Dell 2010 Annual Report Download - page 80

Table of Contents
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Purchased Credit-Impaired Loans
Purchased Credit-Impaired ("PCI") loans are acquired loans for which it is probable that Dell will not collect all contractually required
principal and interest payments. During Fiscal 2011, Dell purchased a portfolio of revolving loan receivables from CIT Group Inc.
("CIT") that consisted of revolving Dell customer account balances that met the definition of PCI loans, as Dell does not expect to collect
all contractually required principal and interest payments. These receivables were purchased for $430 million and had a principal and
accrued interest balance of $570 million at the date of purchase. Dell expects to collect total cash flows of approximately $596 million
over the term of the receivables, including future interest billings. At January 28, 2011, the outstanding balance of these receivables,
including principal and accrued interest, was $528 million and the carrying amount was $361 million. Additionally, as part of the
purchase of this portfolio, Dell acquired the rights to future recoveries on previously CIT-owned Dell revolving accounts that had been
charged off as uncollectible by CIT. Dell does not expect future recoveries under these rights to be significant.
The excess of cash flows expected to be collected over the carrying value of PCI loans is referred to as the accretable yield and is
accreted into interest income using the effective yield method based on the expected future cash flows over the estimated lives of the PCI
loans.
The following table shows activity for the accretable yield on the PCI loans for the fiscal year ended January 28, 2011:
Fiscal Year Ended
January 28, 2011
(in millions)
Accretable Yield:
Balance at beginning of period $ -
Additions/ Purchases 166
Accretion (29)
Balance at end of period $ 137
In addition, contractually required payments on the PCI loans were estimated to be approximately $928 million, as of the date of
purchase. The contractually required payments assume all principal and interest payments are received on all revolving accounts and no
accounts are charged off. Contractual payments include future interest that would have continued to accrue on the customer account post
charge-off. Due to the nature of these accounts, both contractual and expected collections were estimated using consistent expectations of
customer payment behavior that were based on Dell's past experience with this and similar portfolios.
Residual Interest
Dell retains a residual interest in equipment leased under its fixed-term lease programs. The amount of the residual interest is established
at the inception of the lease based upon estimates of the value of the equipment at the end of the lease term using historical studies,
industry data, and future value-at-risk demand valuation methods. On a quarterly basis, Dell assesses the carrying amount of its recorded
residual values for impairment. Anticipated declines in specific future residual values that are considered to be other-than-temporary are
recorded currently in earnings.
Asset Securitizations
• The gross balance of securitized receivables reported off-balance sheet as of January 29, 2010, was $774 million, and the
associated debt was $624 million. As discussed above, as of the beginning of Fiscal 2011, all previously nonconsolidated SPEs
were consolidated. Upon consolidation of these customer receivables and associated debt at the beginning of Fiscal 2011, Dell's
retained interest in securitized
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