Dell 2009 Annual Report Download - page 66

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Table of Contents
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Level 3 position as of January 29, 2010, and January 30, 2009, represents a convertible debt security that Dell was unable to
corroborate with observable market data. The investment is valued at cost plus accrued interest as this is management's best estimate of
fair value.
Equity and Other Securities — The majority of Dell's investments in equity and other securities consists of various mutual funds and
equity securities. The Level 1 securities are valued using quoted prices for identical assets in active markets. The Level 2 securities
include various mutual funds held in Dell's Deferred Compensation Plan. The valuation is based on models whereby all significant inputs
are observable or can be derived from or corroborated by observable market data.
Retained Interest — The fair value of the retained interest is determined using a discounted cash flow model. Significant assumptions to
the model include pool credit losses, payment rates, and discount rates. These assumptions are supported by both historical experience
and anticipated trends relative to the particular receivable pool. Retained interest in securitized receivables is included in financing
receivables, short-term and long-term, on the Consolidated Statements of Financial Position. See Note 4 of Notes to Consolidated
Financial Statements for additional information about the retained interest.
Derivative Instruments — Dell's derivative financial instruments consist primarily of foreign currency forward and purchased option
contracts, and interest rate swaps. The portfolio is valued using internal models based on market observable inputs, including interest rate
curves, forward and spot prices for currencies, and implied volatilities. Credit risk is factored into the fair value calculation of Dell's
derivative instrument portfolio. Credit risk is determined for the net position of each counterparty with the use of credit default spreads of
either Dell, if in a net liability position, or the relevant counterparty, when in a net asset position.
The following table shows a reconciliation of the beginning and ending balances for fair value measurements using significant
unobservable inputs (Level 3) for the respective periods:
Fiscal Year Ended
January 29, 2010 January 30, 2009
Retained U.S. Retained U.S.
Interest Corporate Total Interest Corporate Total
(in millions)
Balance at beginning of period $ 396 $ 27 $ 423 $ 223 $ - $ 223
Net unrealized gains (losses) included in earnings(a) 26 3 29 (8) 2 (6)
Issuances and settlements 231 - 231 181 - 181
Purchases - - - - 25 25
Impact of special purpose entity consolidation(b) (502) - (502) - - -
Balance at end of period $ 151 $ 30 $ 181 $ 396 $ 27 $ 423
(a) The unrealized gains on U.S. corporate represent accrued interest for assets that are still held at January 29, 2010 and January 30, 2009.
(b) See Note 4 of Notes to Consolidated Financial Statements for additional information about the impact of the special purpose entity consolidation.
Unrealized losses for the fiscal year ended January 29, 2010, related to the Level 3 retained interest asset and convertible debt security
asset still held at the reporting date, are reported in income.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis — Certain assets are measured at fair value on a nonrecurring
basis and therefore are not included in the recurring fair value table above. The assets consist primarily of investments accounted for
under the cost method and nonfinancial assets such as goodwill and intangible assets. Investments accounted for under the cost method
included in equity and other securities, approximate $22 million and $14 million, on January 29, 2010, and January 30, 2009,
respectively. Goodwill and intangible assets are measured at fair value initially and subsequently when there is an indicator of impairment
and the impairment is recognized. No impairment charges of goodwill and intangible assets were recorded for the fiscal
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