Dell 2002 Annual Report Download - page 52

Table of Contents
The Company may sell equipment directly to customers who, in turn, enter into loans with DFS to finance their purchases. The Company recognized revenue
on equipment sold to end-user customers which was financed with DFS loans in the amount of $2.3 billion, $1.3 billion and $0.7 billion during fiscal 2003,
2002 and 2001, respectively. In addition, when the Company's customers desire lease financing, the Company usually sells equipment to DFS, and DFS will
enter into direct financing lease arrangements with the customers. The Company recognizes revenue from the sale of equipment to DFS in accordance with
the Company's revenue recognition policy (see Note 1) because leases between DFS and the customer qualify as direct financing leases. The Company
recognized revenue on sales to DFS in the amount of $1.2 billion, $1.4 billion and $1.8 billion during fiscal 2003, 2002 and 2001, respectively. Neither CIT
nor DFS have any recourse or rights of return to the Company, except that end-user customers may return equipment pursuant to the Company's standard
return policy. The Company receives a referral fee from DFS for introducing customers to DFS for financing alternatives. Such fees were $70 million,
$70 million and $66 million in fiscal 2003, 2002 and 2001, respectively, and are included in net revenue.
In accordance with the partnership agreement between the Company and CIT, losses generated by DFS are allocated to CIT. Net income in DFS is allocated
70% to the Company and 30% to CIT, after CIT has recovered any cumulative losses. The Company's share of DFS net income is reflected in investment and
other income, net. The Company recognized approximately $4 million of cumulative pretax earnings as of the end of fiscal 2003. In the event DFS is
terminated with a cumulative deficit, Dell is not obligated to fund any losses. Although the Company has a 70% equity interest in DFS, because the Company
cannot and does not exercise voting or operational control over DFS, the investment is accounted for under the equity method. The Company's investment in
DFS at January 31, 2003 was $35 million. Equity income in DFS and any intercompany balances were immaterial to the Company's results of operations and
financial position for fiscal 2003, 2002 and 2001. Had the Company controlled and as a result consolidated DFS, the impact to the Company's reported
revenue and earnings would not have been material for fiscal 2003, 2002 and 2001.
DFS was formed in 1998 by the Company and Newcourt Credit Group, Inc. ("Newcourt"). In fiscal 2000, Newcourt was acquired by CIT and in fiscal 2002,
CIT was acquired by Tyco International, Inc. ("Tyco"). In July 2002, Tyco spun off CIT as an independent company and, as a result, CIT became the
Company's partner in DFS.
NOTE 8 — Special Charges
During the second quarter of fiscal 2002, the Company undertook a program to reduce its workforce and to exit certain activities during fiscal 2002 to align its
cost structure with ongoing economic and industry conditions. A special charge of $482 million related to these actions was recorded in operating expenses in
the second quarter of fiscal 2002.
As part of this undertaking, the Company eliminated approximately 4,000 employee positions worldwide from various business functions and job classes. The
employee separations charge 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 the Company's decision to discontinue the
development of ConvergeNet's proprietary storage technology.
In addition to the $482 million charge described above, the Company also recorded an impairment charge of $260 million during the second quarter reflecting
other-than-temporary declines in fair
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