NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 — PROPOSED MERGER AND BASIS OF PRESENTATION
Proposed Merger
On February 5, 2013, Dell Inc. (“Dell”) announced that it had signed a definitive agreement and plan of merger (the “merger agreement”) pursuant to which it would be acquired by Denali Holding Inc. (“Parent”), a Delaware corporation owned by Michael S. Dell, the Chairman, Chief Executive Officer and founder of Dell, and investment funds affiliated with Silver Lake Partners, a global private equity firm. Following completion of the transaction, Mr. Dell would continue to lead Dell as Chairman and Chief Executive Officer and maintain a significant equity investment in Dell by contributing his Dell shares to Parent and making a cash investment in Parent. Shares of common stock held by the Parent and its subsidiaries, shares held by Mr. Dell and certain of Mr. Dell's related parties (together with Mr. Dell, the “MD Investors”), and by Dell or any wholly-owned subsidiary of Dell will not be entitled to receive the merger consideration. Subject to the satisfaction or permitted waiver of closing conditions set forth in the merger agreement, the merger is expected to be consummated before the end of the third quarter of the fiscal year ending January 31, 2014.
The parties to the original merger agreement amended the merger agreement on August 2, 2013 in order, among other changes, to increase the per share merger consideration from
$13.65
per share of Dell's common stock to
$13.75
per share, provide for Dell to pay a special cash dividend of
$0.13
per share to stockholders of record as of a date to be determined prior to the effective time of the merger and ensure that the
$0.08
per share regular quarterly dividend for the third quarter of Dell's current fiscal year is paid to holders of record as of a date prior to the closing of the merger. In addition, the amendment revises the condition to the closing of the merger (the “unaffiliated vote condition”) that previously required the affirmative vote (in person or by proxy) in favor of the proposal to adopt the merger agreement by the holders of a majority of the outstanding shares of common stock owned, directly or indirectly, by the “unaffiliated stockholders” referred to below. As revised, the unaffiliated vote condition requires the affirmative vote in favor of the proposal to adopt the merger agreement of the holders of at least a majority of the outstanding shares of common stock owned, directly or indirectly, by the unaffiliated stockholders that are present in person or by proxy at the meeting and are voted for or against the proposal. The unaffiliated stockholders are Dell's stockholders other than Parent, Denali Intermediate Inc. (“Intermediate”) and Denali Acquiror Inc. (“Merger Sub”) (collectively the “Parent Parties”), Mr. Dell and certain of his related family trusts, any other officers and directors of Dell or any other person having any equity interest in, or any right to acquire any equity interest in, Merger Sub or any person of which Merger Sub is a direct or indirect subsidiary. In addition to the unaffiliated vote condition, adoption of the amended merger agreement will continue to require the affirmative vote (in person or by proxy) of the holders of a majority of the outstanding shares of common stock under applicable Delaware law. The amendment also reduces the termination fee payable by Dell upon termination of the merger agreement in certain specified circumstances.
On August 2, 2013, at the reconvened special meeting of Dell stockholders held to vote on adoption of the merger agreement, Dell adjourned the special meeting, which was initially convened on July 18, 2013, and then adjourned to July 24, 2013 and further adjourned to August 2, 2013, to permit the solicitation of additional votes in favor of the proposal to adopt the amended merger agreement, and to provide its stockholders additional time to consider the amendment to the original merger agreement, including the increased merger consideration, the
$0.13
per share special cash dividend and the revised unaffiliated vote condition as well as to review a supplement to Dell's definitive proxy statement dated May 30, 2013. The special meeting will be reconvened on September 12, 2013. The new record date for stockholders entitled to vote at the special meeting is August 13, 2013.
Consummation of the merger is subject to certain customary conditions in addition to stockholder approval. The merger agreement does not contain a financing condition.
The merger agreement places limitations on Dell's ability to engage in certain types of transactions without Parent's consent during the period between the signing of the merger agreement and the effective time of the merger. During this period, Dell may not repurchase shares of its common stock or, except as permitted under the amended merger agreement (which provides for Dell to pay a special cash dividend of
$0.13
per share), declare dividends in excess of the quarterly rate of
$0.08
per share authorized under its current dividend policy. In addition, with limited exceptions, Dell may not incur additional debt other than up to
$1.8 billion
under its existing commercial paper program,
$2.0 billion
under its revolving credit facilities,
$1.5 billion
under its structured financing debt facilities, and up to
$25 million
of additional indebtedness. Further, other than in transactions in the ordinary course of business or within specified dollar limits and certain other limited exceptions, Dell generally may not acquire other businesses, make investments in other persons, or sell, lease, or encumber its material assets.
DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Parent has obtained equity and debt financing commitments for the transactions contemplated by the merger agreement, the aggregate proceeds of which, together with the proceeds of a rollover investment of Dell shares in Parent by the MD Investors, an investment in subordinated securities and the available cash of Dell, will be sufficient for Parent to pay the aggregate merger consideration and all related fees and expenses. The commitment of financial institutions to provide debt financing for the transaction is subject to a number of customary conditions, including the execution and delivery by the borrowers and the guarantors of definitive documentation consistent with the debt commitment letter.
Pursuant to the terms of a “go-shop” provision in the merger agreement, during the period which began on the date of the merger agreement and expired after March 22, 2013, Dell and its subsidiaries and their respective representatives had the right to initiate, solicit and encourage any alternative acquisition proposals from third parties, provide nonpublic information to such third parties and participate in discussions and negotiations with such third parties regarding alternative acquisition proposals. The 45-day go-shop period elicited two alternative acquisition proposals. One proposal was submitted by a group led by entities affiliated with Blackstone Management Partners and the other by entities affiliated with Carl Icahn. On April 19, 2013, Blackstone Management Partners withdrew from the process and decided not to submit a definitive acquisition proposal. Under the terms and conditions set forth in the merger agreement, before the company stockholders approve the adoption of the merger agreement, the Board of Directors may change its recommendation, including in order to approve, and may authorize Dell to enter into, an alternative acquisition proposal if the Special Committee of the Board of Directors that recommended approval of the merger has determined in good faith, after consultation with outside counsel and its financial advisors, that such alternative acquisition proposal would be more favorable to Dell's stockholders, taking into account all of the terms and conditions of such proposal (including, among other things, the financing, likelihood and timing of its consummation and any adjustments to the merger agreement).
The merger agreement contains certain termination rights for Dell and Parent. Among such rights, and subject to certain limitations, either Dell or Parent may terminate the merger agreement if the merger is not completed by November 5, 2013.
Other than expenses associated with the proposed merger, which include transaction costs as well as special performance-based retention cash awards granted to certain key employees in the first quarter of Fiscal 2014 (the "Merger-Related Costs"), the terms of the merger agreement did not impact Dell's Condensed Consolidated Financial Statements as of and for the three months or six months ended August 2, 2013.
Basis of Presentation
The accompanying Condensed Consolidated Financial Statements of Dell Inc. (individually and together with its consolidated subsidiaries, "Dell") should be read in conjunction with the Consolidated Financial Statements and accompanying Notes filed with the U.S. Securities and Exchange Commission ("SEC") in Dell's Annual Report on Form 10-K, as amended, for the fiscal year ended
February 1, 2013
("Fiscal
2013
"). The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). In the opinion of management, the accompanying Condensed Consolidated Financial Statements reflect all adjustments of a normal recurring nature considered necessary to fairly state the financial position of Dell and its consolidated subsidiaries at
August 2, 2013
, the results of its operations and corresponding comprehensive income for the three and
six months ended
August 2, 2013
, and
August 3, 2012
, and its cash flows for the
six months ended
August 2, 2013
, and
August 3, 2012
.
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in Dell's Condensed Consolidated Financial Statements and the accompanying Notes. Actual results could differ materially from those estimates. The results of operations and corresponding comprehensive income for the three and
six months ended
August 2, 2013
, and
August 3, 2012
, and the cash flows for the
six months ended
August 2, 2013
, and
August 3, 2012
, are not necessarily indicative of the results to be expected for the full fiscal year or for any other fiscal period.
Dell's fiscal year is the 52 or 53 week period ending on the Friday nearest January 31. The fiscal year ending
January 31, 2014
("Fiscal
2014
"), will be a 52 week period.
DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
During the first quarter of Fiscal 2014, Dell completed the reorganization or its reportable segments from the customer-centric segments it maintained through Fiscal 2013 to reportable segments based on the following product and services business units:
|
|
•
|
End-User Computing ("EUC")
|
|
|
•
|
Enterprise Solutions Group ("ESG")
|
Dell has recast prior period amounts to be consistent with the reorganized segment structure. The change in Dell's segments did not impact Dell's previously reported consolidated net revenue, gross margin, operating income, net income, or earnings per share. See Note 14 of the Notes to the Condensed Consolidated Financial Statements for more information on Dell's reportable segments.
During the first quarter of Fiscal 2014, Dell retired
475 million
shares that were issued to a wholly-owned subsidiary during Fiscal 2007. While legally issued, these shares were not considered outstanding as of
February 1, 2013
.
Reclassifications
— Dell has revised the presentation of certain prior period amounts reported within cash flows from operating activities presented in the Condensed Consolidated Statements of Cash Flows. This revision had no impact to the total change in cash from operating activities.
Recently Issued Accounting Pronouncements
Disclosures about Offsetting Assets and Liabilities
—
In January 2013, the Financial Accounting Standards Board (the "FASB") issued amended guidance that enhanced disclosure requirements about the nature of an entity’s right to offset and related arrangements associated with its derivative instruments, repurchase agreements, and securities lending transactions. This new guidance requires the disclosure of the gross amounts subject to rights of offset, amounts offset in accordance with the accounting standards followed, and the related net exposure. This new guidance became effective for Dell during the first quarter of Fiscal 2014. Other than requiring additional disclosures, this new guidance did not impact Dell's Condensed Consolidated Financial Statements. See Note 6 of the Notes to the Condensed Consolidated Financial Statements for more information on disclosures about offsetting assets and liabilities.
Comprehensive Income
—
In February 2013, the FASB issued new guidance on reporting reclassifications out of accumulated other comprehensive income. This new guidance became effective for Dell during the first quarter of Fiscal 2014. Other than requiring additional disclosures, this new guidance did not impact Dell's Condensed Consolidated Financial Statements. See Note 10 of the Notes to the Condensed Consolidated Financial Statements for more information on Dell's reclassifications out of accumulated other comprehensive loss.
DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
NOTE 2 — FAIR VALUE MEASUREMENTS
The following table presents Dell's hierarchy for its assets and liabilities measured at fair value on a recurring basis as of
August 2, 2013
, and
February 1, 2013
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 2, 2013
|
|
February 1, 2013
|
|
Level 1
(a)
|
|
Level 2
(a)
|
|
Level 3
|
|
Total
|
|
Level 1
(a)
|
|
Level 2
(a)
|
|
Level 3
|
|
Total
|
|
Quoted
Prices
in Active
Markets for
Identical
Assets
|
|
Significant
Other
Observable
Inputs
|
|
Significant
Unobservable
Inputs
|
|
|
|
Quoted
Prices
in Active
Markets for
Identical
Assets
|
|
Significant
Other
Observable
Inputs
|
|
Significant
Unobservable
Inputs
|
|
|
|
(in millions)
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
$
|
7,102
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,102
|
|
|
$
|
8,869
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,869
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- U.S. government and agencies
|
—
|
|
|
79
|
|
|
—
|
|
|
79
|
|
|
—
|
|
|
96
|
|
|
—
|
|
|
96
|
|
Commercial paper
|
—
|
|
|
5
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
6
|
|
|
—
|
|
|
6
|
|
U.S. corporate
|
—
|
|
|
1,631
|
|
|
—
|
|
|
1,631
|
|
|
—
|
|
|
1,701
|
|
|
—
|
|
|
1,701
|
|
International corporate
|
—
|
|
|
740
|
|
|
—
|
|
|
740
|
|
|
—
|
|
|
700
|
|
|
—
|
|
|
700
|
|
Equity and other securities
|
—
|
|
|
127
|
|
|
—
|
|
|
127
|
|
|
1
|
|
|
112
|
|
|
—
|
|
|
113
|
|
Derivative instruments
|
—
|
|
|
115
|
|
|
—
|
|
|
115
|
|
|
—
|
|
|
68
|
|
|
—
|
|
|
68
|
|
Total assets
|
$
|
7,102
|
|
|
$
|
2,697
|
|
|
$
|
—
|
|
|
$
|
9,799
|
|
|
$
|
8,870
|
|
|
$
|
2,683
|
|
|
$
|
—
|
|
|
$
|
11,553
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments
|
$
|
—
|
|
|
$
|
7
|
|
|
$
|
—
|
|
|
$
|
7
|
|
|
$
|
—
|
|
|
$
|
16
|
|
|
$
|
—
|
|
|
$
|
16
|
|
Total liabilities
|
$
|
—
|
|
|
$
|
7
|
|
|
$
|
—
|
|
|
$
|
7
|
|
|
$
|
—
|
|
|
$
|
16
|
|
|
$
|
—
|
|
|
$
|
16
|
|
____________________
(a)
Dell did not transfer any securities between levels during the
six months ended
August 2, 2013
or during the fiscal year ended
February 1, 2013
.
The following section describes the valuation methodologies Dell uses to measure financial instruments at fair value:
Cash Equivalents
—
The majority of Dell's cash equivalents in the above table consist of money market funds with original maturities of
90
days or less and valued at fair value. The valuations of these securities are based on quoted prices in active markets for identical assets, when available, or pricing models whereby all significant inputs are observable or can be derived from or corroborated by observable market data. Dell reviews security pricing and assesses liquidity on a quarterly basis.
Debt Securities
—
The majority of Dell's debt securities consist of various fixed income securities such as U.S. corporate, international corporate, and non-U.S. government and agencies. Valuation is based on pricing models whereby all significant inputs, including benchmark yields, reported trades, broker-dealer quotes, issue spreads, benchmark securities, bids, offers, and other market related data,
are observable or can be derived from or corroborated by observable market data for substantially the full term of the asset. Inputs are documented in accordance with the fair value measurements hierarchy. Dell reviews security pricing and assesses liquidity on a quarterly basis. See Note 3 of the Notes to the Condensed Consolidated Financial Statements for additional information about investments.
Equity and Other Securities
—
The majority of Dell's investments in equity and other securities that are measured at fair value on a recurring basis consist of various mutual funds held in Dell's Deferred Compensation Plan. The valuation of these securities is based on pricing models whereby all significant inputs are observable or can be derived from or corroborated by observable market data. The valuation for the Level 1 position is based on quoted prices in active markets.
DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Derivative Instruments
—
Dell's derivative financial instruments consist primarily of foreign currency forward and purchased option contracts and interest rate swaps. The fair value of the portfolio is determined using valuation models based on market observable inputs, including interest rate curves, forward and spot prices for currencies, and implied volatilities
.
Credit risk is factored into the fair value calculation of Dell's derivative instrument portfolio. For interest rate derivative instruments, credit risk is determined at the contract level
with the use of credit default spreads of either Dell, when in a net liability position, or the relevant counterparty, when in a net asset position. For foreign exchange derivative instruments, credit risk is determined in a similar manner, except that the credit default spread is applied based on the net position of each
counterparty with the use of the appropriate credit default spreads.
See Note 6 of the Notes to the Condensed Consolidated Financial Statements for a description of Dell's derivative financial instrument activities.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
—
Certain assets are measured at fair value on a nonrecurring basis and therefore are not included in the recurring fair value table above. These assets consist primarily of investments accounted for under the cost and equity methods and non-financial assets such as goodwill and intangible assets.
Goodwill, intangible assets, and investments accounted for under the cost method are measured at fair
value initially and subsequently when there is an indicator of impairment and the impairment is recognized. See Notes 3 and 7 of the Notes to the Condensed Consolidated Financial Statements for additional information about investments and goodwill and intangible assets.
DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
NOTE 3 — INVESTMENTS
The following table summarizes, by major security type, the carrying value and amortized cost of Dell's investments. All debt security investments with remaining maturities in excess of one year and substantially all equity and other securities are recorded as long-term investments in the Condensed Consolidated Statements of Financial Position.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 2, 2013
|
|
February 1, 2013
|
|
Carrying Value
|
|
Cost
|
|
Unrealized Gain
|
|
Unrealized (Loss)
|
|
Carrying Value
|
|
Cost
|
|
Unrealized Gain
|
|
Unrealized (Loss)
|
|
(in millions)
|
Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- U.S. government and agencies
|
$
|
38
|
|
|
$
|
38
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13
|
|
|
$
|
13
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commercial paper
|
5
|
|
|
5
|
|
|
—
|
|
|
—
|
|
|
6
|
|
|
6
|
|
|
—
|
|
|
—
|
|
U.S. corporate
|
390
|
|
|
389
|
|
|
1
|
|
|
—
|
|
|
113
|
|
|
112
|
|
|
1
|
|
|
—
|
|
International corporate
|
210
|
|
|
209
|
|
|
1
|
|
|
—
|
|
|
76
|
|
|
76
|
|
|
—
|
|
|
—
|
|
Total short-term investments
|
643
|
|
|
641
|
|
|
2
|
|
|
—
|
|
|
208
|
|
|
207
|
|
|
1
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- U.S. government and agencies
|
41
|
|
|
40
|
|
|
1
|
|
|
—
|
|
|
83
|
|
|
83
|
|
|
—
|
|
|
—
|
|
U.S. corporate
|
1,241
|
|
|
1,237
|
|
|
5
|
|
|
(1
|
)
|
|
1,588
|
|
|
1,580
|
|
|
9
|
|
|
(1
|
)
|
International corporate
|
530
|
|
|
530
|
|
|
1
|
|
|
(1
|
)
|
|
624
|
|
|
620
|
|
|
4
|
|
|
—
|
|
Equity and other securities
|
236
|
|
|
236
|
|
|
—
|
|
|
—
|
|
|
270
|
|
|
270
|
|
|
—
|
|
|
—
|
|
Total long-term investments
|
2,048
|
|
|
2,043
|
|
|
7
|
|
|
(2
|
)
|
|
2,565
|
|
|
2,553
|
|
|
13
|
|
|
(1
|
)
|
Total investments
|
$
|
2,691
|
|
|
$
|
2,684
|
|
|
$
|
9
|
|
|
$
|
(2
|
)
|
|
$
|
2,773
|
|
|
$
|
2,760
|
|
|
$
|
14
|
|
|
$
|
(1
|
)
|
Dell's investments in debt securities are classified as available-for-sale securities, which are carried at fair value. Equity and other securities primarily relate to investments held in Dell's Deferred Compensation Plan, which are classified as trading securities and carried at fair value, and investments accounted for under the cost and equity methods. The fair value of Dell's portfolio can be affected by interest rate movements, credit risk, and liquidity risks. Dell's investments in debt securities have contractual maturities of
three years
or less.
Investments accounted for under the cost and equity methods included in equity and other securities in the table above
w
ere
$109 million
an
d
$157 million
as of
August 2, 2013
, and
February 1, 2013
, respectively. This decline was due to the sale of certain investments that Dell acquired in connection with its acquisition of Quest Software, Inc. during the third quarter of Fis
cal 2013.
DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
NOTE 4 — FINANCIAL SERVICES
Dell Financial Services
Dell offers or arranges various financing options and services for its business and consumer customers in the U.S., Canada and Europe through Dell Financial Services (“DFS”). DFS's key activities include the origination, collection, and servicing of customer receivables primarily related to the purchase of Dell products and services. DFS results are allocated to Dell's segments based on the product or services business unit to which the origination relates.
Dell's financing receivables are aggregated into the following categories:
|
|
•
|
Revolving loans
— 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. These private label credit financing programs are referred to as Dell Preferred Account (“DPA”) and Dell Business Credit (“DBC”). The DPA product is primarily offered to individual customers, and the DBC product is primarily offered to small and medium-sized commercial customers. Revolving loans in the U.S. bear interest at a variable annual percentage rate that is tied to the prime rate. Based on historical payment patterns, revolving loan transactions are typically repaid within
12
months on average. Revolving loans are included in short-term financing receivables.
|
|
|
•
|
Fixed-term sales-type leases and loans
— Dell enters into sales-type lease arrangements with customers who desire lease financing. Leases with business customers have fixed terms of generally
two
to
four years
. Future maturities of minimum lease payments at
August 2, 2013
, were as follows: Fiscal 2014 -
$868 million
; Fiscal 2015 -
$937 million
; Fiscal 2016 -
$494 million
; Fiscal 2017 -
$122 million
; Fiscal 2018 and beyond -
$21 million
. Dell also offers fixed-term loans to qualified small businesses, large commercial accounts, governmental organizations, educational entities, and certain individual consumer customers. These loans are repaid in equal payments including interest and have defined terms of generally
three
to
four years
.
|
DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
The following table summarizes the components of Dell's financing receivables segregated by portfolio segment as of
August 2, 2013
, and
February 1, 2013
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 2, 2013
|
|
February 1, 2013
|
|
|
Revolving
|
|
Fixed-term
|
|
Total
|
|
Revolving
|
|
Fixed-term
|
|
Total
|
|
|
(in millions)
|
Financing Receivables, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer receivables, gross
|
|
$
|
1,645
|
|
|
$
|
2,733
|
|
|
$
|
4,378
|
|
|
$
|
1,834
|
|
|
$
|
2,535
|
|
|
$
|
4,369
|
|
Allowances for losses
|
|
(148
|
)
|
|
(22
|
)
|
|
(170
|
)
|
|
(169
|
)
|
|
(23
|
)
|
|
(192
|
)
|
Customer receivables, net
|
|
1,497
|
|
|
2,711
|
|
|
4,208
|
|
|
1,665
|
|
|
2,512
|
|
|
4,177
|
|
Residual interest
|
|
—
|
|
|
392
|
|
|
392
|
|
|
—
|
|
|
385
|
|
|
385
|
|
Financing receivables, net
|
|
$
|
1,497
|
|
|
$
|
3,103
|
|
|
$
|
4,600
|
|
|
$
|
1,665
|
|
|
$
|
2,897
|
|
|
$
|
4,562
|
|
Short-term
|
|
$
|
1,497
|
|
|
$
|
1,634
|
|
|
$
|
3,131
|
|
|
$
|
1,665
|
|
|
$
|
1,548
|
|
|
$
|
3,213
|
|
Long-term
|
|
—
|
|
|
1,469
|
|
|
1,469
|
|
|
—
|
|
|
1,349
|
|
|
1,349
|
|
Financing receivables, net
|
|
$
|
1,497
|
|
|
$
|
3,103
|
|
|
$
|
4,600
|
|
|
$
|
1,665
|
|
|
$
|
2,897
|
|
|
$
|
4,562
|
|
The following table summarizes the changes in the allowance for financing receivable losses for the respective periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
August 2, 2013
|
|
August 3, 2012
|
|
|
Revolving
|
|
Fixed- term
|
|
Total
|
|
Revolving
|
|
Fixed- term
|
|
Total
|
|
|
(in millions)
|
Allowance for financing receivable losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
157
|
|
|
$
|
22
|
|
|
$
|
179
|
|
|
$
|
169
|
|
|
$
|
23
|
|
|
$
|
192
|
|
Principal charge-offs
|
|
(36
|
)
|
|
(12
|
)
|
|
(48
|
)
|
|
(42
|
)
|
|
(5
|
)
|
|
(47
|
)
|
Interest charge-offs
|
|
(7
|
)
|
|
—
|
|
|
(7
|
)
|
|
(8
|
)
|
|
—
|
|
|
(8
|
)
|
Recoveries
|
|
12
|
|
|
1
|
|
|
13
|
|
|
22
|
|
|
1
|
|
|
23
|
|
Provision charged to income statement
|
|
22
|
|
|
11
|
|
|
33
|
|
|
27
|
|
|
2
|
|
|
29
|
|
Balance at end of period
|
|
$
|
148
|
|
|
$
|
22
|
|
|
$
|
170
|
|
|
$
|
168
|
|
|
$
|
21
|
|
|
$
|
189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
August 2, 2013
|
|
August 3, 2012
|
|
|
Revolving
|
|
Fixed- term
|
|
Total
|
|
Revolving
|
|
Fixed- term
|
|
Total
|
|
|
(in millions)
|
Allowance for financing receivable losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
169
|
|
|
$
|
23
|
|
|
$
|
192
|
|
|
$
|
179
|
|
|
$
|
23
|
|
|
$
|
202
|
|
Principal charge-offs
|
|
(80
|
)
|
|
(15
|
)
|
|
(95
|
)
|
|
(91
|
)
|
|
(7
|
)
|
|
(98
|
)
|
Interest charge-offs
|
|
(15
|
)
|
|
—
|
|
|
(15
|
)
|
|
(17
|
)
|
|
—
|
|
|
(17
|
)
|
Recoveries
|
|
25
|
|
|
2
|
|
|
27
|
|
|
34
|
|
|
2
|
|
|
36
|
|
Provision charged to income statement
|
|
49
|
|
|
12
|
|
|
61
|
|
|
63
|
|
|
3
|
|
|
66
|
|
Balance at end of period
|
|
$
|
148
|
|
|
$
|
22
|
|
|
$
|
170
|
|
|
$
|
168
|
|
|
$
|
21
|
|
|
$
|
189
|
|
DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
The following table summarizes the aging of Dell's customer financing receivables, gross, including accrued interest, as of
August 2, 2013
, and
February 1, 2013
, segregated by class:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 2, 2013
|
|
February 1, 2013
|
|
|
Current
|
|
Past Due 1 — 90 Days
|
|
Past Due > 90 Days
|
|
Total
|
|
Current
|
|
Past Due 1 — 90 Days
|
|
Past Due > 90 Days
|
|
Total
|
|
|
(in millions)
|
Revolving — DPA
|
|
$
|
1,179
|
|
|
$
|
138
|
|
|
$
|
40
|
|
|
$
|
1,357
|
|
|
$
|
1,322
|
|
|
$
|
163
|
|
|
$
|
54
|
|
|
$
|
1,539
|
|
Revolving — DBC
|
|
257
|
|
|
25
|
|
|
6
|
|
|
288
|
|
|
264
|
|
|
25
|
|
|
6
|
|
|
295
|
|
Fixed-term — Consumer and Small Commercial
|
|
317
|
|
|
15
|
|
|
1
|
|
|
333
|
|
|
310
|
|
|
16
|
|
|
1
|
|
|
327
|
|
Fixed-term —
Medium and Large Commercial
|
|
2,245
|
|
|
150
|
|
|
5
|
|
|
2,400
|
|
|
2,015
|
|
|
172
|
|
|
21
|
|
|
2,208
|
|
Total customer receivables, gross
|
|
$
|
3,998
|
|
|
$
|
328
|
|
|
$
|
52
|
|
|
$
|
4,378
|
|
|
$
|
3,911
|
|
|
$
|
376
|
|
|
$
|
82
|
|
|
$
|
4,369
|
|
DFS Acquisitions
In Fiscal 2012, Dell entered into a definitive agreement to acquire CIT Vendor Finance's Dell-related financing assets portfolio and sales and servicing functions in Europe. The acquisition of these assets will enable global expansion of Dell's direct finance model. Dell completed the first portfolio purchase of this acquisition at the end of the second quarter of Fiscal 2014 for
$215 million
. The purchased portfolio included
$182 million
in gross contractual payments under fixed-term leases and loans with a fair value at purchase of approximately
$174 million
. As part of the same purchase, Dell acquired a liquidating portfolio of operating leases. The gross amount of the equipment associated with these operating leases was approximately
$41 million
and is included in property, plant, and equipment in the Condensed Consolidated Statements of Financial Position. Dell expects to complete the remainder of this transaction during the second half of Fiscal 2014.
Credit Quality
The following tables summarize customer receivables, gross, including accrued interest by credit quality indicator segregated by class, as of
August 2, 2013
, and
February 1, 2013
. The categories shown in the tables below segregate customer receivables based on the relative degrees of credit risk. The credit quality categories cannot be compared between the different classes as loss experience in each class varies substantially. The credit quality indicators for DPA revolving accounts are primarily as of each quarter-end date, and all others are generally updated on a periodic basis.
For DPA revolving receivables shown in the table below, Dell makes credit decisions based on proprietary scorecards, which include the customer's credit history, payment history, credit usage, and other credit agency-related elements. The higher quality category includes prime accounts generally of a higher credit quality that are comparable to U.S. customer FICO scores of 720 or above. The mid-category represents the mid-tier accounts that are comparable to U.S. customer FICO scores from 660 to 719. The lower category is generally sub-prime and represents lower credit quality accounts that are comparable to U.S customer FICO scores below 660.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 2, 2013
|
|
February 1, 2013
|
|
|
Higher
|
|
Mid
|
|
Lower
|
|
Total
|
|
Higher
|
|
Mid
|
|
Lower
|
|
Total
|
|
|
(in millions)
|
Revolving — DPA
|
|
$
|
180
|
|
|
$
|
391
|
|
|
$
|
786
|
|
|
$
|
1,357
|
|
|
$
|
201
|
|
|
$
|
435
|
|
|
$
|
903
|
|
|
$
|
1,539
|
|
DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
For the receivables shown in the table below, an internal grading system is utilized that assigns a credit level score based on a number of considerations, including liquidity, operating performance, and industry outlook. The higher category includes receivables that are generally within Dell's top credit quality levels, which typically have the lowest loss experience. The middle category generally falls within the mid-tier credit levels, and the lower category generally falls within Dell's bottom credit levels, which experience higher loss rates. The grading criteria and classifications are different between the fixed-term and revolving products as the loss performance varies between these product and customer sets. Therefore, the credit levels are not comparable between the consumer and small commercial fixed-term class and the DBC revolving class.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 2, 2013
|
|
February 1, 2013
|
|
|
Higher
|
|
Mid
|
|
Lower
|
|
Total
|
|
Higher
|
|
Mid
|
|
Lower
|
|
Total
|
|
|
(in millions)
|
Revolving — DBC
|
|
$
|
94
|
|
|
$
|
81
|
|
|
$
|
113
|
|
|
$
|
288
|
|
|
$
|
99
|
|
|
$
|
88
|
|
|
$
|
108
|
|
|
$
|
295
|
|
Fixed-term — Consumer and Small Commercial
|
|
$
|
89
|
|
|
$
|
124
|
|
|
$
|
120
|
|
|
$
|
333
|
|
|
$
|
90
|
|
|
$
|
117
|
|
|
$
|
120
|
|
|
$
|
327
|
|
For the receivables in the table below, an internal grading system is also utilized that assigns a credit level score based on liquidity, operating performance, and industry outlook. Dell's internal credit level scoring has been aggregated to their most comparable external commercial rating agency equivalents. Investment grade generally represents the highest credit quality accounts, non-investment grade represents middle quality accounts, and sub-standard represents the lowest quality accounts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 2, 2013
|
|
February 1, 2013
|
|
Investment
|
|
Non-Investment
|
|
Sub-Standard
|
|
Total
|
|
Investment
|
|
Non-Investment
|
|
Sub-Standard
|
|
Total
|
|
(in millions)
|
Fixed-term — Medium and Large Commercial
|
$
|
1,437
|
|
|
$
|
634
|
|
|
$
|
329
|
|
|
$
|
2,400
|
|
|
$
|
1,355
|
|
|
$
|
582
|
|
|
$
|
271
|
|
|
$
|
2,208
|
|
Asset Securitizations and Sales
Dell transfers certain U.S. customer financing receivables to Special Purpose Entities (“SPEs”) that meet the definition of a Variable Interest Entity ("VIE") and are consolidated into Dell's Condensed Consolidated Financial Statements. These SPEs are bankruptcy remote legal entities with separate assets and liabilities. The purpose of the SPEs is to facilitate the funding of customer receivables in the capital markets. These SPEs have entered into financing arrangements with multi-seller conduits that, in turn, issue asset-backed debt securities in the capital markets. Dell's risk of loss related to securitized receivables is limited to the amount by which Dell's right to receive collections for assets securitized exceeds the amount required to pay interest, principal, and other fees and expenses related to the asset-backed securities. Dell provides credit enhancement to the securitization in the form of over-collateralization. Customer receivables funded via securitization through SPEs were
$323 million
and
$379 million
during the three months ended
August 2, 2013
, and
August 3, 2012
, respectively, and
$857 million
and
$915 million
for the
six months ended
August 2, 2013
, and
August 3, 2012
, respectively.
The following table shows financing receivables held by the consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
August 2,
2013
|
|
February 1,
2013
|
|
|
(in millions)
|
Financing receivables held by consolidated VIEs, net:
|
|
|
|
|
|
|
Short-term, net
|
|
$
|
1,166
|
|
|
$
|
1,089
|
|
Long-term, net
|
|
426
|
|
|
386
|
|
Financing receivables held by consolidated VIEs, net
|
|
$
|
1,592
|
|
|
$
|
1,475
|
|
DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Dell's securitization programs are generally effective for
6
to
12 months
and are subject to a periodic renewal process. These programs contain standard structural features related to the performance of the securitized receivables. The structural features include defined credit losses, delinquencies, average credit scores, and excess collections above or below specified levels. In the event one or more of these criteria are not met and Dell is unable to restructure the program, no further funding of receivables will be permitted and the timing of Dell's expected cash flows from over-collateralization will be delayed. At
August 2, 2013
, these criteria were met.
Dell sells selected fixed-term financing receivables to unrelated third parties on a periodic basis, primarily to manage certain concentrations of customer credit exposure. For the three months ended
August 2, 2013
, and
August 3, 2012
, the amount of the receivables sold was
$9 million
and
$227 million
, respectively. For the
six months ended
August 2, 2013
, and
August 3, 2012
, the amount of the receivables sold was
$62 million
and
$298 million
, respectively.
Structured Financing Debt
The structured financing debt related to the fixed-term lease and loan programs and the revolving loan securitization program was
$1.4 billion
and
$1.3 billion
as of
August 2, 2013
, and
February 1, 2013
, respectively. The debt is collateralized solely by the financing receivables in the programs. The debt has a variable interest rate and an average duration of
12
to
36 months
based on the terms of the underlying financing receivables. As of
August 2, 2013
, the total debt capacity related to the securitization programs was
$1.5 billion
. Dell's securitization programs are structured to operate near their debt capacity. See Note 5 of the Notes to the Condensed Consolidated Financial Statements for additional information regarding the structured financing debt.
Dell enters into interest rate swap agreements to effectively convert a portion of the structured financing debt from a floating rate to a fixed rate. The interest rate swaps qualify for hedge accounting treatment as cash flow hedges. See Note 6 of the Notes to the Condensed Consolidated Financial Statements for additional information about interest rate swaps.
DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
NOTE 5 — BORROWINGS
The following table summarizes Dell's outstanding debt as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
August 2,
2013
|
|
February 1,
2013
|
|
|
(in millions)
|
Long-Term Debt
|
|
|
|
|
|
|
Senior Notes
|
|
|
|
|
|
|
$600 million issued on April 17, 2008, at 4.70% due April 2013 (“2013A Notes”)
(a)(b)
|
|
$
|
—
|
|
|
$
|
601
|
|
$500 million issued on September 7, 2010, at 1.40% due September 2013
|
|
500
|
|
|
500
|
|
$500 million issued on April 1, 2009, at 5.625% due April 2014
(b)
|
|
500
|
|
|
500
|
|
$300 million issued on March 28, 2011, with a floating rate due April 2014 (“2014B Notes”)
|
|
300
|
|
|
300
|
|
$400 million issued on March 28, 2011, at 2.10% due April 2014
|
|
400
|
|
|
400
|
|
$700 million issued on September 7, 2010, at 2.30% due September 2015
(b)
|
|
701
|
|
|
702
|
|
$400 million issued on March 28, 2011, at 3.10% due April 2016
(b)
|
|
402
|
|
|
402
|
|
$500 million issued on April 17, 2008, at 5.65% due April 2018
(b)
|
|
500
|
|
|
502
|
|
$600 million issued on June 10, 2009, at 5.875% due June 2019
(b)
|
|
601
|
|
|
604
|
|
$400 million issued on March 28, 2011, at 4.625% due April 2021
|
|
399
|
|
|
398
|
|
$400 million issued on April 17, 2008, at 6.50% due April 2038
|
|
400
|
|
|
400
|
|
$300 million issued on September 7, 2010, at 5.40% due September 2040
|
|
300
|
|
|
300
|
|
Senior Debentures
|
|
|
|
|
|
|
$300 million issued on April 3, 1998, at 7.10% due April 2028 ("Senior Debentures")
(a)
|
|
376
|
|
|
379
|
|
Other
|
|
|
|
|
|
|
Long-term structured financing debt
|
|
943
|
|
|
872
|
|
Less: current portion of long-term debt
|
|
(2,247
|
)
|
|
(1,618
|
)
|
Total long-term debt
|
|
4,075
|
|
|
5,242
|
|
Short-Term Debt
|
|
|
|
|
|
|
Commercial paper
|
|
32
|
|
|
1,807
|
|
Short-term structured financing debt
|
|
455
|
|
|
416
|
|
Current portion of long-term debt
|
|
2,247
|
|
|
1,618
|
|
Other
|
|
2
|
|
|
2
|
|
Total short-term debt
|
|
2,736
|
|
|
3,843
|
|
Total debt
|
|
$
|
6,811
|
|
|
$
|
9,085
|
|
____________________
(a)
Includes the impact of interest rate swap terminations.
(b)
Includes hedge accounting adjustments.
As of
August 2, 2013
, the total carrying value and estimated fair value of outstanding senior notes and debentures, including the current portion, was
$5.4 billion
and
$5.2 billion
, respectively. This is compared to a carrying value and estimated fair value of
$6.0 billion
and
$5.9 billion
, respectively, as of
February 1, 2013
. The fair value of outstanding senior notes and debentures is determined based on observable market prices in a less active market and is categorized as Level 2 in the fair value hierarchy. The fair values of the structured financing debt, commercial paper, and other short-term debt approximate their carrying values. Interest on the senior notes and debentures is payable semiannually, except for the floating rate 2014B Notes, which accrue interest that is payable quarterly. The carrying value of the Senior Debentures and the 2013A Notes includes an unamortized amount related to the termination of interest rate swap agreements, which were previously designated as hedges of the debt. See Note 6 of the Notes to the Condensed Consolidated Financial Statements for additional information about interest rate swaps. The weighted average interest rate for the short-term structured financing debt and other as of
August 2, 2013
, and
February 1, 2013
, was
1.10%
and
1.00%
, respectively.
DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Structured Financing Debt
—
As of
August 2, 2013
, Dell had
$1.4 billion
outstanding of structured financing debt, which was primarily related to the fixed-term lease and loan, and revolving loan securitization programs. Of the
$943 million
outstanding of long-term structured financing debt, which is primarily related to the fixed-term lease and loan programs,
$547 million
was classified as current as of
August 2, 2013
. See Note 4 and Note 6 of the Notes to the Condensed Consolidated Financial Statements for further discussion of the structured financing debt and the interest rate swap agreements that hedge a portion of that debt.
Commercial Paper
—
As of
August 2, 2013
, and
February 1, 2013
, there was
$32 million
and
$1.8 billion
, respectively, outstanding under the commercial paper program. The weighted average interest rate on outstanding commercial paper as of
August 2, 2013
, and
February 1, 2013
, was
0.61%
and
0.38%
, respectively. Dell has
$2.0 billion
in senior unsecured revolving credit facilities primarily to support its commercial paper program. These credit facilities will expire on April 15, 2015. There were
no
outstanding advances under the revolving credit facilities as of
August 2, 2013
.
The indentures governing the senior notes and debentures and the structured financing debt shown in the above table contain customary events of default, including failure to make required payments, failure to comply with certain agreements or covenants, and certain events of bankruptcy and insolvency. The indentures governing the senior notes also contain covenants limiting Dell's ability to create certain liens; enter into sale-and-lease back transactions; and consolidate or merge with, or convey, transfer or lease all or substantially all of its assets to, another person. The senior unsecured revolving credit facilities require 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. Dell was in compliance with all financial covenants as of
August 2, 2013
.
DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
NOTE 6 — 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. Hedge ineffectiveness and amounts not included in the assessment of effectiveness were not material for fair value or cash flow hedges for the three and
six months ended
August 2, 2013
, and
August 3, 2012
.
Foreign Exchange Risk
Dell uses 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.
During the three and
six months ended
August 2, 2013
, and
August 3, 2012
, Dell did not discontinue any cash flow hedges related to foreign exchange contracts 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 and purchased options to hedge monetary assets and liabilities denominated in a foreign currency. These contracts generally expire in
3 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
$22 million
and a loss of
$16 million
for the change in fair value of these instruments during the three months ended
August 2, 2013
, and
August 3, 2012
, respectively, and losses of
$6 million
and
$4 million
during the
six months ended
August 2, 2013
, and
August 3, 2012
, 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.
In addition, Dell may periodically use forward-starting interest rate swaps and interest rate lock agreements to lock in fixed interest rates on its forecasted issuances of debt. The objective of these hedges is to offset the variability of future payments associated with the interest rate on debt instruments. As of
August 2, 2013
, Dell did not have any forward-starting interest rate swaps designated as cash flow hedges. In comparison, as of
August 3, 2012
, Dell had
$600 million
in aggregate notional amounts of forward-starting interest rate swaps outstanding.
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. As of
August 2, 2013
, and
August 3, 2012
, Dell had outstanding interest rate swaps that economically hedge a portion of its interest rate exposure on certain tranches of long-term debt. See Note 5 of the Notes to the Condensed Consolidated Financial Statements for additional information about borrowings.
DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Notional Amounts of Outstanding Derivative Instruments
The notional amounts of Dell's outstanding derivative instruments are as follows as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
August 2,
2013
|
|
February 1,
2013
|
|
|
(in millions)
|
Foreign Exchange Contracts
|
|
|
|
|
|
|
Designated as cash flow hedging instruments
|
|
$
|
2,885
|
|
|
$
|
2,847
|
|
Non-designated as hedging instruments
|
|
972
|
|
|
512
|
|
Total
|
|
$
|
3,857
|
|
|
$
|
3,359
|
|
|
|
|
|
|
Interest Rate Contracts
|
|
|
|
|
Designated as fair value hedging instruments
|
|
$
|
700
|
|
|
$
|
800
|
|
Designated as cash flow hedging instruments
|
|
787
|
|
|
1,320
|
|
Non-designated as hedging instruments
|
|
139
|
|
|
127
|
|
Total
|
|
$
|
1,626
|
|
|
$
|
2,247
|
|
Derivative Instruments Additional Information
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
August 2, 2013
, there had been no such triggering event.
DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
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 August 2, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue
|
|
$
|
36
|
|
|
|
|
|
Foreign exchange contracts
|
|
$
|
41
|
|
|
Total cost of net revenue
|
|
9
|
|
|
|
|
|
Interest rate contracts
|
|
1
|
|
|
Interest and other, net
|
|
(1
|
)
|
|
Interest and other, net
|
|
$
|
(1
|
)
|
Total
|
|
$
|
42
|
|
|
|
|
$
|
44
|
|
|
|
|
$
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended August 3, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue
|
|
$
|
36
|
|
|
|
|
|
Foreign exchange contracts
|
|
$
|
79
|
|
|
Total cost of net revenue
|
|
4
|
|
|
|
|
|
Interest rate contracts
|
|
(3
|
)
|
|
Interest and other, net
|
|
—
|
|
|
Interest and other, net
|
|
$
|
—
|
|
Total
|
|
$
|
76
|
|
|
|
|
$
|
40
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended August 2, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue
|
|
$
|
65
|
|
|
|
|
|
Foreign exchange contracts
|
|
$
|
87
|
|
|
Total cost of net revenue
|
|
11
|
|
|
|
|
|
Interest rate contracts
|
|
1
|
|
|
Interest and other, net
|
|
—
|
|
|
Interest and other, net
|
|
$
|
1
|
|
Total
|
|
$
|
88
|
|
|
|
|
$
|
76
|
|
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended August 3, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue
|
|
$
|
33
|
|
|
|
|
|
Foreign exchange contracts
|
|
$
|
54
|
|
|
Total cost of net revenue
|
|
(7
|
)
|
|
|
|
|
Interest rate contracts
|
|
(3
|
)
|
|
Interest and other, net
|
|
—
|
|
|
Interest and other, net
|
|
$
|
—
|
|
Total
|
|
$
|
51
|
|
|
|
|
$
|
26
|
|
|
|
|
$
|
—
|
|
DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Fair Value of Derivative Instruments and Amounts Offset 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 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 2, 2013
|
|
|
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
|
|
$
|
94
|
|
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
100
|
|
Foreign exchange contracts in a liability position
|
|
(51
|
)
|
|
—
|
|
|
(4
|
)
|
|
—
|
|
|
(55
|
)
|
Interest rate contracts in an asset position
|
|
—
|
|
|
6
|
|
|
—
|
|
|
—
|
|
|
6
|
|
Interest rate contracts in a liability position
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
Net asset (liability)
|
|
43
|
|
|
6
|
|
|
2
|
|
|
(1
|
)
|
|
50
|
|
Derivatives not Designated as Hedging Instruments
|
Foreign exchange contracts in an asset position
|
|
172
|
|
|
—
|
|
|
9
|
|
|
—
|
|
|
181
|
|
Foreign exchange contracts in a liability position
|
|
(106
|
)
|
|
—
|
|
|
(17
|
)
|
|
—
|
|
|
(123
|
)
|
Net asset (liability)
|
|
66
|
|
|
—
|
|
|
(8
|
)
|
|
—
|
|
|
58
|
|
Total derivatives at fair value
|
|
$
|
109
|
|
|
$
|
6
|
|
|
$
|
(6
|
)
|
|
$
|
(1
|
)
|
|
$
|
108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 1, 2013
|
|
|
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
|
|
$
|
86
|
|
|
$
|
—
|
|
|
$
|
9
|
|
|
$
|
—
|
|
|
$
|
95
|
|
Foreign exchange contracts in a liability position
|
|
(40
|
)
|
|
—
|
|
|
(3
|
)
|
|
—
|
|
|
(43
|
)
|
Interest rate contracts in an asset position
|
|
—
|
|
|
12
|
|
|
—
|
|
|
—
|
|
|
12
|
|
Interest rate contracts in a liability position
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6
|
)
|
|
(6
|
)
|
Net asset (liability)
|
|
46
|
|
|
12
|
|
|
6
|
|
|
(6
|
)
|
|
58
|
|
Derivatives not Designated as Hedging Instruments
|
Foreign exchange contracts in an asset position
|
|
118
|
|
|
—
|
|
|
16
|
|
|
—
|
|
|
134
|
|
Foreign exchange contracts in a liability position
|
|
(108
|
)
|
|
—
|
|
|
(32
|
)
|
|
—
|
|
|
(140
|
)
|
Net asset (liability)
|
|
10
|
|
|
—
|
|
|
(16
|
)
|
|
—
|
|
|
(6
|
)
|
Total derivatives at fair value
|
|
$
|
56
|
|
|
$
|
12
|
|
|
$
|
(10
|
)
|
|
$
|
(6
|
)
|
|
$
|
52
|
|
DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
The following table presents the gross amounts of Dell's derivative instruments, amounts offset due to master netting agreements with Dell's various counterparties, and the net amounts recognized in the Condensed Consolidated Statements of Financial Position.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 2, 2013
|
Description
|
|
Gross Amounts of Recognized Assets/ (Liabilities)
|
|
Gross Amounts Offset in the Statement of Financial Position
|
|
Net Amounts of Assets/ (Liabilities) Presented in the Statement of Financial Position
|
|
Gross Amounts not Offset in the Statement of Financial Position
|
|
Net Amount
|
|
Financial Instruments
|
|
Cash Collateral Received or Pledged
|
|
|
|
(in millions)
|
Foreign Exchange Contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets
|
|
$
|
281
|
|
|
$
|
(172
|
)
|
|
$
|
109
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
109
|
|
Financial liabilities
|
|
(178
|
)
|
|
172
|
|
|
(6
|
)
|
|
—
|
|
|
—
|
|
|
(6
|
)
|
Total Foreign Exchange Contracts
|
|
|
|
|
|
|
|
|
|
|
|
103
|
|
Interest Rate Contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets
|
|
6
|
|
|
—
|
|
|
6
|
|
|
—
|
|
|
—
|
|
|
6
|
|
Financial liabilities
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
Total Interest Rate Contracts
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
Total Derivative Instruments
|
|
$
|
108
|
|
|
$
|
—
|
|
|
$
|
108
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 1, 2013
|
Description
|
|
Gross Amounts of Recognized Assets/ (Liabilities)
|
|
Gross Amounts Offset in the Statement of Financial Position
|
|
Net Amounts of Assets/ (Liabilities) Presented in the Statement of Financial Position
|
|
Gross Amounts not Offset in the Statement of Financial Position
|
|
Net Amount
|
|
Financial Instruments
|
|
Cash Collateral Received or Pledged
|
|
|
|
(in millions)
|
Foreign Exchange Contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets
|
|
$
|
229
|
|
|
$
|
(173
|
)
|
|
$
|
56
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
56
|
|
Financial liabilities
|
|
(183
|
)
|
|
173
|
|
|
(10
|
)
|
|
—
|
|
|
—
|
|
|
(10
|
)
|
Total Foreign Exchange Contracts
|
|
|
|
|
|
|
|
|
|
|
|
46
|
|
Interest Rate Contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets
|
|
12
|
|
|
—
|
|
|
12
|
|
|
—
|
|
|
—
|
|
|
12
|
|
Financial liabilities
|
|
(6
|
)
|
|
—
|
|
|
(6
|
)
|
|
—
|
|
|
—
|
|
|
(6
|
)
|
Total Interest Rate Contracts
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
Total Derivative Instruments
|
|
$
|
52
|
|
|
$
|
—
|
|
|
$
|
52
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
52
|
|
DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
NOTE 7 — GOODWILL AND INTANGIBLE ASSETS
Goodwill
During the first quarter of Fiscal 2014,
Dell completed the reorganization of its reportable segments from the customer-centric segments it maintained through Fiscal 2013 to the following product and services reportable segments: End-User Computing, the Enterprise Solutions Group, the Dell Software Group, and Dell Services.
See Note 14 of the Notes to the Consolidated Financial Statements for additional information on Dell's reportable segments.
As a direct result of this segment change, in the first quarter of Fiscal 2014, Dell's goodwill reporting units also changed. As a result of this change, goodwill was re-allocated to the new reporting units on a relative fair value basis as of February 1, 2013. Dell did not incur any impairment charges to goodwill as a result of this change in reporting units.
The following table presents g
oodwill allocated to Dell's current reportable segments as o
f
August 2, 2013
, and
February 1, 2013
, and changes in the carrying amount of goodwill for the
six months ended
August 2, 2013
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End-User Computing
|
|
Enterprise Solutions Group
|
|
Dell Software Group
|
|
Dell Services
|
|
Total
|
|
|
(in millions)
|
Balance at February 1, 2013
|
|
$
|
1,499
|
|
|
$
|
2,244
|
|
|
$
|
890
|
|
|
$
|
4,671
|
|
|
$
|
9,304
|
|
Goodwill acquired during the period
|
|
17
|
|
|
—
|
|
|
38
|
|
|
—
|
|
|
55
|
|
Adjustments
|
|
(4
|
)
|
|
(5
|
)
|
|
(85
|
)
|
|
(12
|
)
|
|
(106
|
)
|
Balance at August 2, 2013
|
|
$
|
1,512
|
|
|
$
|
2,239
|
|
|
$
|
843
|
|
|
$
|
4,659
|
|
|
$
|
9,253
|
|
The Dell Software Group adjustment above is due to the sale of a business that Dell acquired in connection with its acquisition of Quest Software, Inc.
during the third quarter of Fis
cal 2013. The sale resulted in the elimination of all noncontrolling interest as of
August 2, 2013
.
Goodwill is tested for impairment on an annual basis during the second fiscal quarter, or sooner if an indicator of impairment occurs. Based on the results of the annual impairment test, performed during the second quarter of Fiscal 2014, no impairment of goodwill existed at
August 2, 2013
. In addition, Dell did not have any accumulated goodwill impairment charges as of
August 2, 2013
.
Intangible Assets
Dell's intangible assets associated with completed acquisitions at
August 2, 2013
, and
February 1, 2013
, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 2, 2013
|
|
February 1, 2013
|
|
|
Gross
|
|
Accumulated
Amortization
|
|
Net
|
|
Gross
|
|
Accumulated
Amortization
|
|
Net
|
|
|
(in millions)
|
Customer relationships
|
|
$
|
2,181
|
|
|
$
|
(861
|
)
|
|
$
|
1,320
|
|
|
$
|
2,184
|
|
|
$
|
(721
|
)
|
|
$
|
1,463
|
|
Technology
|
|
2,511
|
|
|
(1,047
|
)
|
|
1,464
|
|
|
2,513
|
|
|
(827
|
)
|
|
1,686
|
|
Non-compete agreements
|
|
75
|
|
|
(60
|
)
|
|
15
|
|
|
75
|
|
|
(54
|
)
|
|
21
|
|
Trade names
|
|
158
|
|
|
(71
|
)
|
|
87
|
|
|
159
|
|
|
(59
|
)
|
|
100
|
|
Amortizable intangible assets
|
|
4,925
|
|
|
(2,039
|
)
|
|
2,886
|
|
|
4,931
|
|
|
(1,661
|
)
|
|
3,270
|
|
In-process research and development
|
|
78
|
|
|
—
|
|
|
78
|
|
|
78
|
|
|
—
|
|
|
78
|
|
Indefinite lived intangible assets
|
|
26
|
|
|
—
|
|
|
26
|
|
|
26
|
|
|
—
|
|
|
26
|
|
Total intangible assets
|
|
$
|
5,029
|
|
|
$
|
(2,039
|
)
|
|
$
|
2,990
|
|
|
$
|
5,035
|
|
|
$
|
(1,661
|
)
|
|
$
|
3,374
|
|
Amortization expense related to finite-lived intangible assets was approximately
$196 million
and
$150 million
during the three months ended
August 2, 2013
, and
August 3, 2012
, respectively, and
$392 million
and
$260 million
during the
six months ended
August 2, 2013
, and
August 3, 2012
. There were no material impairment charges related to intangible assets for the three and
six months ended
August 2, 2013
, and
August 3, 2012
.
DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Estimated future annual pre-tax amortization expense of finite-lived intangible assets as of
August 2, 2013
, over the next five fiscal years and thereafter is as follows:
|
|
|
|
|
Fiscal Years
|
(in millions)
|
2014 (remaining six months)
|
$
|
380
|
|
2015
|
681
|
|
2016
|
614
|
|
2017
|
517
|
|
2018
|
372
|
|
Thereafter
|
322
|
|
Total
|
$
|
2,886
|
|
DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
NOTE 8 — WARRANTY AND DEFERRED EXTENDED WARRANTY REVENUE
Dell records liabilities for its standard limited warranties at the time of sale for the estimated costs that may be incurred. The liability for standard warranties is included in accrued and other current liabilities and other non-current liabilities in the Condensed Consolidated Statements of Financial Position. Revenue from the sale of extended warranties is recognized over the term of the contract or when the service is completed, and the costs associated with these contracts are recognized as incurred. Deferred extended warranty revenue is included in deferred revenue in the Condensed Consolidated Statements of Financial Position. Changes in Dell's liabilities for standard limited warranties and deferred revenue related to extended warranties are presented in the following tables for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
August 2,
2013
|
|
August 3,
2012
|
|
August 2,
2013
|
|
August 3,
2012
|
|
|
(in millions)
|
Warranty liability:
|
|
|
|
|
|
|
|
|
|
|
Warranty liability at beginning of period
|
|
$
|
760
|
|
|
$
|
862
|
|
|
$
|
762
|
|
|
$
|
888
|
|
Costs accrued for new warranty contracts and changes in estimates for pre-existing warranties
(a)(b)
|
|
256
|
|
|
250
|
|
|
498
|
|
|
533
|
|
Service obligations honored
|
|
(250
|
)
|
|
(272
|
)
|
|
(494
|
)
|
|
(581
|
)
|
Warranty liability at end of period
|
|
$
|
766
|
|
|
$
|
840
|
|
|
$
|
766
|
|
|
$
|
840
|
|
Current portion
|
|
$
|
490
|
|
|
$
|
538
|
|
|
$
|
490
|
|
|
$
|
538
|
|
Non-current portion
|
|
276
|
|
|
302
|
|
|
276
|
|
|
302
|
|
Warranty liability at end of period
|
|
$
|
766
|
|
|
$
|
840
|
|
|
$
|
766
|
|
|
$
|
840
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
August 2,
2013
|
|
August 3, 2012
(c)
|
|
August 2, 2013
(c)
|
|
August 3, 2012
(c)
|
|
|
(in millions)
|
Deferred extended warranty revenue:
|
|
|
|
|
|
|
|
|
|
|
Deferred extended warranty revenue at beginning of period
|
|
$
|
6,982
|
|
|
$
|
7,044
|
|
|
$
|
7,048
|
|
|
$
|
7,002
|
|
Revenue deferred for new extended warranties
(b)
|
|
1,035
|
|
|
1,027
|
|
|
1,994
|
|
|
2,033
|
|
Revenue recognized
|
|
(1,013
|
)
|
|
(974
|
)
|
|
(2,038
|
)
|
|
(1,938
|
)
|
Deferred extended warranty revenue at end of period
|
|
$
|
7,004
|
|
|
$
|
7,097
|
|
|
$
|
7,004
|
|
|
$
|
7,097
|
|
Current portion
|
|
$
|
3,336
|
|
|
$
|
3,344
|
|
|
$
|
3,336
|
|
|
$
|
3,344
|
|
Non-current portion
|
|
3,668
|
|
|
3,753
|
|
|
3,668
|
|
|
3,753
|
|
Deferred extended warranty revenue at end of period
|
|
$
|
7,004
|
|
|
$
|
7,097
|
|
|
$
|
7,004
|
|
|
$
|
7,097
|
|
____________________
|
|
(a)
|
Changes in cost estimates related to pre-existing warranties are aggregated with accruals for new standard warranty contracts. Dell's warranty liability process does not differentiate between estimates made for pre-existing warranties and new warranty obligations.
|
|
|
(b)
|
Includes the impact of foreign currency exchange rate fluctuations.
|
|
|
(c)
|
Prior period amounts have been revised to conform to the current period presentation.
|
DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
NOTE 9 — SUPPLEMENTAL FINANCIAL INFORMATION
The following table provides information on amounts included in inventories, net and deferred revenue, as of
August 2, 2013
, and
February 1, 2013
:
|
|
|
|
|
|
|
|
|
|
|
|
August 2,
2013
|
|
February 1,
2013
|
|
|
(in millions)
|
Inventories, net:
|
|
|
|
|
|
|
Production materials
|
|
$
|
618
|
|
|
$
|
593
|
|
Work-in-process
|
|
348
|
|
|
283
|
|
Finished goods
|
|
502
|
|
|
506
|
|
Total
|
|
$
|
1,468
|
|
|
$
|
1,382
|
|
|
|
|
|
|
|
|
August 2,
2013
|
|
February 1, 2013
(a)
|
|
|
(in millions)
|
Deferred revenue:
|
|
|
|
|
Deferred extended warranty revenue
|
|
$
|
7,004
|
|
|
$
|
7,048
|
|
Other deferred services revenue
|
|
437
|
|
|
497
|
|
Total deferred services revenue
|
|
7,441
|
|
|
7,545
|
|
Deferred revenue - Dell software
|
|
685
|
|
|
607
|
|
Other deferred revenue
|
|
189
|
|
|
192
|
|
Total deferred revenue
|
|
$
|
8,315
|
|
|
$
|
8,344
|
|
Short-term portion
|
|
$
|
4,312
|
|
|
$
|
4,373
|
|
Long-term portion
|
|
4,003
|
|
|
3,971
|
|
Total deferred revenue
|
|
$
|
8,315
|
|
|
$
|
8,344
|
|
____________________
(a)
Prior period amounts have been revised to conform to the current period presentation.
NOTE 10 — ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss is presented in the Condensed Consolidated Statements of Financial Position and is comprised of amounts related to foreign currency translation adjustments, changes in the fair value of Dell's available-for-sale investments, and amounts related to Dell's cash flow hedges. The following table presents changes in accumulated other comprehensive loss, net of tax, by the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation Adjustments
|
|
Available-for-Sale Investments
|
|
Cash Flow Hedges
|
|
Accumulated Other Comprehensive Loss
|
|
|
(in millions)
|
Balances at February 1, 2013
|
|
$
|
(68
|
)
|
|
$
|
8
|
|
|
$
|
1
|
|
|
$
|
(59
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
(101
|
)
|
|
(4
|
)
|
|
88
|
|
|
(17
|
)
|
Amounts reclassified from accumulated other comprehensive loss
|
|
—
|
|
|
—
|
|
|
(77
|
)
|
|
(77
|
)
|
Total change for the period
|
|
(101
|
)
|
|
(4
|
)
|
|
11
|
|
|
(94
|
)
|
Balances at August 2, 2013
|
|
$
|
(169
|
)
|
|
$
|
4
|
|
|
$
|
12
|
|
|
$
|
(153
|
)
|
Amounts related to available-for-sale investments are reclassified to net income when gains and losses are realized. See Notes 2 and 3 to the Condensed Consolidated Financial Statements for more information on Dell's investments. Amounts related to
DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Dell's cash flow hedges are reclassified to net income during the same period in which the items being hedged are recognized in earnings. In addition, any hedge ineffectiveness related to cash flow hedges is recognized currently in net income. See Note 6 to the Condensed Consolidated Financial Statements for more information on Dell's derivative instruments. The following table presents reclassifications out of accumulated other comprehensive loss, net of tax, which consists entirely of gains and losses related to cash flow hedges, to net income for the three and
six months ended
August 2, 2013
:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
(in millions)
|
Total Reclassifications, net of tax:
|
|
|
|
|
Net revenue
|
|
$
|
36
|
|
|
$
|
65
|
|
Cost of net revenue
|
|
9
|
|
|
11
|
|
Interest and other, net
|
|
(2
|
)
|
|
1
|
|
Total
|
|
$
|
43
|
|
|
$
|
77
|
|
NOTE 11 — COMMITMENTS AND CONTINGENCIES
Legal Matters
— Dell is involved in various claims, suits, assessments, investigations, and legal proceedings that arise from time to time in the ordinary course of its business, including those identified below, consisting of matters involving consumer, antitrust, tax, intellectual property, and other issues on a global basis. Dell accrues a liability when it believes that it is both probable that a liability has been incurred and that it can reasonably estimate the amount of the loss. Dell reviews these accruals at least quarterly and adjusts them to reflect ongoing negotiations, settlements, rulings, advice of legal counsel, and other relevant information. To the extent new information is obtained and Dell's views on the probable outcomes of claims, suits, assessments, investigations, or legal proceedings change, changes in Dell's accrued liabilities would be recorded in the period in which such determination is made. For some matters, the amount of liability is not probable or the amount cannot be reasonably estimated and therefore accruals have not been made. The following is a discussion of Dell's significant legal matters and other proceedings:
Pending Merger Litigation
- Prior to and shortly following the announcement on February 5, 2013 of the execution of the original merger agreement, described in Note 1 of the Notes to the Condensed Consolidated Financial Statements, twenty-five lawsuits challenging the proposed acquisition of Dell Inc. were filed, of which twenty-one were filed in the Delaware Court of Chancery and four were filed in the District Court of Travis County in Texas. The Delaware actions have been consolidated as
In re Dell, Inc. Shareholder Litigation
(C.A. No. 8329-CS), and the complaint in one of the actions,
City of Roseville Employees Retirement System v. Dell, Inc. et al.
, was designated as the operative complaint (the “Delaware litigation”). Three of the Texas lawsuits were voluntarily dismissed, without prejudice, and the remaining action,
Nelson v. Dell Inc. et al.
(Cause No. D-1-GN-13-000220), was stayed by the Texas court on April 4, 2013.
The Delaware litigation is a putative class action filed on behalf of the stockholders of Dell Inc. other than the defendants and their affiliates. The operative complaint, which names as defendants Dell Inc., its directors, Silver Lake Partners, L.P., Silver Lake Technology Investors III, L.P., Silver Lake Partners III, L.P., Silver Lake Partners IV, L.P., the MSDC Investor, Parent, Intermediate and Merger Sub, alleges that the Dell directors breached their fiduciary duties in connection with their approval of the merger agreement and that the entity defendants aided and abetted those breaches. The complaint seeks, among other relief, declaratory and injunctive relief enjoining the merger, and compensatory damages in an unspecified amount. The stayed Texas action makes similar allegations on behalf of the same putative class.
On June 19, 2013, the Delaware Court of Chancery denied plaintiffs' motion in the Delaware litigation for expedited discovery in support of a motion for a preliminary injunction to enjoin the consummation of the merger.
On May 30, 2013, a putative class action was filed in the United States District Court for the Southern District of Texas, captioned
John Michael Van Buiten et al. v. Dell Inc. et al.
(Docket No. 13-cv-01585). The action names as
DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
defendants Dell Inc., its directors, Silver Lake Partners L.P., and the Parent Parties, and asserts disclosure claims under Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 as well as state common law claims for breach of fiduciary duties and aiding and abetting breach of fiduciary duties. The complaint seeks, among other remedies, injunctive relief enjoining the merger.
On August 1, 2013, a group of investment vehicles controlled by Carl Icahn (the “Icahn plaintiffs”) filed a lawsuit in the Delaware Court of Chancery captioned
High River Ltd. Partnership et al. v. Dell Inc. et al.
(C.A. No. 8762-CS). The action names as defendants Dell Inc. and its directors. The complaint alleges, among other claims, that the directors breached their fiduciary duties in connection with the adjournment of and record date for the special meeting concerning the proposed merger and the scheduling of Dell Inc.'s 2013 annual meeting of stockholders. The complaint seeks declaratory and injunctive relief preventing any change in the record date for the special meeting and requiring that the annual meeting and special meeting be held on the same date.
On August 1, 2013, the Icahn plaintiffs filed a motion for expedited proceedings, which they amended on August 4, 2013. The Icahn plaintiffs also filed on August 13, 2013 a claim under Section 211 of the Delaware General Corporation Law (“DGCL”) asking the Delaware Court of Chancery to set a date for the 2013 annual meeting of stockholders. The motion for expedited proceedings and the Section 211 claim were heard in the Delaware Court of Chancery on August 16, 2013. The Delaware Court of Chancery denied the Icahn plaintiffs' motion for expedited proceedings relating to any alleged breach of fiduciary claims and the parties subsequently agreed to an order setting the annual meeting date to October 17, 2013.
On August 9, 2013, the plaintiffs in the Delaware litigation filed an amended complaint repeating the claims alleged in their original complaint, adding many of the same allegations asserted by the Icahn plaintiffs, and asserting a claim that Dell Inc.'s directors breached their fiduciary duties by amending the original merger agreement to modify the unaffiliated vote condition, changing the record date for the stockholders meeting to vote on the proposal to adopt the amended merger agreement, and not scheduling an annual stockholders meeting within thirteen months of Dell Inc.'s last annual meeting, and a claim that Dell Inc. has violated Section 211 of the DGCL by not holding the annual stockholders meeting by August 13, 2013. The complaint seeks, in addition to the relief sought in the original Delaware litigation complaint, declaratory and injunctive relief directing Dell Inc. to hold an annual meeting in conjunction with the vote on the proposal to adopt the amended merger agreement and enjoining the modification of the unaffiliated vote condition. The plaintiffs in the Delaware litigation also filed a motion for expedited proceedings, asserting that the motion should be granted for the same reasons identified by the Icahn plaintiffs.
The outcome of these lawsuits is uncertain. An adverse judgment for monetary damages could have an adverse effect on the operations and liquidity of Dell Inc. A preliminary injunction could delay or jeopardize the completion of the merger, and an adverse judgment granting permanent injunctive relief could indefinitely enjoin completion of the merger. The defendants believe that the claims that have been asserted against them in the lawsuits are without merit.
Copyright Levies
- Dell's obligation to collect and remit copyright levies in certain European Union (“EU”) countries may be affected by the resolution of legal proceedings pending in Germany against various companies, including Dell's German subsidiary, and elsewhere in the EU against other companies in Dell's industry. The plaintiffs in those proceedings, some of which are described below, generally seek to impose or modify the levies with respect to sales of such equipment as multifunction devices, phones, personal computers, and printers, alleging that such products enable the copying of copyrighted materials. Some of the proceedings also challenge whether the levy schemes in those countries comply with EU law. Certain EU member countries that do not yet impose levies on digital devices are expected to implement legislation to enable them to extend existing levy schemes, while some other EU member countries are expected to limit the scope of levy schemes and their applicability in the digital hardware environment. Dell, other companies, and various industry associations have opposed the extension of levies to the digital environment and have advocated alternative models of compensation to rights holders. Dell continues to collect levies in certain EU countries where it has determined that based on local laws it is probable that Dell has a payment obligation. The amount of levies is generally based on the number of products sold and the per-product amounts of the levies, which vary. In all other matters, Dell does not believe there is a probable and estimable claim. Accordingly, Dell has not accrued any liability nor collected any levies.
DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
On December 29, 2005, Zentralstelle Für private Überspielungrechte (“ZPÜ”), a joint association of various German collecting societies, instituted arbitration proceedings against Dell's German subsidiary before the Board of Arbitration at the German Patent and Trademark Office in Munich, and subsequently filed a lawsuit in the German Regional Court in Munich on February 21, 2008, seeking levies to be paid on each personal computer sold by Dell in Germany through the end of calendar year 2007. On December 23, 2009, ZPÜ and the German industry association, BCH, reached a settlement regarding audio-video copyright levy litigation (with levies ranging from
€3.15
to
€13.65
per unit). Dell joined this settlement on February 23, 2010, and has paid the amounts due under the settlement. However, because the settlement agreement expired on December 31, 2010, the amount of levies payable after calendar year 2010, as well as Dell's ability to recover such amounts through increased prices, remains uncertain. German courts are also considering a lawsuit originally filed in July 2004 by VG Wort, a German collecting society representing certain copyright holders, against Hewlett-Packard Company in the Stuttgart Civil Court seeking levies on printers, and a
lawsuit originally filed in September 2003 by the same plaintiff against Fujitsu Siemens Computer GmbH in Munich Civil Court in Munich, Germany seeking levies on personal computers. In each case, the civil and appellate courts held that the subject classes of equipment were subject to levies. In July 2011, the German Federal Supreme Court, to which the lower court holdings have been appealed, referred each case to the Court of Justice of the European Union (the "ECJ"), submitting a number of legal questions on the interpretation of the European Copyright Directive which the German Federal Supreme Court deems necessary for its decision. In June 2013, the ECJ issued a ruling remitting the case back to the German Federal Supreme Court. Dell has not accrued any liability in either matter, as Dell does not believe there is a probable and estimable claim.
Proceedings seeking to impose or modify copyright levies for sales of digital devices also have been instituted in courts in Spain and in other EU member states. Even in countries where Dell is not a party to such proceedings, decisions in those cases could impact Dell's business and the amount of copyright levies Dell may be required to collect.
The ultimate resolution of these proceedings and the associated financial impact to Dell, if any, including the number of units potentially affected, the amount of levies imposed, and the ability of Dell to recover such amounts, remain uncertain at this time. Should the courts determine there is liability for previous units shipped beyond the amount of levies Dell has collected or accrued, Dell would be liable for such incremental amounts. Recovery of any such amounts from others by Dell would be possible only on future collections related to future shipments.
Convolve Inc. v Dell Inc.
- Convolve, Inc. sued Dell, Western Digital Corporation (“Western Digital”), Hitachi Global Storage Technologies, Inc., and Hitachi Ltd. (collectively “Hitachi”) on June 18, 2008 in the U.S. District Court for the Eastern District of Texas, Marshall Division, alleging that the defendants infringed United States Patent No. 4,916,635 (entitled “Shaping Command Inputs to Minimize Unwanted Dynamics”) and United States Patent No. 6,314,473 (entitled “System for Removing Selected Unwanted Frequencies in Accordance with Altered Settings in a User Interface of a Data Storage Device”). Western Digital and Hitachi are hard drive suppliers of Dell. The plaintiff sought damages for each product with an allegedly infringing hard drive sold by Dell, plus exemplary damages for allegedly willful infringement. On July 26, 2011, a jury found that the patents had been infringed and awarded the plaintiff an amount of damages that is not material to Dell. The jury decision is subject to final approval and entry by the judge.
Other Litigation
- The various legal proceedings in which Dell is involved include commercial litigation and a variety of patent suits. In some of these cases, Dell is the sole defendant. More often, particularly in the patent suits, Dell is one of a number of defendants in the electronics and technology industries. Dell is actively defending a number of patent infringement suits, and several pending claims are in various stages of evaluation. While the number of patent cases has grown over time, Dell does not currently anticipate that any of these matters will have a material adverse effect on Dell's business, financial condition, results of operations, or cash flows.
As of
August 2, 2013
, Dell does not believe there is a reasonable possibility that a material loss exceeding the amounts already accrued for these or other proceedings or matters has been incurred. However, since the ultimate resolution of any such proceedings and matters is inherently unpredictable, Dell's business, financial condition, results of operations, or cash flows could be materially affected in any particular period by unfavorable outcomes in one or more of these proceedings or matters. Whether the outcome of any claim, suit, assessment, investigation, or legal proceeding, individually or collectively, could have a material adverse effect on Dell's business, financial condition, results of operations, or cash flows will depend on a number of
DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
variables, including the nature, timing, and amount of any associated expenses, amounts paid in settlement, damages, or other remedies or consequences.
Indemnifications
— In the ordinary course of business, Dell enters into contractual arrangements under which Dell may agree to indemnify the third party to such arrangements from any losses incurred relating to the services it performs on behalf of Dell or for losses arising from certain events as defined in the particular contract, such as litigation or claims relating to past performance. Such indemnification obligations may not be subject to maximum loss clauses. Historically, payments related to these indemnifications have been immaterial.
DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
NOTE 12 — INCOME AND OTHER TAXES
Dell's effective income tax rate was
6.9%
and
12.7%
for the three months ended
August 2, 2013
, and
August 3, 2012
, respectively, and
11.4%
and
16.1%
for the
six months ended
August 2, 2013
, and
August 3, 2012
, respectively. The decrease in Dell's effective tax rate was primarily driven by discrete items resulting in a net tax benefit of approximately
$26 million
for the six months of Fiscal 2014, none of which individually exceeded
$26 million
. These amounts included tax benefits from the expiration of statutes for certain foreign jurisdictions and other adjustments to estimated tax provisions for various jurisdictions. The effect of these items on Dell's tax rate for the three and
six months ended
August 2, 2013
were offset in part by an increase in expenses that are not recognized for tax purposes as a relative percentage of pre-tax income. In addition, pre-tax income for the three and
six months ended
August 2, 2013
includes the Merger-Related Costs, which were primarily incurred in higher tax jurisdictions.
The differences between the estimated effective income tax rates and the U.S. federal statutory rate of
35%
principally result from Dell's geographical distribution of taxable income and differences between the book and tax treatment of certain items. In certain jurisdictions, Dell's tax rate is significantly less than the applicable statutory rate as a result of tax holidays. Dell's significant tax holidays expire in whole or in part during fiscal years 2017 through 2022. Many of these tax holidays and reduced tax rates may be extended when certain conditions are met or may be terminated early if certain conditions are not met. The income tax rate for future quarters of Fiscal
2014
will be impacted by the actual mix of jurisdictions in which income is generated.
Dell is currently under income tax audits in various jurisdictions, including the United S
tates. The tax periods open to examination by the major taxing jurisdictions to which Dell is subject include fiscal years 2000 through 2013. As a result of these audits, Dell maintains ongoing discussions and negotiations relating to tax matters with the taxing authorities in
these jurisdictions.
Dell believes that it has provided adequate reserves related to all matters contained in tax periods open to examination.
Dell's U.S. federal income tax returns for fisca
l years 2007 through 2009 are currently under examination by the Internal Revenue Service (“IRS”). During the first six months of Fiscal 2014, the IRS issued a revised Revenue Agent's Report for fiscal years 2004 through 2006 proposing certain assessments primarily related to transfer pricing matters. Dell disagrees with certain of the proposed ass
essments and is contesting them through the IRS administrative appeals procedures. Should Dell experience an unfavorable outcome in the IRS matter, such an outcome could have a material impact on its results of operations, financial position, and cash flows.
Judgment is required in evaluating Dell's uncertain tax positions and determining Dell's provision for income taxes. Dell's net unrecognized tax benefits, included in other non-current liabilities in the Condensed Consolidated Statements of Financial Position, were
$2.9 billion
as of both
August 2, 2013
, and
February 1, 2013
, respectively. If recognized, these tax benefits would favorably impact Dell's effective tax rate.
Although the timing of income tax audit resolutions and negotiations with taxing authorities is highly uncertai
n, Dell does not anticipate a significant change to the total amount of unrecognized income tax benefits within the next 12 months.
Dell takes certain non-income tax positions in the jurisdictions in which it operates and has received certain non-income tax assessments from various jurisdictions. Dell believes that a material loss in these matters is not probable and it is not reasonably possible that a material loss exceeding amounts already accrued has been incurred. Dell believes its positions in these non-income tax litigation matters are supportable and that it will ultimately prevail.
In the normal course of business, Dell's positions and conclusions related to its non-income taxes could be challenged and assessments may be made. To the extent new information is obtained and Dell's views on its positions, probable outcomes of assessments, or litigation change, changes in estimates to Dell's accrued liabilities would be recorded in the period in which such a determination is made.
DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
NOTE 13 — EARNINGS PER SHARE
Basic earnings per share is based on the weighted-average effect of all common shares issued and outstanding and is calculated by dividing net income by the weighted-average shares outstanding during the period. Diluted earnings per share is calculated by dividing net income by the weighted-average number of common shares used in the basic earnings per share calculation plus the number of common shares that would be issued assuming exercise or conversion of all potentially dilutive common shares outstanding. Dell excludes equity instruments from the calculation of diluted earnings per share if the effect of including such instruments is anti-dilutive. Accordingly, certain stock-based incentive awards have been excluded from the calculation of diluted earnings per share, totaling
86 million
and
135 million
common shares for the three months ended
August 2, 2013
, and
August 3, 2012
, respectively, and
85 million
and
121 million
for the
six months ended
August 2, 2013
, and
August 3, 2012
, respectively.
The following table sets forth the computation of basic and diluted earnings per share for the three and
six months ended
August 2, 2013
, and
August 3, 2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
August 2,
2013
|
|
August 3,
2012
|
|
August 2,
2013
|
|
August 3,
2012
|
|
|
(in millions, except per share amounts)
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
204
|
|
|
$
|
732
|
|
|
$
|
334
|
|
|
$
|
1,367
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
1,757
|
|
|
1,747
|
|
|
1,752
|
|
|
1,753
|
|
Effect of dilutive options, restricted stock units, restricted stock, and other
|
|
7
|
|
|
6
|
|
|
11
|
|
|
11
|
|
Diluted
|
|
1,764
|
|
|
1,753
|
|
|
1,763
|
|
|
1,764
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.12
|
|
|
$
|
0.42
|
|
|
$
|
0.19
|
|
|
$
|
0.78
|
|
Diluted
|
|
$
|
0.12
|
|
|
$
|
0.42
|
|
|
$
|
0.19
|
|
|
$
|
0.77
|
|
NOTE 14 — SEGMENT INFORMATION
During the first quarter of Fiscal 2014, Dell completed the reorganization of its reportable segments from the customer-centric segments it maintained through Fiscal 2013 to reportable segments based on the following product and services business units:
|
|
•
|
End-User Computing ("EUC")
|
|
|
•
|
Enterprise Solutions Group ("ESG")
|
•
Dell Services
EUC includes notebooks, desktop PCs, thin client products, tablets, third-party software, and EUC-related peripherals. ESG includes servers, networking, storage, and ESG-related peripherals. The Dell Software Group includes systems management, security, and information management software offerings, and Dell Services includes a broad range of IT and business services, including support and deployment services, infrastructure, cloud, and security services, and applications and business process services.
Dell has recast prior period amounts to be consistent with the reorganized segment structure. The change in Dell's segments did not impact Dell's previously reported consolidated net revenue, gross margin, operating income, net income, or earnings per share.
The reportable segments disclosed herein are based on information reviewed by Dell's management to evaluate the segment results. Dell's measure of segment operating income for management reporting purposes excludes amortization of intangible assets, severance and facility action costs and acquisition-related charges, unallocated corporate expenses, and the Merger-
DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Related Costs. See Note 1 of the Notes to the Condensed Consolidated Financial Statements for more information on the proposed merger. Dell does not allocate assets to the above reportable segments for internal reporting purposes.
DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
The following tables present net revenue and operating income by Dell's reportable segments for the respective periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
August 2, 2013
|
|
|
End-User Computing
|
|
Enterprise Solutions Group
|
|
Dell Software Group
|
|
Dell Services
|
|
Total Segments
|
|
|
(in millions)
|
Net Revenue:
|
|
|
|
|
|
|
|
|
|
|
External revenue
|
|
$
|
8,899
|
|
|
$
|
3,173
|
|
|
$
|
310
|
|
|
$
|
2,132
|
|
|
$
|
14,514
|
|
Internal revenue
(a)
|
|
240
|
|
|
151
|
|
|
—
|
|
|
4
|
|
|
395
|
|
Total segment revenue
|
|
$
|
9,139
|
|
|
$
|
3,324
|
|
|
$
|
310
|
|
|
$
|
2,136
|
|
|
$
|
14,909
|
|
Segment operating income (loss)
|
|
$
|
205
|
|
|
$
|
137
|
|
|
$
|
(62
|
)
|
|
$
|
339
|
|
|
$
|
619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 3, 2012
|
|
|
End-User Computing
|
|
Enterprise Solutions Group
|
|
Dell Software Group
|
|
Dell Services
|
|
Total Segments
|
|
|
(in millions)
|
Net Revenue:
|
|
|
|
|
|
|
|
|
|
|
External revenue
|
|
$
|
9,353
|
|
|
$
|
2,941
|
|
|
$
|
95
|
|
|
$
|
2,094
|
|
|
$
|
14,483
|
|
Internal revenue
(a)
|
|
218
|
|
|
145
|
|
|
—
|
|
|
3
|
|
|
366
|
|
Total segment revenue
|
|
$
|
9,571
|
|
|
$
|
3,086
|
|
|
$
|
95
|
|
|
$
|
2,097
|
|
|
$
|
14,849
|
|
Segment operating income (loss)
|
|
$
|
696
|
|
|
$
|
151
|
|
|
$
|
(11
|
)
|
|
$
|
336
|
|
|
$
|
1,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
August 2, 2013
|
|
|
End-User Computing
|
|
Enterprise Solutions Group
|
|
Dell Software Group
|
|
Dell Services
|
|
Total Segments
|
|
|
(in millions)
|
Net Revenue:
|
|
|
|
|
|
|
|
|
|
|
External revenue
|
|
$
|
17,613
|
|
|
$
|
6,132
|
|
|
$
|
605
|
|
|
$
|
4,238
|
|
|
$
|
28,588
|
|
Internal revenue
(a)
|
|
446
|
|
|
285
|
|
|
—
|
|
|
7
|
|
|
738
|
|
Total segment revenue
|
|
$
|
18,059
|
|
|
$
|
6,417
|
|
|
$
|
605
|
|
|
$
|
4,245
|
|
|
$
|
29,326
|
|
Segment operating income (loss)
|
|
$
|
429
|
|
|
$
|
273
|
|
|
$
|
(147
|
)
|
|
$
|
709
|
|
|
$
|
1,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 3, 2012
|
|
|
End-User Computing
|
|
Enterprise Solutions Group
|
|
Dell Software Group
|
|
Dell Services
|
|
Total Segments
|
|
|
(in millions)
|
Net Revenue:
|
|
|
|
|
|
|
|
|
|
|
External revenue
|
|
$
|
18,985
|
|
|
$
|
5,622
|
|
|
$
|
133
|
|
|
$
|
4,165
|
|
|
$
|
28,905
|
|
Internal revenue
(a)
|
|
418
|
|
|
280
|
|
|
—
|
|
|
5
|
|
|
703
|
|
Total segment revenue
|
|
$
|
19,403
|
|
|
$
|
5,902
|
|
|
$
|
133
|
|
|
$
|
4,170
|
|
|
$
|
29,608
|
|
Segment operating income (loss)
|
|
$
|
1,335
|
|
|
$
|
230
|
|
|
$
|
(17
|
)
|
|
$
|
674
|
|
|
$
|
2,222
|
|
____________________
|
|
(a)
|
Internal revenues primarily consist of origination fees related to the sale of extended warranty services within EUC and ESG. The pricing for these transactions is based on the value related to extended warranty services created by each of the segments.
|
DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
The following tables present a reconciliation of total segment revenue and operating income to consolidated net revenue and operating income, respectively, for the periods presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
August 2,
2013
|
|
August 3,
2012
|
|
August 2,
2013
|
|
August 3,
2012
|
|
|
(in millions)
|
Consolidated Net Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
Total segment revenue
|
|
$
|
14,909
|
|
|
$
|
14,849
|
|
|
$
|
29,326
|
|
|
$
|
29,608
|
|
Less internal revenue
|
|
(395
|
)
|
|
(366
|
)
|
|
(738
|
)
|
|
(703
|
)
|
Total consolidated net revenue
|
|
$
|
14,514
|
|
|
$
|
14,483
|
|
|
$
|
28,588
|
|
|
$
|
28,905
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Operating Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income
|
|
$
|
619
|
|
|
$
|
1,172
|
|
|
$
|
1,264
|
|
|
$
|
2,222
|
|
Unallocated corporate expenses
(a)
|
|
(17
|
)
|
|
(49
|
)
|
|
(72
|
)
|
|
(89
|
)
|
Amortization of intangible assets
|
|
(196
|
)
|
|
(150
|
)
|
|
(392
|
)
|
|
(260
|
)
|
Severance and facility actions and acquisition-related costs
(b)
|
|
(87
|
)
|
|
(72
|
)
|
|
(167
|
)
|
|
(148
|
)
|
Other
(c)
|
|
(47
|
)
|
|
—
|
|
|
(135
|
)
|
|
—
|
|
Total consolidated operating income
|
|
$
|
272
|
|
|
$
|
901
|
|
|
$
|
498
|
|
|
$
|
1,725
|
|
____________________
|
|
(a)
|
Unallocated corporate expenses include broad based long-term incentives, certain short-term incentive compensation expenses, and other corporate items that are not allocated to Dell's segments.
|
|
|
(b)
|
Acquisition-related costs consist primarily of retention payments, integration costs, and consulting fees.
|
|
|
(c)
|
Other includes expenses associated with Dell's proposed merger. These expenses consist of professional fees incurred by Dell as well as the reimbursement of transaction-related expenses incurred by certain participants approved by a Special Committee of the Board of Directors. Expenses associated with Dell's proposed merger also include special performance-based retention cash awards granted to certain key employees in the first quarter of Fiscal 2014 that will be payable in March 2014. These awards are expensed ratably over the performance period.
|
DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
The following table presents net revenue by product and services categories:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
August 2,
2013
|
|
August 3,
2012
|
|
August 2,
2013
|
|
August 3,
2012
|
|
|
(in millions)
|
Net Revenue:
|
|
|
|
|
|
|
|
|
|
|
End-User Computing:
|
|
|
|
|
|
|
|
|
Desktops and thin client
|
|
$
|
3,550
|
|
|
$
|
3,504
|
|
|
$
|
6,823
|
|
|
$
|
6,839
|
|
Mobility
|
|
3,569
|
|
|
3,946
|
|
|
7,187
|
|
|
8,274
|
|
Third-party software and peripherals
|
|
2,020
|
|
|
2,121
|
|
|
4,049
|
|
|
4,290
|
|
Total EUC revenue
|
|
9,139
|
|
|
9,571
|
|
|
18,059
|
|
|
19,403
|
|
|
|
|
|
|
|
|
|
|
Enterprise Solutions Group:
|
|
|
|
|
|
|
|
|
Servers, peripherals, and networking
|
|
2,892
|
|
|
2,622
|
|
|
5,561
|
|
|
4,965
|
|
Storage
|
|
432
|
|
|
464
|
|
|
856
|
|
|
937
|
|
Total ESG revenue
|
|
3,324
|
|
|
3,086
|
|
|
6,417
|
|
|
5,902
|
|
|
|
|
|
|
|
|
|
|
Dell Software Group
(a)
:
|
|
|
|
|
|
|
|
|
Total Dell Software Group revenue
|
|
310
|
|
|
95
|
|
|
605
|
|
|
133
|
|
|
|
|
|
|
|
|
|
|
Dell Services:
|
|
|
|
|
|
|
|
|
Support and deployment
|
|
1,223
|
|
|
1,192
|
|
|
2,425
|
|
|
2,368
|
|
Infrastructure, cloud, and security
|
|
601
|
|
|
574
|
|
|
1,213
|
|
|
1,124
|
|
Applications and business process
|
|
312
|
|
|
331
|
|
|
607
|
|
|
678
|
|
Total Dell Services revenue
|
|
2,136
|
|
|
2,097
|
|
|
4,245
|
|
|
4,170
|
|
|
|
|
|
|
|
|
|
|
Total segment revenue
|
|
14,909
|
|
|
14,849
|
|
|
29,326
|
|
|
29,608
|
|
Less internal revenue
|
|
(395
|
)
|
|
(366
|
)
|
|
(738
|
)
|
|
(703
|
)
|
Total consolidated net revenue
|
|
$
|
14,514
|
|
|
$
|
14,483
|
|
|
$
|
28,588
|
|
|
$
|
28,905
|
|
____________________
|
|
(a)
|
Includes the results of Dell's Fiscal 2013 software acquisitions from their respective acquisition dates.
|