Dell 2001 Annual Report Download - page 26

Table of Contents
Income Taxes
The Company's effective tax rate was 28% for fiscal 2002 compared to 30% for fiscal 2001 and 32% for fiscal 2000. The differences in the effective tax rates
among fiscal years result from changes in the geographical distribution of taxable income and losses and certain non tax-deductible charges. The Company's
effective tax rate is lower than the US federal statutory rate of 35%, principally because of the Company's geographical distribution of taxable income. Due to
uncertainty regarding both the timing of the economic recovery and the international regions ability to contribute relatively more of the Company's taxable
income, the effective tax rate is expected to increase slightly in fiscal 2003.
Liquidity, Capital Commitments and Other Financing Arrangements
Liquidity
The following table presents selected financial statistics and information for each of the past three fiscal years (dollars in millions):
Fiscal Year Ended
February 1, February 2, January 28,
2002 2001 2000
Cash and investments $ 8,287 $ 7,853 $ 6,853
Working capital $ 358 $ 2,948 $ 2,489
Days of sales outstanding 29 32 34
Days of supply in inventory 4 5 6
Days in accounts payable 69 58 58
Cash conversion cycle (36) (21) (18)
During fiscal 2002, 2001, and 2000, the Company generated $3.8 billion, $4.2 billion, and $3.9 billion, respectively, in cash flows from operating activities,
which represents the Company's principal source of cash. Cash flows from operating activities resulted primarily from net income, improvements in the
Company's cash conversion cycle and income tax benefits ($487 million, $929 million, and $1.04 billion in fiscal 2002, 2001, and 2000, respectively) that
resulted from the exercise of employee stock options. These benefits represent corporate tax deductions (that are considered taxable income to the employee)
that represent the amount by which the fair value of the Company's stock exceeds the option strike price on the day the employee exercises an option, that
reduce the Company's taxes payable, and that under generally accepted accounting principles are recorded directly to stockholders' equity accounts rather than
to earnings.
The Company ended fiscal 2002 with $8.3 billion in cash and investments, $434 million greater than the prior year level. The Company invests a portion of its
available cash in highly liquid investments of varying maturities at date of acquisition. The Company's investment policy is to manage its investment portfolio
to preserve principal and liquidity while maximizing the return on the investment portfolio through the full investment of available funds. As of February 1,
2002, and February 2, 2001, the Company had $6.7 billion and $6.3 billion, respectively, invested in these investments. Additionally, the Company invests in
equity securities of various private and public entities in order to enhance and extend the Company's strategic initiatives. At February 1, 2002 and February 2,
2001, these equity investments totaled $335 million and $938 million, respectively, and of those amounts approximately $3 million and $112 million,
respectively, represented unrealized net appreciation. See "Item 1 — Business — Factors Affecting the Company's Business and Prospects — Equity
Investments."
During fiscal 2002, the Company continued to improve upon its efficient asset management. As compared to fiscal 2001, days in accounts payable increased
by 11 days, days of sales outstanding decreased by 3 days, and days of supply in inventory decreased by one to a Company record 4 days. This resulted in an
improvement in the Company's cash conversion cycle to a negative
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