Dell 2008 Annual Report Download - page 63

Table of Contents
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Loss Contingencies — Dell is subject to the possibility of various losses arising in the ordinary course of business. Dell considers the likelihood of
loss or impairment of an asset or the incurrence of a liability, as well as Dell's ability to reasonably estimate the amount of loss, in determining loss
contingencies. An estimated loss contingency is accrued when it is probable that an asset has been impaired or a liability has been incurred and the
amount of loss can be reasonably estimated. Dell regularly evaluates current information available to determine whether such accruals should be
adjusted and whether new accruals are required. Third parties have in the past and may in the future assert claims or initiate litigation related to
exclusive patent, copyright, and other intellectual property rights to technologies and related standards that are relevant to Dell.
Shipping Costs — Dell's shipping and handling costs are included in cost of sales in the accompanying Consolidated Statements of Income for all
periods presented.
Selling, General, and Administrative — Selling expenses include items such as sales salaries and commissions, marketing and advertising costs, and
contractor services. Advertising costs are expensed as incurred and were $811 million, $943 million, and $836 million, during Fiscal 2009, 2008,
and 2007, respectively. General and administrative expenses include items for Dell's administrative functions, such as Finance, Legal, Human
Resources, and Information Technology support. These functions include costs for items such as salaries, maintenance and supplies, insurance,
depreciation expense, and allowance for doubtful accounts.
Research, Development, and Engineering Costs — Research, development, and engineering costs are expensed as incurred, in accordance with
SFAS No. 2, Accounting for Research and Development Costs. Research, development, and engineering expenses primarily include payroll and
headcount related costs, contractor fees, infrastructure costs, and administrative expenses directly related to research and development support.
In Process Research and Development ("IPR&D") — IPR&D represents the fair value of the technology acquired in a business combination where
technological feasibility has not been established and no future alternative uses exist. IPR&D is expensed immediately upon completion of the
associated acquisition.
Website Development Costs — Dell expenses, as incurred, the costs of maintenance and minor enhancements to the features and functionality of its
websites.
Income Taxes — Deferred tax assets and liabilities are recorded based on the difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Dell calculates a provision for income taxes
using the asset and liability method, under which deferred tax assets and liabilities are recognized by identifying the temporary differences arising
from the different treatment of items for tax and accounting purposes. In determining the future tax consequences of events that have been
recognized in the financial statements or tax returns, judgment and interpretation of statutes is required. Additionally, Dell uses tax planning
strategies as a part of its global tax compliance program. Judgments and interpretation of statutes are inherent in this process.
Comprehensive Income — Dell's comprehensive income is comprised of net income, unrealized gains and losses on marketable securities classified
as available-for-sale, unrealized gains and losses related to the change in valuation of retained interest in securitized assets, foreign currency
translation adjustments, and unrealized gains and losses on derivative financial instruments related to foreign currency hedging. Upon the adoption
of SFAS No. 155, Accounting for Certain Hybrid Financial Instruments — an amendment of FASB Statements No. 133 and 140, beginning the first
quarter of Fiscal 2008, all gains and losses in valuation of retained interest in securitized assets are recognized in income immediately and no longer
included as a component of accumulated other comprehensive income (loss).
Earnings Per Common Share — Basic earnings per share is based on the weighted-average effect of all common shares issued and outstanding, and
is calculated by dividing net income by the weighted-average shares outstanding during the period. Diluted earnings per share is calculated by
dividing net income by the weighted-average number of common shares used in the basic earnings per share calculation plus the number of common
shares that would be issued assuming exercise or conversion of all potentially dilutive common shares outstanding. Dell excludes equity instruments
from the calculation of diluted earnings per share if the effect of including such instruments is antidilutive. Accordingly, certain stock-based
incentive awards have been excluded from the calculation of diluted earnings per share totaling 252 million, 230 million, and 268 million shares
during Fiscal 2009, 2008, and 2007, respectively.
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