Dell 1998 Annual Report Download - page 26

estimates. These estimates are subjective in nature and involve judgements that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at fiscal year end and the reported amounts of
revenues and expenses during the fiscal year. Actual results could differ from
those estimates.
Marketable Securities -- The Company's marketable securities are classified as
available-for-sale securities and are reported at fair value. Unrealized gains
and losses are reported, net of taxes, as a component of stockholders' equity.
Unrealized losses are charged against income when a decline in fair value is
determined to be other than temporary. The specific identification method is
used to determine the cost of securities sold. Gains and losses on marketable
securities are included in Financing and Other when realized. The Company
accounts for highly liquid investments with maturities of three months or less
at date of acquisition as marketable securities and reflects the related cash
flows as investing cash flows. As a result, a significant portion of its gross
marketable securities purchases, maturities and sales activity disclosed as
investing cash flows is related to highly liquid investments.
Inventories -- Inventories are stated at the lower of cost or market with cost
being determined on a first-in, first-out basis.
Property, Plant and Equipment -- Property, plant and equipment are carried at
depreciated cost. Depreciation is provided using the straight-line method over
the estimated economic lives of the assets, which range from 10 to 30 years for
buildings and two to five years for all other assets. Leasehold improvements are
amortized over the shorter of five years or the lease term.
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. 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 are included in
Financing and
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Other. 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. Items of
revenue and expense for the Company's international subsidiaries are translated
using the monthly average exchange rates in effect for the period in which the
items occur.
Foreign Currency Hedging Instruments -- The Company enters into foreign currency
exchange contracts to hedge its foreign currency risks. These contracts are
designated at inception as a hedge and measured for effectiveness both at
inception and on an ongoing basis. Realized and unrealized gains or losses and
premiums paid on foreign currency purchased option contracts that are designated
and effective as hedges of probable anticipated, but not firmly committed,
foreign currency transactions are deferred and recognized in income as a
component of net revenue, cost of revenue and/or operating expenses in the same
period as the hedged transaction. Forward contracts designated as hedges of
probable anticipated or firmly committed transactions are accounted for on a
mark-to-market basis, with realized and unrealized gains or losses recognized in
the accompanying consolidated statement of income.
Equity Instruments Indexed to the Company's Common Stock -- Proceeds received
upon the sale of equity instruments and amounts paid upon the purchase of 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.
Revenue Recognition -- Sales revenue is recognized at the date of shipment to
customers. Provision is made for an estimate of product returns and doubtful
accounts and is based on historical experience. Revenue from separately priced
service and extended warranty programs is deferred and recognized over the
extended warranty period.
Warranty and Other Post-sales Support Programs -- The Company provides currently
for the estimated costs that may be incurred under its initial warranty and
other post-sales support programs.
Advertising Costs -- Advertising costs are charged to expense as incurred.
Advertising expenses for fiscal years 1999, 1998 and 1997 were $199 million,
$137 million and $87 million, respectively.
Stock-Based Compensation -- The Company applies the intrinsic value method in
accounting for its stock option and employee stock purchase plans. Accordingly,
no compensation expense has been recognized for options granted with an exercise
price equal to market value at the date of grant or in connection with the
employee stock purchase plan.