Dell 2007 Annual Report Download - page 59

Table of Contents
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 vendor's products. Dell's policy for
accounting for these funds is in accordance with EITF 02-16, Accounting by a Customer (Including a Reseller) for Certain Consideration
Received from a Vendor. The funds are recognized as a reduction of cost of goods sold and inventory if the funds are a reduction of the
price of the vendor's products. If the consideration is a reimbursement of costs incurred by Dell to sell or develop the vendor's products,
then the consideration is classified as a reduction of that cost in the income statement, most often operating expenses. In order to be
recognized as a reduction of operating expenses, the reimbursement must be for a specific, incremental, identifiable cost incurred by Dell
in selling or developing the vendor's products or services.
Loss Contingencies — Dell is subject to the possibility of various losses arising in the ordinary course of business. Dell considers the
likelihood of loss or impairment of an asset or the incurrence of a liability, as well as Dell's ability to reasonably estimate the amount of
loss, in determining loss contingencies. An estimated loss contingency is accrued when it is probable that an asset has been impaired or a
liability has been incurred and the amount of loss can be reasonably estimated. Dell regularly evaluates current information available to
determine whether such accruals should be adjusted and whether new accruals are required. Third parties have in the past and may in the
future assert claims or initiate litigation related to exclusive patent, copyright, and other intellectual property rights to technologies and
related standards that are relevant to Dell. If any infringement or other intellectual property claim made against Dell by any third party is
successful, or if Dell fails to develop non-infringing technology or license the proprietary rights on commercially reasonable terms and
conditions, Dell's business, operating results, and financial condition could be materially and adversely affected.
Shipping Costs — Dell's shipping and handling costs are included in cost of sales in the accompanying Consolidated Statements of
Income for all periods presented.
Selling, General, and Administrative — Selling expenses include items such as sales commissions, marketing and advertising costs, and
contractor services. Advertising costs are expensed as incurred and were $943 million, $836 million, and $773 million, during Fiscal
2008, 2007, and 2006 respectively. General and administrative expenses include items for Dell's administrative functions, such as
Finance, Legal, Human Resources, and Information Technology support. These functions include costs for items such as salaries,
maintenance and supplies, insurance, depreciation expense, and allowance for doubtful accounts.
Research, Development, and Engineering Costs — Research, development, and engineering costs are expensed as incurred, in
accordance with SFAS 2, Accounting for Research and Development Costs. Research, development, and engineering expenses primarily
include payroll and headcount related costs, contractor fees, infrastructure costs, and administrative expenses directly related to research
and development support.
In Process Research and Development ("IPR&D") — IPR&D represents the fair value of the technology acquired in a business
combination where technological feasibility has not been established and no future alternative uses exist. IPR&D is expensed
immediately upon completion of the associated acquisition.
Website Development Costs — Dell expenses, as incurred, the costs of maintenance and minor enhancements to the features and
functionality of its websites.
Income Taxes — Deferred tax assets and liabilities are recorded based on the difference between the financial statement and tax basis of
assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Dell calculates a
provision for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized by
identifying the temporary differences arising from the
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