Dell 2003 Annual Report Download - page 24

Table of Contents
Consolidation of Off-Balance Sheet Arrangements
Consolidation of Leasing Affiliate — Dell is currently a partner in Dell Financial Services L.P. ("DFS"), a joint venture with CIT Group Inc. ("CIT"). The
joint venture allows Dell to provide its customers with various financing alternatives while CIT provides the financing between DFS and the customer for
certain transactions. See Note 6 of "Notes to Consolidated Financial Statements" included in "Item 8 — Financial Statements and Supplementary Data."
In January 2003, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 46 ("FIN 46"), Consolidation of Variable Interest
Entities. FIN 46 provides that if an entity is the primary beneficiary of a Variable Interest Entity ("VIE"), the assets, liabilities, and results of operations of the
VIE should be consolidated in the entity's financial statements. Based on the guidance in FIN 46, Dell concluded that DFS is a VIE and Dell is the primary
beneficiary of DFS's expected cash flows. Accordingly, Dell began consolidating DFS's financial results at the beginning of the third quarter of fiscal 2004.
The consolidation of DFS had no impact on Dell's net income or earnings per share during fiscal 2004 because Dell has historically been recording its 70%
equity interest in DFS under the equity method. The impact to any individual line item on Dell's consolidated statement of income was not material; however,
the consolidation of DFS increased Dell's consolidated assets and liabilities by $588 million. CIT's equity ownership in the net assets of DFS as of January 30,
2004 was $17 million, which is recorded as minority interest and included in other non-current liabilities on Dell's consolidated statement of financial
position. The consolidation has not altered the partnership agreement or risk sharing arrangement between Dell and CIT. For a discussion of certain risks
associated with DFS's activities, see "Item 1 — Business — Factors Affecting Dell's Business and Prospects."
Master Lease Facilities — Dell historically maintained master lease facilities which provided the company with the ability to lease certain real property,
buildings, and equipment to be constructed or acquired. These leases have historically been accounted for as operating leases by Dell. During fiscal 2004, Dell
paid $636 million to purchase all of the assets covered by its master lease facilities. Accordingly, the assets formerly covered by these facilities are included in
Dell's consolidated statement of financial position and Dell has no remaining lease commitments under these master lease facilities as of January 30, 2004.
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