Dell 2002 Annual Report Download - page 23

Table of Contents
expenses as a percentage of net revenue declined to 8.6% in fiscal 2003, down from 8.9% in fiscal 2002, and down from 10.0% in fiscal 2001.
Dell continues to invest in research, development and engineering activities to develop and introduce new products. During fiscal 2003, research,
development and engineering expenses increased slightly in absolute dollar amounts as compared to fiscal 2002 as Dell managed its spending in light of
current industry conditions. Research, development, and engineering expenses were relatively flat as a percentage of revenue from fiscal 2003 to fiscal 2002.
Dell expects to continue to invest in research, development and engineering activity, with an increasing emphasis on enterprise products. Dell has received
867 U.S. patents and has applied for an additional 562 patents.
During fiscal years 2001 and 2002, Dell undertook two separate actions to reduce its workforce and exit certain activities to align its cost structure with
ongoing economic and industry conditions. Special charges of $105 million and $482 million related to these actions were recorded in operating expenses in
the fourth quarter of fiscal 2001 and the second quarter of fiscal 2002, respectively. As part of these actions, Dell eliminated approximately 5,700 employee
positions worldwide from various business functions and job classes.
As a result of these actions, the employee separations charge during fiscal 2002 was $91 million, $41 million and $2 million in the Americas, Europe and Asia
Pacific-Japan segments, respectively. The facility consolidations charge in the Americas, Europe and Asia Pacific-Japan segments amounted to $80 million,
$76 million and $13 million, respectively. Non-cash charges consisted primarily of buildings being exited, as well as equipment, technology/ software
developed or purchased for internal use, and other assets being abandoned or disposed of as part of these actions. This included $75 million to write off
goodwill and substantially all intellectual property associated with the fiscal 2000 acquisition of ConvergeNet Technologies, Inc. ("ConvergeNet") due to
Dell's decision to discontinue the development of ConvergeNet's proprietary storage technology.
Under a separate program during the fourth quarter of fiscal 2001, Dell reduced its workforce and exited certain facilities, resulting in a charge of
$105 million consisting of approximately $50 million in employee termination benefits and the remainder relating to facilities closure costs.
A summary of the fiscal 2001 and 2002 charges, and subsequent activity through fiscal 2003, is as follows (in millions):
Total Cumulative Non-Cash Liability at
Charge Payments Charges January 31, 2003
Employee separations $ 184 $ (184) $ — $ —
Facility consolidations 224 (130) (79) 15
Other asset impairments and exit costs 179 (27) (152) —
Total $ 587 $ (341) $ (231) $ 15
During fiscal 2003, Dell made charge-related payments totaling $161 million. As of January 31, 2003, the remaining accrual relates to net lease expenses that
will be paid over the respective lease terms through fiscal 2006.
Annual savings from these two programs were nearly $500 million which were realized during fiscal 2003 and 2002 in reduced selling, general and
administrative expenses as a percentage of net revenue (as reflected in the operating expenses table on the prior page) and a portion was reinvested via pricing
and selling incentives to support continued unit growth. Dell will continue to manage its operating expenses relative to expected revenue growth, and will
undertake additional cost-cutting actions, if necessary, to enable it to continue to optimize profitability and grow market share.
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