Dell 2002 Annual Report Download - page 25

Table of Contents
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 an option, that reduce Dell's taxes payable, and that under generally accepted
accounting principles are recorded directly to stockholders' equity accounts rather than to earnings.
Dell ended fiscal 2003 with a record $9.9 billion in cash and investments, an increase of $1.6 billion over the prior year level. Dell invests a large portion of
its available cash in highly liquid/highly rated government, agency, and corporate debt securities of varying maturities at the date of acquisition. Dell's
investment policy is to manage its investment portfolio to preserve principal and maintain liquidity while maximizing the return on the investment portfolio
through the full investment of available funds. As of January 31, 2003, and February 1, 2002, Dell had $7.9 billion and $6.7 billion, respectively, invested in
these securities. Additionally, Dell invests in equity securities of various private and public entities in order to enhance and extend Dell's strategic initiatives.
At January 31, 2003 and February 1, 2002, these equity investments totaled $196 million and $289 million, respectively. The amount of unrealized net
appreciation included in these balances was not material.
During fiscal 2003, Dell continued to improve upon its efficient asset management. As compared to fiscal 2002, days of sales outstanding and days of supply
in inventory each improved by one day resulting in a Dell record of 28 and 3, respectively. Days in accounts payable decreased by one day. As a result, Dell's
cash conversion cycle improved to a negative 37 days in fiscal 2003 from a negative 36 days in fiscal 2002. As also discussed in Note 1 of the Notes to
Financial Statements included in "Item 8 — Financial Statements and Supplementary Data," Dell adopted SAB 101 in fiscal 2001, resulting in a change in
method of recognizing product revenue from when shipped to when received by the customer. SAB 101 indicates that both title and risk of loss on products
must pass to the customer before revenue can be recognized. Title passes to Dell's customers on substantially all products when they are shipped. Risk of loss,
however, generally doesn't pass to the customer until delivery. Dell defers the cost of revenue associated with these in-transit customer shipments in other
current assets in its Consolidated Statement of Financial Position until they are delivered and revenue is recognized. These deferred costs are included in
reported days of sales outstanding above because management believes that including the effect of the deferred costs yields a more conservative presentation
that is consistent with previously reported days of sales outstanding data for periods prior to the adoption of SAB 101.
Dell has historically generated annual cash flows from operating activities in amounts greater than net income, driven mainly by continually improving cash
conversion cycle metrics and the aforementioned tax benefits. Management currently believes that the fiscal 2004 cash flows from operations will continue to
exceed net income. Management believes that Dell's cash provided from operations will continue to be strong and be more than sufficient to support its
operations and capital requirements, even if the economic downturn should continue or accelerate. Dell currently anticipates that it will continue to utilize its
strong liquidity and cash flows to repurchase its common stock, make a limited number of strategic equity investments, consider — and possibly make —
acquisitions, and invest in systems and processes, as well as invest in the development and growth of its enterprise products.
Capital Commitments
Share Repurchase Program — Dell has a share repurchase program that authorizes the purchase of up to 1.25 billion shares of common stock to manage the
dilution resulting from shares issued under Dell's employee stock plans. As of the end of fiscal 2003, Dell had cumulatively repurchased 991 million shares
for an aggregate cost of approximately $12 billion. During fiscal 2003, Dell repurchased 50 million shares of common stock for an aggregate cost of
$2.3 billion. Dell historically utilized equity instrument contracts to facilitate its repurchase of common stock; however, all remaining put and call contracts
were settled in full during fiscal 2003. Consequently, no equity instrument contracts remain outstanding related to Dell's share repurchase program. Dell
expects to
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