Dell 2001 Annual Report Download - page 31

Table of Contents
point increase or decrease in interest rates would result in a decrease or increase of approximately $100 million, respectively, in the fair value of the
investment portfolio. Changes in interest rates may affect the fair value of the investment portfolio; however, the Company will not recognize such gains or
losses unless the investments are sold. Moreover, such gains or losses have historically been immaterial, because the Company has generally held such
investments to maturity — a practice it currently intends to continue.
At February 1, 2002, the fair value of investments in equity securities of privately and publicly held technology companies was $335 million. These
investments were made in order to enhance and extend the Company'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. The Company currently anticipates that it will make minimal additional investments in fiscal 2003 and will focus on managing its current
investments.
Debt
The Company 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 133. The
Company 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 the Company's carrying amounts and fair value of its long-term debt and related interest rate swaps was not material at February 1,
2002 and February 2, 2001. 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.
Factors Affecting the Company's Business and Prospects
There are numerous factors that affect the Company's business and the results of its operations. These factors include general economic and business
conditions; the level of demand for the Company's products and services; the effect of armed hostilities, acts of terrorism or other conflict on the economy
generally, on the level of demand for the Company's products and services, and on the company's ability to manage its supply and delivery logistics in such an
environment; the level and intensity of competition in the technology industry and the pricing pressures that have resulted; the ability of the Company to
timely and effectively manage periodic product transitions, as well as component availability and cost; the ability of the Company to develop new products
based on new or evolving technology and the market's acceptance of those products; the ability of the Company 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; the Company's
ability to recover its investments in venture capital activities; and the Company's ability to effectively manage its operating costs. For a discussion of these
and other factors affecting the Company's business and prospects, see "Item 1 — Business — Factors Affecting the Company's Business and Prospects."
Critical Accounting Policies
The Company prepares its financial statements in conformity with generally accepted accounting principles in the United States of America, which require the
use of management's estimates. The Company believes its most critical accounting policies relate to revenue recognition and warranty accruals. These and the
Company's other accounting policies are described on pages 36-39 in Note 1 of the Notes to Consolidated Financial Statements included in "Item 8 —
Financial Statements and Supplementary Data."
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