Dividends

Today Dell held its 2009 annual meeting of stockholders in Austin, Texas. This meeting comes on the heels of our analyst meeting earlier this week and gives us the opportunity to share our views directly with our shareholders that attended either in person or online via the webcast.

The meeting included presentations by both our CEO Michael Dell and CFO Brian Gladden, which can be downloaded from the Shareholder Meeting Event page. Key messages from Michael included his reiteration of Dell's strong core assets, the company's drive toward a consistent and disciplined operating agenda, the improvement of its core business in each of the business units, and its expansion of capabilities in the enterprise to deliver customer-focused solutions.

To elaborate, one of Dell's key advantages is its set of strong core assets including its large installed base and direct customer relationships. Dell is able to leverage these assets, acting quickly to meet the needs of our customers with disruptively great value and IT simplification. Dell is focused on continuing to provide this value that customers have come to know and is committed to providing a broader set of customer solutions through organic investments and strategic alternatives. This strategy should allow Dell to steadily shift its portfolio to higher margin offerings and more valuable businesses.

Brian provided a financial update to shareholders and outlined Dell's operating agenda for FY2010. We are currently experiencing one of the most difficult macro-economic environments of our time, but even before the downturn Dell had made the decision to operate with a specific agenda: 1) focus on prioritizing profitability; 2) protect our strong balance sheet and improve working capital focus; 3) aggressively take costs out of the company and deliver at least $4B in cost savings; 4) recapture product leadership through improved design and solutions; 5) target growth in emerging countries; and 6) evaluate and invest in growth initiatives that shift our portfolio to higher margin offerings.

Moving to the formal business portion of the meeting, we had four proxy proposals voted on this year. According to preliminary results, the two routine company proposals both passed. The election of directors passed with favorable votes for each director of at least 83% and the ratification of our independent auditor passed obtaining at least 99% of the total votes cast "For" the proposal. In addition, two stockholder proposals were presented this year: Proposal 1 - Reimbursement of Proxy Expenses and Proposal 2 - Adopting a Simple Majority Vote. Proposal 1 did not pass, receiving 35% votes "For" the proposal; however, Proposal 2 was approved, receiving 69% votes "For" the proposal. Final results will be posted on the event page once they are available.

After the formal vote, Michael, Brian and I took questions from the audience and via online submissions for about 20 minutes before wrapping up the meeting.

Ultimately, Dell will continue to provide disruptively great value to its customers while balancing its financial goals of liquidity, profitability, and growth. Michael and Brian both commented on this focus throughout their presentations today, so I encourage you to listen to the replay of the meeting.

Thanks for following us on DellShares.

-Rob

In conjunction with our July 17th Annual Meeting of Stockholders, we filed our proxy statement on Monday, June 1^st and will begin mailing notices to shareholders on Friday, June 5^th.  As a shareholder, once you receive your notice in the mail, you can access the voting page online where you will find: the proxy statement, our form 10-K annual report, a link to our 2009 Interactive Year in Review and information on the time and location of the annual meeting.

In this year's proxy filing, we have two routine company proposals: the election of directors and ratification of our independent auditor.  In addition, we have two stockholder proposals: reimbursement of proxy expenses and the adoption of a simple majority vote.  In the proxy, you will find details on each of these proposals as well as the Board's statements in support or opposition.  Whether you are a current shareholder or simply an interested individual, we encourage you to review our proxy statement. 

In addition to the proxy statement, we also encourage you to visit our online Fiscal Year 2009 Interactive Year in Review, which contains a letter from Michael reiterating Dell's focus on customers from its first days in 1984 through the last 25 years and beyond. He also describes the company's ability to transform and meet customers' needs and requirements. Our online interactive year in review is one example of this innovative change. Last year, Dell was one of the first to launch a completely online and interactive year in review, which not only created a better user experience for our visitors, but also helped reduce our global footprint by reducing our paper usage.

This year, we leveraged the success of the 2008 year in review and are excited to offer even more interactive features. The 2009 Year in Review offers more content-sharing features, better search capability, online community conversations, a video player and links to customer case studies. We also added a downloads page where you will find downloadable files of the sections of our annual report on Form 10-K filed with the SEC on March 26, 2009, as well as full downloads of the 10-K and the Chairman's letter.

We value your opinion and your vote.  Shareholder feedback enables us to serve you better.  Proxy voting is an important means by which you as an investor can have a say in the business operations and activities of Dell.  We look forward to seeing those of you who are able to join us on July 17^th for the annual meeting.  As always, we encourage you to ask questions or leave comments on Dell Shares. 

Dell announced first-quarter fiscal-year 2010 financial results on May 28^th. Brian Gladden, Senior Vice President and CFO, discusses the results and the company's outlook. Please review earnings materials on the Dell Investor Relations Q1 events page.  All comparisons are year-over-year unless otherwise noted.

We announced Q1 results today.  Revenue was down 23% to $12.3 billion.  EPS was $0.15 per share and cash from operations was $761 million.     

I am pleased to have Brian Gladden join us on Dell Shares to provide his view on the first quarter, the economy, industry demand, and the company's outlook. 

Also, we strongly encourage investors to read the full press release and earnings presentation; and listen to our conference call that can be found on the investor relations web site.   As always, we encourage you to ask questions or leave comments on Dell Shares.

Yesterday, Dell held its annual shareholder meeting for fiscal-year 2007.  It was postponed from July of this year due to the delay in the filing of our Fiscal 2007 10K and Proxy.  It's been a busy few days for our IR team - our first earnings conference call in over a year - which was also a strategy call - quickly followed by the shareholder meeting.  So I am a bit later with this post than I'd like - and I apologize for that - I'm still learning about how to communicate in a blog environment! 

I thought this would be a good time to talk about the mechanics of a shareholder meeting and its role in the corporate governance process.  I will also discuss speculation surrounding our share repurchase program.  I hope this will help to answer some of the questions people have asked us recently via calls, emails and this blog.

So let's start with the shareholder meeting.  The requirement to have an annual shareholder meeting is usually set forth in a company's By-Laws.  Many companies also have a meeting of their Board within a day or so of the shareholder meeting, and then have the Board members stay on for the shareholder meeting.  Shareholders of "record" - meaning they have to have owned shares on a certain date - can submit proposals to the company for inclusion in the proxy so long as the proposal meets certain requirements.   For a shareholder to be able to submit a proposal, they must either own 2,000 shares of the company or hold shares equivalent to 1% of the company's stock.  Also, the company can submit its proposals; such as nominations to the board of directors, compensation plans, and ratification of auditors. 

This year we had five proxy proposals and the results from the proxy vote can be found here.   For shareholder proposals that were not passed, shareholders can resubmit the proposals the following year if specific support thresholds were achieved.

At the shareholder meeting Don Carty talked about the financial health of the company and our commitment to growing the company in a responsible and profitable way - a way that can generate sustainable cash returns, which ultimately drives shareholder value.  Michael Dell talked about our five key priorities.  Following which, they both answered questions from the audience and the web.  Investors were interested, among other things, in expressing their interest in Dell paying a dividend, as well as commenting on our compensation practices.  Shareholders also asked for management's take on why the company's stock declined last week despite announcing a 9% Y/Y increase in revenue and a 26% increase in EPS.

So now let's turn to share repurchase.  We voluntarily suspended our share repurchase program in September of 2006, choosing instead to wait until after our Audit Committee completed its independent investigation and we filed our past due SEC filings.  All of this was completed by October of 2007.  We did not resume our buyback then because we were in "blackout" from earnings last week.  "Blackout" is the period before and after a company's earnings when it cannot buy back its stock.   

Dell's Board met on Monday, Dec. 3^rd where they voted to authorize a $10 billion share repurchase program.  There has been a lot of speculation about this program - unfortunately we could not talk about it until the Board actually made a decision on what we were going to do.  A company can invest its capital in several things.  And it can get its capital from several places.  At the end of the day a company wants to generate a return on its capital that's in excess of what it costs the company to obtain that capital - that's how it creates value for its shareholders. 

Let's start with how companies obtain capital.  First, a company can generate cash from their business: over the last four quarters Dell generated about $4 billion in cash flow from operations.  Second, a company can have money already "saved" in the form of cash and cash equivalents -- or investments.  Third, a company can borrow money - or debt.  Fourth, a company can sell more stock in the company - or issue equity.  And fifth, a company can sell some of its assets.  Since Dell has historically generated cash in excess of the cash required to run the business, we've saved a lot of cash and then used this cash from operations to buy back our stock. 

As far as how a company can invest its capital - it can do a few things.  First, it can invest in its own business by building manufacturing facilities or other buildings- these are called capital investments.  Second, it can use capital to buy other companies - or acquisitions.  Third, it can buy back its own stock.  And fourth, it can pay a dividend.  How a company allocates its capital across these opportunities varies from company to company.  And depending on the current business priorities, economic environment or company valuation, a company's capital allocation can change over time.  No two companies are alike.

So why does a share repurchase program matter?  Simply stated, ceteris paribus, buying back shares reduces the number of shares outstanding and increases shareholders' stake in the future cash flows of the company.

Some have asked if we will borrow to fund our share repurchase plan since most of our cash, like many global companies, is outside of the United States.  We look at our investments in aggregate - so this includes share repurchase, capital expenditures and acquisitions. Right now we believe we have sufficient liquidity to fund these activities - but this could change over time and we have said that we could use the cash we have on our balance sheet as well as debt to fund investments.  At the end of the day we want to maintain our financial flexibility.

Since we will start to execute this current authorization through open market purchases, many people would like us to say exactly when and how we will buy the stock. This is really not prudent and most companies don't do it.  What we have said is that share repurchase will likely be one of the key uses of our capital both now an in the future.  

Recently, we received a comment from a shareholder unhappy with our use of cash and lack of quarterly dividend, so we thought this would be an excellent opportunity to address the topic in the form of a blog post. First, we appreciate the comment and understand that Dell stock is part of many shareholders' savings.  Second, shareholders voted on this proposal last year, and 94% of shareholders did not support the measure. 

The Board's position has been that shareholder value is best delivered by using the company's cash to reinvest in growth, while returning capital to shareholders by managing dilution through a stock repurchase program. While the writer mentioned P&G, I think it's important to remember that different businesses demand different strategies.  Dell's business and the current business climate requires that we pursue growth, which involves investments that will help the company achieve a global position and growth rate necessary to return value to our shareholders. For example, in FY'07 we spent $895M on property, plant, and equipment to support our global expansion efforts; such as new customer contact centers in the Philippines, Malaysia, India, and Canada; new manufacturing facilities in Brazil, India, and Poland; new business centers in Philippines, Malaysia, and Canada; and expansion of design centers in China, India, and Taiwan.

Also, it's important to note that a stock repurchase program offers several advantages over a quarterly dividend: 1) the elimination or reduction of dilution; 2) more flexibility in balancing the return of capital to shareholders with other business objectives; and 3) more flexibility for shareholders to determine when they want to convert all or a portion of their investment into cash.

Dell shareholders will have the opportunity to vote on this topic again at this year's annual shareholder meeting. The Board's members, who are elected by shareholders, regularly consider whether we should pay a dividend and review how we deploy our available cash, while balancing the needs of the company for liquidity, the ability to generate earnings and cash flow, and the most effective means to enhance shareholder value. At this time, we believe we are headed in the right direction.