Dell 2011 Annual Report Download - page 66

Table of Contents
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business — Dell Inc., a Delaware corporation (both individually and together with its consolidated subsidiaries, “Dell”), offers a broad range
of technology solutions, including servers and networking products, storage products, services, software and peripherals, mobility products, and desktop PCs.
Dell sells its products and services directly to customers through dedicated sales representatives, telephone-based sales, and online sales, and through a variety
of other sales distribution channels. Dell's business segments are Large Enterprise, Public, Small and Medium Business ("SMB"), and Consumer. References
to Commercial business refer to Large Enterprise, Public, and SMB.
Fiscal Year — Dell's fiscal year is the 52 or 53 week period ending on the Friday nearest January 31. The fiscal year ended February 3, 2012 included 53
weeks, while the fiscal years ended January 28, 2011 and January 29, 2010 included 52 weeks.
Principles of Consolidation — The accompanying consolidated financial statements include the accounts of Dell Inc. and its wholly-owned subsidiaries and
have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All significant intercompany
transactions and balances have been eliminated.
Use of Estimates — The preparation of financial statements in accordance with GAAP requires the use of management's estimates. These estimates are
subjective in nature and involve judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at fiscal
year-end, and the reported amounts of revenues and expenses during the fiscal year. Actual results could differ from those estimates.
Cash and Cash Equivalents — All highly liquid investments, including credit card receivables due from banks, with original maturities of 90 days or less at
date of purchase, are reported at fair value and are considered to be cash equivalents. All other investments not considered to be cash equivalents are
separately categorized as investments.
Investments — Dell's investments are primarily in debt securities, which are classified as available-for-sale and are reported at fair value (based primarily on
quoted prices and market observable inputs) using the specific identification method. Unrealized gains and losses, net of taxes, are reported as a component of
stockholders’ equity. Realized gains and losses on investments are included in Interest and other, net. An impairment loss will be recognized and will reduce
an investment's carrying amount to its fair value when a decline in the fair value of an individual security below its cost or carrying value is determined to be
other than temporary.
Dell reviews its investment portfolio quarterly to determine if any investment is other than temporarily impaired. Dell determines an impairment is other than
temporary when there is intent to sell the security, it is more likely than not that the security will be required to be sold before recovery in value or it is not
expected to recover its entire amortized cost basis (“credit-related loss”). However, if Dell does not expect to sell a debt security, it still evaluates expected
cash flows to be received and determines if a credit-related loss exists. In the event of a credit-related loss, only the amount of impairment associated with the
credit-related loss is recognized in earnings. Amounts relating to factors other than credit-related losses are recorded as a component of stockholders' equity.
See Note 3 of the Notes to Consolidated Financial Statements for additional information.
Allowance for Doubtful Accounts — Dell recognizes an allowance for losses on accounts receivable in an amount equal to the estimated probable losses net
of recoveries. The allowance is based on an analysis of historical bad debt experience, current receivables aging, and expected future write-offs, as well as an
assessment of specific identifiable customer accounts considered at risk or uncollectible. The expense associated with the allowance for doubtful accounts is
recognized in Selling, general, and administrative expenses.
Financing Receivables —
Financing receivables consist of customer receivables and residual interest. Customer receivables include revolving loans and fixed-term leases and loans
resulting primarily from the sale of Dell products and services. Based on how Dell assesses risk and determines the appropriate allowance levels, Dell has two
portfolio segments, (1) fixed-term leases and loans and (2) revolving loans. Portfolio segments are further segregated into classes based on operating segment
and whether the receivable was owned by Dell since its inception or was purchased subsequent to its inception. Financing receivables are presented net of the
allowance for losses.
Dell retains a residual interest in equipment leased under its fixed-term lease programs. The amount of the residual interest is established at the inception of
the lease based upon estimates of the value of the equipment at the end of the lease term using historical studies, industry data, and future value-at-risk
demand valuation methods. On a quarterly
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