Dell 2009 Annual Report Download - page 60

Table of Contents
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
of exchange for nonmonetary assets and liabilities. Gains and losses from remeasurement of monetary assets and liabilities are included
in interest and other, net. See Note 3 of Notes to Consolidated Financial Statements for additional information.
Hedging Instruments — Dell uses derivative financial instruments, primarily forwards, options, and swaps to hedge certain foreign
currency and interest rate exposures. Dell also uses other derivative instruments not designated as hedges such as forwards to hedge
foreign currency balance sheet exposures. Dell does not use derivatives for speculative purposes.
Dell recognizes all derivatives instruments as either assets or liabilities in its Consolidated Statements of Financial Position and measures
those instruments at fair value. See Note 3 of Notes to Consolidated Financial Statements for a full description of Dell's derivative
financial instrument activities and related accounting policies.
Treasury Stock — Dell accounts for treasury stock under the cost method and includes treasury stock as a component of stockholders'
equity.
Revenue Recognition — Net revenues include sales of hardware, software and peripherals, and services (including extended service
contracts and professional services). Dell recognizes revenue for these products when it is realized or realizable and earned. Revenue is
considered realized and earned when persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered;
Dell's fee to its customer is fixed or determinable; and collection of the resulting receivable is reasonably assured.
Revenue from the sale of products are recognized when title and risk of loss passes to the customer. Delivery is considered complete
when products have been shipped to Dell's customer or services have been rendered, title and risk of loss has transferred to the customer,
and customer acceptance has been satisfied. Customer acceptance is satisfied through obtaining acceptance from the customer, the
acceptance provision lapses, or Dell has evidence that the acceptance provisions have been satisfied. In general, revenue is recognized for
services contracts as earned, which is generally on a straight-line basis over the longer of the term of the contract or the expected service
period, unless evidence suggests that the revenue is earned or Dell's obligations are fulfilled in a different pattern.
Dell sells its products and services either separately or as part of a multiple-element arrangement. Dell allocates revenue from multiple-
element arrangements to the elements based on the relative fair value of each element, which is generally based on the relative sales price
of each element when sold separately. The allocation of fair value for a multiple-element arrangement involving software is based on
vendor specific objective evidence ("VSOE"), or in the absence of VSOE for delivered elements, the residual method. Under the residual
method, Dell allocates the residual amount of revenue from the arrangement to software licenses at the inception of the license term when
VSOE for all undelivered elements, such as Post Contract Customer Support ("PCS"), exists and all other revenue recognition criteria
have been satisfied. In the absence of VSOE for undelivered elements, revenue is deferred and subsequently recognized over the term of
the arrangement. Dell elected to classify revenue and cost of net revenue related to standalone software sold with PCS in the same line
item as services on Dell's Consolidated Statements of Income. Services revenue and cost of services revenue captions on the
Consolidated Statements of Income include Dell's services and software from Dell's software and peripherals product category. This
software revenue and related costs include software license fees and related PCS that is sold separately from computer systems through
Dell's software and peripherals product category. Dell recognizes software revenue and related costs in accordance with software revenue
recognition guidance. When Dell has not established vendor specific objective evidence to support a separation of the software license
and PCS elements, software license revenue and related costs are included in services revenue and cost of revenue and are generally
recognized over the term of the arrangement.
For sales of extended warranties with a separate contract price, Dell defers revenue equal to the separately stated price. Revenue
associated with undelivered elements is deferred and recorded when delivery occurs or services are provided. Product revenue is
recognized, net of an allowance for estimated returns, when both title and risk of loss transfer to the customer, provided that no
significant obligations remain. Revenue from extended warranty and service contracts, for which Dell is obligated to perform, is recorded
as deferred revenue and subsequently
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