Dell 2004 Annual Report Download

Download and view the complete annual report

Please find the complete 2004 Dell annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 80

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80

DELL INC (4331)
10-K
Annual report pursuant to section 13 and 15(d)
Filed on 03/08/2005
Filed Period 01/28/2005

Table of contents

  • Page 1
    DELL INC (4331) 10-K Annual report pursuant to section 13 and 15(d) Filed on 03/08/2005 Filed Period 01/28/2005

  • Page 2
    ... Employer Identification No.) Dell Inc. Approximate aggregate market value of the registrant's common stock held by non-affiliates as of July 30, 2004, based upon the closing price reported for such date on The Nasdaq National Market $79.9 billion Number of shares of common stock outstanding...

  • Page 3
    ... IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ITEM 9A -- CONTROLS AND PROCEDURES ITEM 9B -- OTHER INFORMATION PART III PART IV ITEM 15 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULE SCHEDULE II Amendment No. 1 to Amended and Restated 401(k) Plan Subsidiaries Consent of...

  • Page 4
    ... products), client systems (notebook and desktop computer systems), printing and imaging systems, software and peripherals, and global services. During calendar 2004, Dell was the number one supplier of personal computer systems worldwide as well as in the United States. Dell's global market...

  • Page 5
    ...purchase custom-built products and custom-tailored services. Dell believes the direct business model is the most effective model for providing solutions that address customer needs. In addition, Dell's flexible, build-to-order manufacturing process enables Dell to turn over inventory every four days...

  • Page 6
    ... Management System or Dell Toner Management System, which simplifies the purchasing process for supplies by displaying ink or toner levels on the status window during every print job and proactively prompting users to order replacement cartridges directly from Dell. During fiscal 2005, Dell shipped...

  • Page 7
    ...-hour telephone and online technical support. Dell also offers warranty upgrades and services such as CompleteCare accidental damage service, At Home Service for technical support service at home (provided via third-party contract with the customer), Helpdesk for all software and peripherals support...

  • Page 8
    ... newsletters. In certain states as well as non-U.S. locations, Dell also operates Dell Direct Stores, which are kiosks typically located within shopping centers, that allow customers to view Dell products in person and purchase online from Dell with the assistance of a Dell expert. Competition...

  • Page 9
    ..., quality, support, delivery, capacity, or price considerations. Dell currently relies on Intel Corporation as a sole source supplier of processors and Microsoft Corporation as a sole source for various operating system and application software products. These relationships and dependencies...

  • Page 10
    ... Statements and Supplementary Data." Dell's corporate headquarters are located in Round Rock, Texas. Its manufacturing facilities are located in Austin, Texas; Eldorado do Sul, Brazil; Nashville and Lebanon, Tennessee; Limerick, Ireland; Penang, Malaysia; and Xiamen, China. See "Item 2 - Properties...

  • Page 11
    ...that it can maintain or extend this advantage if its competitors alter their cost structure or business model, or take other actions that affect Dell's current competitive advantage. If Dell is unable to maintain its competitive advantage, a loss of market share, revenue, or profitability may result...

  • Page 12
    .... Dell's direct business model gives it the ability to operate with reduced levels of component and finished goods inventories. Dell's financial success in recent periods has been due in part to its supply chain management practices, including its ability to achieve rapid inventory turns. However...

  • Page 13
    Table of Contents • Loss of government contracts could have a material adverse effect on Dell's business. Government contracts are subject to future funding that may affect the extension or termination of programs, and are subject to the right of the government to terminate for convenience or non...

  • Page 14
    ..., Worldwide Procurement and Global Customer Experience Senior Vice President, Product Group Senior Vice President, U.S. Consumer Business Senior Vice President, Americas Senior Vice President, Human Resources Senior Vice President, Product Group Senior Vice President and Chief Information Officer...

  • Page 15
    ... for worldwide development, marketing, quality, and delivery into manufacturing of Dell client, workstation, networking, server and storage systems, as well as the strategic technology direction for these businesses. Prior to joining Dell, Mr. Gruzen was employed by Hewlett-Packard Company, last...

  • Page 16
    ... the U.S. consumer business. In February 2004, Mr. Hamlin was assigned management responsibility for Dell's international customer-contact centers. Prior to his current role, Mr. Hamlin served as Vice President, Home and Small Business in Japan, and managed Dell's preferred accounts segment in Japan...

  • Page 17
    ... for all business units worldwide, including the controller function, corporate planning, tax, treasury, investor relations, corporate development, real estate, risk management, and internal audit. Mr. Schneider joined Dell in 1996 as Vice President of Finance and Chief Accounting Officer, was named...

  • Page 18
    ... space at competitive rates by extending expiring leases or by finding alternative space. Domestic Properties Dell's principal offices are located in Round Rock, Texas (north of Austin), and its U.S. manufacturing facilities are located in Austin, Texas and Middle Tennessee. Dell owns approximately...

  • Page 19
    ... Purchasers Dell has a share repurchase program that authorizes the company to purchase shares of common stock in order to both distribute cash to stockholders and manage dilution resulting from shares issued under Dell's equity compensation plans. However, Dell does not currently have a policy...

  • Page 20
    ... repurchases under this program during the fourth quarter of fiscal 2005: Period Total Number of Shares Repurchased(a) Total Number of Maximum Number of Shares Repurchased as Shares that May Yet Be Average Price Paid Part of Publicly Repurchased Under the per Share Announced Plan Announced Plan...

  • Page 21
    ...to other-than-temporary declines in the fair value of equity securities. Includes a pre-tax charge of $105 million related to employee termination benefits and facilities closure costs. Effective January 29, 2000, Dell changed its accounting for revenue recognition in accordance with the SEC's Staff...

  • Page 22
    ... products), client systems (notebook and desktop computer systems), printing and imaging systems, software and peripherals, and global services. Dell markets and sells its products and services directly to its customers, which include large corporate, government, healthcare, and education accounts...

  • Page 23
    ... to be based on performance, cost, and customer service. Dell's business strategy continues to focus on the company's enterprise business and expanding its capabilities in that product group. Dell is also expanding into consumer electronics products such as plasma televisions while maintaining its...

  • Page 24
    ... of Dell's printing and imaging business has been particularly strong with over five million Dell-branded printers shipped during fiscal 2005. The following table summarizes Dell's net revenue and annual share of personal computer sales by reportable segment for each of the past three fiscal years...

  • Page 25
    ..., supported by an improvement in corporate spending during the year. Fiscal 2004 revenue growth was broad-based, but primarily led by growth in enterprise systems of 28%. In the Americas Business segment, which includes sales to small and medium businesses, government, and corporate accounts, net...

  • Page 26
    ... as driving more efficient processes and tools globally. Dell's general practice is to aggressively pass on declines in costs to its customers in order to add customer value while increasing global market share. Management believes that the strength of Dell's direct business model, as well as its...

  • Page 27
    ... offset by an increase in cash equivalents and investments during the year. Income Taxes Dell's reported effective tax rate was 31.5% in fiscal 2005, compared to 29.0% for fiscal 2004 and 29.9% for fiscal 2003. The fiscal 2005 effective tax rate includes a tax repatriation charge of $280 million...

  • Page 28
    ... maintained master lease facilities which provided the company with the ability to lease certain real property, buildings, and equipment to be constructed or acquired. These leases were accounted for as operating leases by Dell. During fiscal 2004, Dell paid $636 million to purchase all of...

  • Page 29
    ... benefits represent corporate tax deductions (that are considered taxable income to the employee) that represent the amount by which the fair value of Dell's stock exceeds the option strike price on the day the employee exercises a stock option. Dell's direct business model allows the company to...

  • Page 30
    ... past three fiscal years: January 28, 2005 Fiscal Year Ended January 30, 2004 January 31, 2003 Days of sales outstanding(a) Days of supply in inventory Days in accounts payable Cash conversion cycle 32 4 73 (37) 31 3 70 (36) 28 3 68 (37) (a) Dell defers the cost of shipped products awaiting...

  • Page 31
    ... Program - Dell has a share repurchase program that authorizes the company to purchase shares of common stock in order to both distribute cash to stockholders and manage dilution resulting from shares issued under Dell's equity compensation plans. However, Dell does not currently have a policy...

  • Page 32
    ... the approximate timing of the transaction. Purchase obligations do not include contracts that may be cancelled without penalty. Dell utilizes several suppliers to manufacture sub-assemblies for the company's products. Dell's highly efficient supply chain management allows the company to enter into...

  • Page 33
    ...in equity securities discussed below), all of which are stated at fair value. Dell's investment policy is to manage its total cash and investments balances to preserve principal and liquidity while maximizing the return on the investment portfolio through the full investment of available funds. Dell...

  • Page 34
    ...appropriate timing of revenue recognition. Dell offers extended warranty and service contracts to customers that extend and/or enhance the technical support, parts, and labor coverage offered as part of the base warranty included with the product. Revenue from extended warranty and service contracts...

  • Page 35
    ..., repair parts, labor, and a period ranging from 90 days to three years. Factors that affect Dell's warranty liability include the number of installed units currently under warranty, historical and anticipated rates of warranty claims on those units, and cost per claim to satisfy Dell's warranty...

  • Page 36
    ...Page Financial Statements: Report of Independent Registered Public Accounting Firm Consolidated Statements of Financial Position at January 28, 2005 and January 30, 2004 Consolidated Statements of Income for each of the three fiscal years ended January 28, 2005 Consolidated Statements of Cash Flows...

  • Page 37
    ... three years in the period ended January 28, 2005 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set...

  • Page 38
    ... in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions...

  • Page 39
    Table of Contents DELL INC. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (in millions) January 28, January 30, 2005 2004 Current assets: Cash and cash equivalents Short-term investments Accounts receivable, net Inventories Other Total current assets Property, plant, and equipment, net ...

  • Page 40
    Table of Contents DELL INC. CONSOLIDATED STATEMENTS OF INCOME (in millions, except per share amounts) Fiscal Year Ended January 30, 2004 January 28, 2005 January 31, 2003 Net revenue Cost of revenue Gross margin Operating expenses: Selling, general, and administrative Research, development, and...

  • Page 41
    ...in millions) Fiscal Year Ended January 28, January 30, January 31, 2005 2004 2003 Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Tax benefits of employee stock plans Effects of exchange...

  • Page 42
    ... currency translation adjustments Change in net unrealized loss on derivative instruments, net of taxes of $5 Total comprehensive income Stock issuances under employee plans, including tax benefits Repurchases Other Balances at January 30, 2004 Net income Change in net unrealized gain on investments...

  • Page 43
    ... products), client systems (notebook and desktop computer systems), printing and imaging systems, software and peripherals, and global services. Dell markets and sells its products and services directly to its customers, which include large corporate, government, healthcare, and education accounts...

  • Page 44
    ... and recorded when delivery occurs. Product revenue is recognized, net of an allowance for estimated returns, when both title and risk of loss transfer to the customer, provided that no significant obligations remain. Revenue from extended warranty and service contracts, for which Dell is obligated...

  • Page 45
    ... includes technical support, repair parts, labor, and a period ranging from 90 days to three years. Factors that affect Dell's warranty liability include the number of installed units currently under warranty, historical and anticipated rates of warranty claims on those units, and cost per claim to...

  • Page 46
    ... to stock-based employee compensation: Fiscal Year Ended January 28, January 30, January 31, 2005 2004 2003 (in millions, except per share amounts) Net income - as reported Deduct: Total stock-based employee compensation determined under fair value method for all awards, net of related tax effects...

  • Page 47
    .... The weighted average fair value of options and purchase rights under the employee stock purchase plan was determined based on the BlackScholes model weighted for all grants during the period, utilizing the following assumptions: January 28, 2005 Fiscal Year Ended January 30, 2004 January 31...

  • Page 48
    ... sheet date and the Black-Scholes option pricing model. The estimates presented herein are not necessarily indicative of the amounts that Dell could realize in a current market exchange. Changes in assumptions could significantly affect the estimates. Cash and cash equivalents, accounts receivable...

  • Page 49
    ...21 million, net of taxes. At January 30, 2004, Dell held purchased option contracts with a notional amount of approximately $2.0 billion, a net asset value of $41 million and a net unrealized deferred loss of $58 million, net of taxes. At January 30, 2004, Dell held forward contracts with a notional...

  • Page 50
    ...109, Accounting for Income Taxes. This tax charge includes an amount relating to an apparent drafting oversight that Congressional leaders indicate will be fixed by a Technical Corrections Bill sometime during calendar year 2005. The fiscal 2005 tax repatriation charge will be reduced in the quarter...

  • Page 51
    ... 2004 (in millions) Deferred tax assets: Deferred revenue Inventory and warranty provisions Investment impairments and unrealized gains Provisions for product returns and doubtful accounts Capital loss Leasing Other Deferred tax liabilities: Fixed assets Leasing Other Net deferred tax asset Current...

  • Page 52
    ... Program - Dell has a share repurchase program that authorizes the company to purchase shares of common stock in order to both distribute cash to stockholders and manage dilution resulting from shares issued under Dell's equity compensation plans. However, Dell does not currently have a policy...

  • Page 53
    ... to Dell's employees, nonemployee directors, and certain consultants and advisors to Dell. Awards may be either incentive stock options within the meaning of Section 422 of the Internal Revenue Code or nonqualified options. The right to purchase shares pursuant to existing stock option agreements...

  • Page 54
    ... the Internal Revenue Code and permits substantially all employees to purchase shares of Dell's common stock. Participating employees may purchase common stock through payroll deductions at the end of each participation period at a purchase price equal to 85% of the lower of the fair market value of...

  • Page 55
    ...and losses generated by DFS are currently allocated 70% to Dell and 30% to CIT. CIT has no recourse or rights of return to Dell, except that end-user customers may return equipment in accordance with Dell's standard return policy. The extension agreement provides Dell with the option to purchase CIT...

  • Page 56
    ... maintained master lease facilities which provided the company with the ability to lease certain real property, buildings, and equipment to be constructed or acquired. These leases were accounted for as operating leases by Dell. During fiscal 2004, Dell paid $636 million to purchase all of...

  • Page 57
    ... is based in Round Rock, Texas, covers the U.S., Canada, and Latin America. Within the Americas, Dell is further segmented into Business and U.S. Consumer. The Americas Business segment includes sales to corporate, government, healthcare, education, and small and medium business customers while the...

  • Page 58
    ... presents information about Dell's reportable segments: January 28, 2005 Fiscal Year Ended January 30, 2004 (in millions) January 31, 2003 Net revenue Americas: Business U.S. Consumer Total Americas Europe Asia Pacific-Japan Total net revenue Operating income Americas: Business U.S. Consumer...

  • Page 59
    ... 41,444 $ $ 18,865 9,638 6,901 35,404 Net revenue by product group includes associated revenue from printing and imaging systems, software and peripherals, and global services. No single customer accounted for more than 10% of Dell's consolidated net revenue during fiscal 2005, 2004 and 2003. 56

  • Page 60
    ... 2005 2004 (in millions) Supplemental Consolidated Statements of Financial Position Information: Accounts receivable: Gross accounts receivable Allowance for doubtful accounts Inventories: Production materials Work-in-process Finished goods Property, plant and equipment: Land and buildings Computer...

  • Page 61
    ...income and stock sales price data for each quarter of fiscal 2005 and 2004: 4th Quarter(a) Fiscal Year 2005 3rd 2nd Quarter Quarter (in millions, except per share data) 1st Quarter Net revenue Gross margin Net income Earnings per common share(b): Basic Diluted Weighted average shares outstanding...

  • Page 62
    ... affect, Dell's internal control over financial reporting. ITEM 9B - OTHER INFORMATION On March 3, 2005, the Compensation Committee of the Board of Directors approved a new fiscal 2006 Long-Term Cash Incentive Bonus Program (the "2006 program") for certain executive officers other than Mr. Dell and...

  • Page 63
    ... Compensation Committee intends compensation paid pursuant to the fiscal 2006 program to qualify as "performance-based compensation" for purposes of Section 162(m) of the Internal Revenue Code. PART III The information called for by Part III of Form 10-K (Item 10 - Directors and Executive Officers...

  • Page 64
    ... Exhibit 99.6 of Dell's Current Report on Form 8-K filed April 28, 1998, Commission File No. 0-17017) 10.1* - Dell Computer Corporation 1989 Stock Option Plan, as amended and restated (incorporated by reference to Exhibit 10.4 of Dell's Annual Report on Form 10-K for the fiscal year ended January 31...

  • Page 65
    ...Exhibit No. Description of Exhibit - Amended and Restated Dell Computer Corporation Deferred Compensation Plan (incorporated by reference to Exhibit 10.6 to Dell's Annual Report on Form 10-K for the fiscal year ended January 30, 2004, Commission File No. 0-17017) 10.8* - Executive Incentive Bonus...

  • Page 66
    Table of Contents SCHEDULE II DELL INC. VALUATION AND QUALIFYING ACCOUNTS Fiscal Year Balance at Beginning of Period Charged to Write-Offs Bad Debt Charged to Expense Allowance (in millions) Balance at End of Period Description 2005 2004 2003 Allowance for doubtful accounts Allowance for ...

  • Page 67
    ...Executive Officer Date: March 7, 2005 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Name Title Date /s/ MICHAEL S. DELL Michael S. Dell...

  • Page 68
    ... corporation, having its principal office in Austin, Texas (hereinafter referred to as the "Employer"): R E C I T A L S: WHEREAS, the Employer has previously established the Dell Inc. 401(k) Plan as amended and restated effective as of January 1, 2004, (the "Plan") for the benefit of those employees...

  • Page 69
    ...make an Employer Safe Harbor Matching Contribution to the Safe Harbor Matching Contribution sub-account of each Spherion Employee permitted to Participate in the Plan pursuant to Section 2.4 of the Plan in an amount equal to 4% of the Employee's Compensation." g. Section 3.1(g) of the Plan is hereby...

  • Page 70
    ...numbers, addresses and, if applicable, electronic addresses, of individuals or offices from whom employees can obtain such plan information. During any Plan Year in which the safe harbor requirements of Code Section 401(k)(12) and 401(m)(11) have been satisfied to the date of amendment, the Employer...

  • Page 71
    ... shall be distributed to such Participant, adjusted for income or loss allocated thereto, and the Employer Matching Contributions or Safe Harbor Matching Contributions that would have been allocated to such Participant's Accounts based upon such distributed Salary Reduction Contributions shall, to...

  • Page 72
    ... in a direct rollover to an individual retirement plan designated by the Committee." IN WITNESS WHEREOF, the Employer has caused this instrument to be executed this 3rd day of March, 2005. DELL INC. By: Its: ATTEST: /s/ ROBERT POTTS /s/ KATHLEEN ANGEL Director of Global Compensation and Benefits

  • Page 73
    ... Office Dell Products (Europe) B.V. - Ireland Branch Dell Computer Limited Dell Direct Dell Financial Services International Limited Dell Products Dell Research Dell International Holdings VI (Ireland) Dell International Holdings VII (Ireland) Dell International Holdings XI Dell S.p.A. Dell Computer...

  • Page 74
    ... Liaison Office Dell Xiamen Company Limited Dell Hong Kong Limited Dell Asia Pacific Sdn. India Liaison Office Dell Computer India Private Limited Dell India Private Ltd. Dell Asia Pacific Sdn. - Indonesia Representative Office Dell Japan Inc. Dell Asia Pacific Sdn. Dell Global Procurement Malaysia...

  • Page 75
    ... Dell Catalog Sales Corporation Dell Gen. P. Corp. Dell Services Corporation Dell Marketing Corporation Dell USA Corporation Dell Ventures Corporation Dell DFS Corporation Plural Acquisition I, Inc. Dell Products Corporation Dell Federal Systems Corporation Dell World Trade Corporation Dell...

  • Page 76
    ...Services L.P. Dell Funding L.L.C. Dell Products North Carolina Corp. Dell Products North Carolina GP L.L.C. Dell Products North Carolina LP L.L.C. Dell Products North Carolina L.P. International Americas - Dell Export Sales Corporation Dell Computadores do Brasil Ltda. Dell Procurement International...

  • Page 77
    ...report dated March 3, 2005 relating to the financial statements, financial statement schedules, management's assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in this Form 10-K. Austin, Texas...

  • Page 78
    ... most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have...

  • Page 79
    ... to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. March 7, 2005 /s/ JAMES M. SCHNEIDER James M. Schneider...

  • Page 80
    ...ROLLINS, PRESIDENT AND CHIEF EXECUTIVE OFFICER, AND JAMES M. SCHNEIDER, SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER, PURSUANT TO 18 U.S.C. SECTION 1350 The undersigned officers of Dell Inc. hereby certify that (a) Dell's Annual Report on Form 10-K for the fiscal year ended January 28, 2005, as...