INDEX TO CONSOLIDATED FINANCIAL STATEMENTS | | | | | | | Page | Financial Statements: | | | | | | | | | | | | | 49 | | | | | | | | | | 50 | | | | | | | | | | 51 | | | | | | | | | | 52 | | | | | | | | | | 53 | | | | | | | | | | 54 | |
48
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Dell Inc.:
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Dell Inc. and its subsidiaries (the “Company”"Company") at January 29, 2010February 3, 2012 and January 30, 2009,28, 2011, and the results of their operations and their cash flows for each of the three years in the period ended January 29, 2010February 3, 2012 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 29, 2010,February 3, 2012, based on criteria established inInternal Control —- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’sCompany's management is responsible for these financial statements, and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’sManagement's Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’sCompany's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As described in Note 5,1, in Fiscal 2010,2011 the Company changed the manner in which it accounts for business combinations. As described in Note 10variable interest entities and Note 1, respectively, in Fiscal 2008, the Company changed the manner in which it accounts for uncertain tax positionstransfers of financial assets and certain hybrid financial instruments.extinguishments of liabilities.
A company’scompany's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’scompany's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’scompany's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. As described in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A, management has excluded Perot Systems Corporation from its assessment of internal control over financial reporting as of January 29, 2010 because it was acquired by the Company in a purchase business combination during Fiscal 2010. We have also excluded Perot Systems Corporation from our audit of internal control over financial reporting. Perot Systems Corporation is a wholly-owned subsidiary whose total assets (excluding allocated intangibles and goodwill) and total revenues represent 3% and 1%, respectively, of the related consolidated financial statement amounts as of and for the year ended January 29, 2010.
/s/ PRICEWATERHOUSECOOPERS LLP
Austin, Texas March 18, 201013, 2012
49
DELL INC. (in millions) | | | | | | | | | | | January 29,
| | January 30,
| | | 2010 | | 2009 | ASSETS | Current assets: | | | | | | | | | Cash and cash equivalents | | $ | 10,635 | | | $ | 8,352 | | Short-term investments | | | 373 | | | | 740 | | Accounts receivable, net | | | 5,837 | | | | 4,731 | | Financing receivables, net | | | 2,706 | | | | 1,712 | | Inventories, net | | | 1,051 | | | | 867 | | Other current assets | | | 3,643 | | | | 3,749 | | | | | | | | | | | Total current assets | | | 24,245 | | | | 20,151 | | Property, plant, and equipment, net | | | 2,181 | | | | 2,277 | | Investments | | | 781 | | | | 454 | | Long-term financing receivables, net | | | 332 | | | | 500 | | Goodwill | | | 4,074 | | | | 1,737 | | Purchased intangible assets, net | | | 1,694 | | | | 724 | | Other non-current assets | | | 345 | | | | 657 | | | | | | | | | | | Total assets | | $ | 33,652 | | | $ | 26,500 | | | | | | | | | | | | LIABILITIES AND STOCKHOLDERS’ EQUITY | Current liabilities: | | | | | | | | | Short-term debt | | $ | 663 | | | $ | 113 | | Accounts payable | | | 11,373 | | | | 8,309 | | Accrued and other | | | 3,884 | | | | 3,736 | | Short-term deferred services revenue | | | 3,040 | | | | 2,701 | | | | | | | | | | | Total current liabilities | | | 18,960 | | | | 14,859 | | Long-term debt | | | 3,417 | | | | 1,898 | | Long-term deferred services revenue | | | 3,029 | | | | 3,000 | | Other non-current liabilities | | | 2,605 | | | | 2,472 | | | | | | | | | | | Total liabilities | | | 28,011 | | | | 22,229 | | | | | | | | | | | Commitments and contingencies (Note 9) | | | | | | | | | Stockholders’ equity: | | | | | | | | | Common stock and capital in excess of $.01 par value; shares authorized: 7,000; shares issued: 3,351 and 3,338, respectively; shares outstanding: 1,957 and 1,944, respectively | | | 11,472 | | | | 11,189 | | Treasury stock at cost: 919 shares | | | (27,904 | ) | | | (27,904 | ) | Retained earnings | | | 22,110 | | | | 20,677 | | Accumulated other comprehensive (loss) income | | | (37 | ) | | | 309 | | | | | | | | | | | Total stockholders’ equity | | | 5,641 | | | | 4,271 | | | | | | | | | | | Total liabilities and stockholders’ equity | | $ | 33,652 | | | $ | 26,500 | | | | | | | | | | |
| | | | | | | | | | February 3, 2012 | | January 28, 2011 | ASSETS | Current assets: | |
| | |
| Cash and cash equivalents | $ | 13,852 |
| | $ | 13,913 |
| Short-term investments | 966 |
| | 452 |
| Accounts receivable, net | 6,476 |
| | 6,493 |
| Short-term financing receivables, net | 3,327 |
| | 3,643 |
| Inventories, net | 1,404 |
| | 1,301 |
| Other current assets | 3,423 |
| | 3,219 |
| Total current assets | 29,448 |
| | 29,021 |
| Property, plant, and equipment, net | 2,124 |
| | 1,953 |
| Long-term investments | 3,404 |
| | 704 |
| Long-term financing receivables, net | 1,372 |
| | 799 |
| Goodwill | 5,838 |
| | 4,365 |
| Purchased intangible assets, net | 1,857 |
| | 1,495 |
| Other non-current assets | 490 |
| | 262 |
| Total assets | $ | 44,533 |
| | $ | 38,599 |
| | | | | LIABILITIES AND STOCKHOLDERS’ EQUITY | Current liabilities: | | | |
| Short-term debt | $ | 2,867 |
| | $ | 851 |
| Accounts payable | 11,656 |
| | 11,293 |
| Accrued and other | 3,934 |
| | 4,181 |
| Short-term deferred services revenue | 3,544 |
| | 3,158 |
| Total current liabilities | 22,001 |
| | 19,483 |
| Long-term debt | 6,387 |
| | 5,146 |
| Long-term deferred services revenue | 3,836 |
| | 3,518 |
| Other non-current liabilities | 3,392 |
| | 2,686 |
| Total liabilities | 35,616 |
| | 30,833 |
| Commitments and contingencies (Note 10) |
|
| |
|
| Stockholders’ equity: | | | |
| Common stock and capital in excess of $.01 par value; shares authorized: 7,000; shares issued: 3,390 and 3,369, respectively; shares outstanding: 1,761 and 1,918, respectively | 12,187 |
| | 11,797 |
| Treasury stock at cost: 1,154 and 976 shares, respectively | (31,445 | ) | | (28,704 | ) | Retained earnings | 28,236 |
| | 24,744 |
| Accumulated other comprehensive loss | (61 | ) | | (71 | ) | Total stockholders’ equity | 8,917 |
| | 7,766 |
| Total liabilities and stockholders’ equity | $ | 44,533 |
| | $ | 38,599 |
|
The accompanying notes are an integral part of these consolidated financial statements.
DELL INC. CONSOLIDATED STATEMENTS OF INCOME (in millions, except per share amounts) | | | | | | | | | | | | | | Fiscal Year Ended | | February 3, 2012 | | January 28, 2011 | | January 29, 2010 | Net revenue: | |
| | |
| | |
| Products | $ | 49,906 |
| | $ | 50,002 |
| | $ | 43,697 |
| Services, including software related | 12,165 |
| | 11,492 |
| | 9,205 |
| Total net revenue | 62,071 |
| | 61,494 |
| | 52,902 |
| Cost of net revenue: | | | |
| | |
| Products | 39,689 |
| | 42,068 |
| | 37,534 |
| Services, including software related | 8,571 |
| | 8,030 |
| | 6,107 |
| Total cost of net revenue | 48,260 |
| | 50,098 |
| | 43,641 |
| Gross margin | 13,811 |
| | 11,396 |
| | 9,261 |
| Operating expenses: | | | |
| | |
| Selling, general, and administrative | 8,524 |
| | 7,302 |
| | 6,465 |
| Research, development, and engineering | 856 |
| | 661 |
| | 624 |
| Total operating expenses | 9,380 |
| | 7,963 |
| | 7,089 |
| Operating income | 4,431 |
| | 3,433 |
| | 2,172 |
| Interest and other, net | (191 | ) | | (83 | ) | | (148 | ) | Income before income taxes | 4,240 |
| | 3,350 |
| | 2,024 |
| Income tax provision | 748 |
| | 715 |
| | 591 |
| Net income | $ | 3,492 |
| | $ | 2,635 |
| | $ | 1,433 |
| Earnings per share: | | | |
| | |
| Basic | $ | 1.90 |
| | $ | 1.36 |
| | $ | 0.73 |
| Diluted | $ | 1.88 |
| | $ | 1.35 |
| | $ | 0.73 |
| Weighted-average shares outstanding: | |
| | |
| | |
| Basic | 1,838 |
| | 1,944 |
| | 1,954 |
| Diluted | 1,853 |
| | 1,955 |
| | 1,962 |
|
The accompanying notes are an integral part of these consolidated financial statements.
DELL INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) | | | | | | | | | | | | | | Fiscal Year Ended | | February 3, 2012 | | January 28, 2011 | | January 29, 2010 | Cash flows from operating activities: | |
| | |
| | |
| Net income | $ | 3,492 |
| | $ | 2,635 |
| | $ | 1,433 |
| Adjustments to reconcile net income to net cash provided by operating activities: |
|
| |
|
| | |
| Depreciation and amortization | 936 |
| | 970 |
| | 852 |
| Stock-based compensation expense | 362 |
| | 332 |
| | 312 |
| Effects of exchange rate changes on monetary assets and liabilities denominated in foreign currencies | (5 | ) | | (4 | ) | | 59 |
| Deferred income taxes | 19 |
| | (45 | ) | | (52 | ) | Provision for doubtful accounts — including financing receivables | 234 |
| | 382 |
| | 429 |
| Other | 21 |
| | 26 |
| | 102 |
| Changes in assets and liabilities, net of effects from acquisitions: |
|
| |
|
| | |
| Accounts receivable | (53 | ) | | (707 | ) | | (660 | ) | Financing receivables | (372 | ) | | (709 | ) | | (1,085 | ) | Inventories | (52 | ) | | (248 | ) | | (183 | ) | Other assets | (28 | ) | | 516 |
| | (225 | ) | Accounts payable | 327 |
| | (151 | ) | | 2,833 |
| Deferred services revenue | 720 |
| | 551 |
| | 135 |
| Accrued and other liabilities | (74 | ) | | 421 |
| | (44 | ) | Change in cash from operating activities | 5,527 |
| | 3,969 |
| | 3,906 |
| Cash flows from investing activities: | |
| | |
| | |
| Investments: | |
| | |
| | |
| Purchases | (4,656 | ) | | (1,360 | ) | | (1,383 | ) | Maturities and sales | 1,435 |
| | 1,358 |
| | 1,538 |
| Capital expenditures | (675 | ) | | (444 | ) | | (367 | ) | Proceeds from sale of facilities and land | 14 |
| | 18 |
| | 16 |
| Purchase of financing receivables | — |
| | (430 | ) | | — |
| Collections on purchased financing receivables | 278 |
| | 69 |
| | — |
| Acquisitions, net of cash received | (2,562 | ) | | (376 | ) | | (3,613 | ) | Change in cash from investing activities | (6,166 | ) | | (1,165 | ) | | (3,809 | ) | Cash flows from financing activities: | |
| | |
| | |
| Repurchases of common stock | (2,717 | ) | | (800 | ) | | — |
| Issuance of common stock under employee plans | 40 |
| | 12 |
| | 2 |
| Issuance (repayment) of commercial paper (maturity 90 days or less), net | 635 |
| | (176 | ) | | 76 |
| Proceeds from debt | 4,050 |
| | 3,069 |
| | 2,058 |
| Repayments of debt | (1,435 | ) | | (1,630 | ) | | (122 | ) | Other | 4 |
| | 2 |
| | (2 | ) | Change in cash from financing activities | 577 |
| | 477 |
| | 2,012 |
| Effect of exchange rate changes on cash and cash equivalents | 1 |
| | (3 | ) | | 174 |
| Change in cash and cash equivalents | (61 | ) | | 3,278 |
| | 2,283 |
| Cash and cash equivalents at beginning of the period | 13,913 |
| | 10,635 |
| | 8,352 |
| Cash and cash equivalents at end of the period | $ | 13,852 |
| | $ | 13,913 |
| | $ | 10,635 |
| Income tax paid | $ | 408 |
| | $ | 435 |
| | $ | 434 |
| Interest paid | $ | 267 |
| | $ | 188 |
| | $ | 151 |
|
The accompanying notes are an integral part of these consolidated financial statements.
DELL INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | Common Stock and Capital in Excess of Par Value | | | | | | | | | | | | | Treasury Stock | | | | Accumulated Other Comprehensive Income/(Loss) | | | | Issued Shares (a) | | Amount | | Shares | | Amount | | Retained Earnings | | | Total | Balances at January 30, 2009 | 3,338 |
| | $ | 11,189 |
| | 919 |
| | $ | (27,904 | ) | | $ | 20,677 |
| | $ | 309 |
| | $ | 4,271 |
| Net income | — |
| | — |
| | — |
| | — |
| | 1,433 |
| | — |
| | 1,433 |
| Change in net unrealized gain or loss on investments, net of taxes | — |
| | — |
| | — |
| | — |
| | — |
| | 6 |
| | 6 |
| Foreign currency translation adjustments | — |
| | — |
| | — |
| | — |
| | — |
| | (29 | ) | | (29 | ) | Change in net unrealized gain or loss on derivative instruments, net of taxes | — |
| | — |
| | — |
| | — |
| | — |
| | (323 | ) | | (323 | ) | Total comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,087 |
| Stock issuances under employee plans and other(b) | 13 |
| | 3 |
| | — |
| | — |
| | — |
| | — |
| | 3 |
| Stock-based compensation related | — |
| | 312 |
| | — |
| | — |
| | — |
| | — |
| | 312 |
| Net tax shortfall from employee stock plans | — |
| | (32 | ) | | — |
| | — |
| | — |
| | — |
| | (32 | ) | Balances at January 29, 2010 | 3,351 |
| | 11,472 |
| | 919 |
| | (27,904 | ) | | 22,110 |
| | (37 | ) | | 5,641 |
| Net income | — |
| | — |
| | — |
| | — |
| | 2,635 |
| | — |
| | 2,635 |
| Adjustment to consolidate variable interest entities | — |
| | — |
| | — |
| | — |
| | (1 | ) | | — |
| | (1 | ) | Change in net unrealized gain or loss on investments, net of taxes | — |
| | — |
| | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) | Foreign currency translation adjustments | — |
| | — |
| | — |
| | — |
| | — |
| | 79 |
| | 79 |
| Change in net unrealized gain or loss on derivative instruments, net of taxes | — |
| | — |
| | — |
| | — |
| | — |
| | (112 | ) | | (112 | ) | Total comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2,600 |
| Stock issuances under employee plans and other(b) | 18 |
| | 7 |
| | — |
| | — |
| | — |
| | — |
| | 7 |
| Repurchases of common stock | — |
| | — |
| | 57 |
| | (800 | ) | | — |
| | — |
| | (800 | ) | Stock-based compensation related | — |
| | 332 |
| | — |
| | — |
| | — |
| | — |
| | 332 |
| Net tax shortfall from employee stock plans | — |
| | (14 | ) | | — |
| | — |
| | — |
| | — |
| | (14 | ) | Balances at January 28, 2011 | 3,369 |
| | 11,797 |
| | 976 |
| | (28,704 | ) | | 24,744 |
| | (71 | ) | | 7,766 |
| Net income | — |
| | — |
| | — |
| | — |
| | 3,492 |
| | — |
| | 3,492 |
| Change in net unrealized gain or loss on investments, net of taxes | — |
| | — |
| | — |
| | — |
| | — |
| | 13 |
| | 13 |
| Foreign currency translation adjustments | — |
| | — |
| | — |
| | — |
| | — |
| | (74 | ) | | (74 | ) | Change in net unrealized gain or loss on derivative instruments, net of taxes | — |
| | — |
| | — |
| | — |
| | — |
| | 71 |
| | 71 |
| Total comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 3,502 |
| Stock issuances under employee plans and other(b) | 21 |
| | 33 |
| | — |
| | — |
| | — |
| | — |
| | 33 |
| Repurchases of common stock | — |
| | — |
| | 178 |
| | (2,741 | ) | | — |
| | — |
| | (2,741 | ) | Stock-based compensation related | — |
| | 365 |
| | — |
| | — |
| | — |
| | — |
| | 365 |
| Net tax shortfall from employee stock plans | — |
| | (8 | ) | | — |
| | — |
| | — |
| | — |
| | (8 | ) | Balances at February 3, 2012 | 3,390 |
| | $ | 12,187 |
| | 1,154 |
| | $ | (31,445 | ) | | $ | 28,236 |
| | $ | (61 | ) | | $ | 8,917 |
|
(a) Issued shares include 475 million shares of common stock that were issued to a wholly-owned subsidiary during Fiscal 2007. As these shares are held by a wholly-owned subsidiary, they are not included in outstanding shares in our Consolidated Financial Statements. (b) Stock issuance under employee plans is net of shares held for employee taxes. The accompanying notes are an integral part of these consolidated financial statements.
50
DELL INC.
(in millions, except per share amounts)
| | | | | | | | | | | | | | | Fiscal Year Ended | | | January 29,
| | January 30,
| | February 1,
| | | 2010 | | 2009 | | 2008 | Net revenue: | | | | | | | | | | | | | Products | | $ | 43,697 | | | $ | 52,337 | | | $ | 53,728 | | Services, including software related | | | 9,205 | | | | 8,764 | | | | 7,405 | | | | | | | | | | | | | | | Total net revenue | | | 52,902 | | | | 61,101 | | | | 61,133 | | | | | | | | | | | | | | | Cost of net revenue: | | | | | | | | | | | | | Products | | | 37,534 | | | | 44,670 | | | | 45,149 | | Services, including software related | | | 6,107 | | | | 5,474 | | | | 4,313 | | | | | | | | | | | | | | | Total cost of net revenue | | | 43,641 | | | | 50,144 | | | | 49,462 | | | | | | | | | | | | | | | Gross margin | | | 9,261 | | | | 10,957 | | | | 11,671 | | | | | | | | | | | | | | | Operating expenses: | | | | | | | | | | | | | Selling, general, and administrative | | | 6,465 | | | | 7,102 | | | | 7,538 | | Research, development, and engineering | | | 624 | | | | 663 | | | | 610 | | In-process research and development | | | - | | | | 2 | | | | 83 | | | | | | | | | | | | | | | Total operating expenses | | | 7,089 | | | | 7,767 | | | | 8,231 | | | | | | | | | | | | | | | Operating income | | | 2,172 | | | | 3,190 | | | | 3,440 | | | | | | | | | | | | | | | Interest and other, net | | | (148 | ) | | | 134 | | | | 387 | | | | | | | | | | | | | | | Income before income taxes | | | 2,024 | | | | 3,324 | | | | 3,827 | | | | | | | | | | | | | | | Income tax provision | | | 591 | | | | 846 | | | | 880 | | | | | | | | | | | | | | | Net income | | $ | 1,433 | | | $ | 2,478 | | | $ | 2,947 | | | | | | | | | | | | | | | Earnings per common share: | | | | | | | | | | | | | Basic | | $ | 0.73 | | | $ | 1.25 | | | $ | 1.33 | | | | | | | | | | | | | | | Diluted | | $ | 0.73 | | | $ | 1.25 | | | $ | 1.31 | | | | | | | | | | | | | | | Weighted-average shares outstanding: | | | | | | | | | | | | | Basic | | | 1,954 | | | | 1,980 | | | | 2,223 | | Diluted | | | 1,962 | | | | 1,986 | | | | 2,247 | |
The accompanying notes are an integral part of these consolidated financial statements.
51
DELL INC.
(in millions)
| | | | | | | | | | | | | | | Fiscal Year Ended | | | January 29,
| | January 30,
| | February 1,
| | | 2010 | | 2009 | | 2008 | Cash flows from operating activities: | | | | | | | | | | | | | Net income | | $ | 1,433 | | | $ | 2,478 | | | $ | 2,947 | | Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | | Depreciation and amortization | | | 852 | | | | 769 | | | | 607 | | Stock-based compensation | | | 312 | | | | 418 | | | | 329 | | In-process research and development charges | | | - | | | | 2 | | | | 83 | | Effects of exchange rate changes on monetary assets and liabilities denominated in foreign currencies | | | 59 | | | | (115 | ) | | | 30 | | Deferred income taxes | | | (52 | ) | | | 86 | | | | (308 | ) | Provision for doubtful accounts — including financing receivables | | | 429 | | | | 310 | | | | 187 | | Other | | | 102 | | | | 32 | | | | 30 | | Changes in operating assets and liabilities, net of effects from acquisitions: | | | | | | | | | | | | | Accounts receivable | | | (660 | ) | | | 480 | | | | (1,086 | ) | Financing receivables | | | (1,085 | ) | | | (302 | ) | | | (394 | ) | Inventories | | | (183 | ) | | | 309 | | | | (498 | ) | Other assets | | | (225 | ) | | | (106 | ) | | | (121 | ) | Accounts payable | | | 2,833 | | | | (3,117 | ) | | | 837 | | Deferred services revenue | | | 135 | | | | 663 | | | | 1,032 | | Accrued and other liabilities | | | (44 | ) | | | (13 | ) | | | 274 | | | | | | | | | | | | | | | Change in cash from operating activities | | | 3,906 | | | | 1,894 | | | | 3,949 | | | | | | | | | | | | | | | Cash flows from investing activities: | | | | | | | | | | | | | Investments: | | | | | | | | | | | | | Purchases | | | (1,383 | ) | | | (1,584 | ) | | | (2,394 | ) | Maturities and sales | | | 1,538 | | | | 2,333 | | | | 3,679 | | Capital expenditures | | | (367 | ) | | | (440 | ) | | | (831 | ) | Proceeds from sale of facility and land | | | 16 | | | | 44 | | | | - | | Acquisition of business, net of cash received | | | (3,613 | ) | | | (176 | ) | | | (2,217 | ) | | | | | | | | | | | | | | Change in cash from investing activities | | | (3,809 | ) | | | 177 | | | | (1,763 | ) | | | | | | | | | | | | | | Cash flows from financing activities: | | | | | | | | | | | | | Repurchase of common stock | | | - | | | | (2,867 | ) | | | (4,004 | ) | Issuance of common stock under employee plans | | | 2 | | | | 79 | | | | 136 | | Issuance of commercial paper (maturity 90 days or less), net | | | 76 | | | | 100 | | | | (100 | ) | Proceeds from debt | | | 2,058 | | | | 1,519 | | | | 66 | | Repayments of debt | | | (122 | ) | | | (237 | ) | | | (165 | ) | Other | | | (2 | ) | | | - | | | | (53 | ) | | | | | | | | | | | | | | Change in cash from financing activities | | | 2,012 | | | | (1,406 | ) | | | (4,120 | ) | | | | | | | | | | | | | | Effect of exchange rate changes on cash and cash equivalents | | | 174 | | | | (77 | ) | | | 152 | | | | | | | | | | | | | | | Change in cash and cash equivalents | | | 2,283 | | | | 588 | | | | (1,782 | ) | Cash and cash equivalents at beginning of the year | | | 8,352 | | | | 7,764 | | | | 9,546 | | | | | | | | | | | | | | | Cash and cash equivalents at end of the year | | $ | 10,635 | | | $ | 8,352 | | | $ | 7,764 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Income tax paid | | $ | 434 | | | $ | 800 | | | $ | 767 | | Interest paid | | $ | 151 | | | $ | 74 | | | $ | 54 | |
The accompanying notes are an integral part of these consolidated financial statements.
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DELL INC.
(in millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Common Stock
| | | | | | | | | | | and Capital
| | | | | | | | | | | | | in Excess
| | | | | | | | Accumulated
| | | | | of Par Value | | | | | | | | Other
| | | | | Issued
| | | | Treasury Stock | | Retained
| | Comprehensive
| | | | | Shares | | Amount | | Shares | | Amount | | Earnings | | Income/(Loss) | | Total | Balances at February 2, 2007 | | | 3,307 | | | $ | 10,107 | | | | 606 | | | $ | (21,033 | ) | | $ | 15,282 | | | $ | (28 | ) | | $ | 4,328 | | Net income | | | - | | | | - | | | | - | | | | - | | | | 2,947 | | | | - | | | | 2,947 | | Impact of adoption of guidance on hybrid financial instruments | | | - | | | | - | | | | - | | | | - | | | | 29 | | | | (23 | ) | | | 6 | | Change in net unrealized gain on investments, net of taxes | | | - | | | | - | | | | - | | | | - | | | | - | | | | 56 | | | | 56 | | Foreign currency translation adjustments | | | - | | | | - | | | | - | | | | - | | | | - | | | | 17 | | | | 17 | | Change in net unrealized loss on derivative instruments, net of taxes | | | - | | | | - | | | | - | | | | - | | | | - | | | | (38 | ) | | | (38 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total comprehensive income | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 2,988 | | Impact of adoption of guidance on uncertain tax positions | | | - | | | | (3 | ) | | | - | | | | - | | | | (59 | ) | | | - | | | | (62 | ) | Stock issuances under employee plans(a) | | | 13 | | | | 153 | | | | - | | | | - | | | | - | | | | - | | | | 153 | | Repurchases | | | - | | | | - | | | | 179 | | | | (4,004 | ) | | | - | | | | - | | | | (4,004 | ) | Stock-based compensation expense | | | - | | | | 329 | | | | - | | | | - | | | | - | | | | - | | | | 329 | | Tax benefit from employee stock plans | | | - | | | | 3 | | | | - | | | | - | | | | - | | | | - | | | | 3 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balances at February 1, 2008 | | | 3,320 | | | | 10,589 | | | | 785 | | | | (25,037 | ) | | | 18,199 | | | | (16 | ) | | | 3,735 | | Net income | | | - | | | | - | | | | - | | | | - | | | | 2,478 | | | | - | | | | 2,478 | | Change in net unrealized loss on investments, net of taxes | | | - | | | | - | | | | - | | | | - | | | | - | | | | (29 | ) | | | (29 | ) | Foreign currency translation adjustments | | | - | | | | - | | | | - | | | | - | | | | - | | | | 5 | | | | 5 | | Change in net unrealized gain on derivative instruments, net of taxes | | | - | | | | - | | | | - | | | | - | | | | - | | | | 349 | | | | 349 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total comprehensive income | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 2,803 | | Stock issuances under employee plans(a) | | | 18 | | | | 173 | | | | - | | | | - | | | | - | | | | - | | | | 173 | | Repurchases | | | - | | | | - | | | | 134 | | | | (2,867 | ) | | | - | | | | - | | | | (2,867 | ) | Stock-based compensation expense | | | - | | | | 419 | | | | - | | | | - | | | | - | | | | - | | | | 419 | | Tax benefit from employee stock plans | | | - | | | | 8 | | | | - | | | | - | | | | - | | | | - | | | | 8 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balances at January 30, 2009 | | | 3,338 | | | | 11,189 | | | | 919 | | | | (27,904 | ) | | | 20,677 | | | | 309 | | | | 4,271 | | Net income | | | - | | | | - | | | | - | | | | - | | | | 1,433 | | | | - | | | | 1,433 | | Change in net unrealized gain on investments, net of taxes | | | - | | | | - | | | | - | | | | - | | | | - | | | | 6 | | | | 6 | | Foreign currency translation adjustments | | | - | | | | - | | | | - | | | | - | | | | - | | | | (29 | ) | | | (29 | ) | Change in net unrealized gain on derivative instruments, net of taxes | | | - | | | | - | | | | - | | | | - | | | | - | | | | (323 | ) | | | (323 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total comprehensive income | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1,087 | | Stock issuances under employee plans and other(a) | | | 13 | | | | 3 | | | | - | | | | - | | | | - | | | | - | | | | 3 | | Stock-based compensation expense | | | - | | | | 312 | | | | - | | | | - | | | | - | | | | - | | | | 312 | | Net tax shortfall from employee stock plans | | | - | | | | (32 | ) | | | - | | | | - | | | | - | | | | - | | | | (32 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balances at January 29, 2010 | | | 3,351 | | | $ | 11,472 | | | | 919 | | | $ | (27,904 | ) | | $ | 22,110 | | | $ | (37 | ) | | $ | 5,641 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | (a) | | Included in Fiscal 2008 is 1 million shares and $17 million related to redeemable common stock. In Fiscal 2008 through Fiscal 2010, stock issuance under employee plans is net of shares held for employee taxes. |
The accompanying notes are an integral part of these consolidated financial statements.
53
DELL INC.
NOTE 1 — DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business — Dell Inc., a Delaware corporation (both individually and together with its consolidated subsidiaries, “Dell”), offers a broad range of technology product categories,solutions, including mobility products, desktop PCs, software and peripherals, servers and networking products, storage products, services, software and storage.peripherals, mobility products, and desktop PCs. Dell sells its products and services directly to customers through dedicated sales representatives, telephone-based sales, and online atwww.dell.com,sales, and through a variety of indirectother sales distribution channels. Dell’sDell's business segments are Large Enterprise, Public, Small and Medium Business ("SMB"), and Consumer. References to Commercial business refer to Large Enterprise, Public, and SMB. Fiscal Year — Dell’sDell's fiscal year is the 52 or 53 week period ending on the Friday nearest January 31. The fiscal year ended February 3, 2012 included 53 weeks, while the fiscal years ending ended January 28, 2011 and January 29, 2010 January 30, 2009, and February 1, 2008, included 52 weeks. Principles of Consolidation — The accompanying consolidated financial statements include the accounts of Dell Inc. and its wholly-owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All significant intercompany transactions and balances have been eliminated. Use of Estimates — The preparation of financial statements in accordance with GAAP requires the use of management’smanagement's estimates. These estimates are subjective in nature and involve judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at fiscal year-end, and the reported amounts of revenues and expenses during the fiscal year. Actual results could differ from those estimates. Cash and Cash Equivalents — All highly liquid investments, including credit card receivables due from banks, with original maturities of three months90 days or less at date of purchase, are carriedreported at costfair value and are considered to be cash equivalents. All other investments not considered to be cash equivalents are separately categorized as investments. Investments — Dell’sDell's investments are primarily in debt securities, which are classified asavailable-for-sale and are reported at fair value (based primarily on quoted prices and market observable inputs) using the specific identification method. Unrealized gains and losses, net of taxes, are reported as a component of stockholders’ equity. Realized gains and losses on investments are included in interestInterest and other, net. An impairment loss will be recognized and will reduce an investment’sinvestment's carrying amount to its fair market value when a decline in the fair market value of an individual security below its cost or carrying value is determined to be other than temporary. Dell reviews its investment portfolio quarterly to determine if any investment is other than temporarily impaired. Dell determines an impairment is other than temporary when there is intent to sell the security, it is more likely than not that the security will be required to be sold before recovery in value or it is not expected to recover its entire amortized cost basis (“credit relatedcredit-related loss”). Credit related losses onHowever, if Dell does not expect to sell a debt securities willsecurity, it still evaluates expected cash flows to be considered another-than-temporaryreceived and determines if a credit-related loss exists. In the event of a credit-related loss, only the amount of impairment associated with the credit-related loss is recognized in earnings, and anyearnings. Amounts relating to factors other than credit-related losses due toare recorded as a decline in fair value relative to the amortized cost deemed not to becomponent of stockholders' equity. other-than-temporary will be recorded in other comprehensive income. See Note 3 of Notes to the Consolidated Financial Statements for additional information. Financing Receivables — Financing receivables consist of customer receivables, residual interest and retained interest in securitized receivables. Customer receivables include revolving loans and fixed-term leases and loans resulting from the sale of Dell products and services. Financing receivables are presented net of the allowance for losses. See Note 4 of Notes to Consolidated Financial Statements for additional information.
Asset Securitization — Dell transfers certain financing receivables for fixed term leases and loans to unconsolidated qualifying special purpose entities in securitization transactions. These receivables are removed from the Consolidated Statement of Financial Position at the time they are sold. Receivables are considered sold when the receivables are transferred beyond the reach of Dell’s creditors, the transferee has the right to pledge or exchange the assets, and Dell has surrendered control over the rights and obligations of the receivables. Gains and losses from the sale of fixed-term leases and loans are recognized in the period the sale occurs, based upon the relative fair value of the assets sold and the remaining retained interest. Retained interest is recognized at fair value with any changes in fair value recorded in earnings. In estimating the value of retained interest, Dell makes a variety of financial assumptions, including pool credit losses, payment rates, and discount rates. These assumptions
54
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
are supported by both Dell’s historical experience and anticipated trends relative to the particular receivable pool. See Note 4 of Notes to Consolidated Financial Statements for additional information.
Allowance for Doubtful Accounts — Dell recognizes an allowance for losses on accounts receivable in an amount equal to the estimated probable losses net of recoveries. The allowance is based on an analysis of historical bad debt experience, current receivables aging, and expected future write-offs, as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible. The expense associated with the allowance for doubtful accounts is recognized as selling,in Selling, general, and administrative expense.expenses. Financing Receivables — Financing receivables consist of customer receivables and residual interest. Customer receivables include revolving loans and fixed-term leases and loans resulting primarily from the sale of Dell products and services. Based on how Dell assesses risk and determines the appropriate allowance levels, Dell has two portfolio segments, (1) fixed-term leases and loans and (2) revolving loans. Portfolio segments are further segregated into classes based on operating segment and whether the receivable was owned by Dell since its inception or was purchased subsequent to its inception. Financing receivables are presented net of the allowance for losses. Dell retains a residual interest in equipment leased under its fixed-term lease programs. The amount of the residual interest is established at the inception of the lease based upon estimates of the value of the equipment at the end of the lease term using historical studies, industry data, and future value-at-risk demand valuation methods. On a quarterly
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) basis, Dell assesses the carrying amount of its recorded residual values for impairment. Anticipated declines in specific future residual values that are considered to be other-than-temporary are recorded currently in earnings. Allowance for Financing Receivables Losses — Dell recognizes an allowance for losses on financing receivables in an amount equal to the probable losses net of recoveries. The allowance for losses is generally determined at the aggregate portfolio level based on a variety of factors, including historical and anticipated experience, past due receivables, receivable type, and customer risk profile. Financing receivablesCustomer account principal and interest are charged to the allowance at the earlier offor losses when an account is deemed to be uncollectible or generally when the account is 180 days delinquent. While Dell does not generally place financing receivables on non-accrual status during the delinquency period, accrued interest is included in the allowance for loss calculation and Dell is therefore adequately reserved in the event of charge off. Recoveries on receivables previously charged off as uncollectible are recorded to the allowance for losses on financing receivables.receivables losses. The expense associated with the allowance for financing receivables losses is recognized as cost of net revenue. Both fixed and revolving receivable loss rates are affected by macroeconomic conditions, including the level of GDP growth, unemployment rates, the level of commercial capital equipment investment, and the credit quality of the borrower. Asset Securitization Dell enters into securitization transactions to transfer certain financing receivables to special purpose entities. During Fiscal 2011, Dell adopted the new accounting guidance that removes the concept of a qualifying special purpose entity and removes the exception from applying variable interest entity accounting. The adoption of the new guidance requires an entity to perform an ongoing analysis to determine whether it has a controlling financial interest in its special purpose entities. As a result of this analysis, Dell has determined that it has a controlling financial interest in its special purpose entities, and therefore, consolidated them into Dell's Consolidated Statements of Financial Position as of February 3, 2012 and January 28, 2011. The asset securitizations in these special purpose entities are being accounted for as secured borrowings. See Note 4 of Notes to Consolidated Financial Statements for additional information.information on the impact of the consolidation. Inventories — Inventories are stated at the lower of cost or market with cost being determined on afirst-in, first-out basis. Property, Plant, and Equipment — Property, plant, and equipment are carried at depreciated cost. Depreciation is provided using the straight-line method over the estimated economic lives of the assets, which range from ten to thirty years for buildings and two to five years for all other assets. Leasehold improvements are amortized over the shorter of five years or the lease term. Gains or losses related to retirements or disposition of fixed assets are recognized in the period incurred. Dell capitalizes eligible internal-use software development costs incurred subsequent to the completion of the preliminary project stage. Development costs are amortized over the shorter of the expected useful life of the software or five years. Costs associated with maintenance and minor enhancements to the features and functionality of Dell's website are expensed as incurred. Impairment of Long-Lived Assets — Dell reviews long-lived assets for impairment when circumstances indicate the carrying amount of an asset may not be recoverable based on the undiscounted future cash flows of the asset. If the carrying amount of the asset is determined not to be recoverable, a write-down to fair value is recorded. Fair values are determined based on quoted market values, discounted cash flows, or external appraisals, as applicable. Dell reviews long-lived assets for impairment at the individual asset or the asset group level for which the lowest level of independent cash flows can be identified. Business Combinations — Dell accounts for business combinations using the acquisition method of accounting, and accordingly, the assets and liabilities of the acquired business are recorded at their fair values at the date of acquisition. The excess of the purchase price over the estimated fair values is recorded as goodwill. Any changes in the estimated fair values of the net assets recorded for acquisitions prior to the finalization of more detailed analysis, but not to exceed one year from the date of acquisition, will change the amount of the purchase prices allocable to goodwill. All acquisition costs are expensed as incurred and in-process research and development costs are recorded at fair value as an indefinite-lived intangible asset and assessed for impairment thereafter until completion, at which point the asset is amortized over its expected useful life. Any restructuring charges associated with a business combination are expensed subsequent to the acquisition date. The results of operations of acquired businesses are included in the Consolidated Financial Statements from the acquisition date. Goodwill and Intangible Assets Including Goodwill— Identifiable intangible assets with finite lives are amortized over their estimated useful lives. They are generally amortized on a non-straight linenon-straight-line approach based on the associated projected cash flows in order to match the amortization pattern to the pattern in which the economic benefits of the assets are expected to be consumed. TheyIntangible assets are reviewed for impairment if indicators of potential impairment exist. Goodwill and indefinite-lived intangible assets are tested for impairment on an annual basis in the second fiscal quarter, or sooner if an indicator of
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) impairment occurs. Foreign Currency Translation — The majority of Dell’sDell's international sales are made by international subsidiaries, most of which have the U.S. dollar as their functional currency. Dell’sDell's subsidiaries that do not have the U.S. dollar as their functional currency translate assets and liabilities at current rates of exchange in effect at the balance sheet date. Revenue and expenses from these international subsidiaries are translated using the monthly average exchange rates in effect for the period in which the items occur. CumulativeThese translations resulted in cumulative foreign currency translation adjustments totaled a $40gains (losses) of $(35) million loss, $11 , $39 million loss,, and $16$(40) million loss at as of February 3, 2012, January 28, 2011, and January 29, 2010 January 30, 2009, and February 1, 2008,, respectively, and are included as a component of accumulated other comprehensive income (loss) in stockholders’ equity. Local currency transactions of international subsidiaries that have the U.S. dollar as the functional currency are remeasured into U.S. dollars using current rates of exchange for monetary assets and liabilities and historical rates
55
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
of exchange for nonmonetarynon-monetary assets and liabilities. Gains and losses from remeasurement of monetary assets and liabilities are included in interestInterest and other, net. See Note 36 of Notes to Consolidated Financial Statements for additional information. Hedging Instruments — Dell uses derivative financial instruments, primarily forwards, options, and swaps, to hedge certain foreign currency and interest rate exposures. Dell also uses other derivativeThe relationships between hedging instruments not designatedand hedged items, as hedges suchwell as forwards tothe risk management objectives and strategies for undertaking hedge foreign currency balance sheet exposures.transactions, are formally documented. Dell does not use derivatives for speculative purposes. Dell recognizes all derivativesAll derivative instruments are recognized as either assets or liabilities in itson the Consolidated Statements of Financial Position and measures those instrumentsare measured at fair value. Hedge accounting is applied based upon the criteria established by accounting guidance for derivative instruments and hedging activities. Derivatives are assessed for hedge effectiveness both at the onset of the hedge and at regular intervals throughout the life of the derivative. Any hedge ineffectiveness is recognized currently in earnings as a component of Interest and other, net. Dell's hedge portfolio includes derivatives designated as both cash flow and fair value hedges.
For derivative instruments that are designated as cash flow hedges, hedge ineffectiveness is measured by comparing the cumulative change in the fair value of the hedge contract with the cumulative change in the fair value of the hedged item, both of which are based on forward rates. Dell records the effective portion of the gain or loss on the derivative instrument in accumulated other comprehensive income (loss) (“OCI”), as a separate component of stockholders' equity and reclassifies the gain or loss into earnings in the period during which the hedged transaction is recognized in earnings. For derivatives that are designated as fair value hedges, hedge ineffectiveness is measured by calculating the periodic change in the fair value of the hedge contract and the periodic change in the fair value of the hedged item. To the extent that these fair value changes do not fully offset each other, the difference is recorded as ineffectiveness in earnings as a component of Interest and other, net. For derivatives that are not designated as hedges or do not qualify for hedge accounting treatment, Dell recognizes the change in the instrument's fair value currently in earnings as a component of interest and other, net.
Cash flows from derivative instruments are presented in the same category on the Consolidated Statements of Cash Flows as the cash flows from the underlying hedged items. See Note 36 of the Notes to Consolidated Financial Statements for a full description of Dell’sDell's derivative financial instrument activities and related accounting policies.activities.
Treasury Stock — Dell accounts for treasury stock under the cost method and includes treasury stock as a component of stockholders’ equity.
Revenue Recognition— Net revenues include sales of hardware, software and peripherals, and services (including extended service contracts and professional services).services. Dell recognizes revenue for these products and services when it is realized or realizable and earned. Revenue is considered realized and earned when persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; Dell’sDell's fee to its customer is fixed orand determinable; and collection of the resulting receivable is reasonably assured. Revenue from the sale of products are recognized when title and risk of loss passes to the customer. Delivery is considered complete when products have been shipped to Dell’s customer or services have been rendered, title and risk of loss has transferred to the customer, and customer acceptance has been satisfied. Customer acceptance is satisfied through obtaining acceptance from the customer, the acceptance provision lapses, or Dell has evidence that the acceptance provisions have been satisfied. In general, revenue is recognized for services contracts as earned, which is generally on a straight-line basis over the longer of the term of the contract or the expected service period, unless evidence suggests that the revenue is earned or Dell’s obligations are fulfilled in a different pattern.
Dell sells its products and services either separately or as part of a multiple-element arrangement. Dell allocates revenue from multiple-element arrangements to the elements based on the relative fair value of each element, which is generally based on the relative sales price of each element when sold separately. The allocation of fair value for a multiple-element arrangement involving software is based on vendor specific objective evidence (“VSOE”), or in the absence of VSOE for delivered elements, the residual method. Under the residual method, Dell allocates the residual amount of revenue from the arrangement to software licenses at the inception of the license term when VSOE for all undelivered elements, such as Post Contract Customer Support (“PCS”), exists and all other revenue recognition criteria have been satisfied. In the absence of VSOE for undelivered elements, revenue is deferred and subsequently recognized over the term of the arrangement. Dell elected to classifyclassifies revenue and cost of net revenue related to standalonestand-alone software sold with PCSPost Contract Support ("PCS") in the same line item as services on Dell’sthe Consolidated Statements of Income. Services revenue and cost of services revenue captions on the Consolidated Statements of Income include Dell’sDell's services and software from Dell’sDell's software and peripherals product category. This software revenue and related costs include software license fees and related PCS that is sold separately from computer systems through Dell’sDell's software and peripherals product category. Dell recognizes software revenue and related costs in accordance with software revenue recognition guidance. When Dell has not established vendor specific objective evidence to support a separation of the software license and PCS elements, software license revenue and related costs are included in services revenue and cost of revenue and are generally recognized over the term of the arrangement.
For sales
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Products recognized over the term of the contract or when the service is completed. Revenue from salesthe sale of third-party extended warranty and service contracts or other products or software PCS, for which Dell is not obligated to perform, and for which Dell does not meet the criteria for gross revenue recognition under the guidance of the Financial Accounting Standards Board (the “FASB”), is recognized on a net basis. All other revenuewhen title and risk of loss passes to the customer. Delivery is recognized on a gross basis.considered complete when products have been shipped to Dell's customer, title and risk of loss has transferred to the customer, and customer acceptance has been satisfied. Customer acceptance is satisfied if acceptance is obtained from the customer, if all acceptance provisions lapse, or if Dell has evidence that all acceptance provisions have been satisfied.
Dell records reductions to revenue for estimated customer sales returns, rebates, and certain other customer incentive programs. These reductions to revenue are made based upon reasonable and reliable estimates that are determined by historical experience, contractual terms, and current conditions. The primary factors affecting ourDell's accrual for estimated customer returns include estimated return rates as well as the number of units shipped that have a right of return that has not expired as of the balance sheet date. If returns cannot be reliably estimated, revenue is not recognized until a reliable estimate can be made or the return right lapses.
Dell sells its products directly to customers as well as through retailers. other distribution channels, such as retailers, distributors, and resellers. Dell recognizes revenue on these sales when the reseller has economic substance apart from Dell; any credit risk has been identified and quantified; title and risk of loss has passed to the sales channel; the fee paid to Dell is not contingent upon resale or payment by the end user; and Dell has no further obligations related to bringing about resale or delivery.
Sales to Dell’s retail customersthrough Dell's distribution channels are generallyprimarily made under agreements allowing for limited rights of return, price protection, rebates, and marketing development funds. Dell has generally limited the return rights through contractual caps. Dell’s policycaps or has an established selling history for sales to retailers is to defer the full amount of revenue relative to sales for which the rights of return apply unlessthese arrangements. Therefore, there is sufficient historical data to establish reasonable and reliable estimates of returns. When contractual caps are included inreturns for the agreement and there is not sufficient historical data to make a reasonable and reliable estimate on returns, Dell defers revenue equal to the amountmajority of the contractual cap. All other sales for which the rights of return do not apply are recognized upon shipment when all applicable revenue recognition criteria have been met.these sales. To the extent price protection or return rights are not limited and a reliable estimate cannot be made, all of the revenue and related costcosts are deferred until the product has been sold byto the retailer,end-user or the rights expire, or a reliable estimate of such amounts can be made. Generally,expire. Dell records estimated reductions to revenue or an expense for retail customerdistribution channel programs at the later of the offer or the time revenue is recognized. Dell’s customer programs primarily involve rebates, promotions, and other volume-based incentives, which are designed to serve as sales incentives to resellers of Dell products.
Dell defers the cost of shipped products awaiting revenue recognition until revenue is recognized. See Note 15
Services Services include transactional, outsourcing and project-based offerings. Revenue is recognized for services contracts as earned, which is generally on a straight-line basis over the term of Notesthe contract or on a proportional performance basis as the services are rendered and Dell's obligations are fulfilled. Revenue from time and materials or cost-plus contracts is recognized as the services are performed. Revenue from fixed price contracts is recognized on a straight line basis, unless revenue is earned and obligations are fulfilled in a different pattern. These service contracts may include provisions for cancellation, termination, refunds, or service level adjustments. These contract provisions would not have a significant impact on recognized revenue as Dell generally recognizes revenue for these contracts as the services are performed.
For sales of extended warranties with a separate contract price, Dell defers revenue equal to the separately stated price. Revenue associated with undelivered elements is deferred and recorded when delivery occurs or services are provided. Revenue from extended warranty and service contracts, for which Dell is obligated to perform, is recorded as deferred revenue and subsequently recognized over the term of the contract on a straight-line basis.
Revenue from sales of third-party extended warranty and service contracts or software PCS, for which Dell is not obligated to perform, and for which Dell does not meet the criteria for gross revenue recognition under the guidance of the Financial Accounting Standards Board (the "FASB"), is recognized on a net basis. All other revenue is recognized on a gross basis.
Software Dell recognizes revenue in accordance with industry specific software accounting guidance for all software and PCS that are not essential to the functionality of the hardware. Accounting for software that is essential to the functionality of the hardware is accounted for as specified below under “Multiple Deliverables.” Dell has established vendor specific objective evidence ("VSOE") on a limited basis for certain software offerings. When Dell has not established VSOE to support a separation of the software license and PCS elements, the revenue and related costs are generally
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) recognized over the term of the agreement.
In September 2009, the FASB issued revised guidance, which excluded sales of tangible products that contain essential software elements from the scope of software revenue recognition guidance. Accordingly, beginning in the first quarter of Fiscal 2011, certain Dell storage products were removed from the scope of software revenue recognition guidance. Prior to the new guidance, Dell established fair value for PCS for these products based on VSOE and used the residual method to allocate revenue to the delivered elements. Under the revised guidance, the revenue for what was previously deemed PCS is now considered part of a multiple deliverable arrangement. As such, any discount is allocated to all elements based on the relative selling price of both delivered and undelivered elements. The impact of applying this new guidance was not material to Dell's Consolidated Financial Statements for further informationFiscal 2011 or 2010.
Multiple Deliverables Dell's multiple deliverable arrangements generally include hardware products that are sold with essential software or services such as extended warranty, installation, maintenance, and other services contracts. Dell's service contracts may include a combination of services arrangements, including deployment, asset recovery, recycling, IT outsourcing, consulting, applications development, applications maintenance, and business process services. The nature and terms of these multiple deliverable arrangements will vary based on deferred costs.the customized needs of Dell's customers. Each of these deliverables in an arrangement typically represents a separate unit of accounting.
In the first quarter of Fiscal 2011, based on new guidance, Dell began allocating revenue to all deliverables in a multiple-element arrangement based on the relative selling price of that deliverable. The hierarchy to be used to determine the selling price of a deliverable is: (1) VSOE, (2) third-party evidence of selling price (“TPE”), and (3) best estimate of the selling price (“ESP”). A majority of Dell product and service offerings are sold on a stand-alone basis. Because selling price is generally available based on stand-alone sales, Dell has limited application of TPE, as determined by comparison of pricing for products and services to the pricing of similar products and services as offered by Dell or its competitors in stand-alone sales to similarly situated customers. As new products are introduced in future periods, Dell may be required to use TPE or ESP, depending on the specific facts at the time.
For Fiscal 2010, pursuant to the previous guidance for Revenue Arrangements with Multiple Deliverables, Dell allocated revenue from multiple element arrangements to the elements based on the relative fair value of each element, which was generally based on the relative sales price of each element when sold separately. The adoption of the new guidance in the first quarter of Fiscal 2011 did not change the manner in which Dell accounts for its multiple deliverable arrangements as Dell did not use the residual method for the majority of its offerings and its services offerings are generally sold on a stand-alone basis where evidence of selling price is available.
Other Dell records revenue from the sale of equipment under sales-type leases as product revenue in an amount equal to the present value of minimum lease payments at the inception of the lease. Sales-type leases also produce financing income, which Dell recognizesis included in net revenue in the Consolidated Statements of Income and is recognized at consistent rates of return over the lease term. CustomerDell also offers qualified customers revolving loan financingcredit lines for the purchase of products and services offered by Dell. Financing income attributable to these revolving loans is recognized in net revenue on an accrual basis.
Dell reports revenue net of any revenue-based taxes assessed by governmental authorities that are imposed on and concurrent with specific revenue-producing transactions. Standard Warranty Liabilities — Dell records warranty liabilities for its standard limited warranty at the time of sale for the estimated costs that may be incurred under its limited warranty. The liability for standard warranties is included in accrued and other current and other non-current liabilities on the Consolidated Statements of Financial Position. The specific warranty terms and conditions vary depending upon the product sold and the country in which Dell does business, but generally includes technical support, parts, and labor over a period ranging from one to three years. FactorsFactors that affect Dell’sDell's warranty liability include the number of installed units currently under warranty, historical and anticipated rates of warranty claims on those units, and cost per claim to satisfy Dell’sDell's warranty obligation. The anticipated rate of warranty claims is the primary factor impacting the estimated warranty obligation. The other factors are less significant due to the fact that the average remaining aggregate warranty period of the covered installed base is approximately 15 months, repair parts are generally already in stock or available at pre-determined prices, and labor rates are generally arranged at pre-established amounts with service providers.
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Warranty claims are relatively predictable based on historical experience of failure rates. If actual results differ from the estimates, Dell revises its estimated warranty liability. Each quarter, Dell reevaluates its estimates to assess the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. Deferred Services Revenue— Deferred services revenue primarily represents amounts received in advance for extended warranty sales and services contracts. Revenue from the sale of extended warranties and services contracts 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. As of February 3, 2012, and January 28, 2011, the majority of deferred services revenue is related to extended warranties. Vendor Rebates — Dell may receive consideration from vendors in the normal course of business. Certain of these funds are rebates of purchase price paid and others are related to reimbursement of costs incurred by Dell to sell the
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
vendor’s vendor's products. Dell recognizes a reduction of cost of goods sold and inventory if the funds are a reduction of the price of the vendor’svendor's products. If the consideration is a reimbursement of costs incurred by Dell to sell or develop the vendor’svendor's products, then the consideration is classified as a reduction of that cost in the Consolidated Statements of Income, most often operating expenses. In order to be recognized as a reduction of operating expenses, the reimbursement must be for a specific, incremental, identifiable cost incurred by Dell in selling the vendor’svendor's products or services.
Loss Contingencies — Dell is subject to the possibility of various losses arising in the ordinary course of business. Dell considers the likelihood of loss or impairment of an asset or the incurrence of a liability, as well as Dell’sDell's ability to reasonably estimate the amount of loss, in determining loss contingencies. An estimated loss contingency is accrued when it is probable that an asset has been impaired or a liability has been incurred and the amount of loss can be reasonably estimated. Dell regularly evaluates current information available to determine whether such accruals should be adjusted and whether new accruals are required. Third parties have in the past and may in the future assert claims or initiate litigation related to exclusive patent, copyright, and other intellectual property rights to technologies and related standards that are relevant to Dell. Shipping Costs — Dell’sDell's shipping and handling costs are included in cost of sales in the accompanying Consolidated Statements of Income for all periods presented.Income. Selling, General, and Administrative — Selling expenses include items such as sales salaries and commissions, marketing and advertising costs, and contractor services. Dell expenses advertisingAdvertising costs are expensed as incurred. See Note 15incurred and were $860 million, $730 million, and $619 million, during Fiscal 2012, Fiscal 2011, and Fiscal 2010, respectively. Advertising costs are included in Selling, general, and administrative in the Consolidated Statements of Notes to Consolidated Financial Statements for more information on advertising expenses.Income. General and administrative expenses include items for Dell’sDell's administrative functions, such as Finance, Legal, Human Resources, and Information Technology support. These functions include costs for items such as salaries, maintenance and supplies, insurance, depreciation expense, and allowance for doubtful accounts. Research, Development, and Engineering Costs — Research, development, and engineering costs are expensed as incurred. Research, development, and engineering expenses primarily include payroll and headcount related costs, contractor fees, infrastructure costs, and administrative expenses directly related to research and development support. Website Development Costs — Dell expenses, as incurred, the costs of maintenance and minor enhancements to the features and functionality of its websites.
Income Taxes — Deferred tax assets and liabilities are recorded based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Dell calculates a provision for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized by identifying the temporary differences arising from the different treatment of items for tax and accounting purposes. In determining the future tax consequences of events that have been recognized in the financial statements or tax returns, judgment and interpretation of statutes isare required. Additionally, Dell uses tax planning strategies as a part of its global tax compliance program. Judgments and interpretation of statutes are inherent in this process. The accounting guidance for uncertainties in income tax prescribes a comprehensive model for the financial statement recognition, measurement, presentation, and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. Dell recognizes a tax benefit from an uncertain tax position in the financial statements only when it is more likely than not that the position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits and a consideration of the relevant taxing authority’s widely understoodauthority's administrative practices and precedents. Comprehensive Income — Dell’s comprehensive income is comprised of net income, unrealized gains and losses on marketable securities classified asavailable-for-sale, foreign currency translation adjustments, and unrealized gains and losses on derivative financial instruments related to foreign currency hedging. In the first quarter of Fiscal
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DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2008, Dell adopted the accounting guidance for certain hybrid financial instruments, which requires that all gains and losses in valuation of retained interest in securitized assets be recognized in income immediately and no longer included as a component of other comprehensive income.
Earnings Per Common 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 antidilutive.anti-dilutive. See Note 1112 of the Notes to Consolidated Financial Statements for further information on earnings per share.
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Stock-Based Compensation — Dell measures stock-based compensation expense for all share-based awards granted based on the estimated fair value of those awards at grant-date.grant date. The cost of restricted stock awardsunits and performance-based restricted stock units is determined using the fair market value of ourDell's common stock on the date of grant. TheDell generally estimates the fair valuesvalue of stock option awards are estimated using athe Black-Scholes valuation model. The compensation costs of stock options, restricted stock units, and awards with a cliff vesting feature are recognized net of any estimated forfeitures on a straight-line basis over the employee requisite service period. Compensation cost for performance-based awards is recognized on a graded accelerated basis net of estimated forfeitures over the requisite service period when achievement of the performance conditions are considered probable. Forfeiture rates are estimated at grant-dategrant date based on historical experience and adjusted in subsequent periods for any differences in actual forfeitures from those estimates. See Note 1314 of the Notes to Consolidated Financial Statements included for further discussion of stock-based compensation. Recently Issued and Adopted Accounting Pronouncements | | – | Business Combinations — During Fiscal 2010, Dell adopted the new FASB guidance on business combinations. The new guidance on business combinations retains the underlying concepts of the previously issued standard in that the acquirer of a business is required to account for the business combination at fair value. As with previous guidance, the assets and liabilities of the acquired business are recorded at their fair values at the date of acquisition. The excess of the purchase price over the estimated fair values are recorded as goodwill. The new pronouncement results in some changes to the method of applying the acquisition method of accounting for business combinations in a number of significant aspects. Under the new guidance, all acquisition costs are expensed as incurred and in-process research and development costs are recorded at fair value as an indefinite-lived intangible asset. Prior to the adoption, in-process research and development costs were immediately expensed and acquisition costs were capitalized. Further, the new guidance generally requires restructuring charges associated with a business combination to be expensed subsequent to the acquisition date. | | – | Fair Value MeasurementsCredit Quality of Financing Receivables and the Allowance for Credit Losses— In July 2010, the FASB issued a new pronouncement that requires enhanced disclosures regarding the nature of credit risk inherent in an entity's portfolio of financing receivables, how that risk is analyzed, and the changes and reasons for those changes in the allowance for credit losses. These new disclosures require information for both the financing receivables and the related allowance for credit losses at more disaggregated levels. Disclosures — The pronouncements define fair value, establish guidelines for measuring fair value, and expand disclosures regarding fair value measurements. In the first quarter of Fiscal 2010, Dell adopted the fair value measurements guidance for all nonfinancial assets and nonfinancial liabilities recognized or disclosed at fair value in the financial statements on a nonrecurring basis. The adoption did not have a material impact on Dell’s Consolidated Financial Statements. See Note 2 of Notes to Consolidated Financial Statements for additional information. |
Throughout Fiscal 2010, Dell adopted the additional fair value guidance related to information as of the valuationend of instrumentsa reporting period became effective for Dell in inactive markets andFiscal 2011. Specific disclosures regarding activities that occur during a reporting period were required for Dell beginning in the guidance relatedfirst quarter of Fiscal 2012. As these changes relate only to the measurement of liabilities. The adoption of these standardsdisclosures, they did not have a material impact on Dell’sDell's Consolidated Financial Statements.
| | – | Derivative Instruments and Hedging Activities — The pronouncement requires additional disclosures about the objectives of derivative instruments and hedging activities, the method of accounting for such instruments, and a tabular disclosure of the effects of such instruments and related hedged items on Financial Statements. The pronouncement does not change the accounting treatment for derivative instruments. Dell adopted the pronouncement in the first quarter of Fiscal 2010. The adoption did not have a material impact on Dell’s |
Fair Value Measurements — In May 2011, the FASB issued new guidance on fair value measurements, which clarifies how a principal market is determined, how and when the valuation premise of highest and best use applies, and how premiums and discounts are applied, as well as requiring new disclosures. This new guidance is effective for Dell for the fiscal year ending February 1, 2013. Early application is not permitted. Other than requiring additional disclosures, Dell does not expect that this new guidance will impact Dell's Consolidated Financial Statements.
59
Comprehensive Income — In June 2011, the FASB issued new guidance on presentation of comprehensive income. The new guidance eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity and requires an entity to present either one continuous statement of net income and other comprehensive income or two separate, but consecutive statements. This new guidance relates only to presentation. Dell will present a separate statement of comprehensive income beginning in the first quarter of the fiscal year ending February 1, 2013.
Intangibles- Goodwill and Other — In September 2011, the FASB issued new guidance that will simplify how entities test goodwill for impairment. After assessment of certain qualitative factors, if it is determined to be more likely than not that the fair value of a reporting unit is less than its carrying amount, entities must perform a quantitative analysis of the goodwill impairment test. Otherwise, the quantitative test becomes optional. This new guidance is effective for Dell for the first quarter of the fiscal year ending February 1, 2013. Early adoption is permitted. Dell does not expect that this new guidance will impact Dell's Consolidated Financial Statements.
Disclosures about Offsetting Assets and Liabilities — In December 2011, the FASB issued new guidance that will enhance disclosure requirements about the nature of an entity’s right to offset and related arrangements associated with its financial instruments and derivative instruments. 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 will be effective for Dell for the first quarter of the fiscal year ending January 31, 2014. Early adoption is not permitted. Other than requiring additional disclosures, Dell does not expect that this new guidance will impact Dell's Consolidated Financial Statements.
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | Consolidated Financial Statements. See Note 3 of Notes to Consolidated Financial Statements for additional information. |
| | – | Impairments of Debt Securities — The pronouncement changed the impairment recognition and presentation model for debt securities. Another-than-temporary impairment is now triggered when there is intent to sell the security, it is more likely than not that the security will be required to be sold before recovery in value, or the security is not expected to recover its entire amortized cost basis (“credit related loss”). Credit related losses on debt securities will be considered another-than-temporary impairment recognized in earnings, and any other losses due to a decline in fair value relative to the amortized cost deemed not to beother-than-temporary will be recorded in other comprehensive income. Dell adopted the pronouncement in the second quarter of Fiscal 2010. The adoption did not have a material impact on Dell’s Consolidated Financial Statements. See Note 3 of Notes to Consolidated Financial Statements for additional information. | | – | Subsequent Events — The pronouncement codifies existing standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Dell adopted the pronouncement in the second quarter of Fiscal 2010. The adoption did not have any impact on Dell’s Consolidated Financial Statements. |
Recently Issued but Not Yet Adopted Accounting Pronouncements
| | – | Revenue Arrangements with Multiple Deliverables — The guidance amends the current revenue recognition guidance for multiple deliverable arrangements. It allows the use of management’s best estimate of selling price for individual elements of an arrangement when vendor specific objective evidence, or third-party evidence is unavailable. Additionally, it eliminates the residual method of revenue recognition in accounting for multiple deliverable arrangements. The guidance is effective for fiscal years beginning on or after June 15, 2010 (Dell’s Fiscal 2012), but early adoption is permitted. Management does not expect the adoption of this guidance to have a material impact on Dell’s Consolidated Financial Statements. Dell has elected to early adopt the guidance in the first quarter of Fiscal 2011 on a prospective basis. | | – | Revenue Arrangements with Software Elements — The pronouncement modifies the scope of the software revenue recognition guidance to exclude tangible products that contain both software and non-software components that function together to deliver the product’s essential functionality. The pronouncement is effective for fiscal years beginning on or after June 15, 2010 (Dell’s Fiscal 2012), but early adoption is permitted. This guidance must be adopted in the same period an entity adopts the amended revenue arrangements with multiple deliverables guidance described above. Management does not expect the adoption of this guidance to have a material impact on Dell’s Consolidated Financial Statements. Dell has elected to early adopt the guidance in the first quarter of Fiscal 2011 on a prospective basis. | | – | Variable Interest Entities and Transfers of Financial Assets and Extinguishments of Liabilities — The pronouncement on transfers of financial assets and extinguishments of liabilities removes the concept of a qualifying special-purpose entity and removes the exception from applying variable interest entity accounting to qualifying special-purpose entities. The new guidance on variable interest entities requires an entity to perform an ongoing analysis to determine whether the entity’s variable interest or interests give it a controlling financial interest in a variable interest entity. The pronouncements are effective for fiscal years beginning after November 15, 2009. Dell will adopt the pronouncements for interim and annual reporting periods beginning in the first quarter of Fiscal 2011. Dell expects the adoption of these two pronouncements to result in the consolidation of its qualifying special purpose entities beginning in the first quarter of Fiscal 2011. The impact of the required consolidations is not expected to be material to Dell’s financial position, net income, or cash flows. See Note 4 of Notes to Consolidated Financial Statements for additional information. |
Reclassifications — Dell has revised the presentation of certain prior period amounts reported within cash flows from operating activities presented in the Consolidated Statements of Cash Flows. The revision had no impact to the
60
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
total change in cash from operating activities. Finally, certain prior year amounts have been reclassified from accrued and other liabilities on the Consolidated Statements of Financial Position to short-term deferred service revenue to conform to the current year presentation.
NOTE 2 — FAIR VALUE MEASUREMENTS The following table presents Dell’sDell's hierarchy for its assets and liabilities measured at fair value on a recurring basis as of February 3, 2012, and January 29, 2010, and January 30, 2009:28, 2011: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | January 29, 2010 | | January 30, 2009 | | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | | Quoted
| | | | | | | | Quoted
| | | | | | | | | Prices
| | | | | | | | Prices
| | | | | | | | | in Active
| | Significant
| | | | | | in Active
| | Significant
| | | | | | | Markets for
| | Other
| | Significant
| | | | Markets for
| | Other
| | Significant
| | | | | Identical
| | Observable
| | Unobservable
| | | | Identical
| | Observable
| | Unobservable
| | | | | Assets | | Inputs | | Input | | | | Assets | | Inputs | | Inputs | | | | | | | | | | | (in millions) | | | | | | | Assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash equivalents | | $ | - | | | $ | 197 | | | $ | - | | | $ | 197 | | | $ | - | | | $ | 56 | | | $ | - | | | $ | 56 | | Debt Securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. government and agencies | | | - | | | | 66 | | | | - | | | | 66 | | | | - | | | | 539 | | | | - | | | | 539 | | U.S. corporate | | | - | | | | 553 | | | | 30 | | | | 583 | | | | - | | | | 457 | | | | 27 | | | | 484 | | International corporate | | | - | | | | 391 | | | | - | | | | 391 | | | | - | | | | 78 | | | | - | | | | 78 | | State & municipal bonds | | | - | | | | 2 | | | | - | | | | 2 | | | | - | | | | 5 | | | | - | | | | 5 | | Equity and other securities | | | - | | | | 90 | | | | - | | | | 90 | | | | 1 | | | | 73 | | | | - | | | | 74 | | Retained interest | | | - | | | | - | | | | 151 | | | | 151 | | | | - | | | | - | | | | 396 | | | | 396 | | Derivative instruments | | | - | | | | 96 | | | | - | | | | 96 | | | | - | | | | 627 | | | | - | | | | 627 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total assets | | $ | - | | | $ | 1,395 | | | $ | 181 | | | $ | 1,576 | | | $ | 1 | | | $ | 1,835 | | | $ | 423 | | | $ | 2,259 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Derivative instruments | | $ | - | | | $ | 12 | | | $ | - | | | $ | 12 | | | $ | - | | | $ | 131 | | | $ | - | | | $ | 131 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total liabilities | | $ | - | | | $ | 12 | | | $ | - | | | $ | 12 | | | $ | - | | | $ | 131 | | | $ | - | | | $ | 131 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | February 3, 2012 | | January 28, 2011 | | Level 1(a) | | Level 2 (a) | | Level 3 | | Total | | Level 1 | | Level 2 | | 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 | $ | 8,370 |
| | $ | — |
| | $ | — |
| | $ | 8,370 |
| | $ | 6,261 |
| | $ | — |
| | $ | — |
| | $ | 6,261 |
| Commercial paper | — |
| | 2,011 |
| | — |
| | 2,011 |
| | — |
| | 2,945 |
| | — |
| | 2,945 |
| U.S. corporate | — |
| | 5 |
| | — |
| | 5 |
| | — |
| | — |
| | — |
| | — |
| U.S. government and agencies | — |
| | — |
| | — |
| | — |
| | — |
| | 1,699 |
| | — |
| | 1,699 |
| Debt securities: | | | | | | | | | | | | | | | | U.S. government and agencies | — |
| | — |
| | — |
| | — |
| | — |
| | 79 |
| | — |
| | 79 |
| Non- U.S. government and agencies | — |
| | 94 |
| | — |
| | 94 |
| | — |
| | 46 |
| | — |
| | 46 |
| Commercial paper | — |
| | 434 |
| | — |
| | 434 |
| | — |
| | — |
| | — |
| | — |
| U.S. corporate | — |
| | 2,668 |
| | — |
| | 2,668 |
| | — |
| | 464 |
| | 32 |
| | 496 |
| International corporate | — |
| | 1,055 |
| | — |
| | 1,055 |
| | — |
| | 411 |
| | — |
| | 411 |
| Equity and other securities | 2 |
| | 105 |
| | — |
| | 107 |
| | — |
| | 109 |
| | — |
| | 109 |
| Derivative instruments | — |
| | 140 |
| | — |
| | 140 |
| | — |
| | 27 |
| | — |
| | 27 |
| Total assets | $ | 8,372 |
| | $ | 6,512 |
| | $ | — |
| | $ | 14,884 |
| | $ | 6,261 |
| | $ | 5,780 |
| | $ | 32 |
| | $ | 12,073 |
| Liabilities: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Derivative instruments | $ | — |
| | $ | 17 |
| | $ | — |
| | $ | 17 |
| | $ | — |
| | $ | 28 |
| | $ | — |
| | $ | 28 |
| Total liabilities | $ | — |
| | $ | 17 |
| | $ | — |
| | $ | 17 |
| | $ | — |
| | $ | 28 |
| | $ | — |
| | $ | 28 |
|
____________________ (a) Dell did not transfer any securities between levels during the twelve months ended February 3, 2012.
The following section describes the valuation methodologies Dell uses to measure financial instruments at fair value: Cash Equivalents— The majority of Dell’sDell's cash equivalents consistin the above table consists of money market funds, commercial paper, U.S. treasuries,including corporate and asset-backed commercial paper, and U.S. government and agencies, all with original maturities of 90 days or less than ninety days and are valued at fair value which approximates cost.value. The valuation isvaluations 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 utilizes areviews security pricing service to assist in obtaining fair value pricing for the majority of this investment portfolio. Dell conducts reviewsand assesses liquidity on a quarterly basis to verify pricing, assess liquidity, and determine if significant inputs have changed that would impact the fair value hierarchy disclosure.basis.
Debt Securities— The majority of Dell’sDell's debt securities consists of various fixed income securities such as U.S. government and agencies, U.S. andcorporate, international corporate, and state and municipal bonds. This portfolio of investmentscommercial paper. Valuation is valued based on model driven valuations,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. Dell utilizes a pricing service to assist management in obtaining fair value pricing for the majority of the investment portfolio. Pricing for securities is based on proprietary models, and inputsInputs are documented in accordance with the fair value measurements hierarchy. Dell conducts reviews security pricing and assesses liquidity on a quarterly basis to verify pricing, assess liquidity, and determine if significant valuation inputs have changed that would impact the fair value hierarchy disclosure.
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DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
basis. The Level 3 position as of January 29, 2010, and January 30, 2009, represents28, 2011, represented a convertible debt security that Dell was unable to corroborate with observable market data. The investment iswas valued at cost plus accrued interest as this is management’swas management's best estimate of fair value. Due to events occurring in Fiscal 2012, the investment was determined to be fully impaired and its cost basis reduced to zero. See Note 3 of the Notes to Consolidated Financial Statements for additional information about investments.
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Equity and Other Securities—The majority of Dell’sDell's investments in equity and other securities consists of various mutual funds and equity securities. The Level 1 securities are valued using quoted prices for identical assets in active markets. The Level 2 securities include various mutual funds held in Dell’sDell'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 Level 1 position consists of equity investments which began trading during Fiscal 2012. The valuations are based on quoted prices in active markets. These investments were previously accounted for under the cost method.
Retained Interest — The fair value of the retained interest is determined using a discounted cash flow model. Significant assumptions to the model include pool credit losses, payment rates, and discount rates. These assumptions are supported by both historical experience and anticipated trends relative to the particular receivable pool. Retained interest in securitized receivables is included in financing receivables, short-term and long-term, on the Consolidated Statements of Financial Position. See Note 4 of Notes to Consolidated Financial Statements for additional information about the retained interest.
Derivative Instruments— Dell’s 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 valueddetermined using internalvaluation models based on market observable inputs, including interest rate curves, forward and spot prices for currencies, and implied volatilities. volatilities. Credit risk is factored into the fair value calculation of Dell’sDell's derivative instrument portfolio. CreditFor interest rate derivative instruments, credit risk is determined forat the net position of each counterparty contract levelwith the use of credit default spreads of either Dell, ifwhen in a net liability position, or the relevant counterparty, when in a net asset position. The following table shows For foreign exchange derivative instruments, credit risk is determined in a reconciliationsimilar manner, except that the credit default spread is applied based on the net position of eachcounterparty with the use of the beginning and ending balancesappropriate credit default spreads.See Note 6 of the Notes to Consolidated Financial Statements for fair value measurements using significant unobservable inputs (Level 3) for the respective periods:a description of Dell's derivative financial instrument activities.
| | | | | | | | | | | | | | | | | | | | | | | | | | | Fiscal Year Ended | | | January 29, 2010 | | January 30, 2009 | | | Retained
| | U.S.
| | | | Retained
| | U.S.
| | | | | Interest | | Corporate | | Total | | Interest | | Corporate | | Total | | | | | | | (in millions) | | | | | Balance at beginning of period | | $ | 396 | | | $ | 27 | | | $ | 423 | | | $ | 223 | | | $ | - | | | $ | 223 | | Net unrealized gains (losses) included in earnings(a) | | | 26 | | | | 3 | | | | 29 | | | | (8 | ) | | | 2 | | | | (6 | ) | Issuances and settlements | | | 231 | | | | - | | | | 231 | | | | 181 | | | | - | | | | 181 | | Purchases | | | - | | | | - | | | | - | | | | - | | | | 25 | | | | 25 | | Impact of special purpose entity consolidation(b) | | | (502 | ) | | | - | | | | (502 | ) | | | - | | | | - | | | | - | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at end of period | | $ | 151 | | | $ | 30 | | | $ | 181 | | | $ | 396 | | | $ | 27 | | | $ | 423 | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | (a) | | The unrealized gains on U.S. corporate represent accrued interest for assets that are still held at January 29, 2010 and January 30, 2009. |
| | | (b) | | See Note 4 of Notes to Consolidated Financial Statements for additional information about the impact of the special purpose entity consolidation. |
Unrealized losses for the fiscal year ended January 29, 2010, related to the Level 3 retained interest asset and convertible debt security asset still held at the reporting date, are reported in income.
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. TheThese assets consist primarily of investments accounted for under the cost method and nonfinancialnon-financial assets such as goodwill and intangible assets. Investments accounted for under the cost method included in equity and other securities, approximate $22approximated $12 million and $14$15 million, on February 3, 2012, and January 29, 2010, and January 30, 2009,28, 2011, respectively. Goodwill and intangible assets are measured at fair value initially and subsequently when there is an indicator of impairment and the impairment is recognized. No impairment charges of goodwill and intangible assets were recorded for the fiscal
62
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
year ended January 29, 2010. See Note 68 of the Notes to Consolidated Financial Statements for additional information about goodwill and intangible assets.
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 3 — FINANCIAL INSTRUMENTSINVESTMENTS Investments
The following table summarizes, by major security type, the fair value and amortized cost of Dell’sDell'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 Consolidated Statements of Financial Position. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | January 29, 2010 | | January 30, 2009 | | | Fair
| | | | Unrealized
| | Unrealized
| | Fair
| | | | Unrealized
| | Unrealized
| | | Value | | Cost | | Gain | | (Loss) | | Value | | Cost | | Gain | | (Loss) | | | (in millions) | Investments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Debt securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. government and agencies | | $ | 66 | | | $ | 66 | | | $ | - | | | $ | - | | | $ | 539 | | | $ | 537 | | | $ | 3 | | | $ | (1 | ) | U.S. corporate | | | 583 | | | | 581 | | | | 3 | | | | (1 | ) | | | 484 | | | | 491 | | | | 2 | | | | (9 | ) | International corporate | | | 391 | | | | 391 | | | | 1 | | | | (1 | ) | | | 78 | | | | 77 | | | | 1 | | | | - | | State and municipal governments | | | 2 | | | | 2 | | | | - | | | | - | | | | 5 | | | | 5 | | | | - | | | | - | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total debt securities | | | 1,042 | | | | 1,040 | | | | 4 | | | | (2 | ) | | | 1,106 | | | | 1,110 | | | | 6 | | | | (10 | ) | Equity and other securities | | | 112 | | | | 112 | | | | - | | | | - | | | | 88 | | | | 88 | | | | - | | | | - | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total investments | | $ | 1,154 | | | $ | 1,152 | | | $ | 4 | | | $ | (2 | ) | | $ | 1,194 | | | $ | 1,198 | | | $ | 6 | | | $ | (10 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Dell’s | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | February 3, 2012 | | January 28, 2011 | | Fair Value | | Cost | | Unrealized Gain | | Unrealized (Loss) | | Fair Value | | Cost | | Unrealized Gain | | Unrealized (Loss) | | (in millions) | | | | | | | | | | | | | | | | | Investments: | | | | | | | | | | | | | | | | U.S. government and agencies | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 58 |
| | $ | 58 |
| | $ | — |
| | $ | — |
| Non- U.S. government and agencies | 24 |
| | 24 |
| | — |
| | — |
| | 12 |
| | 12 |
| | — |
| | — |
| Commercial paper | 434 |
| | 434 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| U.S. corporate | 336 |
| | 335 |
| | 1 |
| | — |
| | 254 |
| | 253 |
| | 1 |
| | — |
| International corporate | 172 |
| | 172 |
| | — |
| | — |
| | 128 |
| | 128 |
| | — |
| | — |
| Total short-term investments | 966 |
| | 965 |
| | 1 |
| | — |
| | 452 |
| | 451 |
| | 1 |
| | — |
| | | | | | | | | | | | | | | | | U.S. government and agencies | — |
| | — |
| | — |
| | — |
| | 21 |
| | 20 |
| | 1 |
| | — |
| Non- U.S. government and agencies | 70 |
| | 70 |
| | — |
| | — |
| | 34 |
| | 34 |
| | — |
| | — |
| U.S. corporate | 2,332 |
| | 2,322 |
| | 12 |
| | (2 | ) | | 242 |
| | 243 |
| | — |
| | (1 | ) | International corporate | 883 |
| | 880 |
| | 4 |
| | (1 | ) | | 283 |
| | 283 |
| | — |
| | — |
| Equity and other securities | 119 |
| | 119 |
| | — |
| | — |
| | 124 |
| | 124 |
| | — |
| | — |
| Total long-term investments | 3,404 |
| | 3,391 |
| | 16 |
| | (3 | ) | | 704 |
| | 704 |
| | 1 |
| | (1 | ) | Total investments | $ | 4,370 |
| | $ | 4,356 |
| | $ | 17 |
| | $ | (3 | ) | | $ | 1,156 |
| | $ | 1,155 |
| | $ | 2 |
| | $ | (1 | ) |
Dell's investments in debt securities are classified asavailable-for-sale. Equity and other securities primarily relate to investments held in Dell’sDell's Deferred Compensation Plan, which are classified as trading securities. Both of these classes ofEquity and other securities also include equity investments that began trading during Fiscal 2012 which are reported at fair value using the specific identification method. Allclassified as available-for-sale securities. The remaining equity and other investmentssecurities are initially recorded at cost and reduced for any impairment losses. During Fiscal 2012, Dell recognized a $39 million impairment charge associated with one of its investments, which is included in Interest and other, net on the Consolidated Statements of Income. Security classes reported at fair value use the specific identification method. The fair value of Dell’sDell's portfolio iscan be affected primarily by interest rate movements, rather than credit, and liquidity risks. Most of Dell’sDell's investments in debt securities have contractual maturities of three years or less than five years..
At January 29, 2010, total unrealized losses related to Dell’s debt securities, including securities classified as cash equivalents, were $2 million with a corresponding fair value of $518 million. Of the unrealized losses, $1 million relate to 77 securities that were in a loss position for less than twelve months, and the fair value of those 77 securities totaled $508 million. The remaining $1 million in unrealized losses relate to four securities that were in a loss position for twelve months or greater, and the fair value of those four securities totaled $10 million. The unrealized losses are due to interest rate movements and are expected to be recovered over the contractual term of the instruments.
During Fiscal 2010, Dell adopted the new pronouncement that changed the impairment recognition and presentation model for debt securities. Dell reviews its investment portfolio quarterly to determine if any investment isother-than-temporarily2012 impaired. Under the amended impairment model for debt securities, another-than-temporary impairment (“OTTI”) loss is recognized in earnings if the entity has the intent to sell the debt security, or if it is more likely than not that it will be required to sell the debt security before recovery of its amortized cost basis. However, if an entity does not expect to sell a debt security, it still evaluates expected cash flows to be received and determines if a credit loss exists. In the event of a credit loss, only the amount of impairment associated with the credit loss is recognized currently in earnings. Amounts relating to factors other than credit losses are recorded in other comprehensive income. Upon adoption of the new pronouncement at the beginning of the second quarter of, Fiscal 2010, the amounts Dell recorded for the cumulative-effect adjustment were immaterial. As of January 29, 2010, Dell evaluated debt securities classified as available for sale for OTTI and the existence of credit losses. Dell did not record any loss for OTTI during Fiscal 2010.
63
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2011
During Fiscal 2010, Fiscal 2009,, and Fiscal 2008,2010, gross realized gains recognized in interestInterest and other, net were $6$49 million $14, $7 million, and $17$6 million, respectively. Dell recognized gross realized losses of $4$41 million $24, $1 million, and $3$4 million, respectively, during the same periods.
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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. and Canada 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. In some cases, Dell may originate financing activities for its Commercial customers related to the purchase of third-party technology products that complement Dell's portfolio of products and services. New financing originations, which represent the amounts of financing provided by DFS to customers for equipment and related software and services, including third-party originations, were approximately $3.8 billion, $4.0 billion, and $3.9 billion for the fiscal years ended February 3, 2012, January 28, 2011, and January 29, 2010, respectively. The results of DFS are included in the business segment where the customer receivable was originated.
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. 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. From time to time, account holders may have the opportunity to finance their Dell purchases with special programs during which, if the outstanding balance is paid in full by a specific date, no interest is charged. These special programs generally range from 6 to 12 months. At February 3, 2012, and January 28, 2011, receivables under these special programs were $328 million and $398 million, respectively.
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 February 3, 2012, were as follows: Fiscal 2013 - $1,159 million; Fiscal 2014 - $725 million; Fiscal 2015 - $340 million; Fiscal 2016 - $46 million; Fiscal 2017 and beyond - $3 million. Dell also offers fixed-term loans to qualified small businesses, large commercial accounts, governmental organizations, educational entities, and certain consumer customers. These loans are repaid in equal payments including interest and have defined terms of generally three to four years. The following table summarizes the components of Dell's financing receivables segregated by portfolio segment as of February 3, 2012, and January 28, 2011: | | | | | | | | | | | | | | | | | | | | | | | | | | | | February 3, 2012 | | January 28, 2011 | | | Revolving | | Fixed-term | | Total | | Revolving | | Fixed-term | | Total | | | (in millions) | Financing Receivables, net: | | |
| | |
| | | | | | | | | Customer receivables, gross | | $ | 2,096 |
| | $ | 2,443 |
| | $ | 4,539 |
| | $ | 2,396 |
| | $ | 1,992 |
| | $ | 4,388 |
| Allowances for losses | | (179 | ) | | (23 | ) | | (202 | ) | | (214 | ) | | (27 | ) | | (241 | ) | Customer receivables, net | | 1,917 |
| | 2,420 |
| | 4,337 |
| | 2,182 |
| | 1,965 |
| | 4,147 |
| Residual interest | | — |
| | 362 |
| | 362 |
| | — |
| | 295 |
| | 295 |
| Financing receivables, net | | $ | 1,917 |
| | $ | 2,782 |
| | $ | 4,699 |
| | $ | 2,182 |
| | $ | 2,260 |
| | $ | 4,442 |
| Short-term | | $ | 1,917 |
| | $ | 1,410 |
| | $ | 3,327 |
| | $ | 2,182 |
| | $ | 1,461 |
| | $ | 3,643 |
| Long-term | | — |
| | 1,372 |
| | 1,372 |
| | — |
| | 799 |
| | 799 |
| Financing receivables, net | | $ | 1,917 |
| | $ | 2,782 |
| | $ | 4,699 |
| | $ | 2,182 |
| | $ | 2,260 |
| | $ | 4,442 |
|
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the changes in the allowance for financing receivable losses for the respective periods: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fiscal Year Ended | | | February 3, 2012 | | January 28, 2011 | | January 29, 2010 | | | Revolving | | Fixed- term | | Total | | Revolving | | Fixed- term | | Total | | Total | | | (in millions) | Allowance for financing receivable losses: | | | | | | | | | | | | | | | Balance at beginning of period | | $ | 214 |
| | $ | 27 |
| | $ | 241 |
| | $ | 224 |
| | $ | 13 |
| | $ | 237 |
| | $ | 149 |
| Incremental allowance due to VIE consolidation | | — |
| | — |
| | — |
| | — |
| | 16 |
| | 16 |
| | — |
| Principal charge-offs | | (204 | ) | | (9 | ) | | (213 | ) | | (233 | ) | | (18 | ) | | (251 | ) | | (139 | ) | Interest charge-offs | | (38 | ) | | — |
| | (38 | ) | | (46 | ) | | — |
| | (46 | ) | | (27 | ) | Recoveries | | 64 |
| | 4 |
| | 68 |
| | 27 |
| | — |
| | 27 |
| | 10 |
| Provision charged to income statement | | 143 |
| | 1 |
| | 144 |
| | 242 |
| | 16 |
| | 258 |
| | 244 |
| Balance at end of period | | $ | 179 |
| | $ | 23 |
| | $ | 202 |
| | $ | 214 |
| | $ | 27 |
| | $ | 241 |
| | $ | 237 |
|
The following table summarizes the aging of Dell's customer receivables, gross, including accrued interest, as of February 3, 2012, and January 28, 2011, segregated by class: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | February 3, 2012 | | January 28, 2011 | | | 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 — Consumer | | | | | | | | | | | | | | | | | Owned since inception | | $ | 1,249 |
| | $ | 148 |
| | $ | 49 |
| | $ | 1,446 |
| | $ | 1,302 |
| | $ | 153 |
| | $ | 48 |
| | $ | 1,503 |
| Purchased | | 272 |
| | 47 |
| | 18 |
| | 337 |
| | 447 |
| | 88 |
| | 35 |
| | 570 |
| Fixed-term — Consumer | | | | | | | | | | | | | | | | | Owned since inception | | 29 |
| | 1 |
| | — |
| | 30 |
| | — |
| | — |
| | — |
| | — |
| Purchased | | 61 |
| | 5 |
| | 1 |
| | 67 |
| | — |
| | — |
| | — |
| | — |
| Revolving — SMB(a) | | 272 |
| | 33 |
| | 8 |
| | 313 |
| | 280 |
| | 35 |
| | 8 |
| | 323 |
| Fixed-term — SMB(a) | | 534 |
| | 23 |
| | 5 |
| | 562 |
| | 371 |
| | 11 |
| | 3 |
| | 385 |
| Fixed-term — Large Enterprise(a) | | 1,227 |
| | 95 |
| | 12 |
| | 1,334 |
| | 1,077 |
| | 47 |
| | 7 |
| | 1,131 |
| Fixed-term — Public(a) | | 419 |
| | 30 |
| | 1 |
| | 450 |
| | 463 |
| | 12 |
| | 1 |
| | 476 |
| Total customer receivables, gross | | $ | 4,063 |
| | $ | 382 |
| | $ | 94 |
| | $ | 4,539 |
| | $ | 3,940 |
| | $ | 346 |
| | $ | 102 |
| | $ | 4,388 |
|
____________________ (a) Includes purchased receivables described below that are not significant to any portfolio class.
DFS Acquisitions
During the second quarter of Fiscal 2012, Dell acquired Dell Financial Services Canada Limited ("DFS Canada") from CIT Group Inc., which was accounted for as a business combination. The purchase included a portfolio of $367 million in gross contractual fixed-term leases and loans, Consumer installment loans, and Consumer revolving loans with a fair value at purchase of $309 million. Of the gross contractual amounts, $23 million was expected to be uncollectible at the date of
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) acquisition. Dell also acquired a liquidating portfolio of computer equipment operating leases. The gross amount of the equipment associated with these operating leases at the date of acquisition was $67 million and is included in Property, plant, and equipment in the Consolidated Statements of Financial Position. See Note 7 of Notes to Consolidated Financial Statements for additional information about Dell's 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. Subject to customary closing, regulatory, and other conditions, Dell expects to close substantially all of this acquisition in the fiscal year ending February 1, 2013.
Purchased Credit-Impaired Loans Derivative InstrumentsDuring the third quarter of Fiscal 2011, Dell purchased a portfolio of revolving loan receivables from CIT Group Inc. Prior to the acquisition, it was evident that Dell would not collect on all contractually required principal and Hedging Activitiesinterest payments. As such, these receivables met the definition of Purchased Credit-Impaired (“PCI”) loans. At February 3, 2012, the outstanding balance of these receivables, including principal and accrued interest, was $419 million and the carrying amount was $184 million.
The excess of cash flows expected to be collected over the carrying value of PCI loans is referred to as the accretable yield and is accreted into interest income using the effective yield method based on the expected future cash flows over the estimated lives of the PCI loans. Due to improved expectations of the amount of expected cash flows and higher post charge-off recoveries, Dell increased the accretable yield associated with these PCI loans in Fiscal 2012. The increases in accretable yield will be amortized over the remaining life of the loans.
The following table shows activity for the accretable yield on the PCI loans for the fiscal years ended February 3, 2012, and January 28, 2011. We expect the remaining balance of the accretable yield as of February 3, 2012 to accrete over the next 3 years, using the effective interest method. | | | | | | | | | | Fiscal Year Ended | | February 3, 2012 | | January 28, 2011 | | (in millions) | Accretable Yield: | | | | Balance at beginning of period | $ | 137 |
| | $ | — |
| Additions/ Purchases | — |
| | 166 |
| Accretion | (88 | ) | | (29 | ) | Prospective yield adjustment | 93 |
| | — |
| Balance at end of period | $ | 142 |
| | $ | 137 |
|
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Credit Quality
The following tables summarize customer receivables, gross, including accrued interest by credit quality indicator segregated by class, as of February 3, 2012, and January 28, 2011. For revolving loans to consumers, Dell makes credit decisions based on propriety scorecards, which include the customer's credit history, payment history, credit usage, and other credit agency-related elements. For Commercial customers, 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. These credit level scores range from one to sixteen for Public and Large Enterprise customers, and generally from one to six for SMB customers. The categories shown in the tables below segregate customer receivables based on the relative degrees of credit risk within each segment and product group. As loss experience varies substantially between financial products and customer segments, the credit quality categories cannot be compared between the different classes. The credit quality indicators for Consumer revolving accounts are primarily as of each quarter-end date, and all others are generally updated on a periodic basis.
For the Consumer receivables shown in the below table, the higher quality category includes prime accounts which are generally of a higher credit quality that are comparable to U.S. customer FICO scores of 720+. The mid-category represents the mid-tier accounts that are comparable to U.S. FICO scores from 660 to 719. The lower category is generally sub-prime and represents lower credit quality accounts that are comparable to FICO scores below 660.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | February 3, 2012 | | January 28, 2011 | | | Higher | | Mid | | Lower | | Total | | Higher | | Mid | | Lower | | Total | | | (in millions) | Revolving — Consumer | | | | |
| | | | | | | | |
| | | | | Owned since inception | | $ | 220 |
| | $ | 412 |
| | $ | 814 |
| | $ | 1,446 |
| | $ | 251 |
| | $ | 415 |
| | $ | 837 |
| | $ | 1,503 |
| Purchased | | $ | 28 |
| | $ | 80 |
| | $ | 229 |
| | $ | 337 |
| | $ | 50 |
| | $ | 127 |
| | $ | 393 |
| | $ | 570 |
| Fixed-term — Consumer | | | | | | | | | | | | | | | | | Owned since inception | | $ | 2 |
| | $ | 14 |
| | $ | 14 |
| | $ | 30 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| Purchased | | $ | 4 |
| | $ | 32 |
| | $ | 31 |
| | $ | 67 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
For the SMB receivables shown in the table below, the higher quality category includes receivables that are generally within Dell's top two internal credit quality levels, which typically have the lowest loss experience. The middle category generally falls within credit levels three and four, and the lower category generally falls within Dell's bottom two credit levels, which experience higher loss rates. The revolving product is sold primarily to small business customers and the fixed-term products are more weighted toward medium-sized businesses. Although both fixed-term and revolving products generally rely on a six-level internal rating system, the grading criteria and classifications are different as the loss performance varies between these product and customer sets. Therefore, the credit levels are not comparable between the SMB fixed-term and revolving classes.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | February 3, 2012 | | January 28, 2011(a) | | | Higher | | Mid | | Lower | | Total | | Higher | | Mid | | Lower | | Total | | | (in millions) | Revolving — SMB | | $ | 111 |
| | $ | 98 |
| | $ | 104 |
| | $ | 313 |
| | $ | 124 |
| | $ | 109 |
| | $ | 90 |
| | $ | 323 |
| Fixed-term — SMB | | $ | 43 |
| | $ | 208 |
| | $ | 311 |
| | $ | 562 |
| | $ | 55 |
| | $ | 122 |
| | $ | 208 |
| | $ | 385 |
|
____________________ (a) Amounts as of January 28, 2011 have been reclassified for Fixed-term — SMB due to adjustments between credit quality categories.
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the Large Enterprise and Public receivables shown in the below table, 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. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | February 3, 2012 | | January 28, 2011 | | Investment | | Non-Investment | | Sub-Standard | | Total | | Investment | | Non-Investment | | Sub-Standard | | Total | | (in millions) | Fixed-term — Large Enterprise | $ | 1,000 |
| | $ | 199 |
| | $ | 135 |
| | $ | 1,334 |
| | $ | 806 |
| | $ | 166 |
| | $ | 159 |
| | $ | 1,131 |
| Fixed-term — Public | $ | 400 |
| | $ | 40 |
| | $ | 10 |
| | $ | 450 |
| | $ | 438 |
| | $ | 30 |
| | $ | 8 |
| | $ | 476 |
|
Asset Securitizations
Dell transfers certain U.S. customer financing receivables to Special Purpose Entities (“SPEs”) which meet the definition of a Variable Interest Entity ("VIE") and are consolidated into Dell's Consolidated Financial Statements. The 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 of Dell's right to receive collections for assets securitized exceeding 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 $2.3 billion, $1.9 billion, and $0.8 billion, during Fiscal 2012, Fiscal 2011, and Fiscal 2010, respectively.
The following table shows financing receivables held by the consolidated VIEs: | | | | | | | | | | | | February 3, 2012 | | January 28, 2011 | | | (in millions) | Financing receivables held by consolidated VIEs, net: | | |
| | |
| Short-term, net | | $ | 1,096 |
| | $ | 1,087 |
| Long-term, net | | 429 |
| | 262 |
| Financing receivables held by consolidated VIEs, net | | $ | 1,525 |
| | $ | 1,349 |
|
Dell's securitization programs are generally effective for 12 months and are subject to an annual 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 February 3, 2012, these criteria were met.
Structured Financing Debt
The structured financing debt related to the fixed-term lease and loan, and revolving loan securitization programs was $1.3 billion and $1.0 billion as of February 3, 2012, and January 28, 2011, 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. The total debt capacity related to the securitization programs is $1.4 billion. See Note 5 of the Notes to 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 Consolidated Financial Statements for additional information about interest rate swaps.
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 5 — BORROWINGS The following table summarizes Dell's outstanding debt as of the dates indicated: | | | | | | | | | | | | February 3, 2012 | | January 28, 2011 | | | (in millions) | Long-Term Debt | | |
| | |
| Notes | | |
| | |
| $400 million issued on June 10, 2009, at 3.375% due June 2012 (“2012 Notes”)(a) | | $ | 400 |
| | $ | 400 |
| $600 million issued on April 17, 2008, at 4.70% due April 2013 (“2013A Notes”)(a)(b) | | 605 |
| | 609 |
| $500 million issued on September 7, 2010, at 1.40% due September 2013 (“2013B Notes”) | | 499 |
| | 499 |
| $500 million issued on April 1, 2009, at 5.625% due April 2014 (“2014A Notes”)(b) | | 500 |
| | 500 |
| $300 million issued on March 28, 2011, with a floating rate due April 2014 (“2014B Notes”) | | 300 |
| | — |
| $400 million issued on March 28, 2011, at 2.10% due April 2014 (“2014C Notes”) | | 400 |
| | — |
| $700 million issued on September 7, 2010, at 2.30% due September 2015 (“2015 Notes”)(b) | | 701 |
| | 700 |
| $400 million issued on March 28, 2011, at 3.10% due April 2016 (“2016 Notes”)(b) | | 401 |
| | — |
| $500 million issued on April 17, 2008, at 5.65% due April 2018 (“2018 Notes”)(b) | | 501 |
| | 499 |
| $600 million issued on June 10, 2009, at 5.875% due June 2019 (“2019 Notes”)(b) | | 602 |
| | 600 |
| $400 million issued on March 28, 2011, at 4.625% due April 2021 (“2021 Notes”) | | 398 |
| | — |
| $400 million issued on April 17, 2008, at 6.50% due April 2038 (“2038 Notes”) | | 400 |
| | 400 |
| $300 million issued on September 7, 2010, at 5.40% due September 2040 (“2040 Notes”) | | 300 |
| | 300 |
| Senior Debentures | | |
| | |
| $300 million issued on April 3, 1998, at 7.10% due April 2028 ("Senior Debentures")(a) | | 384 |
| | 389 |
| Other | | |
| | |
| Long-term structured financing debt | | 920 |
| | 828 |
| Less: current portion of long-term debt | | (924 | ) | | (578 | ) | Total long-term debt | | 6,387 |
| | 5,146 |
| Short-Term Debt | | |
| | |
| Commercial paper | | 1,500 |
| | — |
| Short-term structured financing debt | | 440 |
| | 272 |
| Current portion of long-term debt | | 924 |
| | 578 |
| Other | | 3 |
| | 1 |
| Total short-term debt | | 2,867 |
| | 851 |
| Total debt | | $ | 9,254 |
| | $ | 5,997 |
|
____________________ (a) Includes the impact of interest rate swap terminations. (b) Includes hedge accounting adjustments.
During Fiscal 2012, Dell issued the 2014B Notes, the 2014C Notes, the 2016 Notes and the 2021 Notes (collectively, the “Issued Notes”) under a shelf registration statement that was originally filed in November 2008 and amended in March 2011. The net proceeds from the Issued Notes, after payment of expenses, were approximately $1.5 billion. The Issued Notes are unsecured obligations and rank equally in right of payment with Dell's existing and future unsecured senior indebtedness. The Issued Notes effectively rank junior in right of payment to all indebtedness and other liabilities, including trade payables, of Dell's subsidiaries. The Issued Notes were issued pursuant to a Supplemental Indenture dated March 31, 2011, between Dell and a trustee, with terms and conditions substantially the same as those governing the Notes outstanding as of January 28, 2011 (such outstanding Notes, together with the Issued Notes, the "Notes").
The estimated fair value of total debt at February 3, 2012, was approximately $9.8 billion. The fair values of the structured financing debt and other short-term debt approximate their carrying values as their interest rates vary with the market. The carrying value of the Senior Debentures, the 2012 Notes and the 2013A Notes includes an unamortized amount related to the
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) termination of interest rate swap agreements, which were previously designated as hedges of the debt. See Note 6 of the Notes to 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 February 3, 2012, and January 28, 2011, was 0.28% and 0.29%, respectively. Aggregate future maturities of long-term debt at face value were as follows as of February 3, 2012: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Maturities by Fiscal Year | | | | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | Thereafter | | Total | | | | | | | | (in millions) | | | | | Aggregate future maturities of long-term debt outstanding | $ | 924 |
| | $ | 1,404 |
| | $ | 1,291 |
| | $ | 701 |
| | $ | 400 |
| | $ | 2,500 |
| | $ | 7,220 |
|
Structured Financing Debt — As of February 3, 2012, Dell had $1.4 billion outstanding in structured financing related debt, of which $1.3 billion was through the fixed-term lease and loan, and revolving loan securitization programs. Of the $1.4 billion outstanding in structured financing related debt, $964 million was current as of February 3, 2012. See Note 4 and Note 6 of the Notes to 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 February 3, 2012, there was $1.5 billion outstanding under the commercial paper program. At January 28, 2011, Dell had no outstanding commercial paper. The weighted average interest rate on outstanding commercial paper as of February 3, 2012, was 0.23%. Dell has $3.0 billion in senior unsecured revolving credit facilities, primarily to support its $2.5 billion commercial paper program. Dell replaced the five-year $1.0 billion credit facility expiring on June 1, 2011, with a four-year $2.0 billion credit facility that will expire on April 15, 2015. Dell's remaining credit facility for $1.0 billion will expire on April 2, 2013. There were no outstanding advances under the revolving credit facilities as of February 3, 2012.
The indentures governing the Notes, the Senior Debentures, and the structured financing debt 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 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 February 3, 2012.
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 reducemanage the exposure of its debt portfolio to interest rate risk. Dell’sDell's objective is to offset gains and losses resulting from these exposures with gains and losses on the derivative contracts used to hedge them,the exposures, thereby reducing volatility of earnings and protecting fair values of assets and liabilities. Dell appliesassesses hedge accounting based uponeffectiveness both at the criteria established by accounting guidance foronset of the hedge and at regular intervals throughout the life of the derivative instruments and hedging activities, including designationrecognizes any ineffective portion of its derivativesthe hedge, as fair value hedges or cash flow hedgeswell as amounts not included in the assessment of effectiveness, in earnings as a component of Interest and assessing of hedge effectiveness. Dell records all derivatives in its Consolidated Statements of Financial Position at fair value.other, net. Foreign Exchange Risk Cash Flow Hedges
Dell uses a combination of forward contracts and purchased options designated as cash flow hedges to protect against the foreign currency exchange rate risks inherent in its forecasted transactions denominated in currencies other than the U.S. dollar. The risk of loss associated with purchased options is limited to premium amounts paid for the option contracts. The risk of loss associated with forward contracts is equal to the exchange rate differential from the time the contract is entered into until the time it is settled. The majority of these contracts typically expire in 12 months or less. For derivative instruments that are designated and qualify as cash flow hedges, Dell records the effective portion of the gain or loss on the derivative instrument in accumulated other comprehensive income (loss) (“OCI”) as a separate component of stockholders’ equity and reclassifies these amounts into earnings in the period during which the hedged transaction is recognized in earnings. Dell reports the effective portion of cash flow hedges in the same financial statement line item within earnings as the changes in value of the hedged item. Forassessed hedge ineffectiveness for foreign currency forwardexchange contracts and purchased options designated as cash flow hedges Dell assesses hedge effectiveness both atfor the onset of the hedge as well as at the end of each fiscal quarter throughout the life of the derivative. Dell measures hedgeyear ended February 3, 2012, and determined that such ineffectiveness by comparing the cumulative change in the fair value of the hedge contract with the cumulative change in the fair value of the hedged item, both of which are based on forward rates. Dell 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 for cash flow hedges was not material formaterial. During the fiscal year ended January 29, 2010. During the year ended January 29, 2010,February 3, 2012, Dell did not discontinue any cash flow hedges related to foreign exchange contracts that had a material impact on Dell’sDell's results of operations, as substantially all forecasted foreign currency transactions were realized in Dell’sDell's actual results.
The aggregate unrealized net gain recorded as a component of comprehensive income net of tax, for Fiscal 2010 and 2009 was $1 million and $324 million, respectively. The following table summarizes the fair value of the foreign
64
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
exchange contracts on the Consolidated Statements of Financial Position, as well as the amount of hedge ineffectiveness on cash flow hedges recorded in earnings:
| | | | | | | | | | | | | | | | | | | Gain (Loss)
| | | | | | | | | | | Recognized
| | | | | | | | | | | in Accumulated
| | Location of Gain (Loss)
| | Gain (Loss)
| | | | | | | OCI, Net
| | Reclassified
| | Reclassified
| | Location of Gain (Loss)
| | Gain (Loss)
| Derivatives in
| | of Tax, on
| | from Accumulated
| | from Accumulated
| | Recognized in Income
| | Recognized in
| Cash Flow
| | Derivatives
| | OCI into Income
| | OCI into Income
| | on Derivative
| | Income on Derivative
| Hedging Relationships | | (Effective Portion) | | (Effective Portion) | | (Effective Portion) | | (Ineffective Portion) | | (Ineffective Portion) | (in millions) | | For the fiscal year ended January 29, 2010 | | | | | | | | | | | Foreign exchange | | | | | | Total net revenue | | $ | (157) | | | Interest and other, net | | $ | (1) | | contracts | | $ | (506) | | | Total cost of net revenue | | | (25) | | | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | (506) | | | | | $ | (182) | | | | | $ | (1) | | | | | | | | | | | | | | | | | | |
As of January 29, 2010, and January 30, 2009, the total notional amount of foreign currency option and forward contracts designated as cash flow hedges was $6.2 billion and $6.5 billion, respectively, from selling local currency.
Other Foreign Currency Derivative Instruments
In addition, Dell uses forward contracts to hedge monetary assets and liabilities, primarily receivables and payables, denominated in a foreign currency. These contracts generally expire in three months or less, are considered economic hedges and are not designated. The change in the fair value of these instruments represents a natural hedge as their gains and losses offset the changes in the underlying fair value of the monetary assets and liabilities due to movements in currency exchange rates. These contracts generally expire in three months or less. These contracts are considered economic hedges and are not designated as hedges under derivative instruments and hedging activities accounting, and therefore,Dell recognized gains (losses) for the change in the instrument’s fair value is recognized currently in earnings as a component of interest and other, net. With respect to itsthese foreign currency forward contracts Dell recognized losses of $85$17 million, $59 million and $(85) million during Fiscal 2012, Fiscal 2011, and Fiscal 2010 gains, 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 $189 million during Fiscal 2009, and lossesthese contracts typically ranges from 30 to 42 months. Certain of $13 million during Fiscal 2008. As of January 29, 2010, and January 30, 2009, the total notional amount of other foreign currency forward contracts notthese swaps are designated as cash flow hedges. Hedge ineffectiveness for interest rate swaps designated as cash flow hedges was $2.1 billionnot material for the fiscal years ended February 3, 2012, and $581 million, respectively, from buying local currency.January 28, 2011.
Fair Value Hedges
Periodically, Dell enters intoalso uses interest rate swaps designated as fair value hedges to manage the exposure of its debt portfolio to interest rate risk. Dell issues long-term debt in U.S. dollars based on market conditions at the time of financing. Dell uses interest rate swaps to modify the market risk exposures in connection with thelong-term debt to achieve primarily U.S. dollar LIBOR-based floating interest expense. TheDuring the fiscal year ended February 3, 2012, Dell entered into interest rate swaps do notto economically hedge alla portion of its interest rate exposure on corporatecertain tranches of its long-term debt. For derivative instruments that are designated and qualifyHedge ineffectiveness for hedge accounting, changes in the value of the derivative and underlying hedged item are recognized in interest and other, net in the Consolidated Statement of Income in the current period. As of January 29, 2010, the total notional amount of the interest rate swaps was $200 million. In Fiscal 2010, thedesignated as fair value changehedges was not material for the fiscal years ended February 3, 2012, and January 28, 2011.
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Notional Amounts of Outstanding Derivative Instruments
The notional amounts of Dell's outstanding derivative instruments are as follows as of the interest rate contracts resulted in a $1 million gain to interest and other, net and the associated hedged fixed-rate debt recognized a $1 million offsetting fair value loss to interest and other, net.dates indicated:
| | | | | | | | | | | | February 3, 2012 | | January 28, 2011 | | | (in millions) | Foreign Exchange Contracts | | |
| | |
| Designated as cash flow hedging instruments | | $ | 4,549 |
| | $ | 5,364 |
| Non-designated as hedging instruments | | 168 |
| | 250 |
| Total | | $ | 4,717 |
| | $ | 5,614 |
| | | | | | Interest Rate Contracts | | | | | Designated as fair value hedging instruments | | $ | 650 |
| | $ | — |
| Designated as cash flow hedging instruments | | 751 |
| | 625 |
| Non-designated as hedging instruments | | 132 |
| | 145 |
| Total | | $ | 1,533 |
| | $ | 770 |
|
Derivative Instruments Additional Information The aggregate unrealized net loss for interest rate swaps and foreign currency exchange contracts, recorded as a component of comprehensive income, for the fiscal years ended February 3, 2012, and January 28, 2011, was $40 million and $111 million, respectively. Cash flows fromDell has reviewed the existence and nature of credit-risk-related contingent features in derivative instruments are presentedtrading 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 the same categorya net liability position. As of February 3, 2012, there had been no such triggering events.
Effect of Derivative Instruments on the Consolidated Statements of Cash Flows asFinancial Position and the cash flows from the intended hedged items or the economic hedges.Consolidated Statements of Income While Dell has foreign exchange derivative contracts in more than 20 currencies, the majority
| | | | | | | | | | | | | | | | | | 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 fiscal year ended February 3, 2012 | | |
| | | | |
| | | |
| | Total net revenue | | $ | (186 | ) | | | | | Foreign exchange contracts | | $ | (126 | ) | | Total cost of net revenue | | (7 | ) | | | | | Interest rate contracts | | 3 |
| | Interest and other, net | | — |
| | Interest and other, net | | $ | 2 |
| Total | | $ | (123 | ) | | | | $ | (193 | ) | | | | $ | 2 |
| | | | | | | | | | | | For the fiscal year ended January 28, 2011 | | |
| | | | |
| | | |
| | Total net revenue | | $ | (105 | ) | | | | | Foreign exchange contracts | | $ | (265 | ) | | Total cost of net revenue | | (49 | ) | | | | | Interest rate contracts | | (1 | ) | | Interest and other, net | | — |
| | Interest and other, net | | $ | 2 |
| Total | | $ | (266 | ) | | | | $ | (154 | ) | | | | $ | 2 |
|
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Fair Value of Derivative Instruments in the Consolidated Statements of Financial Position Dell presents its foreign exchange derivative instruments on a net basis in the 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 for the periodas of each date indicated below is as follows: | | | | | | | | | | | | | | | | | | | January 29, 2010 | | | Other Current
| | Other Non-
| | Other Current
| | Total
| | | Assets | | Current Assets | | Liabilities | | Fair Value | | | | | (in millions) | | | Derivatives Designated as Hedging Instruments | Foreign exchange contracts in an asset position | | $ | 181 | | | $ | 5 | | | $ | - | | | $ | 186 | | Foreign exchange contracts in a liability position | | | (80 | ) | | | - | | | | (9 | ) | | | (89 | ) | Interest rate contracts in an asset position | | | - | | | | 1 | | | | - | | | | 1 | | | | | | | | | | | | | | | | | | | Net asset (liability) | | | 101 | | | | 6 | | | | (9 | ) | | | 98 | | | | | | | | | | | | | | | | | | | | Derivatives not Designated as Hedging Instruments | Foreign exchange contracts in an asset position | | | 63 | | | | - | | | | 2 | | | | 65 | | Foreign exchange contracts in a liability position | | | (74 | ) | | | - | | | | (5 | ) | | | (79 | ) | | | | | | | | | | | | | | | | | | Net asset (liability) | | | (11 | ) | | | - | | | | (3 | ) | | | (14 | ) | | | | | | | | | | | | | | | | | | Total derivatives at fair value | | $ | 90 | | | $ | 6 | | | $ | (12 | ) | | $ | 84 | | | | | | | | | | | | | | | | | | |
Dell has reviewed the existence and nature | | | | | | | | | | | | | | | | | | | | | | | | February��3, 2012 | | | 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 | | $ | 266 |
| | $ | — |
| | $ | 2 |
| | $ | — |
| | $ | 268 |
| Foreign exchange contracts in a liability position | | (140 | ) | | — |
| | (7 | ) | | — |
| | (147 | ) | Interest rate contracts in an asset position | | — |
| | 8 |
| | — |
| | — |
| | 8 |
| Interest rate contracts in a liability position | | — |
| | — |
| | — |
| | (3 | ) | | (3 | ) | Net asset (liability) | | 126 |
| | 8 |
| | (5 | ) | | (3 | ) | | 126 |
| Derivatives not Designated as Hedging Instruments | Foreign exchange contracts in an asset position | | 67 |
| | — |
| | 1 |
| | — |
| | 68 |
| Foreign exchange contracts in a liability position | | (61 | ) | | — |
| | (10 | ) | | — |
| | (71 | ) | Net asset (liability) | | 6 |
| | — |
| | (9 | ) | | — |
| | (3 | ) | Total derivatives at fair value | | $ | 132 |
| | $ | 8 |
| | $ | (14 | ) | | $ | (3 | ) | | $ | 123 |
| | | | | | | | | | | | | | January 28, 2011 | | | Other Current Assets | | Other Non- Current Assets | | Other Current Liabilities | | Other Non-Current Liabilities | | Total Fair Value | | | | | (in millions) | | | Derivatives Designated as Hedging Instruments | Foreign exchange contracts in an asset position | | $ | 81 |
| | $ | 1 |
| | $ | 34 |
| | $ | — |
| | $ | 116 |
| Foreign exchange contracts in a liability position | | (86 | ) | | — |
| | (59 | ) | | — |
| | (145 | ) | Interest rate contracts in a liability position | | — |
| | — |
| | — |
| | (2 | ) | | (2 | ) | Net asset (liability) | | (5 | ) | | 1 |
| | (25 | ) | | (2 | ) | | (31 | ) | Derivatives not Designated as Hedging Instruments | Foreign exchange contracts in an asset position | | 52 |
| | — |
| | 15 |
| | — |
| | 67 |
| Foreign exchange contracts in a liability position | | (21 | ) | | — |
| | (15 | ) | | — |
| | (36 | ) | Interest rate contracts in a liability position | | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) | Net asset (liability) | | 31 |
| | — |
| | — |
| | (1 | ) | | 30 |
| Total derivatives at fair value | | $ | 26 |
| | $ | 1 |
| | $ | (25 | ) | | $ | (3 | ) | | $ | (1 | ) |
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 7 — ACQUISITIONS Debt
Fiscal 2012 Acquisitions The following table summarizes Dell’s outstanding debt at:
| | | | | | | | | | | January 29,
| | January 30,
| | | 2010 | | 2009 | | | (in millions) | Long-Term Debt | | | | | | | | | | | | | | | | | | Notes: | | | | | | | | | | | | | | | | | | $400 million issued on June 10, 2009, at 3.375% due June 2012 (“2012 Notes”) with interest payable June 15 and December 15 (including $1 million hedge accounting adjustment) | | $ | 401 | | | $ | - | | | | | | | | | | | $600 million issued on April 17, 2008, at 4.70% due April 2013 (“2013 Notes”) with interest payable April 15 and October 15 | | | 599 | | | | 599 | | | | | | | | | | | $500 million issued on April 1, 2009, at 5.625% due April 2014 (“2014 Notes”) with interest payable April 15 and October 15 | | | 500 | | | | - | | | | | | | | | | | $500 million issued on April 17, 2008, at 5.65% due April 2018 (“2018 Notes”) with interest payable April 15 and October 15 | | | 499 | | | | 499 | | | | | | | | | | | $600 million issued on June 10, 2009, at 5.875% due June 2019 (“2019 Notes”) with interest payable June 15 and December 15 | | | 600 | | | | - | | | | | | | | | | | $400 million issued on April 17, 2008, at 6.50% due April 2038 (“2038 Notes”) with interest payable April 15 and October 15 | | | 400 | | | | 400 | | | | | | | | | | | Senior Debentures | | | | | | | | | | | | | | | | | | $300 million issued in April 1998 at 7.10% due April 2028 with interest payable April 15 and October 15 (includes the unamortized amount related to interest rate swap terminations) | | | 394 | | | | 400 | | | | | | | | | | | India Term Note | | | | | | | | | | | | | | | | | | Entered into on October 2009 at 8.9% due October 2011 with interest payable monthly | | | 24 | | | | - | | | | | | | | | | | | | | | | | | | | Total long-term debt | | | 3,417 | | | | 1,898 | | | | | | | | | | | | | | | | | | | | Short-Term Debt | | | | | | | | | | | | | | | | | | Commercial paper | | | 496 | | | | 100 | | | | | | | | | | | Structured financing debt | | | 164 | | | | - | | | | | | | | | | | Other | | | 3 | | | | 13 | | | | | | | | | | | | | | | | | | | | Total short-term debt | | | 663 | | | | 113 | | | | | | | | | | | | | | | | | | | | Total debt | | $ | 4,080 | | | $ | 2,011 | | | | | | | | | | |
Long-Term Debt
During Fiscal 2010,2012, Dell issued the 2012 Notes, 2014 Notes,completed several acquisitions, including acquisitions of Compellent Technologies, Inc. ("Compellent"), SecureWorks Inc. ("SecureWorks"), DFS Canada, and the 2019 Notes (collectively, the “Notes”Force10 Networks, Inc. ("Force10"). The net proceeds from the Notes, after payment of expenses, were approximately $1.5 billion. The estimated fair value of all the notes included in long-term debttotal purchase consideration was approximately $3.2$2.7 billion at January 29, 2010, compared to a carrying value of $3.0 billion at that date.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During Fiscal 2010, Dell entered into several interest rate swap agreements to effectively convert $200 million in cash for all of the Notes’ fixed rate tooutstanding shares for all acquisitions completed during the period. Compellent is a floating rate. The floating rates are based on six-month LIBOR plusprovider of virtual storage solutions for enterprise and cloud computing environments, and SecureWorks is a fixed rate. The interest rate swaps qualifiedglobal provider of information security services. Force10 is a global technology company that provides datacenter networking solutions. Compellent, SecureWorks, and Force10 will be integrated into Dell's Commercial segments. DFS Canada enables expansion of Dell's direct finance model into Canada for hedge accounting treatment as fair value hedges.
The principal amount of the Senior Debentures was $300 million at January 29, 2010. The estimated fair value of the Senior Debentures was approximately $333 million at January 29, 2010, compared to a carrying value of $394 million at that date. The carrying value includes an unamortized amount related to the termination of interest rate swap agreements in the fourth quarter of Fiscal 2009, which were previously designated as hedges of the debt.
Dell India Pvt Ltd., Dell’s wholly-owned subsidiary, borrowed $24 million under a two-year term note agreement during Fiscal 2010 for working capital needs. The term note contains customary events of default, including failure to make required payments, failure to comply with certain agreements or covenants, misrepresentation, change of ownership, and certain events of bankruptcy and insolvency.
The indentures governing the Notes and the Senior Debentures 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 also contain covenants limiting Dell’s ability to create certain liens; enter intosale-and-lease back transactions; and consolidate or merge with, or convey, transfer or lease all or substantially all of its assets to another person.
As of January 29, 2010, there were no events of default with respect to the Notes, the Senior Debentures, or the India term note.
Aggregate future maturities of long-term debt at face value (excluding a $97 million unamortized carrying value adjustment related to the termination of interest rate swap agreements, a $5 million discount on debt issuance, and a $1 million hedge accounting adjustment) were as follows at January 29, 2010:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Payments Due by Year | | | | | 2011 | | 2012 | | 2013 | | 2014 | | 2015 | | Thereafter | | Total | | | | | | | | | (in millions) | | | | | Aggregate future maturities of long-term debt outstanding | | $ | - | | | $ | 24 | | | $ | 400 | | | $ | 600 | | | $ | 500 | | | $ | 1,800 | | | $ | 3,324 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Short-Term Debt
Commercial Paper
Dell has a $1.5 billion commercial paper program with a supporting $1.5 billion senior unsecured revolving credit facility that allows it to obtain favorable short-term borrowing rates. Of the senior unsecured revolving credit facility, $500 million expires on April 2, 2010, and $1 billion expires on June 1, 2011. Dell intends to extend the credit facility expiring during Fiscal 2011. The credit facility requires compliance with conditions that must be satisfied prior to any borrowing, as well as ongoing compliance with specified affirmative and negative covenants, including maintenance of a minimum interest coverage ratio. Amounts outstanding under the facility may be accelerated for events of default, including failure to pay principal or interest, breaches of covenants, or non-payment of judgments or debt obligations. As of January 29, 2010, there were no events of default and Dell was in compliance with its minimum interest coverage ratio covenant.
At January 29, 2010, and January 30, 2009, there were $496 million and $100 million, respectively, outstanding under the commercial paper program. The weighted-average interest rate on these outstanding short-term borrowings was 0.24% and 0.19%, respectively. There were no outstanding advances under the related revolving credit facilities for the respective periods.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Structured Financing Debt
During the fourth quarter of Fiscal 2010, Dell borrowed $164 million in structured financing related debt through the revolving loan securitization program as discussed inDell's segments. See Note 4 of the Notes to Consolidated Financial Statements.Statements for further discussion on Dell's acquisition of DFS Canada.
Dell has recorded these acquisitions using the acquisition method of accounting and recorded their respective assets and liabilities at fair value at the date of acquisition. The debt is collateralized with $314 millionexcess of financing receivables transferred into the program. The debt has a variable interest rate and an average lifepurchase prices over the estimated fair values was recorded as goodwill. Any changes in the estimated fair values of 12 months based on the underlying financing receivables. The total debt capacitynet assets recorded for these acquisitions prior to the finalization of more detailed analyses, but not to exceed one year from the date of acquisition, will change the amount of the purchase prices allocable to goodwill. Any subsequent changes to any purchase price allocations that are material to Dell's consolidated financial results will be adjusted retroactively.
Dell recorded $1.5 billion in goodwill related to this programacquisitions during the fiscal year ended February 3, 2012. This amount primarily represents synergies associated with combining these companies with Dell to provide Dell's customers with a broader range of IT solutions or, in the case of DFS Canada, to extend Dell's financial services capabilities. This goodwill is $250 million.not deductible for tax purposes. Dell also recorded $753 million in intangible assets related to these acquisitions, which consist primarily of purchased technology and customer relationships. The intangible assets have weighted-average useful lives ranging from 3 to 11 years. In conjunction with these acquisitions, Dell will incur approximately $150 million in compensation-related expenses that will be expensed over a period of up to four years. There was no contingent consideration related to these acquisitions. NOTE 4 — FINANCIAL SERVICES
Dell Financial Services L.L.C.
Dell offershas not presented pro forma results of operations for Fiscal 2012 acquisitions because these acquisitions are not material to Dell's consolidated results of operations, financial position, or arranges various financing optionscash flows on either an individual or an aggregate basis.
Fiscal 2011 Acquisitions
Dell completed five acquisitions during Fiscal 2011, Kace Networks, Inc. (“KACE”), Ocarina Networks Inc. (“Ocarina”), Scalent Systems Inc. (“Scalent”), Boomi, Inc. (“Boomi”), and servicesInSite One, Inc. (“InSite”), for its businessa total purchase consideration of approximately $413 million in cash. KACE is a systems management appliance company with solutions tailored to the requirements of mid-sized businesses. KACE is being integrated primarily into Dell's SMB and consumer customersPublic segments. Ocarina is a provider of de-duplication solutions and content-aware compression across storage product lines. Scalent is a provider of scalable and efficient data center infrastructure software. Boomi is a provider of on-demand integration technology. Ocarina, Scalent, and Boomi will be integrated into all of Dell's Commercial segments. InSite provides cloud-based medical data archiving, storage, and disaster-recovery solutions to the health care industry. InSite will be integrated into Dell's Public segment.
Dell has recorded these acquisitions using the acquisition method of accounting and recorded their respective assets and liabilities at fair value at the date of acquisition. The excess of the purchase prices over the estimated fair values were recorded as goodwill. Any changes in the U.S. through Dell Financial Services L.L.C. (“DFS”), a wholly-owned subsidiaryestimated fair values of Dell. DFS’s key activities include the origination, collection, and servicingnet assets recorded for these acquisitions prior to the finalization of customer receivables relatedmore detailed analyses, but not to exceed one year from the date of acquisition, will change the amount of the purchase prices allocable to goodwill. Any subsequent changes to the purchase of Dell products. New financing originations, which represent the amounts of financing providedprice allocations that are material to customers for equipment and related software and services through DFS, were $3.7 billion, $4.5 billion, and $5.7 billion during the fiscal years ended January 29, 2010, January 30, 2009, and February 1, 2008, respectively. During Fiscal 2010, Dell continued to transfer certain customer financing receivables to special purpose entities. The special purpose entities are bankruptcy remote legal entities with separate assets and liabilities. The purpose of the special purpose entities is to facilitate the funding of customer receivables in the capital markets. These special purpose entities have entered into financing arrangements with multi-seller conduits that, in turn, issue asset-backed debt securities in the capital markets. Dell provides credit enhancement to the securitization in the form of over-collateralization. The special purpose entities may or may not beDell's consolidated based on the terms and conditions of the arrangement. At January 29, 2010, the special purpose entity that funds revolving loans was consolidated, and the two special purpose entities that fund fixed term leases and loans were not consolidated. However, Dell expects these nonconsolidated special purpose entitiesfinancial results will be consolidatedadjusted retroactively. Dell recorded approximately $284 million in goodwill and $141 million in intangible assets related to these acquisitions. The goodwill related to these acquisitions is not deductible for tax purposes. In conjunction with these acquisitions, Dell will incur $56 million in compensation-related expenses that will be expensed over a period of one to three years. There was no contingent consideration related to these acquisitions.
Dell has not presented pro forma results of operations for the first quarter of Fiscal 2011 as it adopts the new accounting guidance on variable interest entities and transfersacquisitions because these acquisitions are not material to Dell's consolidated results of operations, financial assets and extinguishment of financial liabilities. Dell’s securitization programs contain standard structural features related to the performance of the securitized receivables. These structural features include defined credit losses, delinquencies, average credit scores, and excess collections aboveposition, or below specified levels. In the event one or more of these criteria are met and Dell is unable to restructure the program, no further funding of receivables will be permitted and the timing of expected retained interest cash flows will be delayed, which would negatively impact the valuationon either an individual or an aggregate
Dell services securitized receivables and earn a servicing fee. Dell’s securitization transactions generally do not result in servicing assets and liabilities as the contractual fees are adequate compensation in relation to the associated servicing cost.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) basis. Financing Receivables
The following table summarizes the components of Dell’s financing receivables:
| | | | | | | | | | | January 29,
| | January 30,
| | | 2010 | | 2009 | | | (in millions) | Financing Receivables, net | | | | | | | | | Customer receivables | | | | | | | | | Revolving loans, gross | | $ | 2,046 | | | $ | 963 | | Fixed-term leases and loans | | | 824 | | | | 723 | | | | | | | | | | | Subtotal | | | 2,870 | | | | 1,686 | | Allowances for losses | | | (237 | ) | | | (149 | ) | | | | | | | | | | Customer receivables, net | | | 2,633 | | | | 1,537 | | Residual interest | | | 254 | | | | 279 | | Retained interest | | | 151 | | | | 396 | | | | | | | | | | | Financing receivables, net | | $ | 3,038 | | | $ | 2,212 | | | | | | | | | | | | | | | | | | | | Short-term | | $ | 2,706 | | | $ | 1,712 | | Long-term | | | 332 | | | | 500 | | | | | | | | | | | Financing receivables, net | | $ | 3,038 | | | $ | 2,212 | | | | | | | | | | |
Customer Receivables
The following is the description of the components of Dell’s customer receivables:
| | | | – | 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. Revolving loans 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 on average within 12 months. Revolving loans are included in short-term financing receivables in the table above. From time to time, account holders may have the opportunity to finance their Dell purchases with special programs during which, if the outstanding balance is paid in full by a specific date, no interest is charged. These special programs generally range from 3 to 12 months. At January 29, 2010, and January 30, 2009, receivables under these special programs were $442 million and $352 million, respectively. | | | – | Revolving loans includes customer receivables that were previously securitized and held by a nonconsolidated qualifying special purpose entity. In the second quarter of Fiscal 2010, the beneficial interest in the securitization conduit held by third parties fell below 10% and the special purpose entity was consolidated. Upon consolidation, these customer receivables were recorded at fair value and the associated retained interest was eliminated. The balance of these customer receivables was $435 million as of January 29, 2010. | | | – | Dell enters into sales-type lease arrangements with customers who desire lease financing. Leases with business customers have fixed terms of two to five years. Future maturities of minimum lease payments at January 29, 2010, for Dell are as follows: Fiscal 2011 — $303 million; Fiscal 2012 — $188 million; Fiscal 2013 — $76 million; and Fiscal 2014 — $4 million. Fixed-term loans are offered to qualified small businesses, large commercial accounts, governmental organizations, and educational entities. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Delinquency and charge-off statistics for customer receivables are:
| | | | – | As of January 29, 2010, and January 30, 2009, customer financing receivables 60 days or more delinquent were $127 million and $58 million, respectively. These amounts represent 4.4% and 3.7% of the ending gross customer financing receivables balance for the respective periods. | | | – | Net principal write-offs charged to the allowance for Fiscal 2010 and Fiscal 2009, were $130 million and $86 million, respectively. These amounts represent 6.2% and 5.5% of the average quarterly gross outstanding customer financing receivables balance (including accrued interest) for the respective periods. |
Residual Interest
Dell retains a residual interest in equipment leased under its fixed-term lease programs. The amount of the residual interest is established at the inception of the lease based upon estimates of the value of the equipment at the end of the lease term using historical studies, industry data, and futurevalue-at-risk demand valuation methods. On a quarterly basis, Dell assesses the carrying amount of its recorded residual values for impairment. Anticipated declines in specific future residual values that are considered to beother-than-temporary are recorded currently in earnings.
Retained Interest
Certain transfers of financial assets to nonconsolidated qualified special purpose entities are accounted for as a sale. Upon the sale of the customer receivables to nonconsolidated qualifying special purpose entities, Dell recognizes a gain on the sale and retains a residual beneficial interest in the pool of assets sold, referred to as retained interest. The retained interest represents Dell’s right to receive collections for assets securitized exceeding the amount required to pay interest, principal, and other fees and expenses.
Retained interest is stated at the present value of the estimated net beneficial cash flows after payment of all senior interests. Dell values the retained interest at the time of each receivable transfer and at the end of each reporting period. The fair value of the retained interest is determined using a discounted cash flow model with various key assumptions, including payment rates, credit losses, discount rates, and the remaining life of the receivables sold. These assumptions are supported by both Dell’s historical experience and anticipated trends relative to the particular receivable pool. The key valuation assumptions for retained interest can be affected by many factors, including repayment terms and the credit quality of receivables securitized.
The following table summarizes the activity in retained interest balances:
| | | | | | | | | | | | | | | Fiscal Year Ended | | | January 29,
| | January 30,
| | February 1,
| | | 2010 | | 2009 | | 2008 | | | (in millions) | Retained interest: | | | | | | | | | | | | | Retained interest at beginning of period | | $ | 396 | | | $ | 223 | | | $ | 159 | | Issuances | | | 322 | | | | 427 | | | | 173 | | Distributions from conduits | | | (91 | ) | | | (246 | ) | | | (132 | ) | Net accretion | | | 31 | | | | 16 | | | | 31 | | Change in fair value for the period | | | (5 | ) | | | (24 | ) | | | (8 | ) | Impact of special purpose entity consolidation | | | (502 | ) | | | - | | | | - | | | | | | | | | | | | | | | Retained interest at end of the period | | $ | 151 | | | $ | 396 | | | $ | 223 | | | | | | | | | | | | | | |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the key assumptions used to measure the fair value of the retained interest of the fixed term leases and loans at time of transfer within the period and at January 29, 2010, the balance sheet date:
| | | | | | | | | | | | | | | | | | | Weighted Average Key Assumptions | | | Monthly Payment
| | Credit
| | Discount
| | | | | Rates | | Losses | | Rates | | Life | | | | | (lifetime) | | (annualized) | | (months) | Time of transfer valuation of retained interest | | | 5% | | | | 1% | | | | 12% | | | | 20 | | Valuation of retained interest | | | 8% | | | | 3% | | | | 12% | | | | 14 | |
The impact of adverse changes to the key valuation assumptions to the fair value of retained interest at January 29, 2010 is shown in the following table:
| | | | | | | January 29, 2010 | | | (in millions) | Adverse Change of:
| | | | | Expected prepayment speed: 10% | | $ | (0.1 | ) | Expected prepayment speed: 20% | | $ | (0.2 | ) | | | | | | Expected credit losses: 10% | | $ | (1.1 | ) | Expected credit losses: 20% | | $ | (2.2 | ) | | | | | | Discount rate: 10% | | $ | (1.7 | ) | Discount rate: 20% | | $ | (3.4 | ) |
The analysis above utilized 10% and 20% adverse variation in assumptions to assess the sensitivities in the fair value of the retained interest. However, these changes generally cannot be extrapolated because the relationship between a change in one assumption to the resulting change in fair value may not be linear. For the above sensitivity analyses, each key assumption was isolated and evaluated separately. Each assumption was adjusted by 10% and 20% while holding the other key assumptions constant. Assumptions may be interrelated, and changes to one assumption may impact others and the resulting fair value of the retained interest. For example, increases in market interest rates may result in lower prepayments and increases in credit losses. The effect of multiple assumption changes were not considered in the analysis.
During Fiscal 2010 and Fiscal 2009, $784 million and $1.4 billion, respectively, of customer receivables were funded via securitization through nonconsolidated qualified special purpose entities. The principal balance of securitized receivables reported off-balance sheet as of January 29, 2010, and January 30, 2009, were $774 million and $1.4 billion, respectively. Dell’s risk of loss related to securitized receivables is limited to the amount of its retained interest.
Lease and loan receivables transferred to the nonconsolidated qualified special purpose entities exceed the level of debt issued. As of January 29, 2010, the nonconsolidated securitized receivables were $774 million, and the associated debt was $624 million. Upon consolidation of these customer receivables and associated debt in the first quarter of Fiscal 2011 as previously discussed, Dell’s retained interest in securitized receivables of $151 million at January 29, 2010, will be eliminated.
Delinquency and charge-off statistics for securitized receivables held by nonconsolidated qualified special purpose entities are:
| | | | – | As of January 29, 2010, and January 30, 2009, securitized financing receivables 60 days or more delinquent were $11 million and $63 million, respectively. These amounts represent 1.5% and 4.6% of the ending securitized financing receivables balances for the respective periods. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | – | Net principal chargeoffs for Fiscal 2010 and Fiscal 2009, were $72 million and $114 million, respectively. These amounts represent 6.9% and 8.2% of the average quarterly outstanding securitized financing receivables balance (including accrued interest) for the respective years. |
NOTE 5 — ACQUISITIONS
During Fiscal 2010, Dell adopted the new FASB guidance on business combinations and accounted for the Fiscal 2010 acquisition using the acquisition method of accounting. All acquisitions completed prior to Fiscal 2010 are recorded using the purchase method of accounting in accordance with previous FASB guidance. The results of operations of the acquired companies have been included in Dell’s consolidated results since the date of each acquisition. Dell allocates the purchase price of its acquisitions to the tangible assets, liabilities, and intangible assets acquired based on their estimated fair values. The excess of the purchase price over the fair value of the identified assets and liabilities has been recorded as goodwill. The fair value assigned to the assets acquired and liabilities assumed is based on valuations using management’s best estimates and assumptions. Dell does not expect the majority of goodwill related to these acquisitions to be deductible for tax purposes. In compliance with FASB guidance on goodwill and intangible assets, Dell defines its reporting units as its reportable business segments.
Fiscal 2010 Acquisitions
On November 3, 2009, Dell completed its acquisition of all the outstanding shares of the Class A common stock of Perot Systems, a worldwide provider of information technology and business solutions, for $3.9a purchase consideration of $3.9 billion in cash. This acquisition is expected to provide customers a broader range of IT services and solutions and better position Dell for its own immediate and long-term growth and efficiency. Perot Systems will bewas primarily integrated into the Large Enterprise and Public segments for reporting purposes. Perot Systems’ results of operations were included in Dell’sDell's results beginning November 3, 2009.
The following table summarizes the consideration paid for Perot Systems and the amounts of assets acquired and liabilities assumed recognized at the acquisition date: | | | | | | | Total | | | (in millions) | Cash and cash equivalents | | $ | 266 | | Accounts receivable, net | | | 410 | | Other assets | | | 58 | | Property, plant, and equipment | | | 323 | | Identifiable intangible assets | | | 1,174 | | Deferred tax liability, net(1)
| | | (424 | ) | Other liabilities | | | (256 | ) | | | | | | Total identifiable net assets | | | 1,551 | | Goodwill | | | 2,327 | | | | | | | Total purchase price | | $ | 3,878 | | | | | | |
| | | | | | Total | | (in millions) | Cash and cash equivalents | $ | 266 |
| Accounts receivable, net | 410 |
| Other assets | 58 |
| Property, plant, and equipment | 323 |
| Customer relationships and other intangible assets | 1,174 |
| Deferred tax liability, net(a) | (424 | ) | Other liabilities | (256 | ) | Total identifiable net assets | 1,551 |
| Goodwill | 2,327 |
| Total purchase price | $ | 3,878 |
|
_____________________ | | | (1) | (a) | The deferred tax liability, net primarily relates to purchased identifiable intangible assets and property, plant, and equipment and is shown net of associated deferred tax assets. |
Any change in the estimated fair value of the net assets, prior to the finalization of the more detailed analyses, but not to exceed one year from the date of acquisition, will change the amount of the purchase price allocable to goodwill. Any subsequent changes to the purchase price allocation that are material to Dell’s consolidated financial results will be adjusted retroactively. Dell is currently not aware of any significant potential changes to the preliminary purchase price allocation.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The goodwill of $2.3$2.3 billion represents the value that is expected from combining Perot Systems with Dell to provide customers with a broader range of IT services and solutions as well as optimizing how these solutions are delivered. The acquisition enableshas enabled Dell to supply even more Perot Systems customers with Dell products and extendsextended the reach of Perot Systems’Systems' capabilities to Dell customers around the world. Goodwill of $679$679 million $1,613, $1,613 million, and $35$35 million was assigned to the Large Enterprise, Public, and SMB segments, respectively.
Identifiable intangible assets include customer relationships, internally developed software, non-compete agreements, and trade names and other assets. These intangible assets are being amortized over their estimated useful lives based on the pattern of expected future economic benefit, which is generally on a non-straight-line basis based upon their expected future cash flows. The following table summarizes the cost of amortizable intangible assets related to the acquisition of Perot Systems:
| | | | | | | | | | | Estimated
| | Weighted-Average
| | | Cost | | Useful Life | | | (in millions) | | (years) | Customer relationships | | $ | 1,081 | | | | 11.0 | | Technology | | | 44 | | | | 3.0 | | Non-compete agreements | | | 39 | | | | 5.2 | | Tradenames | | | 10 | | | | 1.5 | | | | | | | | | | | Total amortizable intangible assets | | $ | 1,174 | | | | 10.4 | | | | | | | | | | |
Accounts receivable is comprised primarily of customer trade receivables. As such, the fair value of accounts receivable approximates its carrying value of $410 million. The gross amount due is $423 million, of which $13 million is expected to be uncollectible.
In conjunction with the acquisition, Dell incurred $93$93 million in cash compensation payments made to former Perot Systems employees who accepted positions with Dell related to the acceleration of Perot Systems unvested stock options and other cash compensation payments. These cash compensation payments were expensed as incurred and are recorded in selling,Selling, general, and administrative expenses in the Consolidated Statements of Income for Fiscal 2010. During Fiscal 2010, Dell incurred $116$116 million in acquisition-related costs for Perot Systems, during Fiscal 2010, including the payments above, and an additional $23$23 million in other acquisition-related costs such as bankers’bankers' fees, consulting fees, other employee-related charges, and integration costs. There werewas no contingent considerationsconsideration related to the acquisition. The amounts of revenue and earnings from Perot Systems included in the Dell’sUnaudited pro-forma results since November 3, 2009, were $613 million and $31 million, respectively. These earnings exclude the effects of amortization of intangible assets and acquisition-related expenses.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table provides unaudited pro forma results of operations for the fiscal yearsyear ended January 29, 2010 were pro-forma net sales of $54.7 billion, pro-forma net income of $1.4 billion, and January 30, 2009, as if Perot Systems had been acquired at the beginningpro-forma diluted earnings per share of each fiscal year. Due to the different fiscal period ends, the pro forma results for the years ended January 29, 2010, and January 30, 2009, are combined with the results of Perot Systems for the twelve months ended January 29, 2010, and December 31, 2008, respectively.$0.72. The pro forma results arewere adjusted for intercompany charges, but dodid not include any anticipated cost synergies or other effects of the planned integration of Perot Systems. Accordingly, suchthe pro forma results presented are not necessarily indicative of the results that actually would have occurred had the acquisition been completed on the dates indicated, nor are they indicative of the future operating results of the combined company.
| | | | | | | | | | | January 29,
| | January 30,
| | | 2010 | | 2009 | | | (in millions, unaudited) | Pro forma net sales | | $ | 54,739 | | | $ | 63,835 | | Pro forma net income | | $ | 1,422 | | | $ | 2,398 | | Pro forma earnings per common share — diluted | | $ | 0.72 | | | $ | 1.21 | |
Fiscal 2009 Acquisitions
Dell completed three acquisitions, of The Networked Storage Company, MessageOne, Inc. (“MessageOne”), and Allin Corporation (“Allin”), during Fiscal 2009 for approximately $197 million in cash. Dell recorded approximately $136 million of goodwill and approximately $64 million of purchased intangible assets related to these acquisitions. Dell also expensed approximately $2 million of in-process research and development (“IPR&D”) related to these acquisitions in Fiscal 2009. The largest of these transactions was the purchase of MessageOne for approximately $164 million in cash plus an additional $10 million to be used for management retention. MessageOne, Allin, and The Networked Storage Company have been integrated into Dell’s Commercial segments.
The acquisition of MessageOne was identified and acknowledged by Dell’s Board of Directors as a related party transaction because Michael Dell and his family held indirect ownership interests in MessageOne. Consequently, Dell’s Board of Directors directed management to implement a series of measures designed to ensure that the transaction was considered, analyzed, negotiated, and approved objectively and independent of any control or influence from the related parties.
Dell has not presented pro forma results of operations for the Fiscal 2009 acquisitions because these acquisitions are not material to Dell’s consolidated results of operations, financial position, or cash flows on either an individual or an aggregate basis.
Fiscal 2008 Acquisitions
During Fiscal 2008, Dell acquired EqualLogic Inc, ASAP Software Express, Inc, and three other smaller companies. The total purchase price for all these acquisitions was $2.3 billion, of which $1.5 billion was recorded as goodwill.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 68 — GOODWILL AND INTANGIBLE ASSETS Goodwill Goodwill
Goodwill allocated to Dell’sDell's business segments as of February 3, 2012, and January 29, 2010, and January 30, 2009,28, 2011, and changes in the carrying amount of goodwill for the respective periods, were as follows: | | | | | | | | | | | | | | | | | | | | | | | | Fiscal Year Ended | | | February 3, 2012 | | | Large Enterprise | | Public | | Small and Medium Business | | Consumer | | Total | | | (in millions) | Balance at beginning of period | | $ | 1,424 |
| | $ | 2,164 |
| | $ | 476 |
| | $ | 301 |
| | $ | 4,365 |
| Goodwill acquired during the period | | 800 |
| | 386 |
| | 287 |
| | 6 |
| | 1,479 |
| Adjustments | | (2 | ) | | (3 | ) | | (4 | ) | | 3 |
| | (6 | ) | Balance at end of period | | $ | 2,222 |
| | $ | 2,547 |
| | $ | 759 |
| | $ | 310 |
| | $ | 5,838 |
| | | | | | | | | | | | | | January 28, 2011 | | | Large Enterprise | | Public | | Small and Medium Business | | Consumer | | Total | | | (in millions) | Balance at beginning of period | | $ | 1,361 |
| | $ | 2,026 |
| | $ | 389 |
| | $ | 298 |
| | $ | 4,074 |
| Goodwill acquired during the period | | 62 |
| | 135 |
| | 87 |
| | — |
| | 284 |
| Adjustments | | 1 |
| | 3 |
| | — |
| | 3 |
| | 7 |
| Balance at end of period | | $ | 1,424 |
| | $ | 2,164 |
| | $ | 476 |
| | $ | 301 |
| | $ | 4,365 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | January 29,
| | January 30,
| | | Fiscal Year Ended | | 2010 | | 2009 | | | | | | | Small and
| | | | | | | | | Large
| | | | Medium
| | | | | | | | | Enterprise | | Public | | Business | | Consumer | | Total | | Total | | | (in millions) | Balance at beginning of period | | $ | 677 | | | $ | 411 | | | $ | 354 | | | $ | 295 | | | $ | 1,737 | | | $ | 1,648 | | Goodwill acquired during the period | | | 679 | | | | 1,613 | | | | 35 | | | | - | | | | 2,327 | | | | 136 | | Adjustments | | | 5 | | | | 2 | | | | - | | | | 3 | | | | 10 | | | | (47 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at end of period | | $ | 1,361 | | | $ | 2,026 | | | $ | 389 | | | $ | 298 | | | $ | 4,074 | | | $ | 1,737 | | | | | | | | | | | | | | | | | | | | | | | | | | |
Goodwill is tested annually during the second fiscal quarter and whenever events or circumstances indicate an impairment may have occurred. If the carrying amount of goodwill exceeds its fair value, estimated based on discounted cash flow analyses, an impairment charge would be recorded. Based on the results of the annual impairment tests, no impairment of goodwill existed at July 31, 2009, and for the fiscal year ended January 29, 2010.30, 2011. Further, no triggering events have transpired since July 31, 2009,30, 2011, that would indicate a potential impairment of goodwill as of January 29, 2010.February 3, 2012. Dell doesdid not have any accumulated goodwill impairment charges as of January 29, 2010. The goodwill adjustments are primarily the result of contingent purchase price considerations related to prior period acquisitions and the effects of foreign currency fluctuations.February 3, 2012. Intangible Assets Dell’sDell's intangible assets associated with completed acquisitions at February 3, 2012, and January 29, 2010 and January 30, 2009, are28, 2011, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | January 29, 2010 | | January 30, 2009 | | | | | Accumulated
| | | | | | Accumulated
| | | | | Gross | | Amortization | | Net | | Gross | | Amortization | | Net | | | (in millions) | Customer relationships | | $ | 1,324 | | | $ | (117 | ) | | $ | 1,207 | | | $ | 243 | | | $ | (38 | ) | | $ | 205 | | Technology | | | 568 | | | | (196 | ) | | | 372 | | | | 524 | | | | (82 | ) | | | 442 | | Non-compete agreements | | | 64 | | | | (8 | ) | | | 56 | | | | 26 | | | | (6 | ) | | | 20 | | Tradenames | | | 51 | | | | (17 | ) | | | 34 | | | | 41 | | | | (9 | ) | | | 32 | | | | | | | | | | | | | | | | | | | | | | | | | | | Amortizable intangible assets | | | 2,007 | | | | (338 | ) | | | 1,669 | | | | 834 | | | | (135 | ) | | | 699 | | Indefinite lived intangible assets | | | 25 | | | | - | | | | 25 | | | | 25 | | | | - | | | | 25 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total intangible assets | | $ | 2,032 | | | $ | (338 | ) | | $ | 1,694 | | | $ | 859 | | | $ | (135 | ) | | $ | 724 | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | February 3, 2012 | | January 28, 2011 | | | Gross | | Accumulated Amortization | | Net | | Gross | | Accumulated Amortization | | Net | | | (in millions) | Customer relationships | | $ | 1,569 |
| | $ | (506 | ) | | $ | 1,063 |
| | $ | 1,363 |
| | $ | (309 | ) | | $ | 1,054 |
| Technology | | 1,156 |
| | (490 | ) | | 666 |
| | 647 |
| | (322 | ) | | 325 |
| Non-compete agreements | | 70 |
| | (42 | ) | | 28 |
| | 68 |
| | (26 | ) | | 42 |
| Tradenames | | 81 |
| | (41 | ) | | 40 |
| | 54 |
| | (31 | ) | | 23 |
| Amortizable intangible assets | | 2,876 |
| | (1,079 | ) | | 1,797 |
| | 2,132 |
| | (688 | ) | | 1,444 |
| In-process research and development | | 34 |
| | — |
| | 34 |
| | 26 |
| | — |
| | 26 |
| Indefinite lived intangible assets | | 26 |
| | — |
| | 26 |
| | 25 |
| | — |
| | 25 |
| Total intangible assets | | $ | 2,936 |
| | $ | (1,079 | ) | | $ | 1,857 |
| | $ | 2,183 |
| | $ | (688 | ) | | $ | 1,495 |
|
During Fiscal 20102012 and Fiscal 2009,2011, Dell recorded additions to intangible assets of $1.2 billion$715 million and $64$126 million respectively. The $1.2 billion in, respectively, and additions to intangible assets inin-process research and development of $38 million and $26 million, respectively. These additions were
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) primarily related to Dell's Fiscal 2010 all relates to the acquisition of Perot Systems. See Note 5 of Notes to Consolidated Financial Statements for additional information on the acquisition of Perot Systems. 2012 and Fiscal 2011 business acquisitions. Amortization expense related to finite-lived intangible assets was approximately $205$391 million and $103$350 million in Fiscal 20102012 and in Fiscal 2009,2011, respectively. DuringThere were no material impairment charges related to intangible assets for the fiscal years ended February 3, 2012, and January 29, 2010, and January 30, 2009, Dell did not record any impairment charges as a result of its analysis of its intangible assets.
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28, 2011. DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Estimated future annual pre-tax amortization expense of finite-lived intangible assets as of January 29, 2010,February 3, 2012, over the next five fiscal years and thereafter is as follows: | | | | | | | | | Fiscal Years | | (in millions) | (in millions) | 2011 | | $ | 337 | | | 2012 | | | 287 | | | 2013 | | | 246 | | $ | 388 |
| 2014 | | | 208 | | 370 |
| 2015 | | | 135 | | 275 |
| 2016 | | 227 |
| 2017 | | 189 |
| Thereafter | | | 456 | | 348 |
| | | | | Total | | $ | 1,669 | | $ | 1,797 |
| | | | |
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 79 — 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 accruedAccrued and other current liabilities and otherOther non-current liabilities on Dell’sthe 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 services revenue on Dell’sthe Consolidated Statements of Financial Position. Changes in Dell’sDell's liabilities for standard limited warranties and deferred services revenue related to extended warranties are presented in the following tables:tables for the periods indicated: | | | | | | | | | | | | | | | | Fiscal Year Ended | | | | | | | | | | January 29,
| | January 30,
| | February 1,
| | Fiscal Year Ended | | | 2010 | | 2009 | | 2008 | | February 3, 2012 | | January 28, 2011 | | January 29, 2010 | | | (in millions) | | (in millions) | Warranty liability: | | | | | | | | | | | | | | |
| | |
| | |
| Warranty liability at beginning of period | | $ | 1,035 | | | $ | 929 | | | $ | 958 | | | $ | 895 |
| | $ | 912 |
| | $ | 1,035 |
| Costs accrued for new warranty contracts and changes in estimates for pre-existing warranties(a)(b) | | | 987 | | | | 1,180 | | | | 1,176 | | | 1,025 |
| | 1,046 |
| | 987 |
| Service obligations honored | | | (1,110 | ) | | | (1,074 | ) | | | (1,205 | ) | | (1,032 | ) | | (1,063 | ) | | (1,110 | ) | | | | | | | | | Warranty liability at end of period | | $ | 912 | | | $ | 1,035 | | | $ | 929 | | | $ | 888 |
| | $ | 895 |
| | $ | 912 |
| | | | | | | | | | | | Current portion | | $ | 593 | | | $ | 721 | | | $ | 690 | | | $ | 572 |
| | $ | 575 |
| | $ | 593 |
| Non-current portion | | | 319 | | | | 314 | | | | 239 | | | 316 |
| | 320 |
| | 319 |
| | | | | | | | | Warranty liability at end of period | | $ | 912 | | | $ | 1,035 | | | $ | 929 | | | $ | 888 |
| | $ | 895 |
| | $ | 912 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Fiscal Year Ended | | | | | | | | | January 29,
| | January 30,
| | February 1,
| | Fiscal Year Ended | | | 2010 | | 2009 | | 2008 | | February 3, 2012 | | January 28, 2011 | | January 29, 2010 | | | (in millions) | | (in millions) | Deferred extended warranty revenue: | | | | | | | | | | | | | | |
| | |
| | |
| Deferred extended warranty revenue at beginning of period | | $ | 5,587 | | | $ | 5,233 | | | $ | 4,194 | | | $ | 6,416 |
| | $ | 5,910 |
| | $ | 5,587 |
| Revenue deferred for new extended warranties(b) | | | 3,481 | | | | 3,470 | | | | 3,806 | | | 4,301 |
| | 3,877 |
| | 3,481 |
| Revenue recognized | | | (3,158 | ) | | | (3,116 | ) | | | (2,767 | ) | | (3,715 | ) | | (3,371 | ) | | (3,158 | ) | | | | | | | | | Deferred extended warranty revenue at end of period | | $ | 5,910 | | | $ | 5,587 | | | $ | 5,233 | | | $ | 7,002 |
| | $ | 6,416 |
| | $ | 5,910 |
| | | | | | | | | | | | Current portion | | $ | 2,906 | | | $ | 2,601 | | | $ | 2,459 | | | $ | 3,265 |
| | $ | 2,959 |
| | $ | 2,906 |
| Non-current portion | | | 3,004 | | | | 2,986 | | | | 2,774 | | | 3,737 |
| | 3,457 |
| | 3,004 |
| | | | | | | | | Deferred extended warranty revenue at end of period | | $ | 5,910 | | | $ | 5,587 | | | $ | 5,233 | | | $ | 7,002 |
| | $ | 6,416 |
| | $ | 5,910 |
| | | | | | | | |
____________________ | | | (a) | | Changes in cost estimates related to pre-existing warranties are aggregated with accruals for new standard warranty contracts. Dell’sDell'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. |
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DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 8 — SEVERANCE AND FACILITY ACTIONS During Fiscal 2010 and Fiscal 2009, Dell completed a series of individual cost reduction and facility exit activities designed to enhance operating efficiency and to reduce costs. Through these actions, Dell has reduced its headcount and has consolidated, closed and executed sales agreements related to selected facilities. These have included manufacturing, logistics, and call center operations in locations such as Winston-Salem, North Carolina, Limerick, Ireland, and Lodz, Poland. As of January 29, 2010, and January 30, 2009, the accrual related to these various cost reductions and efficiency actions was $105 and $98 million, respectively, and is included in accrued and other liabilities in the Consolidated Statements of Financial Position.
The following table sets forth the activity related to Dell’s severance and facility actions liability:
| | | | | | | | | | | | | | | Severance
| | Facility
| | | | | Costs | | Actions | | Total | | | (in millions) | Balance as of February 1, 2008 | | $ | 23 | | | $ | 12 | | | $ | 35 | | Severance and facility charges to provision | | | 235 | | | | 2 | | | | 237 | | Cash paid | | | (159 | ) | | | (3 | ) | | | (162 | ) | Other adjustments(a) | | | (11 | ) | | | (1 | ) | | | (12 | ) | | | | | | | | | | | | | | Balance as of January 30, 2009 | | | 88 | | | | 10 | | | | 98 | | Severance and facility charges to provision | | | 281 | | | | 55 | | | | 336 | | Cash paid | | | (296 | ) | | | (37 | ) | | | (333 | ) | Other adjustments(a) | | | 5 | | | | (1 | ) | | | 4 | | | | | | | | | | | | | | | Balance as of January 29, 2010 | | $ | 78 | | | $ | 27 | | | $ | 105 | | | | | | | | | | | | | | |
| | | (a) | | Other adjustments relate primarily to foreign currency translation adjustments. |
Severance and facility action charges of $481 million and $282 million for Fiscal 2010 and 2009, respectively, are composed of the following:
| | | | | | | | | | | Fiscal Year Ended | | | January 29,
| | January 30,
| | | 2010 | | 2009 | | | (in millions) | Severance and facility actions | | $ | 336 | | | $ | 237 | | Accelerated depreciation and other facility charges | | | 145 | | | | 45 | | | | | | | | | | | Total severance and facility action costs | | $ | 481 | | | $ | 282 | | | | | | | | | | |
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DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Severance and facility action charges are included in cost of net revenue, selling, general and administrative expenses, and research, development, and engineering in the consolidated statement of income as follows:
| | | | | | | | | | | Fiscal Year Ended | | | January 29,
| | January 30,
| | | 2010 | | 2009 | | | (in millions) | Severance and facility action costs: | | | | | | | | | Cost of revenue | | $ | 237 | | | $ | 146 | | Selling, general, and administrative | | | 237 | | | | 136 | | Research, development, and engineering | | | 7 | | | | - | | | | | | | | | | | Total | | $ | 481 | | | $ | 282 | | | | | | | | | | |
NOTE 910 — COMMITMENTS AND CONTINGENCIES
Lease Commitments — Dell leasesleases property and equipment, manufacturing facilities, and office space under non-cancelable leases. Certain of these leases obligate Dell to pay taxes, maintenance, and repair costs. At January 29, 2010,February 3, 2012, future minimum lease payments under these non-cancelable leases are as follows: $112$107 million in Fiscal 2011; $95 million in Fiscal 2012; $60 million in Fiscal 2013; $46$86 million in Fiscal 2014; $37$79 million in Fiscal 2015; $58 million in Fiscal 2016; $50 million in Fiscal 2017; and $90$85 million thereafter. Rent expense under all leases totaled $93$107 million $116, $87 million, and $118$93 million for Fiscal 2010, 2009,2012, Fiscal 2011, and 2008,Fiscal 2010, respectively. Purchase Obligations — Dell has contractual obligations to purchase goods or services, which specify significant terms, including fixed or minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the transaction. As at January 29, 2010,of February 3, 2012, Dell has $313had $2,865 million $46, $15 million, and $24$16 million in purchasepurchase obligations for Fiscal 2011, 2012,2013, Fiscal 2014, and 2013,Fiscal 2015, and thereafter, respectively.
Restricted Cash — Pursuant to an agreement between DFS and CIT, Dell is required to maintain escrow cash accounts that are held as recourse reserves for credit losses, performance fee deposits related to Dell’s private label credit card, and deferred servicing revenue. Restricted cash in the amount of $147 million and $213 million is included in other current assets on Dell’s Consolidated Statements of Financial Position at January 29, 2010, and January 30, 2009, respectively.
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. While Dell does not expect that the ultimate outcomes in these proceedings, individually or collectively, will have a material adverse effect on its business, financial position, results of operations, or cash flows, the results and timing of the ultimate resolutions of these various proceedings are inherently unpredictable. Whether the outcome of any claim, suit, assessment, investigation, or legal proceeding, individually or collectively, could have a material effect on Dell’s business, financial condition, results of operations, or cash flows, will depend on a number of variables, including the nature, timing, and amount of any associated expenses, amounts paid in settlement, damages or other remedies or consequences. 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’sDell's views on the probable outcomes of claims, suits, assessments, investigations, or legal proceedings change, changes in Dell’sDell's accrued liabilities would be recorded in the period in which such determination is made.
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DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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’sDell's significant on-going legal matters and other proceedings:proceedings pending at February 3, 2012: Investigations and Related
Securities Litigation — In August 2005, the SEC initiated an inquiry into certain of Dell’s accounting and financial reporting matters and requested that Dell provide certain documents. The SEC expanded that inquiry in JuneFour putative securities class actions filed between September 13, 2006, and entered a formal order of investigation in October 2006. In August 2006, because of potential issues identifiedJanuary 31, 2007, in the courseU.S. District Court for the Western District of responding to the SEC’s requests for information, Dell’s Audit Committee, on the recommendation of management and in consultation with PricewaterhouseCoopers LLP, Dell’s independent registered public accounting firm, initiated an independent investigation, which was completed in the third quarter of Fiscal 2008. Although the Audit Committee investigation has been completed, the SEC investigation is ongoing. Dell continues to cooperate with the SEC investigation.Texas, Austin Division, against Dell and the SEC staff have had preliminary discussions about a potential settlement of the matter. Thus far, an agreement has not been reached. Dell believes that any resolution would likely include monetary penalties, which cannot be quantified at this time, and other relief within the SEC’s authority. Discussions with the SEC staff are ongoing, and no assurance can be given as to the ultimate outcome of this matter, including the terms and conditions of any settlement. Dell and severalcertain of its current and former directors and officers were namedconsolidated as In re Dell Securities Litigation, and a lead plaintiff was appointed by the court. The lead plaintiff asserted claims under Sections 10(b), 20(a), and 20A of the Securities Exchange Act of 1934 based on alleged false and misleading disclosures or omissions regarding Dell's financial statements, governmental investigations, internal controls, known battery problems and business model, and based on insiders' sales of Dell securities. This action also included Dell's independent registered public accounting firm, PricewaterhouseCoopers LLP, as a defendant. On October 6, 2008, the court dismissed all of the plaintiff's claims with prejudice and without leave to amend. On November 3, 2008, the plaintiff appealed the dismissal of Dell and the officer defendants to the Fifth Circuit Court of Appeals. The appeal was fully briefed, and oral argument on the appeal was heard by the Fifth Circuit Court of Appeals on September 1, 2009. On November 20, 2009, the parties to the following outstanding securitiesappeal entered into a written settlement agreement whereby Dell would pay $40 million to the proposed class and shareholder derivative lawsuits all arising outthe plaintiff would dismiss the pending litigation. The settlement was preliminarily approved by the District Court on December 21, 2009. The settlement was subject to certain conditions, including opt-outs from the proposed class not exceeding a specified percentage and final approval by the District Court. During the first quarter of Fiscal 2011, the original opt-out period in the notice approved by the District Court expired without the specified percentage being exceeded. The District Court subsequently granted final approval for the settlement and entered a final judgment on July 20, 2010. Dell paid $40 million into an escrow account to satisfy this settlement and discharged the liability during the second quarter of Fiscal 2011. Certain objectors to the settlement filed notices of appeal to the Fifth Circuit Court of Appeals with regard to approval of the same eventssettlement. On February 7, 2012, the Fifth Circuit Court of Appeals affirmed the District Court's approval of the settlement.
Copyright Levies — Dell's obligation to collect and facts.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
| | | | — | Four putative securities class actions filed between September 13, 2006, and January 31, 2007, in the Western District of Texas, Austin Division, against Dell and certain of its current and former officers were consolidated as In re Dell Securities Litigation, and a lead plaintiff was appointed by the court. The lead plaintiff asserted claims under sections 10(b), 20(a), and 20A of the Securities Exchange Act of 1934 based on alleged false and misleading disclosures or omissions regarding Dell’s financial statements, governmental investigations, internal controls, known battery problems and business model, and based on insiders’ sales of Dell securities. This action also included Dell’s independent registered public accounting firm, PricewaterhouseCoopers LLP, as a defendant. On October 6, 2008, the court dismissed all of the plaintiff’s claims with prejudice and without leave to amend. On November 3, 2008, the plaintiff appealed the dismissal of Dell and the officer defendants to the Fifth Circuit Court of Appeals. The appeal was fully briefed, and oral argument on the appeal was heard by the Fifth Circuit Court of Appeals on September 1, 2009. On November 20, 2009, the parties to the appeal entered into a written settlement agreement whereby Dell would pay $40 million to the proposed class and the plaintiff would dismiss the pending litigation. The settlement was preliminarily approved by the district court on December 21, 2009. The settlement is subject to certain conditions, including opt-outs from the proposed class not exceeding a specified percentage and final approval by the district court. Until these conditions to the settlement have been satisfied, there can be no assurance that the settlement will become final. If the settlement does not become final, Dell will continue its defense of the appeal before the Fifth Circuit. Therefore, as of January 29, 2010, Dell has not accrued a liability for these class actions. | | | — | In addition, seven shareholder derivative lawsuits filed between September 29, 2006, and January 22, 2007, in three separate jurisdictions were consolidated as In re Dell Derivative Litigation into three actions. One of those consolidated actions was pending in the Western District of Texas, Austin Division, but was dismissed without prejudice by an order filed October 9, 2007. The second consolidated shareholder derivative action was pending in Delaware Chancery Court. On October 16, 2008, the Delaware court granted the parties’ stipulation to dismiss all of the plaintiffs’ claims in the Delaware lawsuit without prejudice. The third consolidated shareholder derivative action was pending in state district court in Williamson County, Texas. These shareholder derivative lawsuits named various current and former officers and directors as defendants and Dell as a nominal defendant and asserted various claims derivatively on behalf of Dell under state law, including breaches of fiduciary duties. On September 11, 2009, Dell entered into an agreement to settle the derivative suit pending in |
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DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) | | | | | state district court in Williamson County, Texas, and the previously reported shareholder demand letter dated November 12, 2008, asserting allegations similar to those made in these lawsuits. The settlement received final approval by the court on December 15, 2009. The settlement required Dell to initiate and maintain certain corporate governance changes and provided for the payment of approximately $1.75 million in fees to the plaintiffs’ counsel. |
Copyright Levies — Rights holdersEU 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 Europe seek to imposecertain EU countries where it has determined that based on local laws it is probable that Dell has a payment obligation. The amount of levies on information technology equipment such as personal computers and multifunction devices that facilitate making private copies of copyrighted materials. The total levies due, if imposed, would beis generally based on the number of products sold and the per-product amounts of the levies, which vary by productvary. In all other matters, Dell does not believe there is a probable and country.estimable claim. As such, Dell along with other companies and various industry associations, is opposing unreasonable levies and advocating compensation to rights holders through digital rights management systems.has not accrued any liability nor collected any levies.
On December 29, 2005, Zentralstelle Für private Überspielungrechte (“ZPÜ”), a joint association of various German collectioncollecting societies, instituted arbitration proceedings against Dell’sDell's German subsidiary before the Board of Arbitration Bodyat the German Patent and Trademark Office in Munich. ZPÜ claims an audio-video levy of €18.42 per PC that Dell sold in Germany from January 1, 2002, through December 31, 2005. On July 31, 2007, the Arbitration Body recommended a levy of €15 on each PC sold during that period for audioMunich, and visual copying capabilities. Dell and ZPÜ rejected the recommendation, and on February 21, 2008, ZPÜsubsequently filed a lawsuit in the German Regional Court in Munich with respect toon 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 providing for payment of(with levies in the amount of €3.15 for calendar years 2002 and 2003, and €6.30 for calendar years 2004 through 2007, and €12.15 (for units excluding a burner) and €13.65 (units including a burner) for calendar years 2008 through 2010.ranging from €3.15 to €13.65 per unit). Dell joined this settlement on February 23, 2010. Dell believes that it2010 and has accruedpaid the amounts sufficient to cover payment of levies following accession to thisdue 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’sDell'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, 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. 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 remains 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. Chad Brazil and Steven Seick v Dell Inc. — Chad Brazil and Steven Seick filed a class action suit against Dell in March 2007 in the U.S. District Court for the Northern District of California. The plaintiffs allege that Dell advertised discounts on its products from false “regular” prices, in violation of California law. The plaintiffs seek compensatory damages, disgorgement of profits from the alleged false advertising, injunctive relief, punitive damages and attorneys' fees. In December 2010, the District Court certified a class consisting of all California residents who had purchased certain products advertised with a former sales price on the consumer segment of Dell's website during an approximately four year period between March 2003 and June 2007. During the first quarter of Fiscal 2012, the plaintiffs and Dell reached a class-wide settlement in principle regarding the dispute on terms that are not material to Dell, and on October 28, 2011 the District Court granted final approval of the settlement. Since the final approval, an objector to the settlement has filed a notice of appeal to the Ninth Circuit Court of Appeals with regard to approval of the settlement. While there can be no assurances with respect to litigation, Dell believes it is unlikely that the settlement will be overturned on appeal.
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 Eastern District of Texas, Marshall Division, alleging that the defendants infringe 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
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 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 but moredefendant. 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 February 3, 2012, 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 may have 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 variables, including the nature, timing, and amount of any associated expenses, amounts paid in settlement, damages or other remedies or consequences.
Certain Concentrations — TheDell's counterparties to theits financial instruments consist of a number of major financial institutions ratedwith credit ratings of AA and A.A by major credit rating agencies. In addition to limiting the amount of agreements and contracts it enters into with any one party, Dell monitors its positions with, and the credit quality of the counterparties to, these financial instruments. Dell does not anticipate nonperformance by any of the counterparties. Dell’sDell's investments in debt securities are in high quality financial institutions and companies. As part of its cash and risk management processes, Dell performs periodic evaluations of the credit standing of the institutions in accordance with its investment policy. Dell’sDell's investments in debt securities have effectivestated maturities of less than fiveup to three years. Management believes that no significant concentration of credit risk for investments exists for Dell.
As of January 29, 2010,February 3, 2012, Dell doesdid not have significant concentrations of cash and cash equivalent deposits with its financial institutions. Dell markets and sells its products and services to large corporate clients, governments, healthcareand health care and education accounts, as well as to small and medium-sized businesses and individuals. No single customer accounted for more than 10% of Dell’sDell's consolidated net revenue during Fiscal 2012, Fiscal 2011, or Fiscal 2010 2009, and 2008. . Dell purchases a number of components from single or limited sources. In some cases, alternative sources of supply are not available. In other cases, Dell may establish a working relationship with a single source or a limited number of sources if Dell believes it is advantageous to do so based on performance, quality, support, delivery, capacity, or price considerations. Dell also sells components to certain contract manufacturers who assemble final products for Dell. Dell does not recognize the sale of these components in net sales and does not recognize the related profits until the final products are sold by Dell to end users. Profits from the sale of these parts are recognized as a reduction of cost of sales at the time of sale. Dell has net settlement agreements with the majority of these contract manufacturers that allow Dell to offset the accounts payable to the contract manufacturers from the amounts receivable from them. Gross non-trade receivables as of February 3, 2012, and January 28, 2011 were $3.0 billion and $2.7 billion, respectively, and four contract manufacturers account for the majority of these receivables. Dell has net settlement agreements with these four contract manufacturers and as of February 3, 2012, and January 28, 2011, the payables to these four contract manufacturers exceeded the receivables due from them; therefore, the non-trade receivable amounts due from these manufacturers are offset against the corresponding accounts payable to those manufacturers in the accompanying Consolidated Statements of Financial Position.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1011 — INCOME AND OTHER TAXES Income before income taxes included approximately $1.8 billion, $2.7 billion, and $3.3 billion related to foreign operations in Fiscal 2010, 2009, and 2008, respectively.
The provision for income taxes consistedconsists of the following: | | | | | | | | | | | | | | | | Fiscal Year Ended | | | | | | | | | | January 29,
| | January 30,
| | February 1,
| | Fiscal Year Ended | | | 2010 | | 2009 | | 2008 | | February 3, 2012 | | January 28, 2011 | | January 29, 2010 | | | (in millions) | | (in millions) | Current: | | | | | | | | | | | | | | |
| | |
| | |
| Domestic | | $ | 527 | | | $ | 465 | | | $ | 901 | | | Federal | | | $ | 375 |
| | $ | 597 |
| | $ | 491 |
| State/Local | | | 81 |
| | 66 |
| | 36 |
| Foreign | | | 116 | | | | 295 | | | | 287 | | | 273 |
| | 97 |
| | 116 |
| | | | | | | | | Current | | | 643 | | | | 760 | | | | 1,188 | | | 729 |
| | 760 |
| | 643 |
| | | | | | | | | Deferred: | | | | | | | | | | | | | | |
| | |
| | |
| Domestic | | | (12 | ) | | | 15 | | | | (230 | ) | | Federal | | | 62 |
| | (95 | ) | | (21 | ) | State/Local | | | (12 | ) | | 9 |
| | 9 |
| Foreign | | | (40 | ) | | | 71 | | | | (78 | ) | | (31 | ) | | 41 |
| | (40 | ) | | | | | | | | | Deferred | | | (52 | ) | | | 86 | | | | (308 | ) | | 19 |
| | (45 | ) | | (52 | ) | | | | | | | | | Provision for income taxes | | $ | 591 | | | $ | 846 | | | $ | 880 | | | $ | 748 |
| | $ | 715 |
| | $ | 591 |
| | | | | | | | |
Income before provision for income taxes consists of the following: | | | | | | | | | | | | | | Fiscal Year Ended | | February 3, 2012 | | January 28, 2011 | | January 29, 2010 | | (in millions) | Domestic | $ | 365 |
| | $ | 532 |
| | $ | 182 |
| Foreign | 3,875 |
| | 2,818 |
| | 1,842 |
| Income before income taxes | $ | 4,240 |
| | $ | 3,350 |
| | $ | 2,024 |
|
Deferred tax assets and liabilities are recorded for the estimated tax impact of temporary differences between the tax and book basis of assets and liabilities, and are recognized based on the enacted statutory tax rates for the year in which Dell expects the differences to reverse. A valuation allowance is established against a deferred tax asset when it is more likely than not that the asset or any portion thereof will not be realized. Based upon all the available evidence, including expectation of future taxable income, Dell has provided a valuation allowance of $41$44 million and $31$48 million for for Fiscal 20102012 and 2009,Fiscal 2011, respectively, related to state income tax credit carryforwards,carryforwards. Dell has provided a valuation allowance of$29 million and $22$20 million related to net operating losses for Fiscal 2010. 2012 and Fiscal 2011, respectively. No valuation allowance has been provided against other deferred tax assets for Fiscal 2012, compared to a $4 million valuation allowance provided against other deferred tax assets for Fiscal 2011. Dell has determined that it will be able to realize the remainder of its deferred tax assets.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The components of Dell’sDell's net deferred tax assetassets are as follows: | | | | | | | | | | | | January 29,
| | January 30,
| | | | | | | | 2010 | | 2009 | | February 3, 2012 | | January 28, 2011 | | | (in millions) | | (in millions) | Deferred tax assets: | | | | | | | | | | |
| | |
| Deferred revenue | | $ | 610 | | | $ | 633 | | | $ | 486 |
| | $ | 369 |
| Inventory and warranty provisions | | | 13 | | | | 36 | | | Warranty provisions | | | 226 |
| | 214 |
| Provisions for product returns and doubtful accounts | | | 60 | | | | 53 | | | 85 |
| | 77 |
| Leasing and financing | | | 191 | | | | 242 | | | Credit carryforwards | | | 51 | | | | 47 | | | 61 |
| | 54 |
| Loss carryforwards | | | 173 | | | | 88 | | | 271 |
| | 268 |
| Stock-based and deferred compensation | | | 225 | | | | 233 | | | 183 |
| | 203 |
| Operating accruals | | | 25 | | | | 33 | | | Compensation related accruals | | | 25 | | | | 48 | | | Operating and compensation related accruals | | | 140 |
| | 135 |
| Capitalized intangible assets | | | 51 |
| | 55 |
| Other | | | 56 | | | | 85 | | | 97 |
| | 98 |
| | | | | | | Deferred tax assets | | | 1,429 | | | | 1,498 | | | 1,600 |
| | 1,473 |
| Valuation allowance | | | (63 | ) | | | (31 | ) | | (73 | ) | | (72 | ) | | | | | | | Deferred tax assets, net of valuation allowance | | | 1,366 | | | | 1,467 | | | 1,527 |
| | 1,401 |
| | | | | | | Deferred tax liabilities: | | | | | | | | | | |
| | |
| Leasing and financing | | | (220 | ) | | (49 | ) | Property and equipment | | | (142 | ) | | | (160 | ) | | (136 | ) | | (144 | ) | Acquired intangibles | | | (478 | ) | | | (167 | ) | | (667 | ) | | (511 | ) | Unrealized gains | | | - | | | | (14 | ) | | Other | | | (65 | ) | | | (59 | ) | | (59 | ) | | (64 | ) | | | | | | | Deferred tax liabilities | | | (685 | ) | | | (400 | ) | | (1,082 | ) | | (768 | ) | | | | | | | Net deferred tax asset | | $ | 681 | | | $ | 1,067 | | | | | | | | | | | | Current portion (included in other current assets) | | $ | 444 | | | $ | 499 | | | Non-current portion (included in other non-current assets) | | | 237 | | | | 568 | | | | | | | | | Net deferred tax asset | | $ | 681 | | | $ | 1,067 | | | | | | | | | Net deferred tax assets | | | $ | 445 |
| | $ | 633 |
| Current portion | | | $ | 682 |
| | $ | 558 |
| Non-current portion | | | (237 | ) | | 75 |
| Net deferred tax assets | | | $ | 445 |
| | $ | 633 |
|
During Fiscal 2010, Dell recorded $26 millionThe current portion of net deferred tax assets related to acquiredis included in Other current assets in the Consolidated Statements of Financial Position as of February 3, 2012, and January 28, 2011. The non-current portion of net operating lossdeferred tax assets is included in Other non-current liabilities and credit carryforwards, netOther non-current assets in the Consolidated Statements of valuation allowancesFinancial Position as of $17 million. The offset for recording the acquired net operating lossFebruary 3, 2012, and credit carryforwards was $9 million to goodwill. January 28, 2011, respectively.
During Fiscal 2009,2012 and Fiscal 2011, Dell recorded $76$124 million and $41 million, respectively, of deferred tax assets related to net operating loss and credit carryforwards acquired during the year. Theyear, all of which was offset for recording the acquired net operating lossagainst goodwill. During Fiscal 2012 and credit carryforwards was $56Fiscal 2011, $10 million to goodwill and $20$21 million, respectively, were recorded to additional paid in capital.capital related to the utilization of acquired net operating losses as a result of employee stock option activity, and is included in net tax shortfall from employee stock plans on the Consolidated Statements of Stockholders' Equity. Utilization of the acquired carryforwards is subject to limitations due to ownership changes that may delay the utilization of a portion of the acquired carryforwards. No additional valuation allowances have been placed on the acquired net operating loss and credit carryforwards. The carryforwards for significant taxing jurisdictions expire beginning in Fiscal 2017.2015.
Deferred taxes have not been recorded on the excess book basis in the shares of certain foreign subsidiaries because these basis differences are not expected to reverse in the foreseeable future and are expected to be permanent in duration. TheseThe basis differences in the amount of approximately $11.3$15.9 billion arose primarily from the undistributed book earnings, of substantially all of the subsidiaries in which Dell intends to reinvest indefinitely. The basis
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
differences could reverse through a sale of the subsidiaries or the receipt of dividends from the subsidiaries, as well as various other events. Net of available foreign tax credits, residual income tax of approximately $3.7$5.2 billion would be due upon reversal of this excess book basis as of January 29, 2010.February 3, 2012.
A portion of Dell’sDell's operations is subject to a reduced tax rate or is free of tax under various tax holidays. Dell's significant tax holidays that expire in whole or in part during Fiscal 20112016 through 2019.Fiscal 2021. 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
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) benefits attributable to the tax status of these subsidiaries were estimated to be approximately $149$474 million ($0.08 ($.26 per share) in Fiscal 2010, $3382012, $321 million ($0.17 ($.17 per share) in Fiscal 2009,2011, and $502$149 million ($0.23 ($.08 per share) in Fiscal 2008. 2010. The effective tax rate differed from the statutory U.S. federal income tax rate as follows: | | | | | | | | | | | | | | | Fiscal Year Ended | | | January 29,
| | January 30,
| | February 1,
| | | 2010 | | 2009 | | 2008 | U.S. federal statutory rate | | | 35 | .0% | | | 35 | .0% | | | 35 | .0% | Foreign income taxed at different rates | | | (7 | .5) | | | (9 | .8) | | | (12 | .5) | In-process research and development | | | - | | | | - | | | | 0 | .8 | Other | | | 1 | .7 | | | 0 | .2 | | | (0 | .3) | | | | | | | | | | | | | | Total | | | 29 | .2% | | | 25 | .4% | | | 23 | .0% | | | | | | | | | | | | | |
At the beginning of Fiscal 2008, Dell adopted the accounting guidance for uncertain tax positions, which requires that a tax benefit from an uncertain tax position not be recognized in the financial statements unless it is more likely than not that the position will be sustained upon examination. The cumulative effect of adoption of this standard was a $62 million increase in tax liabilities and a corresponding decrease in stockholders’ equity.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | Fiscal Year Ended | | | February 3, 2012 | | January 28, 2011 | | January 29, 2010 | U.S. federal statutory rate | | 35.0 | % | | 35.0 | % | | 35.0 | % | Foreign income taxed at different rates | | (19.2 | ) | | (14.7 | ) | | (7.6 | ) | State income taxes, net of federal tax benefit | | 0.8 |
| | 1.4 |
| | 1.4 |
| Regulatory settlement | | — |
| | 1.0 |
| | — |
| Other | | 1.0 |
| | (1.4 | ) | | 0.4 |
| Total | | 17.6 | % | | 21.3 | % | | 29.2 | % |
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: | | | | | | | Total | | | (in millions) | Balance at February 3, 2007 (adoption) | | $ | 1,096 | | Increases related to tax positions of the current year | | | 390 | | Increases related to tax positions of prior years | | | 34 | | Reductions for tax positions of prior years | | | (13 | ) | Lapse of statute of limitations | | | (6 | ) | Settlements | | | (18 | ) | | | | | | Balance at February 1, 2008 | | | 1,483 | | Increases related to tax positions of the current year | | | 298 | | Increases related to tax positions of prior years | | | 19 | | Reductions for tax positions of prior years | | | (217 | ) | Lapse of statute of limitations | | | (7 | ) | Settlements | | | (38 | ) | | | | | | Balance at January 30, 2009 | | | 1,538 | | Increases related to tax positions of the current year | | | 298 | | Increases related to tax positions of prior years | | | 32 | | Reductions for tax positions of prior years | | | (69 | ) | Lapse of statute of limitations | | | (3 | ) | Settlements | | | (3 | ) | | | | | | Balance at January 29, 2010 | | $ | 1,793 | | | | | | |
| | | | | | Total | | (in millions) | Balance at January 30, 2009 | $ | 1,538 |
| Increases related to tax positions of the current year | 298 |
| Increases related to tax positions of prior years | 32 |
| Reductions for tax positions of prior years | (69 | ) | Lapse of statute of limitations | (3 | ) | Audit settlements | (3 | ) | Balance at January 29, 2010 | 1,793 |
| Increases related to tax positions of the current year | 262 |
| Increases related to tax positions of prior years | 22 |
| Reductions for tax positions of prior years | (41 | ) | Lapse of statute of limitations | (32 | ) | Audit settlements | (21 | ) | Balance at January 28, 2011 | 1,983 |
| Increases related to tax positions of the current year | 260 |
| Increases related to tax positions of prior years | 30 |
| Reductions for tax positions of prior years | (43 | ) | Lapse of statute of limitations | (32 | ) | Audit settlements | (4 | ) | Balance at February 3, 2012 | $ | 2,194 |
|
Fiscal 2009 reductions forDell recorded net unrecognized tax positionsbenefits of prior years$2.6 billion and $2.3 billion, which are included in Other non-current liabilities in its Consolidated Statements of Financial Position, as of February 3, 2012, and January 28, 2011, respectively. The unrecognized tax benefits in the table above do not include $163 million of items that did not impact Dell’s effective tax rate for Fiscal 2009. These items include foreign currency translation, withdrawal of positions expected to be taken for prior year tax filings,accrued interest and a reduction that is included in the deferred tax asset valuation allowance at January 30, 2009. There were no significant items of a similar nature in Fiscal 2010.
Associated with the unrecognized tax benefits of $1.8 billion, $1.5 billion, and $1.5 billion at January 29, 2010, January 30, 2009, and February 1, 2008, respectively, arepenalties. Dell had accrued interest and penalties of $664 million, $552 million, and $507 millionas well as $209 million, $166 millionof February 3, 2012, January 28, 2011, and $171 million of offsettingJanuary 29, 2010, respectively. These interest and penalties are offset by tax benefits associated with estimatedfrom transfer pricing, the benefit of interest deductions, and state income tax, benefits. The net amountwhich are also not included in the table above. These benefits were $295 million, $242 million, and $209 million as of $2.1 billion,February 3, 2012, January 28, 2011, and January 29, 2010, respectively. Net unrecognized tax benefits, if recognized, would favorably affect Dell’sDell's effective tax rate.
Interest and penalties related to income tax liabilities are included in income tax expense. The balance of gross accrued interestDell recorded $112 million, $45 million, and penalties recorded in the Consolidated Statements of Financial Position at January 29, 2010, January 30, 2009, and February 1, 2008 was $507$107 million $400 million, and $288 million, respectively. During Fiscal 2010, 2009, and 2008, $107 million, $112 million, and $88 million, respectively, related to interest and penalties, which were included in income tax expense.expense for Fiscal 2012, Fiscal 2011, and Fiscal 2010, respectively.
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Dell is currently under income tax audits in various jurisdictions, including the United States. The tax periods open to examination by the major taxing jurisdictions to which Dell is subject include fiscal years 19971999 through 2010. 2011. As a result of these audits, Dell maintains ongoing discussions and negotiations relating to tax matters with the taxing authorities in these various jurisdictions. Dell’sDell 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 fiscal years 2007 through 2009 are currently under examination by the Internal Revenue Service (“IRS”). In April 2009, theThe IRS issued a Revenue Agent’sAgent's Report (“RAR”) for fiscal years 2004 through 2006 proposing certain assessments primarily related to transfer pricing matters. Dell disagrees with certain of the proposed assessments primarily related to transfer
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
pricing matters, contained in the RAR and has contested them through the IRS administrative appeals procedures. The first meeting between Dell andIRS has remanded the IRS Appeals Division is scheduledaudit for early 2010. Dell anticipates the appeals process will involve multiple meetings and could take severaltax years 2004 through 2006 back to complete. Dell believes that adequate reserves have been provided related to all matters contained in tax periods open to examination. However, shouldexamination for further review. Should Dell experience an unfavorable outcome in thisthe IRS matter, such an outcome could have a material impact on its results of operations, financial position, and cash flows. Although the timing of income tax audit resolutions and negotiations with taxing authorities areis highly uncertain, 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 has recently reached agreement with a state government in Brazil regarding the proper application of transactional taxes to warranties related to the sale of computers. Under the consensus, Dell has agreed to apply certain tax incentives in order to offset potential tax liabilities. Reaching this agreement did not have a material impact to its Consolidated Financial Statements.
Dell believes its positions in these non-income tax litigation matters are supportable, that a liability is not probable, and that it will ultimately prevail. In the normal course of business, Dell’sDell'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’sDell's views on its positions, probable outcomes of assessments, or litigation change, changes in estimates to Dell’sDell's accrued liabilities would be recorded in the period in which such determination is made.
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 1112 — 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 142 million, 179 million, and 220 million shares for Fiscal 2012, Fiscal 2011, and Fiscal 2010, respectively. The following table sets forth the computation of basic and diluted earnings per share for each of the past three fiscal years: | | | | | | | | | | | | | | | | Fiscal Year Ended | | | | | | | | | | January 29,
| | January 30,
| | February 1,
| | Fiscal Year Ended | | | 2010 | | 2009 | | 2008 | | February 3, 2012 | | January 28, 2011 | | January 29, 2010 | | | (in millions, except per share amounts) | | (in millions, except per share amounts) | Numerator: | | | | | | | | | | | | | | |
| | |
| | |
| Net income | | $ | 1,433 | | | $ | 2,478 | | | $ | 2,947 | | | $ | 3,492 |
| | $ | 2,635 |
| | $ | 1,433 |
| | | | | | | | | Denominator: | | | | | | | | | | | | | | |
| | |
| | |
| Weighted-average shares outstanding: | | | | | | | | | | | | | | |
| | |
| | |
| Basic | | | 1,954 | | | | 1,980 | | | | 2,223 | | | 1,838 |
| | 1,944 |
| | 1,954 |
| Effect of dilutive options, restricted stock units, restricted stock, and other | | | 8 | | | | 6 | | | | 24 | | | 15 |
| | 11 |
| | 8 |
| | | | | | | | | Diluted | | | 1,962 | | | | 1,986 | | | | 2,247 | | | 1,853 |
| | 1,955 |
| | 1,962 |
| | | | | | | | | Earnings per common share: | | | | | | | | | | | | | | Earnings per share: | | | |
| | |
| | |
| Basic | | $ | 0.73 | | | $ | 1.25 | | | $ | 1.33 | | | $ | 1.90 |
| | $ | 1.36 |
| | $ | 0.73 |
| Diluted(a) | | $ | 0.73 | | | $ | 1.25 | | | $ | 1.31 | | | Diluted | | | $ | 1.88 |
| | $ | 1.35 |
| | $ | 0.73 |
|
| | | (a) | | 220 million, 252 million, and 230 million shares in stock based incentive awards have been excluded from the calculation of diluted earnings per share for Fiscal 2010, 2009 and 2008, respectively, as these awards are antidilutive. |
87
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1213 — CAPITALIZATION Preferred Stock Authorized Shares — Dell has the authority to issue fiveissue 5 million shares shares of preferred stock, par value $.01$.01 per share. At February 3, 2012, and January 29, 2010, and January 30, 2009, 28, 2011, no shares of preferred stock were issued or outstanding.outstanding. Common Stock Authorized Shares — At January 29, 2010,February 3, 2012, Dell iswas authorized to issue sevenissue 7 billion shares shares of common stock, par value $.01$.01 per share. Share Repurchase Program — Dell has a share repurchase program that authorizes it to purchase shares of common stock in order to increase shareholder value and manage dilution resulting from shares issued under Dell’sDell's equity compensation plans. However, Dell does not currently have a policy that requires the repurchase of common stock in conjunction with stock-based payment arrangements. During Fiscal 2010, the amount of shares2012, Dell repurchased was immaterial.$2.7 billion in common stock. At January 29, 2010, Dell’sFebruary 3, 2012, Dell's remaining authorized amount for share repurchases was $4.5 billion.$6.0 billion.
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 1314 — STOCK-BASED COMPENSATION AND BENEFIT PLANS Stock-based Compensation Description of the Plans Employee Stock Plans — Dell is currently issuing stock grants under the Dell Amended and Restated 2002 Long-Term Incentive Plan (the “2002 Incentive Plan”), which was approved by shareholders on December 4, 2007. There are previous plans that have been terminated, except for options previously granted under those plans thatwhich remain outstanding.In Fiscal 2012, in connection with a business acquisition, Dell assumed the stock incentive plan of one of its acquired companies. No future grants will be made under the assumed plan. The 2002 Incentive Plan, all previous plans, and the previous plansassumed plan are all collectively referred to as the “Stock Plans.” The 2002 Incentive Plan provides for the grantinggrant of stock-based incentive awards to Dell’sDell's employees and non-employee directors. Awards may be incentive stock options within the meaning of Section 422 of the Internal Revenue Code, nonqualifiednon-qualified stock options, restricted stock, restricted stock units, or performance-based restricted stock units. There were approximately 342 million, 344 million, and 320 million 313 million, and 292 million shares of Dell’sDell's common stock available for future grants under the Stock Plans2002 Incentive Plan at February 3, 2012, January 28, 2011, and January 29, 2010 January 30, 2009, and February 1, 2008,, respectively. To satisfy stock option exercises and vested restricted stock awards, Dell has a policy of issuing new shares as opposed torather than repurchasing shares on the open market. Stock Option Agreements — The right to purchase shares pursuant to existing stock option agreementsStock options granted under the 2002 Incentive Plan typically vestsvest pro-rata at each option anniversary date over athree- to five-yearfive-year period. TheThese options, which are granted with option exercise prices equal to the fair market value of Dell’sDell's common stock on the date of grant, generally expire within ten to twelve years from the date of grant. CompensationIn connection with business acquisitions, during Fiscal 2012, Dell converted or assumed a small number of stock options granted under the stock incentive plans of acquired companies, which are collectively referred to as the "assumed options." These assumed options vest over a period of up to four years and generally expire within ten years from the date of assumption. Compensation expense for all stock options is recognized on a straight-line basis over the vesting term.requisite service period. Restricted Stock Awards — Awards of restricted stock may be either grants of restricted stock, restricted stock units, or performance-based stock units that are issued at no cost to the recipient. For restricted stock grants, at the date of grant, the recipient has all rights of a stockholder, subject to certain restrictions on transferability and a risk of forfeiture. Restricted stock grants typically vest over a three- to seven-yearseven-year period beginning on the date of the grant. For restricted stock units, legal ownership of the shares is not transferred to the employee until the unit vests,units vest, which is generally over athree- to five-yearfive-year period. The cost of these awards is determined using the fair market value of Dell's common stock on the date of the grant. Dell also grants performance-based restricted stock units as a long-term incentive in which an award recipient receives shares contingent upon Dell achieving performance objectives and the employee’semployee's continuing employment through the vesting period, which is generally over a three- to five-yearfive-year period. Compensation expensecosts recorded in connection with these performance-based restricted stock units isare based on Dell’sDell's best estimate of the number of shares that will eventually be issued upon achievement of the specified performance criteriaobjectives and when it becomes probable that certainsuch performance goalsobjectives will be achieved. The cost of these awards is determined using the fair market value of Dell’s common stock on the date of the grant.
88
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Compensation expensecosts for restricted stock awards with a service condition is recognized on a straight-line basis over the vesting term.requisite service period. Compensation expensecosts for performance-based restricted stock awards is recognized on an accelerated multiple-award approach based on the most probable outcome of the performance condition.
Acceleration of Vesting of Options — On January 23, 2009, Dell’s Board of Directors approved the acceleration of the vesting of unvested“out-of-the-money” stock options (options that have an exercise price greater than the current market stock price) with exercise prices equal to or greater than $10.14 per share for approximately 2,800 employees holding options to purchase approximately 21 million shares of common stock. Dell concluded the modification to the stated vesting provisions was substantive after Dell considered the volatility of its share price and the exercise price of the amended options in relation to recent share values. Because the modification was considered substantive, the remaining unearned compensation expense of $104 million was recorded as an expense in Fiscal 2009. The weighted-average exercise price of the options that were accelerated was $21.90.DELL INC.
Cash Payment for Expired Stock Options — Dell decided to pay cash to current and former employees who held“in-the-money” stock options (options that have an exercise price less than the current market stock price) that expired during the period of unexercisability. During Fiscal 2008, Dell made payments of approximately $107 million, which were expensed, relating toin-the-money stock options that expired in the second and third quarters of Fiscal 2008.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
General Information
Stock Option Activity — The following table summarizes stock option activity for the Stock Plans during Fiscal 2010:2010, Fiscal 2011, and Fiscal 2012: | | | | | | | | | | | | | | | | | | | | | | | Weighted-
| | | | | | | Weighted-
| | Average
| | | | | Number
| | Average
| | Remaining
| | Aggregate
| | | of
| | Exercise
| | Contractual
| | Intrinsic
| | | Options | | Price | | Term | | Value | | | (in millions) | | (per share) | | (in years) | | (in millions) | Options outstanding — January 30, 2009 | | | 230 | | | $ | 31.85 | | | | | | | | | | Granted | | | 11 | | | | 9.83 | | | | | | | | | | Exercised | | | (0 | ) | | | 12.05 | | | | | | | | | | Forfeited | | | (0 | ) | | | 14.73 | | | | | | | | | | Cancelled/expired | | | (36 | ) | | | 35.59 | | | | | | | | | | | | | | | | | | | | | | | | | | | Options outstanding — January 29, 2010 | | | 205 | | | $ | 30.00 | | | | | | | | | | | | | | | | | | | | | | | | | | | Vested and expected to vest (net of estimated forfeitures) — January 29, 2010(a) | | | 204 | | | $ | 30.15 | | | | 3.5 | | | $ | 35 | | Exercisable — January 29, 2010(a) | | | 194 | | | $ | 31.16 | | | | 3.1 | | | $ | 1 | |
| | | | | | | | | | | | | | | | | | Number of Options | | Weighted- Average Exercise Price | | Weighted- Average Remaining Contractual Term | | Aggregate Intrinsic Value | | | (in millions) | | (per share) | | (in years) | | (in millions) | Options outstanding — January 30, 2009 | | 230 |
| | $ | 31.85 |
| | | | | Granted (a) | | 11 |
| | 9.83 |
| | | | | Exercised | | — |
| | 12.05 |
| | | | | Forfeited | | — |
| | 14.73 |
| | | | | Cancelled/expired | | (36 | ) | | 35.59 |
| | | | | Options outstanding — January 29, 2010 | | 205 |
| | 30.00 |
| | | | | Granted (a) | | 17 |
| | 14.82 |
| | | | | Exercised | | (1 | ) | | 9.18 |
| | | | | Forfeited | | (2 | ) | | 13.85 |
| | | | | Cancelled/expired | | (58 | ) | | 36.44 |
| | | | | Options outstanding — January 28, 2011 | | 161 |
| | 26.49 |
| | | | |
| Granted and assumed through acquisitions | | 28 |
| | 13.79 |
| | | | |
| Exercised | | (4 | ) | | 9.38 |
| | | | |
| Forfeited | | (5 | ) | | 13.35 |
| | | | |
| Cancelled/expired | | (37 | ) | | 24.85 |
| | | | |
| Options outstanding — February 3, 2012 (b) | | 143 |
| | 25.37 |
| | 4.2 |
| | $ | 177 |
| Vested and expected to vest (net of estimated forfeitures) — February 3, 2012(b) | | 138 |
| | $ | 25.72 |
| | 4.1 |
| | $ | 163 |
| Exercisable — February 3, 2012(b) | | 108 |
| | $ | 29.02 |
| | 2.8 |
| | $ | 54 |
|
____________________ | | (a) | In Fiscal 2011 and Fiscal 2010, Dell did not convert or assume any options in connection with business acquisitions. |
| | (a)(b) | | For options vested and expected to vest, options exercisable, and options exercisable,outstanding, the aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between Dell’sDell's closing stock price on January 29, 2010,February 3, 2012 and the exercise price multiplied by the number ofin-the-money options) that would have been received by the option holders had the holders exercised their options on January 29, 2010.February 3, 2012. The intrinsic value changes based on changes in the fair market value of Dell’sDell's common stock. |
89
In connection with Fiscal 2012 acquisitions, Dell assumed approximately 6 million stock options with a weighted-average exercise price per share of $7.38.
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Information about options outstanding and exercisable at February 3, 2012 is as follows: Stock Option Activity — The following table summarizes stock option activity for the Stock Plans during Fiscal 2009: | | | | | | | | | | | | | | | | | | | | | Options Outstanding | | Options Exercisable | Range of Exercise Prices | | Number Outstanding | | Weighted-Average Exercise Price per Share | | Weighted-Average Remaining Contractual Life | | Number Exercisable | | Weighted-Average Exercise Price Per Share | | | (in millions) | | | | (in years) | | (in millions) | | | $ 0 - $9.99 | | 8 |
| | $ | 7.38 |
| | 3.9 |
| | 3 |
| | $ | 7.42 |
| $10.00 - $19.99 | | 42 |
| | $ | 15.57 |
| | 8.1 |
| | 12 |
| | $ | 16.72 |
| $20.00 - $29.99 | | 45 |
| | $ | 25.86 |
| | 1.8 |
| | 45 |
| | $ | 25.86 |
| $30.00 - $39.99 | | 31 |
| | $ | 34.31 |
| | 2.2 |
| | 31 |
| | $ | 34.31 |
| $40 and over | | 17 |
| | $ | 40.23 |
| | 3.1 |
| | 17 |
| | $ | 40.23 |
| Total | | 143 |
| | $ | 25.37 |
| | 4.2 |
| | 108 |
| | $ | 29.02 |
|
| | | | | | | | | | | | | | | | | | | | | | | Weighted-
| | | | | | | Weighted-
| | Average
| | | | | Number
| | Average
| | Remaining
| | Aggregate
| | | of
| | Exercise
| | Contractual
| | Intrinsic
| | | Options | | Price | | Term | | Value | | | (in millions) | | (per share) | | (in years) | | (in millions) | Options outstanding — February 1, 2008 | | | 264 | | | $ | 32.30 | | | | | | | | | | Granted | | | 13 | | | | 19.71 | | | | | | | | | | Exercised | | | (4 | ) | | | 19.08 | | | | | | | | | | Forfeited | | | (4 | ) | | | 23.97 | | | | | | | | | | Cancelled/expired | | | (39 | ) | | | 33.14 | | | | | | | | | | | | | | | | | | | | | | | | | | | Options outstanding — January 30, 2009 | | | 230 | | | $ | 31.85 | | | | | | | | | | | | | | | | | | | | | | | | | | | Vested and expected to vest (net of estimated forfeitures) — January 30, 2009(a)(b) | | | 230 | | | $ | 31.86 | | | | 3.9 | | | $ | - | | Exercisable — January 30, 2009(a)(b) | | | 230 | | | $ | 31.86 | | | | 3.9 | | | $ | - | |
| | | (a) | | For options vested and expected to vest and options exercisable, the aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between Dell’s closing stock price on January 30, 2009, and the exercise price multiplied by the number ofin-the-money options) that would have been received by the option holders had the holders exercised their options on January 30, 2009. The intrinsic value changes based on changes in the fair market value of Dell’s common stock. |
| | | (b) | | No options werein-the-money at January 30, 2009. |
The following table summarizes stock option activity for the Stock Plans during Fiscal 2008:
| | | | | | | | | | | | | | | | | | | | | | | Weighted-
| | | | | | | Weighted-
| | Average
| | | | | Number
| | Average
| | Remaining
| | Aggregate
| | | of
| | Exercise
| | Contractual
| | Intrinsic
| | | Options | | Price | | Term | | Value | | | (in millions) | | (per share) | | (in years) | | (in millions) | Options outstanding — February 2, 2007 | | | 314 | | | $ | 32.16 | | | | | | | | | | Granted | | | 12 | | | | 24.45 | | | | | | | | | | Exercised | | | (7 | ) | | | 18.99 | | | | | | | | | | Forfeited | | | (5 | ) | | | 26.80 | | | | | | | | | | Cancelled/expired | | | (50 | ) | | | 32.01 | | | | | | | | | | | | | | | | | | | | | | | | | | | Options outstanding — February 1, 2008 | | | 264 | | | $ | 32.30 | | | | | | | | | | | | | | | | | | | | | | | | | | | Vested and expected to vest (net of estimated forfeitures) — February 1, 2008(a) | | | 259 | | | $ | 32.43 | | | | 4.5 | | | $ | 13 | | Exercisable — February 1, 2008(a) | | | 242 | | | $ | 32.89 | | | | 4.2 | | | $ | 12 | |
| | | (a) | | For options vested and expected to vest and options exercisable, the aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between Dell’s closing stock price on February 1, 2008, and the exercise price multiplied by the number ofin-the-money options) that would have been received by the option holders had the holders exercised their options on February 1, 2008. The intrinsic value changes based on changes in the fair market value of Dell’s common stock. |
90
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Other information pertaining to stock options for the Stock Plans is as follows: | | | | | | | | | | | | | | | Fiscal Year Ended | | | January 29,
| | January 30,
| | February 1,
| | | 2010 | | 2009 | | 2008 | | | (in millions, except per option data) | Weighted-average grant date fair value of stock options granted per option | | $ | 3.71 | | | $ | 5.87 | | | $ | 6.29 | | Total fair value of options vested(a) | | $ | - | | | $ | 187 | | | $ | 208 | | Total intrinsic value of options exercised(b) | | $ | - | | | $ | 15 | | | $ | 64 | |
| | | | | | | | | | | | | | | | Fiscal Year Ended | | | February 3, 2012 | | January 28, 2011 | | January 29, 2010 | | | (in millions, except per option data) | Total fair value of options vested | | $ | 56 |
| | $ | 13 |
| | $ | — |
| Total intrinsic value of options exercised(a) | | $ | 27 |
| | $ | 7 |
| | $ | — |
|
____________________ | | | (a) | | Includes the $104 million charge for the Fiscal 2009 acceleration of vesting of certain unvested and“out-of-the-money” stock options with exercise prices equal to or greater than $10.14 per share previously awarded under equity compensation plans. |
| | | (b) | | The total intrinsic value of options exercised represents the total pre-tax intrinsic value (the difference between the stock price at exercise and the exercise price multiplied by the number of options exercised) that was received by the option holders who exercised their options during the fiscal year. |
At February 3, 2012, January 28, 2011, and January 29, 2010 January 30, 2009, and February 1, 2008,, there was $28$114 million $1, $65 million, and $93$28 million of total unrecognized stock-based compensation expense, net of estimated forfeitures, related to unvested stock options expected to be recognized over a weighted-average period of 2.21.9 years, 2.32.0 years, and 2.02.2 years, respectively. Valuation of Awards Non-vested Restricted Stock Activity — Non-vested restricted stock awards and activities were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | Fiscal 2010 | | Fiscal 2009 | | Fiscal 2008 | | | | | Weighted-
| | | | Weighted-
| | | | Weighted-
| | | Number
| | Average
| | Number
| | Average
| | Number
| | Average
| | | of
| | Grant Date
| | of
| | Grant Date
| | of
| | Grant Date
| | | Shares | | Fair Value | | Shares | | Fair Value | | Shares | | Fair Value | | | (in millions) | | (per share) | | (in millions) | | (per share) | | (in millions) | | (per share) | Non-vested restricted stock: | | | | | | | | | | | | | | | | | | | | | | | | | Beginning balance | | | 36 | | | $ | 22.45 | | | | 36 | | | $ | 24.90 | | | | 17 | | | $ | 28.76 | | Granted | | | 22 | | | | 11.39 | | | | 18 | | | | 19.11 | | | | 26 | | | | 22.85 | | Vested(a) | | | (13 | ) | | | 22.78 | | | | (10 | ) | | | 24.64 | | | | (3 | ) | | | 28.79 | | Forfeited | | | (5 | ) | | | 18.23 | | | | (8 | ) | | | 23.15 | | | | (4 | ) | | | 24.71 | | | | | | | | | | | | | | | | | | | | | | | | | | | Non-vested restricted stock ending balance | | | 40 | | | $ | 16.84 | | | | 36 | | | $ | 22.45 | | | | 36 | | | $ | 24.90 | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | (a) | | Upon vesting, restricted stock units are generally sold to cover the required withholding taxes. However, select participants may choose the net shares settlement method to cover withholding tax requirements. Total shares withheld were approximately 157,000, 48,000, and 71,000 for Fiscal 2010, 2009, and 2008, respectively. Total payments for the employee’s tax obligations to the taxing authorities were $2 million, $1 million, and $2 million in Fiscal 2010, 2009, and 2008, respectively, and are reflected as a financing activity within the Consolidated Statements of Cash Flows. |
91
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Other information pertaining to restricted stock that vested during each fiscal year is as follows:
| | | | | | | | | | | | | | | Fiscal Year Ended | | | January 29,
| | January 30,
| | February 1,
| | | 2010 | | 2009 | | 2008 | | | (in millions, except per option data) | Total estimated grant date fair value of restricted stock awards vested | | $ | 297 | | | $ | 252 | | | $ | 103 | | Total estimated vest date fair value of restricted stock awards vested | | $ | 134 | | | $ | 197 | | | $ | 87 | |
At January 29, 2010, January 30, 2009, and February 1, 2008, there was $393 million, $507 million, and $600 million, respectively, of unrecognized stock-based compensation expense, net of estimated forfeitures, related to non-vested restricted stock awards. These awards are expected to be recognized over a weighted-average period of approximately 1.8, 2.0, and 1.9 years, respectively.
Stock-based Compensation Expense
Stock-based compensation expense was allocated as follows:
| | | | | | | | | | | | | | | Fiscal Year Ended | | | January 29,
| | January 30,
| | February 1,
| | | 2010 | | 2009 | | 2008 | | | (in millions) | Stock-based compensation expense: | | | | | | | | | | | | | Cost of net revenue | | $ | 47 | | | $ | 62 | | | $ | 62 | | Operating expenses | | | 265 | | | | 356 | | | | 374 | | | | | | | | | | | | | | | Stock-based compensation expense before taxes | | | 312 | | | | 418 | | | | 436 | | Income tax benefit | | | (91 | ) | | | (131 | ) | | | (127 | ) | | | | | | | | | | | | | | Stock-based compensation expense, net of income taxes | | $ | 221 | | | $ | 287 | | | $ | 309 | | | | | | | | | | | | | | |
Stock-based compensation in the table above includes $104 million of expense for accelerated options and a reduction of $1 million for the release of the accrual for expiredFor stock options in Fiscal 2009 and $107 million of cash expense in Fiscal 2008 for expired stock options, as previously discussed.
Valuation Information
granted under the 2002 Incentive Plan, Dell uses the Black-Scholes option pricing model to estimate the fair value of stock options at grant-date. Thegrant date. For stock options assumed through business acquisitions, Dell uses the lattice binomial valuation model to estimate fair value. For a limited number of performance-based units that include a market-based condition, Dell uses the Monte Carlo simulation valuation model to estimate fair value. Stock-based compensation expense recognized for awards assumed through acquisitions as well as awards that include a market-based condition was not material for Fiscal 2012, Fiscal 2011, or Fiscal 2010. For stock options granted under the 2002 Incentive Plan, the estimated fair values incorporate various assumptions, including volatility, expected term, and risk-free interest rates. Expected volatility is based on a blend of implied and historical volatility of Dell’sDell's common stock over the most recent period commensurate with the estimated expected term of Dell’sDell's stock options. Dell uses this blend of implied and historical volatility, as well as other economic data, because management believes such volatility is more representative of prospective trends. The expected term of an award is based on historical experience and on the terms and conditions of the stock awards granted to employees. The dividend yield of zero is based on the fact that Dell has never paid cash dividends and has no present intention to pay cash dividends.
92
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The weighted-average fair value of stock options granted under the 2002 Incentive Plan was determined based on the Black-Scholes option pricing model. The assumptions utilized in this model weighted for all grants utilizingas well as the assumptionsweighted-average grant date fair value of stock options granted during Fiscal 2012, Fiscal 2011, and Fiscal 2010 are presented below: | | | | | | | | | | | | | | | | Fiscal Year Ended | | | February 3, 2012 | | January 28, 2011 | | January 29, 2010 | Weighted-average grant date fair value of stock options granted per option | | $ | 5.13 |
| | $ | 5.01 |
| | $ | 3.71 |
| Expected term (in years) | | 4.6 |
| | 4.5 |
| | 4.5 |
| Risk-free interest rate (U.S. Government Treasury Note) | | 1.9 | % | | 2.2 | % | | 1.8 | % | Volatility | | 36 | % | | 37 | % | | 44 | % | Dividends | | — | % | | — | % | | — | % |
Restricted Stock Awards Non-vested restricted stock awards and activities For Fiscal 2010, Fiscal 2011, and Fiscal 2012 were as follows: | | | | | | | | | | | Number of Shares | | Weighted- Average Grant Date Fair Value | | | (in millions) | | (per share) | Non-vested restricted stock: | | |
| | |
| Non-vested restricted stock balance as of January 30, 2009 | | 36 |
| | $ | 22.45 |
| Granted | | 22 |
| | 11.39 |
| Vested(a) | | (13 | ) | | 22.78 |
| Forfeited | | (5 | ) | | 18.23 |
| Non-vested restricted stock balance as of January 29, 2010 | | 40 |
| | 16.84 |
| Granted | | 26 |
| | 14.53 |
| Vested(a) | | (17 | ) | | 19.10 |
| Forfeited | | (7 | ) | | 15.21 |
| Non-vested restricted stock balance as of January 28, 2011 | | 42 |
| | 14.71 |
| Granted | | 22 |
| | 15.19 |
| Vested(a) | | (18 | ) | | 16.47 |
| Forfeited | | (4 | ) | | 14.05 |
| Non-vested restricted stock balance as of February 3, 2012 | | 42 |
| | $ | 14.29 |
|
____________________ | | (a) | Upon vesting of restricted stock units, some of the underlying shares are generally sold to cover the required withholding taxes. However, select participants may choose the net shares settlement method to cover withholding tax requirements. Total shares withheld were approximately 426,000, 354,000, and 157,000 for Fiscal 2012, Fiscal 2011, and Fiscal 2010, respectively. Total payments for the employee's tax obligations to the taxing authorities were $6 million, $5 million, and $2 million in Fiscal 2012, 2011, and 2010, respectively, and are reflected as a financing activity within the Consolidated Statements of Cash Flows. |
For Fiscal 2012, Fiscal 2011, and Fiscal 2010, the following table:total estimated vest date fair value of restricted stock awards was $273 million, $250 million, and $134 million, respectively. At February 3, 2012, January 28, 2011, and January 29, 2010, there was $348 million, $341 million, and $393 million, respectively, of unrecognized stock-based compensation expense, net of estimated forfeitures, related to non-vested restricted stock awards. These awards are expected to be recognized over a weighted-average period of approximately 1.8, 1.9, and 1.8 years, respectively.
| | | | | | | | | | | | | | | Fiscal Year Ended | | | January 29,
| | January 30,
| | February 1,
| | | 2010 | | 2009 | | 2008 | Expected term | | | 4.5 years | | | | 3.6 years | | | | 3.5 years | | Risk-free interest rate (U.S. Government Treasury Note) | | | 1.8% | | | | 2.3% | | | | 4.4% | | Volatility | | | 44% | | | | 37% | | | | 27% | | Dividends | | | 0% | | | | 0% | | | | 0% | |
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Stock-based Compensation Expense Stock-based compensation expense was allocated as follows: | | | | | | | | | | | | | | | | Fiscal Year Ended | | | February 3, 2012 | | January 28, 2011 | | January 29, 2010 | | | (in millions) | Stock-based compensation expense: | | |
| | |
| | |
| Cost of net revenue | | $ | 59 |
| | $ | 57 |
| | $ | 47 |
| Operating expenses | | 303 |
| | 275 |
| | 265 |
| Stock-based compensation expense before taxes | | 362 |
| | 332 |
| | 312 |
| Income tax benefit | | (108 | ) | | (97 | ) | | (91 | ) | Stock-based compensation expense, net of income taxes | | $ | 254 |
| | $ | 235 |
| | $ | 221 |
|
Employee BenefitsBenefit Plans 401(k) Plan — Dell has a defined contribution retirement plan (the “401(k) Plan”) that complies with Section 401(k) of the Internal Revenue Code. Substantially all employees in the U.S. are eligible to participate in the 401(k) Plan. Effective January 1, 2008, Dell matches 100% of each participant’sparticipant's voluntary contributions, subject to a maximum contribution of 5% of the participant’sparticipant's compensation, and participants vest immediately in all Dell contributions to the 401(k) Plan. Dell’sDell's contributions during Fiscal 2010, 2009,2012, Fiscal 2011, and 2008Fiscal 2010 were $91$153 million $93, $132 million, and $76$91 million, respectively. Dell’sDell's contributions are invested according to each participant’sparticipant's elections in the investment options provided under the Plan. Investment options include Dell common stock, but neither participant nor Dell contributions are required to be invested in Dell common stock. During Fiscal 2010, Dell also contributed $4.2$4 million to Perot Systems’Systems' 401(k) Plan (the "Perot Plan") after the acquisition of the company on November 3, 2009. The Perot Plan was merged into the 401(k) Plan during Fiscal 2011. Deferred Compensation Plan — Dell has a nonqualifiednon-qualified deferred compensation plan (the “Deferred Compensation Plan”) for the benefit of certain management employees and non-employee directors. The Deferred Compensation Plan permits the deferral of base salary and annual incentive bonus. The deferrals are held in a separate trust, which has been established by Dell to administer the Plan. The assets of the trust are subject to the claims of Dell’sDell's creditors in the event that Dell becomes insolvent. Consequently, the trust qualifies as a grantor trust for income tax purposes (known as a “Rabbi Trust”). In accordance with the accounting provisions for deferred compensation arrangements where amounts earned are held in a Rabbi Trust and invested, the assets and liabilities of the Deferred Compensation Plan are presented in long-termLong-term investments and accruedAccrued and other liabilities, respectively, in the Consolidated Statements of Financial Position, respectively.Position. The assets held by the trust are classified as trading securities with changes recorded to interestInterest and other, net. These assets arewere valued at $90$105 million at February 3, 2012, and are disclosed in Note 3 of the Notes to Consolidated Financial Statements. Changes in the deferred compensation liability are recorded to compensation expense.
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1415 — SEGMENT INFORMATION Dell’sDell's four global business segments are Large Enterprise, Public, Small and Medium Business (“SMB”), and Consumer. Large Enterprise includes sales of IT infrastructure and service solutions to large global and national corporate customers. Public includes sales to educational institutions, governments, health care organizations, and law enforcement agencies, among others. SMB includes sales of complete IT solutions to small and medium-sized businesses. Consumer includes sales to individual consumers and retailers around the world. Reference to Commercial business refers to Large Enterprise, Public, and Small and Medium Business.
The business segments disclosed in the accompanying Consolidated Financial Statements are based on this organizational structure and information reviewed by Dell’sDell's management to evaluate the business segment results. Dell’sDell's measure of segment operating income for management reporting purposes excludes severance and facility closure expenses, broad based long-term incentives, acquisition-related charges, and amortization of intangibles.
93
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table presents net revenue by Dell’sDell's reportable global segments as well as a reconciliation of consolidated segment operating income to Dell’sDell's consolidated operating income: | | | | | | | | | | | | | | | | Fiscal Year Ended | | | | | | | | | | January 29,
| | January 30,
| | February 1,
| | Fiscal Year Ended | | | 2010 | | 2009 | | 2008 | | February 3, 2012 | | January 28, 2011 | | January 29, 2010 | | | (in millions) | | (in millions) | Net revenue: | | | | | | | | | | | | | | |
| | |
| | |
| Large Enterprise | | $ | 14,285 | | | $ | 18,011 | | | $ | 18,833 | | | $ | 18,457 |
| | $ | 17,813 |
| | $ | 14,285 |
| Public | | | 14,484 | | | | 15,338 | | | | 14,708 | | | 16,548 |
| | 16,851 |
| | 14,484 |
| Small and Medium Business | | | 12,079 | | | | 14,892 | | | | 15,807 | | | 15,166 |
| | 14,473 |
| | 12,079 |
| Consumer | | | 12,054 | | | | 12,860 | | | | 11,785 | | | 11,900 |
| | 12,357 |
| | 12,054 |
| | | | | | | | | Total | | $ | 52,902 | | | $ | 61,101 | | | $ | 61,133 | | | $ | 62,071 |
| | $ | 61,494 |
| | $ | 52,902 |
| | | | | | | | | | | | Consolidated operating income: | | | | | | | | | | | | | | |
| | |
| | |
| Large Enterprise | | $ | 819 | | | $ | 1,158 | | | $ | 1,331 | | | $ | 1,854 |
| | $ | 1,473 |
| | $ | 819 |
| Public | | | 1,361 | | | | 1,258 | | | | 1,261 | | | 1,644 |
| | 1,484 |
| | 1,361 |
| Small and Medium Business | | | 1,040 | | | | 1,273 | | | | 1,338 | | | 1,665 |
| | 1,477 |
| | 1,040 |
| Consumer | | | 107 | | | | 306 | | | | 160 | | | 324 |
| | 65 |
| | 107 |
| | | | | | | | | Consolidated segment operating income | | | 3,327 | | | | 3,995 | | | | 4,090 | | | 5,487 |
| | 4,499 |
| | 3,327 |
| Severance and facility actions | | | (481 | ) | | | (282 | ) | | | (120 | ) | | Severance and facility actions and acquisition-related costs (a)(b) | | | (313 | ) | | (227 | ) | | (597 | ) | Broad based long-term incentives(a) | | | (353 | ) | | | (418 | ) | | | (436 | ) | | (352 | ) | | (350 | ) | | (353 | ) | In-process research and development(b) | | | - | | | | (2 | ) | | | (83 | ) | | Amortization of intangible assets(b) | | | (205 | ) | | | (103 | ) | | | (11 | ) | | Acquisition-related costs(c) | | | (116 | ) | | | - | | | | - | | | | | | | | | | | Amortization of intangible assets | | | (391 | ) | | (349 | ) | | (205 | ) | Other(c) | | | — |
| | (140 | ) | | — |
| Total | | $ | 2,172 | | | $ | 3,190 | | | $ | 3,440 | | | $ | 4,431 |
| | $ | 3,433 |
| | $ | 2,172 |
| | | | | | | | |
____________________ | | | (a) | | Broad based long-term incentives includes stock-based compensation of $312 million, $418 million, and $436 million for Fiscal 2010, Fiscal 2009, and Fiscal 2008, respectively. Stock-basedother long-term incentive awards, but excludes stock-based compensation expense includes $104 million of expense for accelerated optionsrelated to acquisitions, which are included in Fiscal 2009 and $107 million of cash expense for expired stock options in Fiscal 2008.acquisition-related costs. See Note 1314 of Notes to Consolidated Financial Statements for additional information. |
| | | (b) | Acquisition-related costs consist primarily of retention payments, integration costs, and consulting fees. |
| | Prior to(c) | Other includes the fourth$100 million settlement for the SEC investigation and a $40 million settlement for a securities litigation lawsuit that were both incurred in the first quarter of Fiscal 2008, amortization of intangibles and IPR&D expenses of $16 million were included in total consolidated segment operating income in Fiscal 2008.2011. |
| | | (c) | | Acquisition-related costs pertain to Dell’s acquisition of Perot Systems in the fourth quarter of Fiscal 2010. |
94
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table presents assets by Dell’sDell's reportable global segments. Segment assets primarily consist of accounts receivable and inventories. | | | | | | | | | | | January 29,
| | January 30,
| | | 2010 | | 2009 | | | (in millions) | Total assets: | | | | | | | | | Corporate | | $ | 26,240 | | | $ | 20,346 | | Large Enterprise | | | 2,604 | | | | 2,335 | | Public | | | 2,464 | | | | 1,997 | | Small and Medium Business | | | 1,051 | | | | 1,123 | | Consumer | | | 1,293 | | | | 699 | | | | | | | | | | | Total | | $ | 33,652 | | | $ | 26,500 | | | | | | | | | | |
| | | | | | | | | | | | February 3, 2012 | | January 28, 2011 | | | (in millions) | Total assets: | | |
| | |
| Corporate | | $ | 36,171 |
| | $ | 30,264 |
| Large Enterprise | | 3,108 |
| | 2,934 |
| Public | | 2,330 |
| | 2,545 |
| Small and Medium Business | | 1,421 |
| | 1,398 |
| Consumer | | 1,503 |
| | 1,458 |
| Total | | $ | 44,533 |
| | $ | 38,599 |
|
The following table presents depreciation expense by Dell’sDell's reportable business segments: | | | | | | | | | | | | | | | | Fiscal Year Ended | | | February 3, 2012 | | January 28, 2011 | | January 29, 2010 | | | (in millions) | Depreciation expense: | | |
| | |
| | |
| Large Enterprise | | $ | 162 |
| | $ | 180 |
| | $ | 175 |
| Public | | 145 |
| | 170 |
| | 177 |
| Small and Medium Business | | 133 |
| | 146 |
| | 148 |
| Consumer | | 105 |
| | 125 |
| | 147 |
| Total | | $ | 545 |
| | $ | 621 |
| | $ | 647 |
|
| | | | | | | | | | | | | | | Fiscal Year Ended | | | January 29,
| | January 30,
| | February 1,
| | | 2010 | | 2009 | | 2008 | | | (in millions) | Depreciation expense: | | | | | | | | | | | | | Large Enterprise | | $ | 175 | | | $ | 180 | | | $ | 158 | | Public | | | 177 | | | | 174 | | | | 164 | | Small and Medium Business | | | 148 | | | | 151 | | | | 127 | | Consumer | | | 147 | | | | 161 | | | | 147 | | | | | | | | | | | | | | | Total | | $ | 647 | | | $ | 666 | | | $ | 596 | | | | | | | | | | | | | | |
95
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following tables present net revenue and long-lived asset information allocated between the U.S. and foreign countries:
| | | | | | | | | | | | | | | Fiscal Year Ended | | | January 29,
| | January 30,
| | February 1,
| | | 2010 | | 2009 | | 2008 | | | (in millions) | Net revenue: | | | | | | | | | | | | | United States | | $ | 28,053 | | | $ | 31,569 | | | $ | 32,687 | | Foreign countries | | | 24,849 | | | | 29,532 | | | | 28,446 | | | | | | | | | | | | | | | Total | | $ | 52,902 | | | $ | 61,101 | | | $ | 61,133 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | January 29,
| | January 30,
| | | | | 2010 | | 2009 | | | | | (in millions) | | | Long-lived assets: | | | | | | | | | | | | | United States | | $ | 1,536 | | | $ | 1,495 | | | | | | Foreign countries | | | 645 | | | | 782 | | | | | | | | | | | | | | | | | | | Total | | $ | 2,181 | | | $ | 2,277 | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | Fiscal Year Ended | | | February 3, 2012 | | January 28, 2011 | | January 29, 2010 | | | (in millions) | Net revenue: | | |
| | |
| | |
| United States | | $ | 30,404 |
| | $ | 31,912 |
| | $ | 28,053 |
| Foreign countries | | 31,667 |
| | 29,582 |
| | 24,849 |
| Total | | $ | 62,071 |
| | $ | 61,494 |
| | $ | 52,902 |
|
| | | | | | | | | | | | February 3, 2012 | | January 28, 2011 | | | (in millions) | Long-lived assets: | | | | | United States | | $ | 1,577 |
| | $ | 1,419 |
| Foreign countries | | 547 |
| | 534 |
| Total | | $ | 2,124 |
| | $ | 1,953 |
|
The allocation between domestic and foreign net revenue is based on the location of the customers. Net revenue and long-lived assets from any single foreign country did not compriseconstitute more than 10% of Dell’sDell's consolidated net revenues or long-lived assets during Fiscal 2010, 2009,2012, Fiscal 2011, or 2008. No single customer accounted for more than 10%Fiscal 2010.
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table presents net revenue by product and services categories: | | | | | | | | | | | | | | | | Fiscal Year Ended | | | | | | | | | | January 29,
| | January 30,
| | February 1,
| | Fiscal Year Ended | | | 2010 | | 2009 | | 2008 | | February 3, 2012 | | January 28, 2011 | | January 29, 2010 | | | (in millions) | | (in millions) | Net revenue: | | | | | | | | | | | | | | |
| | |
| | |
| Enterprise Solutions and Services: | | | | | | | | Enterprise Solutions: | | | | | | | | | | | | | | |
| | |
| | |
| Servers and networking | | $ | 6,032 | | | $ | 6,512 | | | $ | 6,486 | | | $ | 8,336 |
| | $ | 7,609 |
| | $ | 6,032 |
| Storage | | | 2,192 | | | | 2,667 | | | | 2,429 | | | 1,943 |
| | 2,295 |
| | 2,192 |
| Services | | | 5,622 | | | | 5,351 | | | | 4,980 | | | 8,322 |
| | 7,673 |
| | 5,622 |
| Software and peripherals | | | 9,499 | | | | 10,603 | | | | 9,927 | | | 10,222 |
| | 10,261 |
| | 9,499 |
| Client: | | | | | | | | | | | | | | |
| | |
| | |
| Mobility | | | 16,610 | | | | 18,604 | | | | 17,961 | | | 19,104 |
| | 18,971 |
| | 16,610 |
| Desktop PCs | | | 12,947 | | | | 17,364 | | | | 19,350 | | | 14,144 |
| | 14,685 |
| | 12,947 |
| | | | | | | | | Net revenue | | $ | 52,902 | | | $ | 61,101 | | | $ | 61,133 | | | $ | 62,071 |
| | $ | 61,494 |
| | $ | 52,902 |
| | | | | | | | |
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1516 — SUPPLEMENTAL CONSOLIDATED FINANCIAL INFORMATION Supplemental Consolidated Statements of Financial Position Information The following table provides information on amounts included in Accounts receivable, net, Inventories, net, Property, plant, and equipment, net, Accrued and other liabilities, and Other non-current liabilities, as well as prepaid expenses as of February 3, 2012, and January 28, 2011. | | | | | | | | | | | January 29,
| | January 30,
| | | 2010 | | 2009 | | | (in millions) | Accounts receivable, net: | | | | | | | | | Gross accounts receivable | | $ | 5,952 | | | $ | 4,843 | | Allowance for doubtful accounts | | | (115 | ) | | | (112 | ) | | | | | | | | | | Total | | $ | 5,837 | | | $ | 4,731 | | | | | | | | | | | | | | | | | | | | Inventories, net: | | | | | | | | | Production materials | | $ | 487 | | | $ | 454 | | Work-in-process | | | 168 | | | | 150 | | Finished goods | | | 396 | | | | 263 | | | | | | | | | | | Total | | $ | 1,051 | | | $ | 867 | | | | | | | | | | | | | | | | | | | | Prepaid expenses(a) | | $ | 539 | | | $ | 447 | | | | | | | | | | | | | | | | | | | | Deferred costs(a) | | $ | 523 | | | $ | 556 | | | | | | | | | | | | | | | | | | | | Property, plant, and equipment, net: | | | | | | | | | Computer equipment | | $ | 2,118 | | | $ | 1,967 | | Land and buildings | | | 1,686 | | | | 1,544 | | Machinery and other equipment | | | 848 | | | | 999 | | | | | | | | | | | Total property, plant, and equipment | | | 4,652 | | | | 4,510 | | Accumulated depreciation and amortization | | | (2,471 | ) | | | (2,233 | ) | | | | | | | | | | Total | | $ | 2,181 | | | $ | 2,277 | | | | | | | | | | |
| | | | | | | | | | | | February 3, 2012 | | January 28, 2011 | | | (in millions) | Accounts receivable, net: | | |
| | |
| Gross accounts receivable | | $ | 6,539 |
| | $ | 6,589 |
| Allowance for doubtful accounts | | (63 | ) | | (96 | ) | Total | | $ | 6,476 |
| | $ | 6,493 |
| Inventories, net: | | |
| | |
| Production materials | | $ | 753 |
| | $ | 593 |
| Work-in-process | | 239 |
| | 232 |
| Finished goods | | 412 |
| | 476 |
| Total | | $ | 1,404 |
| | $ | 1,301 |
| Prepaid expenses(a) | | $ | 362 |
| | $ | 374 |
| Property, plant, and equipment, net: | | |
| | |
| Computer equipment | | $ | 2,309 |
| | $ | 2,275 |
| Land and buildings | | 1,843 |
| | 1,674 |
| Machinery and other equipment | | 782 |
| | 780 |
| Total property, plant, and equipment | | 4,934 |
| | 4,729 |
| Accumulated depreciation and amortization | | (2,810 | ) | | (2,776 | ) | Total | | $ | 2,124 |
| | $ | 1,953 |
|
_____________________ | | | (a) | | Prepaid expenses and deferred costs are included in other current assets in the Consolidated Statements of Financial Position. |
97
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Supplemental Consolidated Statements of Financial Position Information (cont.) | | | | | | | | | | | | February 3, 2012 | | January 28, 2011 | | | (in millions) | Accrued and other current liabilities: | | |
| | |
| Compensation | | $ | 1,604 |
| | $ | 1,550 |
| Warranty liability | | 572 |
| | 575 |
| Income and other taxes | | 432 |
| | 529 |
| Other | | 1,326 |
| | 1,527 |
| Total | | $ | 3,934 |
| | $ | 4,181 |
| Other non-current liabilities: | | |
| | |
| Warranty liability | | $ | 316 |
| | $ | 320 |
| Unrecognized tax benefits, net | | 2,563 |
| | 2,293 |
| Deferred tax liabilities | | 405 |
| | — |
| Other | | 108 |
| | 73 |
| Total | | $ | 3,392 |
| | $ | 2,686 |
|
| | | | | | | | | | | January 29,
| | January 30,
| | | 2010 | | 2009 | | | (in millions) | Accrued and other current liabilities: | | | | | | | | | Warranty liability | | $ | 593 | | | $ | 721 | | Income taxes | | | (0 | ) | | | 6 | | Compensation | | | 1,112 | | | | 817 | | Other | | | 2,179 | | | | 2,192 | | | | | | | | | | | Total | | $ | 3,884 | | | $ | 3,736 | | | | | | | | | | | | | | | | | | | | Other non-current liabilities: | | | | | | | | | Warranty liability | | $ | 319 | | | $ | 314 | | Income taxes | | | 2,085 | | | | 1,738 | | Other | | | 201 | | | | 420 | | | | | | | | | | | Total | | $ | 2,605 | | | $ | 2,472 | | | | | | | | | | |
Supplemental Consolidated Statements of Income
The table below provides advertising costs for Fiscal 2010, 2009, and 2008. Advertising costs are included in selling, general, and administrative in the Consolidated Statements of Income. | | | | | | | | | | | | | | | January 29,
| | January 30,
| | February 1,
| | | 2010 | | 2009 | | 2008 | | | (in millions) | Advertising costs | | $ | 619 | | | $ | 811 | | | $ | 943 | | | | | | | | | | | | | | |
The table below provides a detailed presentationdetails of interest and other, net for Fiscal 2010,2012, Fiscal 2009,2011, and Fiscal 2008:2010:
| | | | | | | | | | | | | | | | | | | | | | | January 29,
| | January 30,
| | February 1,
| | Fiscal Year Ended | | | 2010 | | 2009 | | 2008 | | February 3, 2012 | | January 28, 2011 | | January 29, 2010 | | | (in millions) | | (in millions) | Interest and other, net: | | | | | | | | | | | | | | |
| | |
| | |
| Investment income, primarily interest | | $ | 57 | | | $ | 180 | | | $ | 496 | | | $ | 81 |
| | $ | 47 |
| | $ | 57 |
| Gains (losses) on investments, net | | | 2 | | | | (10 | ) | | | 14 | | | 8 |
| | 6 |
| | 2 |
| Interest expense | | | (160 | ) | | | (93 | ) | | | (45 | ) | | (279 | ) | | (199 | ) | | (160 | ) | CIT minority interest | | | - | | | | - | | | | (29 | ) | | Foreign exchange | | | (59 | ) | | | 115 | | | | (30 | ) | | 5 |
| | 4 |
| | (59 | ) | Other | | | 12 | | | | (58 | ) | | | (19 | ) | | (6 | ) | | 59 |
| | 12 |
| | | | | | | | | Interest and other, net | | $ | (148 | ) | | $ | 134 | | | $ | 387 | | | $ | (191 | ) | | $ | (83 | ) | | $ | (148 | ) | | | | | | | | |
98
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Valuation and Qualifying Accounts | | | | | | | | | | | | | | | | | | | | Fiscal Year | | Description | | Balance at Beginning of Period | | Charged to Income Statement | | Charged to Allowance | | Balance at End of Period | Trade Receivables: | 2012 | | Allowance for doubtful accounts | | $ | 96 |
| | $ | 90 |
| | $ | 123 |
| | $ | 63 |
| 2011 | | Allowance for doubtful accounts | | $ | 115 |
| | $ | 124 |
| | $ | 143 |
| | $ | 96 |
| 2010 | | Allowance for doubtful accounts | | $ | 112 |
| | $ | 185 |
| | $ | 182 |
| | $ | 115 |
| Customer Financing Receivables(a): | 2012 | | Allowance for doubtful accounts | | $ | 241 |
| | $ | 144 |
| | $ | 183 |
| | $ | 202 |
| 2011 | | Allowance for doubtful accounts | | $ | 237 |
| | $ | 258 |
| | $ | 254 |
| | $ | 241 |
| 2010 | | Allowance for doubtful accounts | | $ | 149 |
| | $ | 244 |
| | $ | 156 |
| | $ | 237 |
| Trade Receivables: | 2012 | | Allowance for customer returns | | $ | 102 |
| | $ | 607 |
| | $ | 623 |
| | $ | 86 |
| 2011 | | Allowance for customer returns | | $ | 79 |
| | $ | 581 |
| | $ | 558 |
| | $ | 102 |
| 2010 | | Allowance for customer returns | | $ | 69 |
| | $ | 541 |
| | $ | 531 |
| | $ | 79 |
|
| | (a) | Charge-offs to the allowance for financing receivable losses for customer financing receivables includes principal and interest. |
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1617 — UNAUDITED QUARTERLY RESULTS AND STOCK PRICES The following tables present selected unaudited Consolidated Statements of Income and stock sales price data for each quarter of Fiscal 20102012 and Fiscal 2009:2011: | | | | | | | | | | | | | | | | | | | Fiscal Year 2010 | | | First
| | Second
| | Third
| | Fourth
| | | Quarter | | Quarter | | Quarter | | Quarter | | | (in millions, except per share data) | | Net revenue | | $ | 12,342 | | | $ | 12,764 | | | $ | 12,896 | | | $ | 14,900 | | Gross margin | | $ | 2,168 | | | $ | 2,391 | | | $ | 2,233 | | | $ | 2,469 | | Net income | | $ | 290 | | | $ | 472 | | | $ | 337 | | | $ | 334 | | | | | | | | | | | | | | | | | | | Earnings per common share: | | | | | | | | | | | | | | | | | Basic | | $ | 0.15 | | | $ | 0.24 | | | $ | 0.17 | | | $ | 0.17 | | Diluted | | $ | 0.15 | | | $ | 0.24 | | | $ | 0.17 | | | $ | 0.17 | | | | | | | | | | | | | | | | | | | Weighted-average shares outstanding: | | | | | | | | | | | | | | | | | Basic | | | 1,949 | | | | 1,955 | | | | 1,956 | | | | 1,957 | | Diluted | | | 1,952 | | | | 1,960 | | | | 1,966 | | | | 1,971 | | | | | | | | | | | | | | | | | | | Stock sales price per share: | | | | | | | | | | | | | | | | | High | | $ | 12.05 | | | $ | 14.24 | | | $ | 17.26 | | | $ | 16.10 | | Low | | $ | 7.84 | | | $ | 10.39 | | | $ | 13.07 | | | $ | 12.74 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fiscal Year 2009 | | | First
| | Second
| | Third
| | Fourth
| | | Quarter | | Quarter | | Quarter | | Quarter | | | (in millions, except per share data) | | Net revenue | | $ | 16,077 | | | $ | 16,434 | | | $ | 15,162 | | | $ | 13,428 | | Gross margin | | $ | 2,965 | | | $ | 2,827 | | | $ | 2,853 | | | $ | 2,312 | | Net income | | $ | 784 | | | $ | 616 | | | $ | 727 | | | $ | 351 | | | | | | | | | | | | | | | | | | | Earnings per common share: | | | | | | | | | | | | | | | | | Basic | | $ | 0.39 | | | $ | 0.31 | | | $ | 0.37 | | | $ | 0.18 | | Diluted | | $ | 0.38 | | | $ | 0.31 | | | $ | 0.37 | | | $ | 0.18 | | | | | | | | | | | | | | | | | | | Weighted-average shares outstanding: | | | | | | | | | | | | | | | | | Basic | | | 2,036 | | | | 1,991 | | | | 1,953 | | | | 1,944 | | Diluted | | | 2,040 | | | | 1,999 | | | | 1,957 | | | | 1,948 | | | | | | | | | | | | | | | | | | | Stock sales price per share: | | | | | | | | | | | | | | | | | High | | $ | 21.18 | | | $ | 25.26 | | | $ | 26.04 | | | $ | 13.32 | | Low | | $ | 18.13 | | | $ | 18.66 | | | $ | 10.59 | | | $ | 8.72 | |
| | | | | | | | | | | | | | | | | | | | Fiscal Year 2012 | | | First | | Second | | Third | | Fourth | | | Quarter | | Quarter | | Quarter | | Quarter | | | (in millions, except per share data) | Net revenue | | $ | 15,017 |
| | $ | 15,658 |
| | $ | 15,365 |
| | $ | 16,031 |
| Gross margin | | $ | 3,432 |
| | $ | 3,525 |
| | $ | 3,469 |
| | $ | 3,385 |
| Net income | | $ | 945 |
| | $ | 890 |
| | $ | 893 |
| | $ | 764 |
| Earnings per share: | | | | | | | | | Basic | | $ | 0.50 |
| | $ | 0.48 |
| | $ | 0.49 |
| | $ | 0.43 |
| Diluted | | $ | 0.49 |
| | $ | 0.48 |
| | $ | 0.49 |
| | $ | 0.43 |
| Weighted-average shares outstanding: | | | | | | | | | Basic | | 1,908 |
| | 1,858 |
| | 1,813 |
| | 1,778 |
| Diluted | | 1,923 |
| | 1,871 |
| | 1,828 |
| | 1,796 |
| | | | | | | | | | | | Fiscal Year 2011 | | | First | | Second | | Third | | Fourth | | | Quarter | | Quarter | | Quarter | | Quarter | | | (in millions, except per share data) | Net revenue | | $ | 14,874 |
| | $ | 15,534 |
| | $ | 15,394 |
| | $ | 15,692 |
| Gross margin | | $ | 2,516 |
| | $ | 2,586 |
| | $ | 3,003 |
| | $ | 3,291 |
| Net income | | $ | 341 |
| | $ | 545 |
| | $ | 822 |
| | $ | 927 |
| Earnings per share: | | |
| | |
| | |
| | |
| Basic | | $ | 0.17 |
| | $ | 0.28 |
| | $ | 0.42 |
| | $ | 0.48 |
| Diluted | | $ | 0.17 |
| | $ | 0.28 |
| | $ | 0.42 |
| | $ | 0.48 |
| Weighted-average shares outstanding: | | |
| | |
| | |
| | |
| Basic | | 1,961 |
| | 1,952 |
| | 1,939 |
| | 1,924 |
| Diluted | | 1,973 |
| | 1,960 |
| | 1,949 |
| | 1,938 |
|
99
ITEM 9 — CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.
ITEM 9A — CONTROLS AND PROCEDURES Exhibits 31.1 and 31.2 to this Reportreport include the certifications of our Chief Executive Officer and Chief Financial Officer required byRule 13a-14 under the Securities Exchange Act of 1934 (the “Exchange Act”). This Item 9A includes information concerning the controls and control evaluations referred to in those certifications. Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures (as defined inRules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures.
In connection with the preparation of this Report, our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of January 29, 2010. Based on that evaluation, our management has concluded that our disclosure controls and procedures were effective as of January 29, 2010.
Management’sManagement's Report on Internal Control over Financial Reporting
Management, under the supervision of the Chief Executive Officer and the Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting (as defined inRules 13a-15(f) and 15d(f) under the Exchange Act) is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America (“GAAP”).GAAP. Internal control over financial reporting includes those policies and procedures which (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets, (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, (c) provide reasonable assurance that receipts and expenditures are being made only in accordance with appropriate authorization of management and the board of directors, and (d) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of assets that could have a material effect on the financial statements. In connection with the preparation of this Report,report, our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of January 29, 2010February 3, 2012, based on the criteria established inInternal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management has excluded from the scope of its assessment of internal control over financial reporting the operations and related assets of Perot Systems Corporation and its subsidiaries (collectively “Perot Systems”), which Dell acquired on November 3, 2009. At January 29, 2010, and for the period from November 3, 2009, through January 29, 2010, the total assets (excluding allocated intangibles and goodwill) and total net revenue subject to Perot Systems internal control over financial reporting represented 3% and 1%, respectively, of Dell’s consolidated total assets and consolidated net revenue, respectively, at January 29, 2010, and for the fiscal year then ended. As a result of that evaluation, management has concluded that our internal control over financial reporting was effective as of January 29, 2010.February 3, 2012. The effectiveness of our internal control over financial reporting as of January 29, 2010February 3, 2012, has also been audited by PricewaterhouseCoopers LLP, our independent registered public accounting firm, as stated in their report, which is included in “Part II — Item 8 — Financial Statements and Supplementary Data.”
100
Changes in Internal Control over Financial Reporting Dell’sDell's management, with the participation of Dell’sDell's Chief Executive Officer and Chief Financial Officer, has evaluated whether any change in Dell’sDell's internal control over financial reporting occurred during the fourth quarter of Fiscal 2010.2012. Based on their evaluation, management concluded that there has been no change in Dell’sDell's internal control over financial reporting during the fourth quarter of Fiscal 20102012 that has materially affected, or is reasonably likely to materially affect, Dell’sDell's internal control over financial reporting.
Evaluation of Disclosure Controls and Procedures Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures. In connection with the preparation of this report, our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of February 3, 2012. Based on that evaluation, our management has concluded that our disclosure controls and procedures were effective as of February 3, 2012.
Inherent Limitations in Internal Controls Our system of controls is designed to provide reasonable, not absolute, assurance regarding the reliability and integrity of accounting and financial reporting. Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be met. These inherent limitations include the following: Judgments in decision-making can be faulty, and control and process breakdowns can occur because of simple errors or | | • | Judgments in decision-making can be faulty, and control and process breakdowns can occur because of simple errors or mistakes. | | • | Controls can be circumvented by individuals, acting alone or in collusion with each other, or by management override. | | • | The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. | | • | Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with associated policies or procedures. | | • | The design of a control system must reflect the fact that resources are constrained, and the benefits of controls must be considered relative to their costs. |
mistakes. Controls can be circumvented by individuals, acting alone or in collusion with each other, or by management override. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with associated policies or procedures. The design of a control system must reflect the fact that resources are constrained, and the benefits of controls must be considered relative to their costs. ITEM 9B — OTHER INFORMATION None.
101
PART III ITEM 10 — DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
See “Part I — Item 1 — Executive Officers of Dell” for information about our executive officers, which is incorporated by reference in this Item 10. Other information required by this Item 10 is incorporated herein by reference to our definitive proxy statement for our 2010 annual meeting of stockholders, referred to as the “2010 proxy statement,” which we will file with the SEC on or before 120 days after our 2010 fiscal year-end, and which will appear in the 2010 proxy statement under the captions “Proposal 1 — Election of Directors” and “Additional Information — Section 16(a) Beneficial Ownership Reporting Compliance.”
We have adopted a code of ethics applicable to our principal executive officer and other senior financial officers, who include our principal financial officer, principal accounting officer or controller, and persons performing similar functions. The code of ethics, which we refer to as our Code of Conduct, is available on our Internet website atwww.dell.com. To the extent required by SEC rules, we intend to disclose any amendments to this code and any waiver of a provision of the code for the benefit of our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, on our website within four business days following any such amendment or waiver, or within any other period that may be required under SEC rules from time to time.
See “Part I — Item 1 — Business — Executive Officers of Dell” for information about our executive officers, which is incorporated by reference in this Item 10. Other information required by this Item 10 is incorporated herein by reference to our definitive proxy statement for our 2012 annual meeting of stockholders, referred to as the “2012 proxy statement,” which we will file with the SEC on or before 120 days after our 2012 fiscal year-end, and which will appear in the 2012 proxy statement under the captions “Proposal 1 — Election of Directors” and “Additional Information — Section 16(a) Beneficial Ownership Reporting Compliance.” ITEM 11 — EXECUTIVE COMPENSATION Information required by this Item 11 is incorporated herein by reference to the 20102012 proxy statement, including the information in the 20102012 proxy statement appearing under the captions “Proposal 1 — Election of Directors — Director Compensation” and “Executive Compensation.”
ITEM 12 — SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Information required by this Item 12 is incorporated herein by reference to the 20102012 proxy statement, including the information in the 20102012 proxy statement appearing under the captions “Stock Ownership” and “Executive Compensation — Equity Compensation Plans.”
ITEM 13 — CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Information required by this Item 13 is incorporated herein by reference to the 20102012 proxy statement, including the information in the 20102012 proxy statement appearing under the captions “Proposal 1 — Elections of Directors” and “Additional Information — Certain Relationships and Related Transactions.”
ITEM 14 — PRINCIPAL ACCOUNTING FEES AND SERVICES Information required by this Item 14 is incorporated herein by reference to the 20102012 proxy statement, including the information in the 20102012 proxy statement appearing under the captionscaption “Proposal 2 — Ratification of Independent Auditor.”
102
PART IV
ITEM 15 — EXHIBITS, FINANCIAL STATEMENT SCHEDULES Financial Statements The following financial statements are filed as a part of this report under “Part II — Item 8 — Financial Statements and Supplementary Data:”Data”: | | | | | | | | Page | Financial Statements: | | | | | | | | | | | | | 49 | | | | | | | | | | 50 | | | | | | | | | | 51 | | | | | | | | | | 52 | | | | | | | | | | 53 | | | | | | | | | | 54 | |
A list of the exhibits filed or furnished with this report (or incorporated by reference to exhibits previously filed or furnished) is provided in the Exhibit index on page 107115 of this report.
103
Schedule Of Valuation and Qualifying Accounts Disclosure
Financial Statement Schedule The following financial statement schedule is filed as a part of this report under Schedule II immediately preceding the signature page: Schedule II — Valuation and Qualifying Accounts for the three fiscal years ended February 3, 2012,January 28, 2011, and January 29, 2010 January 30, 2009, is included in Note 16 of Notes to Consolidated Financial Statements included in "Part II — Item 8 — Financial Statements and February 1, 2008.Supplementary Data." All other schedules called for byForm 10-K are omitted because they are inapplicable or the required information is shown in the consolidated financial statements, or notes thereto, included herein.
112 SCHEDULE II
DELL INC.
VALUATION AND QUALIFYING ACCOUNTS
| | | | | | | | | | | | | | | | | | | | | | | Balance at
| | Charged to
| | | | Balance
| Fiscal
| | | | Beginning
| | Income
| | Charged to
| | at End of
| Year | | Description | | of Period | | Statement | | Allowance | | Period | | Trade Receivables: | 2010 | | Allowance for doubtful accounts | | $ | 112 | | | $ | 185 | | | $ | 182 | | | $ | 115 | | 2009 | | Allowance for doubtful accounts | | $ | 103 | | | $ | 151 | | | $ | 142 | | | $ | 112 | | 2008 | | Allowance for doubtful accounts | | $ | 126 | | | $ | 82 | | | $ | 105 | | | $ | 103 | | | Customer Financing Receivables:(a) | 2010 | | Allowance for doubtful accounts | | $ | 149 | | | $ | 244 | | | $ | 156 | | | $ | 237 | | 2009 | | Allowance for doubtful accounts | | $ | 96 | | | $ | 159 | | | $ | 106 | | | $ | 149 | | 2008 | | Allowance for doubtful accounts | | $ | 39 | | | $ | 105 | | | $ | 48 | | | $ | 96 | | | Trade Receivables: | 2010 | | Allowance for customer returns | | $ | 69 | | | $ | 541 | | | $ | 531 | | | $ | 79 | | 2009 | | Allowance for customer returns | | $ | 91 | | | $ | 401 | | | $ | 423 | | | $ | 69 | | 2008 | | Allowance for customer returns | | $ | 53 | | | $ | 475 | | | $ | 437 | | | $ | 91 | |
| | | (a) | | Charge-offs to the allowance for doubtful accounts for customer financing receivables includes principal and interest. |
104
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. | | | | | DELL INC. | | | | | By: | /s/ MICHAEL S. DELL | | | Michael S. Dell | | | Chairman and Chief Executive Officer | | | (Duly authorized officer) |
Michael S. DellDate: March 13, 2012
Chairman and Chief Executive Officer
Date: March 18, 2010
105
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and onas of the datesdate indicated. | | | | | | Name | | Title | | Date | | | | | | Name/s/ MICHAEL S. DELL | | TitleChairman and Chief Executive Officer (principal executive officer) | | DateMarch 13, 2012 | | /s/ MICHAEL S. DELL
Michael S. Dell | | Chairman and Chief Executive Officer
(principal executive officer) | | | | | | | /s/ JAMES W. BREYER | | Director | | March 18, 201013, 2012 | James W. Breyer | | | | | | | | | | /s/ DONALD J. CARTY | | Director | | March 13, 2012 | Donald J. Carty | | | | | | | | | | /s/ JANET F. CLARK | | Director | | March 13, 2012 | Janet F. Clark | | | | | | | | | | /s/ LAURA CONIGLIARO | | Director | | March 13, 2012 | Laura Conigliaro
| | | | | | | | | | /s/ KENNETH M. DUBERSTEIN | | Director | | March 13, 2012 | Kenneth M. Duberstein | | | | | | | | | | /s/ WILLIAM H. GRAY, III | | Director | | March 13, 2012 | William H. Gray, III | | | | | | | | | | /s/ JAMES W. BREYERGERARD J. KLEISTERLEE | | Director | | March 18, 201013, 2012 | Gerard J. Kleisterlee | | | | | | | | | | /s/ DONALD J. CARTYTHOMAS W. LUCE, III | | Director | | March 18, 201013, 2012 | Thomas W. Luce, III | | | | | | | | | | /s/ WILLIAM H. GRAY, IIIKLAUS S. LUFT | | Director | | March 18, 201013, 2012 | Klaus S. Luft | | | | | | | | | | /s/ JUDY C. LEWENTALEX J. MANDL | | Director | | March 18, 201013, 2012 | Alex J. Mandl | | | | | | | | | | /s/ THOMAS W. LUCE, IIISHANTANU NARAYEN | | Director | | March 18, 201013, 2012 | Shantanu Narayen | | | | | | | | | | /s/ KLAUS S. LUFTH. ROSS PEROT, JR. | | Director | | March 18, 201013, 2012 | H. Ross Perot, Jr. | | | | | | | | | | /s/ ALEX J. MANDLBRIAN T. GLADDEN | | DirectorSenior Vice President and Chief Financial Officer (principal financial officer) | | March 18, 201013, 2012 | Brian T. Gladden | | | | | | | | | /s/ SHANTANU NARAYENTHOMAS W. SWEET | | DirectorVice President, Corporate Finance and Chief Accounting Officer (principal accounting officer) | | March 18, 201013, 2012 | | Thomas W. Sweet | | | |
Exhibits /s/ SAMUEL A. NUNN, JR.
Samuel A. Nunn, Jr. | | Director | | March 18, 2010 | | | | | | | | | /s/ BRIAN T. GLADDEN
Brian T. Gladden | | Senior Vice President and Chief Financial Officer
(principal financial officer) | | March 18, 2010 | | | | | | /s/ THOMAS W. SWEET
Thomas W. Sweet | | Vice President, Corporate Finance
(principal accounting officer) | | March 18, 2010 |
106
Exhibits
| | | | | | | Exhibit
| | | | | No. | | | | Description of Exhibit | | 3 | .1 | | — | | Restated Certificate of Incorporation, filed February 1, 2006 (incorporated by reference to Exhibit 3.3 of Dell’s Current Report on Form 8-K filed February 2, 2006, Commission File No. 0-17017) | | 3 | .2 | | — | | Restated Bylaws, as amended and effective March 8, 2007 (incorporated by reference to Exhibit 3.1 of Dell’s Current Report on Form 8-K filed March 13, 2007, Commission File No. 0-17017) | | 4 | .1 | | — | | Indenture, dated as of April 27, 1998, between Dell Computer Corporation and Chase Bank of Texas, National Association (incorporated by reference to Exhibit 99.2 of Dell’s Current Report onForm 8-K filed April 28, 1998, Commission File No. 0-17017) | | 4 | .2 | | — | | Officers’ Certificate pursuant to Section 301 of the Indenture establishing the terms of Dell’s 7.10% Senior Debentures Due 2028 (incorporated by reference to Exhibit 99.4 of Dell’s Current Report Form 8-K filed April 28, 1998, Commission File No. 0-17017) | | 4 | .3 | | — | | Form of Dell’s 7.10% Senior Debentures Due 2028 (incorporated by reference to Exhibit 99.6 of Dell’s Current Report on Form 8-K filed April 28, 1998, Commission File No. 0-17017) | | 4 | .4 | | — | | Indenture, dated as of April 17, 2008, between Dell Inc. and The Bank of New York Trust Company, N.A., as trustee (including the form of notes) (incorporated by reference to Exhibit 4.1 of Dell’s Current Report on Form 8-K filed April 17, 2008, Commission File No. 0-17017) | | 4 | .5 | | — | | Indenture, dated as of April 6, 2009, between Dell Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 of Dell’s Current Report on Form 8-K filed April 6, 2009, Commission File No. 0-17017) | | 4 | .6 | | — | | First Supplemental Indenture, dated April 6, 2009, between Dell Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.2 of Dell’s Current Report on Form 8-K filed April 6, 2009, Commission File No. 0-17017) | | 4 | .7 | | — | | Form of 5.625% Notes due 2014 (incorporated by reference to Exhibit 4.3 of Dell’s Current Report on Form 8-K filed April 6, 2009, Commission File No. 0-17017) | | 4 | .8 | | — | | Second Supplemental Indenture, dated June 15, 2009, between Dell Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 of Dell’s Current Report on Form 8-K filed June 15, 2009, Commission File No. 0-17017) | | 4 | .9 | | — | | Form of 3.375% Notes due 2012 (incorporated by reference to Exhibit 4.2 of Dell’s Current Report on Form 8-K filed June 15, 2009, Commission File No. 0-17017) | | 4 | .10 | | — | | Form of 5.875% Notes due 2019 (incorporated by reference to Exhibit 4.3 of Dell’s Current Report on Form 8-K filed June 15, 2009, Commission File No. 0-17017) | | 10 | .1* | | — | | Amended and Restated Dell Computer Corporation 1994 Incentive Plan (incorporated by reference to Exhibit 99 of Dell’s Registration Statement on Form S-8 filed October 31, 2000, Registration No. 333-49014) | | 10 | .2* | | — | | Amended and Restated Dell Computer Corporation 1998 Broad-Based Stock Option Plan (incorporated by reference to Exhibit 99 of Dell’s Registration Statement on Form S-8 filed October 31, 2000, Registration No. 333-49016) | | 10 | .3* | | — | | Dell Computer Corporation 2002 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 of Dell’s Quarterly Report on Form 10-Q for the fiscal quarter ended August 2, 2002, Commission File No. 0-17017) | | 10 | .4* | | — | | Dell Inc. Amended and Restated 2002 Long-Term Incentive Plan (incorporated by reference to Appendix A of Dell’s 2007 proxy statement filed October 31, 2007, Commission File No. 0-17017) | | 10 | .5* | | — | | Amendment One to the Amended and Restated Dell Inc. 401(k) Plan, effective as of January 1, 2008 (incorporated by reference to Exhibit 10.6 of Dell’s Annual Report on Form 10-K for the fiscal year ended January 30, 2009, Commission File No. 0-17017) | | 10 | .6* | | — | | Amended and Restated Dell Inc. Deferred Compensation Plan effective as of January 1, 2005 (incorporated by reference to Exhibit 10.7 of Dell’s Annual Report on Form 10-K for the fiscal year ended January 30, 2009, Commission File No. 0-17017) |
107
| | | | | | | Exhibit
| | | | | No. | | | | Description of Exhibit | | 10 | .7* | | — | | Amended and Restated Dell Inc. Deferred Compensation Plan for Non-Employee Directors effective as of January 1, 2005 (incorporated by reference to Exhibit 10.8 of Dell’s Annual Report onForm 10-K for the fiscal year ended January 30, 2009, Commission File No. 0-17017) | | 10 | .8* | | — | | Executive Incentive Bonus Plan, adopted July 18, 2003 (incorporated by reference to Exhibit 10.1 of Dell’s Quarterly Report on Form 10-Q for the fiscal quarter ended August 1, 2003, Commission File No. 0-17017) | | 10 | .9* | | — | | Executive Annual Incentive Bonus Plan (incorporated by reference to Appendix A of Dell’s 2008 proxy statement filed June 2, 2008, Commission File No. 0-17017) | | 10 | .10* | | — | | Form of Indemnification Agreement between Dell and each Non-Employee Director of Dell (incorporated by reference to Exhibit 10.11 to Dell’s Annual Report on Form 10-K for the fiscal year ended January 31, 2003, Commission File No. 0-17017) | | 10 | .11* | | — | | Form of Performance Based Stock Unit Agreement for employees under the 2002 Long-Term Incentive Plan (incorporated by reference to Exhibit 99.2 of Dell’s Current Report on Form 8-K filed March 14, 2006, Commission File No. 0-17017) | | 10 | .12* | | — | | Form of Restricted Stock Agreement for Non-Employee Directors under the 2002 Long-Term Incentive Plan (incorporated by reference to Exhibit 99.1 of Dell’s Current Report on Form 8-K filed July 27, 2006, Commission File No. 0-17017) | | 10 | .13 | | — | | Form of Restricted Stock Unit Agreement for Non-Employee Directors under the 2002 Long-Term Incentive Plan (incorporated by reference to Exhibit 99.2 of Dell’s Current Report on Form 8-K filed July 27, 2006, Commission File No. 0-17017) | | 10 | .14* | | — | | Form of Nonstatutory Stock Option Agreement for Non-Employee Directors under the 2002 Long-Term Incentive Plan (incorporated by reference to Exhibit 99.3 of Dell’s Current Report on Form 8-K filed July 27, 2006, Commission File No. 0-17017) | | 10 | .15* | | — | | Form of Nonstatutory Stock Option Agreement for grant to Donald J. Carty under the 2002 Long-Term Incentive Plan (incorporated by reference to Exhibit 99.1 of Dell’s Current Report on Form 8-K filed December 20, 2006, Commission File No. 0-17017) | | 10 | .16* | | — | | Form of Stock Unit Agreement for grant to Donald J. Carty under the 2002 Long-Term Incentive Plan (incorporated by reference to Exhibit 99.2 of Dell’s Current Report on Form 8-K filed December 20, 2006, Commission File No. 0-17017) | | 10 | .17* | | — | | Form of Restricted Stock Unit Agreement for Non-Employee Directors under the Amended and Restated 2002 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.10 of Dell’s Quarterly Report on Form 10-Q for the fiscal quarter ended May 4, 2007, CommissionFile No. 0-17017) | | 10 | .18* | | — | | Form of Nonstatutory Stock Option Agreement for Non-Employee Directors under the Amended and Restated 2002 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.11 of Dell’s Quarterly Report on Form 10-Q for the fiscal quarter ended May 4, 2007, CommissionFile No. 0-17017) | | 10 | .19* | | — | | Form of Performance Based Stock Unit Agreement for Executive Officers under the Amended and Restated 2002 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.17 of Dell’s Annual Report on Form 10-K for the fiscal year ended February 1, 2008, CommissionFile No. 0-17017) | | 10 | .20* | | — | | Form of Performance Based Stock Unit Agreement for Executive Officers under the Amended and Restated 2002 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.21 of Dell’s Annual Report on Form 10-K for the fiscal year ended January 30, 2009, CommissionFile No. 0-17017) | | 10 | .21* | | — | | Form of Nonstatutory Stock Option Agreement for Executive Officers under the Amended and Restated 2002 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.22 of Dell’s Annual Report on Form 10-K for the fiscal year ended January 30, 2009, CommissionFile No. 0-17017) |
108
| | | | | | | Exhibit
| | | | | No. | | | | Description of Exhibit | 3.1 | 10 | .22* | | — |
| | Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 of the Quarterly Report on Form 10-Q of Dell Inc. (“Dell”) for the fiscal quarter ended April 29, 2011, Commission File No. 0-17017)
| 3.2 | | | — |
| | Restated Bylaws, as amended and effective as of August 16, 2010 (incorporated by reference to Exhibit 3.2 of Dell's Quarterly Report on Form 10-Q for the fiscal quarter ended July 30, 2010, Commission File No. 0-17017)
| 4.1 | | | — |
| | Indenture, dated as of April 27, 1998, between Dell Computer Corporation and Chase Bank of Texas, National Association (incorporated by reference to Exhibit 99.2 of Dell's Current Report on Form 8-K filed April 28, 1998, Commission File No. 0-17017)
| 4.2 | | | — |
| | Officers' Certificate pursuant to Section 301 of the Indenture establishing the terms of Dell's 7.10% Senior Debentures Due 2028 (incorporated by reference to Exhibit 99.4 of Dell's Current Report on Form 8-K filed April 28, 1998, Commission File No. 0-17017)
| 4.3 | | | — |
| | Form of Dell's 7.10% Senior Debentures Due 2028 (incorporated by reference to Exhibit 99.6 of Dell's Current Report on Form 8-K filed April 28, 1998, Commission File No. 0-17017)
| 4.4 | | | — |
| | Indenture, dated as of April 17, 2008, between Dell and The Bank of New York Mellon Trust Company, N.A. (formerly The Bank of New York Trust Company, N.A.), as trustee (including the form of notes) (incorporated by reference to Exhibit 4.1 of Dell's Current Report on Form 8-K filed April 17, 2008, Commission File No. 0-17017)
| 4.5 | | | — |
| | Indenture, dated as of April 6, 2009, between Dell and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 of Dell's Current Report on Form 8-K filed April 6, 2009, Commission File No. 0-17017)
| 4.6 | | | — |
| | First Supplemental Indenture, dated April 6, 2009, between Dell and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.2 of Dell's Current Report on Form 8-K filed April 6, 2009, Commission File No. 0-17017)
| 4.7 | | | — |
| | Form of 5.625% Notes due 2014 (incorporated by reference to Exhibit 4.3 of Dell's Current Report on Form 8-K filed April 6, 2009, Commission File No. 0‑17017)
| 4.8 | | | — |
| | Second Supplemental Indenture, dated June 15, 2009, between Dell and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 of Dell's Current Report on Form 8-K filed June 15, 2009, Commission File No. 0-17017)
| 4.9 | | | — |
| | Form of 3.375% Notes due 2012 (incorporated by reference to Exhibit 4.2 of Dell's Current Report on Form 8-K filed June 15, 2009, Commission File No. 0‑17017) | 4.10 | | | — |
| | Form of 5.875% Notes due 2019 (incorporated by reference to Exhibit 4.3 of Dell's Current Report on Form 8-K filed June 15, 2009, Commission File No. 0‑17017)
| 4.11 | | | — |
| | Third Supplemental Indenture, dated September 10, 2010, between Dell and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 of Dell's Current Report on Form 8-K filed September 10, 2010, Commission File No. 0-17017)
| 4.12 | | | — |
| | Form of 1.40% Notes due 2013 (incorporated by reference to Exhibit 4.2 of Dell's Current Report on Form 8-K filed September 10, 2010, Commission File No. 0-17017)
| 4.13 | | | — |
| | Form of 2.30% Notes due 2015 (incorporated by reference to Exhibit 4.3 of Dell's Current Report on Form 8-K filed September 10, 2010, Commission File No. 0-17017)
| 4.14 | | | — |
| | Form of 5.40% Notes due 2040 (incorporated by reference to Exhibit 4.4 of Dell's Current Report on Form 8-K filed September 10, 2010, Commission File No. 0-17017)
| 4.15 | | | — |
| | Fourth Supplemental Indenture, dated March 31, 2011, between Dell and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 of Dell's Current Report on Form 8-K filed March 31, 2011, Commission File No. 0-17017)
| 4.16 | | | — |
| | Form of Floating Rate Notes due 2014 (incorporated by reference to Exhibit 4.2 of Dell's Current Report on Form 8-K filed March 31, 2011, Commission File No. 0-17017)
| 4.17 | | | — |
| | Form of 2.100% Notes due 2014 (incorporated by reference to Exhibit 4.3 of Dell's Current Report on Form 8-K filed March 31, 2011, Commission File No. 0-17017)
| 4.18 | | | — |
| | Form of 3.100% Notes due 2016 (incorporated by reference to Exhibit 4.4 of Dell's Current Report on Form 8-K filed March 31, 2011, Commission File No. 0-17017)
| 4.19 | | | — |
| | Form of 4.625% Notes due 2021 (incorporated by reference to Exhibit 4.5 of Dell's Current Report on Form 8-K filed March 31, 2011, Commission File No. 0-17017)
|
| | | | | | | | | Exhibit No. | | | Description of Exhibit | 10.1 | | * | — |
| | Amended and Restated Dell Computer Corporation 1994 Incentive Plan (incorporated by reference to Exhibit 99 of Dell's Registration Statement on Form S-8 filed October 31, 2000, Registration No. 333-49014) | 10.2 | | * | — |
| | Amended and Restated Dell Computer Corporation 1998 Broad-Based Stock Option Plan (incorporated by reference to Exhibit 99 of Dell's Registration Statement on Form S-8 filed October 31, 2000, Registration No. 333-49016) | 10.3 | | * | — |
| | Dell Computer Corporation 2002 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 of Dell's Quarterly Report on Form 10-Q for the fiscal quarter ended August 2, 2002, Commission File No. 0-17017) | 10.4 | | * | — |
| | Dell Inc. Amended and Restated 2002 Long-Term Incentive Plan (incorporated by reference to Appendix A of Dell's 2007 proxy statement filed October 31, 2007, Commission File No. 0-17017) | 10.5 | | * | — |
| | Amended and Restated Dell Inc. Deferred Compensation Plan effective as of January 1, 2005 (incorporated by reference to Exhibit 10.7 of Dell's Annual Report on Form 10-K for the fiscal year ended January 30, 2009, Commission File No. 0-17017) | 10.6 | | * | — |
| | Amended and Restated Dell Inc. Deferred Compensation Plan for Non-Employee Directors effective as of January 1, 2005 (incorporated by reference to Exhibit 10.8 of Dell's Annual Report on Form 10-K for the fiscal year ended January 30, 2009, Commission File No. 0-17017) | 10.7 | | * | — |
| | Executive Annual Incentive Bonus Plan (incorporated by reference to Appendix A of Dell's 2008 proxy statement filed June 2, 2008, Commission File No. 0-17017) | 10.8 | | * | — |
| | Form of Restricted Stock Agreement for Non-Employee Directors under the 2002 Long-Term Incentive Plan (incorporated by reference to Exhibit 99.1 of Dell's Current Report on Form 8-K filed July 27, 2006, Commission File No. 0-17017) | 10.9 | | * | — |
| | Form of Restricted Stock Unit Agreement for Non-Employee Directors under the 2002 Long-Term Incentive Plan (incorporated by reference to Exhibit 99.2 of Dell's Current Report on Form 8-K filed July 27, 2006, Commission File No. 0-17017) | 10.10 | | * | — |
| | Form of Stock Unit Agreement for grant to Donald J. Carty under the 2002 Long-Term Incentive Plan (incorporated by reference to Exhibit 99.2 of Dell's Current Report on Form 8-K filed December 20, 2006, Commission File No. 0-17017) | 10.11 | | * | — |
| | Form of Restricted Stock Unit Agreement for Non-Employee Directors under the Amended and Restated 2002 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.10 of Dell's Quarterly Report on Form 10-Q for the fiscal quarter ended May 4, 2007, Commission File No. 0-17017) | 10.12 | | * | — |
| | Form of Restricted Stock Unit Agreement for Non-Employee Directors under the Amended and Restated 2002 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.12 of Dell's Annual Report on Form 10-K for the fiscal year ended January 28, 2011, Commission File No. 0-17017) | 10.13 | | * | — |
| | Form of Restricted Stock Unit Agreement for Executive Officers under the Amended and Restated 2002 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.23 of Dell’sDell's Annual Report on Form 10-K for the fiscal year ended January 30, 2009, CommissionFile No. 0-17017) | | 10 | .23*10.14 | | * | — |
| | Form of Restricted Stock Unit Agreement for Executive Officers under the Amended and Restated 2002 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.4 of Dell's Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 2010, Commission File No. 0-17017) | 10.15 | | * | — |
| | Form of Restricted Stock Unit Agreement for New Hire Senior Executive Officers under the Amended and Restated 2002 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.5 of Dell's Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 2010, Commission File No. 0-17017) | 10.16 | | * | — |
| | Form of Performance Based Stock Unit Agreement for employees under the 2002 Long-Term Incentive Plan (incorporated by reference to Exhibit 99.2 of Dell's Current Report on Form 8-K filed March 14, 2006, Commission File No. 0-17017) | 10.17 | | * | — |
| | Form of Performance Based Stock Unit Agreement for Executive Officers under the Amended and Restated 2002 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.17 of Dell's Annual Report on Form 10-K for the fiscal year ended February 1, 2008, Commission File No. 0-17017) | 10.18 | | * | — |
| | Form of Performance Based Stock Unit Agreement for Executive Officers under the Amended and Restated 2002 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.21 of Dell's Annual Report on Form 10-K for the fiscal year ended January 30, 2009, Commission File No. 0-17017) |
| | | | | | | | | Exhibit No. | | | Description of Exhibit | 10.19 | | * | — |
| | Form of Performance Based Stock Unit Agreement for Key Vice Presidents under the Amended and Restated 2002 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 of Dell's Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 2010, Commission File No. 0-17017) | 10.20 | | * | — |
| | Form of Performance Based Stock Unit Agreement for Communications Solutions Executive Officers under the Amended and Restated 2002 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.2 of Dell's Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 2010, Commission File No. 0-17017) | 10.21 | | * | — |
| | Form of Nonstatutory Stock Option Agreement for Non-Employee Directors under the 2002 Long-Term Incentive Plan (incorporated by reference to Exhibit 99.3 of Dell's Current Report on Form 8-K filed July 27, 2006, Commission File No. 0-17017) | 10.22 | | * | — |
| | Form of Nonstatutory Stock Option Agreement for grant to Donald J. Carty under the 2002 Long-Term Incentive Plan (incorporated by reference to Exhibit 99.1 of Dell's Current Report on Form 8-K filed December 20, 2006, Commission File No. 0-17017) | 10.23 | | * | — |
| | Form of Nonstatutory Stock Option Agreement for Non-Employee Directors under the Amended and Restated 2002 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.11 of Dell's Quarterly Report on Form 10-Q for the fiscal quarter ended May 4, 2007, Commission File No. 0-17017) | 10.24 | | * | — |
| | Form of Nonstatutory Stock Option Agreement for Executive Officers under the Amended and Restated 2002 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.22 of Dell's Annual Report on Form 10-K for the fiscal year ended January 30, 2009, Commission File No. 0-17017) | 10.25 | | * | — |
| | Form of Nonstatutory Stock Option Agreement for Executive Officers under the Amended and Restated 2002 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.3 of Dell's Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 2010, Commission File No. 0-17017) | 10.26 | | * | — |
| | Form of Indemnification Agreement between Dell and each Non-Employee Director of Dell (incorporated by reference to Exhibit 10.11 to Dell's Annual Report on Form 10-K for the fiscal year ended January 31, 2003, Commission File No. 0-17017) | 10.27 | | * | — |
| | Form of Indemnification Agreement between Dell and each Executive Officer of Dell (incorporated by reference to Exhibit 10.27 of Dell's Annual Report on Form 10-K for the Fiscal year ended January 28, 2011, Commission File No. 0-17017)
| 10.28 | | * | — |
| | Form of Protection of Sensitive Information, Noncompetition and Nonsolicitation Agreement (incorporated by reference to Exhibit 99.3 of Dell's Current Report on Form 8-K filed February 21, 2007, Commission File No. 0-17017) | 10.29 | | * | — |
| | Form of Protection of Sensitive Information, Noncompetition and Nonsolicitation Agreement for Executive Officers (incorporated by reference to Exhibit 10.1 of Dell’sDell's Current Report onForm 8-K filed July 16, 2007, Commission File No. 0-17017) | | 10 | .24*10.30 | | — | | Protection of Sensitive Information, Noncompetition and Nonsolicitation Agreement between Kevin B. Rollins and Dell Inc. (incorporated by reference to Exhibit 99.2 of Dell’s Current Report on Form 8-K filed February 20, 2007, Commission File No. 0-17017) | | 10 | .25* | * | — | | Letter Agreement regarding Severance Benefits between Michael R. Cannon and Dell Inc. (incorporated by reference to Exhibit 99.1 of Dell’s Current Report on Form 8-K filed February 21, 2007, Commission File No. 0-17017) | | 10 | .26* | | — | | Letter Agreement regarding Severance Benefits between Ronald G. Garriques and Dell Inc. (incorporated by reference to Exhibit 99.2 of Dell’s Current Report on Form 8-K filed February 21, 2007, Commission File No. 0-17017) | | 10 | .27* | | — | | Form of Protection of Sensitive Information, Noncompetition and Nonsolicitation Agreement (incorporated by reference to Exhibit 99.3 of Dell’s Current Report onForm 8-K filed February 21, 2007, CommissionFile No. 0-17017) | | 10 | .28* | | —
| | Form of Protection of Sensitive Information, Noncompetition and Nonsolicitation Agreement for Executive Officers (incorporated by reference to Exhibit 10.1 of Dell’sDell's Current Report onForm 8-K filed September 12, 2007, Commission File No. 0-17017) | | 10 | .29*10.31 | | *† | — |
| | SeparationForm of Protection of Sensitive Information, Noncompetition and Nonsolicitation Agreement and Release between Kevin B. Rollins and Dell Inc. (incorporated by reference to Exhibit 99.1 of Dell’s Current Report on Form 8-K filed February 20, 2007, Commission File No. 0-17017)
| | 10 | .30*10.32 | | * | — |
| | Separation Agreement and Release between Michael R. Cannon and Dell Inc. (incorporated by reference to Exhibit 99.1 of Dell’s Current Report on Form 8-K filed January 8, 2009, Commission File No. 0-17017) | | 10 | .31* | | — | | Consultancy Agreement between Michael R. Cannon and Dell Inc. (incorporated by reference to Exhibit 99.2 of Dell’s Current Report on Form 8-K filed January 8, 2009, CommissionFile No. 0-17017) | | 10 | .32* | | — | | Separation Agreement and Release between Mark Jarvis and Dell Inc. (incorporated by reference to Exhibit 99.3 of Dell’s Current Report on Form 8-K filed January 8, 2009, CommissionFile No. 0-17017) | | 10 | .33* | | — | | Retention Bonus, Merger and Modification Agreement between Dell and Ronald G. Garriques (incorporated by reference to Exhibit 99.1 of Dell’sDell's Current Report on Form 8-K filed March 9, 2009, Commission File No. 0-17017)
| | 12 | .1†10.33 | | * | — |
| | Separation Agreement and Release between Ronald G. Garriques and Dell (incorporated by reference to Exhibit 99.1 of Dell's Current Report on Form 8-K filed November 17, 2010, Commission File No. 0-17017)
| 10.34 | | * | — |
| | Separation Agreement and Release between Dell and Peter Altabef (incorporated by reference to Exhibit 10.1 of Dell's Current Report on Form 8-K filed January 13, 2011, Commission File No. 0-17017)
| 12.1 | | † | — |
| | Computation of ratio of earnings to fixed charges | 21 | 21 | † | — | —
| | Subsidiaries of Dell | 23 | 23 | † | — | —
| | Consent of PricewaterhouseCoopers LLP | | 31 | .1†31.1 | | † | — |
| | Certification of Michael S. Dell, Chairman and Chief Executive Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | 31 | .2† | | | | | | Exhibit No. | | | Description of Exhibit | 31.2 | | † | — |
| | Certification of Brian T. Gladden, Senior Vice President and Chief Financial Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | 32 | .1††32.1 | | †† | — |
| | Certifications of Michael S. Dell, Chairman and Chief Executive Officer, and Brian T. Gladden, Senior Vice President and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | 101 | 101 | .INS§ | — | —
| | XBRL Instance Document.Document | 101 | 101 | .SCH§ | — | —
| | XBRL Taxonomy Extension Schema Document.Document |
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101 | | | | | | | Exhibit
| | | | | No. | | | | Description of Exhibit | | 101 | .CAL§ | — | —
| | XBRL Taxonomy Extension Calculation Linkbase Document.Document | 101 | 101 | .LAB§ | — | —
| | XBRL Taxonomy Extension Label Linkbase Document.Document | 101 | 101 | .PRE§ | — | —
| | XBRL Taxonomy Extension Presentation Linkbase Document.Document | 101 | 101 | .DEF§ | — | —
| | XBRL Taxonomy Extension Definition Linkbase Document.Document |
| | | | * | | Identifies Exhibit that consists of or includes a management contract or compensatory plan or arrangement. | | † | | Filed with this report. | | †† | | Furnished with this report. | | § | | Furnished with this report. In accordance with Rule 406T ofRegulation S-T, the information in these exhibits shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing. |
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