Dell 2009 Annual Report Download - page 63

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Table of Contents
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2008, Dell adopted the accounting guidance for certain hybrid financial instruments, which requires that all gains and losses in valuation
of retained interest in securitized assets be recognized in income immediately and no longer included as a component of other
comprehensive income.
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. See Note 11 of Notes to Consolidated Financial Statements for further information on earnings per share.
Stock-Based Compensation — Dell measures stock-based compensation expense for all share-based awards granted based on the
estimated fair value of those awards at grant-date. The cost of restricted stock awards is determined using the fair market value of our
common stock on the date of grant. The fair values of stock option awards are estimated using a Black-Scholes valuation model. The
compensation costs are recognized net of any estimated forfeitures on a straight-line basis over the employee requisite service period.
Forfeiture rates are estimated at grant-date based on historical experience and adjusted in subsequent periods for any differences in actual
forfeitures from those estimates. See Note 13 of Notes to Consolidated Financial Statements included for further discussion of stock-
based compensation.
Recently Issued and Adopted Accounting Pronouncements
– Business Combinations — During Fiscal 2010, Dell adopted the new FASB guidance on business combinations. The new guidance
on business combinations retains the underlying concepts of the previously issued standard in that the acquirer of a business is
required to account for the business combination at fair value. As with previous guidance, 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 are
recorded as goodwill. The new pronouncement results in some changes to the method of applying the acquisition method of
accounting for business combinations in a number of significant aspects. Under the new guidance, 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. Prior to
the adoption, in-process research and development costs were immediately expensed and acquisition costs were capitalized. Further,
the new guidance generally requires restructuring charges associated with a business combination to be expensed subsequent to the
acquisition date.
– Fair Value Measurements and Disclosures — The pronouncements define fair value, establish guidelines for measuring fair value,
and expand disclosures regarding fair value measurements. In the first quarter of Fiscal 2010, Dell adopted the fair value
measurements guidance for all nonfinancial assets and nonfinancial liabilities recognized or disclosed at fair value in the financial
statements on a nonrecurring basis. The adoption did not have a material impact on Dell's Consolidated Financial Statements. See
Note 2 of Notes to Consolidated Financial Statements for additional information.
Throughout Fiscal 2010, Dell adopted the additional fair value guidance related to the valuation of instruments in inactive markets
and the guidance related to the measurement of liabilities. The adoption of these standards did not have a material impact on Dell's
Consolidated Financial Statements.
– Derivative Instruments and Hedging Activities — The pronouncement requires additional disclosures about the objectives of
derivative instruments and hedging activities, the method of accounting for such instruments, and a tabular disclosure of the effects of
such instruments and related hedged items on Financial Statements. The pronouncement does not change the accounting treatment for
derivative instruments. Dell adopted the pronouncement in the first quarter of Fiscal 2010. The adoption did not have a material
impact on Dell's
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