Dell 2008 Annual Report Download - page 83

Table of Contents
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Residual Interest — Dell retains a residual interest in the leased equipment. 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 in current earnings.
Retained Interest — Retained interest represents the residual beneficial interest Dell retains in certain pools of securitized financing receivables.
Retained interest is stated at the present value of the estimated net beneficial cash flows after payment of all senior interests. Dell values the retained
interest at the time of each receivable transfer and at the end of each reporting period. The fair value of the retained interest is determined using a
discounted cash flow model with various key assumptions, including payment rates, credit losses, discount rates, and remaining life of the
receivables sold. These assumptions are supported by both Dell's historical experience and anticipated trends relative to the particular receivable
pool. The weighted average assumptions for retained interest can be affected by the many factors, including asset type (revolving versus fixed),
repayment terms, and the credit quality of assets being securitized.
The implementation of SFAS 157 did not result in material changes to the models or processes used to value retained interest. See Note 2 of Notes to
Consolidated Financial Statements for the impact of the implementation of SFAS 157.
The following table summarizes the activity in retained interest balances and related cash flows:
Fiscal Year Ended
January 30, February 1, February 2,
2009 2008 2007
(in millions)
Retained interest:
Retained interest at beginning of year $ 223 $ 159 $ 90
Issuances 427 173 167
Distributions from conduits (246) (132) (142)
Net accretion 16 31 17
Change in fair value for the period (24) (8) 27
Retained interest at end of year $ 396 $ 223 $ 159
Cash flows during the periods:
Proceeds from new securitizations $ 350 $ 538 $ 607
Distributions from conduits 246 132 142
Servicing and administration fees received 19 15 9
Repurchases of ineligible contracts (5) (11) (7)
Cash flows during the period $ 610 $ 674 $ 751
The table below summarizes the key assumptions used to measure the fair value of the retained interest as of January 30, 2009.
Weighted Average Key Assumptions
Monthly
Payment Credit Discount
Rates Losses Rates Life
(lifetime) (annualized) (months)
Time of sale valuation of retained interest 12% 8% 14% 14
Valuation of retained interest 8% 12% 11% 11
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