Dell 2010 Annual Report Download - page 45

Table of Contents
higher tax rate jurisdictions. Our foreign earnings are generally taxed at lower rates than in the United States. We continue to assess our
business model and its impact in various tax jurisdictions.
Deferred tax assets and liabilities for the estimated tax impact of temporary differences between the tax and book basis of assets and
liabilities are recognized based on the enacted statutory tax rates for the year in which we expect the differences to reverse. A valuation
allowance is established against a deferred tax asset when it is more likely than not that the asset or any portion thereof will not be
realized. Based upon all the available evidence, including expectation of future taxable income, we have determined that we will be able
to realize all of our deferred tax assets, net of valuation allowances.
We are currently under income tax audits in various jurisdictions, including the United States. As a result of these audits, we maintain
ongoing discussions and negotiations relating to tax matters with the taxing authorities in these various jurisdictions. The Internal
Revenue Service ("IRS") issued a Revenue Agent's Report for fiscal years 2004 through 2006 proposing certain assessments primarily
related to transfer pricing matters. We disagree with certain of the proposed assessments and have contested them through the IRS
administrative appeals procedures. The IRS has recently remanded the audit for fiscal years 2004 through 2006 back to examination for
further review. We continue to believe that adequate reserves have been provided relating to all matters contained in tax periods open to
examination. However, should we experience an unfavorable outcome in the matter before the IRS Appeals Division, such an outcome
could have a material impact on our financial statements.
We take certain non-income tax positions in the jurisdictions in which we operate and have received certain non-income tax assessments
from some of these jurisdictions. These jurisdictions include Brazil, where we have been in litigation with a state government over the
proper application of transactional taxes to warranties and software related to the sale of computers, as well as over the appropriate use of
state statutory incentives to reduce the transactional taxes. We have also negotiated certain tax incentives with the state that can be used
to offset potential tax liabilities should the courts rule against us. Recently, we settled two cases related to warranties and software under
a taxpayer amnesty program utilizing the incentive credits instead of cash to minimize the impact to our consolidated financial
statements. The third outstanding case, which is on appeal and for which we have pledged our manufacturing facility in Hortolandia,
Brazil to the government, remains pending. We do not expect the outcome of this case to have a material impact to our financial
statements.
In the normal course of business, our positions and conclusions related to our non-income taxes could be challenged and assessments may
be made. To the extent new information is obtained and our views on our positions, probable outcomes of assessments, or litigation
change, changes in estimates to our accrued liabilities would be recorded in the period in which the determination is made.
For a further discussion of the impact of uncertain tax positions, see Note 12 of Notes to Consolidated Financial Statements included in
"Part II — Item 8 — Financial Statements and Supplementary Data."
ACCOUNTS RECEIVABLE
We sell products and services directly to customers and through a variety of sales channels, including retail distribution. At January 28,
2011, our accounts receivable, net was $6.5 billion, a 11% increase from our balance at January 29, 2010. This increase in accounts
receivable was primarily due to growth in our Commercial business, which typically has longer payment terms, and an increase in fourth
quarter revenue as compared to Fiscal 2010. We maintain an allowance for doubtful accounts to cover receivables that may be deemed
uncollectible. The allowance for losses is based on specific identifiable customer accounts that are deemed at risk and a general provision
based on historical bad debt experience. As of January 28, 2011 and January 29, 2010, the allowance for doubtful accounts was
$96 million and $115 million, respectively. Based on our assessment, we believe we are adequately reserved for expected credit losses.
We monitor the aging of our accounts receivable and continue to take actions to reduce our exposure to credit losses.
DELL FINANCIAL SERVICES AND FINANCING RECEIVABLES
DFS offers a wide range of financial services in the U.S., including originating, collecting, and servicing customer receivables related to
the purchase of Dell products. To support the financing needs of our customers internationally,
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