##### Table of Contents



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

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
    THE
    SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended
    May 5, 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 May 5, 2006 (unaudited and restated) and
    February 3, 2006 (restated)


1Condensed Consolidated Statements of Income for
    the three-month period ended May 5, 2006 (unaudited and
    restated) and April 29, 2005 (unaudited and restated)


2Condensed Consolidated Statements of Cash Flows
    for the three-month period ended May 5, 2006 (unaudited and
    restated) and April 29, 2005 (unaudited and restated)


3Notes to Condensed Consolidated Financial
    Statements (unaudited and restated)


4Item 2.


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


31Item 3.


Quantitative and Qualitative Disclosures About
    Market Risk


43Item 4.


Controls and Procedures


43Part II  OTHER
    INFORMATIONItem 1.


Legal Proceedings


47Item 1A.


Risk Factors


49Item 2.


Unregistered Sales of Equity Securities and
    Use of Proceeds


53Item 6.


Exhibits


54Certification 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)
  May 5,


February 3,2006


2006As


AsRestated


Restated(unaudited)ASSETSCurrent assets:Cash and cash equivalents

$
6,889


$
7,054Short-term investments


1,579



2,016Accounts receivable, net


4,332



4,082Financing receivables, net


1,455



1,366Inventories


651



588Other


2,633



2,688Total current assets


17,539



17,794Property, plant, and equipment, net


2,072



1,993Investments


2,690



2,686Long-term financing receivables, net


255



325Other non-current assets


508



454Total assets

$
23,064


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

$
57


$
65Accounts payable


10,109



9,868Accrued and other


6,500



6,240Total current liabilities


16,666



16,173Long-term debt


595



625Other non-current liabilities


2,519



2,407Total liabilities


19,780



19,205Commitments and contingencies (Note 9)Redeemable common stock and capital in excess of $.01 par
    value; 1 share issued and outstanding (Note 12)


39



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: 2,825 and 2,818,
    respectively; shares outstanding: 2,279 and 2,330, respectively


9,694



9,503Treasury stock at cost: 546 and 488 shares, respectively


(19,698
)


(18,007
)Retained earnings


13,475



12,699Accumulated other comprehensive loss


(226
)


(101
)Other






(47
)Total stockholders equity


3,245



4,047Total liabilities and equity

$
23,064


$
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
    EndedMay 5,


April 29,2006


2005As


AsRestated


RestatedNet revenue

$
14,320


$
13,300Cost of net
    revenue(1)


11,812



10,848Gross margin


2,508



2,452Operating expenses:Selling, general, and
    administrative(1)


1,414



1,206Research, development, and
    engineering(1)


129



109Total operating expenses


1,543



1,315Operating income


965



1,137Investment and other income, net


54



51Income before income taxes


1,019



1,188Income tax provision


243



280Net income

$
776


$
908Earnings per common share:Basic

$
0.34


$
0.37Diluted

$
0.33


$
0.36Weighted-average shares outstanding:Basic


2,297



2,456Diluted


2,318



2,515     (1)
    
    Cost of revenue and operating
    expenses for the
    threemonth
    period ended May 5, 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)
  Three Months
    EndedMay 5,


April 29,2006


2005As


AsRestated


RestatedCash flows from operating activities:Net income

$
776


$
908Adjustments to reconcile net income to net cash provided by
    operating activities:Depreciation and amortization


106



90Stock-based compensation


113



4Excess tax benefits from stock-based compensation


(32
)


Tax benefits from employee stock plans






32Effects of exchange rate changes on monetary assets and
    liabilities denominated in foreign currencies


14



(8
)Other


25



16Changes in:Operating working capital


(36
)


130Non-current assets and liabilities


58



102Net cash provided by operating activities


1,024



1,274Cash flows from investing activities:Investments:Purchases


(3,070
)


(124
)Maturities and sales


3,548



2,249Capital expenditures


(187
)


(143
)Net cash provided by investing activities


291



1,982Cash flows from financing activities:Repurchase of common stock


(1,691
)


(2,000
)Issuance of common stock under benefit plans


138



169Excess tax benefits from stock-based compensation


32



Other


(13
)


(14
)Net cash used in financing activities


(1,534
)


(1,845
)Effect of exchange rate changes on cash and cash equivalents


54



(12
)Net (decrease) increase in cash and cash equivalents


(165
)


1,399Cash and cash equivalents at beginning of period


7,054



4,479Cash and cash equivalents at end of period

$
6,889


$
5,878    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
      Stock-Based Compensation Share-Based Payment Accounting for Stock-Based
    Compensation
  Accounting for Stock
    Issued to Employees
  Recently Issued Accounting Pronouncements Accounting for Certain Hybrid Instruments Accounting for Derivative Instruments
    and Hedging Activities
 4




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##### Table of Contents



DELL INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (unaudited)
  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
  Form 10-K
 7




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##### Table of Contents



DELL INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (unaudited)
    Three Month
    Period Ended May 5, 2006AdjustmentsRevenue





Other


Provisionrecognition





reserves


forAs


Software





Warranty


and


income


AsReported


sales


Other


liabilities


accruals


tax(a)


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

$
14,216


$
(27
)

$
131


$



$



$



$
14,320Cost of net revenue


11,744



(25
)


134



(35
)


(6
)






11,812Gross margin


2,472



(2
)


(3
)


35



6







2,508Operating expenses:Selling, general, and administrative


1,394







4







16







1,414Research, development, and engineering


129























129Total operating expenses


1,523







4







16







1,543Operating income


949



(2
)


(7
)


35



(10
)






965Investment and other income, net


50







(1
)


(2
)


7







54Income before income taxes


999



(2
)


(8
)


33



(3
)






1,019Income tax provision


237



















6



243Net income

$
762






















$
776Earnings per common share:Basic

$
0.33






















$
0.34Diluted

$
0.33






















$
0.33Weighted-average shares outstanding:Basic


2,297























2,297Diluted


2,318























2,318     (a)
    
    Primarily represents the aggregate
    tax impact of the adjustments. 8




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DELL INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (unaudited)
    Three Month
    Period Ended April 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

$
13,386


$
(54
)

$
(32
)

$



$



$



$
13,300Cost of net revenue


10,895



(51
)


(14
)


14



4







10,848Gross margin


2,491



(3
)


(18
)


(14
)


(4
)






2,452Operating expenses:Selling, general, and administrative


1,207







2







(3
)






1,206Research, development, and engineering


110











(1
)










109Total operating expenses


1,317







2



(1
)


(3
)






1,315Operating income


1,174



(3
)


(20
)


(13
)


(1
)






1,137Investment and other income, net


59











(1
)


(7
)






51Income before income taxes


1,233



(3
)


(20
)


(14
)


(8
)






1,188Income tax provision


299



















(19
)


280Net income

$
934






















$
908Earnings per common share:Basic

$
0.38






















$
0.37Diluted

$
0.37






















$
0.36Weighted-average shares outstanding:Basic


2,456























2,456Diluted


2,515























2,515     (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 10




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##### Table of Contents



DELL INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (unaudited)
  indicated that the systems integrator had engaged in fictitious
    transactions. Dell promptly commenced an internal 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. 11




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##### Table of Contents



DELL INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (unaudited)
  However, these excess reserves were not released to the income
    statement in the appropriate reporting period or were released
    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.    May 5,
    2006As





AsReported


Adjustments


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

$
6,877


$
12


$
6,889Short-term investments


1,579







1,579Accounts receivable, net


4,332







4,332Financing receivables, net


1,451



4



1,455Inventories


636



15



651Other


2,522



111



2,633Total current assets


17,397



142



17,539Property, plant, and equipment, net


2,074



(2
)


2,072Investments


2,690







2,690Long-term financing receivables, net


256



(1
)


255Other non-current assets


454



54



508Total assets

$
22,871


$
193


$
23,064LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Short-term borrowings

$



$
57


$
57Accounts payable


10,069



40



10,109Accrued and other


6,251



249



6,500Total current liabilities


16,320



346



16,666Long-term debt


503



92



595Other non-current liabilities


2,674



(155
)


2,519Total liabilities


19,497



283



19,780Redeemable common stock and capital in excess of par value






39



39Stockholders equity:Common stock and capital in excess


9,793



(99
)


9,694Treasury stock


(19,698
)






(19,698
)Retained earnings


13,508



(33
)


13,475Accumulated other comprehensive loss


(229
)


3



(226
)Total stockholders equity


3,374



(129
)


3,245Total liabilities and stockholders equity

$
22,871


$
193


$
23,064  12




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##### Table of Contents



DELL INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (unaudited)
    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  13




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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
    Three Months
    EndedMay 5,
    2006


April 29,
    2005As


As


As


AsReported


Restated


Reported


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

$
762


$
776


$
934


$
908Non-cash adjustments


205



226



61



134Changes in working capital


(113
)


(36
)


103



130Changes in noncurrent assets and liabilities


168



58



92



102Operating activities


1,022



1,024



1,190



1,274Investing activities


277



291



1,714



1,982Financing activities


(1,533
)


(1,534
)


(1,839
)


(1,845
)Effect of exchange rate changes on cash and cash
    equivalents(a)


69



54



62



(12
)Net (decrease) increase in cash and cash equivalents


(165
)


(165
)


1,127



1,399Cash and cash equivalents at beginning of period


7,042



7,054



4,747



4,479Cash and cash equivalents at end of period

$
6,877


$
6,889


$
5,874


$
5,878     (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. 14




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##### Table of Contents



DELL INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (unaudited)
   NOTE 3 
    Inventories  May 5,


February 3,2006


2006As


AsRestated


Restated(in
    millions)Inventories:Production materials

$
384


$
325Work-in-process


53



43Finished goods


214



220Inventories

$
651


$
588   NOTE 4 
    Earnings Per
    Common Share      Three Months
    EndedMay 5,


April 29,2006


2005As


AsRestated


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

$
776


$
908Denominator:Weighted-average shares outstanding:Basic


2,297



2,456Effect of dilutive options, restricted stock units, restricted
    stock, and other


21



59Diluted


2,318



2,515Earnings per common share:Basic

$
0.34


$
0.37Diluted

$
0.33


$
0.36   NOTE 5 
    Comprehensive
    Income   15




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##### Table of Contents



DELL INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (unaudited)
      Three Months
    EndedMay 5,


April 29,2006


2005As


AsRestated


Restated(in
    millions)Comprehensive income:Net income

$
776


$
908Unrealized gains (losses) on foreign currency hedging
    instruments, net


(108
)


7Unrealized losses on marketable securities, net


(15
)


(12
)Valuation of retained interests in securitized assets


2



Foreign currency translation adjustments


(4
)


2Comprehensive income

$
651


$
905   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)     16




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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
  Form 10-K
 17




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##### Table of Contents



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


3



29.16Exercised


(6
)


16.84Forfeited


(1
)


25.76Cancelled/expired


(3
)


38.26Options outstanding  May 5, 2006


336


$
32.00Vested and expected to vest (net of estimated
    forfeitures)  May 5, 2006(a)


295


$
32.90



5.8


$
340Exercisable  May 5, 2006(a)


276


$
32.90



5.8


$
319     (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
    May 5, 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
    May 5, 2006. The intrinsic value changes based on changes
    in the fair market value of Dells common stock.    Three Months
    EndedMay 5,
    2006(in millions,except per option
    data)Weighted-average grant date fair value of stock options granted
    per option

$
7.62Total intrinsic value of options
    exercised(a)

$
53     (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-month period ended May 5, 2006.   18




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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 Date
    FairShares


Value(in
    millions)Non-vested restricted stock  February 3, 2006


2


$
34.66Granted


17


$
29.26Vested






Forfeited






Non-vested restricted stock  May 5, 2006


19


$
29.77     Expense
    Information under SFAS 123(R)
    Three Months
    EndedMay 5,
    2006As
    Restated(in
    millions)Stock-based compensation expense:Cost of net revenue

$
18Operating expenses


95Stock-based compensation expense before taxes


113Income tax benefit


(34
)Stock-based compensation expense

$
79    19




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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
      Three Months
    EndedApril 29,
    2005AsRestated(In millions,except per share
    data)Net income

$
908Deduct: Total stock-based employee compensation determined under
    fair value method for all awards, net of related tax effects


(213
)Net income  pro forma

$
695Earnings per common share:Basic  as restated

$
0.37Basic  pro forma

$
0.28Diluted  as restated

$
0.36Diluted  pro forma

$
0.28     Valuation
    Information
   20




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##### Table of Contents



DELL INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (unaudited)
      Three Months
    EndedMay 5,


April 29,2006


2005Expected term:Stock options


3.8 years



3.8 yearsEmployee stock purchase plan


3 months



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


4.8
%


4.0
%Volatility


25
%


23
%Dividends


0
%


0
%   NOTE 7 
    Financial
    Services  Joint Venture
    Agreement
           21




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##### Table of Contents



DELL INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (unaudited)
  Financing
    Receivables
    May 5,


February 3,2006


2006As


AsRestated


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

$
826


$
1,025Leases and loans, net


504



302Customer receivables, net


1,330



1,327Residual interests


284



274Retained interest


96



90Financing receivables, net

$
1,710


$
1,691Short-term

$
1,455


$
1,366Long-term


255



325Financing receivables, net

$
1,710


$
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.-
    Leases with business customers generally have fixed-terms of two
    to three years. Future maturities of minimum lease payments at
    May 5, 2006 are as follows: 2007: $50 million; 2008:
    $28 million; 2009: $11 million; and 2010:
    $1 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 22




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##### Table of Contents



DELL INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (unaudited)
  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
       23




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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 MonthsEndedMay 5,


April 29,2006


2005As


AsRestated


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

$
3,707


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


759



620Revenue
    recognized(a)


(559
)


(427
)Deferred revenue at end of period

$
3,907


$
3,097Current portion

$
1,988


$
1,570Non-current portion


1,919



1,527Deferred revenue at end of period

$
3,907


$
3,097   Three MonthsEndedMay 5,


April 29,2006


2005As


AsRestated


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

$
951


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


245



213Service obligations
    honored(a)


(287
)


(227
)Warranty liability at end of period

$
909


$
708Current portion

$
634


$
480Non-current portion


275



228Warranty liability at end of period

$
909


$
708     (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. 24




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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.  Dell and several of its current and former directors and
    officers are parties to securities, Employee Retirement Income
    Security Act of 1974 (ERISA), and shareholder
    derivative lawsuits all arising out of the same events and
    facts. Four putative securities class actions that were filed in
    the Western District of Texas, Austin Division, against Dell and
    certain of its current and former officers have been
    consolidated as In re Dell Inc. Securities Litigation,
    and a lead plaintiff has been appointed by the court. The lead
    plaintiff has asserted claims under sections 10(b), 20(a),
    and 20A of the Securities Exchange Act of 1934 based on alleged
    false and misleading disclosures or omissions regarding
    Dells financial statements, governmental investigations,
    known battery problems, business model, and insiders sales
    of its securities. This action also includes Dells
    independent registered public accounting firm,
    PricewaterhouseCoopers LLP, as a defendant. Four other putative
    class actions that were also filed in the Western District by
    purported participants in the Dell Inc. 401(k) Plan have been
    consolidated as In re Dell Inc. ERISA Litigation, and
    lead plaintiffs have been appointed by the court. The lead
    plaintiffs have asserted claims under ERISA based on allegations
    that Dell, certain current officers, and certain current and
    former directors imprudently invested and managed
    participants funds and failed to disclose information
    regarding its stock held in the 401(k) Plan. In addition, seven
    shareholder derivative lawsuits that were filed in three
    separate jurisdictions (the Western District of Texas, Austin
    Division; the Delaware 25




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##### Table of Contents



DELL INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (unaudited)
  Chancery Court; and the state district court in Travis County,
    Texas) have been consolidated into three actions, one in each of
    the respective jurisdictions, as In re Dell Inc. Derivative
    Litigation, and name various current and former officers and
    directors as defendants and Dell as a nominal defendant. On
    October 8, 2007, the shareholder derivative lawsuit filed
    in the Western District of Texas was dismissed without prejudice
    by the court. The Travis County, Texas action has been
    transferred to the state district court in Williamson County,
    Texas. The shareholder derivative lawsuits assert claims
    derivatively on behalf of Dell under state law, including
    breaches of fiduciary duties. Finally, one purported shareholder
    has filed an action against Dell in Delaware Chancery Court
    under Section 220 of the Delaware General Corporation Law,
    Baltimore County Employees Retirement System v.
    Dell Inc., seeking inspection of certain of Dells
    books and records related to the internal investigation and
    government investigations. Dell intends to defend all of these
    lawsuits vigorously.  
    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.  There are currently three levy cases involving other equipment
    manufacturers pending before the German Federal Supreme Court.
    Adverse decisions in these cases could ultimately impact Dell.
    The cases involve personal computers, printers, and
    multifunctional devices. The equipment manufacturers in these
    cases recently lost in the lower courts and have appealed. The
    amount allowed by the lower courts with respect to PCs is
    12 per personal computer sold for reprographic copying
    capabilities. The amounts claimed with respect to printers and
    multifunctional devices depend on speed and color and vary
    between 10 and 300 for printers and between 38
    and 600 for multifunctional devices. On December 29,
    2005, Zentralstelle Für private Überspielungrechte
    (ZPÜ), a joint association of various German
    collection societies, instituted arbitration proceedings against
    Dells German subsidiary before the Arbitration Body in
    Munich. ZPÜ claims a levy of 18.4 per PC that Dell
    sold in Germany from January 1, 2002 through
    December 31, 2005. On July 31, 2007, the Arbitration
    Body recommended a levy of 15 on each PC sold during that
    period, for audio and visual copying capabilities. Dell and
    ZPÜ rejected the recommendation and Dell expects that the
    matter will proceed to court. Dell will continue to defend this
    claim vigorously.  
    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 26




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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  Form 10-Q Form 10-Q
 27




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##### Table of Contents



DELL INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (unaudited)
    Three Months
    EndedMay 5,


April 29,2006


2005As


AsRestated


Restated(in
    millions)Net revenue:Americas:Business

$
7,110


$
6,572U.S. Consumer


1,911



1,935Americas


9,021



8,507EMEA


3,402



3,154APJ


1,897



1,639Net revenue

$
14,320


$
13,300Consolidated operating income:Americas:Business

$
673


$
635U.S. Consumer


53



138Americas


726



773EMEA


197



236APJ


155



128Consolidated segment operating income


1,078



1,137Stock-based compensation
    expense(a)


(113
)


Consolidated operating income

$
965


$
1,137     (a)
    
    Stock compensation of
    $4 million for the three-month period ended April 29,
    2005 is included in the total consolidated segment operating
    income.  NOTE 11 
    Debt  DFS Credit
    Facilities
   28




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##### Table of Contents



DELL INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (unaudited)
    Long-Term Debt
    and Interest Rate Risk Management
          NOTE 12 
    Redeemable Common
    Stock   29




---



##### Table of Contents



DELL INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (unaudited)
  NOTE 13 
    Subsequent
    Events           30




---



##### 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
 31




---



##### Table of Contents



Summary of
    Investigation Findings
      Other Company
    Identified Adjustments
    Restatement
 32




---



##### Table of Contents



Overview
  Our
    Company
      tm tm
    Current Business
    Environment
    First Quarter
    Performance
  Share position



We shipped almost 10 million units, resulting in a
    worldwide PC share position of 18.0%.Revenue



Revenue increased 8% year-over-year to $14.3 billion, with
    unit shipments up 13% year-over-year.Operating income



Operating income was
    $965(a) million
    for the quarter, or 6.7% of revenue, as compared to
    $1.1 billion or 8.6% of revenue for first quarter Fiscal
    2006. 33




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##### Table of Contents



Earnings per share



Earnings per share decreased 7% to
    $0.33(a)
    for the quarter compared to $0.36 for the first quarter of
    Fiscal 2006.Share repurchases



We spent $1.7 billion to repurchase almost 58 million
    shares in the first quarter of Fiscal 2007.     (a)
    
    Operating income and earnings per
    share for the three-month period ended May 5, 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.  Results of
    Operations
    Three Months
    EndedMay 5,
    2006


April 29,
    2005% of





% ofDollars


Revenue


Dollars


RevenueAs


As


As


AsRestated


Restated


Restated


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

$
14,320



100.0
%

$
13,300



100.0
%Gross margin

$
2,508



17.5
%

$
2,452



18.4
%Operating expenses

$
1,543



10.8
%

$
1,315



9.8
%Operating income

$
965



6.7
%

$
1,137



8.6
%Net income

$
776



5.4
%

$
908



6.8
%Earnings per share diluted

$
0.33



N/A


$
0.36



N/A   Consolidated
    Revenue
    Revenues by
    Segment
   34




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##### Table of Contents



Three Months
    EndedMay 5,
    2006


April 29,
    2005% of





% ofDollars


Revenue


Dollars


RevenueAs


As


As


AsRestated


Restated


Restated


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

$
7,110



49.7
%

$
6,572



49.4
%U.S. Consumer


1,911



13.3
%


1,935



14.6
%Americas


9,021



63.0
%


8,507



64.0
%EMEA


3,402



23.8
%


3,154



23.7
%APJ


1,897



13.2
%


1,639



12.3
%Net revenue

$
14,320



100.0
%

$
13,300



100.0
%   
    Americas  Americas revenues
    increased 6% on unit growth of 7% for the first quarter of
    Fiscal 2007. For the quarter, we experienced strong performance
    in corporate accounts, including large and medium businesses.
    Americas International produced strong revenue growth of 26%
    year-over-year for the first quarter of Fiscal 2007. Our
    U.S. consumer revenue declined slightly for the first
    quarter of Fiscal 2007 due to a decline in desktop sales and
    overall competitive price pressure. This decline was offset by
    our growth in mobility. As notebooks become more affordable, we
    continue to see a positive shift to mobility products.  -
    Business  Our Business segment
    performed well, with unit growth of 29% for mobility. Desktop
    revenue declined 2% in the quarter compared to the same period a
    year ago on relatively flat unit sales, while we experienced
    double digit year-over-year growth in enhanced services,
    storage, and software revenues. Canada, Brazil, and Mexico led
    the Americas International revenue growth for the first quarter
    of Fiscal 2007.-
    U.S. Consumer  Our
    U.S. Consumer revenue declined slightly for the first
    quarter of Fiscal 2007 due to a decline in desktop sales and
    overall competitive price pressure. The positive shift to
    mobility products resulted in a 41% increase in mobility units
    compared to the same period a year ago.  
    EMEA  EMEA revenue grew 8% on unit
    growth of 18% for the first quarter of Fiscal 2007.
    Year-over-year revenue growth was led by Germany and France, but
    was 2% in the United Kingdom. Poland, the Czech Republic, and
    South Africa produced significant year-over-year growth at rates
    well above the overall region for the first quarter of Fiscal
    2007. Revenue growth was driven primarily by increases in
    mobility products and enhanced services sales.
    APJ  APJ revenue grew 16% on unit
    growth of 30% for the first quarter of Fiscal 2007. China had
    revenue growth of 29% on unit shipment growth of 40%
    year-over-year, led by strong performance in corporate accounts.
    South Korea, Thailand, and India produced significant
    year-over-year growth at rates well above the overall region for
    the first quarter of Fiscal 2007. All product categories in APJ
    experienced growth for the three-month period ended May 5,
    2006, with desktops, enhanced services, and software and
    peripherals revenues posting strong gains.  Revenue by
    Product and Services Categories
   35




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##### Table of Contents



Three Months
    EndedMay 5,
    2006


April 29,
    2005% of





% ofDollars


Revenue


Dollars


RevenueAs


As


As


AsRestated


Restated


Restated


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

$
5,291



37
%

$
5,402



41
%Mobility


3,781



26
%


3,309



25
%Software & peripherals


2,182



15
%


1,946



14
%Servers & networking


1,351



10
%


1,290



10
%Enhanced services


1,225



9
%


921



7
%Storage


490



3
%


432



3
%Net revenue

$
14,320



100
%

$
13,300



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 2% on unit
    growth of 4% year-over-year for the first quarter of Fiscal
    2007. This decline was offset with an 11% revenue growth in APJ
    contributing to a share increase in that region. 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 improved 14% on unit growth of 36%
    year-over-year for the first quarter of Fiscal 2007. Mobility
    growth was led by EMEA with an 18% increase in revenue year-over
    year for the first quarter of Fiscal 2007. As notebooks become
    more affordable and wireless products become standardized,
    demand for our mobility products continues to grow rapidly.
    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 grew 12% year-over-year for the first
    quarter of Fiscal 2007. We experienced significant growth in
    digital displays, as well as imaging and printing products.
    Strong laser printer demand in the U.S. contributed to a
    14% increase in year-over-year revenue for printers and our
    total laser unit mix is now 20%, up from 15% a year ago. More
    than half of our Dell-branded imaging revenue came from the sale
    of consumables.
    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 33%
    year-over-year for the first quarter of Fiscal 2007 to
    $1.2 billion. We are expanding our service offerings and
    capabilities 36




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##### Table of Contents



globally, resulting in 61% year-over-year growth in APJ and 30%
    in EMEA. 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, grew 5% on unit growth of 8% year-over-year
    for the first quarter of Fiscal 2007. EMEA drove this growth
    with a 9% increase in servers and networking revenue. The
    Americas and APJ experienced strong revenue growth as well.
    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 13% for the first quarter of Fiscal
    2007. The Americas and APJ drove the revenue growth in storage
    with 15% and 21% increases, respectively, for the first quarter
    of Fiscal 2007. During the quarter, we launched the PowerVault
    MD 1000 incorporating 3.5-inch serial attached SCSI drives and
    we celebrated the fifth year of our EMC alliance with the launch
    of new 4-gigabit Dell | EMC CX midrange storage
    systems.  Gross
    Margin
    Three Months
    EndedMay 5,
    2006


April 29,
    2005% of





% ofDollars


Revenue


Dollars


RevenueAs


As


As


AsRestated


Restated


Restated


Restated(in millions,
    except percentages)Net revenue

$
14,320



100.0
%

$
13,300



100.0
%Gross margin

$
2,508



17.5
%

$
2,452



18.4
%      37




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##### Table of Contents



Operating
    Expenses
    Three Months
    EndedMay 5,
    2006


April 29,
    2005% of





% ofDollars


Revenue


Dollars


RevenueAs


As


As


AsRestated


Restated


Restated


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

$
1,414



9.9
%

$
1,206



9.0
%Research, development, and engineering


129



0.9
%


109



0.8
%Operating expenses

$
1,543



10.8
%

$
1,315



9.8
%   
    Selling, general, and
    administrative  During the first quarter
    of Fiscal 2007, selling, general, and administrative expenses
    increased 17% to $1.4 billion compared to $1.2 billion
    in the same period of Fiscal 2006. Stock-based compensation
    expense of $83 million, which was a result of the adoption
    of SFAS 123(R) in the first quarter of Fiscal 2007, and
    costs primarily related to headcount growth drove the increase
    in the first quarter of Fiscal 2007.
    Research, development, and engineering 
    During the first quarter of Fiscal 2007, research, development,
    and engineering expenses increased 18% to $129 million
    compared to $109 million in the same period of Fiscal 2006.
    Stock-based compensation expense of $12 million for the
    first quarter of Fiscal 2007, contributed to the year-over-year
    increase. 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 1,623 patents worldwide and have applied for 1,590
    additional patents worldwide at May 5, 2006.  Stock-based
    Compensation
    Share-Based Payment Accounting for Stock
    Issued to Employees
   38




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##### Table of Contents



Form 10-K
  Form 10-K
  Investment and
    Other Income, net
    Income
    Taxes
      Off-Balance Sheet
    Arrangements
  Asset Securitization
 39




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##### Table of Contents



Accounting for Transfers and Servicing of
    Financial Assets and Extinguishment of Liabilities
    (SFAS 140).
        Liquidity and
    Capital Commitments
  Liquidity
     40




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##### Table of Contents



Three Months
    EndedMay 5,


April 29,2006


2005As


AsRestated


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

$
1,024


$
1,274Investing activities


291



1,982Financing activities


(1,534
)


(1,845
)Effect of exchange rate changes on cash and cash equivalents


54



(12
)Net (decrease) increase in cash and cash equivalents

$
(165
)

$
1,399   Operating Activities
  May 5,


February 3,2006


2006As


AsRestated


RestatedDays of sales
    outstanding(a)


30



29Days of supply in inventory


5



5Days in accounts payable


(77
)


(77
)Cash conversion cycle


(42
)


(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 May 5, 2006 and February 3, 2006, DSO and
    days of customer shipments not yet recognized were 27 and
    3 days and 26 and 3 days, respectively.      Investing Activities
 41




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##### Table of Contents



Financing Activities
    Capital
    Commitments
  Redeemable Common Stock and Other Rescissionary
    Rights
  Share Repurchase Program
    Capital Expenditures
 42




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##### Table of Contents



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
   43




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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.  The control environment, which is the responsibility of senior
    management, sets the tone of the organization, influences the
    control consciousness of its people, and is the foundation for
    all other components of internal control over financial
    reporting. The control environment material weaknesses described
    above contributed to the material weaknesses related to our
    period-end financial reporting process described below.  
    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.     44




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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 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. 45




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##### Table of Contents




    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.      Evaluation of
    Disclosure Controls and Procedures
  Rules 13a-15(e) 15d-15(e)
 46




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##### Table of Contents



Changes in
    Internal Control Over Financial Reporting
      PART II 
    OTHER INFORMATION
  ITEM 1.
    LEGAL
    PROCEEDINGS  Accounting for Contingencies
  Investigations
    and Related
    Litigation 
    In August 2005, the U.S. Securities and Exchange Commission
    (SEC) initiated an inquiry into certain of our
    accounting and financial reporting matters and requested that we
    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 our financial reporting from and after
    2002. In August 2006, because of potential issues identified in
    the course of responding to the SECs requests
 47




---



##### Table of Contents



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
   48




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##### Table of Contents



Lucent v. Dell KSR v. Teleflex
  Sales Tax Claims
    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 49




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##### Table of Contents



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 44% of
    our consolidated net revenue for the first quarter 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 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. 50




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##### Table of Contents




    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 May 5, 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 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 51




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##### Table of Contents



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 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 52




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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
   53




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Purchases of
    Common Stock
  Cash Payments for
    Certain Employee Stock Options
  Form 10-K
  Form 10-K
  Share Repurchase
    Program
    Total


ApproximateNumber of


Dollar ValueShares


of Shares thatRepurchased


May Yet beas Part of


RepurchasedTotal Number


Average


Publicly


under theof Shares


Price Paid


Announced


AnnouncedPeriod

Repurchased(a)


per
    Share


Plans


Plans(in millions,
    except average price paid per share)Repurchases from February 4, 2006 through March 3, 2006


26


$
29.94



26


$
3,681Repurchases from March 4, 2006 through March 31, 2006


21


$
29.39



21


$
3,055Repurchases from April 1, 2006 through May 5, 2006


11


$
27.77



11


$
2,750Total


58


$
29.32



58     (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 6.
    EXHIBITS  (a) Exhibits 
 54




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##### Table of Contents



SIGNATURE
    DELL INC./s/  THOMAS
    W. SWEETDate: October 30, 2007Thomas W. SweetVice President, Corporate Finance and
    Chief Accounting Officer(On behalf of the registrant and as
    principal accounting officer)  55




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##### Table of Contents



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 Nonstatutory Stock Option Agreement for employees under
    the 2002 Long-Term Incentive Plan (incorporated by reference to
    Exhibit 99.1 of Dells Current Report on
    Form 8-K
    filed March 14, 2006, Commission File
    No. 0-17017)10
.2*



Form of Performance Based Stock Unit Agreement for employees
    under the 2002 Long-Term Incentive Plan (incorporated by
    reference to Exhibit 99.2 of Dells Current Report on
    Form 8-K
    filed March 14, 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. 56