Dell 2007 Annual Report Download - page 27

Table of Contents
Operating income • Operating income was $3.4 billion for Fiscal 2008, or 5.6% of net revenue compared to $3.1 billion for
Fiscal 2007, or 5.4% of net revenue, and $4.4 billion or 7.9% of net revenue in Fiscal 2006.
Net income • Net income was $2.9 billion for Fiscal 2008, or 4.8% of net revenue compared to $2.6 billion for Fiscal
2007, or 4.5% of net revenue, and $3.6 billion or 6.5% of net revenue in Fiscal 2006.
Earnings per share • Earnings per share increased 15% to $1.31 for Fiscal 2008, compared to $1.14 for Fiscal 2007 and $1.47
for Fiscal 2006.
Results of Operations
The following table summarizes our consolidated results of operations for each of the past three fiscal years:
Fiscal Year Ended
February 1, 2008(a) February 2, 2007(a) February 3, 2006(b)
Dollars % of Revenue Dollars % of Revenue Dollars % of Revenue
(in millions, except per share amounts and percentages)
Net revenue $ 61,133 100.0% $ 57,420 100.0% $ 55,788 100.0%
Gross margin $ 11,671 19.1% $ 9,516 16.6% $ 9,891 17.7%
Operating expenses $ 8,231 13.5% $ 6,446 11.2% $ 5,509 9.8%
Operating income $ 3,440 5.6% $ 3,070 5.4% $ 4,382 7.9%
Income tax provision $ 880 1.4% $ 762 1.3% $ 1,006 1.8%
Net income $ 2,947 4.8% $ 2,583 4.5% $ 3,602 6.5%
Earnings per share — diluted $ 1.31 N/A $ 1.14 N/A $ 1.47 N/A
(a) Results for Fiscal 2008 include stock-based compensation expense of $436 million, or $309 million ($0.14 per share) net of tax, and results for Fiscal 2007
include stock-based compensation expense of $368 million, or $258 million ($0.11 per share) net of tax, due to the implementation of Statement of Financial
Accounting Standards No. 123 (revised 2004), Share-Based Payment, ("SFAS 123(R)"). We implemented SFAS 123(R) using the modified prospective
method effective February 4, 2006. For additional information, see Note 5 of Notes to Consolidated Financial Statements included in "Part II — Item 8 —
Financial Statements and Supplementary Data".
(b) Results for Fiscal 2006 include charges aggregating $421 million ($338 million of other product charges and $83 million in selling, general, and administrative
expenses) related to the cost of servicing or replacing certain OptiPlexTMsystems that include a vendor part that failed to perform to our specifications,
workforce realignment, product rationalizations, excess facilities, and a write-off of goodwill recognized in the third quarter. The related tax effect of these
items was $96 million. Fiscal 2006 also includes an $85 million income tax benefit related to a revised estimate of taxes on the repatriation of earnings under
the American Jobs Creation Act of 2004 recognized in the second quarter.
Consolidated Operations
Fiscal 2008 revenue increased 6% year-over-year to $61.1 billion, with unit shipments up 5% year-over-year. Revenue grew across all
regions: Asia Pacific-Japan ("APJ") grew 15%; Europe, Middle East, and Africa ("EMEA") increased 12%; and the Americas grew 3%.
Revenue outside the U.S. represented approximately 47% of Fiscal 2008 net revenue, compared to approximately 44% in the prior year.
Outside the U.S., we produced 14% year-over-year revenue growth for Fiscal 2008; however, our unit growth was below the overall unit
growth rate of the international PC market. During Fiscal 2008, the U.S. dollar weakened relative to the other principal currencies in
which we transact business; however, as a result of our hedging activities, foreign currency fluctuations did not have a significant impact
on our consolidated results of operations. Combined Brazil, Russia, India, and China ("BRIC") revenue growth during Fiscal 2008 was
27%. To continue to capitalize on and increase international growth, we are tailoring solutions to meet specific regional needs, enhancing
relationships to provide customer choice and flexibility, and expanding into these and other emerging countries that represent 85% of the
world's population. Within the Americas, Americas Business revenue grew by 6% and U.S. Consumer revenue declined by 12% during
Fiscal 2008. Worldwide, all product categories grew revenue over the prior year other than desktop PCs, which declined 1% as
consumers continue to migrate to mobility products. Desktop PC revenue in the Americas and EMEA regions declined 4% and 3% year-
over-year, respectively, as opposed to desktop PC revenue in APJ, which increased 12%.
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