Dell 2004 Annual Report Download - page 30

Table of Contents
cash flows from operating activities that typically exceed net income. The following table presents the components of Dell's cash conversion
cycle for each of the past three fiscal years:
Fiscal Year Ended
January 28, January 30, January 31,
2005 2004 2003
Days of sales outstanding(a) 32 31 28
Days of supply in inventory 4 3 3
Days in accounts payable 73 70 68
Cash conversion cycle (37) (36) (37)
(a) Dell defers the cost of shipped products awaiting revenue recognition until the goods are delivered and revenue is recognized. Days of sales outstanding include these product costs,
which are classified in other current assets. At January 28, 2005, January 30, 2004, and January 31, 2003, days of sales outstanding included days of sales in accounts receivable and
days of in-transit customer shipments of 29 and 3 days; 28 and 3 days; and 24 and 4 days, respectively.
The increase in days of sales outstanding at January 28, 2005, from the end of fiscal 2004, was partially due to an increase in non-
U.S. revenues where collection periods tend to be longer. Dell defers the cost of shipped products awaiting revenue recognition until the goods
are delivered and revenue is recognized. These deferred costs are included in Dell's reported days of sales outstanding because management
believes it illustrates a more conservative and accurate presentation of Dell's days of sales outstanding and cash conversion cycle. These
deferred costs are recorded in other current assets in Dell's consolidated statement of financial position and totaled $430 million, $387 million,
and $423 million as of January 28, 2005, January 30, 2004, and January 31, 2003, respectively.
Investing Activities — Cash used in investing activities during fiscal 2005 was $2.3 billion, as compared to $2.8 billion in fiscal 2004 and
$1.4 billion in fiscal 2003. Cash used in investing activities principally consists of net purchases of investments and capital expenditures for
property, plant, and equipment. The decrease in cash used in investing activities during fiscal 2005, compared to fiscal 2004, was primarily due
to the purchase of $636 million in assets during fiscal 2004 that were held in master lease facilities and previously classified as operating
leases. This was partially offset by an increase in capital expenditures during fiscal 2005 as Dell continued to focus on investing in the
company's global information technology infrastructure in order to support Dell's rapid global growth and the increased complexity of its product
and service offerings. The increase in cash used in investing activities during fiscal 2004, when compared to fiscal 2003, was primarily due to
the increase in purchases of investments, net of maturities and sales, as Dell continues to invest its cash provided by operating activities.
Financing Activities — Cash used in financing activities during fiscal 2005 was $3.1 billion, as compared to $1.4 billion in fiscal 2004 and
$2.0 billion in fiscal 2003. Financing activities primarily consist of the repurchase of Dell common stock, partially offset by the issuance of
common stock under employee stock option plans. The increase in share repurchases in fiscal 2005, compared to fiscal 2004, drove the year-
over-year increase in cash used in financing activities. Dell repurchased 119 million shares during fiscal 2005, compared to 63 million in fiscal
2004. The decrease in cash used during fiscal 2004, compared to fiscal 2003, was primarily due to an increase in the number of shares issued
under employee plans and an increase in the weighted average exercise price of stock options exercised. In addition, the aggregate value of
common stock repurchased by Dell declined during fiscal 2004, which was primarily due to a respective decrease in the weighted average
share price of common stock repurchased by Dell.
Management currently believes that Dell's fiscal 2006 cash flows from operations will continue to exceed net income and will be more than
sufficient to support Dell's operations and capital requirements. Dell currently anticipates that it will continue to utilize its strong liquidity and
cash flows from operations to repurchase its common stock, invest in systems and processes, invest in
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