e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
November 2, 2007
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to .
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Commission File
Number: 0-17017
Dell Inc.
(Exact name of registrant as
specified in its charter)
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Delaware
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74-2487834
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(State or other jurisdiction
of incorporation or organization)
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(I.R.S. Employer Identification No.)
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One Dell Way
Round Rock, Texas
78682
(Address of Principal Executive
Offices) (Zip Code)
(512) 338-4400
(Registrants telephone
number, including area code)
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 þ No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
of the Exchange Act. (Check One): Large accelerated
filer þ Accelerated
filer o Non-accelerated
filer o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Exchange Act). Yes o No þ
As of the close of business on November 30, 2007,
2,240,986,691 shares of common stock, par value $.01 per
share, were outstanding.
PART I
FINANCIAL INFORMATION
ITEM 1. Financial
Statements
DELL
INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in millions)
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November 2,
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February 2,
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2007
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2007
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(unaudited)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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12,236
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$
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9,546
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Short-term investments
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369
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752
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Accounts receivable, net
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6,156
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4,622
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Financing receivables, net
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1,560
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1,530
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Inventories
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1,102
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660
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Other
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2,925
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2,829
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Total current assets
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24,348
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19,939
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Property, plant, and equipment, net
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2,631
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2,409
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Investments
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1,980
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2,147
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Long-term financing receivables, net
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389
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323
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Other non-current assets
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1,032
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817
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Total assets
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$
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30,380
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$
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25,635
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities:
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Short-term borrowings
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$
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266
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$
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188
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Accounts payable
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11,411
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10,430
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Accrued and other
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6,373
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7,173
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Total current liabilities
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18,050
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17,791
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Long-term debt
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392
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569
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Other non-current liabilities
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4,993
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2,836
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Total liabilities
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23,435
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21,196
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Commitments and contingencies (Note 8)
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Redeemable common stock and capital in excess of $.01 par
value; shares issued and outstanding: 4 and 5, respectively
(Note 12)
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101
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111
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Stockholders equity:
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Preferred stock and capital in excess of $.01 par value;
shares issued and outstanding: none
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Common stock and capital in excess of $.01 par value;
shares authorized: 7,000; shares issued: 3,318 and 3,307,
respectively; shares outstanding: 2,237 and 2,226, respectively
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10,500
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10,107
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Treasury stock at cost: 606 and 606 shares, respectively
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(21,034
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)
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(21,033
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)
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Retained earnings
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17,520
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15,282
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Accumulated other comprehensive loss
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(142
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)
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(28
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)
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Total stockholders equity
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6,844
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4,328
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Total liabilities and equity
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$
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30,380
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$
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25,635
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
1
DELL
INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share amounts; unaudited)
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Three Months Ended
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Nine Months Ended
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November 2,
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November 3,
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November 2,
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November 3,
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2007
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2006
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2007
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2006
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Net revenue
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$
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15,646
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$
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14,419
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$
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45,144
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$
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42,950
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Cost of net revenue
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12,758
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12,028
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36,467
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35,913
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Gross margin
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2,888
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2,391
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8,677
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7,037
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Operating expenses:
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Selling, general, and administrative
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1,900
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1,531
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5,557
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4,414
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Research, development, and engineering
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159
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126
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456
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380
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Total operating expenses
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2,059
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1,657
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6,013
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4,794
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Operating income
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829
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734
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2,664
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2,243
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Investment and other income, net
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107
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66
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281
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170
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Income before income taxes
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936
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800
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2,945
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2,413
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Income tax provision
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170
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199
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677
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556
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Net income
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$
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766
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$
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601
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$
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2,268
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$
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1,857
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Earnings per common share:
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Basic
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$
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0.34
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$
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0.27
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$
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1.01
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$
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0.82
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Diluted
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$
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0.34
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$
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0.27
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$
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1.00
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$
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0.82
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Weighted-average shares outstanding:
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Basic
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2,236
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2,229
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2,236
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2,263
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Diluted
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2,266
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2,238
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2,262
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2,278
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
2
DELL
INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions, unaudited)
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Nine Months Ended
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November 2,
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November 3,
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2007
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2006
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Cash flows from operating activities:
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Net income
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$
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2,268
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$
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1,857
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Adjustments to reconcile net income to net cash provided by
operating activities:
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Depreciation and amortization
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424
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342
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Stock-based compensation
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398
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293
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Excess tax benefits from stock-based compensation
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(12
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)
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(62
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)
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Effects of exchange rate changes on monetary assets and
liabilities denominated in foreign currencies
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40
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25
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Other
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76
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73
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Changes in:
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Operating working capital
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(2,072
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)
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41
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Non-current assets and liabilities
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1,630
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179
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Net cash provided by operating activities
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2,752
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2,748
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Cash flows from investing activities:
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Investments:
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Purchases
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(2,088
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)
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(7,346
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)
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Maturities and sales
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2,745
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8,656
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Capital expenditures
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(636
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)
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(566
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)
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Acquisition of businesses, net of cash received
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(106
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)
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(97
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)
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Net cash (used in) provided by investing activities
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(85
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)
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647
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Cash flows from financing activities:
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Repurchase of common stock
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(1
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)
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(3,026
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)
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Issuance of common stock under employee plans
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21
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230
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Excess tax benefits from stock-based compensation
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12
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62
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(Payment) issuance of commercial paper, net
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(100
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)
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236
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Other
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(18
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)
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(14
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)
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Net cash used in financing activities
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(86
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)
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(2,512
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)
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Effect of exchange rate changes on cash and cash equivalents
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109
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61
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Net increase in cash and cash equivalents
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2,690
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944
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Cash and cash equivalents at beginning of period
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9,546
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7,054
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Cash and cash equivalents at end of period
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$
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12,236
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$
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7,998
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
DELL
INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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NOTE 1
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BASIS OF
PRESENTATION
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Basis of Presentation The accompanying
condensed consolidated financial statements of Dell Inc.
(Dell) should be read in conjunction with the
consolidated financial statements and accompanying notes filed
with the U.S. Securities and Exchange Commission
(SEC) in Dells Annual Report on
Form 10-K
for the fiscal year ended February 2, 2007. The
accompanying condensed consolidated financial statements have
been prepared in accordance with accounting principles generally
accepted in the United States of America (GAAP). In
the opinion of management, the accompanying condensed
consolidated financial statements reflect all adjustments of a
normal recurring nature considered necessary to fairly state the
financial position of Dell and its consolidated subsidiaries at
November 2, 2007 and February 2, 2007; the results of
its operations for the three and nine month periods ended
November 2, 2007 and November 3, 2006; and its cash
flows for the nine month periods ended November 2, 2007 and
November 3, 2006.
The preparation of financial statements in accordance with GAAP
requires management to make estimates and assumptions that
affect the amounts reported in Dells condensed
consolidated financial statements and the accompanying notes.
Actual results could differ materially from those estimates.
Dell is currently a partner in Dell Financial Services L.P.
(DFS), a joint venture with CIT Group, Inc.
(CIT). The joint venture allows Dell to provide its
customers with various financing alternatives. Dell consolidates
DFS financial results in accordance with Financial
Accounting Standards Board (FASB) Interpretation
No. 46R (FIN 46R) as Dell is the primary
beneficiary. See Note 6 of Notes to Condensed Consolidated
Financial Statements.
The Audit Committee of Dells Board of Directors completed
an independent investigation into certain accounting and
financial reporting matters during the third quarter of Fiscal
2008. As a result of issues identified in that investigation, as
well as issues identified in additional reviews and procedures
conducted by management, the Audit Committee, in consultation
with management and PricewaterhouseCoopers LLP, Dells
independent registered public accounting firm, concluded on
August 13, 2007 that Dells previously issued
financial statements for Fiscal 2003, 2004, 2005, and 2006
(including the interim periods within those years), and the
first quarter of Fiscal 2007, should no longer be relied upon
because of certain accounting errors and irregularities in those
financial statements. Accordingly, Dell restated its previously
issued financial statements for those periods. Restated
financial information, as well as a discussion of the
investigation, the accounting errors and irregularities
identified, and the adjustments made as a result of the
restatement, are contained in Dells Annual Report on
Form 10-K
for the fiscal year ended February 2, 2007 and its amended
Quarterly Report on
Form 10-Q/A
for the period ended May 5, 2006.
Recently Issued Accounting
Pronouncements In July 2006, the FASB
issued FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes an interpretation of
FASB Statement No. 109 (FIN 48).
FIN 48 clarifies the accounting and reporting for
uncertainties in income tax law. This Interpretation prescribes
a comprehensive model for the financial statement recognition,
measurement, presentation, and disclosure of uncertain tax
positions taken or expected to be taken in income tax returns.
Dell adopted this Interpretation in the first quarter of Fiscal
2008 and records tax liabilities resulting from uncertain tax
positions and accrued interest and penalties related to income
tax liabilities in accrued and other current liabilities or
other non-current liabilities in the Condensed Consolidated
Statements of Financial Position. Interest and penalties related
to income tax liabilities are included in income tax expense.
See Note 11 of Notes to Condensed Consolidated Financial
Statements for further discussion of income taxes.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements (SFAS 157),
which defines fair value, provides a framework for measuring
fair value, and expands the disclosures required for assets and
liabilities measured at fair value. SFAS 157 applies to
existing accounting pronouncements that require fair value
measurements; it does not require any new fair value
measurements. SFAS 157 is effective for fiscal years
beginning after November 15, 2007 and is required to be
adopted by Dell beginning in the first quarter of Fiscal 2009.
4
DELL
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(unaudited)
Management is currently evaluating the impact that SFAS 157
may have on Dells results of operations, financial
position, and cash flows.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities
(SFAS 159), which provides companies with
an option to report selected financial assets and liabilities at
fair value with the changes in fair value recognized in earnings
at each subsequent reporting date. SFAS 159 provides an
opportunity to mitigate potential volatility in earnings caused
by measuring related assets and liabilities differently, and it
may reduce the need for applying complex hedge accounting
provisions. If elected, SFAS 159 is effective for fiscal
years beginning after November 15, 2007, which is
Dells Fiscal 2009. Management is currently evaluating the
impact that this statement may have on Dells results of
operations and financial position, and has yet to make a
decision on the elective adoption of SFAS 159.
|
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|
|
November 2,
|
|
|
February 2,
|
|
|
|
2007
|
|
|
2007
|
|
|
|
(in millions)
|
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Production materials
|
|
$
|
697
|
|
|
$
|
361
|
|
Work-in-process
|
|
|
109
|
|
|
|
61
|
|
Finished goods
|
|
|
296
|
|
|
|
238
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
1,102
|
|
|
$
|
660
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 3
|
EARNINGS
PER COMMON SHARE
|
Basic earnings per share is based on the weighted-average effect
of all common shares issued and outstanding and is calculated by
dividing net income by the weighted-average shares outstanding
during the period. Diluted earnings per share is calculated by
dividing net income by the weighted-average number of common
shares used in the basic earnings per share calculation plus the
number of common shares that would be issued assuming exercise
or conversion of all potentially dilutive common shares
outstanding. Dell excludes equity instruments from the
calculation of diluted earnings per share if the effect of
including such instruments is antidilutive. Accordingly, certain
employee stock options have been excluded from the calculation
of diluted earnings per share totaling 183 million and
314 million shares for the third quarter of Fiscal 2008 and
Fiscal 2007, respectively, and 228 million and
276 million shares for the nine month periods ended
November 2, 2007 and November 3, 2006, respectively.
Additionally, shares held by a subsidiary are considered issued
but not outstanding, and are excluded from the calculation of
basic earnings per share.
5
DELL
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(unaudited)
The following table sets forth the computation of basic and
diluted earnings per share for the three and nine month periods
ended November 2, 2007 and November 3, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
November 2,
|
|
|
November 3,
|
|
|
November 2,
|
|
|
November 3,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(in millions, except per share amounts)
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
766
|
|
|
$
|
601
|
|
|
$
|
2,268
|
|
|
$
|
1,857
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
2,236
|
|
|
|
2,229
|
|
|
|
2,236
|
|
|
|
2,263
|
|
Effect of dilutive options, restricted stock units, restricted
stock, and other
|
|
|
30
|
|
|
|
9
|
|
|
|
26
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
2,266
|
|
|
|
2,238
|
|
|
|
2,262
|
|
|
|
2,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.34
|
|
|
$
|
0.27
|
|
|
$
|
1.01
|
|
|
$
|
0.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.34
|
|
|
$
|
0.27
|
|
|
$
|
1.00
|
|
|
$
|
0.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 4
|
COMPREHENSIVE
INCOME
|
The following table summarizes comprehensive income for the
three and nine month periods ended November 2, 2007 and
November 3, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
November 2,
|
|
|
November 3,
|
|
|
November 2,
|
|
|
November 3,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(in millions)
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
766
|
|
|
$
|
601
|
|
|
$
|
2,268
|
|
|
$
|
1,857
|
|
Unrealized gains (losses) on foreign currency hedging
instruments, net
|
|
|
(64
|
)
|
|
|
19
|
|
|
|
(138
|
)
|
|
|
(25
|
)
|
Unrealized gains on marketable securities, net
|
|
|
17
|
|
|
|
26
|
|
|
|
32
|
|
|
|
27
|
|
Valuation of retained interests in securitized
assets(a)
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
10
|
|
Foreign currency translation adjustments
|
|
|
11
|
|
|
|
(1
|
)
|
|
|
15
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
730
|
|
|
$
|
649
|
|
|
$
|
2,177
|
|
|
$
|
1,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
In the first quarter of Fiscal
2008, Dell adopted SFAS No. 155, Accounting for
Certain Hybrid Instruments (SFAS 155), and
as a result, changes in the fair value of retained interests in
securitized assets are recognized in the statement of income
immediately and are no longer included as a component of
accumulated other comprehensive income.
|
6
DELL
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(unaudited)
Description
of the Plans
Employee Stock Purchase Plan Dell has a
shareholder approved employee stock purchase plan
(ESPP) that permits substantially all employees to
purchase shares of Dells common stock. Effective
July 1, 2005, participating employees were permitted to
purchase common stock through payroll deductions at the end of
each three-month participation period at a purchase price equal
to 85% of the fair market value of the common stock at the end
of the participation period.
Employee Stock Plans Dell has the
following four employee stock plans (collectively referred to as
the Stock Plans) under which options, restricted
stock, and restricted stock units were outstanding at
November 2, 2007:
|
|
|
|
|
The Dell Computer Corporation 1989 Stock Option Plan (the
1989 Option Plan)
|
|
|
|
The Dell Computer Corporation 1994 Incentive Plan (the
1994 Incentive Plan)
|
|
|
|
The Dell Computer Corporation 1998 Broad-Based Stock Option Plan
(the 1998 Broad-Based Plan)
|
|
|
|
The Dell Computer Corporation 2002 Long-Term Incentive Plan (the
2002 Incentive Plan)
|
The Stock Plans are administered by the Leadership Development
and Compensation Committee of Dells Board of Directors.
The 1989 Option Plan, the 1994 Incentive Plan, and the 1998
Broad-Based Plan have been terminated (except for options
previously granted under those plans that are still
outstanding). Consequently, awards are currently only being
granted under the 2002 Incentive Plan.
The 2002 Incentive Plan provides for the granting of stock-based
incentive awards to Dells employees,
non-employee
directors, and certain consultants and advisors to Dell. Awards
may be incentive stock options within the meaning of
Section 422 of the Internal Revenue Code, nonqualified
stock options, restricted stock, or restricted stock units.
Stock-Based Compensation Effective
February 4, 2006, Dell adopted the fair value recognition
provisions of SFAS No. 123 (revised 2004),
Share-Based Payment (SFAS 123(R)), using
the modified prospective transition method which does not
require revising the presentation in the prior periods for
stock-based compensation. Under this transition method,
stock-based compensation expense for the first quarters of
Fiscal 2008 and Fiscal 2007 includes compensation expense for
all stock-based compensation awards granted prior to, but not
yet vested at February 4, 2006, based on the grant-date
fair value estimated in accordance with the original provisions
of SFAS 123, Accounting for Stock-Based Compensation
(SFAS 123). Stock-based compensation
expense for all stock-based compensation awards granted after
February 3, 2006 is based on the grant-date fair value
estimated in accordance with the provisions of SFAS 123(R).
Dell recognizes this compensation expense net of an estimated
forfeiture rate over the requisite service period of the award,
which has generally been the vesting term of three-to-five years
for stock options and three-to-seven years for restricted stock
awards. During the three and nine month periods ended
November 2, 2007, grants of stock options and restricted
stock unit awards generally had three-year vesting periods.
Temporary Suspension of Option Exercises, Vesting of
Restricted Stock Units, and ESPP
Purchases As a result of Dells
inability to timely file its Annual Report on
Form 10-K
for Fiscal 2007, Dell suspended the exercise of employee stock
options, the vesting of restricted stock units, and the purchase
of shares under the ESPP on April 4, 2007. Dell resumed
allowing the exercise of employee stock options by employees and
the vesting of restricted stock units on October 31, 2007.
Dell agreed to pay cash to certain current and former employees
who held in-the-money stock options (options that have an
exercise price less than the current stock market price) that
expired during the period of unexercisability due to Dells
inability to timely file its Annual Report on
Form 10-K
for Fiscal 2007. Dell has made, or expects to make,
7
DELL
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(unaudited)
payments of approximately $111 million relating to
in-the-money stock options that expired in the second and third
quarters of Fiscal 2008. Of the $111 million total,
$9 million was expensed as compensation in the third
quarter of Fiscal 2008 ($1 million was included in cost of
net revenue and $8 million in operating expenses), and
$102 million was expensed as compensation in the second
quarter of Fiscal 2008 ($16 million was included in cost of
net revenue and $86 million in operating expenses). As
options have again become exercisable, Dell will no longer pay
cash for expired in-the-money stock options.
General
Information
Expense
Information under SFAS 123(R)
For the three and nine month periods ended November 2, 2007
and November 3, 2006, stock-based compensation expense, net
of income taxes, was allocated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
November 2,
|
|
|
November 3,
|
|
|
November 2,
|
|
|
November 3,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
Stock-based compensation expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of net revenue
|
|
$
|
13
|
|
|
$
|
11
|
|
|
$
|
57
|
|
|
$
|
47
|
|
Operating expenses
|
|
|
84
|
|
|
|
65
|
|
|
|
341
|
|
|
|
246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense before taxes
|
|
|
97
|
|
|
|
76
|
|
|
|
398
|
|
|
|
293
|
|
Income tax benefit
|
|
|
(28
|
)
|
|
|
(23
|
)
|
|
|
(112
|
)
|
|
|
(88
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
$
|
69
|
|
|
$
|
53
|
|
|
$
|
286
|
|
|
$
|
205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense in the table above includes
$111 million for expired stock options previously
discussed. Stock-based compensation expense recognized for the
third quarter and first nine months of Fiscal 2008 and Fiscal
2007 is based on awards expected to vest, reduced for estimated
forfeitures. SFAS 123(R) requires forfeitures to be
estimated at the time of grant and revised, if necessary, in
subsequent periods if actual forfeitures differ from those
estimates.
Valuation
Information
SFAS 123(R) requires the use of a valuation model to
calculate the fair value of stock option awards. Dell has
elected to use the Black-Scholes option pricing model, which
incorporates various assumptions including volatility, expected
term, and risk-free interest rates. The volatility is based on a
blend of implied and historical volatility of Dells common
stock over the most recent period commensurate with the
estimated expected term of Dells stock options. Dell uses
this blend of implied and historical volatility, as well as
other economic data, because management believes such volatility
is more representative of prospective trends. The expected term
of an award is based on historical experience and on the terms
and conditions of the stock awards granted to employees. The
dividend yield of zero is based on the fact that Dell has never
paid cash dividends and has no present intention to pay cash
dividends.
8
DELL
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(unaudited)
The weighted-average fair value of stock options was determined
utilizing the assumptions in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
November 2,
|
|
November 3,
|
|
November 2,
|
|
November 3,
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Expected term
|
|
|
3.5 years
|
|
|
3.8 years
|
|
|
3.5 years
|
|
|
3.4 years
|
Risk-free interest rate (U.S. Government Treasury Note)
|
|
|
4.3%
|
|
|
4.7%
|
|
|
4.6%
|
|
|
4.8%
|
Volatility
|
|
|
29%
|
|
|
28%
|
|
|
26%
|
|
|
28%
|
Dividends
|
|
|
0%
|
|
|
0%
|
|
|
0%
|
|
|
0%
|
Stock Option Activity The following table
summarizes stock option activity for the Stock Plans during the
nine-month period ended November 2, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
Number
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
|
|
(in millions)
|
|
|
(per share)
|
|
|
(in years)
|
|
|
(in millions)
|
|
|
Options outstanding February 2, 2007
|
|
|
314
|
|
|
$
|
32.16
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
10
|
|
|
|
24.07
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(6
|
)
|
|
|
17.79
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(4
|
)
|
|
|
26.81
|
|
|
|
|
|
|
|
|
|
Cancelled/expired
|
|
|
(42
|
)
|
|
|
31.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding November 2, 2007
|
|
|
272
|
|
|
$
|
32.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest (net of estimated
forfeitures) November 2,
2007(a)
|
|
|
246
|
|
|
$
|
32.59
|
|
|
|
2.3
|
|
|
$
|
290
|
|
Exercisable November 2,
2007(a)
|
|
|
225
|
|
|
$
|
33.15
|
|
|
|
2.1
|
|
|
$
|
237
|
|
|
|
|
(a)
|
|
For options vested and expected to
vest and options exercisable, the aggregate intrinsic value in
the table above represents the total pre-tax intrinsic value
(the difference between Dells closing stock price on
November 2, 2007 and the exercise price, multiplied by the
number of in-the-money options) that would have been received by
the option holders had the holders exercised their options on
November 2, 2007. The intrinsic value will change based on
changes in the fair market value of Dells common stock.
|
Other information pertaining to stock options for the three and
nine month periods ended November 2, 2007 and
November 3, 2006 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
November 2,
|
|
|
November 3,
|
|
|
November 2,
|
|
|
November 3,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(in millions, except per option data)
|
|
|
Weighted-average grant date fair value of stock options granted
per option
|
|
$
|
7.33
|
|
|
$
|
6.54
|
|
|
$
|
6.22
|
|
|
$
|
6.72
|
|
Total intrinsic value of options
exercised(a)
|
|
$
|
29
|
|
|
$
|
15
|
|
|
$
|
56
|
|
|
$
|
149
|
|
|
|
|
(a)
|
|
The total intrinsic value of
options exercised represents the total pre-tax intrinsic value
(the difference between the stock price at exercise and the
exercise price, multiplied by the number of options exercised)
that was received by the option holders who exercised their
options during the periods indicated.
|
9
DELL
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(unaudited)
At November 2, 2007, $101 million of total
unrecognized stock-based compensation expense, net of estimated
forfeitures, related to stock options is expected to be
recognized over a weighted-average period of approximately
2.1 years.
Non-vested Restricted Stock Activity
Non-vested restricted stock awards at November 2, 2007 and
activities during the nine-month period ended November 2,
2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
Number
|
|
|
Average
|
|
|
|
of
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
|
(in millions)
|
|
|
(per share)
|
|
|
Non-vested restricted stock February 2, 2007
|
|
|
17
|
|
|
$
|
28.76
|
|
Granted
|
|
|
24
|
|
|
|
22.71
|
|
Vested
|
|
|
(3
|
)
|
|
|
28.93
|
|
Forfeited
|
|
|
(3
|
)
|
|
|
25.89
|
|
|
|
|
|
|
|
|
|
|
Non-vested restricted stock November 2, 2007
|
|
|
35
|
|
|
$
|
24.83
|
|
|
|
|
|
|
|
|
|
|
For the three and nine month periods ended November 2,
2007, the weighted-average fair value of restricted stock awards
granted during the period was $27.46 and $22.71 per share,
respectively. For the three and nine month periods ended
November 3, 2006, the weighted-average grant date fair
value of restricted stock awards granted during the period was
$28.33 and $28.55 per share, respectively. At November 2,
2007, $669 million of unrecognized stock-based compensation
expense, net of estimated forfeitures, related to non-vested
restricted stock awards is expected to be recognized over a
weighted-average period of approximately 1.9 years.
|
|
NOTE 6
|
FINANCIAL
SERVICES
|
Joint
Venture Agreement
Dell offers various customer financial services for its business
and consumer customers in the U.S. through DFS, a joint
venture with CIT. Loan and lease financing through DFS is one of
many sources of financing that Dells customers may select.
Dell recognized revenue from the sale of products financed
through DFS of $1.4 billion and $1.5 billion during
the three month periods ended November 2, 2007 and
November 3, 2006, respectively, and $4.1 billion and
$4.5 billion for the nine month periods ended
November 2, 2007 and November 3, 2006, respectively.
On September 8, 2004, Dell and CIT executed an agreement
that extended the term of the joint venture to January 29,
2010, and modified certain terms of the relationship. In
accordance with the extension agreement, net income and losses
generated by DFS are currently allocated 70% to Dell and 30% to
CIT. At November 2, 2007, and February 2, 2007,
CITs equity ownership in the net assets of DFS was
$47 million and $33 million, respectively, which is
recorded as minority interest and included in other non-current
liabilities.
Under the terms of the joint venture agreements, Dell has the
option to purchase CITs 30% interest in DFS in February
2008. If Dell does not exercise this purchase option, Dell is
obligated to purchase CITs 30% interest upon the
occurrence of certain termination events, or upon the expiration
of the joint venture on January 29, 2010. The parties
recently agreed that the purchase price of CITs 30%
interest in DFS will be approximately $300 million. Dell
has not yet exercised its option to purchase CITs interest
in February 2008.
Dell is dependent upon DFS to facilitate financing for a
significant number of customers who elect to finance products
sold by Dell. Dell also purchases loan and lease receivables
facilitated by DFS on substantially the same terms and
conditions as CIT. Dells purchase of these assets allows
Dell to retain a greater portion of the assets
10
DELL
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(unaudited)
future earnings. The percentage of transactions that Dell will
purchase under the extension agreement is expected to be
approximately 50% in Fiscal 2008.
DFS is a full service financial services entity; key activities
include the origination, collection, and servicing of financing
receivables related to the purchase of Dell products. While DFS
services CIT funded receivables, Dells obligation related
to the performance of these receivables is limited to the cash
funded reserves established at the time of funding.
Financing
Receivables
The following table summarizes the components of Dells
financing receivables, net of the allowance for estimated
uncollectible amounts:
|
|
|
|
|
|
|
|
|
|
|
November 2,
|
|
|
February 2,
|
|
|
|
2007
|
|
|
2007
|
|
|
|
(in millions)
|
|
|
Financing receivables, net:
|
|
|
|
|
|
|
|
|
Customer receivables:
|
|
|
|
|
|
|
|
|
Revolving loans, net
|
|
$
|
812
|
|
|
$
|
771
|
|
Leases and loans, net
|
|
|
641
|
|
|
|
627
|
|
|
|
|
|
|
|
|
|
|
Customer receivables, net
|
|
|
1,453
|
|
|
|
1,398
|
|
Residual interests
|
|
|
295
|
|
|
|
296
|
|
Retained interests
|
|
|
201
|
|
|
|
159
|
|
|
|
|
|
|
|
|
|
|
Financing receivables, net
|
|
$
|
1,949
|
|
|
$
|
1,853
|
|
|
|
|
|
|
|
|
|
|
Short-term
|
|
$
|
1,560
|
|
|
$
|
1,530
|
|
Long-term
|
|
|
389
|
|
|
|
323
|
|
|
|
|
|
|
|
|
|
|
Financing receivables, net
|
|
$
|
1,949
|
|
|
$
|
1,853
|
|
|
|
|
|
|
|
|
|
|
Financing receivables primarily consist of revolving loans and
fixed-term leases and loans resulting from the sale of Dell
products. If customers desire revolving or term loan financing,
Dell sells equipment directly to customers who, in turn, enter
into agreements to finance their purchases. For customers who
desire lease financing, Dell sells the equipment to DFS, and DFS
enters into capital lease arrangements with the customers.
|
|
|
Customer receivables are presented net of an allowance for
uncollectible accounts. The allowance is based on factors
including historical trends and the composition and credit
quality of the customer receivables. The composition and credit
quality varies from investment grade commercial customers to
subprime consumers. Customer receivables are charged to the
allowance at the earlier of when an account is deemed to be
uncollectible or when the account is 180 days delinquent.
Recoveries on customer receivables previously charged off as
uncollectible are adjusted to the allowance for uncollectible
accounts. The following is a description of the components of
financing receivables:
|
|
|
|
|
|
Revolving loans offered under private label credit financing
programs provide qualified customers with a revolving credit
line for the purchase of products and services offered by Dell.
From time to time, account holders may have the opportunity to
finance their Dell purchases with special programs during which,
if the outstanding balance is paid in full, no interest is
charged. These special programs generally range from 3 to
18 months and have an average original term of
approximately 13 months. Revolving loans bear interest at a
variable annual percentage rate that is tied to the prime rate.
|
11
DELL
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(unaudited)
|
|
|
|
|
Leases with business customers generally have fixed terms of
two to three years. Future maturities of minimum lease payments
at November 2, 2007 are as follows: 2008: $44 million;
2009: $94 million; 2010: $59 million; 2011:
$17 million; and 2012: $3 million. Fixed-term loans
are also offered to qualified small businesses for the purchase
of products sold by Dell.
|
|
|
|
Dell retains a residual interest in the leased equipment. The
amount of the residual interest is established at the inception
of the lease based upon estimates of the value of the equipment
at the end of the lease term using historical studies, industry
data, and future
value-at-risk
demand valuation methods. On a periodic basis, Dell assesses the
carrying amount of its recorded residual values for impairment.
Anticipated declines in specific future residual values that are
considered to be other-than-temporary are recorded in current
earnings.
|
|
|
Retained interests represent the residual beneficial interest
Dell retains in certain pools of securitized financing
receivables. Retained interests are recorded at fair value and
represent the present value of monthly collections on the sold
financing receivables in excess of amounts needed for payment of
the debt and other obligations issued or arising in the
securitization transactions. In estimating the value of retained
interests, Dell makes a variety of financial assumptions,
including pool credit losses, payment rates, and discount rates.
These assumptions are supported by both Dells historical
experience and anticipated trends relative to the particular
receivable pool. Dell reviews its investments in retained
interests periodically for impairment, based on estimated fair
value. Any resulting losses representing the excess of carrying
value over estimated fair value that are other-than-temporary
are recorded in earnings. Upon the adoption of SFAS 155 in
the first quarter of Fiscal 2008, Dell began recognizing the
changes in fair value in earnings as opposed to accumulated
other comprehensive income.
|
Asset
Securitization
During the first nine months of Fiscal 2008 and Fiscal 2007,
Dell sold $950 million and $747 million, respectively,
of fixed-term leases and loans and revolving loans to
unconsolidated qualifying special purpose entities. The
qualifying special purpose entities are bankruptcy remote legal
entities with assets and liabilities separate from those of
Dell. The sole purpose of the qualifying special purpose
entities is to facilitate the funding of financing receivables
in the capital markets. Dell determines the amount of
receivables to securitize based on its funding requirements in
conjunction with specific selection criteria designed for the
transaction. The qualifying special purpose entities have
entered into financing arrangements with three multi-seller
conduits that, in turn, issue asset-backed debt securities in
the capital markets. Transfers of financing receivables are
recorded in accordance with the provisions of
SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities a replacement of FASB Statement
No. 125 (SFAS 140).
Dell retains the right to receive collections on securitized
receivables in excess of amounts needed to pay interest and
principal as well as other required fees. Upon the sale of the
financing receivables, Dell records the present value of the
excess cash flows as a retained interest, which typically
results in a gain that ranges from 2% to 4% of the customer
receivables sold. Dell services the securitized contracts and
earns a servicing fee. Dells securitization transactions
generally do not result in servicing assets and liabilities, as
the contractual fees are adequate compensation in relation to
the associated servicing cost.
Dells securitization program contains structural features
that could prevent further funding if the credit losses or
delinquencies on the pool of sold receivables exceed specified
levels. These structural features are within normal industry
practice and are similar to comparable securitization programs
in the marketplace. Dell does not currently expect that any of
these features will have a material adverse impact on its
ability to securitize financing receivables.
12
DELL
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(unaudited)
|
|
NOTE 7
|
WARRANTY
LIABILITY AND DEFERRED REVENUE
|
Revenue from extended warranty and service contracts, for which
Dell is obligated to perform, is recorded as deferred revenue
and subsequently recognized over the term of the contract or
when the service is completed. Dell records warranty liabilities
at the time of sale for the estimated costs that may be incurred
under its limited warranty. Changes in Dells deferred
revenue for extended warranties and service contracts sold and
warranty liability for standard warranties, which are included
in other current and non-current liabilities on Dells
Condensed Consolidated Statements of Financial Position, are
presented in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
November 2,
|
|
|
November 3,
|
|
|
November 2,
|
|
|
November 3,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(in millions)
|
|
|
Deferred revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue at beginning of period
|
|
$
|
4,662
|
|
|
$
|
4,024
|
|
|
$
|
4,221
|
|
|
$
|
3,707
|
|
Revenue deferred for new extended warranty and service contracts
sold
|
|
|
987
|
|
|
|
810
|
|
|
|
2,734
|
|
|
|
2,383
|
|
Revenue recognized
|
|
|
(629
|
)
|
|
|
(684
|
)
|
|
|
(1,935
|
)
|
|
|
(1,940
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue at end of period
|
|
$
|
5,020
|
|
|
$
|
4,150
|
|
|
$
|
5,020
|
|
|
$
|
4,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion
|
|
$
|
2,104
|
|
|
$
|
2,033
|
|
|
$
|
2,104
|
|
|
$
|
2,033
|
|
Non-current portion
|
|
|
2,916
|
|
|
|
2,117
|
|
|
|
2,916
|
|
|
|
2,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue at end of period
|
|
$
|
5,020
|
|
|
$
|
4,150
|
|
|
$
|
5,020
|
|
|
$
|
4,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
November 2,
|
|
|
November 3,
|
|
|
November 2,
|
|
|
November 3,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(in millions)
|
|
|
Warranty liability :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warranty liability at beginning of period
|
|
$
|
914
|
|
|
$
|
929
|
|
|
$
|
958
|
|
|
$
|
951
|
|
Costs accrued for new warranty contracts and changes in
estimates for
pre-existing
warranties(a)
|
|
|
289
|
|
|
|
343
|
|
|
|
849
|
|
|
|
918
|
|
Service obligations honored
|
|
|
(262
|
)
|
|
|
(315
|
)
|
|
|
(866
|
)
|
|
|
(912
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warranty liability at end of period
|
|
$
|
941
|
|
|
$
|
957
|
|
|
$
|
941
|
|
|
$
|
957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion
|
|
$
|
610
|
|
|
$
|
706
|
|
|
$
|
610
|
|
|
$
|
706
|
|
Non-current portion
|
|
|
331
|
|
|
|
251
|
|
|
|
331
|
|
|
|
251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warranty liability at end of period
|
|
$
|
941
|
|
|
$
|
957
|
|
|
$
|
941
|
|
|
$
|
957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Changes in cost estimates related
to pre-existing warranties are aggregated with accruals for new
warranty contracts. Dells warranty liability process does
not differentiate between estimates made for pre-existing
warranties and new warranty obligations.
|
13
DELL
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(unaudited)
|
|
NOTE 8
|
COMMITMENTS
AND CONTINGENCIES
|
DFS Purchase Commitment Pursuant to the joint
venture agreement between Dell and CIT, Dell has an obligation
to purchase CITs 30% interest in DFS at the expiration of
the joint venture on January 29, 2010, for a purchase price
of approximately $300 million. See Note 6 of Notes to
Condensed Consolidated Financial Statements for further
discussion of the DFS purchase commitment.
Restricted Cash Pursuant to an agreement
between DFS and CIT, Dell is required to maintain escrow cash
accounts that are held as recourse reserves for credit losses,
performance fee deposits related to Dells private label
credit card, and deferred servicing revenue. Restricted cash in
the amount of $330 million and $418 million is
included in other current assets at November 2, 2007 and
February 2, 2007, respectively.
Legal Matters Dell is involved in various
claims, suits, investigations, and legal proceedings that arise
from time to time in the ordinary course of its business. As
required by SFAS No. 5, Accounting for
Contingencies (SFAS 5), Dell accrues a
liability when it believes that it is both probable that a
liability has been incurred and that it can reasonably estimate
the amount of the loss. The following is a discussion of
Dells significant legal matters.
|
|
|
Investigations and Related Litigation In
August 2005, the SEC initiated an inquiry into certain of
Dells accounting and financial reporting matters and
requested that Dell provide certain documents. The SEC expanded
that inquiry in June 2006 and entered a formal order of
investigation in October 2006. The SECs requests for
information were joined by a similar request from the United
States Attorney for the Southern District of New York
(SDNY), who subpoenaed documents related to
Dells financial reporting from and after Fiscal 2002. In
August 2006, because of potential issues identified in the
course of responding to the SECs requests for information,
Dells Audit Committee, on the recommendation of management
and in consultation with PricewaterhouseCoopers LLP, Dells
independent registered public accounting firm, initiated an
independent investigation, which was completed in the third
quarter of Fiscal 2008. Although the Audit Committee
investigation has been completed, the investigations being
conducted by the SEC and the SDNY are ongoing. Dell continues to
cooperate with the SEC and the SDNY.
|
Dell and several of its current and former directors and
officers are parties to securities, Employee Retirement Income
Security Act of 1974 (ERISA), and shareholder
derivative lawsuits all arising out of the same events and
facts. Four putative securities class actions that were filed in
the Western District of Texas, Austin Division, against Dell and
certain of its current and former officers have been
consolidated, as In re Dell Inc. Securities Litigation,
and a lead plaintiff has been appointed by the court. The lead
plaintiff has asserted claims under sections 10(b), 20(a),
and 20A of the Securities Exchange Act of 1934 based on alleged
false and misleading disclosures or omissions regarding
Dells financial statements, governmental investigations,
known battery problems, business model, and insiders sales
of its securities. This action also includes Dells
independent registered public accounting firm,
PricewaterhouseCoopers LLP, as a defendant. Four other putative
class actions that were also filed in the Western District by
purported participants in the Dell Inc. 401(k) Plan have been
consolidated, as In re Dell Inc. ERISA Litigation, and
lead plaintiffs have been appointed by the court. The lead
plaintiffs have asserted claims under ERISA based on allegations
that Dell, certain current officers, and certain current and
former directors imprudently invested and managed
participants funds and failed to disclose information
regarding its stock held in the 401(k) Plan. In addition, seven
shareholder derivative lawsuits that were filed in three
separate jurisdictions (the Western District of Texas, Austin
Division; the Delaware Chancery Court; and the state district
court in Travis County, Texas) have been consolidated into three
actions, one in each of the respective jurisdictions, as In
re Dell Inc. Derivative Litigation, and name various current
and former officers and directors as defendants and Dell as a
nominal defendant. The Travis County, Texas action has been
transferred to the state district court in Williamson County,
Texas. By an order filed October 9, 2007, the shareholder
derivative action filed in the Western District of Texas, Austin
Division, was dismissed without prejudice. The shareholder
derivative lawsuits assert claims derivatively on behalf of Dell
under state law, including breaches of fiduciary duties.
Finally, one purported
14
DELL
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(unaudited)
shareholder has filed an action against Dell in Delaware
Chancery Court under Section 220 of the Delaware General
Corporation Law, Baltimore County Employees Retirement
System v. Dell Inc., seeking inspection of certain of
Dells books and records related to the internal
investigation and government investigations. On
November 21, 2007, the plaintiff in this action filed a
notice of dismissal without prejudice. Dell intends to defend
all of these lawsuits vigorously.
|
|
|
Copyright Levies Proceedings against the IT
industry in Germany seek to impose levies on equipment, such as
personal computers and multifunction devices that facilitate
making private copies of copyrighted materials. The total levies
due, if imposed, would be based on the number of products sold
and the per-product amounts of the levies, which vary. Dell,
along with other companies and various industry associations are
opposing these levies and instead are advocating compensation to
rights holders through digital rights management systems.
|
There are currently two levy cases involving other equipment
manufacturers pending before the German Federal Supreme Court.
Adverse decisions in these cases could ultimately impact Dell.
The two cases involve personal computers and multifunctional
devices. The equipment manufacturers in these cases recently
lost in the lower courts and have appealed. The amount allowed
by the lower courts with respect to PCs is 12 per personal
computer sold for reprographic copying capabilities. The amounts
claimed with respect to multifunctional devices depend on speed
and color and vary between 38 and 600. The German
Federal Supreme Court recently decided that printers are not
leviable under existing law. On December 29, 2005,
Zentralstelle Für private Überspielungrechte
(ZPÜ), a joint association of various German
collection societies, instituted arbitration proceedings against
Dells German subsidiary before the Arbitration Body in
Munich. ZPÜ claims a levy of 18.4 per PC that Dell
sold in Germany from January 1, 2002 through
December 31, 2005. On July 31, 2007, the Arbitration
Body recommended a levy of 15 on each PC sold during that
period, for audio and visual copying capabilities. Dell and
ZPÜ rejected the recommendation and Dell expects that the
matter will proceed to court. Dell will continue to defend this
claim vigorously.
|
|
|
Lucent v. Dell In February 2003, Lucent
Technologies, Inc. filed a lawsuit against Dell in the United
States District Court for Delaware, and the lawsuit was
subsequently transferred to the United States District Court for
the Southern District of California. The lawsuit alleges that
Dell infringed 12 patents owned by Lucent and seeks monetary
damages and injunctive relief. In April 2003, Microsoft
Corporation filed a declaratory judgment action against Lucent
in the United States District Court for the Southern District of
California, asserting that Microsoft products do not infringe
patents held by Lucent, including 10 of the 12 patents at issue
in the lawsuit involving Dell and Microsoft. These actions were
consolidated for discovery purposes with a previous suit that
Lucent filed against Gateway, Inc. In September 2005, the court
granted a summary judgment of invalidity with respect to one of
the Lucent patents asserted against Dell. In subsequent
decisions, the court granted summary judgment of
non-infringement with respect to five more of the Lucent patents
asserted against Dell. The court has ordered invalidity briefing
with regard to other patents at issue in view of the
April 30, 2007, U.S. Supreme Court decision in
KSR v. Teleflex. Fact and expert discovery has
closed, and the three actions have been consolidated. Trial is
scheduled to begin in February 2008. Dell is defending these
claims vigorously. Separately, Dell has filed a lawsuit against
Lucent in the United States District Court for the Eastern
District of Texas, alleging that Lucent infringes two patents
owned by Dell and seeking monetary damages and injunctive
relief. That litigation is pending and scheduled for trial in
January 2008.
|
Dell is involved in various other claims, suits, investigations,
and legal proceedings that arise from time to time in the
ordinary course of its business. Although Dell does not expect
that the outcome in any of these other legal proceedings,
individually or collectively, will have a material adverse
effect on its financial condition or results of operations,
litigation is inherently unpredictable. Therefore, Dell could
incur judgments or enter into settlements of claims that could
adversely affect its operating results or cash flows in a
particular period.
15
DELL
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(unaudited)
|
|
NOTE 9
|
SEGMENT
INFORMATION
|
Dell conducts operations worldwide and is managed in three
geographic regions: the Americas; Europe, Middle East, and
Africa (EMEA); and Asia Pacific-Japan
(APJ). The Americas region, which is based in Round
Rock, Texas, covers the U.S., Canada, and Latin America. Within
the Americas, Dell is further segmented into Business and
U.S. Consumer. The Americas Business (Business)
segment includes sales to corporate, government, healthcare,
education, and small and medium business customers, while the
U.S. Consumer segment includes sales primarily to
individual consumers and selected retail partners. The Consumer
segment will eventually expand beyond the U.S. to include
worldwide sales to individual consumers and select retail
partners as Dell further globalizes this business. Dell expects
to reevaluate its segment reporting at that time. The EMEA
segment, based in Bracknell, England, covers Europe, the Middle
East, and Africa. The APJ region, based in Singapore, covers the
Asian countries of the Pacific Rim as well as Australia, New
Zealand, and India.
Corporate expenses are included in Dells measure of
segment operating income for management reporting purposes;
however, with the adoption of SFAS 123(R), beginning in
Fiscal 2007 stock-based compensation expense is not allocated to
Dells reportable segments. The following table presents
net revenue by Dells reportable segments as well as a
reconciliation of consolidated segment operating income to
Dells consolidated operating income for the three and nine
month periods ended November 2, 2007 and November 3,
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
November 2,
|
|
|
November 3,
|
|
|
November 2,
|
|
|
November 3,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(in millions)
|
|
|
Net revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
$
|
8,169
|
|
|
$
|
7,620
|
|
|
$
|
23,595
|
|
|
$
|
22,232
|
|
U.S. Consumer
|
|
|
1,527
|
|
|
|
1,624
|
|
|
|
4,263
|
|
|
|
5,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
9,696
|
|
|
|
9,244
|
|
|
|
27,858
|
|
|
|
27,554
|
|
EMEA
|
|
|
3,834
|
|
|
|
3,378
|
|
|
|
11,087
|
|
|
|
9,829
|
|
APJ
|
|
|
2,116
|
|
|
|
1,797
|
|
|
|
6,199
|
|
|
|
5,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
15,646
|
|
|
$
|
14,419
|
|
|
$
|
45,144
|
|
|
$
|
42,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
$
|
651
|
|
|
$
|
624
|
|
|
$
|
2,057
|
|
|
$
|
1,843
|
|
U.S. Consumer
|
|
|
(21
|
)
|
|
|
26
|
|
|
|
(19
|
)
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
630
|
|
|
|
650
|
|
|
|
2,038
|
|
|
|
1,937
|
|
EMEA
|
|
|
211
|
|
|
|
154
|
|
|
|
695
|
|
|
|
356
|
|
APJ
|
|
|
85
|
|
|
|
6
|
|
|
|
329
|
|
|
|
243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated segment operating income
|
|
|
926
|
|
|
|
810
|
|
|
|
3,062
|
|
|
|
2,536
|
|
Stock-based compensation expense
|
|
|
(97
|
)
|
|
|
(76
|
)
|
|
|
(398
|
)
|
|
|
(293
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated operating income
|
|
$
|
829
|
|
|
$
|
734
|
|
|
$
|
2,664
|
|
|
$
|
2,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
DELL
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(unaudited)
Commercial
Paper
On June 1, 2006, Dell implemented a $1.0 billion
commercial paper program with a supporting $1.0 billion
senior unsecured revolving credit facility. This program allows
Dell to obtain favorable short-term borrowing rates. Dell pays
facility commitment and letter of credit participation fees at
rates based upon Dells credit rating. Unless extended,
this facility expires on June 1, 2011, at which time any
outstanding amounts under the facility will be due and payable.
The facility requires compliance with conditions that must be
satisfied prior to any borrowing, as well as ongoing compliance
with specified affirmative and negative covenants, including
maintenance of a minimum interest coverage ratio. Amounts
outstanding under the facility may be accelerated for typical
defaults, including failure to pay principal or interest,
breaches of covenants, non-payment of judgments or failure to
timely pay debt obligations in excess of $200 million,
occurrence of a change of control, and certain bankruptcy events.
At November 2, 2007, there were no outstanding advances
under the commercial paper program. Dell uses the proceeds of
the program and facility for general corporate purposes,
including funding DFS growth.
DFS
Credit Facilities
DFS maintains credit facilities with CIT that provide a maximum
capacity of $750 million to fund leased equipment. These
borrowings are secured by DFS assets and contain certain
customary restrictive covenants. Interest on the outstanding
loans is paid quarterly and calculated based on an average of
the two- and three-year U.S. Treasury Notes plus 4.45%. DFS
is required to make quarterly principal payments if the value of
the leased equipment securing the loans is less than the
outstanding principal balance. At November 2, 2007 and
February 2, 2007, outstanding advances from CIT totaled
$116 million and $122 million, respectively, of which
$63 million and $87 million, respectively, is included
in short-term borrowings and $53 million and
$35 million, respectively, is included in long-term debt.
The credit facilities expire on the earlier of (i) the
dissolution of DFS; (ii) the purchase of CITs
ownership interest in DFS; or (iii) the acceleration of the
maturity of the debt by CIT arising from a default.
Long-Term
Debt and Interest Rate Risk Management
In April 1998, Dell issued $200 million 6.55% fixed rate
senior notes with the principal balance due April 15, 2008
(the Senior Notes) and $300 million 7.10% fixed
rate senior debentures with the principal balance due
April 15, 2028 (the Senior Debentures).
Interest on the Senior Notes and Senior Debentures is paid
semi-annually, on April 15 and October 15. The Senior Notes
and Senior Debentures rank equally and are redeemable, in whole
or in part, at the election of Dell for principal, any accrued
interest, and a redemption premium based on the present value of
interest to be paid over the term of the debt agreements. The
Senior Notes and Senior Debentures generally contain no
restrictive covenants, other than a limitation on liens on
Dells assets and a limitation on sale-leaseback
transactions involving Dell property. The Senior Notes are
classified as current liabilities and the Senior Debentures are
classified as long-term liabilities at November 2, 2007.
Concurrent with the issuance of the Senior Notes and Senior
Debentures, Dell entered into interest rate swap agreements
converting Dells interest rate exposure from a fixed rate
to a floating rate basis to better align the associated interest
rate characteristics to its cash and investments portfolio. The
interest rate swap agreements have an aggregate notional amount
of $200 million maturing April 15, 2008 and
$300 million maturing April 15, 2028. The floating
rates are based on three-month London Interbank Offered Rates
plus 0.4% and 0.8% for the Senior Notes and Senior Debentures,
respectively. As a result of the interest rate swap agreements,
Dells effective interest rates for the Senior Notes and
Senior Debentures were 5.95% and 6.28%, respectively, for the
third quarter of Fiscal 2008, and 5.96% and 6.28%, respectively,
for the first nine months of Fiscal 2008.
The interest rate swap agreements are designated as fair value
hedges. Although the Senior Notes and Senior Debentures allow
for settlement before their stated maturity, such settlement
would always be at an amount greater
17
DELL
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(unaudited)
than the fair value of the Senior Notes and Senior Debentures.
Accordingly, the Senior Notes and Senior Debentures are not
considered to be pre-payable as defined by
SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities (SFAS 133) and
related interpretations. The changes in the fair value of the
interest rate swaps are recorded in accordance with
SFAS 133.
Dell adopted FIN 48 on February 3, 2007. FIN 48
clarifies the accounting and reporting for uncertainties in
income tax law. This Interpretation establishes a single model
to address accounting for uncertain tax positions. FIN 48
clarifies the accounting for income taxes by prescribing the
minimum recognition threshold a tax position is required to meet
before being recognized in the financial statements. FIN 48
also provides guidance on derecognition, measurement
classification, interest and penalties, accounting in interim
periods, disclosure, and transition.
The cumulative effect of adopting FIN 48 was a
$62 million increase in tax liabilities and a corresponding
decrease to the February 2, 2007 stockholders equity
balance of which $59 million related to retained earnings
and $3 million related to additional paid in capital. Upon
adoption, the unrecognized tax benefits totaled approximately
$1.2 billion at February 3, 2007, including interest
and penalties. This amount has been reduced by $69 million
of related tax benefits for deductions associated with estimated
transfer pricing and state income taxes. The net amount of
$1.1 billion, if recognized, would favorably affect
Dells effective tax rate. In addition, consistent with the
provisions of FIN 48, Dell changed the classification of
$1.1 billion of income tax liabilities from current to
non-current
liabilities because payment of cash is not anticipated within
one year of the balance sheet date.
Interest and penalties related to income tax liabilities are
included in income tax expense. The amount of accrued interest
and penalties recorded in the consolidated statement of
financial position at February 3, 2007 was
$173 million.
Dells effective annual tax rate was 18.2% for the third
quarter of Fiscal 2008, as compared to 24.9% for the same
quarter in the prior year. For the nine month periods ended
November 2, 2007 and November 3, 2006, Dells
effective tax rate was 23.0%. The third quarter of Fiscal 2008
includes a $45 million adjustment to update Dells
estimated Fiscal 2008 effective annual tax rate from 25.3% as of
August 3, 2007 to 23.0%. The decrease in the estimated
effective rate for Fiscal 2008 is primarily due to greater
profits generated in lower tax jurisdictions, partially offset
by the impact of new U.S. transfer pricing rules and the
impact of FIN 48.
Dell is currently under audit in various jurisdictions,
including the United States. The tax periods open to examination
by the major taxing jurisdictions to which Dell is subject
include Fiscal 1999 through Fiscal 2007. Dell does not
anticipate a significant change to the total amount of
unrecognized benefits within the next 12 months.
|
|
NOTE 12
|
REDEEMABLE
COMMON STOCK
|
Dell inadvertently failed to register with the SEC the issuance
of some shares under certain employee benefit plans. As a
result, certain purchasers of common stock pursuant to those
plans may have the right to rescind their purchases for an
amount equal to the purchase price paid for the shares, plus
interest from the date of purchase. At November 2, 2007,
and February 2, 2007, Dell has classified approximately
4 million shares ($101 million) and 5 million
shares ($111 million), respectively, which may be subject
to the rescissionary rights outside stockholders equity,
because the redemption features are not within the control of
Dell. Dell may also be subject to civil and other penalties by
regulatory authorities as a result of the failure to register.
These shares have always been treated as outstanding for
financial reporting purposes.
18
DELL
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(unaudited)
|
|
NOTE 13
|
SUBSEQUENT
EVENTS
|
On November 4, 2007, Dell announced the planned acquisition
of EqualLogic, a leading provider of high-performance iSCSI
storage area network solutions uniquely optimized for
virtualization, for approximately $1.4 billion in cash. The
acquisition is anticipated to close late in the fourth quarter
of Dells Fiscal 2008 or early in the first quarter of
Fiscal 2009. On November 12, 2007, Dell completed its
previously announced acquisition of ASAP Software, a leading
software solutions and licensing services provider, for
approximately $340 million in cash. On November 15,
2007, Dell announced the planned acquisition of Everdream Corp.,
a leading provider of Software-as-a-Service (SaaS) solutions for
remote-service management. The acquisition is anticipated to
close in the fourth quarter of Dells Fiscal 2008.
On December 3, 2007, Dells Board of Directors
approved a new $10 billion share repurchase program.
19
|
|
ITEM 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
SPECIAL NOTE: This section,
Managements Discussion and Analysis of Financial
Condition and Results of Operations, contains
forward-looking statements based on our current expectations.
Actual results in future periods may differ materially from
those expressed or implied by those forward-looking statements
because of a number of risks and uncertainties. For a discussion
of risk factors affecting our business and prospects, see
Part I Item 1A Risk
Factors in our Annual Report on
Form 10-K
for the fiscal year ended February 2, 2007.
All percentage amounts and ratios were calculated using
the underlying data in thousands. Unless otherwise noted, all
references to industry share and total industry growth data are
for personal computers (including desktops, notebooks, and x86
servers), and are based on information provided by IDC Worldwide
Quarterly PC Tracker, December 3, 2007. Share data is for
the calendar quarter and all our growth rates are on a fiscal
year-over-year basis. Unless otherwise noted, all references to
time periods refer to our fiscal periods.
Overview
Our
Company
As a leading technology company, we offer a broad range of
product categories, including desktop computer systems, mobility
products, servers, storage, software and peripherals, and
services. We are the number one supplier of personal computers
in the United States, and the number two supplier worldwide. Our
past performance has been the result of a persistent focus on
delivering directly to our customers relevant technology and
services at the best value.
Our business strategy is evolving. Historically we utilized our
direct customer model and highly efficient manufacturing and
logistics to lower the cost of technology for our customers. We
are now simplifying information technology for our customers
from point of sale to the usability of our products to the
service solutions we sell. Using this strategy, we strive to
provide the best possible customer experience by offering
superior value; high-quality, relevant technology; customized
systems; superior service and support; and differentiated
products and services that are easy to buy and use. We also
offer various financing alternatives, asset management services,
and other customer financial services for business and consumer
customers. To reach even more customers globally, we have
launched new distribution channels to reach commercial customers
and individual consumers around the world.
Although the focus of our business strategy is selling directly
to customers, we also utilize indirect sales channels when there
is a business need. During Fiscal 2008, we began offering Dell
Dimensiontm
and
Inspirontm
desktop computers and
Inspirontm
notebook computers as well as printers, ink, and toner in retail
stores in the Americas and announced partnerships with retailers
around the world. Consumers will be able to buy Dell products in
nearly 10,000 retail outlets worldwide. These actions represent
the first steps in our retail strategy, which will allow us to
extend our model and reach customers that we have not been able
to reach directly.
We manufacture most of the products we sell and have
manufacturing locations worldwide to service our global customer
base. Our build-to-order manufacturing process is designed to
allow us to significantly reduce cost while simultaneously
providing customers the ability to customize their product
purchases. We also have relationships with third-party original
equipment manufacturers that build some of our products (such as
printers, projectors, and certain desktop and notebook
computers) to our specifications, and we are exploring the
expanded use of original design manufacturing partnerships and
manufacturing outsourcing relationships in order to expand our
portfolio of products, deliver products faster, and better serve
our customers in certain markets.
Current
Business Environment
We participate in a highly competitive industry that is subject
to aggressive pricing and strong competitive pressures; however,
we believe that our growth potential remains strong. In the
U.S., rising energy prices, weakening real estate markets,
tighter credit availability, and inflationary pressures may lead
to slower economic growth, which may affect IT and consumer
spending during the fourth quarter of Fiscal 2008 and into
Fiscal 2009. A slow down in the U.S. economy could
adversely impact other economies. Economic conditions in our
international
20
regions, which are key to our expansion goals, are highlighted
by growing economies in Central and Eastern Europe, expansion in
Asia Pacific-Japan (APJ), and continued development
in Latin America. Overall, expected industry growth for Fiscal
2008 is faster than prior year growth.
Third
Quarter Performance
|
|
|
Share position
|
|
We shipped more
than 10 million units, resulting in a worldwide PC share
position of 14.7%, a decline of 1.7 percentage points
year-over-year.
|
|
|
|
Net revenue
|
|
Revenue
increased 9% year-over-year to $15.6 billion, with unit
shipments up 9% year-over-year.
|
|
|
|
Operating income
|
|
Operating income
was $829 million for the quarter, or 5.3% of revenue, as
compared to $734 million or 5.1% of revenue for third quarter of
Fiscal 2007.
|
|
|
|
Earnings per share
|
|
Earnings per
share increased 26% to $0.34 for the current quarter compared to
$0.27 for the third quarter of Fiscal 2007.
|
Results
of Operations
The following table summarizes the results of our operations for
the three and nine month periods ended November 2, 2007 and
November 3, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
November 2, 2007
|
|
November 3, 2006
|
|
November 2, 2007
|
|
November 3, 2006
|
|
|
|
|
% of
|
|
|
|
% of
|
|
|
|
% of
|
|
|
|
% of
|
|
|
Dollars
|
|
Revenue
|
|
Dollars
|
|
Revenue
|
|
Dollars
|
|
Revenue
|
|
Dollars
|
|
Revenue
|
|
|
(in millions, except per share amounts and percentages)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
15,646
|
|
|
100.0%
|
|
$
|
14,419
|
|
|
100.0%
|
|
$
|
45,144
|
|
|
100.0%
|
|
$
|
42,950
|
|
|
100.0%
|
Gross margin
|
|
$
|
2,888
|
|
|
18.5%
|
|
$
|
2,391
|
|
|
16.6%
|
|
$
|
8,677
|
|
|
19.2%
|
|
$
|
7,037
|
|
|
16.4%
|
Operating expenses
|
|
$
|
2,059
|
|
|
13.2%
|
|
$
|
1,657
|
|
|
11.5%
|
|
$
|
6,013
|
|
|
13.3%
|
|
$
|
4,794
|
|
|
11.2%
|
Operating income
|
|
$
|
829
|
|
|
5.3%
|
|
$
|
734
|
|
|
5.1%
|
|
$
|
2,664
|
|
|
5.9%
|
|
$
|
2,243
|
|
|
5.2%
|
Net income
|
|
$
|
766
|
|
|
4.9%
|
|
$
|
601
|
|
|
4.2%
|
|
$
|
2,268
|
|
|
5.0%
|
|
$
|
1,857
|
|
|
4.3%
|
Earnings per share diluted
|
|
$
|
0.34
|
|
|
N/A
|
|
$
|
0.27
|
|
|
N/A
|
|
$
|
1.00
|
|
|
N/A
|
|
$
|
0.82
|
|
|
N/A
|
Consolidated
Revenue
Consolidated revenue grew 9% year-over-year in the third quarter
and 5% year-over-year for first nine months of Fiscal 2008. We
grew revenue and profitability across all segments except for
our U.S. Consumer segment, where revenue declined 6% and
20% year-over-year for the third quarter and first nine months
of Fiscal 2008, respectively. Our software and peripherals
business experienced significant revenue growth as well, with
growth rates of 11% and 8%, respectively. Revenue and
profitability growth during the third quarter and first nine
months of Fiscal 2008 was partially offset by significant
declines in both unit shipments and revenues in our
U.S. Consumer segment. Revenue outside the
U.S. comprised 46% of consolidated revenue for the third
quarter of Fiscal 2008, compared to 43% for the same period last
year. For the first nine months of Fiscal 2008 and Fiscal 2007,
revenue outside the U.S. represented 46% and 43%,
respectively, of the consolidated revenue.
Revenues
by Segment
We conduct operations worldwide and manage our business in three
geographic regions: the Americas, EMEA, and APJ. The Americas
region covers the U.S., Canada, and Latin America. Within the
Americas, we are further segmented into Business and
U.S. Consumer. The Business segment includes sales to
corporate, government, healthcare, education, and small and
medium business customers within the Americas region, while the
U.S. Consumer segment includes sales primarily to
individual consumers and selected retail partners within the
U.S.
21
The Consumer segment will eventually expand beyond the
U.S. to include worldwide sales to individual consumers and
select retail partners as we globalize this business. The EMEA
region covers Europe, the Middle East, and Africa. The APJ
region covers the Asian countries of the Pacific Rim as well as
Australia, New Zealand, and India.
The following table summarizes our revenue by reportable segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
November 2, 2007
|
|
November 3, 2006
|
|
November 2, 2007
|
|
November 3, 2006
|
|
|
|
|
% of
|
|
|
|
% of
|
|
|
|
% of
|
|
|
|
% of
|
|
|
Dollars
|
|
Revenue
|
|
Dollars
|
|
Revenue
|
|
Dollars
|
|
Revenue
|
|
Dollars
|
|
Revenue
|
|
|
(in millions, except percentages)
|
|
Net revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
$
|
8,169
|
|
|
52.2%
|
|
$
|
7,620
|
|
|
52.8%
|
|
$
|
23,595
|
|
|
52.3%
|
|
$
|
22,232
|
|
|
51.8%
|
U.S. Consumer
|
|
|
1,527
|
|
|
9.8%
|
|
|
1,624
|
|
|
11.3%
|
|
|
4,263
|
|
|
9.4%
|
|
|
5,322
|
|
|
12.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
9,696
|
|
|
62.0%
|
|
|
9,244
|
|
|
64.1%
|
|
|
27,858
|
|
|
61.7%
|
|
|
27,554
|
|
|
64.2%
|
EMEA
|
|
|
3,834
|
|
|
24.5%
|
|
|
3,378
|
|
|
23.4%
|
|
|
11,087
|
|
|
24.6%
|
|
|
9,829
|
|
|
22.9%
|
APJ
|
|
|
2,116
|
|
|
13.5%
|
|
|
1,797
|
|
|
12.5%
|
|
|
6,199
|
|
|
13.7%
|
|
|
5,567
|
|
|
12.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
15,646
|
|
|
100.0%
|
|
$
|
14,419
|
|
|
100.0%
|
|
$
|
45,144
|
|
|
100.0%
|
|
$
|
42,950
|
|
|
100.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas Americas revenue and
units both increased 5% for the third quarter of Fiscal 2008 as
compared to the third quarter of Fiscal 2007. For the nine month
period ended November 2, 2007, revenue increased slightly
on a unit decline of 5% as compared to the same period in the
previous year. In the third quarter and first nine months of
Fiscal 2008, revenue growth of 7% and 6%, respectively, in our
Americas Business segment was offset by a 6% and 20% decrease in
revenue in our U.S. Consumer segment during the same
periods, respectively. For the third quarter of Fiscal 2008,
strong revenue growth in mobility and software and peripherals
was partially offset by a decline in desktop sales, while the
first nine months of Fiscal 2008 produced strong revenue growth
in servers and networking, storage, and software and peripherals
sales, which was also offset by declines in desktop sales.
|
|
|
|
|
|
Business Americas Business revenue
increased 7% and 6% year-over-year for the third quarter and
first nine months of Fiscal 2008, respectively. Growth in our
government, healthcare and education businesses, and Americas
International, which includes countries in North and South
America other than the United States, drove the majority of the
increase in revenue in Americas Business. Americas International
produced strong revenue growth of 19% year-over-year for the
third quarter and 15% for first nine months of Fiscal 2008.
Growth in Americas International was led by Brazil, which
experienced a 45% year-over-year increase in revenue during the
third quarter of Fiscal 2008 and a 34% increase in revenue for
the first nine months of Fiscal 2008 as compared to Fiscal 2007.
All products grew for the three and nine month periods ended
November 2, 2007, except for desktops, which decreased 1%
for the third quarter of Fiscal 2008 and was flat for the first
nine months of Fiscal 2008 as compared to the same periods of
Fiscal 2007.
|
|
|
|
U.S. Consumer U.S. Consumer
revenue declined 6% and 20% year-over-year for the third quarter
and first nine months of Fiscal 2008, respectively. The
significant decline in U.S. Consumer revenue is due to
competitive pressure and continuing decline in desktop revenue.
Desktop shipments decreased 23% in the third quarter of Fiscal
2008 and 40% for first nine months of Fiscal 2008 as compared to
the same periods in the prior year. Mobility revenue increased
5% in the third quarter of Fiscal 2008 on a unit increase of 7%
when compared to the third quarter of Fiscal 2007 and grew 39%
over the second quarter of Fiscal 2008 revenue. This represents
a turnaround in mobility revenue, which had been experiencing
weakening sales for the previous four quarters. Mobility revenue
during the third quarter was negatively impacted by certain
parts shortages and production delays with new products. This
led to longer lead times,
|
22
|
|
|
|
|
which adversely impacted revenue and profitability. For the
first nine months of Fiscal 2008, mobility revenue declined 21%
on a unit decline of 25%, while the industry-wide mobility sales
in the U.S. grew 18% and 22% during the third quarter and
first nine months of calendar year 2007, respectively. The
demand for our products has deteriorated due to price
competition and decreased product appeal. This environment led
the U.S. Consumer business to update its business model and
enter into a limited number of retail distribution arrangements
to complement and extend the existing direct business. We are
also investing in initiatives that will align our new and
existing products around customers needs and wants in
order to drive long-term, sustainable performance. Our
investments have resulted in better than expected demand for
certain of our Inspiron and XPS notebooks, which has resulted in
quarter-over-quarter U.S. Consumer revenue growth of 17%
for the third quarter of Fiscal 2008.
|
|
|
|
EMEA EMEA revenue grew 14% on
unit growth of 13% for the third quarter of Fiscal 2008, and for
the first nine months of Fiscal 2008, EMEA revenue grew 13%
year-over-year on unit growth of 5%. During the first nine
months of Fiscal 2008, the revenue growth is attributed to unit
growth and higher average selling prices, which increased 7% due
to changes in product mix. Year-over-year revenue growth for
both the third quarter and first nine months of Fiscal 2008 was
led by Germany, France, and the United Kingdom, while Poland,
Austria, and Greece produced significant year-over-year growth
at rates well above the overall region for the third quarter and
first nine months of Fiscal 2008. For the third quarter and
first nine months of Fiscal 2008, EMEA experienced double digit
revenue growth in all product and service categories except for
desktop PCs, which decreased slightly. Year-over-year revenue
growth in EMEA was lead by enhanced services and mobility, which
grew 36% and 21%, respectively, during the third quarter of
Fiscal 2008, and 34% and 18%, respectively, for the first nine
months of Fiscal 2008. Although we have experienced strong
mobility growth in Fiscal 2008, we grew slower than the industry.
|
|
|
APJ APJ revenue grew 18% on a
unit increase of 20% for the third quarter of Fiscal 2008.
During the first nine months of Fiscal 2008, APJ revenue grew
11% on a unit increase of 10%. For the third quarter of Fiscal
2008, revenue growth in APJ was led by China with 22% growth,
Australia-New Zealand with 23% growth, and India with 47%
growth. These four countries led APJ revenue growth for the
first nine months of Fiscal 2008 as well. Additionally,
Malaysia, Taiwan, and Thailand produced significant
year-over-year growth at rates well above the overall region for
the third quarter and first nine months of Fiscal 2008.
Excluding Japan, the region experienced a 24% and 19% increase
in revenue, year-over-year, for the third quarter and first nine
months of Fiscal 2008, respectively, while Japans revenue
increased 3% for the third quarter of Fiscal 2008 and decreased
3% for the first nine months of Fiscal 2008, under significant
competitive pressure. For APJ overall, desktop PCs, mobility,
and servers and networking, experienced strong revenue growth
for the three and nine month periods ended November 2,
2007, while enhanced services revenue declined significantly
during the same periods.
|
Revenue
by Product and Services Categories
We design, develop, manufacture, market, sell, and support a
wide range of products that in many cases are customized to
individual customer requirements. Our product categories include
desktop computer systems, mobility products, software and
peripherals, servers and networking products, and storage
products. In addition, we offer a range of enhanced services.
During much of the third quarter of Fiscal 2008, we ran a
higher-than-normal product backlog, driven by
better-than-expected demand for the new Inspiron and XPS colored
notebooks, coupled with supply constraints for several colors
and a tightening in supply of certain flat-panel displays.
However, by the end of the quarter certain of the supply
constraints had begun to lessen, and we reduced our backlog
sequentially. We continue to work to reduce our backlog levels
to be more consistent with historical patterns.
23
The following table summarizes our net revenue by product and
service categories:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
November 2, 2007
|
|
|
November 3, 2006
|
|
|
November 2, 2007
|
|
|
November 3, 2006
|
|
|
|
|
|
% of
|
|
|
|
|
% of
|
|
|
|
|
% of
|
|
|
|
|
% of
|
|
|
|
Dollars
|
|
Revenue
|
|
|
Dollars
|
|
Revenue
|
|
|
Dollars
|
|
Revenue
|
|
|
Dollars
|
|
Revenue
|
|
|
|
(in millions, except percentages)
|
|
|
Net revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Desktop PCs
|
|
$
|
4,754
|
|
|
30%
|
|
|
$
|
4,783
|
|
|
33%
|
|
|
$
|
14,713
|
|
|
32%
|
|
|
$
|
15,066
|
|
|
35%
|
|
Mobility
|
|
|
4,729
|
|
|
30%
|
|
|
|
3,968
|
|
|
27%
|
|
|
|
12,610
|
|
|
28%
|
|
|
|
11,595
|
|
|
27%
|
|
Software & peripherals
|
|
|
2,533
|
|
|
16%
|
|
|
|
2,287
|
|
|
16%
|
|
|
|
7,254
|
|
|
16%
|
|
|
|
6,688
|
|
|
15%
|
|
Servers & networking
|
|
|
1,651
|
|
|
11%
|
|
|
|
1,529
|
|
|
11%
|
|
|
|
4,862
|
|
|
11%
|
|
|
|
4,228
|
|
|
10%
|
|
Enhanced services
|
|
|
1,355
|
|
|
9%
|
|
|
|
1,272
|
|
|
9%
|
|
|
|
3,919
|
|
|
9%
|
|
|
|
3,755
|
|
|
9%
|
|
Storage
|
|
|
624
|
|
|
4%
|
|
|
|
580
|
|
|
4%
|
|
|
|
1,786
|
|
|
4%
|
|
|
|
1,618
|
|
|
4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
15,646
|
|
|
100%
|
|
|
$
|
14,419
|
|
|
100%
|
|
|
$
|
45,144
|
|
|
100%
|
|
|
$
|
42,950
|
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Desktop PCs Revenue from desktop
PCs decreased slightly during the third quarter of Fiscal 2008
as compared to the third quarter of the prior year, and it
decreased 2% for the first nine months of Fiscal 2008 on a unit
decline of 6%. This performance was driven by our
U.S. Consumer business, where desktop revenue was down 19%
year-over-year for the third quarter of Fiscal 2008 and down 27%
for the first nine months of Fiscal 2008. Business and consumer
demand continues to shift toward mobility products as notebook
computers capabilities increase and they become more
affordable.
|
|
|
Mobility During the third quarter
revenue from mobility products grew 19% on unit growth of 25%.
During the first nine months of Fiscal 2008, mobility revenue
and units grew year-over-year by 9%. For the third quarter,
mobility revenue in APJ, EMEA, and Americas Business grew 40%,
21%, and 18% respectively, on unit growth of 35%, 31%, and 25%
respectively, whereas U.S Consumer revenue and units only grew
5% and 7%, respectively. For the nine months ended
November 2, 2007, mobility revenue in APJ, EMEA, and
Americas Business grew 26%, 18%, and 10%, respectively, on unit
growth of 21%, 19%, and 14% respectively. This revenue growth
was offset by a 21% and a 25% decline in U.S. Consumer
revenue and units, respectively. We continue to capitalize on
the growth of mobile computing outside of the U.S. Consumer
segment with notebooks producing strong revenue and unit growth
in APJ, EMEA, and Americas Business. As notebooks become more
affordable and wireless products become standardized, demand for
our mobility products continues to be strong.
|
|
|
Software and Peripherals Revenue
from sales of software and peripherals consists of Dell-branded
printers, monitors (not sold with systems), projectors, and a
multitude of competitively priced third-party peripherals
including LCD televisions, software, and other products. This
revenue grew 11% year-over-year for the third quarter and 8% for
the first nine months of Fiscal 2008. We experienced growth in
imaging and printing as well as third-party peripheral
enterprise products. Peripheral enterprise includes third-party
networking and switches and software.
|
|
|
Servers and Networking Revenue
from sales of servers and networking products grew 8%
year-over-year for the third quarter of Fiscal 2008 on unit
growth of 7%. For the first nine months of Fiscal 2008, servers
and networking revenue increased 15% on unit growth of 5%.
Higher average selling prices also contributed to the revenue
growth for the first nine months of Fiscal 2008. All regions
contributed to the strong revenue growth, and for the third
quarter, we were again ranked number one in the United States
with a 34% share in server units shipped. Servers and networking
remains a strategic focus area. We competitively price our
server products to facilitate additional sales of storage
products and higher margin enhanced services.
|
|
|
Enhanced Services Enhanced
services consists of a wide range of services including
assessment, design and implementation, deployment, asset
recovery and recycling, training, enterprise support, client
support, and managed lifecycle. Enhanced services revenue
increased 7% year-over-year for the three-month period ended
November 2, 2007 to $1.4 billion, and for the
nine-month period ended November 2, 2007, enhanced services
|
24
revenue increased 4% to $3.9 billion. For the third quarter
of Fiscal 2008, EMEAs enhanced services revenue increased
36%, while enhanced services revenue increased only 3% in
Americas Business and decreased 8% in APJ and 20% in
U.S. Consumer. For the first nine months of Fiscal 2008,
EMEAs enhanced services revenue increased 34%, while
enhanced services revenue increased only 2% in Americas Business
and decreased 15% in APJ and 16% in U.S. Consumer.
|
|
|
Storage Revenue from sales of
storage products increased 8% and 10% for the third quarter and
first nine months of Fiscal 2008, respectively. Storage growth
was led by strength in our Powervault line, which posted
double-digit growth. All regions contributed to the strong
revenue growth, led by EMEA, which experienced growth of 13% and
20% for the third quarter and first nine months of Fiscal 2008,
respectively.
|
Gross
Margin
The following table presents information regarding our gross
margin for the three and nine month periods ended
November 2, 2007 and November 3, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
November 2, 2007
|
|
November 3, 2006
|
|
November 2, 2007
|
|
November 3, 2006
|
|
|
|
|
% of
|
|
|
|
% of
|
|
|
|
% of
|
|
|
|
% of
|
|
|
Dollars
|
|
Revenue
|
|
Dollars
|
|
Revenue
|
|
Dollars
|
|
Revenue
|
|
Dollars
|
|
Revenue
|
|
|
(in millions, except percentages)
|
|
Net revenue
|
|
$
|
15,646
|
|
|
|
100.0
|
%
|
|
$
|
14,419
|
|
|
|
100.0
|
%
|
|
$
|
45,144
|
|
|
|
100.0
|
%
|
|
$
|
42,950
|
|
|
|
100.0
|
%
|
Gross margin
|
|
$
|
2,888
|
|
|
|
18.5
|
%
|
|
$
|
2,391
|
|
|
|
16.6
|
%
|
|
$
|
8,677
|
|
|
|
19.2
|
%
|
|
$
|
7,037
|
|
|
|
16.4
|
%
|
Our margins increased for the third quarter and first nine
months of Fiscal 2008 as compared to the same periods in the
prior year primarily as a result of stronger performance in
mobility, enterprise products, and enhanced services, and
favorable declines in component costs. Although component costs
declined during the third quarter of Fiscal 2008, the declines
were slower than what we experienced in the first half of Fiscal
2008. We continue to evolve our inventory and manufacturing
business model to capitalize on component cost declines, and we
continuously negotiate with our suppliers in a variety of areas
including availability of supply, quality, and cost. These
real-time continuous supplier negotiations support our business
model, which is able to respond quickly to changing market
conditions due to our direct customer model and real-time
manufacturing. Our component costs reflect both ongoing supplier
discount arrangements as well as shorter-term incremental
discounts and rebates, based on such factors as volume, product
offerings and transitions, supply conditions, and joint
activities. Because of the fluid nature of these ongoing
negotiations, the timing and amount of supplier discounts and
rebates vary from time to time. In addition, a focus on more
richly configured customer solutions and a better mix of
products and services enabled us to hold average selling prices
steady in a competitive pricing environment and yielded a better
balance of profitability and revenue growth.
On May 31, 2007 we announced that we had initiated a
comprehensive review of costs across all processes and
organizations with the goal to simplify structure, eliminate
redundancies, and better align operating expenses with the
current business environment and strategic growth opportunities.
As a part of this overall effort, we are reducing headcount and
infrastructure costs over the next twelve months. Our management
teams have began executing on the transformation plans, which
include headcount and infrastructure cost reduction goals. Costs
incurred for headcount and infrastructure reductions in the
third quarter and first nine months of Fiscal 2008 increased
cost of goods sold by $17 million and $21 million,
respectively.
25
Operating
Expenses
The following table summarizes our operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
November 2, 2007
|
|
November 3, 2006
|
|
November 2, 2007
|
|
November 3, 2006
|
|
|
|
|
% of
|
|
|
|
% of
|
|
|
|
% of
|
|
|
|
% of
|
|
|
Dollars
|
|
Revenue
|
|
Dollars
|
|
Revenue
|
|
Dollars
|
|
Revenue
|
|
Dollars
|
|
Revenue
|
|
(in millions, except percentages)
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative
|
|
$
|
1,900
|
|
|
12.2%
|
|
$
|
1,531
|
|
|
10.6%
|
|
$
|
5,557
|
|
|
12.3%
|
|
$
|
4,414
|
|
|
10.3%
|
Research, development, and engineering
|
|
|
159
|
|
|
1.0%
|
|
|
126
|
|
|
0.9%
|
|
|
456
|
|
|
1.0%
|
|
|
380
|
|
|
0.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
$
|
2,059
|
|
|
13.2%
|
|
$
|
1,657
|
|
|
11.5%
|
|
$
|
6,013
|
|
|
13.3%
|
|
$
|
4,794
|
|
|
11.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative
During the third quarter of Fiscal 2008, selling, general, and
administrative expenses increased 24% to $1.9 billion
compared to $1.5 billion in the same period of Fiscal 2007.
For the nine-month period ended November 2, 2007, selling,
general, and administrative expenses were $5.6 billion
compared to $4.4 billion during the same period in Fiscal
2007, an increase of 26%. Costs primarily related to headcount
growth and costs associated with the U.S. Securities and
Exchange Commission (SEC) investigation and the
Audit Committees independent investigation drove the
increase in third quarter and first nine months of Fiscal 2008.
Expenses related to the SEC and Audit Committee investigations
were $28 million and $134 million for the three and
nine month periods ended November 2, 2007, respectively. In
addition, the third quarter and first nine months of Fiscal 2008
include $8 million and $94 million, respectively, of
additional expense for expected cash payments for expiring stock
options. Finally, the third quarter and first nine months of
Fiscal 2008 include $33 million and $46 million,
respectively, of expenses related to headcount and
infrastructure reductions.
|
|
|
Research, development, and engineering
During the third quarter of Fiscal 2008, research, development,
and engineering expenses increased 27% to $159 million,
compared to $126 million in the same period of Fiscal 2007,
and increased 20% from $380 million to $456 million
for the first nine months of Fiscal 2008. The increase is mainly
due to higher compensation costs, which increased 26%
year-over-year to $123 million for the third quarter and
increased 26% year-over-year to $364 million for the first
nine months of Fiscal 2008. The increased compensation costs are
mainly due to headcount growth, which is largely attributed to
our Simplify IT initiative for our customers.
Research and development is the foundation for this initiative,
which is aimed at allowing customers to deploy IT faster, run IT
at a lower total cost, and grow IT smarter. We manage our
research, development, and engineering spending by targeting
those innovations and products most valuable to our customers
and by relying upon the capabilities of our strategic partners.
We will continue to invest in research, development, and
engineering activities to support our growth and to provide for
new, competitive products. We have obtained 1,921 patents
worldwide and have applied for 2,150 additional patents
worldwide as of November 2, 2007.
|
Stock-based
Compensation
As a result of our inability to timely file our Annual Report on
Form 10-K
for Fiscal 2007, we suspended the exercise of employee stock
options, the vesting of restricted stock units, and the purchase
of shares under our employee stock purchase plan
(ESPP) on April 4, 2007. We are again current
in our periodic reporting obligations and, accordingly, are
permitting the exercise of employee stock options by employees
and the vesting of restricted stock units.
We agreed to pay cash to certain current and former employees
who held in-the-money stock options (options that have an
exercise price less than the current stock market price) that
expired during the period of unexercisability due to our
inability to timely file our Annual Report on
Form 10-K
for Fiscal 2007. We have made or expect to make payments of
approximately $111 million relating to in-the-money stock
options that expired in the second and third
26
quarters of Fiscal 2008. As options have again become
exercisable, we will no longer pay cash for expired in-the-money
stock options.
Investment
and Other Income, net
Net investment and other income primarily includes interest
income and expense, gains and losses from the sale of
investments, and investment related fees, as well as foreign
exchange transaction gains and losses. Net investment and other
income increased to $107 million and $281 million for
the third quarter and first nine months of Fiscal 2008,
respectively, compared to $66 million and
$170 million, respectively, for the same periods in Fiscal
2007. This increase is primarily due to an increase in average
cash and investments balances during the third quarter and first
nine months of Fiscal 2008 as compared to the same periods of
Fiscal 2007.
Income
Taxes
We reported an effective tax rate of approximately 18.2% for the
third quarter of Fiscal 2008, as compared to 24.9% for the same
quarter in the prior year. For the nine month periods ended
November 2, 2007 and November 3, 2006, our effective
tax rate was 23.0%. The third quarter of Fiscal 2008 includes a
$45 million adjustment to update our estimated Fiscal 2008
effective annual tax rate from 25.3% as of August 3, 2007
to 23.0%. The decrease in our estimated effective rate for
Fiscal 2008 is primarily due to greater profits generated in
lower tax jurisdictions, partially offset by the impact of new
U.S. transfer pricing rules and the impact of Financial
Accounting Standards Board (FASB) Interpretation
No. 48, Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement
No. 109 (FIN 48). The differences
between our effective tax rate and the U.S. federal
statutory rate of 35% principally result from our geographical
distribution of taxable income and differences between the book
and tax treatment of certain items. The tax rate for both the
fourth quarter and full year of Fiscal 2008 will be impacted by
the mix of jurisdictions in which income is generated as well as
the source of funds for the share repurchase program.
Off-Balance
Sheet Arrangements
Asset Securitization During the third quarter
of Fiscal 2008, we continued to sell customer financing
receivables to unconsolidated qualifying special purpose
entities. The qualifying special purpose entities are bankruptcy
remote legal entities with assets and liabilities separate from
ours. The sole purpose of the qualifying special purpose
entities is to facilitate the funding of finance receivables in
the capital markets. We determine the amount of receivables to
securitize based on our funding requirements in conjunction with
specific selection criteria designed for the transaction. The
qualifying special purpose entities have entered into financing
arrangements with three multi-seller conduits that, in turn,
issue asset-backed debt securities in the capital markets.
Transfers of financing receivables are recorded in accordance
with the provisions of Statement of Financial Accounting
Standards No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of
Liabilities a replacement of FASB Statement
No. 125 (SFAS 140).
We retain the right to receive collections on securitized
receivables in excess of amounts needed to pay interest and
principal as well as other required fees. Upon the sale of the
financing receivables, we record the present value of the excess
cash flows as a retained interest, which typically results in a
gain that ranges from 2% to 4% of the customer receivables sold.
We service these securitized contracts and earn a servicing fee.
Our securitization transactions generally do not result in
servicing assets and liabilities, as the contractual fees are
adequate compensation in relation to the associated servicing
cost.
In estimating the value of the retained interest, we make a
variety of financial assumptions, including pool credit losses,
payment rates, and discount rates. These assumptions are
supported by both our historical experience and anticipated
trends relative to the particular receivable pool. We review our
investments in retained interests periodically for impairment,
based on their estimated fair value. Any resulting losses
representing the excess of carrying value over estimated fair
value that are other-than-temporary are recorded in earnings.
Upon the adoption of SFAS No. 155, Accounting for
Certain Hybrid Instruments (SFAS 155) in
the first quarter of Fiscal 2008, we began recognizing the
changes in fair value in earnings as opposed to accumulated
other comprehensive income.
27
Retained interest balances and assumptions are disclosed in
Note 6 of Notes to Condensed Consolidated Financial
Statements included in
Part I Item 1 Financial
Statements.
Our securitization program contains structural features that
could prevent further funding if the credit losses or
delinquencies on the pool of sold receivables exceed specified
levels. These structural features are within normal industry
practice and are similar to comparable securitization programs
in the marketplace. We do not expect that any of these features
will have a material adverse impact on our ability to securitize
financing receivables. We closely monitor our entire portfolio,
including subprime assets, and take action relative to
underwriting standards as necessary.
Liquidity
and Capital Commitments
Liquidity
Our cash balances are held in numerous locations throughout the
world, including substantial amounts held outside of the
U.S. Most of the amounts held outside of the
U.S. could be repatriated to the U.S., but under current
law, would be subject to U.S. federal income taxes, less
applicable foreign tax credits. Repatriation of some foreign
balances is restricted by local laws. We have provided for the
U.S. federal tax liability on these amounts for financial
statement purposes except for foreign earnings that are
considered indefinitely reinvested outside of the
U.S. Repatriation could result in additional
U.S. federal income tax payments in future years. Where
local restrictions prevent an efficient intercompany transfer of
funds, our intent is that those cash balances would remain
outside of the U.S., and we would meet our U.S. liquidity
needs through operating cash flows, external borrowings, or
both. We utilize a variety of tax planning and financing
strategies with the objective of having our worldwide cash
available in the locations in which it is needed.
We ended the third quarter of Fiscal 2008 with
$14.6 billion in cash, cash equivalents, and investments,
compared to $11.5 billion at the end of the third quarter
of Fiscal 2007. Our investment policy is to manage our
investment portfolio to preserve principal and liquidity while
maximizing the return through the full investment of available
funds. We invest a large portion of our available cash in highly
liquid and highly rated investments, which would include money
market instruments as well as government, agency, and corporate
debt securities of varying maturities at the date of
acquisition. The following table summarizes the results of our
Condensed Consolidated Statement of Cash Flows for the nine
month periods ended November 2, 2007 and November 3,
2006:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
November 2,
|
|
|
November 3,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in millions)
|
|
|
Net cash flow provided by (used in):
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
2,752
|
|
|
$
|
2,748
|
|
Investing activities
|
|
|
(85
|
)
|
|
|
647
|
|
Financing activities
|
|
|
(86
|
)
|
|
|
(2,512
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
109
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
$
|
2,690
|
|
|
$
|
944
|
|
|
|
|
|
|
|
|
|
|
Operating Activities Cash provided by
operating activities during the nine month periods ended
November 2, 2007 and November 3, 2006 was
$2.8 billion and $2.7 billion, respectively. The
slight increase in operating cash flows was primarily led by
improved net income offset by deterioration in our cash
conversion cycle. During the first nine months of Fiscal 2008 as
compared to the first nine months of Fiscal 2007, changes in
operating working capital accounts were impacted by a
$1.1 billion change in classification of income tax
liabilities from current to non-current liabilities related to
the adoption of FIN 48; this classification change did not
impact our net cash flows from operations. Although our cash
conversion cycle deteriorated year-over-year, cash flows from
operating activities typically result from net income, which
represents our principal source of cash. Our direct model allows
us to maintain an efficient cash conversion cycle, which
compares favorably with that of others in our industry.
28
The following table presents the components of our cash
conversion cycle at November 2, 2007 and February 2,
2007:
|
|
|
|
|
|
|
|
|
|
|
November 2,
|
|
February 2,
|
|
|
2007
|
|
2007
|
|
Days of sales
outstanding(a)
|
|
|
38
|
|
|
|
31
|
|
Days of supply in inventory
|
|
|
8
|
|
|
|
5
|
|
Days in accounts payable
|
|
|
(81
|
)
|
|
|
(78
|
)
|
|
|
|
|
|
|
|
|
|
Cash conversion cycle
|
|
|
(35
|
)
|
|
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Days of sales outstanding
(DSO) is based on the ending net trade receivables
and most recent quarterly revenue for each period. DSO includes
the effect of product costs related to customer shipments not
yet recognized as revenue that are classified in other current
assets. At November 2, 2007 and February 2, 2007, DSO
and days of customer shipments not yet recognized were 35 and
3 days and 28 and 3 days, respectively.
|
Our cash conversion cycle decreased seven days at
November 2, 2007 from February 2, 2007. This decline
is driven by a seven day increase in days of sales outstanding,
which is attributed to a lengthening in the payment cycle for
customers that require terms, a higher percentage of our revenue
coming from our customers requiring payments terms, and a higher
percentage of revenue occurring at the end of the period. In
addition, days of supply in inventory increased three days due
to an increase in production materials inventory resulting from
strategic materials purchases offset by a three day increase in
days in accounts payable, largely attributed to an increase in
the number of suppliers with extended payment terms as compared
to the fourth quarter of Fiscal 2007 and the timing of payments
to vendors compared to the fourth quarter of Fiscal 2007.
We defer the cost of revenue associated with customer shipments
not yet recognized as revenue until they are delivered. These
deferred costs are included in our reported days of sales
outstanding because we believe it presents a more accurate
presentation of our days of sales outstanding and cash
conversion cycle. These deferred costs are recorded in other
current assets in our Condensed Consolidated Statements of
Financial Position and totaled $477 million and
$424 million at November 2, 2007 and February 2,
2007, respectively.
Investing Activities Cash used in investing
activities for the nine-month period ended November 2, 2007
was $85 million, compared to cash provided by investing
activities of $647 million for the same period last year.
Cash provided by and used in investing activities principally
consists of net maturities and sales or purchases of investments
and capital expenditures for property, plant, and equipment. The
decrease in cash provided by investing activities from the same
period last year is a result of a decrease in the net proceeds
from maturities, sales, and purchases of marketable securities
as liquidity for share repurchases was not as necessary in
Fiscal 2008 due to the suspension of our share repurchase
program. Additionally, an increase in capital expenditures
contributed to the decline in cash from investing activities for
the nine-month period ended November 2, 2007 as compared to
the same period in Fiscal 2007. Lastly, during the first nine
months of Fiscal 2008, we used $106 million in cash to
acquire new businesses.
Financing Activities Cash used in financing
activities during the nine-month period ended November 2,
2007 was $86 million, compared to $2.5 billion during
the same period last year. Financing activities primarily
consist of the repurchase of our common stock, partially offset
by proceeds from the issuance of common stock under employee
stock plans and other items. The year-over-year decrease in cash
used in financing activities is due primarily to the suspension
of the share repurchase program for the first nine months of
Fiscal 2008. During the same period in Fiscal 2007, a total of
118 million shares at an aggregate cost of
$3.0 billion were repurchased.
We believe our ability to generate cash flows from operations on
an annual basis will continue to be strong, driven mainly by our
profitability, efficient cash conversion cycle, and the growth
in our deferred enhanced services offerings. However, in order
to augment our liquidity and provide us with additional
flexibility, we implemented a commercial paper program with a
supporting credit facility on June 1, 2006. Under the
commercial paper program, we issue, from time-to-time,
short-term unsecured notes in an aggregate amount not to exceed
$1.0 billion. We use the proceeds for general corporate
purposes, including funding Dell Financial Services L.P.
(DFS) growth. At November 2, 2007, no amounts
were outstanding. See Note 10 of Notes to Condensed
Consolidated Financial
29
Statements included in Part I
Item 1 Financial Statements for further
discussion of our commercial paper program. Our
$200 million Senior Notes are due April 15, 2008, and
we intend to pay the outstanding balance of $200 million at
that time. We do not expect the payment to have a significant
impact on our cash flows or cash position.
On November 4, 2007, we announced our planned acquisition
of EqualLogic for approximately $1.4 billion in cash. The
acquisition is anticipated to close late in the fourth quarter
of Fiscal 2008 or early in the first quarter of Fiscal 2009. On
November 12, 2007, we completed our previously announced
acquisition of ASAP Software for approximately $340 million
in cash.
Capital
Commitments
Redeemable Common Stock We inadvertently
failed to register with the SEC the issuance of some shares
under certain employee benefit plans. As a result, certain
purchasers of common stock pursuant to those plans may have the
right to rescind their purchases for an amount equal to the
purchase price paid for the shares, plus interest from the date
of purchase. At November 2, 2007 and February 2, 2007,
we have classified approximately 4 million shares
($101 million) and 5 million shares
($111 million), respectively, which may be subject to the
rescissionary rights outside stockholders equity, because
the redemption features are not within our control. We may also
be subject to civil and other penalties by regulatory
authorities as a result of the failure to register. These shares
have always been treated as outstanding for financial reporting
purposes. During the third quarter of Fiscal 2008, we began
purchasing certain shares from the Dell 401(k) Plan that were
considered to be restricted securities due to the
failure to register. During the third quarter, we repurchased
43,045 shares for an aggregate cost of approximately
$1 million.
Share Repurchase Program We have a share
repurchase program that authorizes us to purchase shares of
common stock in order to increase shareholder value and manage
dilution resulting from shares issued under our equity
compensation plans. However, we do not currently have a policy
that requires the repurchase of common stock in conjunction with
share-based payment arrangements. As of November 2, 2007,
our share repurchase program authorized the purchase of common
stock at an aggregate cost not to exceed $30.0 billion, of
which we have already repurchased $28.6 billion. On
December 3, 2007, our Board of Directors approved a new
$10 billion share repurchase program.
We typically repurchase shares of common stock through a
systematic program of open market purchases. We temporarily
suspended our share repurchase program in September 2006 pending
completion of the Audit Committee investigation. As a result, no
shares were repurchased under the program during the first nine
months of Fiscal 2008. For more information regarding share
repurchases, see Part II
Item 2 Unregistered Sales of Equity Securities
and Use of Proceeds.
Capital Expenditures During the three and
nine month periods ended November 2, 2007, we spent
approximately $172 million and $636 million,
respectively, on property, plant, and equipment primarily on our
global expansion efforts and infrastructure investments in order
to support future growth. Product demand and mix, as well as
ongoing efficiencies in operating and information technology
infrastructure, influence the level and prioritization of our
capital expenditures. Capital expenditures for Fiscal 2008
(related to our continued expansion worldwide, the need to
increase manufacturing capacity, and leasing arrangements to
facilitate customer sales) are currently expected to reach
approximately $900 million. These expenditures are expected
to be funded from our cash flows from operating activities.
DFS Purchase Commitment Pursuant to our joint
venture agreement with CIT Group, Inc. (CIT), we
have an option to purchase CITs 30% interest in DFS in
February 2008, for a purchase price of approximately
$300 million. If we do not exercise this purchase option,
we are obligated to purchase CITs 30% interest upon the
occurrence of certain termination events or upon the expiration
of the joint venture on January 29, 2010. See Note 6
of Notes to Condensed Consolidated Financial Statements included
in Part I Item 1
Financial Statements.
Restricted Cash Pursuant to an agreement
between DFS and CIT, we are required to maintain escrow cash
accounts that are held as recourse reserves for credit losses,
performance fee deposits related to our private label credit
card, and deferred servicing revenue. Restricted cash in the
amount of $330 million and $418 million is included in
other current assets at November 2, 2007 and
February 2, 2007, respectively.
30
Recently
Issued Accounting Pronouncements
See Note 1 of Notes to Condensed Consolidated Financial
Statements included in
Part I Item 1 Financial
Statements for a description of recently issued accounting
pronouncements, including the expected dates of adoption and
estimated effects on our results of operations, financial
position, and cash flows.
|
|
ITEM 3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
For a description of our market risks, see
Part II Item 7
Managements Discussion and Analysis of Financial Condition
and Results of Operations Market Risk in our
Annual Report on
Form 10-K
for the fiscal year ended February 2, 2007. Our exposure to
market risks has not changed materially from the description in
the Annual Report on
Form 10-K.
|
|
ITEM 4.
|
Controls
and Procedures
|
This Report includes the certifications of our Chief Executive
Officer and Chief Financial Officer required by
Rule 13a-14
of the Securities Exchange Act of 1934 (the Exchange
Act). See Exhibits 31.1 and 31.2. This Item 4
includes information concerning the controls and control
evaluations referred to in those certifications.
Background
As previously disclosed under
Part II Item 9A Controls
and Procedures in our Annual Report on
Form 10-K
for the fiscal year ended February 2, 2007, management
concluded that our internal control over financial reporting was
not effective as of February 2, 2007 because of certain
deficiencies that constituted material weaknesses in our
internal control over financial reporting. Those material
weaknesses resulted in the restatement of our previously issued
annual and interim financial statements for Fiscal 2003, 2004,
2005, and 2006, and the first quarter of Fiscal 2007 and
adjustments, including audit adjustments and adjustments related
to the investigation and our internal reviews, to our annual and
other interim financial statements for Fiscal 2007. In addition,
those material weaknesses could result in material misstatements
of substantially all of our financial statement accounts that
would result in a material misstatement of our annual or interim
consolidated financial statements that would not be prevented or
detected on a timely basis.
Our management has been actively engaged in the implementation
of remediation efforts to address the material weaknesses, as
well as other identified areas of risk. For a complete
description of managements remediation plan, see
Part I Item 9A Controls
and Procedures in our Annual Report on
Form 10-K
for the fiscal year ended February 2, 2007.
Evaluation
of Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Exchange Act) are designed to ensure that information
required to be disclosed in reports filed or submitted under the
Exchange Act is recorded, processed, summarized, and reported
within the time periods specified in SEC rules and forms and
that such information is accumulated and communicated to
management, including the chief executive officer and the chief
financial officer, to allow timely decisions regarding required
disclosures.
In connection with the preparation of this Report, Dells
management, under the supervision and with the participation of
the Chief Executive Officer and Chief Financial Officer,
conducted an evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures. Based on
that evaluation and the identification of certain material
weaknesses in internal control over financial reporting, which
we view as an integral part of our disclosure controls and
procedures, our Chief Executive Officer and Chief Financial
Officer have concluded that our disclosure controls and
procedures were not effective as of November 2, 2007.
Nevertheless, based on a number of factors, including the
performance of additional procedures by management designed to
ensure the reliability of our financial reporting, we believe
that the consolidated financial statements in this Report fairly
present, in all material respects, our financial position,
results of operations, and cash flows as of the dates, and for
the periods, presented, in conformity with GAAP.
31
Managements
Plan for Remediation
Beginning in the third quarter of Fiscal 2007 and continuing
through the date of this Report, we began the implementation of
measures designed to remediate the identified material
weaknesses, including (a) communication, both internally
and externally, of our commitment to a strong control
environment, high ethical standards, and financial reporting
integrity; (b) certain personnel actions; (c) the
reorganization of the Finance Department to separate accounting
and financial reporting responsibility from planning and
forecasting responsibility and to strengthen the Chief
Accounting Officer role, giving it direct and centralized
responsibility for all accounting and financial reporting
functions worldwide; (d) the design and implementation of a
comprehensive training program for all Finance Department
personnel; (e) the implementation of more rigorous
period-end financial reporting policies and processes involving
journal-entry approval, supporting documentation, account
reconciliations, and management representation letters;
(f) an increased corporate audit focus on key accounting
controls and processes, including documentation requirements;
(g) extension of the time between the end of reporting
periods and earnings release dates to give the accounting
organization more time to close the books and process and
analyze results; and (h) the design and implementation of a
new internal global ethics awareness campaign, including
refreshed tools, resources, and policies.
The remediation plan, once finally implemented and operational,
is expected to result in the remediation of the identified
material weaknesses in internal control over financial reporting.
Changes
in Internal Control Over Financial Reporting
There was no change in our internal control over financial
reporting during the third quarter of Fiscal 2008 that
materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
32
PART II
OTHER INFORMATION
|
|
ITEM 1.
|
Legal
Proceedings
|
The information set forth above under Note 8 of Notes to
Condensed Consolidated Financial Statements in
Part I Item 1 Financial
Statements is incorporated herein by reference.
For a description of the risk factors affecting our business and
results of operations, see
Part I Item 1A Risk
Factors in our Annual Report on
Form 10-K
for the fiscal year ended February 2, 2007.
|
|
ITEM 2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
Purchases
of Common Stock
Cash
Payments for Certain Employee Stock Options
For information regarding of our agreement to pay cash for
certain stock options that expired unexercised, see
Part II Item 5 Market
for Registrants Common Equity, Related Stockholder
Matters, and Issuer Purchases of Equity Securities
Purchaser of Common Stock Cash Payments for Certain
Employee Stock Options in our Annual Report on
Form 10-K
for the fiscal year ended February 2, 2007.
Share
Repurchase Program
We have a share repurchase program that authorizes us to
purchase shares of common stock in order to increase shareholder
value and manage dilution resulting from shares issued under our
equity compensation plans. However, we do not currently have a
policy that requires the repurchase of common stock in
conjunction with share-based payment arrangements. As of
November 2, 2007, our share repurchase program authorized
the purchase of shares of common stock at an aggregate cost not
to exceed $30.0 billion, and through that date,
$28.6 billion had been spent to repurchase shares. The
approximate dollar value of shares that may yet be repurchased
under the program is $1.4 billion. We temporarily suspended
our share repurchase program in September 2006 pending
completion of the Audit Committee investigation. Therefore, no
shares were repurchased under this program during the third
quarter of Fiscal 2008.
On December 3, 2007, our Board of Directors approved a new
$10 billion share repurchase program.
During the third quarter of Fiscal 2008, we began purchasing
certain shares from the Dell 401(k) Plan that were considered to
be restricted due to our failure to register them
with the U.S. Securities Exchange Commission
(SEC). During the third quarter, we repurchased
43,045 shares for an aggregate cost of approximately
$1 million.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Approximate
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Dollar Value
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
of Shares that
|
|
|
|
|
|
|
|
|
|
Repurchased
|
|
|
May Yet Be
|
|
|
|
Total
|
|
|
|
|
|
as Part of
|
|
|
Repurchased
|
|
|
|
Number of
|
|
|
Average
|
|
|
Publicly
|
|
|
Under the
|
|
|
|
Shares
|
|
|
Price Paid
|
|
|
Announced
|
|
|
Announced
|
|
Period
|
|
Repurchased
|
|
|
per Share
|
|
|
Plans
|
|
|
Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
Repurchases from August 4, 2007 through August 31,
2007(a)
|
|
|
727
|
|
|
$
|
30.08
|
|
|
|
|
|
|
$
|
1,415
|
|
Repurchases from September 1, 2007 through
September 28,
2007(a)
|
|
|
2,499
|
|
|
$
|
28.41
|
|
|
|
|
|
|
$
|
1,415
|
|
Repurchases from September 29, 2007 through
November 2,
2007(b)
|
|
|
48,844
|
|
|
$
|
29.13
|
|
|
|
|
|
|
$
|
1,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
52,070
|
|
|
$
|
29.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
All shares were withheld from Dell
employees to pay taxes and fees associated with the
employees exercise of stock options.
|
|
(b)
|
|
5,799 shares were withheld
from Dell employees to pay taxes and fees associated with the
employees exercise of stock options. 43,045 shares
were repurchased from the Dell 401(k) Plan, as described above.
|
33
|
|
ITEM 4.
|
Submission
of Matters to a Vote of Security Holders
|
The annual meeting of Dells stockholders was held on
December 4, 2007. At that meeting, the following five
proposals were submitted to a vote of Dells stockholders:
|
|
(1)
|
Proposal 1 (Election of Directors) A proposal
for the election of the persons who will serve as Dells
directors until next years annual meeting.
|
|
(2)
|
Proposal 2 (Ratification of Independent
Auditor) A proposal for the ratification of the
Audit Committees selection of PricewaterhouseCoopers LLP
as Dells independent auditor for Fiscal 2008.
|
|
(3)
|
Proposal 3 (Approval of the Amended and Restated 2002
Long-Term Incentive Plan) A proposal for the
approval of the Amended and Restated 2002 Long-Term Incentive
Plan.
|
|
(4)
|
Stockholder Proposal 1 (Executive Stock Ownership
Guidelines) A proposal regarding the adoption of a
stock ownership requirement for executive officers.
|
|
(5)
|
Stockholder Proposal 2 (Declaration of
Dividend) A proposal regarding the declaration of a
dividend.
|
At the close of business on the record date for the meeting
(which was October 26, 2007), there were
2,235,845,755 shares of common stock outstanding and
entitled to be voted at the meeting. Holders of
1,992,833,843 shares of common stock (representing a like
number of votes) were present at the meeting, either in person
or by proxy. The following table sets forth the results of the
voting:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proposal
|
|
For
|
|
|
Withheld
|
|
|
|
1.
|
|
|
Election of Directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
Donald J. Carty
|
|
|
1,842,671,507
|
|
|
|
150,162,337
|
|
|
|
|
|
Michael S. Dell
|
|
|
1,946,689,752
|
|
|
|
46,144,091
|
|
|
|
|
|
William H. Gray, III
|
|
|
1,840,839,584
|
|
|
|
151,994,260
|
|
|
|
|
|
Sallie L. Krawcheck
|
|
|
1,953,903,925
|
|
|
|
38,929,919
|
|
|
|
|
|
Alan (A.G.) Lafley
|
|
|
1,889,157,561
|
|
|
|
103,676,283
|
|
|
|
|
|
Judy C. Lewent
|
|
|
1,893,116,243
|
|
|
|
99,717,600
|
|
|
|
|
|
Thomas W. Luce, III
|
|
|
1,716,997,296
|
|
|
|
275,836,548
|
|
|
|
|
|
Klaus S. Luft.
|
|
|
1,885,666,266
|
|
|
|
107,167,577
|
|
|
|
|
|
Alex J. Mandl
|
|
|
1,903,646,695
|
|
|
|
89,187,149
|
|
|
|
|
|
Michael A. Miles
|
|
|
1,867,619,136
|
|
|
|
125,214,708
|
|
|
|
|
|
Sam Nunn
|
|
|
1,836,509,554
|
|
|
|
156,324,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broker
|
|
|
|
For
|
|
|
Against
|
|
|
Abstain
|
|
|
Non-Votes
|
|
|
2. Ratification of Independent Auditor
|
|
|
1,857,638,826
|
|
|
|
121,077,627
|
|
|
|
14,117,387
|
|
|
|
|
|
3. Approval of the Amended and Restated 2002 Long-Term
Incentive Plan
|
|
|
1,536,953,916
|
|
|
|
130,605,368
|
|
|
|
18,068,291
|
|
|
|
307,206,268
|
|
4. Stockholder Proposal 1 (Executive Stock Ownership
Guidelines)
|
|
|
482,602,090
|
|
|
|
1,186,755,213
|
|
|
|
16,307,630
|
|
|
|
307,168,910
|
|
5. Stockholder Proposal 2 (Declaration of Dividend)
|
|
|
105,972,999
|
|
|
|
1,552,367,241
|
|
|
|
27,324,695
|
|
|
|
307,168,908
|
|
Proposal 1 (Election of Directors), Proposal 2
(Ratification of Independent Auditors) and Proposal 3
(Approval of the Amended and Restated 2002 Long-Term Incentive
Plan) each received more than the number of favorable votes
required for approval and were therefore duly and validly
approved by the stockholders. Stockholder Proposal 1
(Executive Stock Ownership Guidelines) and Stockholder
Proposal 2 (Declaration of Dividend) each failed to receive
a sufficient number of favorable votes and, therefore, were not
approved.
(a) Exhibits See Index to
Exhibits below.
34
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
DELL INC.
|
|
|
Date: December 10, 2007
|
|
/s/ THOMAS W. SWEET
|
|
|
|
|
|
|
|
|
Thomas W. Sweet
|
|
|
Vice President, Corporate Finance and
Chief Accounting Officer
(On behalf of the registrant and as
principal accounting officer)
|
35
INDEX TO
EXHIBITS
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
No.
|
|
|
|
Description of Exhibit
|
|
|
3
|
.1
|
|
|
|
Restated Certificate of Incorporation, filed February 1,
2006 (incorporated by reference to Exhibit 3.3 of
Dells Current Report on
Form 8-K
filed on February 2, 2006, Commission File
No. 0-17017)
|
|
3
|
.2
|
|
|
|
Restated Bylaws, as amended and effective March 8, 2007
(incorporated by reference to Exhibit 3.1 of Dells
Current Report on
Form 8-K
filed on March 13, 2007, Commission File
No. 0-17017)
|
|
4
|
.1
|
|
|
|
Indenture, dated as of April 27, 1998, between Dell
Computer Corporation and Chase Bank of Texas, National
Association (incorporated by reference to Exhibit 99.2 of
Dells Current Report on
Form 8-K
filed April 28, 1998, Commission File
No. 0-17017)
|
|
4
|
.2
|
|
|
|
Officers Certificate pursuant to Section 301 of the
Indenture establishing the terms of Dells
6.55% Senior Notes Due 2008 (incorporated by reference to
Exhibit 99.3 of Dells Current Report on
Form 8-K
filed April 28, 1998, Commission File
No. 0-17017)
|
|
4
|
.3
|
|
|
|
Officers Certificate pursuant to Section 301 of the
Indenture establishing the terms of Dells
7.10% Senior Debentures Due 2028 (incorporated by reference
to Exhibit 99.4 of Dells Current Report on
Form 8-K
filed April 28, 1998, Commission File
No. 0-17017)
|
|
4
|
.4
|
|
|
|
Form of Dells 6.55% Senior Notes Due 2008
(incorporated by reference to Exhibit 99.5 of Dells
Current Report on
Form 8-K
filed April 28, 1998, Commission File
No. 0-17017)
|
|
4
|
.5
|
|
|
|
Form of Dells 7.10% Senior Debentures Due 2028
(incorporated by reference to Exhibit 99.6 of Dells
Current Report on
Form 8-K
filed April 28, 1998, Commission File
No. 0-17017)
|
|
10
|
.1*
|
|
|
|
Form of Protection of Sensitive Information, Noncompetition and
Nonsolicitation Agreement for Executive Officers (incorporated
by reference to Exhibit 10.1 of Dells Current Report
on
Form 8-K
filed on September 12, 2007, Commission file
No. 0-17017)
|
|
10
|
.2*
|
|
|
|
Amendment No. 4 to Amended and Restated Dell Inc. 401(k)
Plan, dated October 15, 2007
|
|
31
|
.1
|
|
|
|
Certification of Michael S. Dell, President and Chief Executive
Officer, pursuant to
Rule 13a-14(a)
under the Securities Exchange Act of 1934, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
31
|
.2
|
|
|
|
Certification of Donald J. Carty, Vice Chairman and Chief
Financial Officer, pursuant to
Rule 13a-14(a)
under the Securities Exchange Act of 1934, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
32
|
.1
|
|
|
|
Certifications of Michael S. Dell, Chairman and Chief Executive
Officer, and Donald J. Carty, Vice Chairman and Chief Financial
Officer, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
|
|
|
|
* |
|
Identifies an Exhibit that consists of or includes a management
contract or compensatory plan or arrangement. |
|
|
|
Filed herewith. |
|
|
|
Furnished herewith. |