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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

Commission File Number: 0-17017

Dell Inc.

(Exact name of registrant as specified in its charter)

One Dell Way, Round Rock, Texas 78682

(Address of principal executive offices) (Zip Code)

(512) 338-4400

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities Registered Pursuant to Section 12(g) of the Act:

Common Stock, par value $.01 per share

Preferred Stock Purchase Rights

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes x     No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).     Yes x     No o

DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III of this report, to the extent not set forth herein, is incorporated by reference from the registrant’s definitive proxy statement relating to the annual meeting of stockholders to be held in July 2005, which definitive proxy statement will be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this report relates.

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This report contains forward-looking statements that are based on Dell’s 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 factors affecting Dell’s business and prospects, see “Item 1 — Business — Factors Affecting Dell’s Business and Prospects.”

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 upon information provided by IDC Worldwide PC, Printer, and MFP Trackers, March 2005. Share data is for the full calendar year and all Dell growth rates are on a fiscal year-over-year basis.

PART I

General

Dell Inc., with fiscal 2005 net revenue of $49.2 billion, is a premier provider of products and services worldwide that enable customers to build their information-technology and Internet infrastructures. Dell offers a broad range of enterprise systems (servers, storage, workstations, and networking products), client systems (notebook and desktop computer systems), printing and imaging systems, software and peripherals, and global services. During calendar 2004, Dell was the number one supplier of personal computer systems worldwide as well as in the United States. Dell’s global market leadership is the result of a persistent focus on delivering the best possible customer experience by selling products and services directly to customers.

Dell, a Delaware corporation, was founded in 1984 by Michael Dell on a simple concept: by selling computer systems directly to customers, Dell could best understand their needs and efficiently provide the most effective computing solutions to meet those needs. Dell is based in Round Rock, Texas, and conducts operations worldwide through its subsidiaries. Unless otherwise specified, references to Dell include its consolidated subsidiaries. Dell operates principally in one industry and is managed in three geographic segments: the Americas, Europe, and Asia Pacific-Japan regions. See “Item 1 — Business — Geographic Areas of Operations.”

Business Strategy

Dell’s business strategy combines its direct customer model with a highly efficient manufacturing and supply chain management organization and an emphasis on standards-based technologies. This strategy enables Dell to provide customers with superior value; high-quality, relevant technology; customized systems; superior service and support; and products and services that are easy to buy and use. The key tenets of Dell’s business strategy are:

Product Development

Dell is focused on developing standards-based technologies that incorporate highly desirable features and capabilities at competitive prices. Management believes that Dell employs a unique and inherently better collaborative approach to product design and development. With direct customer input, Dell’s engineers work with a global network of technology companies to architect new system designs, influence the direction of future development, and integrate new technologies into Dell’s products. This collaborative approach enables Dell to quickly and efficiently deliver new products and services to the market. During fiscal 2005, Dell’s research, development, and engineering expenses were $463 million, compared with $464 million for fiscal 2004 and $455 million for fiscal 2003.

Products

Dell designs, develops, manufactures, markets, sells, and supports a wide range of products that are customized to customer requirements. These include enterprise systems, client systems, printing and imaging systems, software and peripherals.

Services

By applying the direct business model to its global services business, Dell seeks to simplify customers’ computing experience by offering a full range of flexible, tailored solutions. Dell offers a portfolio of services that help customers maximize the value of their information technology investments, rapidly deploy systems, and educate IT professionals and consumers.

Financial Services

Dell offers various financing alternatives, asset management services, and other customer financial services for its business and consumer customers in the U.S. through Dell Financial Services L.P. (“DFS”), a joint venture between Dell and CIT Group, Inc. (“CIT”). For additional information about Dell’s financing arrangements, see “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Off-Balance Sheet Arrangements” and Note 6 of Notes to Consolidated Financial Statements included in “Item 8 — Financial Statements and Supplementary Data.” Also see “Item 1 — Business — Factors Affecting Dell’s Business and Prospects” for information about the risks associated with DFS.

Sales and Marketing

Dell sells its products and services directly to its customers through dedicated sales representatives, telephone-based sales, and online sales through www.dell.com. Dell’s customers include large corporate, government, healthcare, and education accounts, as well as small-to-medium businesses and individual customers. Within each of Dell’s geographic regions, Dell has divided its sales and marketing resources among these various customer groups. No single customer accounted for more than 10% of Dell’s consolidated net revenue during any of the last three fiscal years. See “Item 1 — Business — Factors Affecting Dell’s Business and Prospects” for information about the risk associated with government contracts.

Dell’s sales and marketing efforts are organized around the needs, trends, and characteristics of Dell’s customers. Dell’s direct business model provides direct and continuous feedback from its customers, thereby allowing the company to develop and refine its products and marketing programs for specific customer groups. This constant flow of communication, which is unique to the

For large business and institutional customers, Dell maintains a field sales force throughout the world. Dedicated account teams, which include field-based system engineers and consultants, form long-term relationships to provide our largest customers with a single source of assistance and develop specific marketing programs for these customers. For large, multinational customers, Dell offers several programs designed to provide single points of contact and accountability with global account specialists, special global pricing, consistent service and support programs across global regions, and access to central purchasing facilities. Dell also maintains specific sales and marketing programs targeted at federal, state, and local governmental agencies as well as specific healthcare and educational markets.

Dell markets its products and services to small-to-medium businesses and consumers primarily by advertising on television and the Internet, advertising in a variety of print media, and by mailing a broad range of direct marketing publications, such as promotional pieces, catalogs, and customer newsletters. In certain states as well as non-U.S. locations, Dell also operates Dell Direct Stores, which are kiosks typically located within shopping centers, that allow customers to view Dell products in person and purchase online from Dell with the assistance of a Dell expert.

Competition

The market for computer systems and services is subject to intense price competition. In addition to several large branded companies, there are other branded and generic competitors. Dell competes primarily based on its technology, direct customer relationships, value, performance, customer service, quality, and reliability. Dell’s general practice is to aggressively pass on cost declines to its customers in order to enhance customer value while increasing global market share. Dell expects that the competitive pricing environment will continue to be challenging, and Dell expects to continue to reduce its pricing as necessary in response to future competitive and economic conditions. However, Dell believes that the strength of Dell’s direct business model, as well as its strong liquidity position, makes the company better positioned than its competitors to continue profitable growth in any business climate. See “Item 1 — Business — Factors Affecting Dell’s Business and Prospects” for information about the risks associated with competition.

Manufacturing and Materials

Dell manufactures most of the products it sells and has manufacturing locations worldwide to service its global customer base. See “Item 2 — Properties” for information about Dell’s manufacturing locations. Dell believes that its manufacturing processes and supply-chain management techniques provide it a distinct competitive advantage. Its build-to-order manufacturing process is designed to allow Dell to significantly reduce cost while simultaneously providing customers the ability to customize their product purchases. In addition, Dell purchases some of its products from third-party original equipment manufacturers and resells them under the Dell name.

Dell’s manufacturing process consists of assembly, software installation, functional testing, and quality control. Testing and quality control processes are also applied to components, parts, and subassemblies obtained from third-party suppliers. Quality control is maintained through the testing of components, subassemblies, and systems at various stages in the manufacturing process. Quality control also includes a burn-in period for completed units after assembly, on-going production reliability audits, failure tracking for early identification of production and component problems, and information from Dell’s customers obtained through services and support programs. Dell is certified, worldwide, by the International Standards Organization to the requirements of ISO 9001: 2000. This includes the design, manufacture, and service of computer products in all Dell regions.

Patents, Trademarks, and Licenses

Dell holds a portfolio of 1,128 U.S. patents and has 719 U.S. patent applications pending as of January 28, 2005. The inventions claimed in those patents and patent applications cover aspects of Dell’s current and possible future computer system products, manufacturing processes, and related technologies. Dell is developing a portfolio of patents that it anticipates will be of value in negotiating intellectual property rights with others in the industry.

Dell has obtained U.S. federal trademark registration for its DELL word mark and its Dell logo mark. Dell owns registrations for 45 of its other marks in the U.S. As of January 28, 2005, Dell had pending applications for registration of 18 other trademarks. Dell believes that establishment of the DELL mark and logo in the U.S. is material to Dell’s operations. Dell has also applied for or obtained registration of the DELL mark and several other marks in approximately 180 other countries.

Dell has entered into a variety of intellectual property licensing and cross-licensing agreements. In addition, Dell has entered into nonexclusive licensing agreements with Microsoft Corporation for various operating system and application software. Dell has also entered into various software licensing agreements with other companies.

From time to time, other companies and individuals assert exclusive patent, copyright, trademark, or other intellectual property rights to technologies or marks that are important to the technology industry or Dell’s business. Dell evaluates each claim relating to its products and, if appropriate, seeks a license to use the protected technology. The licensing agreements generally do not require the licensor to assist Dell in duplicating its patented technology, nor do these agreements protect Dell from trade secret, copyright, or other violations by Dell or its suppliers in developing or selling these products. See “Item 1 — Business — Factors Affecting Dell’s Business and Prospects” for information about the risks associated with intellectual property rights.

Employees

As of January 28, 2005, Dell had approximately 55,200 regular employees, compared to approximately 46,000 as of the end of fiscal 2004. Approximately 24,600 of these employees were located in the U.S., and approximately 30,600 were located in other countries. While Dell’s workforce located both inside and outside the U.S. increased during fiscal 2005, the proportion of Dell’s workforce located outside the U.S. increased due to a number of factors, including Dell’s rapid international growth. Dell has never experienced a work stoppage due to labor difficulties, and believes that its employee relations are good. Workforce diversity is an essential part of Dell’s commitment to quality and the future of Dell, as recognized by Dell’s receipt of the U.S. Department of Labor’s Exemplary Voluntary Achievement Award in 2003 for its industry-leading workforce diversity efforts.

Government Regulation and Environment

Dell’s business is subject to regulation by various federal and state governmental agencies. Such regulation includes the radio frequency emission regulatory activities of the U.S. Federal Communications Commission, the anti-trust regulatory activities of the U.S. Federal Trade Commission and

Backlog

Dell believes that backlog is not a meaningful indicator of net revenue that can be expected for any period. There can be no assurance that the backlog at any point in time will translate into net revenue in any subsequent period, as unfilled orders can generally be canceled at any time by the customer. At the end of fiscal 2005, 2004, and 2003, backlog was not material.

Geographic Areas of Operations

Dell conducts operations worldwide and is managed in three geographic segments: the Americas, Europe, and Asia Pacific-Japan regions. The Americas region, which is based in Round Rock, Texas, covers the U.S., Canada, and Latin America. Within the Americas, Dell is further segmented into Business and U.S. Consumer. The Americas Business segment includes sales to corporate, government, healthcare, education, and small and medium business customers while the U.S. Consumer segment includes sales primarily to individual consumers. The European region, which is based in Bracknell, England, covers Europe, the Middle East, and Africa. The Asia Pacific-Japan region covers the Pacific Rim, including Australia and New Zealand, and is based in Singapore. In fiscal 2005, approximately 38% of Dell’s consolidated net revenue was attributable to sales outside the U.S.

As part of its global expansion efforts, Dell recently announced a new manufacturing facility in North Carolina, with production to begin in late fiscal year 2006, and new customer-contact centers in Oklahoma, Canada, India, and El Salvador. Dell intends to continue to expand its global infrastructure as its international business continues to grow. See “Item 1 — Business — Factors Affecting Dell’s Business and Prospects” for information about certain risks of international activities. For financial information about the results of Dell’s operating segments for each of the last three fiscal years, see Note 9 of Notes to Consolidated Financial Statements included in “Item 8 — Financial Statements and Supplementary Data.”

Dell’s corporate headquarters are located in Round Rock, Texas. Its manufacturing facilities are located in Austin, Texas; Eldorado do Sul, Brazil; Nashville and Lebanon, Tennessee; Limerick, Ireland; Penang, Malaysia; and Xiamen, China. See “Item 2 — Properties.”

Factors Affecting Dell’s Business and Prospects

There are many factors that affect Dell’s business and the results of its operations, some of which are beyond Dell’s control. The following is a description of some of the important factors that may cause the actual results of Dell’s operations in future periods to differ materially from those currently expected or desired.

Trademarks and Service Marks

Unless otherwise noted, trademarks appearing in this report are trademarks of Dell. Dell disclaims proprietary interest in the marks and names of others. EMC is a registered trademark of EMC Corporation.

Available Information

Dell maintains an Internet website at www.dell.com. Dell’s reports filed with the Securities and Exchange Commission (“SEC”) (including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, any amendments to these reports, and Section 16 filings)

Executive Officers of Dell

The following table sets forth the name, age, and position of each of the persons who were serving as executive officers of Dell as of March 7, 2005:

Michael S. Dell — Mr. Dell currently serves as Chairman of the Board of Directors of Dell. He has held this role since he founded the company in 1984. Mr. Dell also served as Chief Executive Officer of Dell from 1984 until July 2004. He sits on the Foundation Board of the World Economic Forum, serves on the executive committee of the International Business Council, and is a member of the U.S. Business Council. He also serves on the U.S. President’s Council of Advisors on Science and Technology and sits on the governing board of the Indian School of Business in Hyderabad, India.

Kevin B. Rollins — Mr. Rollins currently serves as President and Chief Executive Officer of Dell. In this role, he is responsible for Dell’s day-to-day global operations and establishes Dell’s strategic direction. Mr. Rollins joined Dell in April 1996 as Senior Vice President, Corporate Strategy, was named Senior Vice President, General Manager — Americas in May 1996, and was named Vice Chairman in 1997. In 2001, Mr. Rollins’ title was changed from Vice Chairman to President and Chief Operating Officer. He was named Chief Executive Office of Dell in July 2004. For 12 years prior to joining Dell, Mr. Rollins was employed by Bain & Company, an international strategy consulting firm, most recently serving as a director and partner. Mr. Rollins received a Master of Business Administration degree and a Bachelor of Arts degree from Brigham Young University. Mr. Rollins is a member of the university’s President’s Leadership Council and the Marriott School National Advisory Council at Brigham Young University, where he founded and continues to sponsor the

William J. Amelio — Mr. Amelio joined Dell in March 2001 as Senior Vice President, Relationship Group, a position he shared with Mr. Marengi, and was named Senior Vice President, Asia Pacific-Japan in May 2001. In this position, Mr. Amelio is responsible for Dell’s operations in all markets in the Asia Pacific-Japan region, including Dell’s manufacturing and customer-contact centers in that region. Prior to joining Dell, Mr. Amelio was employed by NCR Corp., last serving as Executive Vice President and Chief Operating Officer of NCR’s Retail and Financial Group. Prior to joining NCR, Mr. Amelio served as the President and Chief Executive Officer for Honeywell International Inc.’s transportation and power systems divisions. Preceding that, he led the turbo charging systems business at AlliedSignal Inc. before its merger with Honeywell. His career also includes 18 years with International Business Machines Corp. in a variety of senior-management positions, including general manager of operations for IBM’s personal computer company. Mr. Amelio holds a master’s degree in Management from Stanford University and a bachelor’s degree in Chemical Engineering from Lehigh University.

Paul D. Bell — Mr. Bell joined Dell in 1996 and has served as Senior Vice President, Europe, Middle East and Africa since February 2000. In this role, Mr. Bell is responsible for Dell’s operations in all markets in the Europe, Middle East and Africa region, including Dell’s manufacturing and customer-contact centers in that region. Prior to this, Mr. Bell served as Senior Vice President, Home and Small Business. Prior to joining Dell in July 1996, Mr. Bell was a management consultant with Bain & Company for six years, including two years as a consultant for Dell. Mr. Bell received bachelor’s degrees in Fine Arts and Business Administration from Pennsylvania State University and a Master of Business Administration degree from the Yale School of Organization and Management.

Jeffrey W. Clarke — Mr. Clarke has served as Senior Vice President, Product Group since January 2003. In this role, he is responsible, along with Mr. Gruzen and Mr. Medica, for the worldwide development, marketing, quality, and delivery into manufacturing of all Dell client, workstation, networking, server and storage systems, as well as the strategic technology direction for these businesses. Mr. Clarke joined Dell in 1987 as a quality engineer and has served in a variety of engineering, and management roles. In 1995 Mr. Clarke became the director of desktop development, and from November 2001 to January 2003 he served as Vice President and General Manager, Relationship Product Group. Mr. Clarke received a bachelor’s degree in Electrical Engineering from the University of Texas at San Antonio.

Martin J. Garvin — Mr. Garvin is Senior Vice President, Worldwide Procurement and Global Customer Experience. In this role he shares responsibility with Mr. Neland for procurement and supply chain activities and for managing the customer experience initiative on a worldwide basis. Mr. Garvin joined Dell in August 1997, and until March 2003 served as Vice President, Worldwide Procurement where he and Mr. Neland shared responsibility for global supply chain optimization, including responsibility for cost, quality, availability, technology, and service for all computer system commodities and sub-systems. Prior to joining Dell, Mr. Garvin held a variety of executive level positions at Hewlett-Packard Company, Sun Microsystems Inc., and NetEdge Systems, Inc. Mr. Garvin holds a master’s degree in business administration and a bachelor’s degree in biological sciences from California State University at San Jose.

Alexander Gruzen — Mr. Gruzen joined Dell as Senior Vice President, Product Group in August 2004. In this role, he is responsible along with Mr. Clarke and Mr. Medica for worldwide development, marketing, quality, and delivery into manufacturing of Dell client, workstation, networking, server and storage systems, as well as the strategic technology direction for these businesses. Prior to joining Dell, Mr. Gruzen was employed by Hewlett-Packard Company, last serving as Senior Vice

John S. Hamlin — Mr. Hamlin has been in charge of the U.S. Consumer business since May 2000, and was named Senior Vice President, U.S. Consumer Business in January 2003. In that role, he has full profit and loss responsibility for the U.S. consumer business. In February 2004, Mr. Hamlin was assigned management responsibility for Dell’s international customer-contact centers. Prior to his current role, Mr. Hamlin served as Vice President, Home and Small Business in Japan, and managed Dell’s preferred accounts segment in Japan. Mr. Hamlin joined Dell in March 1996, and held a variety of positions within Dell prior to moving to Japan. Prior to joining Dell, Mr. Hamlin was in venture capital for three years and was a management consultant for Bain & Company for six years. Mr. Hamlin is a graduate of Dartmouth College and holds a master’s degree in Business Administration from Harvard Business School.

Joseph A. Marengi — Mr. Marengi joined Dell in 1997 and serves as Senior Vice President, Americas. In this position, Mr. Marengi shares responsibility with Mr. Parra for Dell’s Americas business units, serving large and small corporate, government, education, healthcare, and small and medium business customers in the U.S., Canada, and Latin America. He is also responsible for Dell’s services business and for Dell’s manufacturing operations in Austin, Nashville, and Brazil. Prior to joining Dell, Mr. Marengi worked at Novell, Inc., most recently serving as its President and Chief Operating Officer. Prior to joining Novell in 1989, Mr. Marengi served as Vice President of Channel Sales for Excelan, Inc. and in various other executive, sales, and information management positions. From 1978 through 1981, Mr. Marengi served in the U.S. Coast Guard and Coast Guard Reserve, reaching the rank of Lieutenant Commander. Mr. Marengi earned a bachelor’s degree in Public Administration from the University of Massachusetts and a master’s degree in Management from the University of Southern California. Mr. Marengi serves on the Corporate Advisory Board of the USC Marshall School of Business.

Paul D. McKinnon — Mr. McKinnon joined Dell in November 1997 as Vice President, Human Resources. He was named Senior Vice President, Human Resources in May 2000 and continues to serve in that role. He is responsible for all human resources functions and activities as well as security, global diversity, and corporate communications. From July 1994 to November 1997, Mr. McKinnon was a principal of McKinnon Consulting. Prior to July 1994, Mr. McKinnon was partner of Novations Group and Harbridge House Inc., and from 1982 to 1986 was an Assistant Professor at the University of Virginia. He holds a bachelor’s degree in History and a master’s degree in Organizational Behavior from Brigham Young University, and a doctorate in Organizational Studies from Massachusetts Institute of Technology.

John K. Medica — Mr. Medica was named Senior Vice President, Product Group in January 2003. In this role, he is responsible, along with Mr. Clarke and Mr. Gruzen, for the worldwide development, marketing, quality, and delivery into manufacturing of all Dell client, workstation, networking, server, and storage systems, as well as the strategic technology direction for these businesses. Mr. Medica joined Dell in 1993 as Vice President, Portable Systems. In 1996, Mr. Medica was named President and Chief Operating Officer of Dell’s Japan division. Mr. Medica returned to the U.S. as Vice President, Procurement in August 1997 and later served as Vice President, Web Products Group and Vice President and General Manager, Transactional Product Group. Prior to joining Dell, Mr. Medica held a variety of development and operations positions over a ten-year period at Apple Computer, Inc. Mr. Medica graduated from Wake Forest University with a master’s degree in Business Administration and holds a bachelor’s degree in Electrical Engineering from Manhattan College.

Glenn E. Neland — Mr. Neland is Senior Vice President, Worldwide Procurement and Global Customer Experience. In this role he shares responsibility with Mr. Garvin for procurement and supply chain activities and for managing Dell’s customer experience initiatives on a worldwide basis. He joined Dell in September 1997, and until March 2003 served as Vice President, Worldwide Procurement, Commodities, where he and Mr. Garvin shared responsibility for global supply chain optimization, including responsibility for cost, quality, availability, technology, and service for all computer system commodities and sub-systems. Mr. Neland was also responsible for notebook operations and portables procurement. Before joining Dell, Mr. Neland held various positions at Texas Instruments Incorporated, including General Manager for notebooks, Vice President and General Manager of Printing Systems, as well as other operations and engineering positions. He holds a bachelor’s degree in electrical engineering from the University of Illinois. Mr. Neland serves on the Board of Directors of International Displayworks, Inc.

Rosendo G. Parra — Mr. Parra joined Dell in 1993 and serves as Senior Vice President, Americas. In this position, he shares responsibility with Mr. Marengi for Dell’s Americas business units, serving large and small corporate, government, education, healthcare, and small and medium business customers in the U.S., Canada, and Latin America. He is also responsible for Dell’s services business and for Dell’s manufacturing operations in Austin, Nashville, and Brazil. Prior to joining Dell, Mr. Parra held various sales and general management positions with GRiD Systems Corporation, including Regional Sales Director and Vice President and General Manager of the PC Strategic Business Unit. Before his association with GRiD, Mr. Parra spent nine years in various sales and management positions for the business products division of RadioShack Corporation. Mr. Parra earned a bachelor’s degree in Marketing from the University of Maryland.

James M. Schneider — Mr. Schneider serves as Senior Vice President and Chief Financial Officer. In this role, he is responsible for Dell’s finance function for all business units worldwide, including the controller function, corporate planning, tax, treasury, investor relations, corporate development, real estate, risk management, and internal audit. Mr. Schneider joined Dell in 1996 as Vice President of Finance and Chief Accounting Officer, was named Senior Vice President in 1998 and Chief Financial Officer in 2000. For three years prior to joining Dell, Mr. Schneider was employed by MCI Communications Corporation, last serving as Senior Vice President of Corporate Finance. For 19 years prior to joining MCI, Mr. Schneider was associated with Price Waterhouse LLP, serving as a partner for 10 years. Mr. Schneider holds a bachelor’s degree in Accounting from Carroll College in Waukesha, Wisconsin, and is a Certified Public Accountant. He is a member of the board of directors of General Communications, Inc. and Gap, Inc. Mr. Schneider is also a member of the Financial Executives Institute.

Lawrence P. Tu — Mr. Tu joined Dell as Senior Vice President, General Counsel and Secretary in July 2004, and is responsible for overseeing Dell’s global legal department and governmental affairs. Before joining Dell, Mr. Tu served as Executive Vice President and General Counsel at NBC Universal for three years. Prior to his position at NBC, he was a partner with the law firm of O’Melveny & Myers LLP, where he focused on high technology, Internet and media related transactions, and where he served five years as managing partner of the firm’s Hong Kong office. Mr. Tu’s prior experience also includes serving as General Counsel Asia-Pacific for Goldman Sachs, attorney for the U.S. State Department and law clerk for U.S. Supreme Court Justice Thurgood Marshall. Mr. Tu holds Juris Doctor and Bachelor of Arts degrees from Harvard University, as well as a Bachelor of Arts degree from Oxford University, where he was a Rhodes Scholar.

As of January 28, 2005, Dell owned or leased a total of approximately 11.7 million square feet of office, manufacturing, and warehouse space worldwide, approximately 7.3 million square feet of which is located in the U.S. and the remainder located in other countries. Dell believes that it can readily meet its requirements for additional space at competitive rates by extending expiring leases or by finding alternative space.

Dell’s principal offices are located in Round Rock, Texas (north of Austin), and its U.S. manufacturing facilities are located in Austin, Texas and Middle Tennessee.

Dell owns approximately 340 acres of land in Round Rock, Texas, on which are located six office buildings. These buildings, comprising Dell’s Round Rock campus, contain an aggregate of approximately 2.1 million square feet of office and lab space. Dell’s sales, marketing, and support staff for the Americas region, as well as the corporate headquarters and support functions, are located on the Round Rock campus.

Dell also owns approximately 550 acres of land in Austin, Texas, referred to as the Parmer Campus. Approximately 2.0 million square feet of office, lab, manufacturing, and distribution space are located on the campus, including office and lab buildings totaling 1.1 million square feet and manufacturing/distribution facilities totaling 900,000 square feet. Approximately 220,000 square feet of the manufacturing/distribution space is currently leased to a third-party.

Dell leases approximately 1.2 million square feet of space in Middle Tennessee. This includes a 355,000 square foot office building in Nashville, Tennessee that houses sales, technical support, and administrative support; a 300,000 square foot manufacturing facility in Lebanon, Tennessee; and a 300,000 square foot manufacturing facility in Nashville, Tennessee. Approximately 205,000 square feet of warehouse/distribution space is subleased to a third-party.

In addition to the campuses, Dell also leases approximately 1.9 million square feet of additional space, in various locations within the U.S. Approximately 790,000 square feet is used for manufacturing and distribution and 315,000 square feet houses customer-contact center and professional services sites. The remaining 830,000 square feet of office and manufacturing space, with lease expiration dates ranging from March 2005 to December 2010, has been taken out of service and has either been subleased or is being marketed for sale or sublease.

In November 2004, Dell announced that a new 500,000 square feet manufacturing facility would be constructed in North Carolina with production to begin in late fiscal year 2006. In addition, Dell began operating a customer-contact center in Oklahoma City, Oklahoma in August 2004 and is currently constructing a 120,000 square feet facility in Oklahoma City on approximately 62 acres that will be operational later in fiscal year 2006.

As of January 28, 2005, Dell’s non-U.S. facilities consisted of approximately 4.4 million square feet of office and manufacturing space in approximately 43 countries. Approximately 2.5 million square feet of this space is leased property, with lease expiration dates ranging from February 2005 to June 2024. Dell owns approximately 1.9 million square feet of space.

Dell has manufacturing and office facilities in Eldorado do Sul, Brazil; Limerick, Ireland; Penang, Malaysia; and Xiamen, China. Approximately 100,000 square feet is leased in Eldorado do Sul. Dell has approximately 865,000 square feet of office and manufacturing space in Ireland, the majority of which is owned. Dell owns two facilities in Penang, Malaysia totaling 580,000 square feet of office and manufacturing space. Both facilities are located on land leased from the State Authority of Penang. Dell owns approximately 367,000 square feet of office and manufacturing space in Xiamen,

Dell has established technical and customer support and related operations in India, Panama, Slovakia, Morocco, China, as well as design centers in Brazil, Singapore, China, and Taiwan. Facilities are currently under design or construction in Edmonton, Canada, Mohali, India and San Salvador, El Salvador which will be leased by Dell for technical and customer support operations in early fiscal year 2006.

Dell is subject to various legal proceedings and claims arising in the ordinary course of business. Dell’s management does not expect that the results in any of these legal proceedings will have a material adverse effect on Dell’s financial condition, results of operations, or cash flows.

No matter was submitted to a vote of Dell’s stockholders, through the solicitation of proxies or otherwise, during the fourth quarter of fiscal 2005.

PART II

Market Information

Dell’s common stock is listed on The Nasdaq National Market under the symbol DELL. Information regarding the market prices of Dell’s common stock may be found in Note 11 of Notes to Consolidated Financial Statements included in “Item 8 — Financial Statements and Supplementary Data.”

Holders

As of February 25, 2005, there were 34,625 holders of record of Dell’s common stock.

Dividends

Dell has never declared or paid any cash dividends on shares of its common stock and currently does not anticipate paying any cash dividends in the immediate future. Any future determination to pay cash dividends will be at the discretion of Dell’s Board of Directors.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Dell has a share repurchase program that authorizes the company to purchase shares of common stock in order to both distribute cash to stockholders and manage dilution resulting from shares issued under Dell’s equity compensation plans. However, Dell does not currently have a policy that requires the repurchase of common stock in conjunction with share-based payment arrangements. As of January 28, 2005, Dell’s share repurchase program authorized the purchase of up to 1.25 billion shares of common stock at an aggregate cost not to exceed $20 billion. Subsequent to fiscal 2005, on March 3, 2005, the Board of Directors of Dell approved an amendment to the plan to increase the number of authorized shares available for repurchase by 250 million to 1.5 billion, and

ITEM 6 — SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8 — Financial Statements and Supplementary Data.”

Overview

Dell — through its direct business model — designs, develops, manufactures, markets, sells, and supports a wide range of computer systems and services that are customized to customer requirements. These include enterprise systems (servers, storage, workstations, and networking products), client systems (notebook and desktop computer systems), printing and imaging systems, software and peripherals, and global services. Dell markets and sells its products and services directly to its customers, which include large corporate, government, healthcare, and education accounts, as well as small-to-medium businesses and individual customers. Dell conducts operations worldwide and is managed in three geographic segments: the Americas, Europe, and Asia Pacific-Japan regions. Within the Americas, Dell is further segmented into Business and U.S. Consumer.

The following table summarizes Dell’s consolidated results of operations for each of the past three fiscal years:

During fiscal 2005, Dell maintained its position as the world’s number one supplier of personal computer systems with performance that continued to outpace the industry. Dell’s consolidated net unit shipments increased 21% as the company increased its share of worldwide personal computer sales by 1.1 percentage points during the calendar year to 17.8%. Consolidated net revenue increased 19% to $49.2 billion during fiscal 2005, with Dell’s strong international performance being a key driver of this growth even as the company expanded its number one position in the U.S. During fiscal 2005, component costs continued to decline at a moderate pace that was relatively comparable to fiscal 2004. Dell utilized these cost declines to pass on cost savings to its customers and improve gross profit margin to 18.3% for the year. Dell’s focus on balancing growth and profitability resulted in record operating and net income of $4.3 billion and $3.0 billion, respectively. Net income for fiscal 2005 includes a tax repatriation charge of $280 million pursuant to a favorable tax incentive provided by the American Jobs Creation Act of 2004. This tax charge is related to Dell’s decision to repatriate $4.1 billion in foreign earnings. Dell’s efficient direct business model and cash conversion cycle have allowed the company to generate annual cash flows from operating activities that typically exceed net income. During fiscal 2005, Dell continued to deliver

Dell’s objective is to maximize stockholder value while maintaining a balance of three key financial metrics: liquidity, profitability, and growth. Dell’s strategy combines its direct business model with a highly efficient manufacturing and supply chain management organization and an emphasis on standards-based technologies. Dell’s business model provides the company with a constant flow of information about trends in customers’ plans and requirements. These trends have shown an increased use of standards-based technologies as well as a push towards standardization of services. Unlike proprietary technologies promoted by some of Dell’s top competitors, standards-based technologies provide customers with flexibility and choice while allowing their purchasing decisions to be based on performance, cost, and customer service. Dell’s business strategy continues to focus on the company’s enterprise business and expanding its capabilities in that product group. Dell is also expanding into consumer electronics products such as plasma televisions while maintaining its leadership position in desktops and notebooks. Dell’s superior execution in all product and service offerings has been demonstrated by progress in customer satisfaction ratings during the year, which is a key performance metric for the company.

Management believes that growth opportunities exist for Dell as the use of standards-based technologies becomes more prevalent and the company increases its presence in existing geographical regions, expands into new regions, and pursues additional product and service opportunities. During the year, Dell opened new facilities in the U.S., Canada, India, and El Salvador and expects to continue its global expansion in years ahead. Dell’s investment in international growth opportunities contributed to an increase in Dell’s non-U.S. revenue, as a percentage of consolidated net revenue, from 36% in fiscal 2004 to 38% during fiscal 2005.

While the current competitive environment continues to be challenging, management believes that there has been a steady improvement in business technology spending since the end of fiscal 2004. Management expects that the competitive pricing environment will continue to be challenging, and expects to continue to reduce its pricing as necessary in response to future competitive and economic conditions. Management is also focused on attracting and retaining key personnel as well as further investing in the company’s global information technology infrastructure in order to address challenges that may arise with Dell’s rapid global growth and the increased complexity of the company’s product and service offerings.

Results of Operations

Net Revenue

During fiscal 2005, Dell’s strategy and execution extended the company’s number one worldwide position for the calendar year. Dell produced net revenue of $49.2 billion in fiscal 2005, compared to $41.4 billion in fiscal 2004 and $35.4 billion in fiscal 2003. The year-over-year increases in net revenue during both fiscal 2005 and 2004 were driven by strong unit growth across most regions and product lines. Specifically, Dell’s Europe and Asia Pacific-Japan segments produced revenue growth in excess of 25% during fiscal 2005, while notebooks produced consolidated revenue growth of 24%. During fiscal 2005, Dell’s net unit growth continued to exceed industry growth as consolidated net unit shipments increased 21% while total PC industry growth increased only 15% for the calendar year. During fiscal 2004, Dell produced net unit growth of 26%, while the total PC industry increased only 12% for the calendar year.

During fiscal 2005, management continued to focus on Dell’s enterprise business. Net revenue for enterprise systems increased 16% and 31% during fiscal 2005 and 2004, respectively, with fiscal 2005 growth being led by 18% server growth. Dell gained 1.5 share percentage points in shipments of x86 servers (based on standard Intel architecture) and improved its number two position to 24.8% for calendar 2004. Dell’s four-year running partnership with EMC Corporation, and management’s continued focus on mid-range Dell/ EMC storage area network (“SAN”) products, produced

In client systems, Dell continues to capitalize on the growth of mobile computing with notebooks producing net unit growth in excess of 30% during both fiscal 2005 and 2004. This net unit growth was partially offset by a 9% decline in average revenue per-unit sold during fiscal 2005, producing net revenue growth for notebooks of 24% in this highly competitive space. During fiscal 2004, average revenue per-unit sold for notebooks decreased by 13%. Dell’s notebook products continue to carry higher growth rates than desktops as consumer trends continue to shift more toward mobile computing. Dell’s desktop product group produced net unit and revenue growth of 17% during fiscal 2005. During fiscal 2004, desktops delivered net unit and revenue growth of 23% and 11%, respectively.

Dell continues to expand its service offerings with revenue growth for enhanced services of 35% and 37% during fiscal 2005 and 2004, respectively. In addition, software and peripherals, which includes Dell’s printing and imaging business that was launched in early fiscal 2004, continued to contribute to Dell’s core business with fiscal 2005 and 2004 revenue growth of 35% and 27%, respectively. The growth of Dell’s printing and imaging business has been particularly strong with over five million Dell-branded printers shipped during fiscal 2005.

The following table summarizes Dell’s net revenue and annual share of personal computer sales by reportable segment for each of the past three fiscal years:

Americas — Dell increased its number one share position in personal computers sales in the Americas region by 1.4 percentage points to 29.1% during calendar 2004. Net unit growth was 17%

In the Americas Business segment, which includes sales to small and medium businesses, government, and corporate accounts, net revenue increased 16% and 13% during fiscal 2005 and 2004, respectively, as business technology spending steadily improved since the end of fiscal 2004. Specifically, Dell’s small and medium business customers led the revenue growth during fiscal 2005 while notebook systems provided about one-third of the revenue growth for the segment. Enterprise revenue growth during fiscal 2005 was 11%, with servers providing the majority of the product group growth. Enterprise systems provided the majority of the growth in Dell’s Americas Business segment during fiscal 2004, with servers contributing more than one-half of the increase during that fiscal year.

Dell’s U.S. Consumer segment includes sales primarily to individual consumers. Net revenue grew 13% and 19% during fiscal 2005 and 2004, respectively, and was led by Dell’s printing and imaging products during fiscal 2005. The decrease in revenue growth during fiscal 2005, compared to fiscal 2004, was partially due to relatively weak demand in the overall U.S. consumer segment toward the second half of fiscal 2005. Dell produced strong net unit growth in consumer notebooks of 29% during fiscal 2005; however, this growth was partially offset by an 11% decline in average revenue per-unit sold as product mix continued to shift toward lower-priced products. Revenue growth during fiscal 2004 was led by notebooks with net unit growth of 67%.

Europe — Dell produced strong performance in Europe, which includes the Middle East and Africa, maintaining its number two share position of personal computer sales with 11.7% share during calendar 2004, compared to 10.5% during calendar 2003. Net unit shipments grew at a rate of 31% during fiscal 2005 in a market that grew at a robust rate of 19% during calendar year 2004. The appreciation of the Euro and British Pound helped stimulate overall market demand in Europe, as Dell and other companies generally passed on these foreign currency benefits to customers through lower pricing of products and services. Net revenue during fiscal 2005 and 2004 increased by 27% and 23%, respectively. Revenue during fiscal 2005 included combined net revenue growth of 30% in the United Kingdom and France. Dell’s enterprise business produced revenue growth of 29% and 35% during fiscal 2005 and 2004, respectively.

Asia Pacific-Japan — Dell’s strong revenue growth in Asia Pacific-Japan of 26% during fiscal 2005 was supported by the company’s strength and demand growth in China. During calendar 2004, Dell generated share gains in Asia Pacific-Japan of 1.1 percentage points to 8.3% share of personal computer sales, achieving the number three share position. During fiscal 2005, Dell’s net unit growth was 29%, in an industry with overall growth that increased only 13%. Dell’s enterprise business produced revenue growth of 23% and 32% during fiscal 2005 and 2004, respectively.

For additional information regarding Dell’s segments, see Note 9 of “Notes to Consolidated Financial Statements” included in “Item 8 — Financial Statements and Supplementary Data.”

Gross Margin

Gross margin as a percentage of net revenue improved slightly to 18.3% during fiscal 2005, compared to 18.2% fiscal 2004 and 17.9% in fiscal 2003. The year-over-year improvement during fiscal 2005 and 2004 was primarily driven by Dell’s continued cost savings initiatives. During fiscal 2005, component costs continued to decline at a moderate pace that was relatively comparable to fiscal 2004. Management utilized these cost declines to balance profitable growth while passing on cost savings to its customers. Management expects the component cost environment to continue to be favorable during the first quarter of fiscal 2006. As part of management’s focus on improving margins, Dell remains committed to reducing costs through four primary cost reduction initiatives:

Operating Expenses

The following table presents information regarding Dell’s operating expenses during each of the past three fiscal years:

Selling, General, and Administrative — During fiscal 2005, selling, general, and administrative expenses, as a percentage of net revenue, increased slightly compared to fiscal 2004 and 2003. This increase is primarily due to Dell’s global expansion efforts and a greater mix of business outside the U.S. during fiscal 2005, which typically carries a slightly higher operating expense. The primary component of the overall increase is compensation costs as management focuses on attracting and retaining key personnel in order to support the company’s growth. Selling, general, and administrative expenses as a percentage of net revenue remained relatively flat in fiscal 2004 compared to fiscal 2003, but increased in absolute dollars commensurate with the increase in net revenue.

Research, Development, and Engineering — During fiscal 2005, research, development, and engineering expenses continued to decrease slightly, as a percentage of net revenue, compared to fiscal 2004 and 2003. The efficiencies are a result of Dell’s continued utilization of its streamlined infrastructure and strategic relationships with its vendor partners. Dell expects to continue to invest in research, development, and engineering activity to develop and introduce new products and has received 1,128 U.S. patents and has 719 U.S. patent applications pending as of January 28, 2005.

The following table summarizes Dell’s investment and other income, net for each of the past three fiscal years:

Investment income increased from fiscal 2004 to fiscal 2005 primarily due to an increase in investment income earned on higher average balances of cash equivalents and investments. Investment income decreased from fiscal 2003 to fiscal 2004 primarily from a decline in interest rates on investments, which was partially offset by an increase in cash equivalents and investments during the year.

Dell’s reported effective tax rate was 31.5% in fiscal 2005, compared to 29.0% for fiscal 2004 and 29.9% for fiscal 2003. The fiscal 2005 effective tax rate includes a tax repatriation charge of $280 million pursuant to a favorable tax incentive provided by the American Jobs Creation Act of 2004 (the “Act”), which was signed into law on October 22, 2004. This tax repatriation charge increased Dell’s effective tax rate by 6.3% for fiscal 2005. The increase in Dell’s fiscal 2005 effective tax rate, compared to fiscal 2004 and fiscal 2003, is due to the aforementioned tax repatriation charge, partially offset by a higher proportion of operating profits attributable to foreign jurisdictions.

Among other items, the Act creates a temporary incentive for U.S. multinationals to repatriate accumulated income earned outside the U.S. at a tax rate of 5.25%, versus the U.S. federal statutory rate of 35%. Although the Act contains a number of limitations related to the repatriation and some uncertainty remains, as of January 28, 2005 Dell believes that it has the information necessary to make an informed decision regarding the impact of the Act on its repatriation plans. Based on this new legislation, and subsequent guidance issued by the Department of Treasury, Dell determined during the fourth quarter of fiscal 2005 that it will repatriate $4.1 billion in foreign earnings. Accordingly, Dell recognized a tax repatriation charge of $280 million in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109, Accounting for Income Taxes. This tax charge includes an amount relating to an apparent drafting oversight that Congressional leaders indicate will be fixed by a Technical Corrections Bill sometime during calendar year 2005. The fiscal 2005 tax repatriation charge will be reduced in the quarter that the Technical Corrections Bill becomes law. In addition, at the time of repatriation further adjustment may be required depending upon a number of factors, including geographic location of cash, mix of foreign earnings, and statutory tax rates in effect at the time of the repatriation. The repatriation is required to be completed by the end of fiscal 2006.

Differences between Dell’s fiscal 2005 effective tax rate and the U.S. federal statutory rate of 35% principally result from Dell’s geographical distribution of taxable income and losses, partially offset by the impact of the Act. During fiscal 2004 and 2003, the differences between Dell’s effective and statutory tax rates were attributable to the geographic distribution of taxable income and losses. Dell’s effective tax rate may decline in future periods as the company’s business outside the

Off-Balance Sheet Arrangements

Consolidation of Leasing Affiliate — Dell is currently a partner in DFS, a joint venture with CIT. The joint venture allows Dell to provide its customers with various financing alternatives while CIT generally provides the financing between DFS and the customer for certain transactions. Dell began consolidating DFS’s financial results at the beginning of the third quarter of fiscal 2004 due to the adoption of Financial Accounting Standards Board (“FASB”) Interpretation No. 46R (“FIN 46R”). See Note 6 of “Notes to Consolidated Financial Statements” included in “Item 8 — Financial Statements and Supplementary Data.”

Securitized Lending Transactions — During the third quarter of fiscal 2005, Dell and CIT executed an agreement that extended the term of the joint venture to January 29, 2010 and modified certain terms of the relationship. Prior to the execution of that agreement, CIT provided all of the financing for transactions between DFS and the customer. The extension agreement gives Dell the right, but not the obligation, to participate in such financings. During the fourth quarter of fiscal 2005, Dell began financing certain loan and lease transactions through securitized lending arrangements. Specifically, Dell began selling certain loan and lease finance receivables to an unconsolidated qualifying special purpose entity that is wholly owned by Dell. The qualifying special purpose entity is a separate legal entity with assets and liabilities separate from those of Dell. The qualifying special purpose entity has entered into a financing arrangement with a multiseller conduit that in turn issues asset-backed debt securities to the capital markets. The sale of these loan and lease financing receivables did not have a material impact on Dell’s consolidated results of operations, financial position, or cash flows for fiscal 2005. Dell expects that its participation in securitized lending transactions may increase in future periods.

Master Lease Facilities — Dell historically maintained master lease facilities which provided the company with the ability to lease certain real property, buildings, and equipment to be constructed or acquired. These leases were accounted for as operating leases by Dell. During fiscal 2004, Dell paid $636 million to purchase all of the assets covered by its master lease facilities. Accordingly, the assets formerly covered by these facilities are included in Dell’s consolidated statement of financial position and Dell has no remaining lease commitments under these master lease facilities.

During fiscal 2005, Dell continued to maintain strong liquidity with cash flow from operations of $5.3 billion, compared to $3.7 billion in fiscal 2004. Dell ended fiscal 2005 with a record $14.1 billion in cash and investments, an increase of $2.2 billion over the prior fiscal year end. The following table summarizes Dell’s ending cash, cash equivalents, and investments and the results of Dell’s consolidated statements of cash flows for the past three fiscal years:

Operating Activities — Cash flows from operating activities during fiscal 2005, 2004, and 2003 resulted primarily from net income, which represents Dell’s principal source of cash. The increase in operating cash flows during fiscal 2005 was primarily led by an increase in operating income and the improvement in Dell’s cash conversion cycle. In addition, operating cash flows have historically been impacted by income tax benefits that result from the exercise of employee stock options. These tax benefits totaled $249 million, $181 million, and $260 million in fiscal 2005, 2004, and 2003, respectively. These benefits represent corporate tax deductions (that are considered taxable income to the employee) that represent the amount by which the fair value of Dell’s stock exceeds the option strike price on the day the employee exercises a stock option.

Dell’s direct business model allows the company to maintain a leading asset management system in comparison to its major competitors. Dell is capable of minimizing inventory risk while collecting amounts due from customers before paying vendors, thus allowing the company to generate annual

The increase in days of sales outstanding at January 28, 2005, from the end of fiscal 2004, was partially due to an increase in non-U.S. revenues where collection periods tend to be longer. Dell defers the cost of shipped products awaiting revenue recognition until the goods are delivered and revenue is recognized. These deferred costs are included in Dell’s reported days of sales outstanding because management believes it illustrates a more conservative and accurate presentation of Dell’s days of sales outstanding and cash conversion cycle. These deferred costs are recorded in other current assets in Dell’s consolidated statement of financial position and totaled $430 million, $387 million, and $423 million as of January 28, 2005, January 30, 2004, and January  31, 2003, respectively.

Investing Activities — Cash used in investing activities during fiscal 2005 was $2.3 billion, as compared to $2.8 billion in fiscal 2004 and $1.4 billion in fiscal 2003. Cash used in investing activities principally consists of net purchases of investments and capital expenditures for property, plant, and equipment. The decrease in cash used in investing activities during fiscal 2005, compared to fiscal 2004, was primarily due to the purchase of $636 million in assets during fiscal 2004 that were held in master lease facilities and previously classified as operating leases. This was partially offset by an increase in capital expenditures during fiscal 2005 as Dell continued to focus on investing in the company’s global information technology infrastructure in order to support Dell’s rapid global growth and the increased complexity of its product and service offerings. The increase in cash used in investing activities during fiscal 2004, when compared to fiscal 2003, was primarily due to the increase in purchases of investments, net of maturities and sales, as Dell continues to invest its cash provided by operating activities.

Financing Activities — Cash used in financing activities during fiscal 2005 was $3.1 billion, as compared to $1.4 billion in fiscal 2004 and $2.0 billion in fiscal 2003. Financing activities primarily consist of the repurchase of Dell common stock, partially offset by the issuance of common stock under employee stock option plans. The increase in share repurchases in fiscal 2005, compared to fiscal 2004, drove the year-over-year increase in cash used in financing activities. Dell repurchased 119 million shares during fiscal 2005, compared to 63 million in fiscal 2004. The decrease in cash used during fiscal 2004, compared to fiscal 2003, was primarily due to an increase in the number of shares issued under employee plans and an increase in the weighted average exercise price of stock options exercised. In addition, the aggregate value of common stock repurchased by Dell declined during fiscal 2004, which was primarily due to a respective decrease in the weighted average share price of common stock repurchased by Dell.

Management currently believes that Dell’s fiscal 2006 cash flows from operations will continue to exceed net income and will be more than sufficient to support Dell’s operations and capital requirements. Dell currently anticipates that it will continue to utilize its strong liquidity and cash flows from operations to repurchase its common stock, invest in systems and processes, invest in

Share Repurchase Program — Dell has a share repurchase program that authorizes the company to purchase shares of common stock in order to both distribute cash to stockholders and manage dilution resulting from shares issued under Dell’s equity compensation plans. However, Dell does not currently have a policy that requires the repurchase of common stock in conjunction with share-based payment arrangements. As of January 28, 2005, Dell’s share repurchase program authorized the purchase of up to 1.25 billion shares of common stock at an aggregate cost not to exceed $20 billion. Subsequent to fiscal 2005, on March 3, 2005, the Board of Directors of Dell approved an amendment to the plan to increase the number of authorized shares available for repurchase by 250 million to 1.5 billion, and the aggregate dollar cost threshold by $10 billion to $30 billion.

Dell expects to continue to repurchase shares of common stock through a systematic program of open market purchases. As of the end of fiscal 2005, Dell had cumulatively repurchased 1.2 billion shares for an aggregate cost of approximately $18.3 billion. During fiscal 2005, Dell repurchased 119 million shares of common stock for an aggregate cost of $4.2 billion. Through the fourth quarter of fiscal 2003, Dell previously utilized equity instrument contracts to facilitate its repurchase of common stock. All remaining put and call contracts were settled in full during the fourth quarter of fiscal 2003. Dell now effects its share repurchases entirely through open market transactions. As of March 3, 2005, Dell has spent approximately $1.3 billion in share repurchases for the first quarter of fiscal 2006.

Capital Expenditures — During fiscal 2005, Dell spent $525 million on property, plant, and equipment. Capital expenditures increased during fiscal 2005, compared to recent fiscal years, primarily due to the company’s global expansion efforts and infrastructure investments in order to support the company’s future growth. Product demand and mix, as well as ongoing efficiencies in operating and information technology infrastructure, influence the level and prioritization of Dell’s capital expenditures. Capital expenditures for fiscal 2006 are currently expected to be up to approximately $700 million. Capital expenditures during fiscal 2006 are expected to be funded by cash flows from operating activities and are estimated to increase compared to recent years due to Dell’s continued expansion worldwide and the need for additional capacity.

Restricted Cash — Pursuant to the joint venture agreement between DFS and CIT, DFS is required to maintain certain escrow cash accounts. Due to the consolidation of DFS, $438 million in restricted cash is included in other current assets on Dell’s consolidated statement of financial position as of January 28, 2005.

The following table summarizes Dell’s contractual cash obligations as of January 28, 2005.

Advances Under Credit Facilities — DFS maintains credit facilities with CIT which provide DFS with a funding capacity of up to $1.0 billion. Outstanding advances under these facilities totaled $158 million and are included in other current and non-current liabilities on Dell’s consolidated statement of financial position as of January 28, 2005.

Long-Term Debt — As of January 28, 2005, Dell had outstanding $200 million in Senior Notes due April 15, 2008 and $300 million in Senior Debentures due April 15, 2028. For additional information regarding these issuances, see Note 2 of Notes to Consolidated Financial Statements included in “Item 8 — Financial Statements and Supplementary Data.”

Concurrent with the issuance of the Senior Notes and Senior Debentures, Dell entered into interest rate swap agreements converting Dell’s interest rate exposure from a fixed rate to a floating rate basis to better align the associated interest rate characteristics to its cash and investments portfolio. The interest rate swap agreements have an aggregate notional amount of $200 million maturing April 15, 2008 and $300 million maturing April 15, 2028. The floating rates are based on three-month London Interbank Offered Rates plus 0.41% and 0.79% for the Senior Notes and Senior Debentures, respectively. As a result of the interest rate swap agreements, Dell’s effective interest rates for the Senior Notes and Senior Debentures were 2.059% and 2.392%, respectively, for fiscal 2005.

Purchase Obligations — Purchase obligations are defined as contractual obligations to purchase goods or services that are enforceable and legally binding on Dell and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the transaction. Purchase obligations do not include contracts that may be cancelled without penalty.

Dell utilizes several suppliers to manufacture sub-assemblies for the company’s products. Dell’s highly efficient supply chain management allows the company to enter into flexible and mutually beneficial purchase arrangements with its suppliers in order to minimize inventory risk. Consistent with industry practice, Dell acquires raw materials or other goods and services, including product components, by issuing suppliers authorizations to purchase based on Dell’s projected demand and manufacturing needs. These purchase orders are typically fulfilled within 30 days and are entered into during the ordinary course of business in order to establish best pricing and continuity of supply for Dell’s production. Purchase orders are not included in the table above as they typically represent Dell’s authorization to purchase rather than binding purchase obligations.

DFS Purchase Commitment — Included in the table above is Dell’s minimum purchase obligation to purchase CIT’s 30% interest in DFS at the expiration of the joint venture on January 29, 2010, for a purchase price ranging from $100 million to $345 million. See Note 6 of “Notes to Consolidated Financial Statements” included in “Item 8 — Financial Statements and Supplementary Data.”

Market Risk

Dell is exposed to a variety of risks, including foreign currency exchange rate fluctuations and changes in the market value of its investments. In the normal course of business, Dell employs established policies and procedures to manage these risks.

Dell’s objective in managing its exposure to foreign currency exchange rate fluctuations is to reduce the impact of adverse fluctuations on earnings and cash flows associated with foreign currency exchange rate changes. Accordingly, Dell utilizes foreign currency option contracts and forward contracts to hedge its exposure on forecasted transactions and firm commitments in most of the foreign countries in which it operates. The principal currencies hedged during fiscal 2005 were the

Based on Dell’s foreign currency cash flow hedge instruments outstanding at January 28, 2005 and January 30, 2004, Dell estimates a maximum potential one-day loss in fair value of approximately $43 million and $53 million, respectively, using a Value-at-Risk (“VAR”) model. The VAR model estimates were made assuming normal market conditions and a 95% confidence level. Dell used a Monte Carlo simulation type model that valued its foreign currency instruments against a thousand randomly generated market price paths. Forecasted transactions, firm commitments, fair value hedge instruments, and accounts receivable and payable denominated in foreign currencies were excluded from the model. The VAR model is a risk estimation tool, and as such, is not intended to represent actual losses in fair value that will be incurred by Dell. Additionally, as Dell utilizes foreign currency instruments for hedging forecasted and firmly committed transactions, a loss in fair value for those instruments is generally offset by increases in the value of the underlying exposure. As a result of Dell’s hedging activities, foreign currency fluctuations did not have a material impact on Dell’s results of operations and financial position during fiscal 2005, 2004, and 2003.

At January 28, 2005, Dell had $14.1 billion of total cash and investments (including investments in equity securities discussed below), all of which are stated at fair value. Dell’s investment policy is to manage its total cash and investments balances to preserve principal and liquidity while maximizing the return on the investment portfolio through the full investment of available funds. Dell diversifies its investment portfolio by investing in multiple types of investment-grade securities and through the use of third-party investment managers. Based on Dell’s investment portfolio and interest rates at January 28, 2005 and January 30, 2004, a 100 basis point increase or decrease in interest rates would result in a decrease or increase of approximately $97 million and $140 million, respectively, in the fair value of the investment portfolio. Changes in interest rates may affect the fair value of the investment portfolio; however, Dell will not recognize such gains or losses unless the investments are sold.

At January 28, 2005, the fair value of investments in equity securities of privately and publicly held technology companies was $43 million. These investments were made in order to enhance and extend Dell’s direct business model and core business initiatives. Because these companies are typically early-stage companies with products or services that are not yet fully developed or that have not yet achieved market acceptance, these investments are inherently risky. Dell currently anticipates that it will continue to make minimal additional investments in fiscal 2006 and will focus on managing its current investments.

Dell has entered into interest rate swap arrangements that convert its fixed interest rate expense to a floating rate basis to better align the associated interest rate characteristics to its cash and investments portfolio. The interest rate swaps qualify for hedge accounting treatment pursuant to SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. Dell has designated the issuance of the Senior Notes and Senior Debentures and the related interest rate swap agreements as an integrated transaction. The difference between Dell’s carrying amounts and fair value of its long-term debt and related interest rate swaps was not material at January 28, 2005 and January 30, 2004. The differential to be paid or received on the interest rate swap agreements is accrued and recognized as an adjustment to interest expense as interest rates change.

There are numerous factors that affect Dell’s business and the results of its operations. These factors include general economic and business conditions; the level of demand for Dell’s products and services; the level and intensity of competition in the technology industry and the pricing pressures that have resulted; the ability of Dell to timely and effectively manage periodic product transitions, as well as component availability and cost; the ability of Dell to develop new products based on new or evolving technology and the market’s acceptance of those products; the ability of Dell to manage its inventory levels to minimize excess inventory, declining inventory values, and obsolescence; the product, customer, and geographic sales mix of any particular period; Dell’s ability to effectively manage its operating costs; and the effect of armed hostilities, terrorism, natural disasters, or public health issues on the economy generally, on the level of demand for Dell’s products and services, and on Dell’s ability to manage its supply and delivery logistics in such an environment. For a discussion of these and other factors affecting Dell’s business and prospects, see “Item 1 — Business — Factors Affecting Dell’s Business and Prospects.”

Critical Accounting Policies

Dell prepares its financial statements in conformity with generally accepted accounting principles in the United States of America (“GAAP”). The preparation of GAAP financial statements requires certain estimates, assumptions, and judgments to be made that may affect Dell’s consolidated statement of financial position and results of operations. Dell believes its most critical accounting policies relate to revenue recognition, warranty accruals, and income taxes. Management has discussed the development, selection, and disclosure of its critical accounting policies with the Audit Committee of Dell’s Board of Directors. These critical accounting policies and Dell’s other accounting policies are described in Note 1 of “Notes to Consolidated Financial Statements” included in “Item 8 — Financial Statements and Supplementary Data.”

Revenue Recognition — Dell frequently enters into sales arrangements with customers that contain multiple elements or deliverables such as hardware, software, peripherals, and services. Judgments and estimates are critical to ensure compliance with GAAP. These judgments relate to the allocation of the proceeds received from an arrangement to the multiple elements, the determination of whether any undelivered elements are essential to the functionality of the delivered elements, and the appropriate timing of revenue recognition. Dell offers extended warranty and service contracts to customers that extend and/or enhance the technical support, parts, and labor coverage offered as part of the base warranty included with the product. Revenue from extended warranty and service contracts, for which Dell is obligated to perform, is recorded as deferred revenue and subsequently recognized over the term of the contract or when the service is completed. Revenue from sales of third-party extended warranty and service contracts, for which Dell is not obligated to perform, is recognized on a net basis at the time of sale.

Estimates that further impact revenue recognition relate primarily to customer sales returns and allowance for doubtful accounts. Both estimates are relatively predictable based on historical experience. The primary factors affecting Dell’s accrual for estimated customer returns include estimated return rates as well as the number of units shipped that still have a right of return as of the balance sheet date. During recent fiscal years, customer returns as a percentage of revenues have declined to approximately 1%. Factors affecting Dell’s allowance for doubtful accounts include historical and anticipated customer default rates of the various aging categories of accounts receivable. Each quarter, Dell reevaluates its estimates to assess the adequacy of its recorded accruals for customer returns and allowance for doubtful accounts and adjusts the amounts as necessary.

Warranty — Dell records warranty liabilities at the time of sale for the estimated costs that may be incurred under its basic limited warranty. The specific warranty terms and conditions vary depending upon the product sold and country in which Dell does business, but generally includes technical

Income Taxes — Dell calculates a provision for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized by identifying the temporary differences arising from the different treatment of items for tax and accounting purposes. In determining the future tax consequences of events that have been recognized in Dell’s financial statements or tax returns, judgment is required. Differences between the anticipated and actual outcomes of these future tax consequences could have a material impact on Dell’s consolidated results of operations or financial position.

Recently Issued Accounting Pronouncements

On December 16, 2004, the FASB issued SFAS No. 123R, Share-Based Payment. SFAS No. 123R addresses the accounting for share-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. SFAS No. 123R eliminates the ability to account for share-based compensation transactions using Accounting Principles Board Opinion No. 25 and generally requires that such transactions be accounted for using a fair-value-based method. Dell expects to adopt this standard on its effective date, which is the beginning of Dell’s third quarter of fiscal 2006. Dell is currently assessing the final impact of this standard on the company’s consolidated results of operations, financial position, and cash flows. This assessment includes evaluating option valuation methodologies and assumptions as well as potential changes to Dell’s compensation strategies.

On November 24, 2004, the FASB issued SFAS No. 151, Inventory Costs — an amendment of ARB No. 43. SFAS No. 151 requires idle facility expenses, freight, handling costs, and wasted material (spoilage) costs to be excluded from the cost of inventory and expensed when incurred. It also requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS No. 151 will be effective at the beginning of Dell’s fiscal 2007. SFAS No. 151 is not expected to have a material impact on Dell’s consolidated results of operations or financial position.

Response to this item is included in “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Market Risk.”

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

All other schedules are omitted because they are not applicable.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Dell Inc.

We have completed an integrated audit of Dell Inc.’s January 28, 2005 consolidated financial statements and of its internal control over financial reporting as of January 28, 2005 and audits of its January 30, 2004 and January  31, 2003 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated Financial Statements and Financial Statement Schedule

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Dell Inc. and its subsidiaries at January 28, 2005 and January 30, 2004, and the results of their operations and their cash flows for each of the three years in the period ended January 28, 2005 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

Internal Control Over Financial Reporting

Also, in our opinion, management’s assessment, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A — Controls and Procedures, that the company maintained effective internal control over financial reporting as of January 28, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the company maintained, in all material respects, effective internal control over financial reporting as of January 28, 2005, based on criteria established in Internal Control — Integrated Framework issued by the COSO. The company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PRICEWATERHOUSECOOPERS LLP

Austin, Texas

March 3, 2005

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(in millions)

The accompanying notes are an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENTS OF INCOME

(in millions, except per share amounts)

The accompanying notes are an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

The accompanying notes are an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in millions)