Dell 2005 Annual Report Download - page 56

Table of Contents
stockholder, subject to certain restrictions on transferability and a risk of forfeiture. Restricted shares typically vest over a seven-year period
beginning on the date of grant. Dell records unearned compensation in stockholders' equity equal to the market value of the restricted shares
on the date of grant and charges the unearned compensation to expense over the vesting period.
401(k) Plan — Dell has a defined contribution retirement plan that complies with Section 401(k) of the Internal Revenue Code. Substantially all
employees in the U.S. are eligible to participate in the plan. Effective January 1, 2005, Dell matches 100% of each participant's voluntary
contributions, subject to a maximum contribution of 4% of the participant's compensation, and participants vest immediately in all Dell
contributions to the Plan. Prior to January 1, 2005, Dell matched 100% of each participant's voluntary contributions, subject to a maximum
contribution of 3% of the participant's compensation, and participants vested 20% per year over a 5-year period in all Dell contributions to the
Plan. Dell's contributions during fiscal 2006, 2005 and 2004 were $66 million, $48 million, and $42 million, respectively. Dell's contributions are
invested according to each participant's elections in the investment options provided under the Plan. Investment options include Dell stock, but
neither participant nor Dell contributions are required to be invested in Dell stock.
NOTE 6 — Financial Services
Joint Venture Agreement
Dell is a partner in Dell Financial Services L.P. ("DFS"), a joint venture with CIT Group Inc. ("CIT"). DFS enables customer acquisitions of
product and services sold by Dell through loan and lease financing arrangements in the U.S. During the third quarter of fiscal 2004, Dell began
consolidating DFS's financial results due to the adoption of Financial Accounting Standards Board ("FASB") Interpretation No. 46R ("FIN 46R").
Based on this guidance, Dell concluded that DFS is a Variable Interest Entity ("VIE") and the primary beneficiary of DFS's expected cash flows.
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. As of February 3, 2006, and January 28, 2005, CIT's equity ownership in the net assets of DFS was $12 million
and $13 million, respectively, which is recorded as minority interest and included in other non-current liabilities.
The extension agreement provides Dell with the option to purchase CIT's 30% interest in DFS in February 2008, for a purchase price ranging
from approximately $100 million to $345 million. If Dell does not exercise this purchase option, Dell is obligated to purchase CIT's 30% interest
upon the occurrence of certain termination events, or upon expiration of the joint venture on January 29, 2010.
Dell is dependent upon DFS to facilitate financing for a significant number of customers who elect to finance products sold by Dell. Historically,
DFS relied solely on CIT to access the capital markets to provide funding for these transactions. However, during the fourth quarter of fiscal
2005, Dell began funding loan and lease receivables facilitated by DFS on substantially the same terms and conditions as CIT. Dell's funding of
these assets allows Dell to retain a greater portion of the assets' future earnings. In fiscal 2006, Dell funded approximately 20% of these
financing transactions. The percentage of transactions that Dell may purchase under the extension agreement increases in future years, and,
accordingly, Dell expects to increase its funding of fixed-term loans and leases, and revolving loans. Since CIT continues to purchase a
significant percentage of these transactions, Dell would be required to self-finance these activities or find additional alternative sources of
financing for its customers if CIT were unable to access the capital markets.
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