##### Table of Contents



UNITED STATES
    SECURITIES AND EXCHANGE COMMISSION
  Form 10-Q
  (Mark One)þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
    THE
    SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended
    August 4, 2006oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
    THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to          .   Commission File Number: 
    0-17017
  Dell Inc.
   Delaware

74-2487834(State or other jurisdiction
    of incorporation or organization)

(I.R.S. Employer Identification No.)   One Dell Way
 Round Rock, Texas 78682
   (512) 338-4400
    o þ
  Rule 12b-2
 Large accelerated
    filer þ
    Accelerated
    filer o
    Non-accelerated
    filer o  Rule 12b-2 o þ




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##### 



INDEX
  PagePart I  FINANCIAL
    INFORMATIONItem 1.

Financial StatementsCondensed Consolidated Statements of Financial
    Position at August 4, 2006 (unaudited) and February 3,
    2006 (restated)


1Condensed Consolidated Statements of Income for
    the three and six month periods ended August 4, 2006
    (unaudited) and July 29, 2005 (unaudited and restated)


2Condensed Consolidated Statements of Cash Flows
    for the six month periods ended August 4, 2006 (unaudited)
    and July 29, 2005 (unaudited and restated)


3Notes to Condensed Consolidated Financial
    Statements (unaudited)


4Item 2.

Managements Discussion and Analysis of
    Financial Condition and Results of Operations


30Item 3.

Quantitative and Qualitative Disclosures About
    Market Risk


42Item 4.

Controls and Procedures


42Part II  OTHER
    INFORMATIONItem 1.

Legal Proceedings


46Item 1A.

Risk Factors


49Item 2.

Unregistered Sales of Equity Securities and
    Use of Proceeds


52Item 4.

Submission of Matters to a Vote of Security
    Holders


54Item 6.

Exhibits


55Certification of Chairman and CEO Pursuant to Section 302Certification of Vice Chairman and CFO Pursuant to Section 302Certifications Pursuant to Section 906      Special Note
  Form 10-K




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##### Table of Contents



PART I 
    FINANCIAL INFORMATION
  ITEM 1.
    FINANCIAL
    STATEMENTS  DELL INC.
  CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
 (in
    millions)
  August 4,


February 3,2006


2006(unaudited)


AsRestatedASSETSCurrent assets:Cash and cash equivalents

$
6,795


$
7,054Short-term investments


1,331



2,016Accounts receivable, net


4,723



4,082Financing receivables, net


1,459



1,366Inventories


669



588Other


2,606



2,688Total current assets


17,583



17,794Property, plant, and equipment, net


2,150



1,993Investments


2,631



2,686Long-term financing receivables, net


271



325Other non-current assets


667



454Total assets

$
23,302


$
23,252LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Short-term borrowings

$
55


$
65Accounts payable


10,330



9,868Accrued and other


6,658



6,240Total current liabilities


17,043



16,173Long-term debt


600



625Other non-current liabilities


2,619



2,407Total liabilities


20,262



19,205Commitments and contingencies (Note 9)Redeemable common stock and capital in excess of $.01 par
    value; 3 shares issued and outstanding (Note 12)


70



Stockholders equity:Preferred stock and capital in excess of $.01 par value;
    shares issued and outstanding: none






Common stock and capital in excess of $.01 par value;
    shares authorized: 7,000; shares issued: 2,828 and 2,818,
    respectively; shares outstanding: 2,238 and 2,330, respectively


9,857



9,503Treasury stock at cost: 590 and 488 shares, respectively


(20,698
)


(18,007
)Retained earnings


13,955



12,699Accumulated other comprehensive loss


(144
)


(101
)Other






(47
)Total stockholders equity


2,970



4,047Total liabilities and equity

$
23,302


$
23,252    1




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##### Table of Contents



DELL INC.
  CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 (in millions,
    except per share amounts; unaudited)
  Three Months
    Ended


Six Months
    EndedAugust 4,


July 29,


August 4,


July 29,2006


2005


2006


2005As





AsRestated





RestatedNet revenue

$
14,211


$
13,382


$
28,531


$
26,682Cost of net
    revenue(1)


12,073



10,951



23,885



21,799Gross margin


2,138



2,431



4,646



4,883Operating expenses:Selling, general, and
    administrative(1)


1,469



1,196



2,883



2,402Research, development, and
    engineering(1)


125



122



254



231Total operating expenses


1,594



1,318



3,137



2,633Operating income


544



1,113



1,509



2,250Investment and other income, net


50



74



104



125Income before income taxes


594



1,187



1,613



2,375Income tax provision


114



205



357



485Net income

$
480


$
982


$
1,256


$
1,890Earnings per common share:Basic

$
0.21


$
0.41


$
0.55


$
0.78Diluted

$
0.21


$
0.40


$
0.55


$
0.76Weighted-average shares outstanding:Basic


2,264



2,418



2,280



2,437Diluted


2,278



2,478



2,298



2,497     (1)
    
    Cost of revenue and operating
    expenses for the three and six-month periods ended
    August 4, 2006 include stock-based compensation expense
    pursuant to Statement of Financial Accounting Standards
    No. 123 (revised 2004), Share-Based Payment.See
    Note 6 of Notes to Condensed Consolidated Financial
    Statements for additional information.   2




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DELL INC.
  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in millions,
    unaudited)
  Six Months
    EndedAugust 4,


July 29,2006


2005AsRestatedCash flows from operating activities:Net income

$
1,256


$
1,890Adjustments to reconcile net income to net cash provided by
    operating activities:Depreciation and amortization


225



186Stock-based compensation


217



9Excess tax benefits from stock-based compensation


(53
)


Tax benefits from employee stock plans






123Effects of exchange rate changes on monetary assets and
    liabilities denominated in foreign currencies


19



(24
)Other


58



65Changes in:Operating working capital


3



(338
)Non-current assets and liabilities


87



224Net cash provided by operating activities


1,812



2,135Cash flows from investing activities:Investments:Purchases


(5,917
)


(2,280
)Maturities and sales


6,745



5,593Capital expenditures


(386
)


(347
)Acquisition of business, net of cash received


(97
)


Net cash provided by investing activities


345



2,966Cash flows from financing activities:Repurchase of common stock


(2,691
)


(3,800
)Issuance of common stock under benefit plans


188



643Excess tax benefits from stock-based compensation


53



Other


(20
)


(30
)Net cash used in financing activities


(2,470
)


(3,187
)Effect of exchange rate changes on cash and cash equivalents


54



(49
)Net (decrease) increase in cash and cash equivalents


(259
)


1,865Cash and cash equivalents at beginning of period


7,054



4,479Cash and cash equivalents at end of period

$
6,795


$
6,344    3




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##### Table of Contents



DELL INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)
  NOTE 1 
    Basis of
    Presentation  Basis of Presentation Form 10-K
      Acquisitions
  Stock-Based Compensation Share-Based Payment Accounting for
    Stock-Based Compensation
  Accounting for Stock
    Issued to Employees
 4




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##### Table of Contents



DELL INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (continued)
    (unaudited)
    Recently Issued Accounting Pronouncements Accounting for Certain Hybrid Instruments Accounting for Derivative Instruments
    and Hedging Activities Accounting for Transfers and
    Servicing of Financial Assets and Extinguishments of Liabilities a replacement of FASB Statement No. 125
  Accounting for Servicing of Financial Assets  an
    amendment of FASB Statement No. 140
  No. 06-3, Disclosure Requirements for Taxes Assessed by a Governmental
    Authority on Revenue-Producing Transactions (EITF 06-3). Disclosure of Accounting Policies
  Accounting for Uncertainty in Income Taxes  an
    interpretation of FASB Statement No 109
  Considering the Effects of Prior
    Year Misstatements when Quantifying Misstatements in Current
    Year Financial Statements
 5




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##### Table of Contents



DELL INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (continued)
    (unaudited)
    Fair Value Measurements
  The
    Fair Value Option for Financial Assets and Financial Liabilities
  Reclassifications
  NOTE 2  Audit
    Committee Independent Investigation and Restatement
  Background and
    Scope of the Investigation
       6




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##### Table of Contents



DELL INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (continued)
    (unaudited)
    Summary of
    Investigation Findings
      Other Company
    Identified Adjustments
    Restatement
    Adjustments
   7




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##### Table of Contents



DELL INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (continued)
    (unaudited)
  Form 10-K
    Three Month
    Period Ended July 29, 2005AdjustmentsRevenue





Other


Provisionrecognition





reserves


forAs


Software





Warranty


and


income


AsReported


sales


Other


liabilities


accruals


tax(a)


Restated(in millions,
    except per share data)Net revenue

$
13,428


$
(67
)

$
21


$



$



$



$
13,382Cost of net revenue


10,929



(64
)


32



51



3







10,951Gross margin


2,499



(3
)


(11
)


(51
)


(3
)






2,431Operating expenses:Selling, general, and administrative


1,204















(8
)






1,196Research, development, and engineering


122























122Total operating expenses


1,326















(8
)






1,318Operating income


1,173



(3
)


(11
)


(51
)


5







1,113Investment and other
    income, net


61







8



(1
)


6







74Income before income taxes


1,234



(3
)


(3
)


(52
)


11







1,187Income tax provision


214



















(9
)


205Net income

$
1,020






















$
982Earnings per common share:Basic

$
0.42






















$
0.41Diluted

$
0.41






















$
0.40Weighted-average shares outstanding:Basic


2,418























2,418Diluted


2,478























2,478     (a)
    
    Primarily represents the aggregate
    tax impact of the adjustments. 8




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##### Table of Contents



DELL INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (continued)
    (unaudited)
    Six Month Period
    Ended July 29, 2005AdjustmentsRevenue





Other


Provisionrecognition





reserves


forAs


Software





Warranty


and


income


AsReported


sales


Other


liabilities


accruals


tax(a)


Restated(in millions,
    except per share data)Net revenue

$
26,814


$
(121
)

$
(11
)

$



$



$



$
26,682Cost of net revenue


21,824



(115
)


18



65



7







21,799Gross margin


4,990



(6
)


(29
)


(65
)


(7
)






4,883Operating expenses:Selling, general, and administrative


2,411







2







(11
)






2,402Research, development, and engineering


232











(1
)










231Total operating expenses


2,643







2



(1
)


(11
)






2,633Operating income


2,347



(6
)


(31
)


(64
)


4







2,250Investment and other income, net


120







8



(2
)


(1
)






125Income before income taxes


2,467



(6
)


(23
)


(66
)


3







2,375Income tax provision


513



















(28
)


485Net income

$
1,954






















$
1,890Earnings per common share:Basic

$
0.80






















$
0.78Diluted

$
0.78






















$
0.76Weighted-average shares outstanding:Basic


2,437























2,437Diluted


2,497























2,497     (a)
    
    Primarily represents the aggregate
    tax impact of the adjustments. 9




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##### Table of Contents



DELL INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (continued)
    (unaudited)
  Revenue
    Recognition Adjustments
  Software Sales No. 97-2, Software Revenue Recognition (SOP 97-2). SOP 97-2 SOP 97-2 No. 99-19, Reporting Revenue Gross as a Principal vs. Net as an
    Agent.
  Other
  
    SAB 104 Deferrals Instances were
    identified where Dell prematurely recognized revenue prior to
    finalization of the terms of sale with the customer, or prior to
    title and/or
    risk of loss having been passed to the customer. Sometimes these
    situations involved warehousing arrangements. Additionally,
    there were situations where revenue was incorrectly deferred to
    later periods despite title
    and/or risk
    of loss having passed to the end customer. Under SAB 104,
    there were also cases where the in-transit deferral calculation
    for the period end was not appropriately calculated or was based
    on incorrect assumptions.
    Deferred Warranty Revenue Pursuant to FASB
    Technical Bulletin
    No. 90-1,
    Accounting for Separately Priced Extended Warranty and
    Product Maintenance Contracts,Dell defers and amortizes the
    revenue from the sale of extended warranties and enhanced
    service level agreements over the service period of the
    associated agreement. In some instances Dells accounting
    estimates of the agreement durations were not correct, resulting
    in revenue being recognized over a shorter time period than the
    actual contract durations. Additionally, an error was identified
    in the amount of deferred revenue recognized and amortized
    during the restatement period.
    Customer Rebate Accruals Dells
    U.S. Consumer segment and small business group historically
    offered various forms of rebates to stimulate sales, including
    mail-in rebates. The rebate redemption liability is estimated at
    the time of sale based on historical redemption rates for the
    various types of promotions. Dell has determined that this
    liability was overstated due to a number of factors, including
    failure to update redemption rates when appropriate, additional
    amounts accrued for expected customer satisfaction costs, and
    unsupported incremental accruals recorded in addition to the
    calculated redemption liability estimate.
    Japan Services Transactions In late January
    2007, a Japanese systems integrator with whom Dells
    Japanese services division did business, filed for bankruptcy.
    The bankruptcy trustee publicly indicated that the systems
    integrator had engaged in fictitious transactions. Dell promptly
    commenced an internal 10




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##### Table of Contents



DELL INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (continued)
    (unaudited)
  investigation led by Dells Ethics Office to determine
    whether its Japanese business unit had engaged in any fictitious
    transactions with the systems integrator. Dell hired independent
    outside counsel who retained independent accountants to lead the
    investigation. The investigation determined that almost all of
    the transactions of the Japan services business involving the
    systems integrator likely were fabricated, as were certain
    additional smaller transactions involving two other Japanese
    systems integrators. The impact of the adjustments reduced net
    revenue and cost of revenue to eliminate the effect of the
    fictitious transactions.  
    Sales Reflected in Cost of Sales There were
    transactions identified involving the sale of certain computer
    component commodities and parts where the net proceeds were
    presented as a reduction of cost of sales rather than as revenue.  Warranty
    Liabilities
    Other Reserves
    and Accruals
    
    Employee Bonuses Certain employee bonuses
    were not accrued correctly, including the timing of the
    recording of the accrual for the employee bonuses. Additionally,
    in certain cases when excess accruals resulted from differences
    in the actual bonus payments, the excess accruals were not
    adjusted as appropriate.
    Vendor Funding Arrangements In some instances
    vendor funding arrangements were not accounted for appropriately
    under EITF Issue No.
    02-16,
    Accounting by a Customer (Including a Reseller) for Certain
    Consideration Received from a Vendor.Certain amounts
    received from vendors were recorded as a reduction in operating
    expenses instead of being correctly recorded as a reduction of
    cost of goods sold. Additionally, certain amounts received were
    retained on the balance sheet and released in future periods
    despite the earnings process having been complete in the earlier
    period. Finally, there were instances where the benefit of
    certain vendor funding was recorded prior to the completion of
    the earnings process.
    Unsubstantiated Accruals and Inadequately Reconciled Accounts In some instances accrual and reserve accounts lacked
    justification or supporting documentation. In certain cases
    these accounts were used to accumulate excess amounts from other
    reserve and accrual accounts. However, these excess reserves
    were not released to the income statement in the appropriate
    reporting period or were released 11




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##### Table of Contents



DELL INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (continued)
    (unaudited)
  for other purposes. In some instances accounts had incorrect
    balances because they had not been properly reconciled or
    because reconciling items had not been adjusted timely.    February 3,
    2006As





AsReported


Adjustments


Restated(in
    millions)ASSETSCurrent assets:Cash and cash equivalents

$
7,042


$
12


$
7,054Short-term investments


2,016







2,016Accounts receivable, net


4,089



(7
)


4,082Financing receivables, net


1,363



3



1,366Inventories


576



12



588Other


2,620



68



2,688Total current assets


17,706



88



17,794Property, plant, and equipment, net


2,005



(12
)


1,993Investments


2,691



(5
)


2,686Long-term financing receivables, net


325







325Other non-current assets


382



72



454Total assets

$
23,109


$
143


$
23,252LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Short-term borrowings

$



$
65


$
65Accounts payable


9,840



28



9,868Accrued and other


6,087



153



6,240Total current liabilities


15,927



246



16,173Long-term debt


504



121



625Other non-current liabilities


2,549



(142
)


2,407Total liabilities


18,980



225



19,205Redeemable common stock and capital in excess of par value










Stockholders equity:Common stock and capital in excess of par


9,540



(37
)


9,503Treasury stock


(18,007
)






(18,007
)Retained earnings


12,746



(47
)


12,699Accumulated other comprehensive loss


(103
)


2



(101
)Other


(47
)






(47
)Total stockholders equity


4,129



(82
)


4,047Total liabilities and equity

$
23,109


$
143


$
23,252  12




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##### Table of Contents



DELL INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (continued)
    (unaudited)
  Statement of
    Financial Position Adjustments
    Statement of Cash
    Flows
    Six Months
    EndedJuly 29,
    2005As


AsReported


Restated(in
    millions)Net cash provided by (used in):Net income

$
1,954


$
1,890Non-cash adjustments


386



359Changes in working capital


(447
)


(338
)Changes in noncurrent assets and liabilities


216



224Operating activities


2,109



2,135Investing activities


2,710



2,966Financing activities


(3,173
)


(3,187
)Effect of exchange rate changes on cash and cash
    equivalents(a)


(56
)


(49
)Net increase in cash and cash equivalents


1,590



1,865Cash and cash equivalents at beginning of period


4,747



4,479Cash and cash equivalents at end of period

$
6,337


$
6,344     (a)
    
    The cash flows have been revised to
    reflect a closer approximation of the weighted-average exchange
    rates during the reporting periods. For most periods, this
    revision reduced the previously reported effect of exchange rate
    changes on cash and cash equivalents and with an offsetting
    change in effects of exchange rate changes on monetary assets
    and liabilities denominated in foreign currencies and changes in
    operating working capital included in cash flows from operating
    activities. 13




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##### Table of Contents



DELL INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (continued)
    (unaudited)
   NOTE 3 
    Inventories  August 4,


February 3,2006


2006AsRestated(in
    millions)Inventories:Production materials

$
374


$
325Work-in-process


61



43Finished goods


234



220Inventories

$
669


$
588   NOTE 4 
    Earnings Per
    Common Share      Three Months
    Ended


Six Months
    EndedAugust 4,


July 29,


August 4,


July 29,2006


2005


2006


2005As





AsRestated





Restated(in millions,
    except per share amounts)Numerator:Net income

$
480


$
982


$
1,256


$
1,890Denominator:Weighted-average shares outstanding:Basic


2,264



2,418



2,280



2,437Effect of dilutive options, restricted stock units, restricted
    stock, and other


14



60



18



60Diluted


2,278



2,478



2,298



2,497Earnings per common share:Basic

$
0.21


$
0.41


$
0.55


$
0.78Diluted

$
0.21


$
0.40


$
0.55


$
0.76  14




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##### Table of Contents



DELL INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (continued)
    (unaudited)
  NOTE 5 
    Comprehensive
    Income      Three Months
    Ended


Six Months
    EndedAugust 4,


July 29,


August 4,


July 29,2006


2005


2006


2005As





AsRestated





Restated(in
    millions)Comprehensive income:Net income

$
480


$
982


$
1,256


$
1,890Unrealized gains (losses) on foreign currency hedging
    instruments, net


64



92



(44
)


99Unrealized gains (losses) on marketable securities, net


16



(8
)


1



(20
)Valuation of retained interests in securitized assets


4







6



Foreign currency translation adjustments


(2
)


(4
)


(6
)


(2
)Comprehensive income

$
562


$
1,062


$
1,213


$
1,967   NOTE 6 
    Benefit
    Plans  Description of
    the Plans
  Employee Stock Purchase Plan
  Employee Stock Plans
  
    The Dell Computer Corporation 1989 Stock Option Plan (the
    1989 Option Plan)
    The Dell Computer Corporation Incentive Plan (the 1994
    Incentive Plan)
    The Dell Computer Corporation 1998 Broad-Based Stock Option Plan
    (the 1998 Broad-Based Plan)
    The Dell Computer Corporation 2002 Long-Term Incentive Plan (the
    2002 Incentive Plan) 15




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##### Table of Contents



DELL INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (continued)
    (unaudited)
       Stock Option Agreements
  Restricted Stock Awards
  Temporary Suspension of Option Exercises, Vesting of
    Restricted Stock Units, and ESPP Purchases Form 10-K
 16




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##### Table of Contents



DELL INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (continued)
    (unaudited)
  Form 10-K
  General
    Information
  Stock Option Activity
  Weighted-Weighted-


AverageNumber


Average


Remaining


Aggregateof


Exercise


Contractual


IntrinsicOptions


Price


Term


Value(in
    millions)


(per
    share)


(in
    years)


(in
    millions)Options outstanding  February 3, 2006


343


$
31.86Granted


5



28.00Exercised


(9
)


12.62Forfeited


(2
)


25.83Cancelled/expired


(9
)


37.18Options outstanding  August 4, 2006


328


$
32.22Vested and expected to vest (net of estimated
    forfeitures)  August 4,
    2006(a)


326


$
31.52



5.6


$
191Exercisable  August 4,
    2006(a)


290


$
33.00



5.5


$
121     (a)
    
    For options vested and expected to
    vest and options exercisable, the aggregate intrinsic value in
    the table above represents the total pre-tax intrinsic value
    (the difference between Dells closing stock price on
    August 4, 2006 and the exercise price, multiplied by the
    number of in-the-money options) that would have been received by
    the option holders had the holders exercised their options on
    August 4, 2006. The intrinsic value changes based on
    changes in the fair market value of Dells common stock.    Three Months
    Ended

Six Months
    EndedAugust 4,
    2006

August 4,
    2006(in millions,
    except per option data)Weighted-average grant date fair value of stock options granted
    per option

$
6.46


$
7.24Total intrinsic value of options
    exercised(a)

$
61


$
134     (a)
    
    The total intrinsic value of
    options exercised represents the total pre-tax intrinsic value
    (the difference between the stock price at exercise and the
    exercise price, multiplied by the number of options exercised)
    that was received by the option holders who exercised their
    options during the three and six month periods ended
    August 4, 2006.   17




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##### Table of Contents



DELL INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (continued)
    (unaudited)
  Non-vested Restricted Stock Activity
  Weighted-Number


Averageof


Grant DateShares


Fair
    Value(in
    millions)


(per
    share)Non-vested restricted stock  February 3, 2006


2


$
34.66Granted


18



29.12Vested


(1
)


27.75Forfeited


(1
)


30.21Non-vested restricted stock  August 4, 2006


18


$
29.66     Expense
    Information under SFAS 123(R)
    Three Months
    Ended


Six Months
    EndedAugust 4,


August 4,2006


2006(in
    millions)Stock-based compensation expense:Cost of net revenue

$
18


$
36Operating expenses


86



181Stock-based compensation expense before taxes


104



217Income tax benefit


(31
)


(65
)Stock-based compensation expense

$
73


$
152    18




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##### Table of Contents



DELL INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (continued)
    (unaudited)
      Pro Forma
    Information under SFAS 123 for Periods Prior to Fiscal
    2007
      July 29,
    2005Three Months


Six MonthsEnded


EndedAs


AsRestated


Restated(in millions,except per share
    data)Net income

$
982


$
1,890Deduct: Total stock-based employee compensation determined under
    fair value method for all awards, net of related tax effects


(201
)


(414
)Net income  pro forma

$
781


$
1,476Earnings per common share:Basic  as restated

$
0.41


$
0.78Basic  pro forma

$
0.32


$
0.61Diluted  as restated

$
0.40


$
0.76Diluted  pro forma

$
0.32


$
0.59    19




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##### Table of Contents



DELL INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (continued)
    (unaudited)
  Valuation
    Information
      Three Months
    Ended


Six Months
    EndedAugust 4,


July 29,


August 4,


July 29,2006


2005


2006


2005Expected term:Stock options


3.2 years



3.8 years



3.2 years



3.8 yearsEmployee stock purchase plan


3 months



3 months



3 months



3 monthsRisk-free interest rate (U.S. Government Treasury Note)


5.0
%


3.8
%


4.8
%


3.9
%Volatility


27
%


24
%


27
%


24
%Dividends


0
%


0
%


0
%


0
%   NOTE 7 
    Financial
    Services  Joint Venture
    Agreement
         20




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##### Table of Contents



DELL INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (continued)
    (unaudited)
      Financing
    Receivables
    August 4,


February 3,2006


2006AsRestated(in
    millions)Financing receivables, net:Customer receivables:Revolving loans, net

$
769


$
1,025Leases and loans, net


567



302Customer receivables, net


1,336



1,327Residual interests


291



274Retained interest


103



90Financing receivables, net

$
1,730


$
1,691Short-term

$
1,459


$
1,366Long-term


271



325Financing receivables, net

$
1,730


$
1,691     
    Customer receivables are presented net of an allowance for
    uncollectible accounts. The allowance is based on factors
    including historical trends and the composition and credit
    quality of the customer receivables. The composition and credit
    quality varies from investment grade commercial customers to
    subprime consumers. Customer receivables are charged to the
    allowance at the earlier of when an account is deemed to be
    uncollectible or when the account is 180 days delinquent.
    Recoveries on customer receivables previously charged off as
    uncollectible are adjusted to the allowance for uncollectible
    accounts. The following is a description of the components of
    financing receivables:  -
    Revolving loans offered under private label credit financing
    programs provide qualified customers with a revolving credit
    line for the purchase of products and services offered by Dell.
    From time to time, account holders may have the opportunity to
    finance their Dell purchases with special programs during which,
    if the outstanding balance is paid in full, no interest is
    charged. These special programs generally range from 3 to
    18 months and have an average original term of
    approximately 13 months. Revolving loans bear interest at a
    variable annual percentage rate that is tied to the prime rate. 21




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##### Table of Contents



DELL INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (continued)
    (unaudited)
  -
    Leases with business customers generally have fixed-terms of two
    to three years. Future maturities of minimum lease payments at
    August 4, 2006 are as follows: 2007: $37 million;
    2008: $36 million; 2009: $16 million; and 2010:
    $3 million. Fixed-term loans are also offered to qualified
    small businesses for the purchase of products sold by Dell.  
    Dell retains a residual interest in the leased equipment. The
    amount of the residual interest is established at the inception
    of the lease based upon estimates of the value of the equipment
    at the end of the lease term using historical studies, industry
    data, and future
    value-at-risk
    demand valuation methods. On a periodic basis, Dell assesses the
    carrying amount of its recorded residual values for impairment.
    Anticipated declines in specific future residual values that are
    considered to be other-than-temporary are recorded in current
    earnings.
    Retained interests represent the residual beneficial interest
    Dell retains in certain pools of securitized finance
    receivables. Retained interests are stated at the present value
    of the estimated net beneficial cash flows after payment of all
    senior interests. In estimating the value of retained interests,
    Dell makes a variety of financial assumptions, including pool
    credit losses, payment rates, and discount rates. These
    assumptions are supported by both Dells historical
    experience and anticipated trends relative to the particular
    receivable pool. Dell reviews its investments in retained
    interests periodically for impairment, based on estimated fair
    value. Any resulting losses representing the excess of carrying
    value over estimated fair value that are other-than-temporary
    are recorded in earnings. However, unrealized gains are
    reflected in stockholders equity as part of accumulated
    other comprehensive income. In the first quarter of Fiscal 2008,
    Dell adopted SFAS 155, and as a result, all gains and
    losses are recognized in income immediately and are no longer
    included in accumulated other comprehensive income.  Asset
    Securitization
       22




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##### Table of Contents



DELL INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (continued)
    (unaudited)
  NOTE 8 
    Warranty
    Liability and Related Deferred Revenue    Three Months
    Ended


Six Months
    EndedAugust 4,


July 29,


August 4,


July 29,2006


2005


2006


2005As





AsRestated





Restated(in
    millions)Deferred revenue:Deferred revenue at beginning of period

$
3,907


$
3,097


$
3,707


$
2,904Revenue deferred for new extended warranty and service contracts
    sold(a)


814



709



1,573



1,329Revenue
    recognized(a)


(697
)


(522
)


(1,256
)


(949
)Deferred revenue at end of period

$
4,024


$
3,284


$
4,024


$
3,284Current portion

$
2,055


$
1,671


$
2,055


$
1,671Non-current portion


1,969



1,613



1,969



1,613Deferred revenue at end of period

$
4,024


$
3,284


$
4,024


$
3,284   Three Months
    Ended


Six Months
    EndedAugust 4,


July 29,


August 4,


July 29,2006


2005


2006


2005As





AsRestated





Restated(in
    millions)Warranty liability:Warranty liability at beginning of period

$
909


$
708


$
951


$
722Costs accrued for new warranty contracts and changes in
    estimates for pre-existing
    warranties(b)


330



298



575



511Service obligations
    honored(a)


(310
)


(294
)


(597
)


(521
)Warranty liability at end of period

$
929


$
712


$
929


$
712Current portion

$
665


$
515


$
665


$
515Non-current portion


264



197



264



197Warranty liability at end of period

$
929


$
712


$
929


$
712     (a)
    
    Prior period amounts have been
    changed to reflect the current year presentation of service
    obligations honored. There is no impact to the Condensed
    Consolidated Statements of Financial Position or Condensed
    Consolidated Statements of Income as a result of this change.(b)
    
    Changes in cost estimates related
    to pre-existing warranties are aggregated with accruals for new
    warranty contracts. Dells warranty liability process does
    not differentiate between estimates made for pre-existing
    warranties and new warranty obligations. 23




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##### Table of Contents



DELL INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (continued)
    (unaudited)
   NOTE 9 
    Commitments and
    Contingencies  DFS Purchase Commitment
  Restricted Cash
  Legal Matters Accounting for
    Contingencies
  
    Investigations and Related Litigation  In
    August 2005, the SEC initiated an inquiry into certain of
    Dells accounting and financial reporting matters and
    requested that Dell provide certain documents. The SEC expanded
    that inquiry in June 2006 and entered a formal order of
    investigation in October 2006. The SECs requests for
    information were joined by a similar request from the United
    States Attorney for the Southern District of New York
    (SDNY), who subpoenaed documents related to
    Dells financial reporting from and after Fiscal 2002. In
    August 2006, because of potential issues identified in the
    course of responding to the SECs requests for information,
    Dells Audit Committee, on the recommendation of management
    and in consultation with PricewaterhouseCoopers LLP, Dells
    independent registered public accounting firm, initiated an
    independent investigation, which was recently completed. For
    information regarding the Audit Committees investigation,
    the accounting errors and irregularities identified, and the
    restatement adjustments, see Note 2 of Notes to Condensed
    Consolidated Financial Statements. Although the Audit Committee
    investigation has been completed, the investigations being
    conducted by the SEC and the SDNY are ongoing. Dell continues to
    cooperate with the SEC and the SDNY.  In re Dell Inc. Securities Litigation In re Dell Inc. ERISA Litigation
 24




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##### Table of Contents



DELL INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (continued)
    (unaudited)
  In re Dell Inc. Derivative
    Litigation, Baltimore County Employees Retirement System v.
    Dell Inc.,
  
    Copyright Levies Proceedings against the IT
    industry in Germany seek to impose levies on equipment, such as
    personal computers, multifunction devices, and printers that
    facilitate making private copies of copyrighted materials. The
    total levies due, if imposed, would be based on the number of
    products sold and the per-product amounts of the levies, which
    vary. Dell, along with other companies and various industry
    associations are opposing these levies and instead are
    advocating compensation to rights holders through digital rights
    management systems.    
    Lucent v. Dell  In February 2003, Lucent
    Technologies, Inc. filed a lawsuit against Dell in the United
    States District Court for Delaware, and the lawsuit was
    subsequently transferred to the United States District Court for
    the Southern District of California. The lawsuit alleges that
    Dell infringed 12 patents owned by Lucent and seeks monetary
    damages and injunctive relief. In April 2003, Microsoft
    Corporation filed a declaratory judgment action against Lucent
    in the United States District Court for the Southern District of
    California, asserting that Microsoft products do not infringe
    patents held by Lucent, including 10 of the 12 patents at issue
    in the lawsuit involving Dell and Microsoft. These actions were
    consolidated for discovery purposes with a previous suit that
    Lucent filed against Gateway, Inc. In September 2005, the court
    granted a summary judgment of invalidity with respect to one of
    the Lucent patents asserted against Dell. In addition, in
    decisions made through May 2007, the court granted summary
    judgment of non-infringement with respect to five more of the
    Lucent patents asserted against Dell. The court has ordered
    invalidity briefing with regard to other patents at issue in
    view of the April 30, 2007, U.S. Supreme Court
    decision in KSR v. Teleflex. Fact and expert
    discovery has closed, and the three actions have been
    consolidated. Trial is scheduled to begin in February 2008. Dell
    is defending these claims vigorously. Separately, Dell has filed
    a lawsuit against Lucent in the United States District 25




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##### Table of Contents



DELL INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (continued)
    (unaudited)
  Court for the Eastern District of Texas, alleging that Lucent
    infringes two patents owned by Dell and seeking monetary damages
    and injunctive relief. That litigation is pending and discovery
    is proceeding.  
    Sales Tax Claims  Several state and local
    taxing jurisdictions have asserted claims against Dell Catalog
    Sales L.P. (DCSLP), an indirect wholly-owned
    subsidiary of Dell, alleging that DCSLP had an obligation to
    collect tax on sales made into those jurisdictions because of
    its alleged nexus, or physical presence, in those jurisdictions.
    During the first and second quarter of Fiscal 2008, Dell settled
    suits filed by the State of Louisiana and the Secretary of the
    Louisiana Department of Revenue and Taxation in the
    19th Judicial District Court of the State of Louisiana, and
    by two Louisiana parishes, Orleans Parish and Jefferson Parish,
    in the State of Louisiana 24th Judicial District Court.
    Dell also settled similar claims made by a number of other
    Louisiana parishes and by the State of Massachusetts. These
    settlement amounts did not have a material adverse effect on
    Dells financial condition, results of operations, or cash
    flows. While there are ongoing claims by certain other state and
    local taxing authorities, DCSLP disputes the allegation that it
    had nexus in any of these other jurisdictions during the periods
    in issue, and is defending the claims vigorously. Dell does not
    expect that the outcome of these other claims, individually or
    collectively, will have a material adverse effect on its
    financial condition, results of operations, or cash flows.
    Income Tax Dell is currently under audit in
    various jurisdictions, including the United States. The tax
    periods open to examination by the major taxing jurisdictions to
    which Dell is subject include Fiscal 1999 through Fiscal 2007.
    Dell does not anticipate a significant change to the total
    amount of unrecognized benefits within the next 12 months.    NOTE 10 
    Segment
    Information     26




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##### Table of Contents



DELL INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (continued)
    (unaudited)
    Three Months
    Ended


Six Months
    EndedAugust 4,


July 29,


August 4,


July 29,2006


2005


2006


2005As





AsRestated





Restated(in
    millions)Net revenue:Americas:Business

$
7,502


$
7,154


$
14,612


$
13,726U.S. Consumer


1,787



1,686



3,698



3,621Americas


9,289



8,840



18,310



17,347EMEA


3,049



2,920



6,451



6,074APJ


1,873



1,622



3,770



3,261Net revenue

$
14,211


$
13,382


$
28,531


$
26,682Consolidated operating income:Americas:Business

$
546


$
720


$
1,219


$
1,355U.S. Consumer


15



98



68



236Americas


561



818



1,287



1,591EMEA


5



167



202



403APJ


82



128



237



256Consolidated segment operating income


648



1,113



1,726



2,250Stock-based compensation
    expense(a)


(104
)






(217
)


Consolidated operating income

$
544


$
1,113


$
1,509


$
2,250     (a)
    
    Stock compensation of
    $5 million and $9 million for the three and six month
    periods ended July 29, 2005, respectively, is included in
    the total consolidated segment operating income.  NOTE 11 
    Debt  Commercial
    Paper
   27




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##### Table of Contents



DELL INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (continued)
    (unaudited)
    DFS Credit
    Facilities
    Long-Term Debt
    and Interest Rate Risk Management
         28




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##### Table of Contents



DELL INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (continued)
    (unaudited)
  NOTE 12 
    Redeemable Common
    Stock    NOTE 13 
    Subsequent
    Events       29




---



##### Table of Contents



ITEM 2.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS  SPECIAL NOTE:  This section,
    Managements Discussion and Analysis of Financial
    Condition and Results of Operations, contains
    forward-looking statements based on our current expectations.
    Actual results in future periods may differ materially from
    those expressed or implied by those forward-looking statements
    because of a number of risks and uncertainties. For a discussion
    of risk factors affecting our business and prospects, see
    Part II Item 1A Risk Factors.
  All percentage amounts and ratios were calculated using
    the underlying data in thousands. Unless otherwise noted, all
    references to industry share and total industry growth data are
    for personal computers (including desktops, notebooks, and x86
    servers), and are based on information provided by IDC Worldwide
    Quarterly PC Tracker, September 2007. Share data is for the
    calendar quarter, and all our growth rates are on a fiscal
    year-over-year basis. Unless otherwise noted, all references to
    time periods refer to our fiscal periods.
  AUDIT COMMITTEE
    INDEPENDENT INVESTIGATION AND RESTATEMENT
  Background
        Scope of the
    Investigation
 30




---



##### Table of Contents



Summary of
    Investigation Findings
      Other Company
    Identified Adjustments
    Restatement
 31




---



##### Table of Contents



Overview
  Our
    Company
      tm tm
    Current Business
    Environment
   32




---



##### Table of Contents



Second Quarter
    Performance
  Share position



We shipped approximately 9.6 million units, resulting in a
    worldwide PC share position of 16.1%.Net revenue



Revenue increased 6% year-over-year to $14.2 billion, with
    unit shipments up 6% year-over-year.Operating income



Operating income was
    $544(a) million
    for the quarter, or 3.8% of revenue, as compared to
    $1.1 billion or 8.3% of revenue for second quarter of
    Fiscal 2006.Earnings per share



Earnings per share decreased 47% to
    $0.21(a)
    for the quarter compared to
    $0.40(b)
    for the second quarter of Fiscal 2006.     (a)
    
    Operating income and earnings per
    share for the three-month period ended August 4, 2006
    include stock-based compensation expense pursuant to Statement
    of Financial Accounting Standards No. 123 (revised 2004),
    Share-Based Payment. See Note 6 of Notes to
    Condensed Consolidated Financial Statements included in
    Part I  Item 1  Financial
    Statements for additional information.(b)
    
    Earnings per share for the
    three-month period ended July 29, 2005 includes the impact
    of an $85 million ($0.03 per share) tax benefit related to
    a revised estimate of taxes on the repatriation of earnings
    under the American Jobs Creation Act of 2004.  Results of
    Operations
    Three Months
    Ended


Six Months
    EndedAugust 4,
    2006


July 29,
    2005


August 4,
    2006


July 29,
    2005% of





% of





% of





% ofDollars


Revenue


Dollars


Revenue


Dollars


Revenue


Dollars


RevenueAs


As








As


AsRestated


Restated








Restated


Restated(in millions,
    except per share amounts and percentages)Net revenue

$
14,211



100.0
%

$
13,382



100.0
%

$
28,531



100.0
%

$
26,682



100.0
%Gross margin

$
2,138



15.0
%

$
2,431



18.2
%

$
4,646



16.3
%

$
4,883



18.3
%Operating expenses

$
1,594



11.2
%

$
1,318



9.9
%

$
3,137



11.0
%

$
2,633



9.9
%Operating income

$
544



3.8
%

$
1,113



8.3
%

$
1,509



5.3
%

$
2,250



8.4
%Net income

$
480



3.4
%

$
982



7.3
%

$
1,256



4.4
%

$
1,890



7.1
%Earnings per share diluted

$
0.21



N/A


$
0.40



N/A


$
0.55



N/A


$
0.76



N/A   Consolidated
    Revenue
    Revenues by
    Segment
   33




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##### Table of Contents



Three Months
    Ended


Six Months
    EndedAugust 4,
    2006


July 29,
    2005


August 4,
    2006


July 29,
    2005% of





% of





% of





% ofDollars


Revenue


Dollars


Revenue


Dollars


Revenue


Dollars


RevenueAs


As








As


AsRestated


Restated








Restated


Restated(in millions,
    except percentages)Net revenueAmericas:Business

$
7,502



52.8
%

$
7,154



53.5
%

$
14,612



51.2
%

$
13,726



51.4
%U.S. Consumer


1,787



12.6
%


1,686



12.6
%


3,698



13.0
%


3,621



13.6
%Americas


9,289



65.4
%


8,840



66.1
%


18,310



64.2
%


17,347



65.0
%EMEA


3,049



21.4
%


2,920



21.8
%


6,451



22.6
%


6,074



22.8
%APJ


1,873



13.2
%


1,622



12.1
%


3,770



13.2
%


3,261



12.2
%Net revenue

$
14,211



100.0
%

$
13,382



100.0
%

$
28,531



100.0
%

$
26,682



100.0
%   
    Americas Americas revenues were
    up 5% on unit growth of 1% for the three-month period and grew
    6% on unit growth of 4% for the six-month period ended
    August 4, 2006. This includes an increase of 5% and an
    increase of 6% in our Americas Business segment for the
    second quarter and first six-month period of Fiscal 2007,
    respectively, and 6% and 2% growth in our U.S. Consumer
    segment during the same periods. Americas International
    experienced strong growth, with revenue increasing 30%
    year-over-year for the second quarter and 28% for the first
    six-month period of Fiscal 2007.  -
    Business  For the three and six month
    periods ended August 4, 2006, revenue increased while unit
    performance was relatively flat compared to the same periods in
    the prior year. Desktop revenue declined 5% in the quarter
    compared to the same period a year ago, while we experienced
    growth in all other product categories, led by 42%
    year-over-year growth in storage revenue.-
    U.S. Consumer U.S. Consumer
    revenue increased 6% for the second quarter of Fiscal 2007 and
    2% for the six-month period ended August 4, 2006. Revenue
    growth was driven primarily by a mix of mobility products and
    enhanced services. As notebooks become more affordable, we
    continue to see a positive shift to mobility products in
    U.S. Consumer and our other segments.  
    EMEA  EMEA revenue increased 4% on unit
    growth of 6% for the second quarter and increased 6% on unit
    growth of 13% for the first six-month period of Fiscal 2007.
    Revenue growth in the United Kingdom slowed while South Africa,
    Austria, and the Czech Republic produced significant
    year-over-year growth at rates well above the overall region for
    the second quarter and first six-month period of Fiscal 2007.
    Mobility unit growth was partially offset by competitive pricing
    pressure, which reduced average selling prices and adversely
    affected results.
    APJ  APJ revenue grew 15% on unit
    growth of 27% for the three-month period and 16% on unit growth
    of 28% for the six-month period ended August 4, 2006. China
    reported revenue growth of 32% and 30% year-over-year for the
    second quarter and first six-month period of Fiscal 2007, and
    South Korea and India produced significant year-over-year growth
    at rates well above the overall region. Across the region,
    enhanced services and software and peripherals revenues posted
    strong gains during the second quarter of Fiscal 2007.  Revenue by
    Product and Services Categories
     34




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##### Table of Contents



Three Months
    Ended


Six Months
    EndedAugust 4,
    2006


July 29,
    2005


August 4,
    2006


July 29,
    2005% of





% of





% of





% ofDollars


Revenue


Dollars


Revenue


Dollars


Revenue


Dollars


RevenueAs


As








As


AsRestated


Restated








Restated


Restated(in millions,
    except percentages)Net revenue:Desktop PCs

$
4,992



35
%

$
5,143



38
%

$
10,283



36
%

$
10,545



39
%Mobility


3,846



27
%


3,508



26
%


7,627



27
%


6,817



26
%Software & peripherals


2,219



16
%


1,997



15
%


4,401



15
%


3,943



15
%Servers & networking


1,348



9
%


1,328



10
%


2,699



9
%


2,618



10
%Enhanced services


1,258



9
%


1,004



8
%


2,483



9
%


1,925



7
%Storage


548



4
%


402



3
%


1,038



4
%


834



3
%Net revenue

$
14,211



100
%

$
13,382



100
%

$
28,531



100
%

$
26,682



100
%   
    Desktop PCs Revenue from sales of
    desktop PCs consists of Dell
    XPStm,
    OptiPlextm,
    and
    Dimensiontm,
    desktop computer systems, and Dell
    Precisiontm
    desktop workstations. Desktop PCs revenue declined 3% on a unit
    decrease of 1% year-over-year for the second quarter of Fiscal
    2007, and declined 2% on unit growth of 1% for the first
    six-month period of Fiscal 2007, driven by lower average selling
    prices. Business and consumer demand continues to shift toward
    mobility products as notebook computers become more affordable.
    Mobility Revenue from mobility
    products consists of Dell
    XPStm,
    Latitudetm,
    and
    Inspirontm
    notebook computer systems, Dell
    Precisiontm
    mobile workstations, Dell MP3 players, and Dell
    Aximtm
    handhelds. Mobility revenue grew by 10% on unit growth of 22%
    year-over-year for the second quarter and 12% on unit growth of
    29% year-over-year for the first six-month period of Fiscal
    2007. As notebooks become more affordable and wireless products
    become standardized, demand for mobility products continues to
    grow rapidly. During the quarter, we completed an upgrade of our
    entire Dell-branded notebook portfolio based on input received
    from customers. In Fiscal 2007, we introduced the XPS M2010, an
    innovative mobile platform featuring a
    20-inch high
    definition display that received awards for its unique design.
    Software and Peripherals Revenue from
    sales of software and peripherals consists of Dell-branded
    printers, monitors (not sold with systems), plasma and LCD
    televisions, projectors, and a multitude of competitively priced
    third-party peripherals, software, and other products. Software
    and peripherals revenue increased by 11% year-over-year in the
    second quarter and 12% for the first six-month period of Fiscal
    2007. To enhance our line of printing products, during the
    quarter we launched our third generation of laser printers,
    including six new color, multi-function, and mono lasers.
    Enhanced Services Enhanced services
    consists of a wide range of services including assessment,
    design and implementation, deployment, asset recovery and
    recycling, training, enterprise support, client support, and
    managed lifecycle. Enhanced services revenue increased 25% and
    29% year-over-year for the three and six month periods ended
    August 4, 2006, respectively, as we expanded our service
    offerings and capabilities globally. During the quarter, we
    introduced Platinum Plus, our highest level of support for
    customers enterprise data centers. In addition, we
    increased our deferred revenue balance by $317 million to
    $4.0 billion in the second quarter of Fiscal 2007 as
    compared to Fiscal 2006.
    Servers and Networking Revenue from
    sales of servers and networking products, consisting of our
    standards-based
    PowerEdgetm
    line of servers and
    PowerConnecttm
    networking products, increased by 35




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##### Table of Contents



1% on unit growth of 3% year-over-year for the second quarter
    while growing 3% on unit growth of 6% year-over-year for the
    first six months Fiscal 2007. Servers and networking remains a
    strategic focus area. We competitively price our server products
    to facilitate additional sales of storage products and higher
    margin enhanced services.  
    Storage Revenue from sales of storage
    products, consisting of a comprehensive portfolio of storage
    solutions with services, including Dell | EMC and
    Dell
    PowerVaulttm
    storage devices, increased 36% and 25% for the second quarter
    and first six-month period of Fiscal 2007, respectively. Storage
    revenue grew across all regions, with particularly strong
    performance in the Americas as revenue increased 42% and 28%
    during the second quarter and first six-month period of Fiscal
    2007. A strong performance by our Dell | EMC Cx
    midrange storage system contributed to this growth. We also
    launched two new NAS storage servers during the quarter designed
    on our 9G server platform.  Gross
    Margin
    Three Months
    Ended

Six Months
    EndedAugust 4,
    2006

July 29,
    2005

August 4,
    2006

July 29,
    2005% of



% of



% of



% ofDollars

Revenue

Dollars

Revenue

Dollars

Revenue

Dollars

RevenueAs

As





As

AsRestated

Restated





Restated

Restated(in millions,
    except percentages)Net revenue

$
14,211



100.0
%

$
13,382



100.0
%

$
28,531



100.0
%

$
26,682



100.0
%Gross margin

$
2,138



15.0
%

$
2,431



18.2
%

$
4,646



16.3
%

$
4,883



18.3
%        36




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##### Table of Contents



Operating
    Expenses
    Three Months
    Ended


Six Months
    EndedAugust 4,
    2006


July 29,
    2005


August 4,
    2006


July 29,
    2005% of





% of





% of





% ofDollars


Revenue


Dollars


Revenue


Dollars


Revenue


Dollars


RevenueAs


As








As


AsRestated


Restated








Restated


Restated(in millions,
    except percentages)Operating expenses:Selling, general, and administrative

$
1,469



10.3
%

$
1,196



9.0
%

$
2,883



10.1
%

$
2,402



9.0
%Research, development, and engineering


125



0.9
%


122



0.9
%


254



0.9
%


231



0.9
%Operating expenses

$
1,594



11.2
%

$
1,318



9.9
%

$
3,137



11.0
%

$
2,633



9.9
%   
    Selling, general, and
    administrative  During the second
    quarter and first six-month period of Fiscal 2007, selling,
    general, and administrative expenses increased 23% to
    $1.5 billion and 20% to $2.9 billion, respectively,
    compared to $1.2 billion and $2.4 billion for the same
    periods of Fiscal 2006. Stock-based compensation expense and
    costs related to headcount growth drove the increase in selling,
    general, and administrative expenses in the second quarter and
    six-month period ended August 4, 2006 compared to the same
    periods in the prior year. Stock-based compensation expense,
    included in selling, general, and administrative expenses, was
    $75 million and $158 million for the second quarter
    and first six-month period of Fiscal 2007, respectively. During
    the first half of Fiscal 2007, we made incremental customer
    experience investments to improve customer satisfaction,
    purchase and repurchase preferences, as well as technical
    support. As a result, headcount increased through direct hiring
    and replacing contract staff with Dell employees.
    Research, development, and
    engineering  During the second quarter
    and first six-month period of Fiscal 2007, research,
    development, and engineering expenses as a percentage of revenue
    were flat compared to the second quarter and first six-month
    period of Fiscal 2006. Stock-based compensation of
    $11 million and $23 million was recorded to research,
    development, and engineering expense for the three- and
    six-month periods ended August 4, 2006. We manage our
    research, development, and engineering spending by targeting
    those innovations and products most valuable to our customers
    and by relying upon the capabilities of our strategic partners.
    We will continue to invest in research, development, and
    engineering activities to support our growth and to provide for
    new, competitive products. We have obtained 1,661 patents
    worldwide and have applied for 1,707 additional patents
    worldwide at August 4, 2006.  Stock-based
    Compensation
    Share-Based Payment
 37




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##### Table of Contents



Accounting for Stock Issued to Employees
    Form 10-K
  Form 10-K
  Investment and
    Other Income, net
    Income
    Taxes
     38




---



##### Table of Contents



Off-Balance Sheet
    Arrangements
  Asset Securitization Accounting for Transfers and
    Servicing of Financial Assets and Extinguishment of Liabilities
        Liquidity and
    Capital Commitments
  Liquidity
   39




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##### Table of Contents



Six Months
    EndedAugust 4,


July 29,2006


2005AsRestated(in
    millions)Net cash flow provided by (used in):Operating activities

$
1,812


$
2,135Investing activities


345



2,966Financing activities


(2,470
)


(3,187
)Effect of exchange rate changes on cash and cash equivalents


54



(49
)Net (decrease) increase in cash and cash equivalents

$
(259
)

$
1,865   Operating Activities
  August 4,


February 3,2006


2006AsRestatedDays of sales
    outstanding(a)


33



29Days of supply in inventory


5



5Days in accounts payable


(77
)


(77
)Cash conversion cycle


(39
)


(43
)     (a)
    
    Days of sales outstanding
    (DSO) is based on the ending net trade receivables
    and most recent quarterly revenue for each period. DSO includes
    the effect of product costs related to customer shipments not
    yet recognized as revenue that are classified in other current
    assets. At August 4, 2006 and February 3, 2006, DSO
    and days of customer shipments not yet recognized were 30 and
    3 days and 26 and 3 days, respectively.  four-day
   40




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##### Table of Contents



Investing Activities
  Financing Activities
    Capital
    Commitments
  Redeemable Common Stock and Other Rescissionary
    Rights
  Share Repurchase Program
 41




---



##### Table of Contents



Capital Expenditures
  DFS Purchase Commitment
  Restricted Cash
  Recently Issued
    Accounting Pronouncements
    ITEM 3.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK  Form 10-K Form 10-K.
  ITEM 4.
    CONTROLS
    AND PROCEDURES  Rule 13a-14
  Background
   42




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##### Table of Contents




    Control environment We did not maintain an
    effective control environment. Specifically:  -
    We did not maintain a tone and control consciousness that
    consistently emphasized strict adherence to GAAP. This control
    deficiency resulted in an environment in which accounting
    adjustments were viewed at times as an acceptable device to
    compensate for operational shortfalls, which in certain
    instances led to inappropriate accounting decisions and entries
    that appear to have been largely motivated to achieve desired
    accounting results and, in some instances, involved management
    override of controls. In a number of instances, information
    critical to an effective review of transactions and accounting
    entries was not disclosed to internal and external auditors.-
    We did not maintain a sufficient complement of personnel with an
    appropriate level of accounting knowledge, experience, and
    training in the application of GAAP commensurate with our
    financial reporting requirements and business environment.    
    Period-end financial reporting process We did
    not maintain effective controls over the period-end reporting
    process, including controls with respect to the review,
    supervision, and monitoring of accounting operations.
    Specifically:  -
    Journal entries, both recurring and nonrecurring, were not
    always accompanied by sufficient supporting documentation and
    were not always adequately reviewed and approved for validity,
    completeness, and accuracy;-
    Account reconciliations over balance sheet accounts were not
    always properly and timely performed, and the reconciliations
    and their supporting documentation were not consistently
    reviewed for completeness, accuracy, and timely resolution of
    reconciling items; and-
    We did not design and maintain effective controls to ensure the
    completeness, accuracy, and timeliness of the recording of
    accrued liabilities, reserves, and operating expenses, primarily
    related to our accrued warranty obligations, goods and services
    received but not invoiced, customer rebates, and nonproduction
    operating expenses.   43




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##### Table of Contents




    Our new leadership team, together with other senior executives,
    is committed to achieving and maintaining a strong control
    environment, high ethical standards, and financial reporting
    integrity. This commitment will be communicated to and
    reinforced with every Dell employee and to external
    stakeholders. This commitment is accompanied by a renewed
    management focus on decision-making and processes that are
    intended to achieve maximum shareholder value over the long-term
    and a decreased focus on short-term,
    quarter-by-quarter
    operating results.
    As a result of the initiatives already underway to address the
    control deficiencies described above, we have effected personnel
    changes in our accounting and financial reporting functions.
    Consequently, many of the employees involved in the accounting
    processes in which errors and irregularities were made are no
    longer involved in the accounting or financial reporting
    function. In addition, we have taken, or will take, appropriate
    remedial actions with respect to certain employees, including
    terminations, reassignments, reprimands, increased supervision,
    training, and imposition of financial penalties in the form of
    compensation adjustments.
    We are in the process of reorganizing the Finance Department,
    segregating accounting and financial reporting responsibility
    from planning and forecasting responsibility, with a renewed
    commitment to accounting and financial reporting integrity. We
    have appointed a new Chief Accounting Officer and have
    strengthened that position, making it directly responsible for
    all accounting and financial reporting functions worldwide. In
    addition, we are implementing personnel resource plans, and
    training and retention programs, that are designed to ensure
    that we have sufficient personnel with knowledge, experience and
    training in the application of GAAP commensurate with our
    financial reporting requirements.
    We will continue our efforts to establish or modify specific
    processes and controls to provide reasonable assurance with
    respect to the accuracy and integrity of accounting entries and
    the appropriate documentation, review, and approval of those
    entries. These efforts include:  -
    Centralization of the development, oversight, and monitoring of
    accounting policies and standardized processes in all critical
    accounting areas, including areas involving management judgment
    and discretion;-
    Implementation and clarification of specific accounting and
    finance policies, applicable worldwide, regarding the
    establishment, increase, and release of accrued liability and
    other balance sheet reserve accounts;-
    Creation of a revenue recognition accounting resource function
    to coordinate complex revenue recognition matters and to provide
    oversight and guidance on the design of controls and processes
    to enhance and standardize revenue recognition accounting
    procedures;-
    Improving the processes and procedures around the completion and
    review of quarterly management representation letters, in which
    our various business and finance leaders make full and complete
    representations concerning, and assume accountability for, the
    accuracy and integrity of their submitted financial results;-
    Extending the time between the end of a financial reporting
    period and the public release of financial and operating data
    with respect to that period, giving our accounting organization
    more time to 44




---



##### Table of Contents



appropriately process the close of the accounting records and
    analyze the reported results prior to public announcement;  -
    Enhancing the development, communication, and monitoring of
    processes and controls to ensure that appropriate account
    reconciliations are performed, documented, and reviewed as part
    of standardized procedures; and-
    Increasing the focus by the internal audit function and the
    Chief Accounting Officer on the review and monitoring of key
    accounting processes, including journal entries and supporting
    documentation, revenue recognition processes, account
    reconciliations, and management representation letter controls
    and processes.  
    We will implement company-wide training (led by the Chief
    Accounting Officer and other finance executives with appropriate
    accounting expertise) to enhance awareness and understanding of
    standards and principles for accounting and financial reporting.
    This training will include:  -
    Development and communication of an accounting code of conduct
    that will serve as a set of guiding principles emphasizing our
    commitment to accounting and financial reporting integrity, as
    well as transparency and robust and complete communications
    with, and disclosures to, internal and external auditors;-
    Comprehensive programs for all finance personnel globally (with
    initial focus on personnel directly responsible for accounting
    and financial reporting) covering all fundamental accounting and
    financial reporting matters, including accounting policies,
    financial reporting requirements, income statement
    classification, revenue recognition, vendor funding, accounting
    for reserves and accrued liabilities, and account reconciliation
    and documentation requirements; and-
    Appropriate programs for other company personnel, including
    senior management, to emphasize the importance of accounting and
    financial reporting integrity.  
    We will invest in the design and implementation of additional
    and enhanced information technology systems and user
    applications commensurate with the complexity of our business
    and our financial reporting requirements. It is expected that
    these investments will improve the reliability of our financial
    reporting by reducing the need for manual processes, subjective
    assumptions, and management discretion; by reducing the
    opportunities for errors and omissions; and by decreasing our
    reliance on manual controls to detect and correct accounting and
    financial reporting inaccuracies.
    We will reemphasize and invigorate our communications to all
    Dell employees regarding the availability of our Ethics Hotline,
    through which employees at all levels can anonymously submit
    information or express concerns regarding accounting, financial
    reporting, or other irregularities they have become aware of or
    have observed. In addition, these communications will emphasize
    the existence and availability of other reporting avenues or
    forums for all employees, such as their management chain, their
    Human Resources representatives, the Ethics Office, the
    Ombudsmans Office, the Legal Department, and direct
    contact with the Chief Financial Officer or the Audit Committee.     45




---



##### Table of Contents



Evaluation of
    Disclosure Controls and Procedures
  Rules 13a-15(e) 15d-15(e)
    Changes in
    Internal Control Over Financial Reporting
      PART II 
    OTHER INFORMATION
   ITEM 1.
    LEGAL
    PROCEEDINGS  Accounting for Contingencies
 46




---



##### Table of Contents



Investigations and Related Litigation
  In re Dell Inc. Securities Litigation In re Dell
    Inc. ERISA Litigation In re Dell Inc. Derivative Litigation Baltimore County
    Employees Retirement System v. Dell Inc.
  Copyright Levies
 47




---



##### Table of Contents



Lucent v. Dell KSR v. Teleflex
  Sales Tax Claims
   48




---



##### Table of Contents



ITEM 1A.
    RISK
    FACTORS    
    Declining general economic, business, or industry conditions
    may cause reduced net revenue.  We are a global
    company with customers in virtually every business and industry.
    If the economic climate in the U.S. or abroad deteriorates,
    customers or potential customers could reduce or delay their
    technology investments, which could decrease our net revenue and
    profitability.
    Failure to maintain a cost advantage may result in reduced
    market share, revenue, and profitability.  Our
    success has historically been based on our ability to profitably
    offer products at a lower price than our competitors. However,
    we compete with many companies globally in all aspects of our
    business. Our profitability is also affected by our ability to
    negotiate favorable pricing with our vendors, including vendor
    rebates, marketing funds, and other vendor funding. Because
    these supplier negotiations are continuous and reflect the
    ongoing competitive environment, the variability in timing and
    amount of incremental vendor discounts and rebates can affect
    our profitability. We cannot guarantee that we will be able to
    maintain our cost advantage if our competitors improve their
    cost structure or business model, if we are not able to
    negotiate favorable pricing or rebate arrangements with our
    vendors, or if our competitors take other actions that affect
    our current competitive advantage. An inability to maintain our
    cost advantage or determine alternative means to deliver value
    to our customers may adversely affect our market share, revenue,
    and profitability.
    Our ability to generate substantial
    non-U.S. net
    revenue faces many additional risks and
    uncertainties.  Sales outside the
    U.S. accounted for approximately 43% of our consolidated
    net revenue for the first six-month period of Fiscal 2007. Our
    future growth rates and success are dependent on continued
    growth in international markets. Our international operations
    face many risks and uncertainties, including varied local
    economic and labor conditions, political instability, and
    unexpected changes in the regulatory environment, trade
    protection measures, tax laws (including U.S. taxes on
    foreign operations), copyright levies, and foreign currency
    exchange rates. Any of these factors could adversely affect our
    operations and profitability.
    Our profitability may be affected by our product, customer,
    and geographic sales mix and by seasonal sales
    trends.  Our profit margins vary among products,
    customers, and geographies. In addition, our business is subject
    to certain seasonal sales trends. For example, sales to
    government customers (particularly the U.S. federal
    government) are typically stronger in our third fiscal quarter,
    sales in EMEA are often weaker in our third fiscal quarter, and
    consumer sales are typically strongest during our fourth fiscal
    quarter. As a result of these factors, our overall profitability
    for any particular period will be affected by the mix of
    products, customers, and geographies reflected in our sales for
    that period, as well as by seasonality trends.
    Infrastructure failures could harm our
    business.  We depend on our information technology
    and manufacturing infrastructure to achieve our business
    objectives. If a problem, such as a computer virus, intentional
    disruption by a third party, natural disaster, manufacturing
    failure, or telephone system failure impairs our infrastructure,
    we may be unable to book or process orders, manufacture, and
    ship in a timely manner or otherwise carry on our business. An
    infrastructure disruption could cause us to lose customers and
    revenue and could require us to incur significant expense to
    eliminate these problems and address related security concerns.
    The harm to our business could be even greater if it occurs
    during a period of disproportionately heavy demand.
    Our failure to effectively manage a product transition could
    reduce the demand for our products and the profitability of our
    operations.  Continuing improvements in technology
    mean frequent new product introductions, short product life
    cycles, and improvement in product performance characteristics.
    Product transitions present execution challenges and risks for
    any company. If we are unable to 49




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##### Table of Contents



effectively manage a product transition, our business and
    results of operations could be unfavorably affected.  
    Disruptions in component availability could unfavorably
    affect our performance.  Our direct business
    model, as well as our manufacturing and supply chain
    efficiencies, give us the ability to operate with reduced levels
    of component and finished goods inventories. Our financial
    success is partly due to our supply chain management practices,
    including our ability to achieve rapid inventory turns. Because
    we maintain minimal levels of component inventory, a disruption
    in component availability could harm our financial performance
    and our ability to satisfy customer needs.
    Our reliance on suppliers creates risks and
    uncertainties.  Our manufacturing process requires
    a high volume of quality components from third-party suppliers.
    Defective parts received from these suppliers could reduce
    product reliability and harm the reputation of our products.
    Reliance on suppliers subjects us to possible industry shortages
    of components and reduced control over delivery schedules (which
    can harm our manufacturing efficiencies), as well as increases
    in component costs (which can harm our profitability).
    We could experience manufacturing interruptions, delays, or
    inefficiencies if we are unable to timely and reliably procure
    components from single-source or limited-source
    suppliers.  We maintain several single-source or
    limited-source supplier relationships, either because multiple
    sources are not available or the relationship is advantageous
    due to performance, quality, support, delivery, capacity, or
    price considerations. If the supply of a critical single- or
    limited-source material or component is delayed or curtailed, we
    may not be able to ship the related product in desired
    quantities and in a timely manner. Even where multiple 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 harm operating
    results.
    Our business is increasingly dependent on our ability to
    access the capital markets.  We will increasingly
    rely upon access to the capital markets to fund financing for
    our customers and to provide sources of liquidity in the
    U.S. for general corporate purposes, including funding DFS
    growth. If we are unable to access the capital markets, we may
    not be able to fully fund customer financing opportunities or
    planned share repurchases without repatriation of foreign cash
    balances. See Part I 
    Item 2  Managements Discussion and
    Analysis of Financial Condition and Results of
    Operations  Liquidity and Capital
    Commitments  Liquidity. Although we believe
    that we will be able to maintain sufficient access to the
    capital markets, adverse changes in the economy, deterioration
    in our business performance, or changes in our credit ratings
    could limit our access to these markets.
    We face risks relating to our ineffective internal
    controls.  As a result of our review of issues
    identified during the recently completed independent Audit
    Committee investigation into certain accounting and financial
    reporting matters, as well as our internal review, management
    has identified several deficiencies in our control environment
    that constitute material weaknesses and, consequently, has
    concluded that our internal control over financial reporting was
    not effective at February 2, 2007. In addition, management
    has concluded, based primarily on the identification of the
    material weaknesses, that our disclosure controls and procedures
    were not effective at August 4, 2006. See
    Part I  Item 4  Controls and
    Procedures. If we are unable to successfully remediate
    these material weaknesses in a timely manner, investors may lose
    confidence in our reported financial information, which could
    lead to a decline in our stock price, limit our ability to
    access the capital markets in the future, and require us to
    incur additional costs to improve our internal control systems
    and procedures.
    Litigation and governmental investigations or proceedings
    arising out of or related to our recent accounting and financial
    reporting investigation could result in substantial
    costs.  We could incur substantial costs to defend
    and resolve litigation or governmental investigations or
    proceedings arising out of or related to the recently completed
    Audit Committee investigation into certain accounting and
    financial reporting matters. See Part I 
    Item 2  Managements Discussion and
    Analysis of Financial Condition and Results of
    Operations  Audit Committee Independent Investigation
    and Restatement. In addition, we could be exposed to
    enforcement or other actions with respect to these matters by
    the 50




---



##### Table of Contents



SECs Division of Enforcement or the U.S. Department
    of Justice. For a description of pending litigation and
    governmental proceedings and investigations, see
    Part II  Item 1  Legal
    Proceedings  Investigations and Related
    Litigation.  
    The acquisition of other companies may present new
    risks.  We recently began to pursue a targeted
    acquisition strategy designed to augment areas of our business.
    These acquisitions may involve significant new risks and
    uncertainties, including distraction of management attention
    away from our current business operations, insufficient new
    revenue to offset expenses, inadequate return of capital,
    integration challenges, new regulatory requirements, and
    unidentified issues not discovered in our due diligence process.
    No assurance can be given that such acquisitions will be
    successful and will not adversely affect our profitability or
    operations.
    Failure to properly manage the distribution of our products
    and services may result in reduced revenue and
    profitability.  We use a variety of distribution
    methods to sell our products and services, including directly to
    customers and through retail partners and third-party
    value-added resellers. Our inability to properly manage and
    balance these various distribution methods could harm our
    operating results.
    Failure to effectively hedge our exposure to fluctuations in
    foreign currency exchange rates and interest rates could
    unfavorably affect our performance.  We utilize
    derivative instruments to hedge our exposure to fluctuations in
    foreign currency exchange rates and interest rates. Some of
    these instruments and contracts may involve elements of market
    and credit risk in excess of the amounts recognized in our
    financial statements. Further, revenue from our international
    operations may decrease if we do not effectively hedge our
    exposure to currency fluctuations.
    Our continued business success may depend on obtaining
    licenses to intellectual property developed by others on
    commercially reasonable and competitive terms.  If
    we or our suppliers are unable to obtain desirable technology
    licenses, we may be prevented from marketing products, could be
    forced to market products without desirable features, or could
    incur substantial costs to redesign products, defend legal
    actions, or pay damages. While our suppliers may be
    contractually obligated to indemnify us against such expenses,
    those suppliers could be unable to meet their obligations. Also,
    our operating costs could increase because of copyright levies
    or similar fees by rights holders and collection agencies in
    European and other countries. For a description of potential
    claims related to copyright levies, see
    Part II  Item 1  Legal
    Proceedings  Copyright Levies.
    Our success depends on our ability to attract, retain, and
    motivate our key employees.  We rely on key
    personnel to support anticipated continued rapid international
    growth and increasingly complex product and service offerings.
    There can be no assurance that we will be able to attract,
    retain, and motivate the key professional, technical, marketing,
    and staff resources we need, particularly in light of the
    reduction in the total number of equity shares granted to
    employees as part of their total compensation packages. New
    regulations and other factors could make it harder or more
    expensive for us to grant equity-based awards to employees in
    the future, putting us at a competitive disadvantage or forcing
    us to increase cash compensation.
    Loss of government contracts could harm our
    business.  Government contracts are subject to
    future funding that may affect the extension or termination of
    programs and are subject to the right of the government to
    terminate for convenience or non-appropriation. In addition, if
    we violate legal or regulatory requirements, the government
    could suspend or disbar us as a contractor, which would
    unfavorably affect our net revenue and profitability.
    The expiration of tax holidays or favorable tax rate
    structures could result in an increase of our effective tax rate
    in the future.  Portions of our operations are
    subject to a reduced tax rate or are free of tax under various
    tax holidays that expire in whole or in part during Fiscal 2010
    through Fiscal 2019. Many of these holidays may be extended when
    certain conditions are met. If they are not extended, then our
    effective tax rate could increase in the future.
    Current environmental laws, or laws enacted in the future,
    may harm our business.  Our operations are subject
    to environmental regulation in all of the areas in which we
    conduct business. Our product design 51




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and procurement operations must comply with new and future
    requirements relating to the materials composition of our
    electronics products, including restrictions on lead, cadmium,
    and other substances. On July 1, 2006, the European Union
    adopted the Restriction of Hazardous Substances Directive. The
    labeling provisions of similar legislation in China became
    effective on March 1, 2007. If we fail to comply with the
    rules and regulations regarding the use and sale of such
    regulated substances, we could be subject to liability.
    Beginning in August 2005, we became subject to the European
    Union Waste Electrical and Electronic Equipment Directive as
    enacted by individual member states of the European Union
    (WEEE Legislation). The WEEE Legislation makes
    producers of electrical goods, including computers and printers,
    responsible for collection, recycling, treatment, and disposal
    of recovered products. While we do not expect that the impact of
    these environmental laws and other similar legislation adopted
    in the U.S. and other countries will have a substantial
    unfavorable impact on our business, the costs and timing of
    costs under environmental laws are difficult to predict.  
    Armed hostilities, terrorism, natural disasters, or public
    health issues could harm our business.  Armed
    hostilities, terrorism, natural disasters, or public health
    issues, whether in the U.S. or abroad, could cause damage
    or disruption to us, our suppliers or customers, or could create
    political or economic instability, any of which could harm our
    business. These events could cause a decrease in demand for our
    products, could make it difficult or impossible for us to
    deliver products or for our suppliers to deliver components, and
    could create delay and inefficiencies in our supply chain.  ITEM 2.
    UNREGISTERED
    SALES OF EQUITY SECURITIES AND USE OF PROCEEDS  Issuance of
    Unregistered Securities
  Form 10-K
  
    Employee Stock Purchase Plan We maintain an
    Employee Stock Purchase Plan that is available to substantially
    all our employees worldwide. In 1994, stockholders approved
    additional shares for issuance under our Employee Stock Purchase
    Plan. We recently discovered that the issuance of these
    additional shares was never registered. Consequently, we have
    inadvertently issued approximately 54 million unregistered
    shares under this plan since 1996.
    Retirement Plans We maintain a 401(k)
    retirement savings plan that is available to substantially all
    of our U.S. employees and a separate retirement plan that
    is available to our employees in Canada. Both of those plans
    contain a Dell Stock Fund, and both plans allow
    participants to allocate some or all of their account balances
    to interests in the Dell Stock Fund. The Dell common stock held
    in the Dell Stock Funds is not purchased from Dell; rather, the
    plan trustees accumulate the plan contributions that are
    directed to the Dell Stock Funds and purchase for the Dell Stock
    Funds shares of Dell common stock in open market transactions.
    Nevertheless, because we sponsor the plans, we are required to
    register certain transactions in the plans related to shares of
    Dell common stock. We recently discovered that we may be deemed
    to have been required to file a
    Form S-8
    in July 2003 to register additional share transactions in the
    401(k) Plan, and we should have filed a
    Form S-8
    to register share transactions in the Canada retirement plan in
    1999. Consequently, we may be deemed to have inadvertently
    failed to register transactions in the two plans relating up to
    approximately 37 million shares.  Form S-8
   52




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Purchases of
    Common Stock
  Cash Payments for
    Certain Employee Stock Options
  Form 10-K
  Form 10-K
 53




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##### Table of Contents



Share Repurchase
    Program
    ApproximateTotal


Dollar ValueNumber of


of Shares thatShares


May Yet beTotal





Repurchased


RepurchasedNumber of


Average


as Part of


under theShares


Price Paid


Publicly


AnnouncedPeriod

Repurchased(a)


per
    Share


Announced
    Plans


Plan(in millions,
    except average price paid per share)Repurchases from May 6, 2006 through June 2, 2006


10


$
24.67



10


$
2,509Repurchases from June 3, 2006 through June 30, 2006


11


$
24.55



11


$
2,255Repurchases from July 1, 2006 through August 4, 2006


23


$
21.99



23


$
1,750Total


44


$
23.21



44     (a)
    
    All shares were purchased in
    open-market transactions. Dells share repurchase program
    was announced on February 20, 1996; we are currently
    authorized to purchase common stock at an aggregate cost not to
    exceed $30.0 billion.  ITEM 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS    (1)
    Proposal 1 (Election of Directors)  A proposal
    for the election of the persons who will serve as Dells
    directors until the 2007 annual meeting.(2)
    Proposal 2 (Ratification of Independent
    Auditor)  A proposal for the ratification of the
    Audit Committees selection of PricewaterhouseCoopers LLP
    as Dells independent auditor for Fiscal 2007.(3)
    Stockholder Proposal 1 (Global Human Rights
    Standard)  A proposal submitted by The New York City
    Employees Retirement System, the New York City
    Teachers Retirement System, the New York City Police
    Pension Fund, the New York City Fire Department Pension Fund,
    and the New York City Board of Education Retirement System
    (collectively, the NYC Pension Funds), which
    beneficially own shares of Dell common stock, requesting that
    Dell adopt a global human rights standard.(4)
    Stockholder Proposal 2 (Declaration of
    Dividend)  A proposal submitted by a Dell stockholder
    requesting that the Board of Directors declare a quarterly
    dividend.   54




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Proposal

For


Withheld1. Election of Directors:Donald J. Carty


1,977,211,192



55,606,604Michael S. Dell


2,002,328,720



30,489,075William H. Gray, III


1,994,772,298



38,045,498Sallie L. Krawcheck


2,012,348,074



20,469,721Alan (A.G.) Lafley


2,009,553,557



23,264,239Judy C. Lewent


2,012,368,466



20,449,329Klaus S. Luft


2,002,649,881



30,167,914Alex J. Mandl


2,012,520,185



20,297,611Michael A. Miles


1,996,360,977



36,456,818Samuel A. Nunn, Jr.


1,994,537,538



38,280,257Kevin B. Rollins


2,002,435,218



30,382,578   BrokerFor


Against


Abstain


Non-Votes2. Ratification of Independent Auditor


1,990,686,693



28,176,827



13,955,6243. Stockholder Proposal 1 (Global Human Rights
    Standard)


122,650,513



1,359,126,800



171,944,924



379,096,9074. Stockholder Proposal 2 (Declaration of Dividend)


89,982,908



1,538,826,586



24,912,203



379,097,447     ITEM 6.
    EXHIBITS  (a) Exhibits 
 55




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SIGNATURE
      Date: October 30, 2007

/s/  THOMAS
    W. SWEETThomas
    W. SweetVice President, Corporate Finance and
    Chief Accounting Officer(On behalf of the registrant and as
    principal accounting officer)  56




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INDEX TO
    EXHIBITS
  ExhibitNo.



Description of
    Exhibit3
.1



Restated Certificate of Incorporation, filed February 1,
    2006 (incorporated by reference to Exhibit 3.3 of
    Dells Current Report on Form 8-K filed on
    February 2, 2006, Commission File No. 0-17017)3
.2



Restated Bylaws, as amended and effective March 8, 2007
    (incorporated by reference to Exhibit 3.1 of Dells
    Current Report on Form 8-K filed on March 13, 2007,
    Commission File No. 0-17017)4
.1



Indenture, dated as of April 27, 1998, between Dell
    Computer Corporation and Chase Bank of Texas, National
    Association (incorporated by reference to Exhibit 99.2 of
    Dells Current Report on Form 8-K filed April 28,
    1998, Commission File No. 0-17017)4
.2



Officers Certificate pursuant to Section 301 of the
    Indenture establishing the terms of Dells
    6.55% Senior Notes Due 2008 (incorporated by reference to
    Exhibit 99.3 of Dells Current Report on Form 8-K
    filed April 28, 1998, Commission File
    No. 0-17017)4
.3



Officers Certificate pursuant to Section 301 of the
    Indenture establishing the terms of Dells
    7.10% Senior Debentures Due 2028 (incorporated by reference
    to Exhibit 99.4 of Dells Current Report on
    Form 8-K filed April 28, 1998, Commission File
    No. 0-17017)4
.4



Form of Dells 6.55% Senior Notes Due 2008
    (incorporated by reference to Exhibit 99.5 of Dells
    Current Report on Form 8-K filed April 28, 1998,
    Commission File No. 0-17017)4
.5



Form of Dells 7.10% Senior Debentures Due 2028
    (incorporated by reference to Exhibit 99.6 of Dells
    Current Report on Form 8-K filed April 28, 1998,
    Commission File No. 0-17017)10
.1*



Form of Restricted Stock Agreement for Non-Employee Directors
    under the 2002 Long-Term Incentive Plan (incorporated by
    reference to Exhibit 99.1 of Dells Current Report on
    Form 8-K filed July 27, 2006, Commission File
    No. 0-17017)10
.2*



Form of Restricted Stock Unit Agreement for Non-Employee
    Directors under the 2002-Long Term Incentive Plan (incorporated
    by reference to Exhibit 99.2 of Dells Current Report
    on Form 8-K filed July 27, 2006, Commission File
    No. 0-17017)10
.3*



Form of Nonstatutory Stock Option Agreement for Non-Employee
    Directors under the 2002 Long-Term Incentive Plan (incorporated
    by reference to Exhibit 99.3 of Dells Current Report
    on Form 8-K filed July 27, 2006, Commission File
    No. 0-17017)31
.1



Certification of Michael S. Dell, Chairman and Chief Executive
    Officer, pursuant to Rule 13a-14(a) under the Securities
    Exchange Act of 1934, as adopted pursuant to Section 302 of the
    Sarbanes-Oxley Act of 200231
.2



Certification of Donald J. Carty, Vice Chairman and Chief
    Financial Officer, pursuant to Rule 13a-14(a) under the
    Securities Exchange Act of 1934, as adopted pursuant to
    Section 302 of the Sarbanes-Oxley Act of 200232
.1



Certifications of Michael S. Dell, Chairman and Chief Executive
    Officer, and Donald J. Carty, Vice Chairman and Chief Financial
    Officer, pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002     *
    
    Identifies an Exhibit that consists of or includes a management
    contract or compensatory plan or arrangement.
    
    Filed herewith.
    
    Furnished herewith. 57