Dell 2009 Annual Report Download - page 50

Table of Contents
Goodwill and indefinite-lived intangible assets are tested for impairment on an annual basis in the second fiscal quarter, or sooner if an
indicator of impairment occurs. To determine whether goodwill is impaired, we determine the fair values of each of our reportable
business unit using a discounted cash flow methodology and then compare the fair values to the carrying values of each reportable
business unit. We concluded that there were no impairment triggering events during Fiscal 2010. As of July 31, 2009, the Fiscal 2010
annual testing date, Dell's market capitalization, including common stock held by affiliates, was $26.2 billion compared to stockholders'
equity of $5.6 billion. We have determined that a 10% decrease in the fair value of any one of our reporting units as of January 29, 2010
would have no impact on the carrying value of our goodwill. Though we believe our estimates are reasonable, these fair values require
the use of management's assumptions, which would not reflect unanticipated events and circumstances that may occur.
Warranty — We record warranty liabilities at the time of sale for the estimated costs that may be incurred under the terms of the limited
warranty. The specific warranty terms and conditions vary depending upon the product sold and the country in which we do business, but
generally include technical support, parts, and labor over a period ranging from one to three years. Factors that affect our warranty
liability include the number of installed units currently under warranty, historical and anticipated rates of warranty claims on those units,
and cost per claim to satisfy our warranty obligation. The anticipated rate of warranty claims is the primary factor impacting our
estimated warranty obligation. The other factors are less significant due to the fact that the average remaining aggregate warranty period
of the covered installed base is approximately 15 months, repair parts are generally already in stock or available at pre-determined prices,
and labor rates are generally arranged at pre-established amounts with service providers. Warranty claims are reasonably predictable
based on historical experience of failure rates. If actual results differ from our estimates, we revise our estimated warranty liability to
reflect such changes. Each quarter, we reevaluate our estimates to assess the adequacy of the recorded warranty liabilities and adjust the
amounts as necessary.
Income Taxes — We calculate 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 our financial statements or tax returns,
judgment is required. Differences between the anticipated and actual outcomes of these future tax consequences could have a material
impact on our consolidated results of operations or financial position. Additionally, we use tax planning strategies as a part of our global
tax compliance program. Judgments and interpretation of statutes are inherent in this process. We provide related valuation reserves,
where appropriate.
Loss Contingencies — We are subject to the possibility of various losses arising in the ordinary course of business. We consider the
likelihood of loss or impairment of an asset or the incurrence of a liability, as well as our 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. We regularly evaluate current information available to us
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 us. If any infringement or other intellectual property claim made against us by any third party is
successful, or if we fail to develop non-infringing technology or license the proprietary rights on commercially reasonable terms and
conditions, our business, operating results, and financial condition could be materially and adversely affected.
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