Dell 2003 Annual Report Download - page 45

Table of Contents
At January 30, 2004, Dell held purchased option contracts with a notional amount of approximately $2.0 billion, a net asset value of $41 million and a net
unrealized deferred loss of $58 million, net of taxes. At January 30, 2004, Dell held forward contracts with a notional amount of approximately $3.0 billion, a
net liability value of $185 million and a net unrealized loss of $24 million, net of taxes.
At January 31, 2003, Dell held purchased option contracts with a notional amount of approximately $2.0 billion, a net asset value of $31 million and a net
unrealized deferred loss of $37 million, net of taxes. At January 31, 2003, Dell held forward contracts with a notional amount of approximately $2.0 billion, a
net liability value of $140 million and a net unrealized loss of $25 million, net of taxes.
Long-Term Debt and Interest Rate Risk Management
In April 1998, Dell issued $200 million 6.55% fixed rate senior notes due April 15, 2008 (the "Senior Notes") and $300 million 7.10% fixed rate senior
debentures due April 15, 2028 (the "Senior Debentures"). Interest on the Senior Notes and Senior Debentures is paid semi-annually, on April 15 and
October 15. The Senior Notes and Senior Debentures rank pari passu and are redeemable, in whole or in part, at the election of Dell for principal, any accrued
interest and a redemption premium based on the present value of interest to be paid over the term of the debt agreements. The Senior Notes and Senior
Debentures generally contain no restrictive covenants, other than a limitation on liens on Dell's assets and a limitation on sale-leaseback transactions.
Concurrent with the issuance of the Senior Notes and Senior Debentures, Dell entered into interest rate swap agreements converting Dell's interest rate
exposure from a fixed rate to a floating rate basis to better align the associated interest rate characteristics to its cash and investments portfolio. The interest
rate swap agreements have an aggregate notional amount of $200 million maturing April 15, 2008 and $300 million maturing April 15, 2028. The floating
rates are based on three-month London Interbank Offered Rates ("LIBOR") plus 0.41% and 0.79% for the Senior Notes and Senior Debentures, respectively.
As a result of the interest rate swap agreements, Dell's effective interest rates for the Senior Notes and Senior Debentures were 1.733% and 2.068%,
respectively, for fiscal 2004.
The interest rate swap agreements are designated as fair value hedges, and the terms of the swap agreements and hedged items are such that effectiveness can
be measured using the short-cut method defined in SFAS 133. The differential to be paid or received on the interest rate swap agreements is accrued and
recognized as an adjustment to interest expense as interest rates change. The difference between Dell's carrying amounts and fair value of its long-term debt
and related interest rate swaps was not material at January 30, 2004 and January 31, 2003.
NOTE 3 — Income Taxes
The provision for income taxes consists of the following:
Fiscal Year Ended
January 30, January 31, February 1,
2004 2003 2002
(in millions)
Current:
Domestic $ 969 $ 702 $ 574
Foreign 132 94 59
Deferred (22) 109 (148)
Provision for income taxes $ 1,079 $ 905 $ 485
Income before income taxes included approximately $1.6 billion, $968 million, and $494 million related to foreign operations in fiscal 2004, 2003, and 2002,
respectively.
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