Dell 2009 Annual Report Download - page 69

Table of Contents
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
exchange contracts on the Consolidated Statements of Financial Position, as well as the amount of hedge ineffectiveness on cash flow
hedges recorded in earnings:
Gain (Loss)
Recognized
in Accumulated Location of Gain (Loss) Gain (Loss)
OCI, Net Reclassified Reclassified Location of Gain (Loss) Gain (Loss)
Derivatives in of Tax, on from Accumulated from Accumulated Recognized in Income Recognized in
Cash Flow Derivatives OCI into Income OCI into Income on Derivative Income on Derivative
Hedging Relationships (Effective Portion) (Effective Portion) (Effective Portion) (Ineffective Portion) (Ineffective Portion)
(in millions)
For the fiscal year ended January 29, 2010
Foreign exchange Total net revenue $ (157) Interest and other, net $ (1)
contracts $ (506) Total cost of net revenue (25)
Total $ (506) $ (182) $ (1)
As of January 29, 2010, and January 30, 2009, the total notional amount of foreign currency option and forward contracts designated as
cash flow hedges was $6.2 billion and $6.5 billion, respectively, from selling local currency.
Other Foreign Currency Derivative Instruments
Dell uses forward contracts to hedge monetary assets and liabilities, primarily receivables and payables, denominated in a foreign
currency. The change in the fair value of these instruments represents a natural hedge as their gains and losses offset the changes in the
underlying fair value of the monetary assets and liabilities due to movements in currency exchange rates. These contracts generally expire
in three months or less. These contracts are considered economic hedges and are not designated as hedges under derivative instruments
and hedging activities accounting, and therefore, the change in the instrument's fair value is recognized currently in earnings as a
component of interest and other, net. With respect to its foreign currency forward contracts, Dell recognized losses of $85 million during
Fiscal 2010, gains of $189 million during Fiscal 2009, and losses of $13 million during Fiscal 2008. As of January 29, 2010, and
January 30, 2009, the total notional amount of other foreign currency forward contracts not designated as hedges was $2.1 billion and
$581 million, respectively, from buying local currency.
Fair Value Hedges
Dell enters into interest rate swaps designated as fair value hedges to manage the exposure of its debt portfolio to interest rate risk. Dell
issues long-term debt in U.S. dollars based on market conditions at the time of financing. Dell uses interest rate swaps to modify the
market risk exposures in connection with the debt to achieve primarily U.S. dollar LIBOR-based floating interest expense. The interest
rate swaps do not hedge all interest rate exposure on corporate debt. For derivative instruments that are designated and qualify for hedge
accounting, changes in the value of the derivative and underlying hedged item are recognized in interest and other, net in the
Consolidated Statement of Income in the current period.
As of January 29, 2010, the total notional amount of the interest rate swaps was $200 million. In Fiscal 2010, the fair value change of the
interest rate contracts resulted in a $1 million gain to interest and other, net and the associated hedged fixed-rate debt recognized a
$1 million offsetting fair value loss to interest and other, net.
Derivative Instruments Additional Information
Cash flows from derivative instruments are presented in the same category on the Consolidated Statements of Cash Flows as the cash
flows from the intended hedged items or the economic hedges.
While Dell has foreign exchange derivative contracts in more than 20 currencies, the majority of the notional amounts are denominated in
the Euro, British Pound, Japanese Yen, Canadian Dollar, and Australian Dollar.
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