Dell 2002 Annual Report Download - page 39

Table of Contents
Foreign Currency Translation — The majority of the Company's international sales are made by international subsidiaries, which have the U.S. dollar as their
functional currency. Local currency transactions of international subsidiaries, which have the U.S. dollar as the functional currency are remeasured into U.S.
dollars using current rates of exchange for monetary assets and liabilities and historical rates of exchange for nonmonetary assets. Gains and losses from
remeasurement of monetary assets and liabilities are included in investment and other income (loss), net. The Company's subsidiaries that do not have the
U.S. dollar as their functional currency translate assets and liabilities at current rates of exchange in effect at the balance sheet date. The resulting gains and
losses from translation are included as a component of stockholders' equity. Revenue and expenses from the Company's international subsidiaries are
translated using the monthly average exchange rates in effect for the period in which the items occur.
Hedging Instruments — Effective February 3, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended ("SFAS 133"), which establishes accounting and reporting standards for derivative instruments and hedging
activities. SFAS 133 requires that the Company recognize all derivatives as either assets or liabilities in the Consolidated Statement of Financial Position and
measure those instruments at fair value.
Equity Instruments Indexed to the Company's Common Stock — Proceeds received from the sale of equity instruments and amounts paid to purchase equity
instruments are recorded as a component of stockholders' equity. Subsequent changes in the fair value of the equity instrument contracts are not recognized. If
the contracts are ultimately settled in cash, the amount of cash paid or received is recorded as a component of stockholders' equity.
Treasury Stock — Effective with the beginning of the second quarter of fiscal 2002, the Company began holding repurchased shares of its common stock as
treasury stock. The Company previously retired all such repurchased shares. The Company accounts for treasury stock under the cost method.
Revenue Recognition — Net revenue includes sales of hardware, software and peripherals, and services (including extended service contracts and professional
services). The Company offers separately priced extended warranty and service contracts to customers that extend and/or enhance the technical support, parts,
and labor coverage offered as a part of the base warranty included with the product. The Company allocates fees from multiple element arrangements to the
various elements based on the relative fair values of each element. Fair values are generally determined based on separate list prices. Product revenue is
recognized when both title and risk of loss transfer to the customer, provided that no significant obligations remain. The Company provides for an estimate of
product returns and doubtful accounts, based on historical experience. Revenue (net of estimated costs to be incurred) related to extended warranty and
service contracts for which the Company is obligated to perform is recorded as deferred income and subsequently recognized on a gross basis over the term of
the contract. Revenue from sales of separately priced third party extended warranty and service contracts for which the Company is not obligated to perform is
recognized on a net basis at the time of sale. Professional services revenue is recorded when services are performed.
Effective January 29, 2000, the Company changed its accounting for revenue recognition in accordance with Securities and Exchange Commission's Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements ("SAB 101"), which resulted in a change in the method of recognizing revenue
from when shipped to when received by the customer. The cumulative effect of the change on prior years' retained earnings resulted in a charge to fiscal 2001
income of $59 million (net of income taxes of $25 million). SAB 101 indicates that both title and risk of loss on products must pass to the customer before
revenue can be recognized. Title passes to the Company's customers on substantially all products when they are shipped. Risk of loss, however, generally
doesn't pass to the customer until delivery. The Company defers the cost of revenue associated
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