Dell 2007 Annual Report Download - page 89

Table of Contents
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
included in other current assets on Dell's Consolidated Statements of Financial Position at February 1, 2008 and February 2, 2007,
respectively.
Legal Matters — Dell is involved in various claims, suits, investigations, and legal proceedings. As required by SFAS No. 5, Accounting
for Contingencies ("SFAS 5"), Dell accrues a liability when it believes that it is both probable that a liability has been incurred and that it
can reasonably estimate the amount of the loss. The following is a discussion of Dell's significant legal matters.
• Investigations and Related Litigation — In August 2005, the SEC initiated an inquiry into certain of Dell's accounting and
financial reporting matters and requested that Dell provide certain documents. The SEC expanded that inquiry in June 2006 and
entered a formal order of investigation in October 2006. The SEC's requests for information were joined by a similar request
from the United States Attorney for the Southern District of New York ("SDNY"), who subpoenaed documents related to Dell's
financial reporting from and after Fiscal 2002. In August 2006, because of potential issues identified in the course of responding
to the SEC's requests for information, Dell's Audit Committee, on the recommendation of management and in consultation with
PricewaterhouseCoopers LLP, Dell's independent registered public accounting firm, initiated an independent investigation,
which was completed in the third quarter of Fiscal 2008. Although the Audit Committee investigation has been completed, the
investigations being conducted by the SEC and the SDNY are ongoing. Dell continues to cooperate with the SEC and the
SDNY.
Dell and several of its current and former directors and officers are parties to securities, Employee Retirement Income Security
Act of 1974 ("ERISA"), and shareholder derivative lawsuits all arising out of the same events and facts. Four putative securities
class actions that were filed in the Western District of Texas, Austin Division, against Dell and certain of its current and former
officers have been consolidated, as In re Dell Securities Litigation, and a lead plaintiff has been appointed by the court. The
lead plaintiff has asserted claims under sections 10(b), 20(a), and 20A of the Securities Exchange Act of 1934 based on alleged
false and misleading disclosures or omissions regarding Dell's financial statements, governmental investigations, internal
controls, known battery problems, business model, and insiders' sales of its securities. This action also includes Dell's
independent registered public accounting firm, PricewaterhouseCoopers LLP, as a defendant. Four other putative class actions
that were also filed in the Western District by purported participants in the Dell 401(k) Plan have been consolidated, as In re
Dell ERISA Litigation, and lead plaintiffs have been appointed by the court. The lead plaintiffs have asserted claims under
ERISA based on allegations that Dell, certain current officers, and certain current and former directors imprudently invested
and managed participants' funds and failed to disclose information regarding its stock held in the 401(k) Plan. In addition, seven
shareholder derivative lawsuits that were filed in three separate jurisdictions (the Western District of Texas, Austin Division;
the Delaware Chancery Court; and the state district court in Travis County, Texas) have been consolidated into three actions,
one in each of the respective jurisdictions, as In re Dell Derivative Litigation, and name various current and former officers and
directors as defendants and Dell as a nominal defendant. The Travis County, Texas action has been transferred to the state
district court in Williamson County, Texas. By an order filed October 9, 2007, the shareholder derivative action filed in the
Western District of Texas, Austin Division, was dismissed without prejudice. The shareholder derivative lawsuits assert claims
derivatively on behalf of Dell under state law, including breaches of fiduciary duties. Dell intends to defend all of these lawsuits
vigorously.
• Copyright Levies — Proceedings against the IT industry in Germany seek to impose levies on equipment, such as personal
computers and multifunction devices that facilitate making private copies of copyrighted materials. The total levies due, if
imposed, would be based on the number of products sold and the per-product amounts of the levies, which vary. Dell, along
with other companies and various industry associations are opposing these levies and instead are advocating compensation to
rights holders through digital rights management systems.
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