The indefatigable Doug Kass points out to us an interesting and unpublicized
item in Dell Computer's 10K, released a few weeks ago. The premier
computer maker is a partner, it turns out, in an off-balance-sheet partnership
called Dell Financial Services. The other partner is none other than Tyco
International, through its CIT sub that Tyco dearly wants to unload.
Dell Financial offers Dell's customers, whether of the business or consumer
persuasion, financing via CIT for purchasing Dell computers. According to the
10K, the joint venture did $2.7 billion in such financing in fiscal 2002, $2.5
billion the previous year and $1.8 billion in fiscal 2000. As Doug marvels,
"That's a whole lot of computers!"
Equally worth remarking is that in this partnership the partners aren't
necessarily equal. All of Dell Financial's losses automatically go to CIT (read:
Tyco). And the net income is split this way: 70% to Dell, 30% to CIT (read:
Tyco), after the latter recoups its losses.
As Doug exclaims, this is a heap of rapidly depreciating computers to lay on
Tyco/CIT, especially since Tyco/CIT takes all of the risk but is restricted to
only a 30% cut of the profits.
And, Doug also notes, the Financial Accounting Standards Board's new
accounting recommendations are aimed at putting entities like Dell Financial
Services back on the balance sheets of its parents, i.e, Dell and Tyco.
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