Dell 2001 Annual Report Download - page 27

Table of Contents
36 days from a negative 21 days in fiscal 2001. Days of sales outstanding include the effect of customer shipments recorded in other current assets in the
accompanying Consolidated Statement of Financial Position included in "Item 8 — Financial Statements and Supplementary Data."
The Company has historically generated 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. Given cash conversion cycle levels and expectations as to tax benefits, it is unlikely that
cash flow from operating activities will be significantly in excess of net income in fiscal 2003. However, management believes that the Company'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. The Company 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 — The Company has a share repurchase program that it uses primarily to manage the dilution resulting from shares issued under
the Company's employee stock plans. As of the end of fiscal year 2002, the Company had cumulatively repurchased 940 million shares over a six-year period
out of its authorized 1 billion share repurchase program, for an aggregate cost of $9.8 billion. During fiscal year 2002, the Company repurchased 68 million
shares of common stock for an aggregate cost of $3.0 billion. The Company has utilized equity instrument contracts to facilitate its repurchase of common
stock, but has not entered into any new contracts subsequent to October of 2000. At February 1, 2002, the Company held equity options that allow for the
purchase of 25 million shares of common stock at an average price of $58 per share. At February 1, 2002, the Company also had outstanding put obligations
covering 51 million shares with an average exercise price of $45 per share for a total of $2.3 billion (compared to a total of $5.4 billion at February 2, 2001).
The equity instruments are exercisable only at the date of expiration and expire at various dates through the first quarter of fiscal 2004. However, these
instruments contain termination triggers that allow the holder to force settlement beginning at an $8 share price. The outstanding put obligations at February 1,
2002 permitted net share settlement at the Company's option and, therefore, did not result in a liability on the accompanying Consolidated Statement of
Financial Position included in "Item 8 — Financial Statements and Supplementary Data." The Company's practice has been to physically settle in-the-money
put contracts as they mature by repurchasing the shares subject to the contracts and plans to continue to utilize this settlement option.
Capital Expenditures — The Company spent approximately $300 million on capital projects during fiscal 2002. Product demand and mix, as well as ongoing
efficiencies in operating and information technology infrastructure, influence the level and prioritization of the Company's capital expenditures. Cash flows
for similar capital expenditures for fiscal 2003 are currently expected to be approximately $300 million.
Long Term Debt — As of February 1, 2002, the Company 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 3 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, the Company entered into interest rate swap agreements converting the Company'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 ("LIBOR") plus 0.41% and 0.79% for the
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