Dell 2010 Annual Report Download - page 76

Table of Contents
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4 — FINANCIAL SERVICES
Dell Financial Services L.L.C.
Dell offers or arranges various financing options and services for its business and consumer customers in the U.S. through Dell Financial
Services L.L.C. ("DFS"), a wholly-owned subsidiary of Dell. DFS's key activities include the origination, collection, and servicing of
customer receivables related to the purchase of Dell products and services. New financing originations, which represent the amounts of
financing provided to customers for equipment and related software and services through DFS, were approximately $3.7 billion, for both
fiscal years ended January 28, 2011, and January 29, 2010, and $4.5 billion during the fiscal year ended January 30, 2009.
Dell transfers certain customer financing receivables to special purpose entities ("SPEs"). The SPEs are bankruptcy remote legal entities
with separate assets and liabilities. The purpose of the SPEs is to facilitate the funding of customer receivables in the capital markets.
These SPEs have entered into financing arrangements with multi-seller conduits that, in turn, issue asset-backed debt securities in the
capital markets. Dell's risk of loss related to securitized receivables is limited to the amount of Dell's right to receive collections for assets
securitized exceeding the amount required to pay interest, principal, and other fees and expenses related to the asset-backed securities.
Dell provides credit enhancement to the securitization in the form of over-collateralization. Prior to Fiscal 2011, the SPE that funds
revolving loans was consolidated, and the two SPEs that fund fixed-term leases and loans were not consolidated. In accordance with the
new accounting guidance on variable interest entities ("VIEs"), and transfers of financial assets and extinguishment of financial liabilities,
Dell determined that these two SPEs would be consolidated as of the beginning of Fiscal 2011. The primary factors in this determination
were the obligation to absorb losses due to the interest Dell retains in the assets transferred to the SPEs in the form of over-
collateralization, and the power to direct activities through the servicing role performed by Dell. Dell recorded the assets and liabilities at
their carrying amount as of the beginning of Fiscal 2011, with a $1 million cumulative effect adjustment decrease to the opening balance
of retained earnings in Fiscal 2011.
Dell's securitization programs contain standard structural features related to the performance of the securitized receivables. These
structural features include defined credit losses, delinquencies, average credit scores, and excess collections above or below specified
levels. In the event one or more of these criteria are not met and Dell is unable to restructure the program, no further funding of
receivables will be permitted and the timing of Dell's expected cash flows from over-collateralization will be delayed. At January 28,
2011, these criteria were met.
Financing Receivables
The following table summarizes the components of Dell's financing receivables segregated by portfolio segment:
January 28, 2011 January 29, 2010
Revolving Fixed-term Total Revolving Fixed-term Total
(in millions)
Financing Receivables, net
Customer receivables, gross $ 2,396 $ 1,992 $ 4,388 $ 2,046 $ 824 $ 2,870
Allowances for losses (214) (27) (241) (224) (13) (237)
Customer receivables, net 2,182 1,965 4,147 1,822 811 2,633
Residual interest - 295 295 - 254 254
Retained interest - - - - 151 151
Financing receivables, net $ 2,182 $ 2,260 $ 4,442 $ 1,822 $ 1,216 $ 3,038
Short-term $ 2,182 $ 1,461 $ 3,643 $ 1,822 $ 884 $ 2,706
Long-term - 799 799 - 332 332
Financing receivables, net $ 2,182 $ 2,260 $ 4,442 $ 1,822 $ 1,216 $ 3,038
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