Dell 2006 Annual Report Download - page 99

Table of Contents
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
variation in a particular assumption on the fair value is calculated without giving effect to any other assumption changes. It
should be noted that changes in one factor may result in changes in another factor (for example, increases in market interest
rates may result in lower prepayments and increased credit losses) that may magnify or counteract the other factor's
sensitivities. The effect of multiple factor changes were not considered in this analysis.
DFS Servicing Liability
DFS has collection and servicing responsibilities for the finance receivables purchased by CIT and has recorded a servicing
liability associated with its obligation to provide such services. DFS establishes the liability based upon the estimated fair
value upon transfer of the related financed receivable, which is amortized over the related servicing period. DFS validates
that it is receiving fair value for its servicing efforts by performing market comparisons. The servicing liability is included in
other current and non-current liabilities on Dell's Consolidated Statements of Financial Position. At February 2, 2007 and
February 3, 2006, the servicing liability was $13 million and $15 million, respectively.
Asset Securitization
During Fiscal 2007 and Fiscal 2006, Dell sold $1.1 billion and $586 million, respectively, of fixed-term leases and loans and
revolving loans to unconsolidated qualifying special purpose entities. The qualifying special purpose entities are bankruptcy
remote legal entities with assets and liabilities separate from those of Dell. The sole purpose of the qualifying special
purpose entities is to facilitate the funding of finance receivables in the capital markets. Dell determines the amount of
receivables to securitize based on its funding requirements in conjunction with specific selection criteria designed for the
transaction. The qualifying special purpose entities have entered into financing arrangements with three multi-seller conduits
that, in turn, issue asset-backed debt securities in the capital markets. Transfers of financing receivables are recorded in
accordance with the provisions of SFAS 140. The principal balance of the securitized receivables at the end of Fiscal 2007
and Fiscal 2006 were $979 million and $552 million, respectively.
Dell retains the right to receive collections on securitized receivables in excess of amounts needed to pay interest and
principal as well as other required fees. Upon the sale of the financing receivables, Dell records the present value of the
excess cash flows as a retained interest, which typically results in a gain that ranges from 2% to 4% of the customer
receivables sold. Dell services the securitized contracts and earns a servicing fee. Dell's securitization transactions generally
do not result in servicing assets and liabilities, as the contractual fees are adequate compensation in relation to the
associated servicing cost.
Dell's securitization program contains structural features that could prevent further funding if the credit losses or
delinquencies on the pool of sold receivables exceed specified levels. These structural features are within normal industry
practice and are similar to comparable securitization programs in the marketplace. Dell does not currently expect that any of
these features will have a material adverse impact on its ability to securitize financing receivables.
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