Corporate Reporting Best Practices

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Corporate Reporting Best Practices
Robert W. Davis VP - Corporate Finance Chief
Accounting Officer January 28, 2005
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Dell at a Glance
General Facts

• FY2005 Consensus Rev 49.5B
• Over 50,000 Employees WW
• Price growth since IPO gt39,000
• 90Billion Market Cap
• 31 Fortune 500
• 93 Global 500
• 6 Fortune Most Admired Companies

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Evolution of Products

• Dells Product Line is Constantly Expanding

Storage
Notebooks
Desktops
PDAs, Printers, TV, MP3s, etc
Servers
Desktops
9 Years
Today
20 Years
10-14 Years
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Significant Opportunity to Serve Customers
Dells Addressable Market 800B by FY07
100
80
60
Rest of Market
Market Share
40
20
Dell
0
PC
Servers
Services
SP
Note Represents addressable market for each
category Source IDC, Company estimates
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Vision is Paramount to Financial Decisions
Performance Measures Share, Revenue,
Profitability, Strategic Initiative Effectiveness

Scenario Planning Dynamic Environment
Price/Competitive, Infrastructure, Initiatives,
New Markets
Value Creation Helping Businesses/Regions
Identify and Set Growth Goals
Corporate Vision Goals for the CEO and BOD
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Performance vs. Forecast

• Dell Has Achieved Their Annual Plan Dating Back
  to the Bust

Internet Bust
Revenue Attainment
OpInc Attainment
FY05 Performance vs. forecast based on current
Wall Street consensus estimates for Dell
Post 60B Goal
Pre 60B Goal
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Q3 FY05 Financial Highlights

• Delivered 0.33 EPS and 12.5 billion revenue
• Spent record 1.3B to repurchase 38 million
  shares

• LIQUIDITY
• 1.8 billion Cash flow from operations
• 12.4 billion in cash investments
• CCC -34 days1

• GROWTH
• Dell units up 22 mkt ex-Dell up 10.5
• 18 Rev growth
• 27 EPS growth

• PROFITABILITY
• Gross margin 18.5
• OPEX percent of revenue 9.7
• Operating margin 8.8

Company Record 1. CCC would have been -37 days
excluding the effect of in-transit customer
shipments in DSO
Source Market info is based on Industry
Estimates Note Growth rates Y/Y unless otherwise
noted
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• Out of the Wake of Enron

2004
2002
2003
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Accounting Restates
Not All SEC Actions Involve Major Restates
10M
1B
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Governance
At Dell, Sox Did Not Create Sweeping Change

• Engage Executive Officers
• Independent Audit Committee
• Strong Internal Audit Department
• Controls Self Assessment
• Courage on Part of Finance Leaders
• Rep Letters from Business Groups
• Environment That Encourages Openness
• Code of Conduct is Integral Part of Business
• Clear Consequences for Crossing the Line

Finance Accounting
Strategist Business Partner
Corporate Governance
Value Protection
Value Creation
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Tone at the Top
Ethics Compliance Training
Ethics Council Committees
The tone at the top provides the foundation of
Dells controls environment
Board and Audit Committee Oversight
Managements Philosophy Operating Style
Published Code of Conduct
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Laying the Foundation for Shareholder Value
Shareholder Value Financial Reporting Practic
es Values Cultural Roots

• Without the cultural roots of proper strategic
  direction, operational guidelines, and
  governance, values can not be maintained over
  time
• Corporate practices and behavior directly impact
  the value of an organization
• Financial reporting is a window into a companys
  financials and behaviors
• Proper and consistent behavior drives investor
  trust

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SOX Impact on Corporate Governance

• Dell Controls Before SOX
• Internal Audit initiatives
• Corporate Communications
• Revised Code of Ethics, Soul of Dell, and Tell
  Dell Surveys
• Business Conduct Committee (Ombudsman, Ethics
  Hotline, etc)
• Daily technical accounting research process
• Competitor benchmarking and peer group quality of
  earnings analysis
• Monitoring of key business metrics (daily, weekly
  monthly)
• Regular management reviews of financial and
  operational data

• New Dell Controls After SOX
• Early certification of prior financials
• Established a Disclosure Review Committee
• Disclosure and internal controls documentation
  testing process
• Revised PwC engagement process

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Overview of Corporate Governance
Disclosure Review Committee
Monitor PCAOB/SEC Requirements
Disclose Certify
Assign Responsibilities
Review/Report to CEO/CFO
Evaluate Internal Controls
Address Deficiencies, If Any
Evaluate Disclosure Controls
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Financial and Business Metrics Drive Decisions

• Monthly/Qtrly/
• Annual Metrics
• Balance Sheet Adequacy
• Tax Position
• Profitability Metrics
• Liquidity Metrics
• CCC

• Weekly Metrics
• Units
• Revenue
• Margin
• Attainment to Forecast
• Backlog

• Daily Metrics
• Units
• Revenue
• Demand
• Shipments
• Product Cost
• Key Expense Drivers

• Business managers can not manage what they do not
  measure
• Dell employees are measured by the same metrics
  that investors use to measure Dells success

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Framework for Quality Financial Reporting
Corporate Technical Updates (Monthly)
Business Technical Updates (Quarterly)
Research by SME (Subject Matter Expert)
Finance Policy Board
Daily Flash Report
Implement New Policy
Corporate Finance team researches pertinent
accounting issues and makes policy
recommendations.
Corporate works with each business segment to
implement and sustain accounting policy changes.
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Management Reporting Process
Prepare Financial Statements
Earnings Release
Consolidate and Analyze
Report Results

• Presentations for earnings release

• Traditional financial statements
• Regional and key country PL
• Detailed LOB PL
• Financial and business metrics

• Region/business segment review meetings
• Actual vs. forecast analysis
• MDA

• Each organization prepares financial results
• Review key business drivers

Day 1-2
Day 3-5
Day 6-9
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SEC Reporting Process

• Draft MDA and Footnotes
• Consolidate SME input
• Corporate Reporting Review

• Disclosure Review Committee, Senior Mgmt., PwC
  Review
• Certifications and Signatures

SEC Filings

• Technical Accounting Research
• Subject Matter Experts (SMEs)

Quarter End Close / Earnings Release

• Manage review process
• 302 and 906 certifications
• Signature pages

• Draft outline timeline
• Identify new disclosure requirements
• PwC checklist
• Coordinate SMEs

• Drafting
• Propose changes to management
• Review for consistency and accuracy
• Research issues

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Dells Strategies for Success

• Never Comprise Our Integrity
• Organize around Customers Be Direct
• Maniacally Manage Business Fundamentals
  Cash\Expenses
• Stick to Core Competencies Leverage Partners
• Focus on Velocity Compress Time
• Continuous Improvement Cultural Mandate
• Simplify Complexity Easy as Dell
• Critical Ingredients People and Processes

Structural advantages part of Dells DNA
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Thank You!Bob_W_Davis_at_Dell.com
Visit www.dell.com