Dell 2006 Annual Report Download - page 97

Table of Contents
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
to customers who, in turn, enter into agreements to finance their purchases. For customers who desire lease financing, Dell
sells the equipment to DFS, and DFS enters into direct financing lease arrangements with the customers.
• Customer receivables are presented net of allowance for uncollectible accounts. The allowance is based on factors
including historical trends and the composition and credit quality of the customer receivables. The composition and credit
quality varies from investment grade commercial customers to subprime consumers. Customer receivables are charged to
the allowance at the earlier of when an account is deemed to be uncollectible or when the account is 180 days delinquent.
Recoveries on customer receivables previously charged off as uncollectible are adjusted to the allowance for uncollectible
accounts. The following is a description of the components of financing receivables.
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Revolving loans offered under private label credit financing programs provide qualified customers with a revolving credit line for the purchase of products and services offered by Dell. From time to time, account holders may have the
opportunity to finance their Dell purchases with special programs during which, if the outstanding balance is paid in full,
no interest is charged. These special programs generally range from 3 to 18 months and have an average original term
of approximately 13 months. Revolving loans bear interest at a variable annual percentage rate that is tied to the prime
rate.
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Leases with business customers generally have fixed terms of two to three years. Future maturities of minimum lease payments at February 2, 2007 are as follows: 2008: $55 million; 2009: $36 million; 2010: $13 million; and 2011:
$1 million. Fixed-term loans are also offered to qualified small businesses for the purchase of products sold by Dell.
• 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 periodic 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 interests represent the residual beneficial interest Dell retains in certain pools of securitized finance receivables.
Retained interests are stated at the present value of the estimated net beneficial cash flows after payment of all senior
interests. In estimating the value of retained interests, Dell makes a variety of financial assumptions, including pool credit
losses, payment rates, and discount rates. These assumptions are supported by both Dell's historical experience and
anticipated trends relative to the particular receivable pool. Dell reviews its investments in retained interests periodically for
impairment, based on estimated fair value. Any resulting losses representing the excess of carrying value over estimated
fair value that are other-than-temporary are recorded in earnings. However, unrealized gains are reflected in stockholders'
equity as part of accumulated other comprehensive income. In the first quarter of Fiscal 2008 Dell adopted SFAS 155 and,
as a result, all gains and losses are recognized in income immediately and are no longer included in accumulated other
comprehensive income.
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