Dell 2009 Annual Report Download - page 61

Table of Contents
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
recognized over the term of the contract or when the service is completed. Revenue from sales of third-party extended warranty and
service contracts or other products or software PCS, for which Dell is not obligated to perform, and for which Dell does not meet the
criteria for gross revenue recognition under the guidance of the Financial Accounting Standards Board (the "FASB"), is recognized on a
net basis. All other revenue is recognized on a gross basis.
Dell records reductions to revenue for estimated customer sales returns, rebates, and certain other customer incentive programs. These
reductions to revenue are made based upon reasonable and reliable estimates that are determined by historical experience, contractual
terms, and current conditions. The primary factors affecting our accrual for estimated customer returns include estimated return rates as
well as the number of units shipped that have a right of return that has not expired as of the balance sheet date. If returns cannot be
reliably estimated, revenue is not recognized until a reliable estimate can be made or the return right lapses.
Dell sells its products directly to customers as well as through retailers. Sales to Dell's retail customers are generally made under
agreements allowing for limited rights of return, price protection, rebates, and marketing development funds. Dell has generally limited
the return rights through contractual caps. Dell's policy for sales to retailers is to defer the full amount of revenue relative to sales for
which the rights of return apply unless there is sufficient historical data to establish reasonable and reliable estimates of returns. When
contractual caps are included in the agreement and there is not sufficient historical data to make a reasonable and reliable estimate on
returns, Dell defers revenue equal to the amount of the contractual cap. All other sales for which the rights of return do not apply are
recognized upon shipment when all applicable revenue recognition criteria have been met. To the extent price protection or return rights
are not limited, all of the revenue and related cost are deferred until the product has been sold by the retailer, the rights expire, or a
reliable estimate of such amounts can be made. Generally, Dell records estimated reductions to revenue or an expense for retail customer
programs at the later of the offer or the time revenue is recognized. Dell's customer programs primarily involve rebates, promotions, and
other volume-based incentives, which are designed to serve as sales incentives to resellers of Dell products.
Dell defers the cost of shipped products awaiting revenue recognition until revenue is recognized. See Note 15 of Notes to Consolidated
Financial Statements for further information on deferred costs.
Dell records revenue from the sale of equipment under sales-type leases as product revenue at the inception of the lease. Sales-type leases
also produce financing income, which Dell recognizes at consistent rates of return over the lease term. Customer revolving loan financing
income is recognized on an accrual basis. Dell reports revenue net of any revenue-based taxes assessed by governmental authorities that
are imposed on and concurrent with specific revenue-producing transactions.
Warranty — Dell records warranty liabilities for its standard limited warranty at the time of sale for the estimated costs that may be
incurred under its limited warranty. The specific warranty terms and conditions vary depending upon the product sold and the country in
which Dell does business, but generally includes technical support, parts, and labor over a period ranging from one to three years. Factors
that affect Dell's 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 Dell's warranty obligation. The anticipated rate of warranty claims is the
primary factor impacting the 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 relatively predictable based on historical experience of failure rates. If actual results differ from the estimates, Dell revises its
estimated warranty liability. Each quarter, Dell reevaluates its estimates to assess the adequacy of its recorded warranty liabilities and
adjusts the amounts as necessary.
Vendor Rebates — Dell may receive consideration from vendors in the normal course of business. Certain of these funds are rebates of
purchase price paid and others are related to reimbursement of costs incurred by Dell to sell the
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