Dell 2006 Annual Report Download - page 85

Table of Contents
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Dell also uses forward contracts to hedge monetary assets and liabilities, primarily receivables and payables, denominated in
a foreign currency. These contracts are not designated as hedging instruments under SFAS 133, and therefore, the change
in the instrument's fair value is recognized currently in earnings and is reported as a component of investment and other
income, net. The change in the fair value of these instruments represents a natural hedge as their gains and losses offset the
changes in the underlying fair value of the monetary assets and liabilities due to movements in currency exchange rates.
These contracts generally expire in three months or less.
Commercial Paper
On June 1, 2006 Dell implemented a $1.0 billion commercial paper program with a supporting $1.0 billion senior unsecured
revolving credit facility. This program allows Dell to obtain favorable short-term borrowing rates. Dell pays facility commitment
and letter of credit participation fees at rates based upon Dell's credit rating. Unless extended, this facility expires on June 1,
2011, at which time any outstanding amounts under the facility will be due and payable. The facility requires compliance with
conditions that must be satisfied prior to any borrowing, as well as ongoing compliance with specified affirmative and
negative covenants, including maintenance of a minimum interest coverage ratio. Amounts outstanding under the facility may
be accelerated for typical defaults, including failure to pay principal or interest, breaches of covenants, non-payment of
judgments or debt obligations in excess of $200 million, occurrence of a change of control, and certain bankruptcy events.
At February 2, 2007 $100 million was outstanding under the commercial paper program and was due within 90 days. The
weighted-average interest rate on these outstanding short-term borrowings was 5.3% at February 2, 2007. There were no
outstanding advances under the commercial paper program as of October 26, 2007. Dell uses the proceeds of the program
and facility for general corporate purposes, including funding DFS growth.
DFS Credit Facilities
DFS maintains credit facilities with CIT that provide a maximum capacity of $750 million to fund leased equipment. These
borrowings are secured by DFS' assets and contain certain customary restrictive covenants. Interest on the outstanding
loans is paid quarterly and calculated based on an average of the two- and three-year U.S. Treasury Notes plus 4.45%. DFS
is required to make quarterly payments if the value of the leased equipment securing the loans is less than the outstanding
principal balance. At February 2, 2007 and February 3, 2006, outstanding advances from CIT totaled $122 million and
$133 million, respectively, of which $87 million and $63 million, respectively, is included in short-term borrowings and
$35 million and $70 million, respectively, is included in long-term debt on Dell's Consolidated Statements of Financial
Position. The credit facilities expire on the earlier of (i) the dissolution of DFS; (ii) the purchase of CIT's ownership interest in
DFS; or (iii) the acceleration of the maturity of the debt by CIT arising from a default.
Vendor Financing
Dell had a vendor financing plan with a third party where participating vendors could elect to have their payables paid early
by the third party as compared to Dell's standard payment terms. Vendors who elected to participate in this plan could take a
discount on their invoices to accelerate the timing of payment. This discount, net of the third party's cost of funds, was
allocated between the third party and Dell. This plan was terminated in the first quarter of Fiscal 2006. Discounted invoices
paid by the program are estimated to be $200 million and $1.0 billion in Fiscal 2006 and 2005, respectively. Dell recognized
the amounts due to the third party as short-term borrowings in the Consolidated Statement of Financial Position and the
payments
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