $5,000,000 over three years. It is estimated that this
contribution will constitute approximately 3.5% of NMSIs
known funding commitments. After considering all the surrounding
facts and circumstances, the Board concluded that this
relationship is not material and does not otherwise impair, or
appear to impair, Mr. Luces ability to make
independent judgments and, therefore, does not prevent
Mr. Luce from being considered an independent
director. In addition to the small size of the contribution in
relation to NMSIs total expected funding, the Board
considered the following facts: (a) NMSIs charitable
purposes are squarely within the historical philanthropic focus
of The Michael and Susan Dell Foundation and
(b) Mr. Luce is not compensated by NMSI and, thus,
derives no financial benefit from the contribution.
|
|
(h)
|
|
Mr. Luft serves as Vice
Chairman and International Advisor to Goldman Sachs Europe
Limited. During Fiscal 2007, Dell was a supplier to Goldman
Sachs. The Board considered this relationship in assessing
Mr. Lufts independence.
|
|
(i)
|
|
Mr. Mandl is Executive
Chairman of Gemalto. During Fiscal 2007, Dell was a supplier to
Gemalto. The Board considered this relationship in assessing
Mr. Mandls independence.
|
The Board will continue to monitor the standards for director
independence established under applicable law or NASDAQ listing
requirements and will ensure that our Corporate Governance
Principles continue to be consistent with those standards.
|
|
ITEM 14
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
PricewaterhouseCoopers LLP is a registered public accounting
firm and has been our independent auditor since 1986. In
addition to retaining PricewaterhouseCoopers LLP to audit our
financial statements, we engage the firm from time to time to
perform other services. The following table sets forth all fees
we incurred in connection with professional services rendered by
PricewaterhouseCoopers LLP during each of the last two fiscal
years (in millions).
|
|
|
|
|
|
|
|
|
Fee
Type
|
|
Fiscal
2007
|
|
|
Fiscal
2006
|
|
|
Audit
Fees(a)
|
|
$
|
11.9
|
|
|
$
|
8.7
|
|
Audit Related
Fees(b)
|
|
|
0.6
|
|
|
|
0.8
|
|
Tax
Fees(c)
|
|
|
1.9
|
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14.4
|
|
|
$
|
11.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
This category includes fees
incurred for professional services rendered in connection with
the audit of the annual financial statements, for the audit of
internal controls under Section 404 of the Sarbanes-Oxley
Act, for the review of the quarterly financial statements, and
for the statutory audits of international subsidiaries. Also
includes fees incurred for professional services rendered in
connection with the Audit Committee and SEC investigations.
|
|
(b)
|
|
This category includes fees
incurred for professional services rendered in connection with
assurance and other activities not explicitly related to the
audit of our financial statements, including the audits of our
employee benefit plans, contract compliance reviews, and
accounting research.
|
|
(c)
|
|
This category includes fees
incurred for domestic and international income tax compliance
and tax audit assistance, corporate-wide tax planning, and
executive tax consulting and return preparation.
|
148
The Audit Committee has determined that the provision of the
non-audit services described in note (c) above was
compatible with maintaining the independence of
PricewaterhouseCoopers LLP.
All Fiscal 2007 and Fiscal 2006 services were pre-approved by
the Audit Committee. The Audit Committee has adopted a policy
requiring pre-approval by the committee of all services (audit
and non-audit) to be provided by our independent auditor. In
accordance with that policy, the Audit Committee has given its
approval for the provision of audit services by
PricewaterhouseCoopers LLP for Fiscal 2008 and has also given
its approval for up to a year in advance for the provision by
PricewaterhouseCoopers LLP of particular categories or types of
audit-related, tax, and permitted non-audit services. In cases
where the Audit Committees pre-approval is not covered by
one of those approvals, a designated member of the Audit
Committee has the delegated authority to pre-approve the
provision of services, and such pre-approvals are then
communicated to the full Audit Committee.
149
|
|
ITEM 15
|
EXHIBITS,
FINANCIAL STATEMENT SCHEDULES
|
Financial
Statements
The following financial statements are filed as a part of this
report under Part II
Item 8 Financial Statements and Supplementary
Data:
|
|
|
|
|
|
|
Page
|
|
Financial Statements:
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
58
|
|
Consolidated Statements of Financial Position at
February 2, 2007 and February 3, 2006 (Restated)
|
|
|
61
|
|
Consolidated Statements of Income for the fiscal years ended
February 2, 2007, February 3, 2006 (Restated) and
January 28, 2005 (Restated)
|
|
|
62
|
|
Consolidated Statements of Cash Flows for the fiscal years ended
February 2, 2007, February 3, 2006 (Restated) and
January 28, 2005 (Restated)
|
|
|
63
|
|
Consolidated Statements of Stockholders Equity for the
fiscal years ended February 2, 2007, February 3,
2006(Restated) and January 28, 2005 (Restated)
|
|
|
64
|
|
Notes to Consolidated Financial Statements
|
|
|
65
|
|
150
Financial
Statement Schedule
The following financial statement schedule is filed as a part of
this report under Schedule II immediately preceding the
signature page: Schedule II Valuation and
Qualifying Accounts for the three fiscal years ended
February 2, 2007, February 3, 2006, and
January 28, 2005. All other schedules called for by
Form 10-K
are omitted because they are inapplicable or the required
information is shown in the consolidated financial statements,
or notes thereto, included herein. The amounts herein have been
restated for the adjustments described in Note 2 of Notes
to Consolidated Financial Statements included in
Part II Item 8 Financial
Statements and Supplementary Data.
SCHEDULE II
DELL INC.
VALUATION AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at
|
|
Charged to
|
|
Write-Offs
|
|
Balance
|
|
|
|
|
Beginning
|
|
Bad Debt
|
|
Charged
to
|
|
at
End of
|
Fiscal
Year
|
|
Description
|
|
of
Period
|
|
Expense
|
|
Allowance
|
|
Period
|
Trade Receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
Allowance for doubtful accounts
|
|
|
$
|
96
|
|
|
$
|
107
|
|
|
$
|
77
|
|
|
$
|
126
|
|
2006
|
|
|
Allowance for doubtful accounts (as restated
|
)
|
|
$
|
79
|
|
|
$
|
101
|
|
|
$
|
84
|
|
|
$
|
96
|
|
2005
|
|
|
Allowance for doubtful accounts (as restated
|
)
|
|
$
|
83
|
|
|
$
|
62
|
|
|
$
|
66
|
|
|
$
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
Allowance for doubtful accounts
|
|
|
$
|
22
|
|
|
$
|
40
|
|
|
$
|
23
|
|
|
$
|
39
|
|
2006
|
|
|
Allowance for doubtful accounts (as restated
|
)
|
|
$
|
1
|
|
|
$
|
22
|
|
|
$
|
1
|
|
|
$
|
22
|
|
2005
|
|
|
Allowance for doubtful accounts (as restated
|
)
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
1
|
|
151
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
No.
|
|
|
|
Description of
Exhibit
|
|
|
3
|
.1
|
|
|
|
Restated Certificate of Incorporation, filed February 1, 2006
(incorporated by reference to Exhibit 3.3 of Dells Current
Report on Form 8-K filed on February 2, 2006, Commission File
No. 0-17017)
|
|
3
|
.2
|
|
|
|
Restated Bylaws, as amended and effective March 8, 2007
(incorporated by reference to Exhibit 3.1 of Dells Current
Report on Form 8-K filed on March 13, 2007, Commission File No.
0-17017)
|
|
4
|
.1
|
|
|
|
Indenture, dated as of April 27, 1998, between Dell Computer
Corporation and Chase Bank of Texas, National Association
(incorporated by reference to Exhibit 99.2 of Dells
Current Report on Form 8-K filed April 28, 1998, Commission File
No. 0-17017)
|
|
4
|
.2
|
|
|
|
Officers Certificate pursuant to Section 301 of the
Indenture establishing the terms of Dells
6.55% Senior Notes Due 2008 (incorporated by reference to
Exhibit 99.3 of Dells Current Report on Form 8-K filed
April 28, 1998, Commission File No. 0-17017)
|
|
4
|
.3
|
|
|
|
Officers Certificate pursuant to Section 301 of the
Indenture establishing the terms of Dells
7.10% Senior Debentures Due 2028 (incorporated by reference
to Exhibit 99.4 of Dells Current Report on Form 8-K filed
April 28, 1998, Commission File No. 0-17017)
|
|
4
|
.4
|
|
|
|
Form of Dells 6.55% Senior Notes Due 2008
(incorporated by reference to Exhibit 99.5 of Dells
Current Report on Form 8-K filed April 28, 1998, Commission File
No. 0-17017)
|
|
4
|
.5
|
|
|
|
Form of Dells 7.10% Senior Debentures Due 2028
(incorporated by reference to Exhibit 99.6 of Dells
Current Report on Form 8-K filed April 28, 1998, Commission File
No. 0-17017)
|
|
10
|
.1*
|
|
|
|
Dell Computer Corporation 1989 Stock Option Plan, as amended and
restated (incorporated by reference to Exhibit 10.4 of
Dells Annual Report on Form 10-K for the fiscal year ended
January 31, 1993, Commission File No. 0-17017)
|
|
10
|
.2*
|
|
|
|
Amended and Restated Dell Computer Corporation 1994 Incentive
Plan (incorporated by reference to Exhibit 99 of Dells
Registration Statement on Form S-8, filed October 31, 2000,
Registration No. 333-49014)
|
|
10
|
.3*
|
|
|
|
Amended and Restated Dell Computer Corporation 1998 Broad Based
Stock Option Plan (incorporated by reference to Exhibit 99 of
Dells Registration Statement on Form S-8, filed October
31, 2000, Registration No. 333-49016)
|
|
10
|
.4*
|
|
|
|
Dell Computer Corporation 2002 Long-Term Incentive Plan
(incorporated by reference to Exhibit 10.1 of Dells
Quarterly Report on Form 10-Q for the fiscal quarter ended
August 2, 2002, Commission File No. 0-17017)
|
|
10
|
.5*
|
|
|
|
Amended and Restated Dell Inc. 401(k) Plan, adopted on December
19, 2003 (incorporated by reference to Exhibit 10.5 to
Dells Annual Report on Form 10-K for the fiscal year ended
January 30, 2004, Commission File No. 0-17017)
|
|
10
|
.6*
|
|
|
|
Amendment No. 1 to Amended and Restated Dell Inc. 401(k) Plan,
dated March 3, 2005 (incorporated by reference to Exhibit 10.6
of Dells Annual Report on Form 10-K for the fiscal year
ended January 28, 2005, Commission File No. 0-17017)
|
|
10
|
.7*
|
|
|
|
Amendment No. 2 to Amended and Restated Dell Inc. 401(k) Plan,
dated November 29, 2005 (incorporated by reference to Exhibit
10.7 of Dells Annual Report on Form 10-K for the fiscal
year ended February 3, 2006, Commission File No. 0-17017)
|
|
10
|
.8*
|
|
|
|
Amendment No. 3 to Amended and Restated Dell Inc. 401(k) Plan,
dated December 12, 2006
|
152
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
No.
|
|
|
|
Description of
Exhibit
|
|
|
10
|
.9*
|
|
|
|
Amended and Restated Dell Computer Corporation Deferred
Compensation Plan (incorporated by reference to Exhibit 10.6 to
Dells Annual Report on Form 10-K for the fiscal year ended
January 30, 2004, Commission File No. 0-17017)
|
|
10
|
.10*
|
|
|
|
Executive Incentive Bonus Plan, adopted July 18, 2003
(incorporated by reference to Exhibit 10.1 of Dells
Quarterly Report on Form 10-Q for the fiscal quarter ended
August 1, 2003, Commission File No. 0-17017)
|
|
10
|
.11*
|
|
|
|
Form of Indemnification Agreement between Dell and each
Non-Employee Director of Dell (incorporated by reference to
Exhibit 10.11 to Dells Annual Report on Form 10-K for the
fiscal year ended January 31, 2003, Commission File No. 0-17017)
|
|
10
|
.12*
|
|
|
|
Form of Nonstatutory Stock Option Agreement for employees under
the 2002 Long-Term Incentive Plan (incorporated by reference to
Exhibit 99.1 of Dells Current Report on Form 8-K filed
March 14, 2006, Commission File No. 0-17017)
|
|
10
|
.13*
|
|
|
|
Form of Performance Based Stock Unit Agreement for employees
under the 2002 Long-Term Incentive Plan (incorporated by
reference to Exhibit 99.2 of Dells Current Report on Form
8-K filed March 14, 2006, Commission File No. 0-17017)
|
|
10
|
.14*
|
|
|
|
Form of Restricted Stock Agreement for Non-Employee Directors
under the 2002 Long-Term Incentive Plan (incorporated by
reference to Exhibit 99.1 of Dells Current Report on Form
8-K filed July 27, 2006, Commission File No. 0-17017)
|
|
10
|
.15*
|
|
|
|
Form of Restricted Stock Unit Agreement for Non-Employee
Directors under the 2002 Long-Term Incentive Plan (incorporated
by reference to Exhibit 99.2 of Dells Current Report on
Form 8-K filed July 27, 2006, Commission File No. 0-17017)
|
|
10
|
.16*
|
|
|
|
Form of Nonstatutory Stock Option Agreement for Non-Employee
Directors under the 2002 Long-Term Incentive Plan (incorporated
by reference to Exhibit 99.3 of Dells Current Report on
Form 8-K filed July 27, 2006, Commission File No. 0-17017)
|
|
10
|
.17*
|
|
|
|
Form of Nonstatutory Stock Option Agreement for grant to Donald
J. Carty under the 2002 Long-Term Incentive Plan (incorporated
by reference to Exhibit 99.1 of Dells Current Report on
Form 8-K filed December 20, 2006, Commission File No. 0-17017)
|
|
10
|
.18*
|
|
|
|
Form of Stock Unit Agreement for grant to Donald J. Carty under
the 2002 Long-Term Incentive Plan (incorporated by reference to
Exhibit 99.2 of Dells Current Report on Form 8-K
filed December 20, 2006, Commission File No. 0-17017)
|
|
21
|
|
|
|
|
Subsidiaries of Dell
|
|
23
|
|
|
|
|
Consent of PricewaterhouseCoopers LLP
|
|
31
|
.1
|
|
|
|
Certification of Michael S. Dell, Chairman and Chief Executive
Officer, pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
31
|
.2
|
|
|
|
Certification of Donald J. Carty, Vice Chairman and Chief
Financial Officer, pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
|
|
32
|
.1
|
|
|
|
Certifications of Michael S. Dell, Chairman and Chief Executive
Officer, and Donald J. Carty, Vice Chairman and Chief Financial
Officer, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
* |
|
Identifies Exhibit that consists of or includes a management
contract or compensatory plan or arrangement. |
|
|
|
Filed herewith. |
|
|
|
Furnished herewith. |
153
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 INC.
Date: October 30, 2007
Michael S. Dell
Chairman 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.
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Name
|
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Title
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Date
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/s/ MICHAEL
S. DELL
Michael
S. Dell
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Chairman and Chief Executive Officer (principal executive
officer)
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October 30, 2007
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/s/ DONALD
J. CARTY
Donald
J. Carty
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Vice Chairman and Chief Financial Officer
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October 30, 2007
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/s/ WILLIAM
H. GRAY, III
William
H. Gray, III
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Director
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October 30, 2007
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/s/ SALLIE
L. KRAWCHECK
Sallie
L. Krawcheck
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Director
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October 30, 2007
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/s/ ALAN
G. LAFLEY
Alan
G. Lafley
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Director
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October 30, 2007
|
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/s/ JUDY
C. LEWENT
Judy
C. Lewent
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Director
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October 30, 2007
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/s/ THOMAS
W. LUCE, III
Thomas
W. Luce, III
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Director
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October 30, 2007
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/s/ KLAUS
S. LUFT
Klaus
S. Luft
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Director
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October 30, 2007
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/s/ ALEX
J. MANDL
Alex
J. Mandl
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Director
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October 26, 2007
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/s/ MICHAEL
A. MILES
Michael
A. Miles
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Director
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October 30, 2007
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154
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Name
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Title
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Date
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/s/ SAMUEL
A. NUNN, JR.
Samuel
A. Nunn, Jr.
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Director
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October 30, 2007
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/s/ THOMAS
W. SWEET
Thomas
W. Sweet
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Vice President, Corporate Finance (principal accounting officer)
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October 30, 2007
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155
EX-10.8
2
d48366exv10w8.htm
AMENDMENT NO. 3 TO AMENDED AND RESTATED 401(K) PLAN
exv10w8
Exhibit 10.8
AMENDMENT NO. 3 TO THE
DELL INC. 401(K) PLAN
This Amendment is hereby entered into by Dell Inc., a Delaware corporation, having its
principal office in Round Rock, Texas (hereinafter referred to as Employer):
R E C I T A L S:
WHEREAS, the Employer has previously established the Dell Inc. 401(k) Plan (the Plan) for
the benefit of those employees who qualify thereunder and for their beneficiaries; and
WHEREAS, the Employer most recently amended and restated the Plan effective January 1, 2003;
and
WHEREAS, the Employer desires to amend the Plan to comply with provisions of the final
regulations under Treasury Regulation Section 1.401(k) and Treasury Regulation Section 1.401(m)
that are effective for Plan Years beginning on and after January 1, 2006; and
NOW, THEREFORE, pursuant to Section 13.1 of the Plan, the following amendment is hereby made,
and shall be effective January 1, 2006:
1. Subsection 3.1(c) of the Plan is hereby amended, as underlined, to be and read as follows:
|
(c) |
|
A Participants election to defer an amount of his Considered Compensation and
Bonus, if any, shall be made by authorizing his Employer, in the manner prescribed by
the Committee, to reduce his Considered Compensation (and, for the 2003
Plan Year, Bonus, if any), in the elected amount, and the Employer, in
consideration thereof, agrees to contribute an equal amount to the Plan. A
Participants election made pursuant to this Subsection shall be implemented as soon as
administratively practicable after such election is made. |
|
|
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|
A Participants Considered Compensation deferral election shall remain in force and
effect for all periods following its implementation until modified in accordance
with Subsection 3.1(c) or canceled in accordance with Subsection 3.1(d) or until
such Participant ceases to be an Eligible Employee. For the 2003 Plan Year,
a Participants Bonus deferral election shall remain in force and effect until
the end of the Plan Year for which such election was made unless earlier modified in
accordance with Subsection 3.1(c) or canceled in accordance with Subsection 3.1(d)
or until such Participant ceases to be an Eligible Employee. The Company shall
pay to a Participant any Considered Compensation and Bonus for a Plan Year not
deferred under this Plan. Any Contributions made pursuant to a deferral
election shall not be made before the earlier of (1) the Participants performance
of Service with respect to which the Contribution is made and (2) |
|
|
|
when the Compensation that is subject to the election would be currently
available to the Employee in the absence of such an agreement. |
2. Section 3.1 is hereby amended by revising Subsections (g) and (h), to be and read as follows:
|
(g) |
|
Reserved. |
|
|
(h) |
|
Reserved. |
3. Section 3.2 is hereby amended by revising Subsection (c), to be and read as follows:
4. Subsection 3.2(d) of the Plan is hereby amended, as underlined, to be and read as follows:
|
(d) |
|
The Employer shall contribute to the Trust for each pay period, as Safe Harbor
Matching Contributions, an amount that equals 100% of the Salary Reduction
Contributions, including any applicable Catch-Up Contributions, that were made
pursuant to Sections 3.1 and 18.8(a), respectively, on behalf of each of the
Participants during such pay period and that were not in excess of 4% of each such
Participants Considered Compensation for such pay period. Safe Harbor Matching
Contributions shall be 100% vested and nonforfeitable at all times and shall be
allocated to the Employer Contribution Account of each Participant. A Safe Harbor
Matching Contribution may be contributed to the Plan concurrently with Participants
Salary Reduction Contribution and any applicable Catch-Up Contribution to which the
Safe Harbor Matching Contribution relates, but in no event shall the Safe Harbor
Matching Contribution be contributed to the Plan prior to such Participants Salary
Reduction Contribution. Further, pursuant to the safe harbor requirements of Code
Section 401(k)(3), the Employer shall be required to contribute before the due date of
the Employers tax return, as extended, such additional amount as may be necessary to
ensure that each Participant eligible to receive an allocation of the Safe Harbor
Matching Contribution for the Plan Year shall receive an amount for such Plan Year
equal to the lesser of 100% of the amount deferred by such Participant for such Plan
Year or four percent (4%) of such Participants Annual Compensation for such Plan Year.
The Participant shall not be required to complete a specified Period of Service or be
employed on the last day of the Plan Year in order to share in this additional
amount. |
|
|
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|
No more than ninety (90), and no fewer than thirty (30), days prior to the beginning
of each Plan Year, the Employer shall provide to each Participant a Safe Harbor
Notice. If an Employee will become a Participant in the Plan after the date such
notice is provided for a Plan Year but prior to the beginning of the next Plan Year,
then the Employer shall provide such Employee a Safe Harbor Notice no later than the
date such Employee becomes eligible to participate in the Plan. The Safe Harbor
Notice shall be sufficiently accurate and comprehensive to inform the |
2
|
|
|
Employee or
Participant of his rights and obligations under the Plan and shall be
written in a manner calculated to be understood by the average Employee. The Safe
Harbor Notice shall accurately describe (i) the Safe Harbor Matching Contribution as
set forth in this Section 3.2(d), (ii) any other contributions under the Plan,
including the potential for discretionary Employer contributions, and the conditions
under which such contributions are made, (iii) the type and amount of Compensation
that may be deferred under the Plan, (iv) how to make Salary Reduction
Contributions, including the requirements for completing and returning the election
forms, (v) the periods available for making Salary Reduction Contributions, (vi)
withdrawal and vesting provisions applicable to all contributions under the Plan,
and (vii) information that makes it easy to obtain additional information about the
Plan such as telephone numbers, addresses and, if applicable, electronic addresses,
of individuals or offices from whom employees can obtain such plan information. |
5. Section 3.2 of the Plan is hereby amended by adding the following new Subsection (e) to the end
thereof to be and read as follows:
|
(e) |
|
If a Highly Compensated Employee simultaneously participates in more than one
plan or arrangement described in Code Section 401(k) of the Employer or its Related
Employers, then any Employer Matching Contributions, including Safe Harbor Matching
Contributions, allocated to his or her account shall be determined as if all Employer
Matching Contributions, including Safe Harbor Matching Contributions, were made under a
single arrangement. Notwithstanding the required aggregation in the preceding
sentence, this Plan shall continue to satisfy the requirements of Code Section
401(m)(2) by the Safe Harbor Matching Contributions made under this Plan pursuant to
Code Section 401(m)(11). |
6. Section 3.6 is hereby amended, to be and read as follows:
3.6 Reserved.
7. Subsection 4.2(g) of the Plan is hereby amended, as underlined, to be and read as follows:
|
(g) |
|
Safe Harbor Matching Contributions made by the Employer pursuant to Section
3.2(d) shall be allocated to the Employer Contribution Accounts of the Participants for
whom such contributions were made. As provided under Section 3.2, the Employer may
elect to pre-fund the Safe Harbor Matching Contribution for a Plan Year by allocating
the Safe Harbor Matching Contribution to the Individual Accounts of eligible
Participants as of the Allocation Date of each payroll period during the Plan Year. The
amount of the Safe Harbor Matching Contribution to be allocated for any payroll period
on behalf of a Participant shall be determined under the contribution formula described
in Section 3.2(d), taking into account only the Participants eligible compensation
paid for such payroll period and the Participants Salary Reduction Contribution for
such payroll |
3
|
|
|
period; provided, however, that no later than the due date of the
Employers tax return for the Plan Year, the Employer shall make an additional Safe
Harbor Matching Contribution to the Individual Accounts of any Participant or Former
Participant who failed to receive a Safe Harbor Matching Contribution for such Plan
Year that is equal to the amount provided by the contribution formula described in
Section 3.2(d), based on such Participants Annual Compensation and Salary Reduction
Contributions for such Plan Year. |
8. Subsection 6.2(a) of the Plan is hereby amended, as underlined, to be and read as follows:
|
(a) |
|
A Participant who has a financial hardship as determined by the Committee,
and who has represented in writing that he or she has made all available
withdrawals pursuant to Section 6.1 and pursuant to the provisions of any other plans
of the Employer and any Controlled Entities of which he is a member and who has
obtained all available loans pursuant to Article IX and pursuant to the provisions of
any other plans of the Employer and any Controlled Entities of which he is a member may
withdraw from his Employer Contribution Account, his Rollover Contribution Account, and
his Salary Reduction Account amounts not to exceed the lesser of (i) such Participants
Vested Interest in such Accounts or (ii) the amount determined by the Committee as
being available for withdrawal pursuant to this Subsection. Such withdrawal shall
come, first, from the Participants Rollover Contribution Account, second, from his
Vested Interest in his Employer Contribution Account, and finally, from his Salary
Reduction Contribution Account. |
9. Subsection 6.2(b) of the Plan is hereby amended, as underlined, to be and read as follows:
|
(b) |
|
For purposes of this Section, financial hardship shall mean the immediate and
heavy financial needs of the Participant. A withdrawal based upon financial hardship
pursuant to this Section shall not exceed the amount that is both required to meet the
immediate financial needs created by the hardship and not reasonably available from
other resources of the Participant. The amount required to meet the Participants
immediate financial needs may include any amounts necessary to pay any federal, state,
or local income taxes or penalties reasonably anticipated to result from the
distribution. The determination of the existence of a Participants financial hardship
and the amount required to be distributed to meet the needs created by the hardship
shall be made by the Committee. The decision of the Committee shall be final and
binding, provided that all Participants similarly situated shall be treated in a
uniform and nondiscriminatory manner. A withdrawal shall be deemed to be made on
account of the immediate and heavy financial needs of a Participant if the withdrawal
is for: |
|
(1) |
|
Expenses for (or necessary to obtain) medical care that
would be deductible under Section 213(d) of the Code and reimbursed or |
4
|
|
|
reimbursable by insurance (determined without regard to whether the expenses
exceed 7.5% of adjusted gross income); or |
|
|
(2) |
|
Costs directly related to the purchase of a principal residence
of the Participant (excluding mortgage payments); or |
|
|
(3) |
|
Payment of tuition and related educational fees, and room and
board expenses, for the next twelve months of post-secondary education for the
Participant or the Participants spouse, children, or dependents (as defined in
Code Section 152 and, for taxable years beginning on or after January 1,
2005, without regard to Code Section 152(b)(1), (b)(2), and (d)(1)(B)); or |
|
|
(4) |
|
Payments necessary to prevent the eviction of the Participant
from his principal residence or the foreclosure on the mortgage of the
Participants principal residence; or |
|
|
(5) |
|
Payments for burial or funeral expenses for the
Participants deceased parent, spouse, children or dependents (as defined in
Code Section 152 and, for taxable years beginning on or after January 1, 2005,
without regard to Code Section 152(b)(1), (b)(2), and (d)(1)(B)); or |
|
|
(6) |
|
Expenses for the repair of damage to the Participtants
principal residence that would qualify for the casualty deduction under Code
Section 165 (determined without regard to whether the loss exceeds 10% of
adjusted gross income); or |
|
|
(7) |
|
Such other financial needs that the Commissioner of Internal
Revenue may deem to be immediate and heavy financial needs through the
publication of revenue rulings, notices, and other documents of general
applicability. |
10. The heading of Section 7.4 of the Plan is hereby amended, to be and read as follows:
7.4 Severance from Employment Prior to Retirement.
11. Subsection 7.4(c)(1) of the Plan is hereby amended, as underlined, to be and read as follows:
|
(1) |
|
In the case of an individual who terminates employment with the
Employer and all Controlled Entities at a time when he has a 0% Vested Interest
in his Employer Contribution Account and who then incurs a Period of Severance
that equals or exceeds the greater of five years or his aggregate Periods of
Service completed before such Period of Severance, such individuals Periods of
Service completed before such Period of Severance shall be forfeited and
completely disregarded in determining his |
5
|
|
|
years of Vesting Service. If the
Participant has made any Salary Reduction Contributions to the Plan, such
Participants Service shall not be disregarded under the immediately preceding
sentence. |
12. Subsection 7.4(d)(1) of the Plan is hereby amended, as underlined, to be and read as follows:
|
(1) |
|
With respect to a Participant who terminates employment with
the Employer and all Controlled Entities with a Vested Interest in his Employer
Contribution Account that is less than 100% and receives a distribution from
the Plan of the balance of his Vested Interest in his Accounts in the form of a
lump sum distribution by the close of the second Plan Year following the Plan
Year in which his employment is terminated, the nonvested portion of such
terminated Participants Employer Contribution Account as of the Valuation Date
next preceding his Benefit Commencement Date shall become a forfeiture as of
his Benefit Commencement Date. If the value of a Participants vested
Account Balance is zero, the Participant shall be deemed to have received a
distribution of his or her vested Account Balance and such nonvested portion
shall become a forfeiture as of his or her date of termination of employment
with the Employer and all Controlled Entities. However, if such Participant
made any Salary Reduction Contributions to the Plan prior to his or her
termination with the Employer and all Controlled Entities, such Participant
shall not be considered nonvested under the Plan and shall not be deemed to
have received a distribution of his or her Account Balance. |
13. Subsection 7.4(e) of the Plan is hereby amended, as underlined, to be and read as follows:
|
(e) |
|
Restoration of Forfeited Account Balance. In the event that the
nonvested portion of a terminated Participants Employer Contribution Account becomes a
forfeiture, the terminated Participant shall, upon subsequent reemployment with the
Employer or a Controlled Entity prior to incurring a Period of Severance of five
consecutive years, have the forfeited amount restored to such Participants Employer
Contribution Account, unadjusted by any subsequent gains or losses of the Trust
Fund; provided, however, that such restoration shall be made only if,
within five (5) years after the date the Participant is reemployed, such
Participant repays in cash all amounts previously distributed to him from his or
her (i) Salary Reduction Contribution Account (not including earnings on the
Participants Salary Reduction Contributions), and (ii) Employer Contribution
Account. A reemployed Participant who was not entitled to a distribution from the
Plan on his date of termination of employment shall be considered to have repaid a
distribution of zero dollars on the date of his reemployment. Any such restoration
shall be made as of the Valuation Date coincident with or next succeeding the date of
repayment. Restoration of the Participants Account Balance includes |
6
|
|
|
restoration
of all Code Section 411(d)(6) protected benefits pertaining to that restored Account
under applicable Treasury regulations. Notwithstanding the foregoing, if the value of
such re-employed Participants vested Employer Contribution Account was zero and the
Participant had made Salary Reduction Contributions to the Plan prior to separating
from Service, such Participant shall
not be considered nonvested under the Plan and shall be entitled to restoration
of amounts forfeited from his Employer Contribution Account only if he or she
satisfies the repayment requirements described in this Section. Notwithstanding
anything to the contrary in the Plan, forfeited amounts to be restored by the
Employer pursuant to this Section shall be charged against and deducted from
forfeitures for the Plan Year in which such amounts are restored. If such
forfeitures otherwise available are not sufficient to provide such restoration, the
portion of such restoration not provided by forfeitures shall be charged against and
deducted from Employer Retirement Savings Contributions otherwise available for
allocation to other Participants, and any additional amount needed to restore such
forfeited amounts shall be a minimum required Employer Retirement Savings
Contribution (which shall be made without regard to current or accumulated earnings
and profits). |
14. Section 8.5 of the Plan is hereby amended, as underlined, to be and read as follows:
8.5 |
|
Direct Rollover Election. Notwithstanding any provisions of the Plan to the contrary
that would otherwise limit a Distributees election under this Section, a Distributee may
elect, at the time and manner prescribed by the Committee, to have all or any portion of an
Eligible Rollover Distribution (other than any portion attributable to the offset of an
outstanding loan balance of such Participant pursuant to the Plans loan procedure) paid
directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover.
The preceding sentence notwithstanding, a Distributee may elect a Direct Rollover pursuant to
this Section only if such Distributees Eligible Rollover Distributions during the Plan Year
are reasonably expected to total $200 or more. Furthermore, if less than 100% of the
Participants Eligible Rollover Distribution is to be a Direct Rollover, the amount of the
Direct Rollover must be $500 or more. Prior to any Direct Rollover pursuant to this Section,
the Committee may require the Distributee to furnish the Committee with a statement from the
plan, account, or annuity to which the benefit is to be transferred verifying that such plan,
account, or annuity is, or is intended to be, an Eligible Retirement Plan. If the
Eligible Retirement Plan contains a cash or deferred arrangement, the Trustee must reasonably
conclude, prior to permitting a Direct Rollover, that the transferee plan will continue the
distribution restrictions described in Section 6.2 on any amounts included in the Direct
Rollover that are attributable to the Participants Salary Reduction Contributions.
Notwithstanding the above, any financial hardship withdrawal made to a Participant pursuant to
Article VI shall not qualify as an Eligible Rollover Distribution and the Participant shall
not be entitled to make a direct rollover election with respect to such distribution. |
7
15. Subsection 14.2(d) of the Plan is hereby amended, as underlined, to be and read as follows:
|
(d) |
|
In the case of a termination or partial termination of the Plan, and in the
absence of a Plan amendment to the contrary, the Trustee shall pay the balance of the
Accounts of a Participant for whom the Plan is so terminated, or who is affected by
such partial termination, to such Participant, subject to the time of payment,
form of payment, and consent provisions of Article VIII. However, distributions
may not be made following termination of the Plan if the Employer establishes or
maintains an alternative defined contribution plan as described in Treasury
Regulation Section 1.401(k)-1(d)(4)(i). |
16. Section 14.3 of the Plan is hereby amended, as underlined, to be and read as follows:
14.3 |
|
Merger, Consolidation, or Transfer. This Plan and Trust Fund may not merge or
consolidate with, or transfer its assets or liabilities to, any other plan, unless immediately
thereafter each Participant would, in the event such other plan terminated, be entitled to a
benefit equal to or greater than the benefit to which he would have been entitled if the Plan
were terminated immediately before the merger, consolidation, or transfer. In addition,
before any merger, consolidation or transfer, the Trustee must reasonably determine, prior to
to permitting such a transfer, that the transferee plan will continue the distribution
restrictions of Code Sections 401(k)(2) and 401(k)(10) on any transferred amounts that are
attributable to Salary Reduction Contributions of Participants. |
17. Section 18.10 of the Plan is hereby amended, as underlined, to be and read as follows:
18.10 |
|
Distributions following a Severance from Employment. A Participants elective
deferrals, qualified nonelective contributions, qualified matching contributions, and earnings
attributable to these contributions shall be distributed on account of the participants
severance from employment. However, such a distribution shall be subject to the other
provisions of the Plan regarding distributions, other than provisions that require a
separation from service before such amounts may be distributed. For purposes of the
distribution restrictions, a severance from employment occurs when an Employee ceases to be an
Employee of the Employer maintaining the Plan. An Employee does not have a severance from
employment if, in connection with a change in employment, the Employees new employer
maintains the Plan with respect to the Employee, by assuming sponsorship of the Plan or by
accepting a transfer of Plan assets and liabilities (within the meaning of Code Section
414(e)) with respect to the Employee. |
8
Exhibit 10.8
IN WITNESS WHEREOF, the Employer has caused this instrument to be executed this 12th day of
December, 2006.
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|
DELL INC. |
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By:
|
|
/s/ Kathleen O. Angel |
|
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|
Its:
|
|
Director, Global Benefits |
|
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|
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|
|
Date:
|
|
12/12/06 |
|
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|
|
9
EX-21
3
d48366exv21.htm
SUBSIDIARIES
exv21
Exhibit
21
Dell Inc. Subsidiary List
|
|
|
Europe, Middle East and Africa |
|
|
Dell GmbH |
|
Austria |
Dell FZ-LLC Bahrain Branch |
|
Bahrain |
Dell N.V. |
|
Belgium |
Dell Computer spol. sro |
|
Czech Republic |
Dell A/S |
|
Denmark |
Oy Dell A.B. |
|
Finland |
Dell S.A. |
|
France |
Dell GmbH |
|
Germany |
Dell Halle GmbH |
|
Germany |
Dell
Technology Products and Services S.A. |
|
Greece |
Dell Distribution (EMEA) Limited Magyarorszagi
Kereskedelmi Kepviselet Rep. Office |
|
Hungary |
Dell Products (Europe) B.V. Ireland Branch |
|
Ireland |
Dell Direct |
|
Ireland |
Dell Products |
|
Ireland |
Dell Research |
|
Ireland |
Dell International Holdings VI (Ireland) |
|
Ireland |
Dell International Holdings XI |
|
Ireland |
Dell Computer Limited |
|
Ireland |
Dell S.p.A. |
|
Italy |
Dell SA |
|
Luxembourg |
Dell Computer Holding I, SGPS, Unipessoal Lda |
|
Madeira |
Dell Computer Holding II, SGPS, Unipessoal Lda |
|
Madeira |
Dell Computer International (II) Comercio de
Computadores Sociedade Unipessoal Lda |
|
Madeira, Portugal |
Dell SAS |
|
Morocco |
Dell Distribution Maroc (Succ) |
|
Morocco |
Dell B.V. |
|
Netherlands |
Dell Asia B.V. |
|
Netherlands |
Dell Taiwan B.V. |
|
Netherlands |
DIH IV C.V. |
|
Netherlands |
DIH V C.V. |
|
Netherlands |
Dell International Holdings VIII B.V. |
|
Netherlands |
Dell International Holdings IX B.V. |
|
Netherlands |
Dell International Holdings X B.V. |
|
Netherlands |
Dell Global B.V. |
|
Netherlands |
Dell Products (Europe) B.V. |
|
Netherlands |
Dell Global International B.V. |
|
Netherlands |
Dell International Holdings XII Coöperatoef U.A. |
|
Netherlands |
Dell Corporation Limited Northern Ireland Place of
Business |
|
Northern Ireland |
Dell A.S. |
|
Norway |
Dell Sp.z.o.o. |
|
Poland |
Dell Products (Poland) Sp. z o.o |
|
Poland |
Dell Computer (III) Comercio de Computadores,
Unipessoal LDA |
|
Portugal |
Dell Distribution (EMEA) Limited Representative Office |
|
Romania |
Dell L.L.C. |
|
Russia |
|
|
|
Dell Distribution (EMEA) Limited (Russia) Representative
Office |
|
Russia |
Dell Distribution (EMEA) Limited External Company (Ghana) |
|
Ghana |
Dell Distribution (EMEA) Limited Trade Representative
Office (Bulgaria) |
|
Bulgaria |
Dell Distribution (EMEA) Limited Trade Representative
Office (Uganda) |
|
Uganda |
Dell s.r.o. |
|
Slovakia |
Dell Computer (Proprietary) Ltd |
|
South Africa |
Dell Computer S.A. |
|
Spain |
Dell A.B. |
|
Sweden |
Dell S.A. |
|
Switzerland |
Dell Distribution (EMEA) Limited Turkey (Istanbul)
Liaison Office |
|
Turkey |
Dell Emerging Markets (EMEA) Limited Representative
Office Ukraine |
|
Ukraine |
Dell FZ LLC |
|
U.A.E. |
Bracknell Boulevard Management Company Limited |
|
United Kingdom |
Dell Corporation Limited |
|
United Kingdom |
Dell Computer EEIG |
|
United Kingdom |
Dell Emerging Markets (EMEA) Limited |
|
United Kingdom |
Alienware Limited |
|
Ireland |
Dell Global Holdings I BV |
|
Netherlands |
Dell Global Holdings II BV |
|
Netherlands |
Dell Global Holdings III BV |
|
Netherlands |
Dell Products Manufacturing |
|
Ireland |
Dell Services S.r.l. |
|
Italy |
Dell Solutions (UK) Limited |
|
United Kingdom |
Dell Emerging Markets (EMEA) Limited Representative
Office Egypt |
|
Egypt |
Dell
Teknoloji Limited Sirketi |
|
Turkey |
|
|
|
Asia-Pacific/Japan |
|
|
Dell Australia Pty. Limited |
|
Australia |
Dell (China) Company Limited |
|
China |
Dell (China) Company Limited, Beijing Liaison Office |
|
China |
Dell (China) Company Limited, Chengdu Liaison Office |
|
China |
Dell (China) Co., Ltd., Guangzhou Liaison Office |
|
China |
Dell (China) Company Limited, Hangzhou Liaison Office |
|
China |
Dell (China) Company Limited, Nanjing Liaison Office |
|
China |
Dell (China) Company Limited, Shanghai Liaison Office |
|
China |
Dell (China) Company Limited, Shenzhen Liaison Office |
|
China |
Dell (China) Company Limited, Shanghai Branch |
|
China |
Dell (China) Company Limited, Dalian Branch |
|
China |
Dell (China) Company Limited, Xiamen Branch |
|
China |
Dell (China) Company Limited, Beijing Branch |
|
China |
Dell (China) Company Limited, Shen Yang Liaison Office |
|
China |
Dell Procurement (Xiamen) Company Limited |
|
China |
Dell Procurement (Xiamen) Company Limited, Shanghai
Liaison Office |
|
China |
Dell Procurement (Xiamen) Company Limited, Shenzhen
Liaison Office |
|
China |
2
|
|
|
Dell (Xiamen) Company Limited |
|
China |
Dell (Xiamen) Company Limited, Dalian Branch |
|
China |
Dell Hong Kong Limited |
|
Hong Kong |
Dell International Services India Private Limited |
|
India |
Dell India Private Ltd. |
|
India |
Dell India R&D Center Private Limited |
|
India |
ACS (India) Limited |
|
India |
Dell Asia Pacific Sdn. Indonesia Representative Office |
|
Indonesia |
Dell Japan Inc. |
|
Japan |
Dell Asia Pacific Sdn. |
|
Malaysia |
Dell Global Procurement Malaysia Sdn. Bhd. |
|
Malaysia |
Dell New Zealand Limited |
|
New Zealand |
Dell International Services Philippines Inc. |
|
Philippines |
Dell Catalog Sales L.P. Rep Office |
|
Philippines |
Dell Asia Pacific Sdn. Phillippines Representative Office |
|
Philippines |
Dell Asia Pte. Ltd. |
|
Singapore |
Dell Singapore Pte. Ltd. |
|
Singapore |
Dell Global Pte. Ltd. |
|
Singapore |
Dell Global B.V., Singapore Branch |
|
Singapore |
Dell International Inc. |
|
South Korea |
Dell Taiwan B.V., Taiwan Branch |
|
Taiwan |
Dell B.V., Taiwan Branch |
|
Taiwan |
Dell Inc., Taiwan Representative Office |
|
Taiwan |
Dell Asia B.V., Taiwan Branch |
|
Taiwan |
Dell Corporation (Thailand) Co., Ltd. |
|
Thailand |
Dell Asia Pacific Sdn. Vietnam Representative Office |
|
Vietnam |
Alienware Corporation (Pacific Rim), Pty Ltd. |
|
Australia |
Dell Global Business Center Sdn. Bhd. |
|
Malaysia |
|
|
|
Other U.S. Entities |
|
|
Dell International Incorporated |
|
Delaware |
Dell Gen. P. Corp. |
|
Delaware |
Dell Services Corporation |
|
Delaware |
Dell Marketing Corporation |
|
Delaware |
Dell USA Corporation |
|
Delaware |
Dell Ventures Corporation |
|
Delaware |
Dell DFS Corporation |
|
Delaware |
Plural Acquisition I, Inc. |
|
Delaware |
Bracknell Boulevard (Block C) L.L.C. |
|
Delaware |
Bracknell Boulevard (Block D) L.L.C. |
|
Delaware |
Dell Products Corporation |
|
Delaware |
Dell Federal Systems Corporation |
|
Delaware |
Dell World Trade Corporation |
|
Delaware |
Dell Receivables Corporation |
|
Delaware |
Dell Products GP L.L.C. |
|
Delaware |
Dell Products LP L.L.C. |
|
Delaware |
Dell Services GP L.L.C. |
|
Delaware |
Dell Services LP L.L.C. |
|
Delaware |
Dell Federal Systems GP L.L.C. |
|
Delaware |
Dell Federal Systems LP L.L.C. |
|
Delaware |
3
|
|
|
Dell World Trade GP L.L.C. |
|
Delaware |
Dell World Trade LP L.L.C. |
|
Delaware |
Dell Marketing GP L.L.C. |
|
Delaware |
Dell Marketing LP L.L.C. |
|
Delaware |
Dell USA GP L.L.C. |
|
Delaware |
Dell USA LP L.L.C. |
|
Delaware |
Dell Receivables GP L.L.C. |
|
Delaware |
Dell Receivables LP L.L.C. |
|
Delaware |
Dell Products L.P. |
|
Texas |
Dell Services L.P. |
|
Texas |
Dell Federal Systems L.P. |
|
Texas |
Dell World Trade L.P. |
|
Texas |
Dell Marketing L.P. |
|
Texas |
Dell USA L.P. |
|
Texas |
Dell Receivables L.P. |
|
Texas |
CPS Channel Partner Solutions L.P. |
|
Texas |
Dell Computer Holdings Corp. |
|
Delaware |
Dell Computer Holdings L.P. |
|
Texas |
Dell Ventures L.P. |
|
Texas |
DCC Executive Security Inc. |
|
Delaware |
Dell Eastern Europe Corporation |
|
Delaware |
Dell Computer India Corp. |
|
Delaware |
Dell Computer de Chile Corp. |
|
Delaware |
Dell America Latina Corp. |
|
Delaware |
Dell Colombia Inc. |
|
Delaware |
Dell International Holdings I L.L.C. |
|
Delaware |
Dell International Holdings II L.L.C. |
|
Delaware |
Dell International Holdings III L.L.C. |
|
Delaware |
Dell Marketing USA GP L.L.C. |
|
Delaware |
Dell Marketing USA LP L.L.C. |
|
Delaware |
Dell Marketing USA L.P. |
|
Texas |
Dell Equipment GP L.L.C |
|
Delaware |
Dell Equipment Funding L.P. |
|
Delaware |
Dell Conduit GP L.L.C. |
|
Delaware |
Dell Conduit Funding L.P. |
|
Delaware |
Dell Financial Services L.P. |
|
Texas |
Dell Revolver Funding L.L.C. |
|
Nevada |
Dell Funding L.L.C. |
|
Nevada |
Dell Revolver Company L.P. |
|
Delaware |
Dell Revolver GP. L.L.C. |
|
Delaware |
Dell Protective Services Inc. |
|
Delaware |
Dell Asset Securitization GP L.L.C. |
|
Delaware |
Dell Asset Securitization L.P. |
|
Delaware |
Alienware Corporation |
|
Florida |
Alienware Retail Corporation |
|
Florida |
Alienware Labs Corp. |
|
Florida |
Dell Global Holdings GP L.L.C. |
|
Delaware |
Dell Global Holdings LP L.L.C. |
|
Delaware |
Dell Global Holdings IV L.L.C. |
|
Delaware |
Dell Global Holdings L.L.C. |
|
Delaware |
Dell Asset Revolving Trust |
|
Delaware |
4
|
|
|
Dell Credit Company L.L.C. |
|
Delaware |
|
|
|
International Americas |
|
Jurisdiction |
Dell Export Sales Corporation |
|
Barbados |
Dell America Latina Corp., Argentina Branch |
|
Argentina |
Dell Computadores do Brasil Ltda. |
|
Brazil |
Dell Procurement International |
|
Cayman Islands |
Dell Computer de Chile Ltda |
|
Chile |
Dell Colombia Inc., Colombia Branch |
|
Colombia |
Dell Technology Services Inc. S.R.L. |
|
Costa Rica |
Dell El Salvador S.A. DE C.V. |
|
El Salvador |
Dell Mexico, S.A. de C.V. |
|
Mexico |
Dell Computer Services de Mexico SA de CV |
|
Mexico |
Dell Canada Inc. |
|
Ontario, Canada |
Dell Panama S. de R.L. |
|
Panama |
Dell Perú, SAC |
|
Peru |
Dell Puerto Rico Corp. |
|
Puerto Rico |
Dell Quebec Inc. |
|
Quebec |
Dell Trinidad and Tobago Limited |
|
Trinidad and Tobago |
Alienware Latinoamerica, S.A |
|
Costa Rica |
Dell Global Holdings Ltd. |
|
Cayman Islands |
Dell Global Holdings L.P. |
|
Cayman Islands |
Dell Global Holdings V L.P. |
|
Cayman Islands |
Dell Jamaica Ltd. |
|
Jamaica |
5
EX-23
4
d48366exv23.htm
CONSENT OF PRICEWATERHOUSECOOPERS LLP
exv23
Exhibit 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8
(Nos. 33-24621, 33-54577, 33-31812, 33-63273, 33-54583, 333-58039, 333-69726, 333-100342,
333-111214, and 333-111215) of Dell Inc. (formerly Dell Computer Corporation) of our report dated
October 29, 2007 relating to the financial statements, financial statement schedule, managements
assessment of the effectiveness of internal control over financial reporting and the effectiveness
of internal control over financial reporting, which appears in this Form 10-K.
PricewaterhouseCoopers LLP
Austin, Texas
October 30, 2007
EX-31.1
5
d48366exv31w1.htm
CERTIFICATION OF CHAIRMAN AND CEO PURSUANT TO SECTION 302
exv31w1
EXHIBIT 31.1
CERTIFICATION OF MICHAEL S. DELL, CHAIRMAN AND
CHIEF EXECUTIVE OFFICER, PURSUANT TO RULE 13a-14(a) UNDER
SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Michael S. Dell, certify that:
1. |
|
I have reviewed this Annual Report on Form 10-K of Dell Inc.; |
|
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
|
3. |
|
Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
|
4. |
|
The registrants other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
|
Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is
being prepared; |
|
|
(b) |
|
Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted
accounting principles; |
|
|
(c) |
|
Evaluated the effectiveness of the registrants disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such
evaluation; and |
|
|
(d) |
|
Disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter (the
registrants fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrants internal control
over financial reporting; and |
5. |
|
The registrants other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of the registrants board of directors (or persons performing the equivalent
functions): |
|
(a) |
|
All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information;
and |
|
|
(b) |
|
Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrants internal control over financial reporting. |
|
|
|
|
|
|
|
|
/s/ MICHAEL S. DELL |
October 30, 2007 |
|
|
|
|
|
|
|
Michael S. Dell |
|
|
Chairman and Chief Executive Officer |
EX-31.2
6
d48366exv31w2.htm
CERTIFICATION OF VICE CHAIRMAN AND CFO PURSUANT TO SECTION 906
exv31w2
EXHIBIT 31.2
CERTIFICATION OF DONALD J. CARTY, VICE CHAIRMAN AND
CHIEF FINANCIAL OFFICER, PURSUANT TO RULE 13a-14(a) UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Donald J. Carty, certify that:
1. |
|
I have reviewed this Annual Report on Form 10-K of Dell Inc.; |
|
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
|
3. |
|
Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
|
4. |
|
The registrants other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
|
Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is
being prepared; |
|
|
(b) |
|
Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted
accounting principles; |
|
|
(c) |
|
Evaluated the effectiveness of the registrants disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such
evaluation; and |
|
|
(d) |
|
Disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter (the
registrants fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrants internal control
over financial reporting; and |
5. |
|
The registrants other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of the registrants board of directors (or persons performing the equivalent
functions): |
|
(a) |
|
All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information;
and |
|
|
(b) |
|
Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrants internal control over financial reporting. |
|
|
|
|
|
|
|
|
/s/ DONALD J. CARTY |
October 30, 2007 |
|
|
|
|
|
|
|
Donald J. Carty |
|
|
Vice Chairman and Chief Financial Officer |
EX-32.1
7
d48366exv32w1.htm
CERTIFICATIONS PURSUANT TO SECTION 906
exv32w1
EXHIBIT 32.1
CERTIFICATIONS OF MICHAEL S. DELL, CHAIRMAN AND CHIEF EXECUTIVE OFFICER,
AND DONALD J. CARTY, VICE CHAIRMAN
AND CHIEF FINANCIAL OFFICER, PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned officers of Dell Inc. hereby certify that (a) Dells Annual Report on Form 10-K for
the fiscal year ended February 2, 2007, as filed with the Securities and Exchange Commission, fully
complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and (b)
information contained in the report fairly presents, in all material respects, the financial
condition and results of operations of Dell.
|
|
|
|
|
|
|
|
/s/ MICHAEL S. DELL |
Date: October 30, 2007 |
|
|
|
|
|
|
|
Michael S. Dell |
|
|
Chairman and Chief Executive Officer |
|
|
|
|
|
/s/ DONALD J. CARTY |
Date: October 30, 2007 |
|
|
|
|
|
|
|
Donald J. Carty |
|
|
Vice Chairman and Chief Financial Officer |
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8
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-----END PRIVACY-ENHANCED MESSAGE-----