Dell 1997 Annual Report Download - page 22

estimates presented herein are not necessarily indicative of the amounts that
the Company could realize in a current market exchange. Changes in assumptions
could significantly affect the estimates.
Cash, accounts receivable, accounts payable and accrued and other liabilities
are reflected in the financial statements at fair value because of the
short-term maturity of these instruments.
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MARKETABLE SECURITIES
The following table summarizes by major security type the fair value of the
Company's holdings of marketable securities.
FEBRUARY 1, FEBRUARY 2,
1998 1997
----------- -----------
(IN MILLIONS)
Preferred stock............................................. $ 172 $ 172
Mutual funds, principally invested in debt securities....... 800 182
Debt securities:
State and municipal securities............................ 190 317
U.S. corporate and bank debt.............................. 307 415
U.S. government and agencies.............................. 40 98
International corporate and bank debt..................... 15 53
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Total debt securities....................................... 552 883
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Total marketable securities....................... $1,524 $1,237
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At February 1, 1998 and February 2, 1997, the cost of marketable securities
approximates fair value. At February 1, 1998, debt securities with a carrying
amount of $414 million mature within one year; the remaining debt securities
mature within three years. The Company's gross realized gains and losses on the
sale of marketable securities for fiscal years 1998, 1997 and 1996 were not
material.
FOREIGN CURRENCY INSTRUMENTS
The Company uses foreign currency purchased option contracts and forward
contracts to reduce its exposure to currency fluctuations involving probable
anticipated, but not firmly committed, transactions and transactions with firm
foreign currency commitments. These transactions include international sales by
U.S. dollar functional currency entities, foreign currency denominated purchases
of certain components and intercompany shipments to certain international
subsidiaries. The risk of loss associated with purchased options is limited to
premium amounts paid for the option contracts. Foreign currency purchased
options generally expire in twelve months or less. At February 1, 1998, the
Company held purchased option contracts with a notional amount of $2.0 billion,
a carrying amount of $69 million and a combined net realized and unrealized
deferred loss of $2 million. Additionally, at February 2, 1997, the Company held
purchased option contracts with a notional amount of $1.2 billion, a carrying
amount of $33 million and a combined net realized and unrealized deferred gain
of $25 million. The risk of loss associated with forward contracts is equal to
the exchange rate differential from the time the contract is entered into until
the time it is settled. Transactions with firm foreign currency commitments are
generally hedged using foreign currency forward contracts for periods not
exceeding three months. At February 1, 1998, the Company held forward contracts
with a notional amount of $800 million, a carrying amount of $26 million and a
combined net realized and unrealized deferred gain of $10 million. At February
2, 1997, the Company held foreign currency forward contracts with a notional
amount of $207 million and a contract carrying amount of $12 million, which
represented fair value.
LONG-TERM DEBT AND INTEREST RATE RISK MANAGEMENT
During fiscal 1997, the Company repurchased $95 million of its outstanding $100
million 11% Senior Notes Due August 15, 2000 (the "Senior Notes"). As a result
of the repurchase, the Company recorded an extraordinary loss of $13 million
(net of tax benefit of $7 million). In connection with the Senior Notes, the
Company entered into interest rate swap agreements that expire on August 15,
1998. At February 1, 1998 and February 2, 1997, the Company had outstanding
receive fixed/pay floating interest rate swap agreements in the aggregate
notional amount of $100 million offset by receive floating/pay fixed interest
rate swap agreements in the aggregate notional amount of
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$100 million. The notional amount of both the receive fixed/pay floating
interest rate swaps and the offsetting receive floating/pay fixed interest rate
swaps was marked-to-market and included in the extraordinary loss. The weighted