Derivative Instruments and Hedging Activities (Notes)

9 Months Ended

Oct. 28, 2011

Derivative Instruments and Hedges, Assets [Abstract]

Derivative Instruments and Hedging Activities [Text Block]

NOTE 7 — DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Derivative Instruments

As part of its risk management strategy, Dell uses derivative instruments, primarily forward contracts and purchased options, to hedge certain foreign currency exposures and interest rate swaps to manage the exposure of its debt portfolio to interest rate risk. Dell's objective is to offset gains and losses resulting from these exposures with gains and losses on the derivative contracts used to hedge the exposures, thereby reducing volatility of earnings and protecting fair values of assets and liabilities. Dell assesses hedge effectiveness both at the onset of the hedge and at regular intervals throughout the life of the derivative and recognizes any ineffective portion of the hedge, as well as amounts not included in the assessment of effectiveness, in earnings as a component of interest and other, net.

Foreign Exchange Risk

Dell uses a combination of forward contracts and purchased options designated as cash flow hedges to protect against the foreign currency exchange rate risks inherent in its forecasted transactions denominated in currencies other than the U.S. dollar. The risk of loss associated with purchased options is limited to premium amounts paid for the option contracts. The risk of loss associated with forward contracts is equal to the exchange rate differential from the time the contract is entered into until the time it is settled. The majority of these contracts typically expire in 12 months or less.

Dell assessed hedge ineffectiveness for cash flow hedges for the three and nine months ended October 28, 2011, and determined that it was not material. During the three and nine months ended October 28, 2011, Dell did not discontinue any cash flow hedges that had a material impact on Dell's results of operations, as substantially all forecasted foreign currency transactions were realized in Dell's actual results.

In addition, Dell uses forward contracts to hedge monetary assets and liabilities, primarily receivables and payables, denominated in a foreign currency. These contracts generally expire in three months or less, are considered economic hedges and are not designated. 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. Dell recognized a gain of $55 million and a loss of $6 million during the third quarters of Fiscal 2012 and 2011, respectively, for the change in fair value of these foreign currency forward contracts, and gains of $65 million and $52 million during the nine months ended October 28, 2011, and October 29, 2010, respectively.

Interest Rate Risk

Dell uses interest rate swaps to hedge the variability in cash flows related to the interest rate payments on structured financing debt. The interest rate swaps economically convert the variable rate on the structured financing debt to a fixed interest rate to match the underlying fixed rate being received on fixed term customer leases and loans. The duration of these contracts typically ranges from 30 to 42 months. Certain of these swaps are designated as cash flow hedges. Hedge ineffectiveness for interest rate swaps designated as cash flow hedges was not material for the three and nine months ended October 28, 2011, and October 29, 2010.

The amount of change in fair value for interest rate hedges recognized in interest and other, net, was not material for the three and nine months ended October 28, 2011, and October 29, 2010.

Periodically, Dell also uses interest rate swaps designated as fair value hedges to modify the market risk exposures in connection with long-term debt to achieve primarily LIBOR-based floating interest expense. During the three months ended October 28, 2011, Dell entered into interest rate swaps to economically hedge a portion of its interest rate exposure on certain tranches of its long-term debt. Hedge ineffectiveness for interest rate swaps designated as fair value hedges was not material for the three and nine months ended October 28, 2011, and October 29, 2010.

Notional Amounts of Outstanding Derivative Instruments

The notional amounts of Dell's outstanding derivative instruments are summarized as follows:

	October 28, 2011		January 28, 2011
	(in millions)
Foreign Exchange Contracts
Designated as cash flow hedging instruments	$	4,854	$	5,364
Non-designated as hedging instruments	186		250
Total	$	5,040	$	5,614
Interest Rate Contracts
Designated as fair value hedging instruments	$	500	$	—
Designated as cash flow hedging instruments	669		625
Non-designated as hedging instruments	121		145
Total	$	1,290	$	770

Derivative Instruments Additional Information

The aggregate unrealized net gain or loss for interest rate swaps and foreign currency exchange contracts, recorded as a component of comprehensive income, for the third quarters of Fiscal 2012 and 2011, was a gain of $63 million and a loss of $105 million, respectively, and for the nine months ended October 28, 2011, and October 29, 2010, a gain of $85 million and a loss of $219 million, respectively.

Dell has reviewed the existence and nature of credit-risk-related contingent features in derivative trading agreements with its counterparties. Certain agreements contain clauses under which, if Dell's credit ratings were to fall below investment grade upon a change of control of Dell, counterparties would have the right to terminate those derivative contracts where Dell is in a net liability position. As of October 28, 2011, there had been no such triggering events.

Effect of Derivative Instruments on the Condensed Consolidated Statements of Financial Position and the Condensed Consolidated Statements of Income

Derivatives in Cash Flow Hedging Relationships	Gain (Loss) Recognized in Accumulated OCI, Net of Tax, on Derivatives (Effective Portion)			Location of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)			Location of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion)	Gain (Loss) Recognized in Income on Derivative (Ineffective Portion)
(in millions)
For the three months ended October 28, 2011
				Total net revenue	$	(15	)
Foreign exchange contracts	$	55		Total cost of net revenue	8
Interest rate contracts	—			Interest and other, net	—			Interest and other, net	$	1
Total	$	55			$	(7	)		$	1
For the three months ended October 29, 2010
				Total net revenue	$	(120	)
Foreign exchange contracts	$	(234	)	Total cost of net revenue	(9		)
Interest rate contracts	—			Interest and other, net	—			Interest and other, net	$	—
Total	$	(234	)		$	(129	)		$	—
For the nine months ended October 28, 2011
				Total net revenue	$	(257	)
Foreign exchange contracts	$	(194	)	Total cost of net revenue	(20		)
Interest rate contracts	—			Interest and other, net	—			Interest and other, net	$	3
Total	$	(194	)		$	(277	)		$	3
For the nine months ended October 29, 2010
				Total net revenue	$	2
Foreign exchange contracts	$	(253	)	Total cost of net revenue	(37		)
Interest rate contracts	(1		)	Interest and other, net	—			Interest and other, net	$	—
Total	$	(254	)		$	(35	)		$	—

Fair Value of Derivative Instruments in the Condensed Consolidated Statements of Financial Position

Dell presents its foreign exchange derivative instruments on a net basis in the Condensed Consolidated Statements of Financial Position due to the right of offset by its counterparties under master netting arrangements. The fair value of those derivative instruments presented on a gross basis as of each date indicated below is as follows:

	October 28, 2011
	Other Current Assets			Other Non- Current Assets		Other Current Liabilities			Other Non-Current Liabilities			Total Fair Value
				(in millions)
Derivatives Designated as Hedging Instruments
Foreign exchange contracts in an asset position	$	197		$	—	$	33		$	—		$	230
Foreign exchange contracts in a liability position	(67		)	—		(14		)	—			(81		)
Interest rate contracts in an asset position	—			1		—			—			1
Interest rate contracts in a liability position	—			—		—			(5		)	(5		)
Net asset (liability)	130			1		19			(5		)	145
Derivatives not Designated as Hedging Instruments
Foreign exchange contracts in an asset position	65			—		22			—			87
Foreign exchange contracts in a liability position	(39		)	—		(51		)	—			(90		)
Net asset (liability)	26			—		(29		)	—			(3		)
Total derivatives at fair value	$	156		$	1	$	(10	)	$	(5	)	$	142
	January 28, 2011
	Other Current Assets			Other Non- Current Assets		Other Current Liabilities			Other Non-Current Liabilities			Total Fair Value
				(in millions)
Derivatives Designated as Hedging Instruments
Foreign exchange contracts in an asset position	$	81		$	1	$	34		$	—		$	116
Foreign exchange contracts in a liability position	(86		)	—		(59		)	—			(145		)
Interest rate contracts in a liability position	—			—		—			(2		)	(2		)
Net asset (liability)	(5		)	1		(25		)	(2		)	(31		)
Derivatives not Designated as Hedging Instruments
Foreign exchange contracts in an asset position	52			—		15			—			67
Foreign exchange contracts in a liability position	(21		)	—		(15		)	—			(36		)
Interest rate contracts in a liability position	—			—		—			(1		)	(1		)
Net asset (liability)	31			—		—			(1		)	30
Total derivatives at fair value	$	26		$	1	$	(25	)	$	(3	)	$	(1	)