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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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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
January 28, 2005 |
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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
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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
(State or other
jurisdiction of
incorporation or organization)
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74-2487834
(I.R.S. Employer
Identification No.)
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One Dell Way, Round Rock, Texas 78682
(Address of principal executive offices) (Zip Code)
(512) 338-4400
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
None
Securities Registered Pursuant to Section 12(g) of the
Act:
Common Stock, par value $.01 per share
Preferred Stock Purchase Rights
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 x No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the
Act). Yes x No o
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Approximate aggregate market
value of the registrant’s common stock held by
non-affiliates as of July 30, 2004, based upon the closing
price reported for such date on The Nasdaq National
Market
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$79.9 billion |
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Number of shares of common stock
outstanding as of February 25, 2005
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2,459,003,783 |
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DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this report, to the
extent not set forth herein, is incorporated by reference from
the registrant’s definitive proxy statement relating to the
annual meeting of stockholders to be held in July 2005, which
definitive proxy statement will be filed with the Securities and
Exchange Commission within 120 days after the end of the
fiscal year to which this report relates.
TABLE OF CONTENTS
This report contains forward-looking statements that are
based on Dell’s 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 factors
affecting Dell’s business and prospects, see
“Item 1 — Business — Factors
Affecting Dell’s Business and Prospects.”
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 upon information provided by IDC
Worldwide PC, Printer, and MFP Trackers, March 2005. Share data
is for the full calendar year and all Dell growth rates are on a
fiscal year-over-year basis.
PART I
General
Dell Inc., with fiscal 2005 net revenue of
$49.2 billion, is a premier provider of products and
services worldwide that enable customers to build their
information-technology and Internet infrastructures. Dell offers
a broad range of enterprise systems (servers, storage,
workstations, and networking products), client systems (notebook
and desktop computer systems), printing and imaging systems,
software and peripherals, and global services. During calendar
2004, Dell was the number one supplier of personal computer
systems worldwide as well as in the United States. Dell’s
global market leadership is the result of a persistent focus on
delivering the best possible customer experience by selling
products and services directly to customers.
Dell, a Delaware corporation, was founded in 1984 by Michael
Dell on a simple concept: by selling computer systems directly
to customers, Dell could best understand their needs and
efficiently provide the most effective computing solutions to
meet those needs. Dell is based in Round Rock, Texas, and
conducts operations worldwide through its subsidiaries. Unless
otherwise specified, references to Dell include its consolidated
subsidiaries. Dell operates principally in one industry and is
managed in three geographic segments: the Americas, Europe, and
Asia Pacific-Japan regions. See “Item 1 —
Business — Geographic Areas of Operations.”
Business Strategy
Dell’s business strategy combines its direct customer model
with a highly efficient manufacturing and supply chain
management organization and an emphasis on standards-based
technologies. This strategy enables Dell to provide customers
with superior value; high-quality, relevant technology;
customized systems; superior service and support; and products
and services that are easy to buy and use. The key tenets of
Dell’s business strategy are:
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A direct relationship is the most efficient path to the
customer. A direct customer relationship, also referred to
as Dell’s “direct business model,” eliminates
wholesale and retail dealers that add unnecessary time and cost
or diminish Dell’s understanding of customer expectations.
As a result, Dell is able to offer customers superior value by
avoiding expenditures associated with the retail channel such as
higher inventory carrying costs, obsolescence associated with
technology products, and retail mark-ups. In addition, direct
customer relationships provide a constant flow of information
about customers’ plans and requirements and enable Dell to
continually refine its product offerings. At www.dell.com,
customers may review, configure and price systems within
Dell’s entire product line; order systems online; and track
orders from manufacturing through shipping. |
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Customers can purchase custom-built products and
custom-tailored services. Dell believes the direct business
model is the most effective model for providing solutions that
address customer needs. In addition, Dell’s flexible,
build-to-order manufacturing process enables Dell to turn over
inventory every four days on average, and reduce inventory
levels. This allows Dell to rapidly introduce the latest
relevant technology more quickly than companies with
slow-moving, indirect distribution channels, and to rapidly pass
on component cost savings directly to customers. |
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Dell is the low-cost leader. Dell’s highly efficient
supply chain management and manufacturing organization,
efficient direct business model, and concentration on
standards-based technologies allow Dell to maintain the lowest
cost structure among its major competitors, and to pass those
savings to its customers. Dell’s relentless focus on
reducing its costs allows it to consistently provide customers
with superior value. |
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Dell provides a single point of accountability for its
customers. Dell recognizes that as technology needs become
more complex, it becomes more challenging for customers to
efficiently address their information technology needs. Dell
therefore strives to be the single point of accountability for
customers with complex technological challenges. Dell offers an
array of services designed to provide customers the ability to
maximize system performance, efficiency, and return on
investment. |
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Non-proprietary standards-based technologies deliver the best
value to customers. Dell believes that non-proprietary
standards-based technologies are critical to providing customers
with relevant, high-value products and services. Focusing on
standards gives customers the benefit of extensive research and
development from Dell and its entire supply chain, rather than a
single company. Unlike proprietary technologies, standards
provide customers with flexibility and choice while allowing
their purchasing decisions to be based on performance, cost, and
customer service. |
Product Development
Dell is focused on developing standards-based technologies that
incorporate highly desirable features and capabilities at
competitive prices. Management believes that Dell employs a
unique and inherently better collaborative approach to product
design and development. With direct customer input, Dell’s
engineers work with a global network of technology companies to
architect new system designs, influence the direction of future
development, and integrate new technologies into Dell’s
products. This collaborative approach enables Dell to quickly
and efficiently deliver new products and services to the market.
During fiscal 2005, Dell’s research, development, and
engineering expenses were $463 million, compared with
$464 million for fiscal 2004 and $455 million for
fiscal 2003.
Products
Dell designs, develops, manufactures, markets, sells, and
supports a wide range of products that are customized to
customer requirements. These include enterprise systems, client
systems, printing and imaging systems, software and peripherals.
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Servers. Dell’s standards-based PowerEdge™ line
of servers is designed to provide customers affordable
performance, reliability, and scalability. Options include high
performance rack and tower servers for enterprise customers and
aggressively priced tower servers for small organizations and
networks. Dell ranks number one in the U.S. and number two
worldwide in shipments of x86 servers (based on standard Intel
architecture). During calendar 2004, Dell increased its share of
worldwide x86 server sales by 1.5 percentage points and
maintained its number two position in that category at 24.8%. |
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Storage. Dell/ EMC and Dell’s PowerVault™ lines
of storage products offer customers a comprehensive portfolio of
cost-effective hardware and software products to store, serve,
and protect |
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customer data. Dell offers external storage, tape backup
products, network attached storage, fibre channel arrays,
storage area networks, and rack solutions. Total storage revenue
grew 16% during fiscal 2005 and continues to be supported by
Dell’s four-year running partnership with EMC Corporation. |
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Workstations. Dell Precision™ desktop and mobile
workstations are intended for professional users who demand
exceptional performance to run sophisticated applications, such
as three-dimensional computer-aided design, digital content
creation, geographic information systems, computer animation,
software development, and financial analysis. In calendar 2004,
Dell held the number one position in the U.S. and worldwide for
branded workstation unit shipments. |
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Networking Products. Dell’s PowerConnect™
switches connect computers and servers in small- to medium-sized
networks. PowerConnect products offer customers enterprise-class
features and reliability at a low cost. |
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Notebook Computers. Dell offers two lines of notebook
computer systems. The Latitude™ line is designed to address
a wide range of business and organizational needs, including
powerful performance, portability, and flexibility. Latitude
offerings range from wireless-ready, highly expandable
full-featured models to thin, light ultra-portable models. The
Inspiron™ line is targeted to customers who require
high-performance computer systems at competitive prices. Typical
customers are individuals or small-to-medium sized businesses
that require optimum performance for their investment. Dell
ranked number one in the U.S. and worldwide in notebook computer
shipments in calendar 2004. |
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Desktop Computer Systems. Dell customers can select from
two lines of desktop computer systems. The OptiPlex™ line
is designed for corporate, institutional, and small business
customers who demand highly-reliable, stable, manageable, and
easily serviced systems within networked environments. The
Dimension™ line is designed for small businesses and home
users requiring fast technology turns and high-performance
computing. The Dimension line typically features the latest
high-performance components. Dimension customers include
corporate and institutional customers as well as small
businesses and home users. Dell ranked number one in the U.S.
and worldwide in desktop shipments in calendar 2004. |
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Printing and Imaging Systems. Dell offers a wide array of
Dell-branded printers, ranging from photo printers for consumers
to large multifunction lasers for corporate workgroups. The Dell
printer product line is focused on making printing easier to
buy, own, and use. All Dell printers feature the Dell Ink
Management System™ or Dell Toner Management System™,
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. During fiscal 2005, Dell shipped
more than five million Dell-branded printers. |
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Software and Peripherals. Dell offers a multitude of
competitively priced software and peripherals products,
including a wide range of software titles, monitors, plasma and
LCD televisions, MP3 players, handhelds, notebook
accessories, networking and wireless products, memory, digital
cameras, projectors, power adapters and scanners. Dell
introduced several new peripherals products in fiscal 2005,
including a new line of plasma televisions. |
Services
By applying the direct business model to its global services
business, Dell seeks to simplify customers’ computing
experience by offering a full range of flexible, tailored
solutions. Dell offers a portfolio of services that help
customers maximize the value of their information technology
investments, rapidly deploy systems, and educate IT
professionals and consumers.
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Managed Services. Dell’s wide range of IT management
services allows customers to lower annual service costs and
enhance performance without sacrificing control of their
systems. Dell |
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Managed Services assists customers in planning, deployment,
maintenance, asset management, on-site field services, and other
related services. |
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Professional Services. Dell Professional Services helps
businesses utilize emerging technology, enhance efficiencies,
reduce business risk, and maximize return on technology
investment. Using its expertise and best practices in technology
consulting, application development, solutions integration, and
infrastructure design, Dell designs, develops, and implements
end-to-end technology solutions. |
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Deployment Services. Dell’s deployment services are
designed to rapidly configure and deploy Dell systems and
products into IT environments. Dell’s custom factory
integration services allow customers to configure systems to
meet their specific hardware and software needs. Additional
deployment services include asset management and recovery
services, custom delivery services, installation services,
managed deployment services, and image management services. |
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Support Services. Dell offers a variety of customized
services and support programs tailored to meet specific customer
requirements. Dell operates Enterprise Command Centers in the
United States, Ireland, China, and Japan to provide rapid,
around-the-clock support for critical enterprise systems.
Additionally, Dell provides a limited warranty for all computer
systems and offers limited 24-hour telephone and online
technical support. Dell also offers warranty upgrades and
services such as CompleteCare™ accidental damage service,
At Home Service for technical support service at home (provided
via third-party contract with the customer), Helpdesk for all
software and peripherals support, and Gold Technical Support for
advanced technical service. |
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Training and Certification Services. Dell offers training
and certification programs for business and consumer customers
worldwide. Dell’s online training programs feature over
1,200 courses for consumer, business, and IT professionals.
The courses are designed for all skill levels and range from
personal finance to business productivity to IT certification. |
Financial Services
Dell offers various financing alternatives, asset management
services, and other customer financial services for its business
and consumer customers in the U.S. through Dell Financial
Services L.P. (“DFS”), a joint venture between Dell
and CIT Group, Inc. (“CIT”). For additional
information about Dell’s financing arrangements, see
“Item 7 — Management’s Discussion and
Analysis of Financial Condition and Results of
Operations — Off-Balance Sheet Arrangements” and
Note 6 of Notes to Consolidated Financial Statements
included in “Item 8 — Financial Statements
and Supplementary Data.” Also see
“Item 1 — Business — Factors
Affecting Dell’s Business and Prospects” for
information about the risks associated with DFS.
Sales and Marketing
Dell sells its products and services directly to its customers
through dedicated sales representatives, telephone-based sales,
and online sales through www.dell.com. Dell’s customers
include large corporate, government, healthcare, and education
accounts, as well as small-to-medium businesses and individual
customers. Within each of Dell’s geographic regions, Dell
has divided its sales and marketing resources among these
various customer groups. No single customer accounted for more
than 10% of Dell’s consolidated net revenue during any of
the last three fiscal years. See “Item 1 —
Business — Factors Affecting Dell’s Business and
Prospects” for information about the risk associated with
government contracts.
Dell’s sales and marketing efforts are organized around the
needs, trends, and characteristics of Dell’s customers.
Dell’s direct business model provides direct and continuous
feedback from its customers, thereby allowing the company to
develop and refine its products and marketing programs for
specific customer groups. This constant flow of communication,
which is unique to the
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direct business model, also allows Dell to rapidly gauge
customer satisfaction and target new or existing products.
For large business and institutional customers, Dell maintains 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 marketing
programs for these customers. For large, multinational
customers, Dell offers 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. Dell also maintains specific sales and
marketing programs targeted at federal, state, and local
governmental agencies as well as specific healthcare and
educational markets.
Dell markets its 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 states as well as non-U.S. locations, Dell also
operates Dell Direct Stores, which are kiosks typically located
within shopping centers, that allow customers to view Dell
products in person and purchase online from Dell with the
assistance of a Dell expert.
Competition
The market for computer systems and services is subject to
intense price competition. In addition to several large branded
companies, there are other branded and generic competitors. Dell
competes primarily based on its technology, direct customer
relationships, value, performance, customer service, quality,
and reliability. Dell’s general practice is to aggressively
pass on cost declines to its customers in order to enhance
customer value while increasing global market share. Dell
expects that the competitive pricing environment will continue
to be challenging, and Dell expects to continue to reduce its
pricing as necessary in response to future competitive and
economic conditions. However, Dell believes that the strength of
Dell’s direct business model, as well as its strong
liquidity position, makes the company better positioned than its
competitors to continue profitable growth in any business
climate. See “Item 1 — Business —
Factors Affecting Dell’s Business and Prospects” for
information about the risks associated with competition.
Manufacturing and Materials
Dell manufactures most of the products it sells and has
manufacturing locations worldwide to service its global customer
base. See “Item 2 — Properties” for
information about Dell’s manufacturing locations. Dell
believes that its manufacturing processes and supply-chain
management techniques provide it a distinct competitive
advantage. Its build-to-order manufacturing process is designed
to allow Dell to significantly reduce cost while simultaneously
providing customers the ability to customize their product
purchases. In addition, Dell purchases some of its products from
third-party original equipment manufacturers and resells them
under the Dell name.
Dell’s 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
Dell’s customers obtained through services and support
programs. Dell is certified, worldwide, by the International
Standards Organization to the requirements of ISO 9001:
2000. This includes the design, manufacture, and service of
computer products in all Dell regions.
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Dell purchases materials, supplies, and product components from
a large number of suppliers. However, in some cases, multiple
sources of supply are not available. In other cases, Dell may
establish a working relationship with a single source if it
believes it is advantageous due to performance, quality,
support, delivery, capacity, or price considerations. Dell
currently relies on Intel Corporation as a sole source supplier
of processors and Microsoft Corporation as a sole source for
various operating system and application software products.
These relationships and dependencies have not caused material
disruptions in the past, and Dell believes that any disruptions
that may occur would not disproportionately disadvantage Dell
relative to its competitors. Also see
“Item 1 — Business — Factors
Affecting Dell’s Business and Prospects” for
information about the risks associated with sole-source
suppliers.
Patents, Trademarks, and Licenses
Dell holds a portfolio of 1,128 U.S. patents and has
719 U.S. patent applications pending as of
January 28, 2005. The inventions claimed in those patents
and patent applications cover aspects of Dell’s current and
possible future computer system products, manufacturing
processes, and related technologies. Dell is developing a
portfolio of patents that it anticipates will be of value in
negotiating intellectual property rights with others in the
industry.
Dell has obtained U.S. federal trademark registration for
its DELL word mark and its Dell logo mark. Dell owns
registrations for 45 of its other marks in the U.S. As of
January 28, 2005, Dell had pending applications for
registration of 18 other trademarks. Dell believes that
establishment of the DELL mark and logo in the U.S. is
material to Dell’s operations. Dell has also applied for or
obtained registration of the DELL mark and several other marks
in approximately 180 other countries.
Dell has entered into a variety of intellectual property
licensing and cross-licensing agreements. In addition, Dell has
entered into nonexclusive licensing agreements with Microsoft
Corporation for various operating system and application
software. Dell has also entered into various software licensing
agreements with 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 Dell’s business. Dell evaluates
each claim relating to its products and, if appropriate, seeks a
license to use the protected technology. The licensing
agreements generally do not require the licensor to assist Dell
in duplicating its patented technology, nor do these agreements
protect Dell from trade secret, copyright, or other violations
by Dell or its suppliers in developing or selling these
products. See “Item 1 — Business —
Factors Affecting Dell’s Business and Prospects” for
information about the risks associated with intellectual
property rights.
Employees
As of January 28, 2005, Dell had approximately
55,200 regular employees, compared to approximately 46,000
as of the end of fiscal 2004. Approximately 24,600 of these
employees were located in the U.S., and approximately 30,600
were located in other countries. While Dell’s workforce
located both inside and outside the U.S. increased during
fiscal 2005, the proportion of Dell’s workforce located
outside the U.S. increased due to a number of factors,
including Dell’s rapid international growth. Dell has never
experienced a work stoppage due to labor difficulties, and
believes that its employee relations are good. Workforce
diversity is an essential part of Dell’s commitment to
quality and the future of Dell, as recognized by Dell’s
receipt of the U.S. Department of Labor’s Exemplary
Voluntary Achievement Award in 2003 for its industry-leading
workforce diversity efforts.
Government Regulation and Environment
Dell’s 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
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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
Products Safety Commission, and environmental regulation by a
variety of regulatory authorities in each of the areas in which
Dell conducts business. Dell is also subject to regulation in
other countries where it conducts business. Dell did not have
any material environmental remediation or other environmental
costs during fiscal 2005. See “Item 1 —
Business — Factors Affecting Dell’s Business and
Prospects” for information about the risks associated with
government regulation.
Backlog
Dell believes 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. At the
end of fiscal 2005, 2004, and 2003, backlog was not material.
Geographic Areas of Operations
Dell conducts operations worldwide and is managed in three
geographic segments: the Americas, Europe, and Asia
Pacific-Japan regions. 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 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 European
region, which is based in Bracknell, England, covers Europe, the
Middle East, and Africa. The Asia Pacific-Japan region covers
the Pacific Rim, including Australia and New Zealand, and is
based in Singapore. In fiscal 2005, approximately 38% of
Dell’s consolidated net revenue was attributable to sales
outside the U.S.
As part of its global expansion efforts, Dell recently announced
a new manufacturing facility in North Carolina, with production
to begin in late fiscal year 2006, and new customer-contact
centers in Oklahoma, Canada, India, and El Salvador. Dell
intends to continue to expand its global infrastructure as its
international business continues to grow. See
“Item 1 — Business — Factors
Affecting Dell’s Business and Prospects” for
information about certain risks of international activities. For
financial information about the results of Dell’s operating
segments for each of the last three fiscal years, see
Note 9 of Notes to Consolidated Financial Statements
included in “Item 8 — Financial Statements
and Supplementary Data.”
Dell’s corporate headquarters are located in Round Rock,
Texas. Its manufacturing facilities are located in Austin,
Texas; Eldorado do Sul, Brazil; Nashville and Lebanon,
Tennessee; Limerick, Ireland; Penang, Malaysia; and Xiamen,
China. See “Item 2 — Properties.”
Factors Affecting Dell’s Business and Prospects
There are many factors that affect Dell’s business and the
results of its operations, some of which are beyond Dell’s
control. The following is a description of some of the important
factors that may cause the actual results of Dell’s
operations in future periods to differ materially from those
currently expected or desired.
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General economic, business, or industry conditions may result
in a decrease in net revenue. As a global company with
customers in virtually every business and industry, Dell’s
net revenue could deteriorate as a result of macroeconomic
trends in both the U.S. and abroad. If the economic climate
deteriorates, customers or potential customers could reduce or
delay their technology investments. As a result, Dell’s net
revenue and profitability could be negatively affected. |
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Dell’s business is extremely competitive and no
assurances can be offered that Dell can maintain its competitive
advantage. Dell’s success is based on its ability to
profitably offer its products at a lower price than its
competitors. However, Dell encounters aggressive competition
from numerous companies globally in all aspects of its business.
Accordingly, Dell cannot provide any assurance that it can
maintain or extend this advantage if its competitors alter their
cost structure or business model, or take other actions that
affect Dell’s current competitive advantage. If Dell is
unable to maintain its competitive advantage, a loss of market
share, revenue, or profitability may result. |
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A substantial portion of Dell’s net revenue is dependent
upon international sales, which are subject to risks and
uncertainties. Sales outside the U.S. accounted for
approximately 38% of Dell’s consolidated net revenue in
fiscal 2005. Dell’s future growth rates and success are
dependent on continued growth and success in international
markets. The success and profitability of Dell’s
international operations are subject to numerous risks and
uncertainties, including local economic and labor conditions,
political instability, unexpected changes in the regulatory
environment, trade protection measures, tax laws (including
U.S. taxes on foreign operations), and foreign currency
exchange rates, any of which could potentially adversely affect
Dell’s operations. Further, as Dell generates cash flows in
non-U.S. jurisdictions, the company may experience
difficulty transferring such funds to the U.S. in a tax
efficient manner. During the fourth quarter of fiscal 2005 Dell
determined that the company will repatriate $4.1 billion in
foreign earnings pursuant to a favorable tax incentive provided
by the American Jobs Creation Act of 2004. See
“Item 7 — Management’s Discussion and
Analysis of Financial Condition and Results of
Operations — Income Taxes.” |
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Dell’s overall profitability may not meet expectations
if its product, customer, and geographic mix is substantially
different than anticipated. The profit margins realized by
Dell vary among its products, customers, and geographies.
Consequently, if Dell’s mix of any of these is
substantially different from what it anticipates in any
particular period, Dell’s profitability could be less than
expected. |
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Dell’s net revenue may not meet expectations if it is
unable to accurately predict the effect of seasonality on its
business. Dell experiences seasonal trends in the sale of
its products and services. For example, during Dell’s third
fiscal quarter, sales to government customers (particularly the
U.S. federal government) are typically stronger than in
other quarters, while sales in Europe are often weaker than in
other quarters. Consumer sales are typically strongest during
Dell’s fourth fiscal quarter. As Dell increases its sales
in the highly seasonal consumer sector, this seasonal effect may
increase. If Dell is not able to accurately anticipate seasonal
trends, Dell’s net revenue and profitability could be less
than expected. |
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Infrastructure failures could have a material adverse effect
on Dell’s business. Dell is highly dependent on its
infrastructure in order to achieve its business objectives. If
Dell experiences a problem that impairs its infrastructure, such
as a computer virus, intentional disruption of IT systems by a
third-party, manufacturing failure, or telephone system failure,
the resulting disruptions could impede Dell’s ability to
book or process orders, manufacture, and ship in a timely manner
or otherwise carry on its business in the ordinary course. Any
such events could cause Dell to lose significant customers or
revenue and could require Dell to incur significant expense to
eliminate these problems and address related security concerns.
Further, because Dell’s sales are not generally linear
during any particular quarterly period, the potential adverse
effect resulting from any such events or any other disruption to
Dell’s business could be accentuated if it occurs during a
disproportionately heavy demand or shipping cycle during any
quarterly period. |
| |
| • |
A failure on the part of Dell to effectively manage a product
transition will directly affect the demand for Dell’s
products and the profitability of Dell’s operations.
The technology industry is characterized by continuing
improvements in technology, which result in the frequent
introduction of new products, short product life cycles, and
continual improvement in product performance |
8
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characteristics. Product transitions present some of the
greatest execution challenges and risks for any technology
company. Accordingly, if Dell is unable to effectively manage a
product transition, its business and results of operations could
be negatively affected. In addition, continuing technological
advancement, which is a significant driver of customer demand,
is largely beyond Dell’s control. |
| |
| • |
Disruptions in component availability could unfavorably
affect Dell’s performance. Dell’s direct business
model gives it the ability to operate with reduced levels of
component and finished goods inventories. Dell’s financial
success in recent periods has been due in part to its supply
chain management practices, including its ability to achieve
rapid inventory turns. However, because Dell maintains only
minimal levels of component inventory, Dell’s financial
performance, as well as its ability to satisfy customer needs,
could be negatively affected if it suffers a disruption in
component availability. |
| |
| • |
Dell’s reliance on suppliers creates risks and
uncertainties. Dell’s manufacturing process requires a
high volume of quality components that are procured from
third-party suppliers. Reliance on suppliers, as well as
industry supply conditions, generally involves several risks,
including the possibility of defective parts (which can
adversely affect the reliability and reputation of Dell’s
products), a shortage of components and reduced control over
delivery schedules (which can adversely affect Dell’s
manufacturing efficiencies), and increases in component costs
(which can adversely affect Dell’s profitability). |
| |
| • |
Dell could experience manufacturing interruptions, delays, or
inefficiencies if it is unable to timely and reliably procure
components from certain single-sourced suppliers. Dell
maintains several single-source supplier relationships, either
because alternative 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-source material or component were
delayed or curtailed, Dell’s 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 could adversely affect operating
results. |
| |
| • |
Dell’s results may be affected if it does not
effectively hedge its exposure to fluctuations in foreign
currency exchange rates and interest rates. Dell utilizes
derivative instruments to hedge its 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 the
Consolidated Financial Statements. For additional information
about risk on financial instruments, see
“Item 7 — Management’s Discussion and
Analysis of Financial Condition and Results of
Operations — Market Risk.” Further, Dell may
experience a decrease in revenue from its international
operations if it is does not effectively hedge its exposure to
currency fluctuations. |
| |
| • |
Dell’s continued business success may be largely
dependent on its ability to obtain licenses to intellectual
property developed by others on commercially reasonable and
competitive terms. If Dell or its suppliers are unable to
obtain desirable technology licenses, Dell could be prohibited
from marketing products, could be forced to market products
without desirable features, or could incur substantial costs to
redesign its products, defend legal actions, or pay damages. |
| |
| • |
Dell’s failure to attract and retain qualified personnel
could lead to a loss of revenue or profitability. Dell
cannot provide any assurance that it will succeed in attracting
and retaining enough qualified personnel to support its
anticipated rapid international growth and its increasingly
complex product and service offerings. Dell relies in part on
the granting of equity awards to attract and retain qualified
personnel. New accounting regulations regarding the expensing of
stock options may affect both Dell’s ability to
successfully attract and retain qualified personnel and increase
Dell’s compensation costs. |
9
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| • |
Loss of government contracts could have a material adverse
effect on Dell’s 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 Dell violates legal or regulatory requirements, the
government could suspend or disbar Dell as a contractor.
Dell’s suspension or disbarment as a government contractor
would negatively affect Dell’s net revenue and
profitability. |
| |
| • |
Dell cannot provide any assurance that current environmental
laws, or any laws enacted in the future, will not have a
material adverse effect on Dell. Dell’s operations are
subject to environmental regulation in each of the jurisdictions
in which Dell conducts business. Some of Dell’s
manufacturing operations use substances that are regulated in
various jurisdictions. In addition, Dell must comply with new
regulations restricting the company’s ability to include
lead and certain other substances in its products. If Dell does
not comply with applicable rules and regulations in connection
with the use and sale of such substances, Dell could be subject
to liability. Dell could also face substantial costs and
liabilities in connection with product take-back legislation.
Beginning in August 2005, Dell will be subject to the European
Union Waste Electrical and Electronic Equipment Directive as
enacted by individual European Union countries (“WEEE
Legislation”), which makes producers of electrical goods,
including computers and printers, responsible for collection,
recycling, treatment and disposal of recovered products. Dell
does not expect that the impact of the WEEE Legislation and
other similar legislation adopted in Japan and California will
have a material adverse effect on Dell. |
| |
| • |
If DFS is unable to provide financing to Dell’s
customers, Dell would be forced to use alternative sources for
financing for its customers or self-finance these activities
and, as a result, could experience a decline in its cash flow
from operations. Should DFS experience an interruption in
operations, Dell would likely have to use alternative sources
for financing arrangements with its customers. Dell is currently
dependent upon DFS, a joint venture with CIT, to provide
financing for a significant number of customers who elect to
finance Dell products, and DFS is dependent in part upon CIT to
access the capital markets to provide funding for these
transactions. If CIT is unable to access the capital markets,
DFS may not be able to fully fund customer financing
arrangements. Upon any such interruption in services, Dell would
be forced to use alternative sources for financing for its
customers, or self-finance these activities. Although Dell has
sufficient alternative sources for financing these activities,
Dell could nonetheless experience a decline in its cash flow
from operations if it is unable to do so in a timely manner. |
| |
| • |
Armed hostilities, terrorism, natural disasters, or public
health issues could have a material adverse effect on
Dell’s business. Armed hostilities, terrorism, natural
disasters, or public health issues, whether in the U.S. or
abroad, could cause damage or disruption to Dell, its suppliers
or customers, or could create political or economic instability,
any of which could have a material adverse effect on Dell’s
business. Although it is impossible to predict the consequences
of any such events, such events could result in a decrease in
demand for Dell’s products, could make it difficult or
impossible for Dell to deliver products or for its suppliers to
deliver components, and could create delay and inefficiencies in
Dell’s supply chain. |
Trademarks and Service Marks
Unless otherwise noted, trademarks appearing in this report are
trademarks of Dell. Dell disclaims proprietary interest in the
marks and names of others. EMC is a registered trademark of EMC
Corporation.
Available Information
Dell maintains an Internet website at www.dell.com. Dell’s
reports filed with the Securities and Exchange Commission
(“SEC”) (including annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on
Form 8-K, any amendments to these reports, and
Section 16 filings)
10
are accessible through Dell’s Investor Relations 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 filed by Dell with the SEC at the SEC’s
Public Reference Room at 450 Fifth Street, NW, Washington,
DC 20549. The public 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.
Executive Officers of Dell
The following table sets forth the name, age, and position of
each of the persons who were serving as executive officers of
Dell as of March 7, 2005:
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| Name |
|
Age | |
|
Title |
| |
|
| |
|
|
|
Michael S. Dell
|
|
|
40 |
|
|
Chairman of the Board
|
|
Kevin B. Rollins
|
|
|
52 |
|
|
President and Chief Executive
Officer
|
|
William J. Amelio
|
|
|
47 |
|
|
Senior Vice President, Asia
Pacific-Japan
|
|
Paul D. Bell
|
|
|
44 |
|
|
Senior Vice President, Europe,
Middle East and Africa
|
|
Jeffrey W. Clarke
|
|
|
42 |
|
|
Senior Vice President, Product Group
|
|
Martin J. Garvin
|
|
|
52 |
|
|
Senior Vice President, Worldwide
Procurement and Global Customer Experience
|
|
Alexander Gruzen
|
|
|
42 |
|
|
Senior Vice President, Product Group
|
|
John S. Hamlin
|
|
|
39 |
|
|
Senior Vice President,
U.S. Consumer Business
|
|
Joseph A. Marengi
|
|
|
51 |
|
|
Senior Vice President, Americas
|
|
Paul D. McKinnon
|
|
|
54 |
|
|
Senior Vice President, Human
Resources
|
|
John K. Medica
|
|
|
46 |
|
|
Senior Vice President, Product Group
|
|
Randall D. Mott
|
|
|
48 |
|
|
Senior Vice President and Chief
Information Officer
|
|
Glenn E. Neland
|
|
|
56 |
|
|
Senior Vice President, Worldwide
Procurement and Global Customer Experience
|
|
Rosendo G. Parra
|
|
|
45 |
|
|
Senior Vice President, Americas
|
|
James M. Schneider
|
|
|
52 |
|
|
Senior Vice President and Chief
Financial Officer
|
|
Lawrence P. Tu
|
|
|
50 |
|
|
Senior Vice President, General
Counsel and Secretary
|
Michael S. Dell — Mr. Dell currently
serves as Chairman of the Board of Directors of Dell. He has
held this role since he founded the company in 1984.
Mr. Dell also served as Chief Executive Officer of Dell
from 1984 until July 2004. He sits 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. President’s Council of Advisors on Science and
Technology and sits on the governing board of the Indian School
of Business in Hyderabad, India.
Kevin B. Rollins — Mr. Rollins currently
serves as President and Chief Executive Officer of Dell. In this
role, he is responsible for Dell’s day-to-day global
operations and establishes Dell’s strategic direction.
Mr. Rollins joined Dell in April 1996 as Senior Vice
President, Corporate Strategy, was named Senior Vice President,
General Manager — Americas in May 1996, and was named
Vice Chairman in 1997. In 2001, Mr. Rollins’ title was
changed from Vice Chairman to President and Chief Operating
Officer. He was named Chief Executive Office of Dell in July
2004. For 12 years prior to joining Dell, Mr. Rollins
was employed by Bain & Company, an international
strategy consulting firm, most recently serving as a director
and partner. Mr. Rollins received a Master of Business
Administration degree and a Bachelor of Arts degree from Brigham
Young University. Mr. Rollins is a member of the
university’s President’s Leadership Council and the
Marriott School National Advisory Council at Brigham Young
University, where he founded and continues to sponsor the
11
Rollins Center for E-Commerce. In April 2003, Mr. Rollins
was appointed by President George W. Bush to serve on the
Advisory Committee for Trade Policy and Negotiation, offering
counsel to the U.S. Trade Representative on matters of
policy affecting national interests, and is a member of the
Computer Systems Policy Project and the U.S. Business
Council. Mr. Rollins is also active in the American
Enterprise Institute and the Juvenile Diabetes Research
Foundation.
William J. Amelio — Mr. Amelio joined Dell
in March 2001 as Senior Vice President, Relationship Group, a
position he shared with Mr. Marengi, and was named Senior
Vice President, Asia Pacific-Japan in May 2001. In this
position, Mr. Amelio is responsible for Dell’s
operations in all markets in the Asia Pacific-Japan region,
including Dell’s manufacturing and customer-contact centers
in that region. Prior to joining Dell, Mr. Amelio was
employed by NCR Corp., last serving as Executive Vice
President and Chief Operating Officer of NCR’s Retail and
Financial Group. Prior to joining NCR, Mr. Amelio served as
the President and Chief Executive Officer for Honeywell
International Inc.’s transportation and power systems
divisions. Preceding that, he led the turbo charging systems
business at AlliedSignal Inc. before its merger with Honeywell.
His career also includes 18 years with International
Business Machines Corp. in a variety of senior-management
positions, including general manager of operations for
IBM’s personal computer company. Mr. Amelio holds a
master’s degree in Management from Stanford University and
a bachelor’s degree in Chemical Engineering from Lehigh
University.
Paul D. Bell — Mr. Bell joined Dell in
1996 and has served as Senior Vice President, Europe, Middle
East and Africa since February 2000. In this role, Mr. Bell
is responsible for Dell’s operations in all markets in the
Europe, Middle East and Africa region, including Dell’s
manufacturing and customer-contact centers in that region. 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 for
Dell. Mr. Bell received bachelor’s 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.
Jeffrey W. Clarke — Mr. Clarke has served
as Senior Vice President, Product Group since January 2003. In
this role, he is responsible, along with Mr. Gruzen and
Mr. Medica, for the worldwide development, marketing,
quality, and delivery into manufacturing of all Dell client,
workstation, networking, server and storage systems, as well as
the strategic technology direction for these businesses.
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 bachelor’s degree in Electrical
Engineering from the University of Texas at San Antonio.
Martin J. Garvin — Mr. Garvin is Senior
Vice President, Worldwide Procurement and Global Customer
Experience. In this role he shares responsibility with
Mr. Neland for procurement and supply chain activities and
for managing the customer experience initiative on a worldwide
basis. Mr. Garvin joined Dell in August 1997, and until
March 2003 served as Vice President, Worldwide Procurement where
he and Mr. Neland shared responsibility for global supply
chain optimization, including responsibility for cost, quality,
availability, technology, and service for all computer system
commodities and sub-systems. Prior to joining Dell,
Mr. Garvin held a variety of executive level positions at
Hewlett-Packard Company, Sun Microsystems Inc., and NetEdge
Systems, Inc. Mr. Garvin holds a master’s degree in
business administration and a bachelor’s degree in
biological sciences from California State University at
San Jose.
Alexander Gruzen — Mr. Gruzen joined Dell
as Senior Vice President, Product Group in August 2004. In this
role, he is responsible along with Mr. Clarke and
Mr. Medica for worldwide development, marketing, quality,
and delivery into manufacturing of Dell client, workstation,
networking, server and storage systems, as well as the strategic
technology direction for these businesses. Prior to joining
Dell, Mr. Gruzen was employed by Hewlett-Packard Company,
last serving as Senior Vice
12
President and General Manager of the Mobile Computing Global
Business Unit. Prior to the merger of Hewlett-Packard and Compaq
Computer Corporation in 2002, Mr. Gruzen was employed by
Compaq where he served as Vice President and General Manager,
Mobile Division, Access Business Group after holding the
position of Vice President, Asia Consumer Group. Mr. Gruzen
joined Compaq in 1999. Mr. Gruzen holds Bachelor of Science
and Master of Science degrees in Aeronautical and Astronautical
Engineering from the Massachusetts Institute of Technology, and
a Master of Business Administration degree from Harvard
University.
John S. Hamlin — Mr. Hamlin has been in
charge of the U.S. Consumer business since May 2000, and
was named Senior Vice President, U.S. Consumer Business in
January 2003. In that role, he has full profit and loss
responsibility for the U.S. consumer business. In February
2004, Mr. Hamlin was assigned management responsibility for
Dell’s international customer-contact centers. Prior to his
current role, Mr. Hamlin served as Vice President, Home and
Small Business in Japan, and managed Dell’s preferred
accounts segment in Japan. Mr. Hamlin joined Dell in March
1996, and held a variety of positions within Dell prior to
moving to Japan. Prior to joining Dell, Mr. Hamlin was in
venture capital for three years and was a management consultant
for Bain & Company for six years. Mr. Hamlin is a
graduate of Dartmouth College and holds a master’s degree
in Business Administration from Harvard Business School.
Joseph A. Marengi — Mr. Marengi joined
Dell in 1997 and serves as Senior Vice President, Americas. In
this position, Mr. Marengi shares responsibility with
Mr. Parra for Dell’s Americas business units, serving
large and small corporate, government, education, healthcare,
and small and medium business customers in the U.S., Canada, and
Latin America. He is also responsible for Dell’s services
business and for Dell’s manufacturing operations in Austin,
Nashville, and Brazil. Prior to joining Dell, Mr. Marengi
worked at Novell, Inc., most recently serving as its President
and Chief Operating Officer. Prior to joining Novell in 1989,
Mr. Marengi served as Vice President of Channel Sales for
Excelan, Inc. and in various other executive, sales, and
information management positions. From 1978 through 1981,
Mr. Marengi served in the U.S. Coast Guard and Coast
Guard Reserve, reaching the rank of Lieutenant Commander.
Mr. Marengi earned a bachelor’s degree in Public
Administration from the University of Massachusetts and a
master’s degree in Management from the University of
Southern California. Mr. Marengi serves on the Corporate
Advisory Board of the USC Marshall School of Business.
Paul D. McKinnon — Mr. McKinnon joined
Dell in November 1997 as Vice President, Human Resources. He was
named Senior Vice President, Human Resources in May 2000 and
continues to serve in that role. He is responsible for all human
resources functions and activities as well as security, global
diversity, and corporate communications. From July 1994 to
November 1997, Mr. McKinnon was a principal of McKinnon
Consulting. Prior to July 1994, Mr. McKinnon was partner of
Novations Group and Harbridge House Inc., and from 1982 to 1986
was an Assistant Professor at the University of Virginia. He
holds a bachelor’s degree in History and a master’s
degree in Organizational Behavior from Brigham Young University,
and a doctorate in Organizational Studies from Massachusetts
Institute of Technology.
John K. Medica — Mr. Medica was named
Senior Vice President, Product Group in January 2003. In this
role, he is responsible, along with Mr. Clarke and
Mr. Gruzen, for the worldwide development, marketing,
quality, and delivery into manufacturing of all Dell client,
workstation, networking, server, and storage systems, as well as
the strategic technology direction for these businesses.
Mr. Medica joined Dell in 1993 as Vice President, Portable
Systems. In 1996, Mr. Medica was named President and Chief
Operating Officer of Dell’s Japan division. Mr. Medica
returned to the U.S. as Vice President, Procurement in
August 1997 and later served as Vice President, Web Products
Group and Vice President and General Manager, Transactional
Product Group. Prior to joining Dell, Mr. Medica held a
variety of development and operations positions over a ten-year
period at Apple Computer, Inc. Mr. Medica graduated from
Wake Forest University with a master’s degree in Business
Administration and holds a bachelor’s degree in Electrical
Engineering from Manhattan College.
13
Randall D. Mott — Mr. Mott serves as
Senior Vice President and Chief Information Officer. He is
responsible for managing Dell’s global information
technology infrastructure, including the backbone of its
extensive Internet and Web-based capabilities. Prior to joining
Dell in March 2000, Mr. Mott served as Senior Vice
President and Chief Information Officer of Wal-Mart Stores, Inc.
from 1994 to February 2000. He joined Wal-mart in 1978, where he
served in numerous technical and management positions.
Mr. Mott holds a bachelor’s degree in Mathematics from
the University of Arkansas.
Glenn E. Neland — Mr. Neland is Senior
Vice President, Worldwide Procurement and Global Customer
Experience. In this role he shares responsibility with
Mr. Garvin for procurement and supply chain activities and
for managing Dell’s customer experience initiatives on a
worldwide basis. He joined Dell in September 1997, and until
March 2003 served as Vice President, Worldwide Procurement,
Commodities, where he and Mr. Garvin shared responsibility
for global supply chain optimization, including responsibility
for cost, quality, availability, technology, and service for all
computer system commodities and sub-systems. Mr. Neland was
also responsible for notebook operations and portables
procurement. Before joining Dell, Mr. Neland held various
positions at Texas Instruments Incorporated, including General
Manager for notebooks, Vice President and General Manager of
Printing Systems, as well as other operations and engineering
positions. He holds a bachelor’s degree in electrical
engineering from the University of Illinois. Mr. Neland
serves on the Board of Directors of International Displayworks,
Inc.
Rosendo G. Parra — Mr. Parra joined Dell
in 1993 and serves as Senior Vice President, Americas. In this
position, he shares responsibility with Mr. Marengi for
Dell’s Americas business units, serving large and small
corporate, government, education, healthcare, and small and
medium business customers in the U.S., Canada, and Latin
America. He is also responsible for Dell’s services
business and for Dell’s manufacturing operations in Austin,
Nashville, and Brazil. Prior to joining Dell, Mr. Parra
held various sales and general management positions with GRiD
Systems Corporation, including Regional Sales Director and Vice
President and General Manager of the PC Strategic Business Unit.
Before his association with GRiD, Mr. Parra spent nine
years in various sales and management positions for the business
products division of RadioShack Corporation. Mr. Parra
earned a bachelor’s degree in Marketing from the University
of Maryland.
James M. Schneider — Mr. Schneider serves
as Senior Vice President and Chief Financial Officer. In this
role, he is responsible for Dell’s finance function for all
business units worldwide, including the controller function,
corporate planning, tax, treasury, investor relations, corporate
development, real estate, risk management, and internal audit.
Mr. Schneider joined Dell in 1996 as Vice President of
Finance and Chief Accounting Officer, was named Senior Vice
President in 1998 and Chief Financial Officer in 2000. For three
years prior to joining Dell, Mr. Schneider was employed by
MCI Communications Corporation, last serving as Senior Vice
President of Corporate Finance. For 19 years prior to
joining MCI, Mr. Schneider was associated with Price
Waterhouse LLP, serving as a partner for 10 years.
Mr. Schneider holds a bachelor’s degree in Accounting
from Carroll College in Waukesha, Wisconsin, and is a Certified
Public Accountant. He is a member of the board of directors of
General Communications, Inc. and Gap, Inc. Mr. Schneider is
also a member of the Financial Executives Institute.
Lawrence P. Tu — Mr. Tu joined Dell as
Senior Vice President, General Counsel and Secretary in July
2004, and is responsible for overseeing Dell’s 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
O’Melveny & Myers LLP, where he focused on high
technology, Internet and media related transactions, and where
he served five years as managing partner of the firm’s Hong
Kong office. Mr. Tu’s 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 Bachelor of Arts degree from Oxford
University, where he was a Rhodes Scholar.
14
As of January 28, 2005, Dell owned or leased a total of
approximately 11.7 million square feet of office,
manufacturing, and warehouse space worldwide, approximately
7.3 million square feet of which is located in the U.S. and
the remainder located in other countries. Dell believes that it
can readily meet its requirements for additional space at
competitive rates by extending expiring leases or by finding
alternative space.
Dell’s principal offices are located in Round Rock, Texas
(north of Austin), and its U.S. manufacturing facilities
are located in Austin, Texas and Middle Tennessee.
Dell owns approximately 340 acres of land in Round Rock,
Texas, on which are located six office buildings. These
buildings, comprising Dell’s Round Rock campus, contain an
aggregate of approximately 2.1 million square feet of
office and lab space. Dell’s sales, marketing, and support
staff for the Americas region, as well as the corporate
headquarters and support functions, are located on the Round
Rock campus.
Dell also owns approximately 550 acres of land in Austin,
Texas, referred to as the Parmer Campus. Approximately
2.0 million square feet of office, lab, manufacturing, and
distribution space are located on the campus, including office
and lab buildings totaling 1.1 million square feet and
manufacturing/distribution facilities totaling
900,000 square feet. Approximately 220,000 square feet
of the manufacturing/distribution space is currently leased to a
third-party.
Dell leases approximately 1.2 million square feet of space
in Middle Tennessee. This includes a 355,000 square foot
office building in Nashville, Tennessee that houses sales,
technical support, and administrative support; a
300,000 square foot manufacturing facility in Lebanon,
Tennessee; and a 300,000 square foot manufacturing facility
in Nashville, Tennessee. Approximately 205,000 square feet
of warehouse/distribution space is subleased to a third-party.
In addition to the campuses, Dell also leases approximately
1.9 million square feet of additional space, in various
locations within the U.S. Approximately 790,000 square
feet is used for manufacturing and distribution and
315,000 square feet houses customer-contact center and
professional services sites. The remaining 830,000 square
feet of office and manufacturing space, with lease expiration
dates ranging from March 2005 to December 2010, has been taken
out of service and has either been subleased or is being
marketed for sale or sublease.
In November 2004, Dell announced that a new 500,000 square
feet manufacturing facility would be constructed in North
Carolina with production to begin in late fiscal year 2006. In
addition, Dell began operating a customer-contact center in
Oklahoma City, Oklahoma in August 2004 and is currently
constructing a 120,000 square feet facility in Oklahoma
City on approximately 62 acres that will be operational
later in fiscal year 2006.
As of January 28, 2005, Dell’s
non-U.S. facilities consisted of approximately
4.4 million square feet of office and manufacturing space
in approximately 43 countries. Approximately 2.5 million
square feet of this space is leased property, with lease
expiration dates ranging from February 2005 to June 2024. Dell
owns approximately 1.9 million square feet of space.
Dell has manufacturing and office facilities in Eldorado do Sul,
Brazil; Limerick, Ireland; Penang, Malaysia; and Xiamen, China.
Approximately 100,000 square feet is leased in Eldorado do
Sul. Dell has approximately 865,000 square feet of office
and manufacturing space in Ireland, the majority of which is
owned. Dell owns two facilities in Penang, Malaysia totaling
580,000 square feet of office and manufacturing space. Both
facilities are located on land leased from the State Authority
of Penang. Dell owns approximately 367,000 square feet of
office and manufacturing space in Xiamen,
15
China. Dell also leases approximately 795,000 square feet
of office space in Bangalore and Hyderabad, India.
Dell has established technical and customer support and related
operations in India, Panama, Slovakia, Morocco, China, as well
as design centers in Brazil, Singapore, China, and Taiwan.
Facilities are currently under design or construction in
Edmonton, Canada, Mohali, India and San Salvador, El
Salvador which will be leased by Dell for technical and customer
support operations in early fiscal year 2006.
|
|
| ITEM 3 — |
LEGAL PROCEEDINGS |
Dell is subject to various legal proceedings and claims arising
in the ordinary course of business. Dell’s management does
not expect that the results in any of these legal proceedings
will have a material adverse effect on Dell’s financial
condition, results of operations, or cash flows.
|
|
| ITEM 4 — |
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
No matter was submitted to a vote of Dell’s stockholders,
through the solicitation of proxies or otherwise, during the
fourth quarter of fiscal 2005.
PART II
|
|
| ITEM 5 — |
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER
MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES |
Market Information
Dell’s common stock is listed on The Nasdaq National Market
under the symbol DELL. Information regarding the market prices
of Dell’s common stock may be found in Note 11 of
Notes to Consolidated Financial Statements included in
“Item 8 — Financial Statements and
Supplementary Data.”
Holders
As of February 25, 2005, there were 34,625 holders of
record of Dell’s common stock.
Dividends
Dell has never declared or paid any cash dividends on shares of
its common stock and currently does not anticipate paying any
cash dividends in the immediate future. Any future determination
to pay cash dividends will be at the discretion of Dell’s
Board of Directors.
Purchases of Equity Securities by the Issuer and Affiliated
Purchasers
Dell has a share repurchase program that authorizes the company
to purchase shares of common stock in order to both distribute
cash to stockholders and manage dilution resulting from shares
issued under Dell’s equity compensation plans. However,
Dell does not currently have a policy that requires the
repurchase of common stock in conjunction with share-based
payment arrangements. As of January 28, 2005, Dell’s
share repurchase program authorized the purchase of up to
1.25 billion shares of common stock at an aggregate cost
not to exceed $20 billion. Subsequent to fiscal 2005, on
March 3, 2005, the Board of Directors of Dell approved an
amendment to the plan to increase the number of authorized
shares available for repurchase by 250 million to
1.5 billion, and
16
the aggregate dollar cost threshold by $10 billion to
$30 billion. The following details repurchases under this
program during the fourth quarter of fiscal 2005:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Total Number of | |
|
Maximum Number of | |
| |
|
Total Number of | |
|
|
|
Shares Repurchased as | |
|
Shares that May Yet Be | |
| |
|
Shares | |
|
Average Price Paid | |
|
Part of Publicly | |
|
Repurchased Under the | |
| Period |
|
Repurchased(a) | |
|
per Share | |
|
Announced Plan | |
|
Announced Plan(b) | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions, except average price paid per share) | |
|
Repurchases from October 30,
2004 through November 26, 2004
|
|
|
9 |
|
|
$ |
37.33 |
|
|
|
9 |
|
|
|
90 |
|
|
Repurchases from November 27,
2004 through December 24, 2004
|
|
|
5 |
|
|
$ |
41.72 |
|
|
|
5 |
|
|
|
85 |
|
|
Repurchases from December 25,
2004 through January 28, 2005
|
|
|
8 |
|
|
$ |
40.77 |
|
|
|
8 |
|
|
|
77 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
22 |
|
|
$ |
39.62 |
|
|
|
22 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
All shares were purchased in open-market transactions. |
| |
|
(b) |
|
Dell’s share repurchase program was announced on
February 20, 1996. The maximum number of shares that may
yet be repurchased under the announced plan was calculated using
the authorized number of shares for repurchase as of
January 28, 2005 of 1.25 billion. |
17
ITEM 6 — SELECTED FINANCIAL DATA
The following selected financial data should be read in
conjunction “Item 7 — Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” and “Item 8 — Financial
Statements and Supplementary Data.”
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year Ended | |
| |
|
| |
| |
|
January 28, | |
|
January 30, | |
|
January 31, | |
|
February 1, | |
|
February 2, | |
| |
|
2005(a) | |
|
2004 | |
|
2003 | |
|
2002(b) | |
|
2001(c) | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(in millions, except per share data) | |
|
Results of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net revenue
|
|
$ |
49,205 |
|
|
$ |
41,444 |
|
|
$ |
35,404 |
|
|
$ |
31,168 |
|
|
$ |
31,888 |
|
| |
Gross margin
|
|
|
9,015 |
|
|
|
7,552 |
|
|
|
6,349 |
|
|
|
5,507 |
|
|
|
6,443 |
|
| |
Operating income
|
|
|
4,254 |
|
|
|
3,544 |
|
|
|
2,844 |
|
|
|
1,789 |
|
|
|
2,663 |
|
| |
Income before cumulative effect of
change in accounting principle(d)
|
|
|
3,043 |
|
|
|
2,645 |
|
|
|
2,122 |
|
|
|
1,246 |
|
|
|
2,236 |
|
| |
Net income
|
|
$ |
3,043 |
|
|
$ |
2,645 |
|
|
$ |
2,122 |
|
|
$ |
1,246 |
|
|
$ |
2,177 |
|
| |
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Before cumulative effect of change
in accounting principle:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Basic
|
|
$ |
1.21 |
|
|
$ |
1.03 |
|
|
$ |
0.82 |
|
|
$ |
0.48 |
|
|
$ |
0.87 |
|
| |
|
|
Diluted
|
|
$ |
1.18 |
|
|
$ |
1.01 |
|
|
$ |
0.80 |
|
|
$ |
0.46 |
|
|
$ |
0.81 |
|
| |
|
After cumulative effect of change
in accounting principle:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Basic
|
|
$ |
1.21 |
|
|
$ |
1.03 |
|
|
$ |
0.82 |
|
|
$ |
0.48 |
|
|
$ |
0.84 |
|
| |
|
|
Diluted
|
|
$ |
1.18 |
|
|
$ |
1.01 |
|
|
$ |
0.80 |
|
|
$ |
0.46 |
|
|
$ |
0.79 |
|
| |
|
Number of weighted average shares
outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Basic
|
|
|
2,509 |
|
|
|
2,565 |
|
|
|
2,584 |
|
|
|
2,602 |
|
|
|
2,582 |
|
| |
|
|
Diluted
|
|
|
2,568 |
|
|
|
2,619 |
|
|
|
2,644 |
|
|
|
2,726 |
|
|
|
2,746 |
|
|
Cash Flow and Balance Sheet
Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net cash provided by operating
activities
|
|
$ |
5,310 |
|
|
$ |
3,670 |
|
|
$ |
3,538 |
|
|
$ |
3,797 |
|
|
$ |
4,195 |
|
| |
Cash, cash equivalents and
investments
|
|
|
14,126 |
|
|
|
11,922 |
|
|
|
9,905 |
|
|
|
8,287 |
|
|
|
7,853 |
|
| |
Total assets
|
|
|
23,215 |
|
|
|
19,311 |
|
|
|
15,470 |
|
|
|
13,535 |
|
|
|
13,670 |
|
| |
Long-term debt
|
|
|
505 |
|
|
|
505 |
|
|
|
506 |
|
|
|
520 |
|
|
|
509 |
|
| |
Total stockholders’ equity
|
|
$ |
6,485 |
|
|
$ |
6,280 |
|
|
$ |
4,873 |
|
|
$ |
4,694 |
|
|
$ |
5,622 |
|
|
|
|
|
(a) |
|
During the fourth quarter of fiscal 2005, Dell recorded a tax
repatriation charge of $280 million pursuant to a favorable
tax incentive provided by the American Jobs Creation Act of
2004. This tax charge is related to Dell’s decision to
repatriate $4.1 billion in foreign earnings. |
| |
|
(b) |
|
Includes a pre-tax charge of $742 million. Approximately
$482 million relates to employee termination benefits,
facilities closure costs, and other asset impairments and exit
costs, while the balance of $260 million relates to
other-than-temporary declines in the fair value of equity
securities. |
| |
|
(c) |
|
Includes a pre-tax charge of $105 million related to
employee termination benefits and facilities closure costs. |
| |
|
(d) |
|
Effective January 29, 2000, Dell changed its accounting for
revenue recognition in accordance with the SEC’s Staff
Accounting Bulletin (“SAB”) No. 101, Revenue
Recognition in Financial Statements. The cumulative effect
of the change on retained earnings as of the beginning of fiscal
2001 resulted in a charge to fiscal 2001 income of
$59 million (net of income taxes of $25 million). With
the exception of the cumulative effect adjustment, the effect of
the change on net income for the fiscal year ended
February 2, 2001 was not material. |
18
|
|
| ITEM 7 — |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS |
Overview
Dell — through its direct business model —
designs, develops, manufactures, markets, sells, and supports a
wide range of computer systems and services that are customized
to customer requirements. These include enterprise systems
(servers, storage, workstations, and networking products),
client systems (notebook and desktop computer systems), printing
and imaging systems, software and peripherals, and global
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. Dell
conducts operations worldwide and is managed in three geographic
segments: the Americas, Europe, and Asia Pacific-Japan regions.
Within the Americas, Dell is further segmented into Business and
U.S. Consumer.
The following table summarizes Dell’s consolidated results
of operations for each of the past three fiscal years:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year Ended | |
| |
|
| |
| |
|
January 28, | |
|
Percentage | |
|
January 30, | |
|
Percentage | |
|
January 31, | |
| |
|
2005 | |
|
Change | |
|
2004 | |
|
Change | |
|
2003 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(dollars in millions) | |
|
Net revenue
|
|
$ |
49,205 |
|
|
|
19 |
% |
|
$ |
41,444 |
|
|
|
17 |
% |
|
$ |
35,404 |
|
|
Gross margin
|
|
$ |
9,015 |
|
|
|
19 |
% |
|
$ |
7,552 |
|
|
|
19 |
% |
|
$ |
6,349 |
|
| |
% of net revenue
|
|
|
18.3 |
% |
|
|
|
|
|
|
18.2 |
% |
|
|
|
|
|
|
17.9 |
% |
|
Operating expenses
|
|
$ |
4,761 |
|
|
|
19 |
% |
|
$ |
4,008 |
|
|
|
14 |
% |
|
$ |
3,505 |
|
| |
% of net revenue
|
|
|
9.7 |
% |
|
|
|
|
|
|
9.7 |
% |
|
|
|
|
|
|
9.9 |
% |
|
Operating income
|
|
$ |
4,254 |
|
|
|
20 |
% |
|
$ |
3,544 |
|
|
|
25 |
% |
|
$ |
2,844 |
|
| |
% of net revenue
|
|
|
8.6 |
% |
|
|
|
|
|
|
8.6 |
% |
|
|
|
|
|
|
8.0 |
% |
| |
Tax provision before
repatriation charge
|
|
$ |
1,122 |
|
|
|
|
|
|
$ |
1,079 |
|
|
|
|
|
|
$ |
905 |
|
| |
|
% of income before income
taxes
|
|
|
25.2 |
% |
|
|
|
|
|
|
29.0 |
% |
|
|
|
|
|
|
29.9 |
% |
| |
Tax repatriation charge
|
|
$ |
280 |
|
|
|
|
|
|
$ |
— |
|
|
|
|
|
|
$ |
— |
|
| |
|
% of income before income
taxes
|
|
|
6.3 |
% |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Income tax provision
|
|
$ |
1,402 |
|
|
|
|
|
|
$ |
1,079 |
|
|
|
|
|
|
$ |
905 |
|
| |
% of income before income
taxes
|
|
|
31.5 |
% |
|
|
|
|
|
|
29.0 |
% |
|
|
|
|
|
|
29.9 |
% |
|
Net income
|
|
$ |
3,043 |
|
|
|
15 |
% |
|
$ |
2,645 |
|
|
|
25 |
% |
|
$ |
2,122 |
|
| |
% of net revenue
|
|
|
6.2 |
% |
|
|
|
|
|
|
6.4 |
% |
|
|
|
|
|
|
6.0 |
% |
During fiscal 2005, Dell maintained its position as the
world’s number one supplier of personal computer systems
with performance that continued to outpace the industry.
Dell’s consolidated net unit shipments increased 21% as the
company increased its share of worldwide personal computer sales
by 1.1 percentage points during the calendar year to 17.8%.
Consolidated net revenue increased 19% to $49.2 billion
during fiscal 2005, with Dell’s strong international
performance being a key driver of this growth even as the
company expanded its number one position in the U.S. During
fiscal 2005, component costs continued to decline at a moderate
pace that was relatively comparable to fiscal 2004. Dell
utilized these cost declines to pass on cost savings to its
customers and improve gross profit margin to 18.3% for the year.
Dell’s focus on balancing growth and profitability resulted
in record operating and net income of $4.3 billion and
$3.0 billion, respectively. Net income for fiscal 2005
includes a tax repatriation charge of $280 million pursuant
to a favorable tax incentive provided by the American Jobs
Creation Act of 2004. This tax charge is related to Dell’s
decision to repatriate $4.1 billion in foreign earnings.
Dell’s efficient direct business model and cash conversion
cycle have allowed the company to generate annual cash flows
from operating activities that typically exceed net income.
During fiscal 2005, Dell continued to deliver
19
strong liquidity with record operating cash flow of
$5.3 billion and ended the year with record cash and
investments of $14.1 billion.
Dell’s objective is to maximize stockholder value while
maintaining a balance of three key financial metrics: liquidity,
profitability, and growth. Dell’s strategy combines its
direct business model with a highly efficient manufacturing and
supply chain management organization and an emphasis on
standards-based technologies. Dell’s business model
provides the company with a constant flow of information about
trends in customers’ plans and requirements. These trends
have shown an increased use of standards-based technologies as
well as a push towards standardization of services. Unlike
proprietary technologies promoted by some of Dell’s top
competitors, standards-based technologies provide customers with
flexibility and choice while allowing their purchasing decisions
to be based on performance, cost, and customer service.
Dell’s business strategy continues to focus on the
company’s enterprise business and expanding its
capabilities in that product group. Dell is also expanding into
consumer electronics products such as plasma televisions while
maintaining its leadership position in desktops and notebooks.
Dell’s superior execution in all product and service
offerings has been demonstrated by progress in customer
satisfaction ratings during the year, which is a key performance
metric for the company.
Management believes that growth opportunities exist for Dell as
the use of standards-based technologies becomes more prevalent
and the company increases its presence in existing geographical
regions, expands into new regions, and pursues additional
product and service opportunities. During the year, Dell opened
new facilities in the U.S., Canada, India, and El Salvador and
expects to continue its global expansion in years ahead.
Dell’s investment in international growth opportunities
contributed to an increase in Dell’s non-U.S. revenue,
as a percentage of consolidated net revenue, from 36% in fiscal
2004 to 38% during fiscal 2005.
While the current competitive environment continues to be
challenging, management believes that there has been a steady
improvement in business technology spending since the end of
fiscal 2004. Management expects that the competitive pricing
environment will continue to be challenging, and expects to
continue to reduce its pricing as necessary in response to
future competitive and economic conditions. Management is also
focused on attracting and retaining key personnel as well as
further investing in the company’s global information
technology infrastructure in order to address challenges that
may arise with Dell’s rapid global growth and the increased
complexity of the company’s product and service offerings.
Results of Operations
Net Revenue
During fiscal 2005, Dell’s strategy and execution extended
the company’s number one worldwide position for the
calendar year. Dell produced net revenue of $49.2 billion
in fiscal 2005, compared to $41.4 billion in fiscal 2004
and $35.4 billion in fiscal 2003. The year-over-year
increases in net revenue during both fiscal 2005 and 2004 were
driven by strong unit growth across most regions and product
lines. Specifically, Dell’s Europe and Asia Pacific-Japan
segments produced revenue growth in excess of 25% during fiscal
2005, while notebooks produced consolidated revenue growth of
24%. During fiscal 2005, Dell’s net unit growth continued
to exceed industry growth as consolidated net unit shipments
increased 21% while total PC industry growth increased only 15%
for the calendar year. During fiscal 2004, Dell produced net
unit growth of 26%, while the total PC industry increased only
12% for the calendar year.
During fiscal 2005, management continued to focus on Dell’s
enterprise business. Net revenue for enterprise systems
increased 16% and 31% during fiscal 2005 and 2004, respectively,
with fiscal 2005 growth being led by 18% server growth. Dell
gained 1.5 share percentage points in shipments of
x86 servers (based on standard Intel architecture) and
improved its number two position to 24.8% for calendar 2004.
Dell’s four-year running partnership with EMC Corporation,
and management’s continued focus on mid-range Dell/ EMC
storage area network (“SAN”) products, produced
20
year-over-year Clariion revenue growth of 41% during fiscal
2005. However, total external storage revenue growth of 16%
during fiscal 2005 was lower than fiscal 2004 growth of 58%. The
higher growth rate during fiscal 2004 was due, in part, to the
relatively low base of storage revenue in fiscal 2003. In
addition, the fiscal 2005 growth rate declined due to a planned
product shift associated with Dell’s increased focus on
scaling its mid-range SAN business. This product shift included
the launch of the Dell/ EMC AX100 storage array during the
second quarter of fiscal 2005 to meet demand for smaller
business enterprises.
In client systems, Dell continues to capitalize on the growth of
mobile computing with notebooks producing net unit growth in
excess of 30% during both fiscal 2005 and 2004. This net unit
growth was partially offset by a 9% decline in average revenue
per-unit sold during fiscal 2005, producing net revenue growth
for notebooks of 24% in this highly competitive space. During
fiscal 2004, average revenue per-unit sold for notebooks
decreased by 13%. Dell’s notebook products continue to
carry higher growth rates than desktops as consumer trends
continue to shift more toward mobile computing. Dell’s
desktop product group produced net unit and revenue growth of
17% during fiscal 2005. During fiscal 2004, desktops delivered
net unit and revenue growth of 23% and 11%, respectively.
Dell continues to expand its service offerings with revenue
growth for enhanced services of 35% and 37% during fiscal 2005
and 2004, respectively. In addition, software and peripherals,
which includes Dell’s printing and imaging business that
was launched in early fiscal 2004, continued to contribute to
Dell’s core business with fiscal 2005 and 2004 revenue
growth of 35% and 27%, respectively. The growth of Dell’s
printing and imaging business has been particularly strong with
over five million Dell-branded printers shipped during fiscal
2005.
The following table summarizes Dell’s net revenue and
annual share of personal computer sales by reportable segment
for each of the past three fiscal years:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year Ended | |
| |
|
| |
| |
|
January 28, | |
|
|
|
January 30, | |
|
|
|
January 31, | |
| |
|
2005 | |
|
Change | |
|
2004 | |
|
Change | |
|
2003 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(dollars in millions) | |
|
Net Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Americas:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Business
|
|
$ |
25,339 |
|
|
|
16 |
% |
|
$ |
21,888 |
|
|
|
13 |
% |
|
$ |
19,394 |
|
| |
|
U.S. Consumer
|
|
|
7,601 |
|
|
|
13 |
% |
|
|
6,715 |
|
|
|
19 |
% |
|
|
5,653 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Total Americas
|
|
|
32,940 |
|
|
|
15 |
% |
|
|
28,603 |
|
|
|
14 |
% |
|
|
25,047 |
|
| |
Europe
|
|
|
10,787 |
|
|
|
27 |
% |
|
|
8,495 |
|
|
|
23 |
% |
|
|
6,912 |
|
| |
Asia Pacific-Japan
|
|
|
5,478 |
|
|
|
26 |
% |
|
|
4,346 |
|
|
|
26 |
% |
|
|
3,445 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Total net revenue
|
|
$ |
49,205 |
|
|
|
19 |
% |
|
$ |
41,444 |
|
|
|
17 |
% |
|
$ |
35,404 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Share of Personal Computer
Sales(a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Americas
|
|
|
29.1 |
% |
|
|
1.4 |
|
|
|
27.7 |
% |
|
|
2.9 |
|
|
|
24.8 |
% |
| |
Europe
|
|
|
11.7 |
% |
|
|
1.2 |
|
|
|
10.5 |
% |
|
|
0.9 |
|
|
|
9.6 |
% |
| |
Asia Pacific-Japan
|
|
|
8.3 |
% |
|
|
1.1 |
|
|
|
7.2 |
% |
|
|
1.4 |
|
|
|
5.8 |
% |
| |
|
|
Worldwide
|
|
|
17.8 |
% |
|
|
1.1 |
|
|
|
16.7 |
% |
|
|
1.7 |
|
|
|
15.0 |
% |
|
|
|
|
(a) |
|
Represents personal computer units for the full calendar year
and is based upon information provided by IDC. |
Americas — Dell increased its number one share
position in personal computers sales in the Americas region by
1.4 percentage points to 29.1% during calendar 2004. Net
unit growth was 17%
21
during fiscal 2005, compared to 23% in fiscal 2004, while net
revenue increased 15% and 14% during fiscal 2005 and 2004,
respectively. Notebooks led the fiscal 2005 revenue growth,
supported by an improvement in corporate spending during the
year. Fiscal 2004 revenue growth was broad-based, but primarily
led by growth in enterprise systems of 28%.
In the Americas Business segment, which includes sales to small
and medium businesses, government, and corporate accounts, net
revenue increased 16% and 13% during fiscal 2005 and 2004,
respectively, as business technology spending steadily improved
since the end of fiscal 2004. Specifically, Dell’s small
and medium business customers led the revenue growth during
fiscal 2005 while notebook systems provided about one-third of
the revenue growth for the segment. Enterprise revenue growth
during fiscal 2005 was 11%, with servers providing the majority
of the product group growth. Enterprise systems provided the
majority of the growth in Dell’s Americas Business segment
during fiscal 2004, with servers contributing more than one-half
of the increase during that fiscal year.
Dell’s U.S. Consumer segment includes sales primarily
to individual consumers. Net revenue grew 13% and 19% during
fiscal 2005 and 2004, respectively, and was led by Dell’s
printing and imaging products during fiscal 2005. The decrease
in revenue growth during fiscal 2005, compared to fiscal 2004,
was partially due to relatively weak demand in the overall
U.S. consumer segment toward the second half of fiscal
2005. Dell produced strong net unit growth in consumer notebooks
of 29% during fiscal 2005; however, this growth was partially
offset by an 11% decline in average revenue per-unit sold as
product mix continued to shift toward lower-priced products.
Revenue growth during fiscal 2004 was led by notebooks with net
unit growth of 67%.
Europe — Dell produced strong performance in
Europe, which includes the Middle East and Africa, maintaining
its number two share position of personal computer sales with
11.7% share during calendar 2004, compared to 10.5% during
calendar 2003. Net unit shipments grew at a rate of 31% during
fiscal 2005 in a market that grew at a robust rate of 19% during
calendar year 2004. The appreciation of the Euro and British
Pound helped stimulate overall market demand in Europe, as Dell
and other companies generally passed on these foreign currency
benefits to customers through lower pricing of products and
services. Net revenue during fiscal 2005 and 2004 increased by
27% and 23%, respectively. Revenue during fiscal 2005 included
combined net revenue growth of 30% in the United Kingdom and
France. Dell’s enterprise business produced revenue growth
of 29% and 35% during fiscal 2005 and 2004, respectively.
Asia Pacific-Japan — Dell’s strong revenue
growth in Asia Pacific-Japan of 26% during fiscal 2005 was
supported by the company’s strength and demand growth in
China. During calendar 2004, Dell generated share gains in Asia
Pacific-Japan of 1.1 percentage points to 8.3% share of
personal computer sales, achieving the number three share
position. During fiscal 2005, Dell’s net unit growth was
29%, in an industry with overall growth that increased only 13%.
Dell’s enterprise business produced revenue growth of 23%
and 32% during fiscal 2005 and 2004, respectively.
For additional information regarding Dell’s segments, see
Note 9 of “Notes to Consolidated Financial
Statements” included in “Item 8 —
Financial Statements and Supplementary Data.”
Gross Margin
Gross margin as a percentage of net revenue improved slightly to
18.3% during fiscal 2005, compared to 18.2% fiscal 2004 and
17.9% in fiscal 2003. The year-over-year improvement during
fiscal 2005 and 2004 was primarily driven by Dell’s
continued cost savings initiatives. During fiscal 2005,
component costs continued to decline at a moderate pace that was
relatively comparable to fiscal 2004. Management utilized these
cost declines to balance profitable growth while passing on cost
savings to its customers. Management expects the component cost
environment to continue to be favorable during the first quarter
of fiscal 2006. As part of management’s focus on improving
margins, Dell remains committed to reducing costs through four
primary cost reduction initiatives:
22
manufacturing costs, warranty costs, structural or design costs,
and overhead or operating expenses. These cost savings
initiatives also include providing certain customer technical
support and back-office functions from cost effective locations
as well as driving more efficient processes and tools globally.
Dell’s general practice is to aggressively pass on declines
in costs to its customers in order to add customer value while
increasing global market share. Management believes that the
strength of Dell’s direct business model, as well as its
strong liquidity position, makes Dell better positioned than its
competitors to continue profitable growth in any business
climate.
Operating Expenses
The following table presents information regarding Dell’s
operating expenses during each of the past three fiscal years:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year Ended | |
| |
|
| |
| |
|
January 28, | |
|
January 30, | |
|
January 31, | |
| |
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
| |
|
(dollars in millions) | |
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Selling, general, and administrative
|
|
$ |
4,298 |
|
|
$ |
3,544 |
|
|
$ |
3,050 |
|
| |
Research, development, and
engineering
|
|
|
463 |
|
|
|
464 |
|
|
|
455 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total operating expenses
|
|
$ |
4,761 |
|
|
$ |
4,008 |
|
|
$ |
3,505 |
|
|
Operating Expenses as a percentage
of net revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Selling, general, and administrative
|
|
|
8.7 |
% |
|
|
8.6 |
% |
|
|
8.6 |
% |
| |
Research, development, and
engineering
|
|
|
0.9 |
|
|
|
1.1 |
|
|
|
1.3 |
|
| |
|
Total operating expenses
|
|
|
9.7 |
% |
|
|
9.7 |
% |
|
|
9.9 |
% |
Selling, General, and Administrative — During
fiscal 2005, selling, general, and administrative expenses, as a
percentage of net revenue, increased slightly compared to fiscal
2004 and 2003. This increase is primarily due to Dell’s
global expansion efforts and a greater mix of business outside
the U.S. during fiscal 2005, which typically carries a
slightly higher operating expense. The primary component of the
overall increase is compensation costs as management focuses on
attracting and retaining key personnel in order to support the
company’s growth. Selling, general, and administrative
expenses as a percentage of net revenue remained relatively flat
in fiscal 2004 compared to fiscal 2003, but increased in
absolute dollars commensurate with the increase in net revenue.
Research, Development, and Engineering — During
fiscal 2005, research, development, and engineering expenses
continued to decrease slightly, as a percentage of net revenue,
compared to fiscal 2004 and 2003. The efficiencies are a result
of Dell’s continued utilization of its streamlined
infrastructure and strategic relationships with its vendor
partners. Dell expects to continue to invest in research,
development, and engineering activity to develop and introduce
new products and has received 1,128 U.S. patents and has
719 U.S. patent applications pending as of January 28,
2005.
23
|
|
|
Investment and Other Income, net |
The following table summarizes Dell’s investment and other
income, net for each of the past three fiscal years:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year Ended | |
| |
|
| |
| |
|
January 28, | |
|
January 30, | |
|
January 31, | |
| |
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
| |
|
(in millions) | |
|
Investment income, primarily
interest
|
|
$ |
226 |
|
|
$ |
200 |
|
|
$ |
227 |
|
|
Gains (losses) on investments, net
|
|
|
6 |
|
|
|
16 |
|
|
|
(6 |
) |
|
Interest expense
|
|
|
(16 |
) |
|
|
(14 |
) |
|
|
(17 |
) |
|
Other
|
|
|
(25 |
) |
|
|
(22 |
) |
|
|
(21 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Investment and other income, net
|
|
$ |
191 |
|
|
$ |
180 |
|
|
$ |
183 |
|
| |
|
|
|
|
|
|
|
|
|
Investment income increased from fiscal 2004 to fiscal 2005
primarily due to an increase in investment income earned on
higher average balances of cash equivalents and investments.
Investment income decreased from fiscal 2003 to fiscal 2004
primarily from a decline in interest rates on investments, which
was partially offset by an increase in cash equivalents and
investments during the year.
Dell’s reported effective tax rate was 31.5% in fiscal
2005, compared to 29.0% for fiscal 2004 and 29.9% for fiscal
2003. The fiscal 2005 effective tax rate includes a tax
repatriation charge of $280 million pursuant to a favorable
tax incentive provided by the American Jobs Creation Act of 2004
(the “Act”), which was signed into law on
October 22, 2004. This tax repatriation charge increased
Dell’s effective tax rate by 6.3% for fiscal 2005. The
increase in Dell’s fiscal 2005 effective tax rate, compared
to fiscal 2004 and fiscal 2003, is due to the aforementioned tax
repatriation charge, partially offset by a higher proportion of
operating profits attributable to foreign jurisdictions.
Among other items, the Act creates a temporary incentive for
U.S. multinationals to repatriate accumulated income earned
outside the U.S. at a tax rate of 5.25%, versus the
U.S. federal statutory rate of 35%. Although the Act
contains a number of limitations related to the repatriation and
some uncertainty remains, as of January 28, 2005 Dell
believes that it has the information necessary to make an
informed decision regarding the impact of the Act on its
repatriation plans. Based on this new legislation, and
subsequent guidance issued by the Department of Treasury, Dell
determined during the fourth quarter of fiscal 2005 that it will
repatriate $4.1 billion in foreign earnings. Accordingly,
Dell recognized a tax repatriation charge of $280 million
in accordance with Statement of Financial Accounting Standards
(“SFAS”) No. 109, Accounting for Income
Taxes. This tax charge includes an amount relating to an
apparent drafting oversight that Congressional leaders indicate
will be fixed by a Technical Corrections Bill sometime during
calendar year 2005. The fiscal 2005 tax repatriation charge will
be reduced in the quarter that the Technical Corrections Bill
becomes law. In addition, at the time of repatriation further
adjustment may be required depending upon a number of factors,
including geographic location of cash, mix of foreign earnings,
and statutory tax rates in effect at the time of the
repatriation. The repatriation is required to be completed by
the end of fiscal 2006.
Differences between Dell’s fiscal 2005 effective tax rate
and the U.S. federal statutory rate of 35% principally
result from Dell’s geographical distribution of taxable
income and losses, partially offset by the impact of the Act.
During fiscal 2004 and 2003, the differences between Dell’s
effective and statutory tax rates were attributable to the
geographic distribution of taxable income and losses.
Dell’s effective tax rate may decline in future periods as
the company’s business outside the
24
U.S. continues to expand and contribute an increasing
portion of Dell’s consolidated operating profits.
Off-Balance Sheet Arrangements
Consolidation of Leasing Affiliate — Dell is
currently a partner in DFS, a joint venture with CIT. The joint
venture allows Dell to provide its customers with various
financing alternatives while CIT generally provides the
financing between DFS and the customer for certain transactions.
Dell began consolidating DFS’s financial results at the
beginning of the third quarter of fiscal 2004 due to the
adoption of Financial Accounting Standards Board
(“FASB”) Interpretation No. 46R
(“FIN 46R”). See Note 6 of “Notes to
Consolidated Financial Statements” included in
“Item 8 — Financial Statements and
Supplementary Data.”
Securitized Lending Transactions — During the
third quarter of fiscal 2005, 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. Prior to
the execution of that agreement, CIT provided all of the
financing for transactions between DFS and the customer. The
extension agreement gives Dell the right, but not the
obligation, to participate in such financings. During the fourth
quarter of fiscal 2005, Dell began financing certain loan and
lease transactions through securitized lending arrangements.
Specifically, Dell began selling certain loan and lease finance
receivables to an unconsolidated qualifying special purpose
entity that is wholly owned by Dell. The qualifying special
purpose entity is a separate legal entity with assets and
liabilities separate from those of Dell. The qualifying special
purpose entity has entered into a financing arrangement with a
multiseller conduit that in turn issues asset-backed debt
securities to the capital markets. The sale of these loan and
lease financing receivables did not have a material impact on
Dell’s consolidated results of operations, financial
position, or cash flows for fiscal 2005. Dell expects that its
participation in securitized lending transactions may increase
in future periods.
Master Lease Facilities — Dell historically
maintained master lease facilities which provided the company
with the ability to lease certain real property, buildings, and
equipment to be constructed or acquired. These leases were
accounted for as operating leases by Dell. During fiscal 2004,
Dell paid $636 million to purchase all of the assets
covered by its master lease facilities. Accordingly, the assets
formerly covered by these facilities are included in Dell’s
consolidated statement of financial position and Dell has no
remaining lease commitments under these master lease facilities.
25
Liquidity, Capital Commitments, and Contractual Cash
Obligations
During fiscal 2005, Dell continued to maintain strong liquidity
with cash flow from operations of $5.3 billion, compared to
$3.7 billion in fiscal 2004. Dell ended fiscal 2005 with a
record $14.1 billion in cash and investments, an increase
of $2.2 billion over the prior fiscal year end. The
following table summarizes Dell’s ending cash, cash
equivalents, and investments and the results of Dell’s
consolidated statements of cash flows for the past three fiscal
years:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
January 28, | |
|
January 30, | |
|
January 31, | |
| |
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
| |
|
(in millions) | |
|
Cash, cash equivalents, and
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents
|
|
$ |
4,747 |
|
|
$ |
4,317 |
|
|
$ |
4,232 |
|
| |
Debt securities
|
|
|
9,253 |
|
|
|
7,454 |
|
|
|
5,442 |
|
| |
Equity and other securities
|
|
|
126 |
|
|
|
151 |
|
|
|
231 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Cash, cash equivalents and
investments
|
|
$ |
14,126 |
|
|
$ |
11,922 |
|
|
$ |
9,905 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net cash flow provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Operating activities
|
|
$ |
5,310 |
|
|
$ |
3,670 |
|
|
$ |
3,538 |
|
| |
Investing activities
|
|
|
(2,317 |
) |
|
|
(2,814 |
) |
|
|
(1,381 |
) |
| |
Financing activities
|
|
|
(3,128 |
) |
|
|
(1,383 |
) |
|
|
(2,025 |
) |
| |
Effect of exchange rate changes
on
cash and cash equivalents
|
|
|
565 |
|
|
|
612 |
|
|
|
459 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash
equivalents
|
|
$ |
430 |
|
|
$ |
85 |
|
|
$ |
591 |
|
| |
|
|
|
|
|
|
|
|
|
Operating Activities — Cash flows from
operating activities during fiscal 2005, 2004, and 2003 resulted
primarily from net income, which represents Dell’s
principal source of cash. The increase in operating cash flows
during fiscal 2005 was primarily led by an increase in operating
income and the improvement in Dell’s cash conversion cycle.
In addition, operating cash flows have historically been
impacted by income tax benefits that result from the exercise of
employee stock options. These tax benefits totaled
$249 million, $181 million, and $260 million in
fiscal 2005, 2004, and 2003, respectively. These benefits
represent corporate tax deductions (that are considered taxable
income to the employee) that represent the amount by which the
fair value of Dell’s stock exceeds the option strike price
on the day the employee exercises a stock option.
Dell’s direct business model allows the company to maintain
a leading asset management system in comparison to its major
competitors. Dell is capable of minimizing inventory risk while
collecting amounts due from customers before paying vendors,
thus allowing the company to generate annual
26
cash flows from operating activities that typically exceed net
income. The following table presents the components of
Dell’s cash conversion cycle for each of the past three
fiscal years:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year Ended | |
| |
|
| |
| |
|
January 28, | |
|
January 30, | |
|
January 31, | |
| |
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
|
Days of sales outstanding(a)
|
|
|
32 |
|
|
|
31 |
|
|
|
28 |
|
|
Days of supply in inventory
|
|
|
4 |
|
|
|
3 |
|
|
|
3 |
|
|
Days in accounts payable
|
|
|
73 |
|
|
|
70 |
|
|
|
68 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Cash conversion cycle
|
|
|
(37 |
) |
|
|
(36 |
) |
|
|
(37 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Dell defers the cost of shipped products awaiting revenue
recognition until the goods are delivered and revenue is
recognized. Days of sales outstanding include these product
costs, which are classified in other current assets. At
January 28, 2005, January 30, 2004, and
January 31, 2003, days of sales outstanding included days
of sales in accounts receivable and days of in-transit customer
shipments of 29 and 3 days; 28 and 3 days; and 24 and
4 days, respectively. |
The increase in days of sales outstanding at January 28,
2005, from the end of fiscal 2004, was partially due to an
increase in non-U.S. revenues where collection periods tend
to be longer. Dell defers the cost of shipped products awaiting
revenue recognition until the goods are delivered and revenue is
recognized. These deferred costs are included in Dell’s
reported days of sales outstanding because management believes
it illustrates a more conservative and accurate presentation of
Dell’s days of sales outstanding and cash conversion cycle.
These deferred costs are recorded in other current assets in
Dell’s consolidated statement of financial position and
totaled $430 million, $387 million, and
$423 million as of January 28, 2005, January 30,
2004, and January 31, 2003, respectively.
Investing Activities — Cash used in investing
activities during fiscal 2005 was $2.3 billion, as compared
to $2.8 billion in fiscal 2004 and $1.4 billion in
fiscal 2003. Cash used in investing activities principally
consists of net purchases of investments and capital
expenditures for property, plant, and equipment. The decrease in
cash used in investing activities during fiscal 2005, compared
to fiscal 2004, was primarily due to the purchase of
$636 million in assets during fiscal 2004 that were held in
master lease facilities and previously classified as operating
leases. This was partially offset by an increase in capital
expenditures during fiscal 2005 as Dell continued to focus on
investing in the company’s global information technology
infrastructure in order to support Dell’s rapid global
growth and the increased complexity of its product and service
offerings. The increase in cash used in investing activities
during fiscal 2004, when compared to fiscal 2003, was primarily
due to the increase in purchases of investments, net of
maturities and sales, as Dell continues to invest its cash
provided by operating activities.
Financing Activities — Cash used in financing
activities during fiscal 2005 was $3.1 billion, as compared
to $1.4 billion in fiscal 2004 and $2.0 billion in
fiscal 2003. Financing activities primarily consist of the
repurchase of Dell common stock, partially offset by the
issuance of common stock under employee stock option plans. The
increase in share repurchases in fiscal 2005, compared to fiscal
2004, drove the year-over-year increase in cash used in
financing activities. Dell repurchased 119 million shares
during fiscal 2005, compared to 63 million in fiscal 2004.
The decrease in cash used during fiscal 2004, compared to fiscal
2003, was primarily due to an increase in the number of shares
issued under employee plans and an increase in the weighted
average exercise price of stock options exercised. In addition,
the aggregate value of common stock repurchased by Dell declined
during fiscal 2004, which was primarily due to a respective
decrease in the weighted average share price of common stock
repurchased by Dell.
Management currently believes that Dell’s fiscal 2006 cash
flows from operations will continue to exceed net income and
will be more than sufficient to support Dell’s operations
and capital requirements. Dell currently anticipates that it
will continue to utilize its strong liquidity and cash flows
from operations to repurchase its common stock, invest in
systems and processes, invest in
27
the growth of the company with an emphasis on enterprise
products, make capital investments, and make a limited number of
strategic equity investments.
Share Repurchase Program — Dell has a share
repurchase program that authorizes the company to purchase
shares of common stock in order to both distribute cash to
stockholders and manage dilution resulting from shares issued
under Dell’s equity compensation plans. However, Dell does
not currently have a policy that requires the repurchase of
common stock in conjunction with share-based payment
arrangements. As of January 28, 2005, Dell’s share
repurchase program authorized the purchase of up to
1.25 billion shares of common stock at an aggregate cost
not to exceed $20 billion. Subsequent to fiscal 2005, on
March 3, 2005, the Board of Directors of Dell approved an
amendment to the plan to increase the number of authorized
shares available for repurchase by 250 million to
1.5 billion, and the aggregate dollar cost threshold by
$10 billion to $30 billion.
Dell expects to continue to repurchase shares of common stock
through a systematic program of open market purchases. As of the
end of fiscal 2005, Dell had cumulatively repurchased
1.2 billion shares for an aggregate cost of approximately
$18.3 billion. During fiscal 2005, Dell repurchased
119 million shares of common stock for an aggregate cost of
$4.2 billion. Through the fourth quarter of fiscal 2003,
Dell previously utilized equity instrument contracts to
facilitate its repurchase of common stock. All remaining put and
call contracts were settled in full during the fourth quarter of
fiscal 2003. Dell now effects its share repurchases entirely
through open market transactions. As of March 3, 2005, Dell
has spent approximately $1.3 billion in share repurchases
for the first quarter of fiscal 2006.
Capital Expenditures — During fiscal 2005, Dell
spent $525 million on property, plant, and equipment.
Capital expenditures increased during fiscal 2005, compared to
recent fiscal years, primarily due to the company’s global
expansion efforts and infrastructure investments in order to
support the company’s future growth. Product demand and
mix, as well as ongoing efficiencies in operating and
information technology infrastructure, influence the level and
prioritization of Dell’s capital expenditures. Capital
expenditures for fiscal 2006 are currently expected to be up to
approximately $700 million. Capital expenditures during
fiscal 2006 are expected to be funded by cash flows from
operating activities and are estimated to increase compared to
recent years due to Dell’s continued expansion worldwide
and the need for additional capacity.
Restricted Cash — Pursuant to the joint venture
agreement between DFS and CIT, DFS is required to maintain
certain escrow cash accounts. Due to the consolidation of DFS,
$438 million in restricted cash is included in other
current assets on Dell’s consolidated statement of
financial position as of January 28, 2005.
|
|
|
Contractual Cash Obligations |
The following table summarizes Dell’s contractual cash
obligations as of January 28, 2005.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Payments Due by Period | |
| |
|
| |
| |
|
|
|
Fiscal 2007- | |
|
Fiscal 2009- | |
|
|
| |
|
Total | |
|
Fiscal 2006 | |
|
2008 | |
|
2010 | |
|
Beyond | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(in millions) | |
|
Long-term debt, including current
portion
|
|
$ |
507 |
|
|
$ |
2 |
|
|
$ |
3 |
|
|
$ |
204 |
|
|
$ |
298 |
|
|
Operating leases
|
|
|
257 |
|
|
|
52 |
|
|
|
76 |
|
|
|
46 |
|
|
|
83 |
|
|
Advances under credit facilities
|
|
|
158 |
|
|
|
29 |
|
|
|
129 |
|
|
|
— |
|
|
|
— |
|
|
Purchase obligations
|
|
|
107 |
|
|
|
56 |
|
|
|
23 |
|
|
|
28 |
|
|
|
— |
|
|
DFS purchase commitment
|
|
|
100 |
|
|
|
— |
|
|
|
— |
|
|
|
100 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total contractual cash obligations
|
|
$ |
1,129 |
|
|
$ |
139 |
|
|
$ |
231 |
|
|
$ |
378 |
|
|
$ |
381 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
Operating Leases — 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.
Advances Under Credit Facilities — DFS
maintains credit facilities with CIT which provide DFS with a
funding capacity of up to $1.0 billion. Outstanding
advances under these facilities totaled $158 million and
are included in other current and non-current liabilities on
Dell’s consolidated statement of financial position as of
January 28, 2005.
Long-Term Debt — As of January 28, 2005,
Dell had outstanding $200 million in Senior Notes due
April 15, 2008 and $300 million in Senior Debentures
due April 15, 2028. For additional information regarding
these issuances, see Note 2 of Notes to Consolidated
Financial Statements included in “Item 8 —
Financial Statements and Supplementary Data.”
Concurrent with the issuance of the Senior Notes and Senior
Debentures, Dell entered into interest rate swap agreements
converting Dell’s 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 0.41% and 0.79% for the Senior Notes and Senior Debentures,
respectively. As a result of the interest rate swap agreements,
Dell’s effective interest rates for the Senior Notes and
Senior Debentures were 2.059% and 2.392%, respectively, for
fiscal 2005.
Purchase Obligations — Purchase obligations are
defined as contractual obligations to purchase goods or services
that are enforceable and legally binding on Dell and that
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.
Dell utilizes several suppliers to manufacture sub-assemblies
for the company’s products. Dell’s highly efficient
supply chain management allows the company to enter into
flexible and mutually beneficial purchase arrangements with its
suppliers in order to minimize inventory risk. Consistent with
industry practice, Dell acquires raw materials or other goods
and services, including product components, by issuing suppliers
authorizations to purchase based on Dell’s 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 Dell’s production. Purchase
orders are not included in the table above as they typically
represent Dell’s authorization to purchase rather than
binding purchase obligations.
DFS Purchase Commitment — Included in the table
above is Dell’s minimum purchase obligation to purchase
CIT’s 30% interest in DFS at the expiration of the joint
venture on January 29, 2010, for a purchase price ranging
from $100 million to $345 million. See Note 6 of
“Notes to Consolidated Financial Statements” included
in “Item 8 — Financial Statements and
Supplementary Data.”
Market Risk
Dell is exposed to a variety of risks, including foreign
currency exchange rate fluctuations and changes in the market
value of its investments. In the normal course of business, Dell
employs established policies and procedures to manage these
risks.
|
|
|
Foreign Currency Hedging Activities |
Dell’s objective in managing its exposure 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, Dell
utilizes foreign currency option contracts and forward contracts
to hedge its exposure on forecasted transactions and firm
commitments in most of the foreign countries in which it
operates. The principal currencies hedged during fiscal 2005
were the
29
Euro, British Pound, Japanese Yen, and Canadian Dollar. Dell
monitors its foreign currency exchange exposures to ensure the
overall effectiveness of its foreign currency hedge positions.
However, there can be no assurance Dell’s foreign currency
hedging activities will substantially offset the impact of
fluctuations in currency exchange rates on its results of
operations and financial position.
Based on Dell’s foreign currency cash flow hedge
instruments outstanding at January 28, 2005 and
January 30, 2004, Dell estimates a maximum potential
one-day loss in fair value of approximately $43 million and
$53 million, respectively, using a Value-at-Risk
(“VAR”) model. The VAR model estimates were made
assuming normal market conditions and a 95% confidence level.
Dell used a Monte Carlo simulation type model that valued its
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 by Dell. Additionally, as Dell
utilizes 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 Dell’s hedging
activities, foreign currency fluctuations did not have a
material impact on Dell’s results of operations and
financial position during fiscal 2005, 2004, and 2003.
At January 28, 2005, Dell had $14.1 billion of total
cash and investments (including investments in equity securities
discussed below), all of which are stated at fair value.
Dell’s investment policy is to manage its total cash and
investments balances to preserve principal and liquidity while
maximizing the return on the investment portfolio through the
full investment of available funds. Dell diversifies its
investment portfolio by investing in multiple types of
investment-grade securities and through the use of third-party
investment managers. Based on Dell’s investment portfolio
and interest rates at January 28, 2005 and January 30,
2004, a 100 basis point increase or decrease in interest
rates would result in a decrease or increase of approximately
$97 million and $140 million, respectively, in the
fair value of the investment portfolio. Changes in interest
rates may affect the fair value of the investment portfolio;
however, Dell will not recognize such gains or losses unless the
investments are sold.
At January 28, 2005, the fair value of investments in
equity securities of privately and publicly held technology
companies was $43 million. These investments were made in
order to enhance and extend Dell’s direct business model
and core business initiatives. Because these companies are
typically early-stage companies with products or services that
are not yet fully developed or that have not yet achieved market
acceptance, these investments are inherently risky. Dell
currently anticipates that it will continue to make minimal
additional investments in fiscal 2006 and will focus on managing
its current investments.
Dell has entered into interest rate swap arrangements that
convert its fixed interest rate expense to a floating rate basis
to better align the associated interest rate characteristics to
its 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. Dell has designated the
issuance of the Senior Notes and Senior Debentures and the
related interest rate swap agreements as an integrated
transaction. The difference between Dell’s carrying amounts
and fair value of its long-term debt and related interest rate
swaps was not material at January 28, 2005 and
January 30, 2004. 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.
30
Factors Affecting Dell’s Business and Prospects
There are numerous factors that affect Dell’s business and
the results of its operations. These factors include general
economic and business conditions; the level of demand for
Dell’s products and services; the level and intensity of
competition in the technology industry and the pricing pressures
that have resulted; the ability of Dell to timely and
effectively manage periodic product transitions, as well as
component availability and cost; the ability of Dell to develop
new products based on new or evolving technology and the
market’s acceptance of those products; the ability of Dell
to manage its inventory levels to minimize excess inventory,
declining inventory values, and obsolescence; the product,
customer, and geographic sales mix of any particular period;
Dell’s ability to effectively manage its operating costs;
and the effect of armed hostilities, terrorism, natural
disasters, or public health issues on the economy generally, on
the level of demand for Dell’s products and services, and
on Dell’s ability to manage its supply and delivery
logistics in such an environment. For a discussion of these and
other factors affecting Dell’s business and prospects, see
“Item 1 — Business — Factors
Affecting Dell’s Business and Prospects.”
Critical Accounting Policies
Dell prepares its financial statements in conformity with
generally accepted accounting principles in the United States of
America (“GAAP”). The preparation of GAAP financial
statements requires certain estimates, assumptions, and
judgments to be made that may affect Dell’s consolidated
statement of financial position and results of operations. Dell
believes its most critical accounting policies relate to revenue
recognition, warranty accruals, and income taxes. Management has
discussed the development, selection, and disclosure of its
critical accounting policies with the Audit Committee of
Dell’s Board of Directors. These critical accounting
policies and Dell’s other accounting policies are described
in Note 1 of “Notes to Consolidated Financial
Statements” included in “Item 8 —
Financial Statements and Supplementary Data.”
Revenue Recognition — Dell frequently enters
into sales arrangements with customers that contain multiple
elements or deliverables such as hardware, software,
peripherals, and services. Judgments and estimates are critical
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.
Dell offers 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 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,
for which Dell is not obligated to perform, is recognized on a
net basis at the time of sale.
Estimates that further impact revenue recognition relate
primarily to customer sales returns and allowance for doubtful
accounts. Both estimates are relatively predictable based on
historical experience. The primary factors affecting Dell’s
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. During recent
fiscal years, customer returns as a percentage of revenues have
declined to approximately 1%. Factors affecting Dell’s
allowance for doubtful accounts include historical and
anticipated customer default rates of the various aging
categories of accounts receivable. Each quarter, Dell
reevaluates its estimates to assess the adequacy of its recorded
accruals for customer returns and allowance for doubtful
accounts and adjusts the amounts as necessary.
Warranty — Dell records warranty liabilities at
the time of sale for the estimated costs that may be incurred
under its basic 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
31
support, repair parts, labor, and a period ranging from
90 days to three years. Factors that affect Dell’s
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
Dell’s warranty obligation. The anticipated rate of
warranty claims is the primary factor impacting Dell’s
estimated warranty obligation. The other factors are relatively
insignificant because 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. Each quarter, Dell
reevaluates its estimates to assess the adequacy of its recorded
warranty liabilities and adjusts the amounts as necessary.
Income Taxes — Dell calculates 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 Dell’s 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 Dell’s consolidated results of
operations or financial position.
Recently Issued Accounting Pronouncements
On December 16, 2004, the FASB issued
SFAS No. 123R, Share-Based Payment.
SFAS No. 123R addresses the accounting for share-based
payment transactions in which an enterprise receives employee
services in exchange for (a) equity instruments of the
enterprise or (b) liabilities that are based on the fair
value of the enterprise’s equity instruments or that may be
settled by the issuance of such equity instruments.
SFAS No. 123R eliminates the ability to account for
share-based compensation transactions using Accounting
Principles Board Opinion No. 25 and generally requires that
such transactions be accounted for using a fair-value-based
method. Dell expects to adopt this standard on its effective
date, which is the beginning of Dell’s third quarter of
fiscal 2006. Dell is currently assessing the final impact of
this standard on the company’s consolidated results of
operations, financial position, and cash flows. This assessment
includes evaluating option valuation methodologies and
assumptions as well as potential changes to Dell’s
compensation strategies.
On November 24, 2004, the FASB issued
SFAS No. 151, Inventory Costs — an
amendment of ARB No. 43. SFAS No. 151
requires idle facility expenses, freight, handling costs, and
wasted material (spoilage) costs to be excluded from the
cost of inventory and expensed when incurred. It also requires
that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production
facilities. SFAS No. 151 will be effective at the
beginning of Dell’s fiscal 2007. SFAS No. 151 is
not expected to have a material impact on Dell’s
consolidated results of operations or financial position.
|
|
| ITEM 7A — |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Response to this item is included in
“Item 7 — Management’s Discussion and
Analysis of Financial Condition and Results of
Operations — Market Risk.”
32
|
|
| ITEM 8 — |
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| |
|
|
|
|
|
| |
|
Page | |
| |
|
| |
|
Financial Statements:
|
|
|
|
|
| |
|
|
|
34 |
|
| |
|
|
|
36 |
|
| |
|
|
|
37 |
|
| |
|
|
|
38 |
|
| |
|
|
|
39 |
|
| |
|
|
|
40 |
|
|
Financial Statement Schedule:
|
|
|
|
|
| |
|
|
|
63 |
|
All other schedules are omitted because they are not applicable.
33
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Dell Inc.
We have completed an integrated audit of Dell Inc.’s
January 28, 2005 consolidated financial statements and of
its internal control over financial reporting as of
January 28, 2005 and audits of its January 30, 2004
and January 31, 2003 consolidated financial
statements 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 at
January 28, 2005 and January 30, 2004, and the results
of their operations and their cash flows for each of the three
years in the period ended January 28, 2005 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 company’s
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.
Internal Control Over Financial Reporting
Also, in our opinion, management’s assessment, included in
Management’s Report on Internal Control Over Financial
Reporting appearing under Item 9A — Controls and
Procedures, that the company maintained effective internal
control over financial reporting as of January 28, 2005,
based on criteria established in Internal Control —
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), is fairly
stated, in all material respects, based on those criteria.
Furthermore, in our opinion, the company maintained, in all
material respects, effective internal control over financial
reporting as of January 28, 2005, based on criteria
established in Internal Control — Integrated
Framework issued by the COSO. The company’s 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 management’s assessment and on
the effectiveness of the company’s 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 includes obtaining an
understanding of internal control over financial reporting,
evaluating management’s 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 company’s 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
34
for external purposes in accordance with generally accepted
accounting principles. A company’s 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
company’s 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.
PRICEWATERHOUSECOOPERS LLP
Austin, Texas
March 3, 2005
35
DELL INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in millions)
| |
|
|
|
|
|
|
|
|
|
|
| |
|
January 28, | |
|
January 30, | |
| |
|
2005 | |
|
2004 | |
| |
|
| |
|
| |
|
ASSETS |
|
Current assets:
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents
|
|
$ |
4,747 |
|
|
$ |
4,317 |
|
| |
Short-term investments
|
|
|
5,060 |
|
|
|
835 |
|
| |
Accounts receivable, net
|
|
|
4,414 |
|
|
|
3,635 |
|
| |
Inventories
|
|
|
459 |
|
|
|
327 |
|
| |
Other
|
|
|
2,217 |
|
|
|
1,519 |
|
| |
|
|
|
|
|
|
| |
|
Total current assets
|
|
|
16,897 |
|
|
|
10,633 |
|
| |
Property, plant, and equipment, net
|
|
|
1,691 |
|
|
|
1,517 |
|
| |
Investments
|
|
|
4,319 |
|
|
|
6,770 |
|
| |
Other non-current assets
|
|
|
308 |
|
|
|
391 |
|
| |
|
|
|
|
|
|
| |
|
Total assets
|
|
$ |
23,215 |
|
|
$ |
19,311 |
|
| |
|
|
|
|
|
|
| |
|
LIABILITIES AND
STOCKHOLDERS’ EQUITY |
| |
|
Current liabilities:
|
|
|
|
|
|
|
|
|
| |
Accounts payable
|
|
$ |
8,895 |
|
|
$ |
7,316 |
|
| |
Accrued and other
|
|
|
5,241 |
|
|
|
3,580 |
|
| |
|
|
|
|
|
|
| |
|
Total current liabilities
|
|
|
14,136 |
|
|
|
10,896 |
|
|
Long-term debt
|
|
|
505 |
|
|
|
505 |
|
|
Other non-current liabilities
|
|
|
2,089 |
|
|
|
1,630 |
|
| |
|
|
|
|
|
|
| |
|
Total liabilities
|
|
|
16,730 |
|
|
|
13,031 |
|
| |
|
|
|
|
|
|
|
Commitments and contingent
liabilities (Note 8)
|
|
|
— |
|
|
|
— |
|
|
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:
2,769 and 2,721, respectively
|
|
|
8,195 |
|
|
|
6,823 |
|
| |
Treasury stock, at cost; 284 and
165 shares, respectively
|
|
|
(10,758 |
) |
|
|
(6,539 |
) |
| |
Retained earnings
|
|
|
9,174 |
|
|
|
6,131 |
|
| |
Other comprehensive loss
|
|
|
(82 |
) |
|
|
(83 |
) |
| |
Other
|
|
|
(44 |
) |
|
|
(52 |
) |
| |
|
|
|
|
|
|
| |
|
Total stockholders’ equity
|
|
|
6,485 |
|
|
|
6,280 |
|
| |
|
|
|
|
|
|
| |
|
Total liabilities and
stockholders’ equity
|
|
$ |
23,215 |
|
|
$ |
19,311 |
|
| |
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
36
DELL INC.
CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share amounts)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year Ended | |
| |
|
| |
| |
|
January 28, | |
|
January 30, | |
|
January 31, | |
| |
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
|
Net revenue
|
|
$ |
49,205 |
|
|
$ |
41,444 |
|
|
$ |
35,404 |
|
|
Cost of revenue
|
|
|
40,190 |
|
|
|
33,892 |
|
|
|
29,055 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Gross margin
|
|
|
9,015 |
|
|
|
7,552 |
|
|
|
6,349 |
|
| |
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Selling, general, and administrative
|
|
|
4,298 |
|
|
|
3,544 |
|
|
|
3,050 |
|
| |
Research, development, and
engineering
|
|
|
463 |
|
|
|
464 |
|
|
|
455 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total operating expenses
|
|
|
4,761 |
|
|
|
4,008 |
|
|
|
3,505 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Operating income
|
|
|
4,254 |
|
|
|
3,544 |
|
|
|
2,844 |
|
|
Investment and other income, net
|
|
|
191 |
|
|
|
180 |
|
|
|
183 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Income before income taxes
|
|
|
4,445 |
|
|
|
3,724 |
|
|
|
3,027 |
|
|
Income tax provision
|
|
|
1,402 |
|
|
|
1,079 |
|
|
|
905 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Net income
|
|
$ |
3,043 |
|
|
$ |
2,645 |
|
|
$ |
2,122 |
|
| |
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
$ |
1.21 |
|
|
$ |
1.03 |
|
|
$ |
0.82 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Diluted
|
|
$ |
1.18 |
|
|
$ |
1.01 |
|
|
$ |
0.80 |
|
| |
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
|
2,509 |
|
|
|
2,565 |
|
|
|
2,584 |
|
| |
Diluted
|
|
|
2,568 |
|
|
|
2,619 |
|
|
|
2,644 |
|
The accompanying notes are an integral part of these
consolidated financial statements.
37
DELL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year Ended | |
| |
|
| |
| |
|
January 28, | |
|
January 30, | |
|
January 31, | |
| |
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income
|
|
$ |
3,043 |
|
|
$ |
2,645 |
|
|
$ |
2,122 |
|
| |
Adjustments to reconcile net income
to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Depreciation and amortization
|
|
|
334 |
|
|
|
263 |
|
|
|
211 |
|
| |
|
Tax benefits of employee stock plans
|
|
|
249 |
|
|
|
181 |
|
|
|
260 |
|
| |
|
Effects of exchange rate changes on
monetary assets and liabilities denominated in foreign currencies
|
|
|
(602 |
) |
|
|
(677 |
) |
|
|
(537 |
) |
| |
|
Other
|
|
|
78 |
|
|
|
113 |
|
|
|
60 |
|
| |
Changes in:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Operating working capital
|
|
|
1,755 |
|
|
|
872 |
|
|
|
1,210 |
|
| |
|
Non-current assets and liabilities
|
|
|
453 |
|
|
|
273 |
|
|
|
212 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Net cash provided by operating
activities
|
|
|
5,310 |
|
|
|
3,670 |
|
|
|
3,538 |
|
| |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Purchases
|
|
|
(12,261 |
) |
|
|
(12,099 |
) |
|
|
(8,736 |
) |
| |
|
Maturities and sales
|
|
|
10,469 |
|
|
|
10,078 |
|
|
|
7,660 |
|
| |
Capital expenditures
|
|
|
(525 |
) |
|
|
(329 |
) |
|
|
(305 |
) |
| |
Purchase of assets held in master
lease facilities
|
|
|
— |
|
|
|
(636 |
) |
|
|
— |
|
| |
Cash assumed in consolidation of
Dell Financial Services L.P.
|
|
|
— |
|
|
|
172 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Net cash used in investing
activities
|
|
|
(2,317 |
) |
|
|
(2,814 |
) |
|
|
(1,381 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Repurchase of common stock
|
|
|
(4,219 |
) |
|
|
(2,000 |
) |
|
|
(2,290 |
) |
| |
Issuance of common stock under
employee plans and other
|
|
|
1,091 |
|
|
|
617 |
|
|
|
265 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Net cash used in financing
activities
|
|
|
(3,128 |
) |
|
|
(1,383 |
) |
|
|
(2,025 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on
cash and cash equivalents
|
|
|
565 |
|
|
|
612 |
|
|
|
459 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash
equivalents
|
|
|
430 |
|
|
|
85 |
|
|
|
591 |
|
|
Cash and cash equivalents at
beginning of period
|
|
|
4,317 |
|
|
|
4,232 |
|
|
|
3,641 |
|
| |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of
period
|
|
$ |
4,747 |
|
|
$ |
4,317 |
|
|
$ |
4,232 |
|
| |
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
38
DELL INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in millions)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Common Stock | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
and Capital in | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Excess of | |
|
|
|
|
|
|
|
|
|
|
| |
|
Par Value | |
|
Treasury Stock | |
|
|
|
Other | |
|
|
|
|
| |
|
| |
|
| |
|
Retained | |
|
Comprehensive | |
|
|
|
|
| |
|
Shares | |
|
Amount | |
|
Shares | |
|
Amount | |
|
Earnings | |
|
Income (Loss) | |
|
Other | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Balances at February 1, 2002
|
|
|
2,654 |
|
|
$ |
5,605 |
|
|
|
52 |
|
|
$ |
(2,249 |
) |
|
$ |
1,364 |
|
|
$ |
38 |
|
|
$ |
(64 |
) |
|
$ |
4,694 |
|
| |
Net income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,122 |
|
|
|
— |
|
|
|
— |
|
|
|
2,122 |
|
| |
Change in net unrealized gain on
investments, net of taxes of $14
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
26 |
|
|
|
— |
|
|
|
26 |
|
| |
Foreign currency translation
adjustments
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4 |
|
|
|
— |
|
|
|
4 |
|
| |
Change in net unrealized loss on
derivative instruments, net of taxes of $42
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(101 |
) |
|
|
— |
|
|
|
(101 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,051 |
|
| |
Stock issuances under employee
plans, including tax benefits
|
|
|
27 |
|
|
|
410 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6 |
|
|
|
416 |
|
| |
Repurchases
|
|
|
— |
|
|
|
— |
|
|
|
50 |
|
|
|
(2,290 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,290 |
) |
| |
Other
|
|
|
— |
|
|
|
3 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1 |
) |
|
|
2 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at January 31, 2003
|
|
|
2,681 |
|
|
|
6,018 |
|
|
|
102 |
|
|
|
(4,539 |
) |
|
|
3,486 |
|
|
|
(33 |
) |
|
|
(59 |
) |
|
|
4,873 |
|
| |
Net income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,645 |
|
|
|
— |
|
|
|
— |
|
|
|
2,645 |
|
| |
Change in net unrealized gain on
investments, net of taxes of $19
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(35 |
) |
|
|
— |
|
|
|
(35 |
) |
| |
Foreign currency translation
adjustments
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6 |
|
|
|
— |
|
|
|
6 |
|
| |
Change in net unrealized loss on
derivative instruments, net of taxes of $5
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(21 |
) |
|
|
— |
|
|
|
(21 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,595 |
|
| |
Stock issuances under employee
plans, including tax benefits
|
|
|
40 |
|
|
|
805 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
805 |
|
| |
Repurchases
|
|
|
— |
|
|
|
— |
|
|
|
63 |
|
|
|
(2,000 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,000 |
) |
| |
Other
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7 |
|
|
|
7 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at January 30, 2004
|
|
|
2,721 |
|
|
|
6,823 |
|
|
|
165 |
|
|
|
(6,539 |
) |
|
|
6,131 |
|
|
|
(83 |
) |
|
|
(52 |
) |
|
|
6,280 |
|
| |
Net income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,043 |
|
|
|
— |
|
|
|
— |
|
|
|
3,043 |
|
| |
Change in net unrealized gain 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
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
52 |
|
|
|
— |
|
|
|
52 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,044 |
|
| |
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
|
|
|
2,769 |
|
|
$ |
8,195 |
|
|
|
284 |
|
|
$ |
(10,758 |
) |
|
$ |
9,174 |
|
|
$ |
(82 |
) |
|
$ |
(44 |
) |
|
$ |
6,485 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
39
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. These include enterprise systems (servers,
storage, workstations, and networking products), client systems
(notebook and desktop computer systems), printing and imaging
systems, software and peripherals, and global 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 — Dell’s fiscal year is the
52- or 53-week period ending on the Friday nearest
January 31. Fiscal 2005, 2004, and 2003 all 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 while CIT provides
the financing between DFS and the customer for certain
transactions. Dell began consolidating DFS’s financial
results at the beginning of the third quarter of fiscal 2004 due
to the adoption of Financial Accounting Standards Board
(“FASB”) Interpretation No. 46R
(“FIN 46R”). The consolidation of DFS had no
impact on Dell’s net income or earnings per share because
Dell had historically been recording its 70% equity interest in
DFS under the equity method. See Note 6 of “Notes to
Consolidated Financial Statements.”
Use of Estimates — The preparation of financial
statements in accordance with GAAP requires the use of
management’s 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 with original maturities of three months or less at
date of purchase are carried at cost plus accrued interest,
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 — Dell’s investments in debt
securities and publicly traded equity securities are classified
as available-for-sale and are reported at fair market 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 charged against
income when a decline in the fair market value of an individual
security is determined to be other-than-temporary.
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 10 to
30 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
40
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
Dell’s international sales are made by international
subsidiaries, most of which have the U.S. dollar as their
functional currency. Local currency transactions of
international subsidiaries, which 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. Gains and losses from remeasurement of monetary assets
and liabilities are included in investment and other income,
net. Dell’s 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 translation are
included as a component of stockholders’ equity.
Hedging Instruments — Dell applies Statement of
Financial Accounting Standards (“SFAS”) No. 133,
Accounting for Derivative Instruments and Hedging
Activities, as amended, which establishes accounting and
reporting standards for derivative instruments and hedging
activities. SFAS No. 133 requires Dell to recognize
all derivatives as either assets or liabilities in its
consolidated statement of financial position and measure those
instruments at fair value.
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 fees from multiple-element arrangements to the
elements based on the relative fair value of each element, which
is generally based on the relative list price of each element.
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, for which Dell is not obligated to perform, is
recognized on a net basis at the time of sale.
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
$430 million and $387 million as of January 28,
2005 and January 30, 2004, respectively, and are included
in other current assets on Dell’s consolidated statement of
financial position.
Sale of Finance Receivables — Dell sells
certain loan and lease finance receivables to a special purpose
entity in securitization transactions. The receivables are
removed from the statement of financial position at the time
they are sold. Receivables are considered sold when the
receivables are transferred beyond the reach of Dell’s
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 certain loan and lease finance receivables are
41
recognized in the period the sale occurs, based upon the
relative fair value of the portion sold and the portion
allocated to retained interests.
Warranty — Dell records warranty liabilities at
the time of sale for the estimated costs that may be incurred
under its basic 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, repair parts, labor, and a period ranging from
90 days to three years. Factors that affect Dell’s
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
Dell’s warranty obligation. Each quarter, Dell reevaluates
its estimates to assess the adequacy of its recorded warranty
liabilities and adjusts the amounts as necessary.
Shipping Costs — Dell’s shipping and
handling costs are included in cost of sales in the accompanying
consolidated statement 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 $576 million,
$473 million, and $426 million during fiscal 2005,
2004, and 2003, respectively. General and administrative
expenses include items for Dell’s 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 No. 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 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.
Earnings Per Common Share — Basic earnings per
share is based on the weighted 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
weighted average shares outstanding if the effect of including
such instruments is antidilutive to earnings per share.
Accordingly, certain employee stock options and equity put
contracts (during fiscal 2003) have been excluded from the
calculation of diluted weighted average shares totaling
103 million, 138 million, and 192 million shares
during fiscal 2005, 2004, and 2003, respectively.
42
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 | |
| |
|
| |
| |
|
January 28, | |
|
January 30, | |
|
January 31, | |
| |
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
| |
|
(in millions, except per share amounts) | |
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income
|
|
$ |
3,043 |
|
|
$ |
2,645 |
|
|
$ |
2,122 |
|
| |
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Basic
|
|
|
2,509 |
|
|
|
2,565 |
|
|
|
2,584 |
|
| |
|
Employee stock options and other
|
|
|
59 |
|
|
|
54 |
|
|
|
60 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Diluted
|
|
|
2,568 |
|
|
|
2,619 |
|
|
|
2,644 |
|
| |
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
$ |
1.21 |
|
|
$ |
1.03 |
|
|
$ |
0.82 |
|
| |
Diluted
|
|
$ |
1.18 |
|
|
$ |
1.01 |
|
|
$ |
0.80 |
|
Pro Forma Effects of Stock-Based Compensation —
As of January 28, 2005, Dell had four stock-based
compensation plans and an employee stock purchase plan where
stock options or purchase rights were outstanding. See
Note 5 of “Notes to Consolidated Financial
Statements.” Dell currently applies the recognition and
measurement principles of Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees,
and related Interpretations in accounting for those plans.
Under SFAS No. 123, Accounting for Stock-Based
Compensation, the value of each option is estimated on the
date of grant using the Black-Scholes option pricing model,
which was developed for use in estimating the value of freely
traded options. Similar to other option pricing models, it
requires the input of highly subjective assumptions, including
stock price volatility. Because (1) Dell’s employee
stock options have characteristics significantly different from
those of traded options and (2) changes in the subjective
input assumptions can materially affect the estimated fair
value, management’s opinion is that the existing option
pricing models (including Black-Scholes and Binomial) do not
provide a reliable measure of the fair value of Dell’s
employee stock options.
The following table illustrates the effect on net income and
earnings per share for each of the past three fiscal years as if
Dell had applied the fair value recognition provisions of
SFAS No. 123 to stock-based employee compensation:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year Ended | |
| |
|
| |
| |
|
January 28, | |
|
January 30, | |
|
January 31, | |
| |
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
| |
|
(in millions, except per share amounts) | |
|
Net income — as reported
|
|
$ |
3,043 |
|
|
$ |
2,645 |
|
|
$ |
2,122 |
|
|
Deduct: Total stock-based employee
compensation determined under fair value method for all awards,
net of related tax effects
|
|
|
(812 |
) |
|
|
(829 |
) |
|
|
(723 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net income — pro forma
|
|
$ |
2,231 |
|
|
$ |
1,816 |
|
|
$ |
1,399 |
|
| |
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic — as reported
|
|
$ |
1.21 |
|
|
$ |
1.03 |
|
|
$ |
0.82 |
|
| |
Basic — pro forma
|
|
$ |
0.89 |
|
|
$ |
0.71 |
|
|
$ |
0.54 |
|
| |
Diluted — as reported
|
|
$ |
1.18 |
|
|
$ |
1.01 |
|
|
$ |
0.80 |
|
| |
Diluted — pro forma
|
|
$ |
0.88 |
|
|
$ |
0.68 |
|
|
$ |
0.51 |
|
Under the Black-Scholes option pricing model, the weighted
average fair value of stock options at date of grant was $10.72,
$10.25, and $11.41 per option for options granted during
fiscal 2005, 2004, and 2003, respectively. Additionally, the
weighted average fair value of the purchase rights
43
under the employee stock purchase plan granted in fiscal 2005,
2004, and 2003 was $9.77, $7.88, and $7.39 per right,
respectively. The weighted average fair value of options and
purchase rights under the employee stock purchase plan was
determined based on the Black-Scholes model weighted for all
grants during the period, utilizing the following assumptions:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year Ended | |
| |
|
| |
| |
|
January 28, | |
|
January 30, | |
|
January 31, | |
| |
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
|
Expected term:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Stock options
|
|
|
3.8 years |
|
|
|
3.8 years |
|
|
|
5 years |
|
| |
Employee stock purchase plan
|
|
|
6 months |
|
|
|
6 months |
|
|
|
6 months |
|
|
Risk-free interest rate
|
|
|
2.89 |
% |
|
|
2.99 |
% |
|
|
3.76 |
% |
|
Volatility
|
|
|
36 |
% |
|
|
43 |
% |
|
|
43 |
% |
|
Dividends
|
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
During fiscal 2005 and 2004, Dell evaluated the historical stock
option exercise behavior of its employees, among other relevant
factors, and determined that the best estimate of expected term
of stock options granted in fiscal 2005 and 2004 was
3.8 years, compared to the previous expected term of
5 years. Dell used expected volatility, as well as other
economic data, to estimate the volatility for fiscal 2005, 2004,
and 2003 option grants, because management believes such
volatility is more representative of prospective trends.
Comprehensive Income — Dell’s
comprehensive income is comprised of net income, foreign
currency translation adjustments, unrealized gains and losses on
derivative financial instruments related to foreign currency
hedging, and unrealized gains and losses on marketable
securities classified as available-for-sale.
Recently Issued Accounting Pronouncements — On
December 16, 2004, the FASB issued SFAS No. 123R,
Share-Based Payment. SFAS No. 123R addresses
the accounting for share-based payment transactions in which an
enterprise receives employee services in exchange for
(a) equity instruments of the enterprise or
(b) liabilities that are based on the fair value of the
enterprise’s equity instruments or that may be settled by
the issuance of such equity instruments. SFAS No. 123R
eliminates the ability to account for share-based compensation
transactions using Accounting Principles Board Opinion
No. 25 and generally requires that such transactions be
accounted for using a fair-value-based method. Dell expects to
adopt this standard on its effective date, which is the
beginning of Dell’s third quarter of fiscal 2006. Dell is
currently assessing the final impact of this standard on the
company’s consolidated results of operations, financial
position, and cash flows. This assessment includes evaluating
option valuation methodologies and assumptions as well as
potential changes to Dell’s compensation strategies.
On November 24, 2004, the FASB issued
SFAS No. 151, Inventory Costs — an
amendment of ARB No. 43. SFAS No. 151
requires idle facility expenses, freight, handling costs, and
wasted material (spoilage) costs to be excluded from the
cost of inventory and expensed when incurred. It also requires
that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production
facilities. SFAS No. 151 will be effective at the
beginning of Dell’s fiscal 2007. SFAS No. 151 is
not expected to have a material impact on Dell’s
consolidated results of operations or financial position.
Reclassifications — Certain prior year amounts
have been reclassified to conform to the fiscal 2005
presentation.
NOTE 2 — Financial Instruments
Disclosures About Fair Values of Financial Instruments
The fair value of investments, long-term debt, and related
interest rate derivative instruments has been estimated based
upon market quotes from brokers. The fair value of foreign
currency forward
44
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.
Cash and cash equivalents, accounts receivable, accounts
payable, and accrued and other liabilities are reflected in the
accompanying consolidated statement of financial position at
cost, which approximates fair value because of the short-term
maturity of these instruments.
Investments
The following table summarizes by major security type the fair
market value and cost of Dell’s investments. All
investments with remaining maturities in excess of one year are
recorded as long-term investments in the accompanying
consolidated statement of financial position.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
January 28, 2005 | |
|
January 30, 2004 | |
| |
|
| |
|
| |
| |
|
Fair | |
|
|
|
Fair | |
|
|
| |
|
Market | |
|
|
|
Unrealized | |
|
Market | |
|
|
|
Unrealized | |
| |
|
Value | |
|
Cost | |
|
Gain (Loss) | |
|
Value | |
|
Cost | |
|
Gain | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(in millions) | |
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
U.S. government and agencies
|
|
$ |
7,973 |
|
|
$ |
8,012 |
|
|
$ |
(39 |
) |
|
$ |
5,115 |
|
|
$ |
5,108 |
|
|
$ |
7 |
|
| |
U.S. corporate
|
|
|
1,012 |
|
|
|
1,021 |
|
|
|
(9 |
) |
|
|
2,175 |
|
|
|
2,169 |
|
|
|
6 |
|
| |
International corporate
|
|
|
243 |
|
|
|
245 |
|
|
|
(2 |
) |
|
|
159 |
|
|
|
159 |
|
|
|
— |
|
| |
State and municipal governments
|
|
|
25 |
|
|
|
25 |
|
|
|
— |
|
|
|
5 |
|
|
|
5 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
|
9,253 |
|
|
|
9,303 |
|
|
|
(50 |
) |
|
|
7,454 |
|
|
|
7,441 |
|
|
|
13 |
|
|
Equity and other securities
|
|
|
126 |
|
|
|
123 |
|
|
|
3 |
|
|
|
151 |
|
|
|
138 |
|
|
|
13 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total investments
|
|
$ |
9,379 |
|
|
$ |
9,426 |
|
|
$ |
(47 |
) |
|
$ |
7,605 |
|
|
$ |
7,579 |
|
|
$ |
26 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
|
|
$ |
5,060 |
|
|
$ |
5,068 |
|
|
$ |
(8 |
) |
|
$ |
835 |
|
|
$ |
835 |
|
|
$ |
— |
|
|
Long-term
|
|
|
4,319 |
|
|
|
4,358 |
|
|
|
(39 |
) |
|
|
6,770 |
|
|
|
6,744 |
|
|
|
26 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total investments
|
|
$ |
9,379 |
|
|
$ |
9,426 |
|
|
$ |
(47 |
) |
|
$ |
7,605 |
|
|
$ |
7,579 |
|
|
$ |
26 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 28, 2005, Dell had approximately 1,290 debt
investment positions that had fair market values below their
carrying values for a period of less than 12 months. The
fair market value and unrealized losses on these investment
positions totaled $10 billion and $49 million,
respectively, as of January 28, 2005. The unrealized losses
are due to changes in interest rates and are expected to be
temporary in nature.
The following table summarizes Dell’s recognized gains and
losses on investments, including impairments of certain
investments:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year Ended | |
| |
|
| |
| |
|
January 28, | |
|
January 30, | |
|
January 31, | |
| |
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
| |
|
(in millions) | |
|
Gains
|
|
$ |
40 |
|
|
$ |
94 |
|
|
$ |
86 |
|
|
Losses
|
|
|
(34 |
) |
|
|
(78 |
) |
|
|
(92 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Net recognized gains (losses)
|
|
$ |
6 |
|
|
$ |
16 |
|
|
$ |
(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. As of January 28, 2005,
securities on loan and the related collateral amounts were not
material.
45
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 generally expire in twelve months or
less.
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 GAAP, and therefore, the change in the
instrument’s 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.
If the derivative is designated as a cash flow hedge, the
effective portion of the change in the fair value of the
derivative is initially deferred in other comprehensive income.
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 the fair value of cash flow hedge is recognized
currently in earnings and is reported as a component of
investment and other income, net. Hedge effectiveness is
measured by comparing the hedging instrument’s cumulative
change in fair value from inception to maturity to the
forecasted transaction’s terminal value. During fiscal
years 2005, 2004, and 2003, Dell did not discontinue any cash
flow hedges as substantially all forecasted foreign currency
transactions were realized in Dell’s actual results.
Furthermore, hedge ineffectiveness was not material.
At January 28, 2005, Dell held purchased option contracts
with a notional amount of approximately $2.0 billion, a net
asset value of $53 million and a net unrealized deferred
loss of $52 million, net of taxes. At January 28,
2005, Dell held forward contracts with a notional amount of
approximately $3.0 billion, a net liability value of
$146 million and a net unrealized gain of $21 million,
net of taxes.
At January 30, 2004, Dell held purchased option contracts
with a notional amount of approximately $2.0 billion, a net
asset value of $41 million and a net unrealized deferred
loss of $58 million, net of taxes. At January 30,
2004, Dell held forward contracts with a notional amount of
approximately $3.0 billion, a net liability value of
$185 million and a net unrealized loss of $24 million,
net of taxes.
Long-Term Debt and Interest Rate Risk Management
In April 1998, Dell issued $200 million 6.55% fixed rate
senior notes due April 15, 2008 (the “Senior
Notes”) and $300 million 7.10% fixed rate senior
debentures 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 pari passu 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 Dell’s assets and a limitation on
sale-leaseback transactions.
Concurrent with the issuance of the Senior Notes and Senior
Debentures, Dell entered into interest rate swap agreements
converting Dell’s 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
46
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, Dell’s effective
interest rates for the Senior Notes and Senior Debentures were
2.059% and 2.392%, respectively, for fiscal 2005.
The interest rate swap agreements are designated as fair value
hedges, and the terms of the swap agreements and hedged items
are such that effectiveness can be measured using the short-cut
method defined in SFAS No. 133. 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. The difference between Dell’s carrying
amounts and fair value of its long-term debt and related
interest rate swaps was not material at January 28, 2005
and January 30, 2004.
NOTE 3 — Income Taxes
The provision for income taxes consists of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year Ended | |
| |
|
| |
| |
|
January 28, | |
|
January 30, | |
|
January 31, | |
| |
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
| |
|
(in millions) | |
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Domestic
|
|
$ |
984 |
|
|
$ |
969 |
|
|
$ |
702 |
|
| |
Foreign
|
|
|
209 |
|
|
|
132 |
|
|
|
94 |
|
|
Tax repatriation charge
|
|
|
280 |
|
|
|
— |
|
|
|
— |
|
|
Deferred
|
|
|
(71 |
) |
|
|
(22 |
) |
|
|
109 |
|
| |
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$ |
1,402 |
|
|
$ |
1,079 |
|
|
$ |
905 |
|
| |
|
|
|
|
|
|
|
|
|
Income before income taxes included approximately
$2.4 billion, $1.6 billion, and $968 million
related to foreign operations in fiscal 2005, 2004, and 2003,
respectively. On October 22, 2004, the American Jobs
Creation Act of 2004 (the “Act”) was signed into law.
Among other items, the Act creates a temporary incentive for
U.S. multinationals to repatriate accumulated income earned
outside the U.S. at a tax rate of 5.25%, versus the
U.S. federal statutory rate of 35%. Although the Act
contains a number of limitations related to the repatriation and
some uncertainty remains, as of January 28, 2005 Dell
believes that it has the information necessary to make an
informed decision regarding the impact of the Act on its
repatriation plans. Based on this new legislation, and
subsequent guidance issued by the Department of Treasury, Dell
determined during the fourth quarter of fiscal 2005 that it will
repatriate $4.1 billion in foreign earnings. Accordingly,
Dell recognized a tax repatriation charge of $280 million
in accordance with SFAS No. 109, Accounting for
Income Taxes. This tax charge includes an amount relating to
an apparent drafting oversight that Congressional leaders
indicate will be fixed by a Technical Corrections Bill sometime
during calendar year 2005. The fiscal 2005 tax repatriation
charge will be reduced in the quarter that the Technical
Corrections Bill becomes law. In addition, at the time of
repatriation further adjustment may be required depending upon a
number of factors, including geographic location of cash, mix of
foreign earnings, and statutory tax rates in effect at the time
of the repatriation. The repatriation is required to be
completed by the end of fiscal 2006. This tax repatriation
charge increased Dell’s effective tax rate by 6.3% for
fiscal 2005.
Deferred taxes have not been provided on excess book basis in
the amount of approximately $2.9 billion in the shares of
certain foreign subsidiaries because these basis differences are
not expected to reverse in the foreseeable future and are
essentially 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 $740 million
would be due upon a reversal
47
of this excess book basis. The excess book basis of
$2.9 billion excludes the $4.1 billion to be
repatriated under the Act.
The components of Dell’s net deferred tax asset are as
follows:
| |
|
|
|
|
|
|
|
|
|
| |
|
January 28, | |
|
January 30, | |
| |
|
2005 | |
|
2004 | |
| |
|
| |
|
| |
| |
|
(in millions) | |
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
| |
Deferred revenue
|
|
$ |
241 |
|
|
$ |
86 |
|
| |
Inventory and warranty provisions
|
|
|
232 |
|
|
|
260 |
|
| |
Investment impairments and
unrealized gains
|
|
|
23 |
|
|
|
39 |
|
| |
Provisions for product returns and
doubtful accounts
|
|
|
22 |
|
|
|
21 |
|
| |
Capital loss
|
|
|
6 |
|
|
|
96 |
|
| |
Leasing
|
|
|
— |
|
|
|
69 |
|
| |
Other
|
|
|
99 |
|
|
|
104 |
|
| |
|
|
|
|
|
|
| |
|
|
623 |
|
|
|
675 |
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
| |
Fixed assets
|
|
|
(156 |
) |
|
|
(129 |
) |
| |
Leasing
|
|
|
(10 |
) |
|
|
— |
|
| |
Other
|
|
|
(26 |
) |
|
|
(74 |
) |
| |
|
|
|
|
|
|
| |
|
|
(192 |
) |
|
|
(203 |
) |
| |
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$ |
431 |
|
|
$ |
472 |
|
| |
|
|
|
|
|
|
|
Current portion (included in other
current assets)
|
|
$ |
425 |
|
|
$ |
339 |
|
|
Non-current portion (included in
other non-current assets)
|
|
|
6 |
|
|
|
133 |
|
| |
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$ |
431 |
|
|
$ |
472 |
|
| |
|
|
|
|
|
|
A portion of Dell’s operations operate at a reduced tax
rate or free of tax under various tax holidays which expire in
whole or in part during fiscal 2012 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
$280 million ($0.11 per share) in fiscal 2005,
$210 million ($0.08 per share) in fiscal 2004, and
$137 million ($0.05 per share) in fiscal 2003.
The effective tax rate differed from the statutory
U.S. federal income tax rate as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year Ended | |
| |
|
| |
| |
|
January 28, | |
|
January 30, | |
|
January 31, | |
| |
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
|
U.S. federal statutory rate
|
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
Foreign income taxed at different
rates
|
|
|
(11.6 |
) |
|
|
(7.3 |
) |
|
|
(7.9 |
) |
|
Tax repatriation charge
|
|
|
6.3 |
|
|
|
— |
|
|
|
— |
|
|
Other
|
|
|
1.8 |
|
|
|
1.3 |
|
|
|
2.8 |
|
| |
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
31.5 |
% |
|
|
29.0 |
% |
|
|
29.9 |
% |
| |
|
|
|
|
|
|
|
|
|
The increase in Dell’s fiscal 2005 effective tax rate,
compared to fiscal 2004 and fiscal 2003, is due to the
aforementioned tax repatriation charge, partially offset by a
higher proportion of operating profits attributable to foreign
jurisdictions.
48
NOTE 4 — Capitalization
Preferred Stock
Authorized Shares — Dell has the authority to
issue five million shares of preferred stock, par value
$.01 per share. At January 28, 2005 and
January 30, 2004, 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), Dell’s Board
of Directors designated 200,000 shares of preferred stock
as Series A Junior Participating Preferred Stock
(“Junior Preferred Stock”) and reserved such shares
for issuance upon exercise of the Preferred Share Purchase
Rights. At January 28, 2005 and January 30, 2004, no
shares of Junior Preferred Stock were issued or outstanding.
Common Stock
Authorized Shares — As of January 28,
2005, Dell is authorized to issue seven billion shares of common
stock, par value $.01 per share.
Share Repurchase Program — Dell has a share
repurchase program that authorizes the company to purchase
shares of common stock in order to both distribute cash to
stockholders and manage dilution resulting from shares issued
under Dell’s equity compensation plans. However, Dell does
not currently have a policy that requires the repurchase of
common stock in conjunction with share-based payment
arrangements. As of January 28, 2005, Dell’s share
repurchase program authorized the purchase of up to
1.25 billion shares of common stock at an aggregate cost
not to exceed $20 billion. Dell expects to repurchase
shares of common stock through a systematic program of open
market purchases. As of the end of fiscal 2005, Dell had
cumulatively repurchased 1.2 billion shares for an
aggregate cost of approximately $18.3 billion. During
fiscal 2005, Dell repurchased 119 million shares of common
stock for an aggregate cost of $4.2 billion.
Dell historically utilized equity instrument contracts to
facilitate its repurchase of common stock; however, all
remaining put and call contracts were settled in full during the
fourth quarter of fiscal 2003.
Preferred Share Purchase Rights
In December 1995, Dell distributed a dividend of one Preferred
Share Repurchase Right (a “Right”) for each
outstanding share of common stock, and since that distribution,
shares of common stock have been issued with accompanying
Rights. Each Right entitles the holder to purchase shares of
Junior Preferred Stock at specified prices and rates. The Rights
become exercisable when a person or group acquires 15% or more
of Dell’s outstanding common stock. When it becomes
exercisable, a Right will entitle the holder (other than the
acquiring person or group) to purchase, at the Right’s then
current exercise price, the number of shares of common stock
having a market value of twice the exercise price of the Right.
The Rights also contain provisions relating to mergers or other
business combinations.
In certain circumstances, the Board of Directors may, at its
option, exchange Rights (other than Rights held by the acquiring
person or group) for shares of common stock or shares of Junior
Preferred Stock at specified exchange rates. In addition, Dell
will be entitled to redeem the Rights at $.001 per Right at
any time before a person or group has acquired 15% or more of
Dell’s outstanding common stock. The Rights expire on
November 29, 2005. The Board of Directors may amend the
terms of the Rights to lower the 15% acquisition threshold to
not less than the greater of (a) any percentage greater
than the largest percentage of common stock known by Dell to be
owned by any person (other than Michael S. Dell) or (b) 10%.
49
Neither the ownership nor the further acquisition of common
stock by Michael S. Dell will cause the Rights to become
exercisable or nonredeemable or will trigger the other features
of the Rights.
NOTE 5 — Benefit Plans
Stock Option Plans — Dell has the following
four stock option plans (collectively referred to as the
“Option Plans”) under which options were outstanding
as of January 28, 2005:
|
|
| • |
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”), and |
| |
| • |
The Dell Computer Corporation 2002 Long-Term Incentive Plan (the
“2002 Incentive Plan”) |
The Option Plans are administered by the Compensation Committee
of Dell’s 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 made
under the 2002 Incentive Plan.
The 2002 Incentive Plan provides for the granting of stock-based
incentive awards to Dell’s employees, nonemployee
directors, and certain consultants and advisors to Dell. Awards
may be either incentive stock options within the meaning of
Section 422 of the Internal Revenue Code or nonqualified
options. The right to purchase shares pursuant to existing stock
option agreements typically vests pro-rata at each option
anniversary date over a five-year period. The options are
generally granted at fair market value and must be exercised
within ten years from the date of grant. Dell has not
issued any options to consultants or advisors to the company
since fiscal 1999.
There were 291 million, 327 million, and
365 million options to purchase Dell’s common stock
available for future grants under the Option Plans as of
January 28, 2005, January 30, 2004, and
January 31, 2003, respectively. All of the shares available
for future grants as of January 28, 2005 are under the 2002
Incentive Plan.
The following table summarizes stock option activity for the
Option Plans:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year Ended | |
| |
|
| |
| |
|
January 28, 2005 | |
|
January 30, 2004 | |
|
January 31, 2003 | |
| |
|
| |
|
| |
|
| |
| |
|
|
|
Weighted- | |
|
|
|
Weighted- | |
|
|
|
Weighted- | |
| |
|
Number | |
|
Average | |
|
Number | |
|
Average | |
|
Number | |
|
Average | |
| |
|
of | |
|
Exercise | |
|
of | |
|
Exercise | |
|
of | |
|
Exercise | |
| |
|
Options | |
|
Price | |
|
Options | |
|
Price | |
|
Options | |
|
Price | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(share data in millions) | |
|
Options outstanding —
beginning of year
|
|
|
378 |
|
|
$ |
28.30 |
|
|
|
387 |
|
|
$ |
27.09 |
|
|
|
350 |
|
|
$ |
26.36 |
|
| |
Granted
|
|
|
52 |
|
|
|
34.35 |
|
|
|
51 |
|
|
|
30.01 |
|
|
|
84 |
|
|
|
26.37 |
|
| |
Exercised
|
|
|
(45 |
) |
|
|
22.30 |
|
|
|
(35 |
) |
|
|
14.92 |
|
|
|
(22 |
) |
|
|
7.69 |
|
| |
Cancelled
|
|
|
(16 |
) |
|
|
32.39 |
|
|
|
(25 |
) |
|
|
31.62 |
|
|
|
(25 |
) |
|
|
31.75 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding — end
of year
|
|
|
369 |
|
|
|
29.70 |
|
|
|
378 |
|
|
|
28.30 |
|
|
|
387 |
|
|
|
27.09 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable — end
of year
|
|
|
171 |
|
|
$ |
28.99 |
|
|
|
154 |
|
|
$ |
26.74 |
|
|
|
130 |
|
|
$ |
22.59 |
|
50
The following is additional information relating to options for
the Option Plans outstanding as of January 28, 2005:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Options Outstanding | |
|
Options Exercisable | |
| |
|
| |
|
| |
| |
|
|
|
Weighted- | |
|
|
| |
|
|
|
Weighted- | |
|
Average | |
|
|
|
Weighted- | |
| |
|
Number | |
|
Average | |
|
Remaining | |
|
Number | |
|
Average | |
| |
|
of | |
|
Exercise | |
|
Contractual | |
|
of | |
|
Exercise | |
| |
|
Shares | |
|
Price | |
|
Life (Years) | |
|
Shares | |
|
Price | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(share data in millions) | |
|
$0.01-$1.49
|
|
|
7 |
|
|
$ |
1.17 |
|
|
|
1.11 |
|
|
|
7 |
|
|
$ |
1.17 |
|
|
$1.50-$14.99
|
|
|
17 |
|
|
$ |
7.74 |
|
|
|
2.42 |
|
|
|
17 |
|
|
$ |
7.74 |
|
|
$15.00-$24.99
|
|
|
74 |
|
|
$ |
22.41 |
|
|
|
6.14 |
|
|
|
37 |
|
|
$ |
21.93 |
|
|
$25.00-$34.99
|
|
|
145 |
|
|
$ |
29.04 |
|
|
|
7.56 |
|
|
|
40 |
|
|
$ |
28.38 |
|
|
$35.00 and over
|
|
|
126 |
|
|
$ |
39.27 |
|
|
|
6.22 |
|
|
|
70 |
|
|
$ |
41.07 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
369 |
|
|
|
|
|
|
|
|
|
|
|
171 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Stock Purchase Plan — Dell has an
employee stock purchase plan that qualifies under
Section 423 of the Internal Revenue Code and permits
substantially all employees to purchase shares of Dell’s
common stock. Participating employees may purchase common stock
through payroll deductions at the end of each 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. Common stock reserved for future
employee purchases under the plan aggregated 21 million
shares at January 28, 2005, 25 million shares at
January 30, 2004 and 29 million shares at
January 31, 2003. Common stock issued under this plan
totaled 4 million shares in fiscal 2005, 4 million
shares in fiscal 2004, and 4 million shares in fiscal 2003.
Restricted Stock Grants — During fiscal 2005,
2004, and 2003, Dell granted 0.4 million, 0.6 million
shares, and 0.3 million shares of restricted stock,
respectively. The weighted average fair value of restricted
stock granted in fiscal 2005, 2004, and 2003 was $35.14, $27.92,
and $25.43, respectively. For substantially all 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 shares typically vest over
a seven-year period beginning on the date of grant. Dell records
unearned compensation in stockholders’ equity equal to the
market value of the restricted shares on the date of grant and
charges the unearned compensation to expense over the vesting
period.
401(k) Plan — Dell has a defined contribution
retirement plan that complies with Section 401(k) of the
Internal Revenue Code. Substantially all employees in the
U.S. are eligible to participate in the plan. During
calendar 2004, Dell matched 100% of each participant’s
voluntary contributions, subject to a maximum contribution of 3%
of the participant’s compensation. Beginning
January 1, 2005, Dell began matching 100% of each
participant’s voluntary contributions, subject to a maximum
contribution of 4% of the participant’s compensation, and
participants vest immediately in all company contributions to
the Plan. Dell’s contributions during fiscal 2005, 2004,
and 2003 were $48 million, $42 million, and
$38 million, respectively. Dell’s contributions are
invested proportionate to each participant’s voluntary
contributions 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.
NOTE 6 — Financial Services
Dell is currently a partner in DFS, a joint venture with CIT.
The joint venture allows Dell to provide its customers with
various financing alternatives while CIT usually provides the
financing for the transaction between DFS and the customer for
certain transactions. In general, DFS facilitates customer
financing transactions through either loan or lease financing.
For customers who desire loan financing, Dell sells equipment
directly to customers who, in turn, enter into loans with CIT to
finance their purchases. For customers who desire lease
financing, Dell sells the equipment to DFS,
51
and DFS enters into direct financing lease arrangements with the
customers. Dell recognized revenue from the sale of products
pursuant to loan and lease financing transactions of
$5.6 billion, $4.5 billion, and $3.6 billion
during fiscal 2005, 2004, and 2003, respectively.
Dell currently owns a 70% equity interest in DFS. During the
third quarter of fiscal 2004, Dell began consolidating
DFS’s financial results due to the adoption of
FIN 46R. FIN 46R provides that if an entity is the
primary beneficiary of a Variable Interest Entity
(“VIE”), the assets, liabilities, and results of
operations of the VIE should be consolidated in the
entity’s financial statements. Based on the guidance in
FIN 46R, Dell concluded that DFS is a VIE and Dell is the
primary beneficiary of DFS’s expected cash flows. Prior to
consolidating DFS’s financial results, Dell’s
investment in DFS was accounted for under the equity method
because the company historically did not exercise control over
DFS. Accordingly, the consolidation of DFS had no impact on
Dell’s net income or earnings per share. CIT’s equity
ownership in the net assets of DFS as of January 28, 2005
was $13 million, which is recorded as minority interest and
included in other non-current liabilities on Dell’s
consolidated statement of financial position. The consolidation
did not alter the partnership agreement or risk sharing
arrangement between Dell and CIT.
During the third quarter of fiscal 2005, 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. CIT has no recourse or rights of return
to Dell, except that end-user customers may return equipment in
accordance with Dell’s standard return policy. The
extension agreement provides Dell with the option to purchase
CIT’s 30% interest in DFS in February 2008 for a purchase
price ranging from $100 million to $345 million,
depending upon DFS’s profitability. If Dell does not
exercise this purchase option, Dell is obligated to purchase
CIT’s 30% interest upon the occurrence of certain
termination events, or expiration of the joint venture on
January 29, 2010 for a purchase price ranging from
$100 million to $345 million.
Prior to execution of the extension agreement, CIT provided all
of the financing for transactions between DFS and the customer.
The extension agreement also gives Dell the right, but not the
obligation, to participate in such financings beginning in the
fourth quarter of fiscal 2005. During the fourth quarter of
fiscal 2005, Dell began selling certain loan and lease finance
receivables to an unconsolidated qualifying special purpose
entity that is wholly owned by Dell. The qualifying special
purpose entity is a separate legal entity with assets and
liabilities separate from those of Dell. The qualifying special
purpose entity has entered into a financing arrangement with a
multiseller conduit that in turn issues asset-backed debt
securities to the capital markets. Transfers of financing
receivables are recorded in accordance with the provisions of
SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of
Liabilities. The sale of these loan and lease financing
receivables did not have a material impact on Dell’s
consolidated financial position, results of operations, or cash
flows for fiscal 2005.
DFS maintains credit facilities with CIT which provide DFS with
a funding capacity of up to $1.0 billion. As of
January 28, 2005, outstanding advances under these
facilities totaled $158 million and are included in other
current and non-current liabilities on Dell’s consolidated
statement of financial position. Dell is dependent upon DFS to
provide financing for a significant number of customers who
elect to finance Dell products, and DFS is dependent upon CIT to
access the capital markets to provide funding for these
transactions. If CIT is unable to access the capital markets,
Dell would find additional alternative sources for financing for
its customers or self-finance these activities.
NOTE 7 — Deferred Revenue and Warranty
Liability
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
52
that may be incurred under its basic limited warranty. Changes
in Dell’s aggregate deferred revenue and warranty liability
(basic and extended warranties), which are included in other
current and non-current liabilities on Dell’s consolidated
statement of financial position, are presented in the following
table:
| |
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year Ended | |
| |
|
| |
| |
|
January 28, | |
|
January 30, | |
| |
|
2005 | |
|
2004 | |
| |
|
| |
|
| |
| |
|
(in millions) | |
|
Aggregate deferred revenue and
warranty liability at beginning of period
|
|
$ |
2,694 |
|
|
$ |
2,042 |
|
| |
Revenue deferred and costs accrued
for new warranties
|
|
|
3,435 |
|
|
|
2,547 |
|
| |
Service obligations honored
|
|
|
(1,176 |
) |
|
|
(983 |
) |
| |
Amortization of deferred revenue
|
|
|
(1,359 |
) |
|
|
(912 |
) |
| |
|
|
|
|
|
|
|
Aggregate deferred revenue and
warranty liability at end of period
|
|
$ |
3,594 |
|
|
$ |
2,694 |
|
| |
|
|
|
|
|
|
|
Current portion
|
|
$ |
1,893 |
|
|
$ |
1,333 |
|
|
Non-current portion
|
|
|
1,701 |
|
|
|
1,361 |
|
| |
|
|
|
|
|
|
|
Aggregate deferred revenue and
warranty liability at end of period
|
|
$ |
3,594 |
|
|
$ |
2,694 |
|
| |
|
|
|
|
|
|
NOTE 8 — Commitments, Contingencies, and
Certain Concentrations
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. As of January 28,
2005, future minimum lease payments under these non-cancelable
leases were as follows: $52 million in fiscal 2006;
$40 million in fiscal 2007; $36 million in fiscal
2008; $28 million in fiscal 2009; $18 million in
fiscal 2010; and $83 million thereafter.
Dell historically maintained master lease facilities which
provided the company with the ability to lease certain real
property, buildings, and equipment to be constructed or
acquired. These leases were accounted for as operating leases by
Dell. During fiscal 2004, Dell paid $636 million to
purchase all of the assets covered by its master lease
facilities. Accordingly, the assets formerly covered by these
facilities are included in Dell’s consolidated statement of
financial position and Dell has no remaining lease commitments
under these master lease facilities.
Rent expense under all leases totaled $60 million,
$76 million, and $96 million for fiscal 2005, 2004,
and 2003, respectively.
DFS Purchase Commitment — Pursuant to the
joint venture agreement between DFS and CIT, Dell has a minimum
purchase obligation to purchase CIT’s 30% interest in DFS
at the expiration of the joint venture on January 29, 2010,
for a purchase price ranging from $100 million to
$345 million. See Note 6 of “Notes to
Consolidated Financial Statements.”
Restricted Cash — Pursuant to the joint
venture agreement between DFS and CIT, DFS is required to
maintain certain escrow cash accounts. Due to the consolidation
of DFS, $438 million in restricted cash is included in
other current assets on Dell’s consolidated statement of
financial position as of January 28, 2005.
Legal Matters — Dell is subject to various
legal proceedings and claims arising in the ordinary course of
business. Dell’s management does not expect that the
outcome in any of these legal proceedings, individually or
collectively, will have a material adverse effect on Dell’s
financial condition, results of operations, or cash flows.
Certain Concentrations — All of Dell’s
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
53
counterparties to these financial instruments. Dell does not
anticipate nonperformance by any of the counterparties.
Dell’s investments in debt securities are placed with high
quality financial institutions and companies. Dell’s
investments in debt securities primarily have 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’s receivables from such parties are well diversified.
Dell purchases a number of components from single sources. In
some cases, alternative sources of supply are not available. In
other cases, Dell may establish a working relationship with a
single source if Dell believes it is advantageous due to
performance, quality, support, delivery, capacity or price
considerations. If the supply of a critical single-source
material or component were delayed or curtailed, Dell’s
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 Dell’s operating results.
|
|
| NOTE 9 — |
Segment Information |
Dell conducts operations worldwide and is managed in three
geographic segments: the Americas, Europe, and Asia
Pacific-Japan regions. 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 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 European
region, which is based in Bracknell, England, covers Europe, the
Middle East, and Africa. The Asia Pacific-Japan region covers
the Pacific Rim, including Australia and New Zealand, and is
based in Singapore.
The accounting policies of Dell’s reportable segments are
the same as those described in the summary of significant
accounting policies. Dell allocates resources to and evaluates
the performance of its segments based on operating income.
Corporate expenses are included in Dell’s measure of
segment operating income for management reporting purposes. 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
segments within the Americas. Corporate assets primarily include
cash and cash equivalents, investments, deferred tax assets, and
other assets.
54
The table below presents information about Dell’s
reportable segments:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year Ended | |
| |
|
| |
| |
|
January 28, | |
|
January 30, | |
|
January 31, | |
| |
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
| |
|
(in millions) | |
|
Net revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Americas:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Business
|
|
$ |
25,339 |
|
|
$ |
21,888 |
|
|
$ |
19,394 |
|
| |
|
U.S. Consumer
|
|
|
7,601 |
|
|
|
6,715 |
|
|
|
5,653 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Total Americas
|
|
|
32,940 |
|
|
|
28,603 |
|
|
|
25,047 |
|
| |
Europe
|
|
|
10,787 |
|
|
|
8,495 |
|
|
|
6,912 |
|
| |
Asia Pacific-Japan
|
|
|
5,478 |
|
|
|
4,346 |
|
|
|
3,445 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Total net revenue
|
|
$ |
49,205 |
|
|
$ |
41,444 |
|
|
$ |
35,404 |
|
| |
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Americas:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Business
|
|
$ |
2,579 |
|
|
$ |
2,194 |
|
|
$ |
1,945 |
|
| |
|
U.S. Consumer
|
|
|
399 |
|
|
|
400 |
|
|
|
308 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Total Americas
|
|
|
2,978 |
|
|
|
2,594 |
|
|
|
2,253 |
|
| |
Europe
|
|
|
818 |
|
|
|
637 |
|
|
|
388 |
|
| |
Asia Pacific-Japan
|
|
|
458 |
|
|
|
313 |
|
|
|
203 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Total operating income
|
|
$ |
4,254 |
|
|
$ |
3,544 |
|
|
$ |
2,844 |
|
| |
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Americas:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Business
|
|
$ |
125 |
|
|
$ |
102 |
|
|
$ |
97 |
|
| |
|
U.S. Consumer
|
|
|
53 |
|
|
|
41 |
|
|
|
38 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Total Americas
|
|
|
178 |
|
|
|
143 |
|
|
|
135 |
|
| |
Europe
|
|
|
88 |
|
|
|
71 |
|
|
|
47 |
|
| |
Asia Pacific-Japan
|
|
|
68 |
|
|
|
49 |
|
|
|
29 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Total depreciation and amortization
expense
|
|
$ |
334 |
|
|
$ |
263 |
|
|
$ |
211 |
|
| |
|
|
|
|
|
|
|
|
|
|
Assets
|
| |
Americas
|
|
$ |
3,724 |
|
|
$ |
3,134 |
|
|
$ |
2,847 |
|
| |
Europe
|
|
|
1,817 |
|
|
|
1,510 |
|
|
|
1,302 |
|
| |
Asia Pacific-Japan
|
|
|
1,075 |
|
|
|
860 |
|
|
|
634 |
|
| |
Corporate assets
|
|
|
16,599 |
|
|
|
13,807 |
|
|
|
10,687 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Total assets
|
|
$ |
23,215 |
|
|
$ |
19,311 |
|
|
$ |
15,470 |
|
| |
|
|
|
|
|
|
|
|
|
55
The following is net revenue and long-lived asset information by
geographic region:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year Ended | |
| |
|
| |
| |
|
January 28, | |
|
January 30, | |
|
January 31, | |
| |
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
| |
|
(in millions) | |
|
Net revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
United States
|
|
$ |
30,338 |
|
|
$ |
26,510 |
|
|
$ |
23,355 |
|
| |
Foreign countries
|
|
|
18,867 |
|
|
|
14,934 |
|
|
|
12,049 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total net revenue
|
|
$ |
49,205 |
|
|
$ |
41,444 |
|
|
$ |
35,404 |
|
| |
|
|
|
|
|
|
|
|
|
|
Long-lived assets
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
United States
|
|
$ |
1,267 |
|
|
$ |
1,145 |
|
|
$ |
613 |
|
| |
Foreign countries
|
|
|
424 |
|
|
|
372 |
|
|
|
300 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total long-lived assets
|
|
$ |
1,691 |
|
|
$ |
1,517 |
|
|
$ |
913 |
|
| |
|
|
|
|
|
|
|
|
|
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
Dell’s consolidated net revenues or long-lived assets
during fiscal 2005, 2004, and 2003.
The following is net revenue by product groups:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year Ended | |
| |
|
| |
| |
|
January 28, | |
|
January 30, | |
|
January 31, | |
| |
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
| |
|
(in millions) | |
|
Desktop computer systems
|
|
$ |
24,631 |
|
|
$ |
21,026 |
|
|
$ |
18,865 |
|
|
Notebook computers
|
|
|
14,057 |
|
|
|
11,380 |
|
|
|
9,638 |
|
|
Enterprise systems
|
|
|
10,517 |
|
|
|
9,038 |
|
|
|
6,901 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Total net revenue
|
|
$ |
49,205 |
|
|
$ |
41,444 |
|
|
$ |
35,404 |
|
| |
|
|
|
|
|
|
|
|
|
Net revenue by product group includes associated revenue from
printing and imaging systems, software and peripherals, and
global services. No single customer accounted for more than 10%
of Dell’s consolidated net revenue during fiscal 2005, 2004
and 2003.
56
|
|
| NOTE 10 — |
Supplemental Consolidated Financial Information |
| |
|
|
|
|
|
|
|
|
|
|
| |
|
January 28, | |
|
January 30, | |
| |
|
2005 | |
|
2004 | |
| |
|
| |
|
| |
| |
|
(in millions) | |
|
Supplemental Consolidated
Statements of Financial Position Information:
|
|
|
|
|
|
|
|
|
|
Accounts receivable:
|
|
|
|
|
|
|
|
|
| |
Gross accounts receivable
|
|
$ |
4,492 |
|
|
$ |
3,719 |
|
| |
Allowance for doubtful accounts
|
|
|
(78 |
) |
|
|
(84 |
) |
| |
|
|
|
|
|
|
| |
|
$ |
4,414 |
|
|
$ |
3,635 |
|
| |
|
|
|
|
|
|
|
Inventories:
|
|
|
|
|
|
|
|
|
| |
Production materials
|
|
$ |
228 |
|
|
$ |
161 |
|
| |
Work-in-process
|
|
|
58 |
|
|
|
69 |
|
| |
Finished goods
|
|
|
173 |
|
|
|
97 |
|
| |
|
|
|
|
|
|
| |
|
$ |
459 |
|
|
$ |
327 |
|
| |
|
|
|
|
|
|
|
Property, plant and equipment:
|
|
|
|
|
|
|
|
|
| |
Land and buildings
|
|
$ |
1,207 |
|
|
$ |
1,158 |
|
| |
Computer equipment
|
|
|
1,053 |
|
|
|
898 |
|
| |
Machinery and other equipment
|
|
|
757 |
|
|
|
594 |
|
| |
|
|
|
|
|
|
| |
|
Total property, plant and equipment
|
|
|
3,017 |
|
|
|
2,650 |
|
| |
Accumulated depreciation and
amortization
|
|
|
(1,326 |
) |
|
|
(1,133 |
) |
| |
|
|
|
|
|
|
| |
|
$ |
1,691 |
|
|
$ |
1,517 |
|
| |
|
|
|
|
|
|
|
Accrued and other current
liabilities:
|
|
|
|
|
|
|
|
|
| |
Deferred revenue
|
|
$ |
1,389 |
|
|
$ |
961 |
|
| |
Compensation
|
|
|
753 |
|
|
|
603 |
|
| |
Other
|
|
|
3,099 |
|
|
|
2,016 |
|
| |
|
|
|
|
|
|
| |
|
$ |
5,241 |
|
|
$ |
3,580 |
|
| |
|
|
|
|
|
|
|
Other non-current liabilities:
|
|
|
|
|
|
|
|
|
| |
Deferred revenue
|
|
$ |
1,415 |
|
|
$ |
1,092 |
|
| |
Other
|
|
|
674 |
|
|
|
538 |
|
| |
|
|
|
|
|
|
| |
|
$ |
2,089 |
|
|
$ |
1,630 |
|
| |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year Ended | |
| |
|
| |
| |
|
January 28, | |
|
January 30, | |
|
January 31, | |
| |
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
| |
|
(in millions) | |
|
Supplemental Consolidated
Statements of Income Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment and other income, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Investment income, primarily
interest
|
|
$ |
226 |
|
|
$ |
200 |
|
|
$ |
227 |
|
| |
Gains (losses) on investments, net
|
|
|
6 |
|
|
|
16 |
|
|
|
(6 |
) |
| |
Interest expense
|
|
|
(16 |
) |
|
|
(14 |
) |
|
|
(17 |
) |
| |
Other
|
|
|
(25 |
) |
|
|
(22 |
) |
|
|
(21 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
191 |
|
|
$ |
180 |
|
|
$ |
183 |
|
| |
|
|
|
|
|
|
|
|
|
57
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year Ended | |
| |
|
| |
| |
|
January 28, | |
|
January 30, | |
|
January 31, | |
| |
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
| |
|
(in millions) | |
|
Supplemental Consolidated
Statements of Cash Flows Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in operating working
capital accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Accounts receivable, net
|
|
$ |
(837 |
) |
|
$ |
(813 |
) |
|
$ |
190 |
|
| |
Inventories
|
|
|
(130 |
) |
|
|
(53 |
) |
|
|
(21 |
) |
| |
Accounts payable
|
|
|
1,595 |
|
|
|
1,283 |
|
|
|
844 |
|
| |
Accrued and other liabilities
|
|
|
1,538 |
|
|
|
867 |
|
|
|
585 |
|
| |
Other, net
|
|
|
(411 |
) |
|
|
(412 |
) |
|
|
(388 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
1,755 |
|
|
$ |
872 |
|
|
$ |
1,210 |
|
| |
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$ |
575 |
|
|
$ |
699 |
|
|
$ |
607 |
|
|
Interest paid
|
|
$ |
31 |
|
|
$ |
30 |
|
|
$ |
20 |
|
|
|
| NOTE 11 — |
Unaudited Quarterly Results |
The following tables contain selected unaudited consolidated
statements of income and stock sales price data for each quarter
of fiscal 2005 and 2004:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year 2005 |
| |
|
|
| |
|
4th |
|
3rd |
|
2nd |
|
1st |
| |
|
Quarter(a) |
|
Quarter |
|
Quarter |
|
Quarter |
| |
|
|
|
|
|
|
|
|
| |
|
(in millions, except per share data) |
|
Net revenue
|
|
$ |
13,457 |
|
|
$ |
12,502 |
|
|
$ |
11,706 |
|
|
$ |
11,540 |
|
|
Gross margin
|
|
$ |
2,495 |
|
|
$ |
2,313 |
|
|
$ |
2,134 |
|
|
$ |
2,073 |
|
|
Net income
|
|
$ |
667 |
|
|
$ |
846 |
|
|
$ |
799 |
|
|
$ |
731 |
|
|
Earnings per common share(b):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
$ |
0.27 |
|
|
$ |
0.34 |
|
|
$ |
0.32 |
|
|
$ |
0.29 |
|
| |
Diluted
|
|
$ |
0.26 |
|
|
$ |
0.33 |
|
|
$ |
0.31 |
|
|
$ |
0.28 |
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
|
2,485 |
|
|
|
2,493 |
|
|
|
2,518 |
|
|
|
2,539 |
|
| |
Diluted
|
|
|
2,553 |
|
|
|
2,546 |
|
|
|
2,574 |
|
|
|
2,593 |
|
|
Stock sales prices per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
High
|
|
$ |
42.38 |
|
|
$ |
36.66 |
|
|
$ |
36.66 |
|
|
$ |
36.31 |
|
| |
Low
|
|
$ |
35.06 |
|
|
$ |
33.12 |
|
|
$ |
34.05 |
|
|
$ |
31.20 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year 2004 |
| |
|
|
| |
|
4th |
|
3rd |
|
2nd |
|
1st |
| |
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
| |
|
|
|
|
|
|
|
|
| |
|
(in millions, except per share data) |
|
Net revenue
|
|
$ |
11,512 |
|
|
$ |
10,622 |
|
|
$ |
9,778 |
|
|
$ |
9,532 |
|
|
Gross margin
|
|
$ |
2,091 |
|
|
$ |
1,935 |
|
|
$ |
1,778 |
|
|
$ |
1,748 |
|
|
Net income
|
|
$ |
749 |
|
|
$ |
677 |
|
|
$ |
621 |
|
|
$ |
598 |
|
|
Earnings per common share(b):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
$ |
0.29 |
|
|
$ |
0.26 |
|
|
$ |
0.24 |
|
|
$ |
0.23 |
|
| |
Diluted
|
|
$ |
0.29 |
|
|
$ |
0.26 |
|
|
$ |
0.24 |
|
|
$ |
0.23 |
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
|
2,557 |
|
|
|
2,563 |
|
|
|
2,567 |
|
|
|
2,572 |
|
| |
Diluted
|
|
|
2,616 |
|
|
|
2,623 |
|
|
|
2,624 |
|
|
|
2,614 |
|
|
Stock sales prices per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
High
|
|
$ |
36.52 |
|
|
$ |
36.98 |
|
|
$ |
34.00 |
|
|
$ |
29.89 |
|
| |
Low
|
|
$ |
32.65 |
|
|
$ |
30.94 |
|
|
$ |
29.49 |
|
|
$ |
22.86 |
|
58
|
|
|
|
(a) |
|
During the fourth quarter of fiscal 2005, Dell recorded a tax
repatriation charge of $280 million pursuant to a favorable
tax incentive provided by the American Jobs Creation Act of
2004. This tax charge is related to Dell’s decision to
repatriate $4.1 billion in foreign earnings. |
| |
|
(b) |
|
Earnings per common share are computed independently for each of
the quarters presented. Therefore, the sum of the quarterly per
common share information may not equal the annual earnings per
common share. |
ITEM 9 — CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL
DISCLOSURE
None.
ITEM 9A — CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and
Procedures — Dell’s Chief Executive Officer
and Chief Financial Officer, after evaluating the effectiveness
of Dell’s disclosure controls and procedures (as defined in
Rule 13a-15(e) or 15d-15(e) under the Exchange Act) as of
the end of the period covered by this report, have concluded
that, based on the evaluation of these controls and procedures,
Dell’s disclosure controls and procedures were effective.
Management’s Report on Internal Control Over Financial
Reporting — Dell’s management, under the
supervision of Dell’s Chief Executive Officer and Chief
Financial Officer, is responsible for establishing and
maintaining adequate internal control over financial reporting
(as defined in Rule 13a-15(f) or 15d-15(f) under the
Exchange Act). Management evaluated the effectiveness of
Dell’s internal control over financial reporting based on
the framework in Internal Control — Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on that
evaluation, management has concluded that Dell’s internal
control over financial reporting was effective as of
January 28, 2005.
Management’s assessment of the effectiveness of Dell’s
internal control over financial reporting as of January 28,
2005, has been audited by PricewaterhouseCoopers LLP, an
independent registered public accounting firm, as stated in
their Report of Independent Registered Public Accounting Firm
included in “Item 8 — Financial Statements
and Supplementary Data.”
Changes in Internal Control Over Financial
Reporting — Dell’s management, with the
participation of Dell’s Chief Executive Officer and Chief
Financial Officer, has evaluated whether any change in
Dell’s internal control over financial reporting occurred
during the fourth quarter of fiscal 2005. Based on that
evaluation, management concluded that there has been no change
in Dell’s internal control over financial reporting during
the fourth quarter of fiscal 2005 that has materially affected,
or is reasonably likely to materially affect, Dell’s
internal control over financial reporting.
ITEM 9B — OTHER INFORMATION
On March 3, 2005, the Compensation Committee of the Board
of Directors approved a new fiscal 2006 Long-Term Cash Incentive
Bonus Program (the “2006 program”) for certain
executive officers other than Mr. Dell and
Mr. Rollins. The purpose of the program is to encourage
commitment to, and provide incentive for the attainment of,
Dell’s long-term growth and profitability goals. The
Compensation Committee considers these goals to be significant
contributors to long-term stockholder value.
The Compensation Committee approved a similar program in fiscal
2004 (the “2004 program”), as set forth in the
company’s 2003 proxy statement. Under the 2004 program,
performance metrics are measured over a forward-looking
four-year performance period. Since the company is meeting the
goals set for the 2004 program more quickly than anticipated,
the Compensation Committee approved the 2006 program with new
and more aggressive goals in order to further align executive
incentives with Company performance.
59
Under the 2006 program, certain revenue growth and profitability
metrics are measured over a three-year performance period
(beginning with fiscal 2006 and continuing through fiscal 2008).
If actual company performance, on an annual basis, meets the
specified revenue targets and profitability threshold levels,
participating executives will be entitled to receive one-time
cash bonuses at the end of the three-year performance period.
The bonus amounts will be a multiple of the executive’s
annual cash bonus for each year that the annual performance
goals are met. The maximum aggregate bonus modifier over the
three-year period is 500%. Payment of each executive’s
long-term cash incentive bonus is conditioned on continued
employment. For participants in the 2006 program, the fiscal
2007 bonus modifier under the 2004 program will be reduced from
300% to 200%.
The 2006 program was established under the 2002 Long-Term
Incentive Plan, which was approved by stockholders at the 2002
annual meeting. The Compensation Committee intends compensation
paid pursuant to the fiscal 2006 program to qualify as
“performance-based compensation” for purposes of
Section 162(m) of the Internal Revenue Code.
PART III
The information called for by Part III of Form 10-K
(Item 10 — Directors and Executive Officers of
the Registrant, Item 11 — Executive Compensation,
Item 12 — Security Ownership of Certain
Beneficial Owners and Management, Item 13 —
Certain Relationships and Related Transactions, and
Item 14 — Principal Accounting Fees and
Services), to the extent not set forth herein under
“Item 1 — Business — Executive
Officers of Dell,” is incorporated by reference from
Dell’s definitive proxy statement, which will be filed with
the Securities and Exchange Commission within 120 days
after the end of the fiscal year to which this report relates.
PART IV
|
|
| ITEM 15 — |
EXHIBITS, FINANCIAL STATEMENT SCHEDULE |
Financial Statements
The following financial statements are filed as a part of this
report under “Item 8 — Financial Statements
and Supplementary Data:”
| |
|
|
|
|
| |
|
Page | |
| |
|
| |
|
Report of Independent Registered
Public Accounting Firm
|
|
|
34 |
|
|
Consolidated Statements of
Financial Position at January 28, 2005 and January 30,
2004
|
|
|
36 |
|
|
Consolidated Statements of Income
for each of the three fiscal years ended January 28, 2005
|
|
|
37 |
|
|
Consolidated Statements of Cash
Flows for each of the three fiscal years ended January 28,
2005
|
|
|
38 |
|
|
Consolidated Statements of
Stockholders’ Equity for each of the three fiscal years
ended January 28, 2005
|
|
|
39 |
|
|
Notes to Consolidated Financial
Statements
|
|
|
40 |
|
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
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.
60
Exhibits
| |
|
|
|
|
|
|
| Exhibit |
|
|
|
|
| No. |
|
|
|
Description of Exhibit |
| |
|
|
|
|
| |
3 |
.1 |
|
—
|
|
Restated Certificate of
Incorporation, filed July 24, 2003 (incorporated by
reference to Exhibit 3.2 of Dell’s Quarterly Report on
Form 10-Q for the fiscal quarter ended August 1, 2003,
Commission File No. 0-17017)
|
| |
3 |
.2 |
|
—
|
|
Restated Bylaws, as adopted on
July 18, 2003 (incorporated by reference to
Exhibit 3.3 of Dell’s Quarterly Report on
Form 10-Q for the fiscal quarter ended August 1, 2003,
Commission File No. 0-17017)
|
| |
4 |
.1 |
|
—
|
|
Rights Agreement, dated as of
November 29, 1995 (incorporated by reference to
Exhibit 4 of Dell’s Current Report on Form 8-K
filed on November 30, 1995, Commission File No. 0-17017)
|
| |
4 |
.2 |
|
—
|
|
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 Dell’s 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
Dell’s 6.55% Senior Notes Due 2008 (incorporated by
reference to Exhibit 99.3 of Dell’s Current Report on
Form 8-K filed April 28, 1998, Commission File
No. 0-17017)
|
| |
4 |
.4 |
|
—
|
|
Officers’ Certificate pursuant
to Section 301 of the Indenture establishing the terms of
Dell’s 7.10% Senior Debentures Due 2028 (incorporated
by reference to Exhibit 99.4 of Dell’s Current Report
on Form 8-K filed April 28, 1998, Commission File
No. 0-17017)
|
| |
4 |
.5 |
|
—
|
|
Form of Dell’s
6.55% Senior Notes Due 2008 (incorporated by reference to
Exhibit 99.5 of Dell’s Current Report on Form 8-K
filed April 28, 1998, Commission File No. 0-17017)
|
| |
4 |
.6 |
|
—
|
|
Form of Dell’s
7.10% Senior Debentures Due 2028 (incorporated by reference
to Exhibit 99.6 of Dell’s 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 Dell’s 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 Dell’s 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 Dell’s 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 Dell’s 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 Dell’s 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
|
61
| |
|
|
|
|
|
|
| Exhibit | |
|
|
|
|
| No. | |
|
|
|
Description of Exhibit |
| | |
|
|
|
|
| |
10 |
.7* |
|
—
|
|
Amended and Restated Dell Computer
Corporation Deferred Compensation Plan (incorporated by
reference to Exhibit 10.6 to Dell’s Annual Report on
Form 10-K for the fiscal year ended January 30, 2004,
Commission File No. 0-17017)
|
| |
10 |
.8* |
|
—
|
|
Executive Incentive Bonus Plan,
adopted July 18, 2003 (incorporated by reference to
Exhibit 10.1 of Dell’s Quarterly Report on
Form 10-Q for the fiscal quarter ended August 1, 2003,
Commission File No. 0-17017)
|
| |
10 |
.9* |
|
—
|
|
Form of Indemnification Agreement
between Dell and each Non-Employee Director of Dell
(incorporated by reference to Exhibit 10.11 to Dell’s
Annual Report on Form 10-K for the fiscal year ended
January 31, 2003, Commission File No. 0- 17017)
|
| |
21† |
|
|
—
|
|
Subsidiaries of Dell
|
| |
23† |
|
|
—
|
|
Consent of PricewaterhouseCoopers
LLP
|
| |
31 |
.1† |
|
—
|
|
Certification of Kevin B. Rollins,
President and Chief Executive Officer, pursuant to
Rule 13a-14(a) under the Securities Exchange Act of 1934
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31 |
.2† |
|
—
|
|
Certification of James M.
Schneider, Senior Vice President and Chief Financial Officer,
pursuant to Rule 13a-14(a) under the Securities Exchange
Act of 1934
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| |
32 |
.1†† |
|
—
|
|
Certifications of Kevin B. Rollins,
President and Chief Executive Officer, and James M. Schneider,
Senior Vice President and Chief Financial Officer, pursuant to
18 U.S.C. Section 1350
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|
|
|
| |
* |
Identifies Exhibit that consists of or includes a management
contract or compensatory plan or arrangement. |
62
SCHEDULE II
DELL INC.
VALUATION AND QUALIFYING ACCOUNTS
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Balance at | |
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Charged to | |
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Write-Offs | |
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Balance | |
| Fiscal |
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|
|
Beginning | |
|
Bad Debt | |
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Charged to | |
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at End of | |
| Year |
|
Description |
|
of Period | |
|
Expense | |
|
Allowance | |
|
Period | |
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|
(in millions) | |
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2005
|
|
Allowance for doubtful accounts
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|
$ |
84 |
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|
$ |
31 |
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|
$ |
37 |
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|
$ |
78 |
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|
2004
|
|
Allowance for doubtful accounts
|
|
$ |
71 |
|
|
$ |
48 |
|
|
$ |
35 |
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|
$ |
84 |
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|
2003
|
|
Allowance for doubtful accounts
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|
$ |
68 |
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|
$ |
39 |
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|
$ |
36 |
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|
$ |
71 |
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63
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
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| |
|
| |
Kevin B. Rollins |
| |
President and Chief Executive Officer |
Date: March 7, 2005
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 |
|
Title |
|
Date |
| |
|
|
|
|
| |
/s/
MICHAEL S. DELL
Michael
S. Dell
|
|
Chairman of the Board of Directors
|
|
March 7, 2005
|
| |
/s/
KEVIN B. ROLLINS
Kevin
B. Rollins
|
|
President, Chief Executive Officer
and Director (principal executive officer)
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|
March 7, 2005
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| |
/s/
DONALD J. CARTY
Donald
J. Carty
|
|
Director
|
|
March 7, 2005
|
| |
/s/
WILLIAM H.
GRAY, III
William
H. Gray, III
|
|
Director
|
|
March 7, 2005
|
| |
/s/
JUDY C. LEWENT
Judy
C. Lewent
|
|
Director
|
|
March 7, 2005
|
| |
/s/
THOMAS W. LUCE III
Thomas
W. Luce III
|
|
Director
|
|
March 7, 2005
|
| |
/s/
KLAUS S. LUFT
Klaus
S. Luft
|
|
Director
|
|
March 7, 2005
|
| |
/s/
ALEX J. MANDL
Alex
J. Mandl
|
|
Director
|
|
March 7, 2005
|
| |
/s/
MICHAEL A. MILES
Michael
A. Miles
|
|
Director
|
|
March 7, 2005
|
| |
/s/
SAMUEL A. NUNN, JR
Samuel
A. Nunn, Jr
|
|
Director
|
|
March 7, 2005
|
| |
/s/
JAMES M. SCHNEIDER
James
M. Schneider
|
|
Sr. Vice President and Chief
Financial Officer (principal financial officer)
|
|
March 7, 2005
|
| |
/s/
JOAN S. HOOPER
Joan
S. Hooper
|
|
Vice President, Corporate Finance
(principal accounting officer)
|
|
March 7, 2005
|
64