Dell 1998 Annual Report Download - page 29

sale-leaseback transactions.
Concurrent with the issuance of the Senior Notes and Senior Debentures, the
Company entered into interest rate swap agreements converting the Company'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 marketable
securities 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 .40% and .79% for the Senior Notes and
Senior Debentures, respectively. As a result of the interest rate swap
agreements, the Company's effective interest rates for the Senior Notes and
Senior Debentures were 6.08% and 6.44%, respectively, for fiscal year 1999.
The Company has designated the issuance of the Senior Notes and Senior
Debentures and the related interest rate swap agreements as an integrated
transaction. Accordingly, 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.
During fiscal year 1997, the Company repurchased $95 million of its outstanding
$100 million 11% senior notes due August 15, 2000. As a result of the
repurchase, the Company recorded an extraordinary loss of $13 million (net of
tax benefit of $7 million).
The difference between the Company's carrying amounts and fair value of its
long-term debt and related interest rate swaps was not material at January 29,
1999 and February 1, 1998.
NOTE 3 -- INCOME TAXES
The provision for income taxes consists of the following:
FISCAL YEAR ENDED
---------------------------------------
JANUARY 29, FEBRUARY 1, FEBRUARY 2,
1999 1998 1997
----------- ----------- -----------
(IN MILLIONS)
Current:
Domestic................................................ $567 $362 $252
Foreign................................................. 86 41 34
Deferred.................................................. (29) 21 (70)
---- ---- ----
Provision for income taxes................................ $624 $424 $216
==== ==== ====
Income before income taxes and extraordinary loss included approximately $529
million, $309 million and $191 million related to foreign operations in fiscal
years 1999, 1998 and 1997, respectively.
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The Company has not recorded a deferred income tax liability of approximately
$263 million for additional taxes that would result from the distribution of
certain earnings of its foreign subsidiaries, if they were repatriated. The
Company currently intends to reinvest indefinitely these undistributed earnings
of its foreign subsidiaries.
The components of the Company's net deferred tax asset (included in other
current assets) are as follows:
FISCAL YEAR ENDED
-----------------------------------------
JANUARY 29, FEBRUARY 1, FEBRUARY 2,
1999 1998 1997
----------- ----------- -----------
(IN MILLIONS)
Deferred service contract revenue....................... $118 $124 $107
Inventory and warranty provisions....................... 45 24 21
Provisions for product returns and doubtful accounts.... 25 20 31
Other................................................... (51) (62) (26)
---- ---- ----
Net deferred tax asset.................................. $137 $106 $133
==== ==== ====
The effective tax rate differed from statutory U.S. federal income tax rate as
follows:
FISCAL YEAR ENDED
-----------------------------------------
JANUARY 29, FEBRUARY 1, FEBRUARY 2,
1999 1998 1997