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Table of Contents
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
verify pricing, assess liquidity, and determine if significant valuation inputs have changed that would impact the fair value hierarchy
disclosure. The Level 3 position as of January 28, 2011, and January 29, 2010, 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 held in
Dell's Deferred Compensation Plan. The valuation of these securities is based on pricing 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 was determined using a discounted cash flow model. Significant assumptions
to the model included pool credit losses, payment rates, and discount rates. These assumptions were supported by both historical
experience and anticipated trends relative to the particular receivable pool. Retained interest in securitized receivables was included in
financing receivables, short-term and long-term, on the Consolidated Statements of Financial Position. During the first quarter of Fiscal
2011, Dell consolidated its previously unconsolidated special purpose entities and as a result, the retained interest as of January 29, 2010,
was eliminated. See Note 4 of Notes to Consolidated Financial Statements for additional information about the consolidation of Dell's
previously unconsolidated special purpose entities.
Derivative Instruments — Dell's derivative financial instruments consist primarily of foreign currency forward and purchased option
contracts, and interest rate swaps. The fair value of the portfolio is determined using valuation 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. For interest rate derivative instruments, credit risk is determined at the contract level
with the use of credit default spreads of either Dell, when in a net liability position, or the relevant counterparty, when in a net asset
position. For foreign exchange derivative instruments, credit risk is determined in a similar manner, except that the credit default spread
is applied based on the net position of each counterparty with the use of the appropriate credit default spreads.
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 28, 2011 January 29, 2010
Retained U.S. Retained U.S.
Interest Corporate Total Interest Corporate Total
(in millions)
Balance at beginning of period $ 151 $ 30 $ 181 $ 396 $ 27 $ 423
Net unrealized gains included in earnings(a) - 2 2 26 3 29
Issuances and settlements - - - 231 - 231
Transfers out of Level 3(b) (151) - (151) (502) - (502)
Balance at end of period $ - $ 32 $ 32 $ 151 $ 30 $ 181
(a) The unrealized gains on U.S. Corporate represents accrued interest for assets that are still held at January 28, 2011 and January 29, 2010.
(b) See Note 4 of Notes to Consolidated Financial Statements for additional information about the impact of the special purpose entity consolidation.
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 non-financial assets such as goodwill and intangible assets. Investments accounted for under the cost method
included in equity and other securities, approximate $15 million and $22 million, on January 28, 2011, and January 29, 2010,
respectively. Goodwill and intangible assets are measured at fair value initially and subsequently when there is an indicator of impairment
and
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