Dell 2000 Annual Report Download - page 32

2001 2000 1999
Expected term:
Stock options 5 years 5 years 5 years
Employee stock purchase plan 6 months 6 months 6 months
Interest rate 6.15% 5.81% 5.42%
Volatility 54.85% 51.03% 52.12%
Dividends 0% 0% 0%
Had the Company accounted for its Option Plans and employee stock purchase plan by recording compensation expense based on the
fair value at the grant date on a straight-line basis over the vesting period, stock-based compensation costs would have reduced pretax
income by $620 million ($434 million, net of taxes), $329 million ($224 million, net of taxes), and $194 million ($136 million, net of
taxes) in fiscal years 2001, 2000, and 1999, respectively. The pro forma effect on basic earnings per common share would have been a
reduction of $0.17, $0.09, and $0.05 for fiscal years 2001, 2000, and 1999, respectively. The pro forma effect on diluted earnings per
common share would have been a reduction of $0.16, $0.08, and $0.05 for fiscal years 2001, 2000, and 1999, respectively.
401(k) Plan — The Company 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. The Company matches 100% of each participant's
voluntary contributions, subject to a maximum Company contribution of 3% of the participant's compensation. The Company's
contributions during fiscal years 2001, 2000, and 1999 were $36 million, $44 million, and $21 million, respectively.
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Table of Contents
NOTE 7 — Commitments, Contingencies and Certain Concentrations
Lease Commitments — The Company maintains master lease facilities providing the capacity to fund up to $1.2 billion. The combined
facilities provide for the ability of the Company to lease certain real property, buildings and equipment (collectively referred to as the
"Properties") to be constructed or acquired. Rent obligations for the Properties commence on various dates. At February 2, 2001,
$506 million of the combined facilities had been utilized.
The leases have initial terms of five and seven years. Those with an initial term of five years contain an option to renew for two
successive years, subject to certain conditions. The Company may, at its option, purchase the Properties during or at the end of the
lease term for 100% of the then outstanding amounts expended by the lessor to complete the Properties. If the Company does not
exercise the purchase option, the Company will guarantee a residual value of the Properties as determined by the agreement
(approximately $430 and $310 million at February 2, 2001 and January 28, 2000, respectively).
The Company leases other property and equipment, manufacturing facilities and office space under non-cancelable leases. Certain
leases obligate the Company to pay taxes, maintenance and repair costs.
Future minimum lease payments under all non-cancelable leases as of February 2, 2001 are as follows: $37 million in fiscal 2002;
$30 million in fiscal 2003; $26 million in fiscal 2004; $182 million in fiscal 2005; $279 million in fiscal 2006; and $31 million
thereafter. Rent expense under all leases totaled $95 million, $81 million and $58 million for fiscal years 2001, 2000, and 1999,
respectively.
Legal Matters — The Company is subject to various legal proceedings and claims arising in the ordinary course of business. The
Company's management does not expect that the outcome in any of these legal proceedings, individually or collectively, will have a
material adverse effect on the Company's financial condition, results of operations or cash flows.
Certain Concentrations — All of the Company's foreign currency exchange and interest rate derivative instruments involve elements
of market and credit risk in excess of the amounts recognized in the consolidated financial statements. The counterparties to the
financial instruments consist of a number of major financial institutions. In addition to limiting the amount of agreements and
contracts it enters into with any one party, the Company monitors its positions with and the credit quality of the counterparties to these
financial instruments. The Company does not anticipate nonperformance by any of the counterparties.
The Company's investments in debt securities are placed with high quality financial institutions and companies. The Company's
investments in debt securities primarily have maturities of less than three years. Management believes that no significant concentration
of credit risk for investments exists for the Company.
The Company markets and sells its products and services to large corporate, government, healthcare and education customers, small-
to-medium businesses and individuals. Its receivables from such parties are well diversified.
The Company purchases a number of components from single sources. In some cases, alternative sources of supply are not available.
In other cases, the Company may establish a working relationship with a single source, even when multiple suppliers are available, if
the Company believes it is advantageous to do so due to performance, quality, support, delivery, capacity or price considerations. If
the supply of a critical single-source material or component were delayed or curtailed, the Company's ability to ship the related
product in desired quantities and in a timely manner could be adversely affected. Even where alternative sources of supply are
available, qualification of the alternative suppliers and establishment of reliable supplies could result in delays and a possible loss of
sales, which could affect operating results adversely.