Dell 2003 Annual Report Download - page 39

Table of Contents
Leasehold improvements are amortized over the shorter of five years or the lease term. Gains or losses related to retirements or disposition of fixed assets are
recognized in the period incurred. Dell performs reviews for the impairment of fixed assets whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Dell capitalizes eligible internal-use software development costs incurred subsequent to the completion
of the preliminary project stage. Development costs are amortized over the shorter of the expected useful life of the software or five years.
Foreign Currency Translation — The majority of Dell's international sales are made by international subsidiaries, most of 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. Dell'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. Revenue and expenses from these
international subsidiaries are translated using the monthly average exchange rates in effect for the period in which the items occur. The resulting gains and
losses from translation are included as a component of stockholders' equity.
Hedging Instruments — Dell applies Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended, which establishes accounting and reporting standards for derivative instruments and hedging activities. SFAS 133 requires Dell to
recognize all derivatives as either assets or liabilities in its consolidated statement of financial position and measure those instruments at fair value.
Treasury Stock — Effective with the beginning of the second quarter of fiscal 2002, Dell began holding repurchased shares of its common stock as treasury
stock. Prior to that date, Dell retired all such repurchased shares which were recorded as a reduction to retained earnings. Dell accounts for treasury stock
under the cost method and includes treasury stock as a component of stockholders' equity.
Revenue Recognition — Net revenue includes sales of hardware, software and peripherals, and services (including extended service contracts and professional
services). These products and services are sold either separately or as part of a multiple-element arrangement. Dell allocates fees from multiple-element
arrangements to the elements based on the relative fair value of each element, which is generally based on the relative list price of each element. For sales of
extended warranties with a separate contract price, Dell defers revenue equal to the separately stated price. Revenue associated with undelivered elements is
deferred and recorded when delivery occurs. Product revenue is recognized, net of an allowance for estimated returns, when both title and risk of loss transfer
to the customer, provided that no significant obligations remain. Revenue from extended warranty and service contracts, for which Dell is obligated to
perform, is recorded as deferred revenue and subsequently recognized over the term of the contract or when the service is completed. Revenue from sales of
third-party extended warranty and service contracts, for which Dell is not obligated to perform, is recognized on a net basis at the time of sale. During fiscal
2004 Dell adopted Emerging Issues Task Force ("EITF") Issue 00-21, Accounting for Revenue Arrangements with Multiple Deliverables. The consensus
addresses not only when and how an arrangement involving multiple deliverables should be divided into separate units of accounting but also how the
arrangement's consideration should be allocated among separate units. EITF 00-21 did not have a material impact on Dell's consolidated results of operations
or financial position.
Dell defers the cost of product revenue for in-transit shipments until the goods are delivered and revenue is recognized. In-transit product shipments to
customers totaled $387 million and $423 million as of January 30, 2004 and January 31, 2003, respectively, and are included in other current assets on Dell's
consolidated statement of financial position.
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