Dell 2010 Annual Report Download - page 67

Table of Contents
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
are determined based on quoted market values, discounted cash flows, or external appraisals, as applicable. Dell reviews long-lived assets
for impairment at the individual asset or the asset group level for which the lowest level of independent cash flows can be identified.
Business Combinations and Intangible Assets Including Goodwill — During Fiscal 2010, Dell adopted the new guidance from the
Financial Accounting Standards Board ("FASB") on business combinations and non-controlling interests. Dell accounts for business
combinations using the acquisition method of accounting and accordingly, the assets and liabilities of the acquired business are recorded
at their fair values at the date of acquisition. The excess of the purchase price over the estimated fair values is recorded as goodwill. Any
changes in the estimated fair values of the net assets recorded for acquisitions prior to the finalization of more detailed analysis, but not to
exceed one year from the date of acquisition, will change the amount of the purchase prices allocable to goodwill. All acquisition costs
are expensed as incurred and in-process research and development costs are recorded at fair value as an indefinite-lived intangible asset
and assessed for impairment thereafter until completion, at which point the asset is amortized over its expected useful life. Any
restructuring charges associated with a business combination are expensed subsequent to the acquisition date. The results of operations of
acquired businesses are included in the Consolidated Financial Statements from the acquisition date.
Identifiable intangible assets with finite lives are amortized over their estimated useful lives. They are generally amortized on a non-
straight line approach based on the associated projected cash flows in order to match the amortization pattern to the pattern in which the
economic benefits of the assets are expected to be consumed. Intangible assets are reviewed for impairment if indicators of potential
impairment exist. 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.
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. 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.
Local currency transactions of international subsidiaries that 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 non-monetary assets and
liabilities. Gains and losses from remeasurement of monetary assets and liabilities are included in interest and other, net. See Note 6 of
Notes to Consolidated Financial Statements for additional information.
Hedging Instruments — Dell uses derivative financial instruments, primarily forwards, options, and swaps, to hedge certain foreign
currency and interest rate exposures. The relationships between hedging instruments and hedged items are formally documented, as well
as the risk management objectives and strategies for undertaking hedge transactions. Dell does not use derivatives for speculative
purposes.
All derivative instruments are recognized as either assets or liabilities on the Consolidated Statements of Financial Position and are
measured at fair value. Hedge accounting is applied based upon the criteria established by accounting guidance for derivative instruments
and hedging activities. Derivatives are assessed for hedge effectiveness both at the onset of the hedge and at regular intervals throughout
the life of the derivative. Any hedge ineffectiveness is recognized currently in earnings as a component of interest and other, net. Dell's
hedge portfolio includes derivatives designated as both cash flow and fair value hedges.
For derivative instruments that are designated as cash flow hedges, hedge ineffectiveness is measured by comparing the cumulative
change in the fair value of the hedge contract with the cumulative change in the fair value of the hedged item, both of which are based on
forward rates. Dell records the effective portion of the gain or loss on the derivative instrument in accumulated other comprehensive
income (loss) ("OCI"), as a separate component of
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