DELL TECHNOLOGIES INC.
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Unless the context indicates otherwise, references in this report to “we,” “us,” “our,” the “Company,” and “Dell Technologies” mean Dell Technologies Inc. and its consolidated subsidiaries, references to “Dell” mean Dell Inc. and Dell Inc.’s consolidated subsidiaries, and references to “EMC” mean EMC Corporation and EMC Corporation’s consolidated subsidiaries, and references to “VMware” refer to VMware, Inc. and VMware, Inc.’s consolidated subsidiaries.
Our fiscal year is the 52- or 53-week period ending on the Friday nearest January 31. We refer to our fiscal years ended February 1, 2019, February 2, 2018,January 28, 2022, January 29, 2021, and February 3, 2017January 31, 2020, as “Fiscal 2019,2022,” “Fiscal 2018,2021,” and “Fiscal 2017,2020,” respectively. Fiscal 20192022, Fiscal 2021, and Fiscal 20182020 included 52 weeks. Fiscal 2017 included 53 weeks, with the extra week included in the fourth quarter of Fiscal 2017.
PART I
ITEM 1 — BUSINESS
On November 1, 2021, Dell Technologies completed its previously announced spin-off of VMware, Inc. (“VMware”) by means of a special stock dividend (the “VMware Spin-off”). The VMware Spin-off was effectuated pursuant to a Separation and Distribution Agreement, dated as of April 14, 2021, between Dell Technologies and VMware (the “Separation and Distribution Agreement”). As part of the transaction, VMware paid a special cash dividend, pro rata, to each holder of VMware common stock in an aggregate amount equal to $11.5 billion, of which Dell Technologies received $9.3 billion.
In connection with and upon completion of the VMware Spin-off, Dell Technologies and VMware entered into a Commercial Framework Agreement (the “CFA”). The CFA provides a framework under which Dell Technologies and VMware will continue their commercial relationship after the transaction.
On October 1, 2021, Dell Technologies completed the sale of Boomi, Inc. (“Boomi”) and certain related assets and received total cash consideration of approximately $4.0 billion. The transaction was intended to support the Company’s focus on fueling growth initiatives through targeted investments to modernize Dell Technologies’ core infrastructure and through expansion in high-priority areas, including hybrid and private cloud, edge, telecommunications solutions, and the Company’s APEX offerings.
With the proceeds from the VMware Spin-off and cash on hand, we were able to make steady progress in paying down our outstanding debt throughout Fiscal 2022. As a result of our debt reduction and continued focus on deleveraging, we achieved an investment grade rating from three major credit rating agencies.
During Fiscal 2022, the COVID-19 pandemic continued to present global challenges that directly impacted Dell Technologies, most notably in relation to supply chain impacts. As a result of the global economic recovery coupled with industry-wide constraints on the supply of limited-source components, we experienced demand which outpaced supply across many of our product offerings. The supply chain impacts led to an increase in orders pending fulfillment and extended lead times for our customers. We continue to closely monitor the impacts of COVID-19 and keep the health of our employees, customers, business partners, and communities as our primary focus.
See Note 1, Note 3, and Note 7 of the Notes to the Consolidated Financial Statements included in this report for additional information regarding the VMware Spin-off, the Boomi divestiture, and our outstanding debt.
Company Overview
Dell Technologies is a leading global end-to-end technology provider, with a comprehensive portfolio of IT hardware, software and service solutions spanning both traditional infrastructure and emerging, multi-cloud technologies that enable our customers tohelps organizations build their digital futurefutures and individuals transform how they work, live and live.play. We operate eight complementary businesses: our Infrastructure Solutions Groupprovide customers with one of the industry’s broadest and our Client Solutions Group, as well as VMware, Inc., Pivotal Software, Inc. (“Pivotal”), SecureWorks Corp. (“Secureworks”), RSA Security LLC (“RSA Security”), Virtustream Group Holdings, Inc. (“Virtustream”),most innovative solutions portfolio for the data era, including traditional infrastructure and Boomi, Inc. (“Boomi”). Together our strategically aligned family of businesses collaborate across key functional areas such as technology and product development, marketing, go-to-market and global services, and are supported by Dell Financial Services.extending to multi-cloud environments. We believe this operational philosophy enables our platformcontinue to seamlessly deliver differentiated and holistic ITinformation technology (“IT”) solutions to our customers which has driven significanthelped drive consistent revenue growth and share gains.growth.
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the forefront of the software-defined and cloud native infrastructure era. OurAs further evidence of our commitment to innovation, we are evolving and expanding our IT as-a-Service and cloud offerings including APEX-branded solutions which provide our customers with greater flexibility to scale IT to meet their evolving business needs and budgets.
Dell Technologies’ end-to-end portfolio is supported by a differentiatedworld-class organization that operates globally in approximately 180 countries across key functional areas, including technology and product development, marketing, sales, financial services, and services. Our go-to-market engine which includes a 40,000-person32,000-person sales force and a global network of over 200,000 channel partners,partners. Dell Financial Services and its affiliates (“DFS”) offer customers payment flexibility and enables synergies across the business. DFS funded $8.5 billion of originations in Fiscal 2022 and maintains a $11 billion global portfolio of high-quality financing receivables. We employ approximately 35,000 full-time service and support professionals and maintain more than 2,400 vendor-managed service centers. We manage a world-class supply chain that together drive revenuedrives long-term growth and operating efficiencies.efficiencies, with approximately $75 billion in annual procurement expenditures and over 750 parts distribution centers. Together, these elements provide a critical foundation for our success.
Our Vision and Strategy
Our vision is to become the most essential technology company for the data era. We seek to address our customers’ evolving needs and their broader digital transformation objectives as they embrace today’s hybrid multi-cloud environment. We intend to execute on our vision by focusing on two overarching strategic priorities:
•Grow and modernize our core offerings in the markets in which we predominantly compete
•Pursue attractive new growth opportunities such as Edge, Telecom, data management, and as-a-Service consumption models
We believe that we are uniquely positioned in the data and multi-cloud era and that our results will benefit from our competitive advantages. We intend to continue to execute our business model to position our company for long-term success while balancing liquidity, profitability, and growth.
We are seeing an accelerated rate of change in the IT industry and increased demand for simpler, more agile IT as companies leverage multiple clouds in their IT environments. COVID-19 has accelerated the introduction and adoption of new technologies to ensure productivity and collaboration from anywhere. To meet our customer needs, we continue to invest in research and development, sales, and other key areas of our business to deliver superior products and solutions capabilities and to drive long-term sustainable growth.
Products and Services
We design, develop, manufacture, market, sell, and support a wide range of comprehensive and integrated solutions, products, and services. We are organized into the followingtwo business units, referred to as Infrastructure Solutions Group and Client Solutions Group, which are our reportable segments: segments.
•Infrastructure Solutions Group; Client Solutions Group;Group (“ISG”) — ISG enables our customers’ digital transformation through our trusted multi-cloud and VMware.
Our comprehensive portfolio of advanced storage solutions includes traditional storage solutions as well as next-generation storage solutions (such as all-flash arrays, scale-out file, object platforms, and software-defined solutions). In May 2020, we released our new PowerStore offering, a differentiated midrange storage solution that we deliver the technology needed for our customers’ digital transformation. Asenables seamless updates using microservices and container-based software architecture. This offering allows us to compete more effectively within midrange storage. We continue to make enhancements to our storage portfolio evolves, wesolutions offerings and expect that these offerings will continue to support our current portfolio of storage solutions.drive long-term improvements in the business.
Our strengths in server, storage, and virtualization software solutions enable us to offer leading converged and hyper-converged solutions, allowing our customers to accelerate their IT transformation by acquiring scalable integrated IT solutions instead of building and assembling their own IT platforms. ISG also offers attached software, peripherals and services, including support and deployment, configuration, and extended warranty services.
Approximately half of ISG revenue is generated by sales to customers in the Americas, with the remaining portion derived from sales to customers in the Europe, Middle East, and Africa region (“EMEA”) and the Asia-Pacific and Japan region (“APJ”).
•Client Solutions Group (“CSG”) — CSG includes branded hardware (such as desktops, workstations, and notebooks) and branded peripherals (such as displays and projectors), as well as third-party software and peripherals. Our computing devices are designed with our commercial and consumer customers’ needs in mind, and we seek to optimize performance, reliability, manageability, design, and security. For our customers that are seeking to simplify client lifecycle management, Dell PC as-a-Service offering combines hardware, software, lifecycle services, and financing into one all-encompassing solution that provides predictable pricing per seat per month. CSG also offers attached software, peripherals, and services, including support and deployment, configuration, and extended warranty services. |
Approximately half of CSG revenue is generated by sales to customers in the Americas, with the remaining portion derived from sales to customers in EMEA and APJ.
Our other businesses, described below, consists of our resale of standalone VMware offerings, referred to as VMware Resale, as well as product and service offerings of SecureWorks Corp. (“Secureworks”) and Virtustream. These businesses are not classified as reportable segments, either individually or collectively. •VMware Resale consists of our sale of standalone VMware offerings. Under the CFA entered into as part of the VMware Spin-off, Dell Technologies continues to act as a key channel partner in this relationship, reselling VMware offerings to our customers. This partnership is intended to facilitate mutually beneficial growth for both Dell and VMware. |
VMware works with customers in the areas of hybrid cloud,and multi-cloud, modern applications, networking, and security, and digital workspaces, helping customers manage their IT resources across private clouds and complex multi-cloud, multi-device environments. VMware’s portfolio supports
•Secureworks (NASDAQ: SCWX) is a leading global provider of intelligence-driven information security solutions singularly focused on protecting its clients from cyber attacks. The solutions offered by Secureworks enable organizations of varying size and addresses the keycomplexity to fortify their cyber defenses to prevent security breaches, detect malicious activity in near real time, prioritize and respond rapidly to security incidents and predict emerging threats.
•Virtustream offers cloud software and Infrastructure-as-a-Service solutions that enable customers to migrate, run, and manage mission-critical applications in cloud-based IT priorities of customers: accelerating their cloud journey, empowering digital workspaces, and transforming networking and security. VMware solutions provide a flexible digital foundation to enable the digital transformation of VMware’s customers as they ready their applications, infrastructure, and devices for their future business needs.environments.
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See “Part II — Item 7 —Management’s— Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Business Unit Results.”Results” and Note 19 of the Notes to the Consolidated Financial Statements for further discussion of our reportable segment operating results.
Recurring Revenue and Consumption Models
Our customers are seeking new and innovative models that address how they consume our solutions. We offer options including as-a-Service, utility, leases, and immediate pay models, all designed to match customers’ consumption and financing preferences. We continue to evolve and build momentum across our family of as-a-Service offerings as we pursue our strategy of modernizing our core business solutions, with APEX at the forefront. We expect that our flexible consumption models and as-a-Service offerings will further strengthen our customer relationships and provide a foundation for growth in recurring revenue.
These offerings typically result in multiyear agreements which generate recurring revenue streams over the term of the arrangements. We define recurring revenue as revenue recognized primarily related to hardware and software maintenance as well as subscription, as-a-Service, and usage based offerings, and operating leases.
Dell Financial Services
Research and Development
We focus on developing scalable technology solutions that incorporate highly desirable features and capabilities at competitive prices. We employ a collaborative approach to product design and development in which our engineers, with direct customer input, design innovative solutions and work with a global network of technology companies to architect new system designs, influence the direction of future development, and integrate new technologies into our products. We manageOur team of software engineers is focused on developing the next generation of solutions for new and innovative technologies. Most of our research and development (“R&D”) expenditures represent costs to develop the software that powers our solutions. This software simplifies the complex through automation, increasingly leveraging artificial intelligence and machine-learning technology. We manage our R&D spending by targeting those innovations and productssolutions that we believe are most valuable to our customers and by relying on the capabilities of our strategic relationships. Our customer base includes a growing number of service providers, such as cloud service providers, Software-as-a-Service companies, consumer webtech providers, and telecommunications companies. These service providers turn to Dell Technologies for our advanced solutions that enable efficient service delivery at cloud scale. Through thisour collaborative, customer-focused approach to innovation, we strive to deliver new and relevant products to the market quickly and efficiently.
Additionally, from time to time, we make strategic investmentsinvest in publicly-traded andearly-stage, privately-held companies that develop software, hardware, and other technologies or provide services supporting our technologies. We manage our investments through our venture capital investment arm, Dell Technologies Capital.
Dell Technologies has a global R&D presence, with total R&D expenses of $4.6 billion, $4.4 billion, and$2.6 billion, $2.5 billion, and $2.5 billion, for Fiscal 2019,2022, Fiscal 2018,2021, and Fiscal 2017,2020, respectively. These investments reflect our commitment to R&D activities that ultimately support our mission:mission to help our customers build their digital future and to transform IT.
Manufacturing and Materials
We own manufacturing facilities located in the United States, Malaysia, China, Brazil, India, Poland, and Ireland. See “Item 2 — Properties” for information about our manufacturing and distribution facilities.
We also utilize contract manufacturers throughout the world to manufacture or assemble our products under the Dell Technologies brand as part of our strategy to enhance our variable cost structure and to achieve our goals of generating cost efficiencies, delivering products faster, better serving our customers, and enhancing our world-class supply chain.
Our manufacturing process consists of assembly, software installation, functional testing, and quality control. We conduct operations utilizing a formal, documented quality management system to ensure that our products and services satisfy customer needs and expectations. Testing and quality control are also applied to components, parts, sub-assemblies, and systems obtained from third-party suppliers.
Our quality management system is maintained through the testing of components, sub-assemblies, software, and systems at various stages in the manufacturing process. Quality control procedures also include a burn-in period for completed units after assembly, ongoing production reliability audits, failure tracking for early identification of production and component problems, and processing of information from customers obtained through services and support programs. This system is certified to the ISO 9001 International Standard that includes most of our global sites and organizations that design, manufacture, and service our products.
Our order fulfillment, manufacturing, and test facilities in Massachusetts, North Carolina, and Ireland are certified to the ISO 14001 International Standard for environmental management systems, the ISO 45001 International Standard for health and also have achieved OHSAS 18001 certification, an international standardsafety management systems, and the ISO 50001 International Standard for facilities with world-class safety and healthenergy management systems. These internationally-recognized endorsements of ongoing quality, environmental, health and environmentalsafety, and energy management are among the highest levels of certifications available. We also have implemented Lean Six Sigmaprograms and 7S (Customer, Safety, Quality, Delivery, Cost, Team, and Green) methodologies to ensure that the quality of our designs, manufacturing, test processes, and supplier relationships are continually improved.
We maintain a robust Supplier Code of Conduct, actively manage recycling processes for our returned products, and are certified by the Environmental Protection Agency as a Smartway Transport Partner.
We purchase materials, supplies, product components, and products from a large number of qualified suppliers. In some cases, where multiple sources of supply are not available, we rely on single-sourcea single source or a limited number of sources of supply if we believe it is advantageous to do so because of performance, quality, support, delivery, capacity, or price considerations. We believe that any disruption that may occur because of our dependence on single- or limited-source vendors would not disproportionately disadvantage us relative to our competitors. See “Item 1A — Risk Factors — Risk FactorsRisks Relating to Our Business and Our Industry — Reliance on vendors for products and components, many of which are single-source or limited-source suppliers, could harm Dell Technologies’our business by adversely affecting product availability, delivery, reliability, and cost” for information about the risks associated with Dell Technologies’ use of single- or limited-source suppliers.
Geographic Operations
Our global corporate headquarters is located in Round Rock, Texas. We have operations and conduct business in many countries located in the Americas, Europe, the Middle East, Asia, and other geographic regions. To increase our global presence, we continue to focus on emerging markets outside of the United States, Western Europe, Canada, and Japan. We continue to view these geographical markets, which include the vast majority of the world’s population, as a long-term growth opportunity. Accordingly, we pursue the development of technology solutions that meet the needs of these markets. Our expansion in emerging markets creates additional complexity in coordinating the design, development, procurement, manufacturing, distribution, and support of our product and services offerings. For information about the amount of net revenue we generated from our operations outside of the United States during the last three fiscal years, see Note 19 of the Notes to the Consolidated Financial Statements included in this report.
Seasonality
Our sales are affected by seasonal trends. Among the trends with the most significant effect on our operating results, sales to government customers (particularly the U.S. government) generally are stronger in our third fiscal quarter, sales in Europe, the Middle East and Africa are often weaker in our third fiscal quarter, and sales to consumers are typically strongest during our fourth fiscal quarter.
Competition
We operate in an industry in which there are rapid technological advances in hardware, software, and services offerings. We face ongoing product and price competition in all areas of our business, including from both branded and generic competitors. We compete based on our ability to offer customers competitive, scalable, and integrated solutions that provide the most current and desired product and services features at a competitive price. We closely monitor market pricing and solutions trends, including the effect of foreign exchange rate movements, in an effort to provide the best value for our customers. We believe that our strong relationships with our customers and channel partners allow us to respond quickly to changing customer needs and other macroeconomic factors.
We also face competition from non-traditional IT companies such as cloud service providers, also known as hyperscalers, that buy their infrastructure directly from original design manufacturers. Competitive pressures could increase if customers choose to move application workloads to cloud service providers away from traditional or private data centers.
The markets in which we compete are comprised of large and small companies across all areas of our business. We believe that new businesses will continue to enter these markets and develop technologies that, if commercialized, may compete with our products and services. Moreover, current competitors may enter into new strategic relationships with new or existing competitors, which may further increase the competitive pressures. See “Item 1A — Risk Factors — Risk FactorsRisks Relating to Our Business and Our Industry” for information about our competitive risks.
Sales and Marketing
Go-to-market strategy includes a — We sell products and services directly to customers and through other sales channels, which include value-added resellers, system integrators, distributors, and retailers. We continue to pursue our direct business model, as well as channel distribution. Our direct business modelstrategy, which emphasizes direct communication with customers, thereby allowing us to refine our products and marketing programs for specific customers groups, and we continue to pursue this strategy.customer groups. In addition to our direct business model, we rely on ause our network of channel partners to sell our products and services, enabling us to efficiently serve a greater number of customers. The Dell Technologies partner program contributes to the development of channel sales by providing appropriate incentives to encourage sales generation. We also facilitate access to third-party financing to help our channel partners manage their working capital. We believe that building long-term relationships with our channel partners enhances our ability to deliver an excellent customer experience. During Fiscal 2022, our other sales channels contributed over 50% of our net revenue.
— For large businessenterprises and institutional customers,public institutions, we maintain a field sales force throughout the world. Dedicated account teams, which include technical sales specialists, form long-term relationships to provide our largest customers with a single source of assistance, develop tailored solutions for these customers, position the capabilities of Dell Technologies, and provide us with customer feedback. For these customers, we offer several programs designed to provide single points of contact and accountability with dedicated account managers, special pricing, and consistent service and support programs. We also maintain specific sales and marketing programs targeting federal, state, and local governmental agencies, as well as healthcare and educational customers.
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Product Backlog
Product backlog represents the value of unfulfilled manufacturing orders.orders and is included as a component of remaining performance obligations to the extent we determine that the manufacturing orders are non-cancelable. Our business model generally gives us the ability to optimize product backlog at any point in time, for example,such as by expediting shipping or prioritizing customer orders towardfor products that have shorter lead times. BecauseDuring Fiscal 2022, we were impacted by industry-wide constraints in the supply of limited-source components in certain product offerings as a result of the impacts of COVID-19. Further, global economic recovery led to growth in demand that outpaced supply and, as a result, we experienced elevated backlog atand extended lead times for our customers in certain offerings.
Patents, Trademarks, and Licenses
As of January 28, 2022, we held a worldwide portfolio of 18,570 granted patents and 7,619 pending patent applications. As a result of the VMware Spin-off, patents and patent applications held by VMware are no longer being reported as part of our portfolio. We continue to obtain new patents through our ongoing research and development activities. The inventions claimed in our patents and patent applications cover aspects of our current and possible future computer system and software products, manufacturing processes, and related technologies. We also hold licenses to use numerous third-party patents. Although we use our patented inventions and license some of them to others, we are not substantially dependent on any pointsingle patent or group of related patents. Our product and process patents may establish barriers to entry, and we anticipate that our worldwide patent portfolio will continue to be of value in timenegotiating intellectual property rights with others in the industry.
We have used, registered, or applied to register certain trademarks and copyrights in the United States and in other countries. We believe that Dell Technologies, DELL, Dell EMC, Alienware, Secureworks, and Virtustream word marks and logo marks in the United States are material to our operations.
We have entered into software licensing agreements with other companies. We also license certain technology and intellectual property from third parties for use in our offerings and processes, and license some of our technologies and intellectual property to third parties.
Government Regulation
Our business is subject to regulation by various U.S. federal and state governmental agencies and other governmental agencies. Such regulation includes the activities of the U.S. Federal Communications Commission; the anti-trust regulatory activities of the U.S. Federal Trade Commission, the U.S. Department of Justice, and the European Union; the consumer protection laws and financial services regulation of the U.S. Federal Trade Commission and various state governmental agencies; the export regulatory activities of the U.S. Department of Commerce and the U.S. Department of the Treasury; the import regulatory activities of the U.S. Customs and Border Protection; the product safety regulatory activities of the U.S. Consumer Product Safety Commission and the U.S. Department of Transportation; the health information privacy and security requirements of the U.S. Department of Health and Human Services; and the environmental, employment and labor, and other regulatory activities of a variety of governmental authorities in each of the countries in which we conduct business.
Our operations are subject to a variety of environmental, performance and safety regulations in all areas in which we conduct business. Product design and procurement operations must comply with requirements relating to materials composition, sourcing, radiated emissions, energy efficiency and collection, recycling, treatment, transportation, and disposal of electronics products, including restrictions on mercury, lead, cadmium, lithium metal, lithium ion, and other substances. Operations may also become subject to new or emergent standards relating to climate change laws and regulations. The costs and timing of costs under environmental and safety laws are difficult to predict. We were not assessed any material environmental fines, nor did we have any material environmental remediation or other environmental costs, during Fiscal 2022.
We and our subsidiaries are subject to various anti-corruption laws that prohibit improper payments or offers of payments to foreign governments and their officials for the purpose of obtaining or retaining business, and are also subject to export controls, customs, economic sanctions laws, including those currently imposed on Russia, and embargoes imposed by the U.S. government. Violations of the Foreign Corrupt Practices Act or other anti-corruption laws or export control, customs, or economic sanctions laws may result in severe criminal or civil sanctions and penalties.
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We are subject to provisions of the generationDodd-Frank Wall Street Reform and Consumer Protection Act intended to improve transparency and accountability concerning the supply of any predictable amountminerals originating from the conflict zones of the Democratic Republic of the Congo or adjoining countries. We incur costs to comply with the disclosure requirements of this law and other costs relating to the sourcing and availability of minerals used in our products.
Environmental, Social, and Governance
Dell Technologies is committed to driving human progress by putting our technology and expertise to work where it can do the most good for both people and the planet. We recognize that all of our stakeholders — shareholders, customers, suppliers, employees, and communities — as well as the environment and society, are essential to our business.
In November 2019, Dell Technologies announced its social impact goals and plan for 2030 called Progress Made Real (the “2030 Plan”). Our goals under the 2030 Plan represent an extension of our purpose as a company — to create technologies that drive human progress. We are using these goals to build our social impact strategies over the next decade. The 2030 Plan has four critical areas of focus:
•Advancing Sustainability — We believe we have a responsibility to protect and enrich our planet together with our customers, suppliers, and communities. In working across our business ecosystem, Dell Technologies will continue valuing natural resources and seeking to minimizing our impact. With the power of our global supply chain, Dell Technologies has the scale and responsibility to pursue the highest standards of sustainability and ethical practices.
•Cultivating Inclusion — We view diversity and inclusion as a business imperative that will enable us to build and empower our future workforce. It is essential that our workforce be fully representative of the diversity in our global customer base. Diversity of leadership increases innovation and ensures that company decisions reflect a wide variety of perspectives.
•Transforming Lives —We believe our scale, support, and the innovative application of our portfolio can play an important role in advancing fundamental human rights and addressing complex societal challenges, including improving health, education, and economic opportunities for the underserved. We endeavor to harness the power of technology to create a future that is capable of realizing human potential.
•Upholding Ethics and Privacy — Ethics and privacy play a critical role in establishing a strong foundation for positive social impact. We are committed to ensuring that new talent and existing team members align to our ethical culture. We will continue to invest in our advanced privacy governance and risk-management technology and continue seeking to select, evaluate, and do business with third parties who share our level of dedication to ethics and privacy.
Dell Technologies measures its progress against each goal under the 2030 Plan in its annually released reports available on our website.
Climate Change
At Dell Technologies, we believe that by addressing climate change, we are demonstrating our commitment to protect our planet and the community. We have a responsibility to manage the greenhouse gas emissions associated with our direct and indirect footprint, and technology plays an important role in this undertaking. We aim to reach net revenuezero emissions across Scopes 1, 2 and 3 by 2050.
Human Capital Management
We are a diverse team with unique perspectives, united in any subsequent period,our purpose, our strategy, and our culture. Our goal is to ensure that employees of different backgrounds feel valued, engaged, and inspired to do their best work. Through our ongoing diversity and inclusion efforts, flexible workplace transformation programs, training and development offerings, and health and wellness resources for our employees, we are striving to attract, develop and retain an empowered workforce for maximum impact internally and externally for our customers and communities. We believe in winning with integrity, and we leverage technology and deploy state-of-the-art tools to assist our team members in applying the principles of integrity and compliance as part of everyday business transactions, activities, and decisions. We seek to support our culture in four key focus areas: diversity and inclusion, achievement, balance, and connection.
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Diversity and Inclusion — At Dell Technologies, we believe diversity is power. Within our 2030 Plan, one critical area of focus — cultivating inclusion — highlights how our human capital resources are vital to our social impact and long-term success. Cultivating inclusion is a core component of our culture, and we believe that closing the diversity gap is critical to meeting future talent needs and ensuring that new perspectives reflect our global customer base. We are committed to equal employment opportunity for all and upholding ethics and integrity in all we do not believe product backlogand will continue to be a meaningful indicator of future net revenue. Product backlog is included as a component of remaining performance obligation to the extent we determinechampion for inclusive policies that the manufacturing orders are non-cancelable.
As of February 1, 2019,January 28, 2022, we had approximately 157,000 total full-time133,000 employees, approximately 24,00032% of whom were employees of VMware, Inc. In comparison, as of February 2, 2018, we had approximately 145,000 total full-time employees, approximately 22,000 of whom were employees of VMware, Inc. As of February 1, 2019, approximately 37% of our full-time employees were located in the United StatesStates. Excluding employees of Secureworks, the overall representation of employees who self-identify as women was approximately 34%. Of our global people leaders, 28% self-identified as women. We define people leaders as employees in a job management level or executive or manager position.
As of the same date, our U.S. employee base was comprised of employees who self-identified with the following ethnicities: 65% as White or Caucasian; 15% as Asian; 9% as Hispanic or Latino; 6% as Black or African American; 2% with two or more races; and approximately 63% were located1% with additional groups (including American Indian, Alaska Native, Native Hawaiian or Other Pacific Islander). Approximately 2% of our U.S. employee base did not self-report or specify ethnicity status. Of our U.S. people leaders, 12% self-identified as Hispanic or Latino or as Black or African American.
As the composition of the workforce evolves, we recognize that companies embracing diversity and inclusion are experiencing greater innovation, productivity, engagement, and employee satisfaction. We are committed to increasing gender and ethnic diversity throughout Dell Technologies and, as part of our 2030 Plan, have established goals focused on this objective. We seek to achieve the following diversity goals within our workforce (excluding employees of Secureworks):
•By 2030, 50% of our global workforce and 40% of our global people leaders will be those who self-identify as women.
•By 2030, 25% of our U.S. workforce and 15% of our U.S. people leaders will be those who self-identify as Black or African American or as Hispanic or Latino.
We seek to meet these goals by:
•building and attracting the future workforce to create a workplace that is accessible, equitable and attractive to a diverse talent pipeline;
•developing and retaining an empowered workforce to foster an internal community that is engaged, productive, and innovative; and
•expanding our impact beyond our four walls, to build stronger customer relationships and external community that recognizes, respects and embraces our shared value.
We still have work to do, and plan to provide transparency into our progress via annual reporting available on the social impact reporting page of our website.
Achievement through Learning, Development, and Total Rewards — We offer a competitive and comprehensive benefits package and strive to provide the best choice and value at the best cost. Our comprehensive rewards programs are designed to attract, reward, and retain high-quality talent and to inspire employees to be their best and do their best work for our customers and the growth of our business. We recognize and reward performance through awards aligned with business strategy and individual objectives while supporting team members’ mental, physical, and financial health, and promoting workplace flexibility and connection. Further, Dell Technologies’ focus on cultivating inclusion is an important component of our total rewards philosophy — we believe that equal pay is a business imperative and we are committed to it.
We provide a multitude of programs to enhance employees’ career growth and development. We offer formal training options, individualized development programs and sponsorship, tools for 360-degree feedback, mentoring, networking, stretch assignments, and growth opportunities. Our programs are designed to empower and inspire employees to direct their own career paths and build a portfolio of valuable skills for success in other countries.the technology industry. We are committed to building a diverse leadership pipeline with a broad spectrum of skills, including the ability to lead with integrity and inspire others.
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Balance and Wellness — Work flexibility is part of our culture and has been critical to our success throughout the COVID-19 pandemic. Dell Technologies has built tools and a culture that provide choice and flexibility to employees, the majority of whom continue to work in a mostly virtual environment. Dell’s Connected Workplace program allows eligible employees to choose from a variety of flexible work arrangement options that best meet their needs and is now available in 84 countries globally. We have implemented pandemic-specific protocols for employees whose jobs require them to be on-site or with customers and are deploying return-to-site processes based on ongoing assessments of local conditions.
We support our employees’ wellness through a comprehensive approach focused on mental, physical, and financial health, flexibility, and connection. We provide wellness resources to help employees and their families develop and sustain healthy habits. We further support employee wellness via regular communications, virtual live and on-demand educational sessions, voluntary progress tracking, wellness challenges, paid personal wellness time, and other incentives.
Connection and Engagement — We believe that employee feedback is an important part of our culture and how we drive our strategy. Through our annual Tell Dell survey, employees can confidentially voice their perceptions of our Company, their work experience, and ways in which Dell Technologies can improve. We drive further employee engagement and connection through a variety of initiatives including, but not limited to, our member listening strategy and our Employee Resource Groups (“ERGs”). We have a total of 13 unique ERGs, such as the Black Networking Alliance, Women in Action, and Planet. Our ERGs cultivate inclusion and bring many collective voices together for a greater business impact. Our ERGs also provide personal and professional development through networking opportunities, mentoring, volunteerism, and community involvement.
Supply Chain Resources
We manage our responsible business practices in one of the world’s largest supply chains, which involves hundreds of thousands of people around the world. We continue our efforts to drive responsible manufacturing through robust assurance practices including human rights due diligence and environmental stewardship. We recognize that looking after the wellbeing of people in our supply chain is important and have set goals for our work in this area, including:
•providing healthy work environments;
•delivering future-ready skills development for employees in our supply chain; and
•continuing our engagement with the people who make our products.
We support supplier employees at all levels with training on key topics, including forced labor and health and safety, and we continue to work with suppliers to deliver training directly to employees via their mobile phones. Through this program, Dell Technologies covers the cost of developing training modules and shares training costs with suppliers who deliver them.
Dell Technologies works to ensure that we and our suppliers manufacture our products responsibly, in part through our social and environmental responsibility assurance program. Through audits conducted under this program, we seek to monitor a supplier factory’s adherence to the Responsible Business Alliance (“RBA”) Code of Conduct. Audits are conducted by third-party auditors that have been trained and certified by the RBA. The audits cover topics across five areas: labor, including risks of forced labor and weekly working hours; employee health and safety; environment; ethics; and management systems. Through our audit program, we aim to identify and solve concerns in our supply chain, and seek continuous improvements to address issues and enable suppliers to build their own in-house capabilities. We supplement our audits with targeted assessments of suppliers when we identify opportunities to drive further improvements.
Our supply chain sustainability progress is available through annual reporting on the social impact reporting page of our website.
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Corporate Information
We are a holding company that conducts our operations through subsidiaries.
Our website address is www.delltechnologies.com.www.delltechnologies.com. We make available free of charge through our website our annual reportsreport on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and all amendments to those reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (“SEC”).SEC. The contents ofinformation on, or accessible through, our website are not a part of this annual report on Form 10-K.
Information about the debt incurred by Dell Technologies to finance the Class V transaction.
our Executive Officers of Dell Technologies
The following table sets forth, as of February 14, 2019,March 4, 2022, information about our executive officers, who are appointed by our board of directors.
| Name | Age | Position | ||||||||||||
| Michael S. Dell | Chief Executive Officer and Chairman | |||||||||||||
| Co-Chief Operating Officer and Vice Chairman | ||||||||||||||
| Allison Dew | Chief Marketing Officer | |||||||||||||
| Howard D. Elias | Chief Customer Officer and President, Services and Digital | |||||||||||||
| Chief Human Resources Officer | ||||||||||||||
| William F. Scannell | President, Global | |||||||||||||
| Thomas W. Sweet | Chief Financial Officer | |||||||||||||
| Anthony Charles Whitten | 45 | Co-Chief Operating Officer | ||||||||||||
Michael S. Dell — Mr. Dell serves as Chairman of the Board and Chief Executive Officer of Dell Technologies. Mr. Dell served as Chief Executive Officer of Dell Inc., a wholly ownedwholly-owned subsidiary of Dell Technologies, from 1984 until July 2004 and resumed that role in January 2007. In 1998, Mr. Dell formed MSD Capital, L.P., a private investment firm that exclusively manages the capital for the purpose of managing his and his family’s investments,Dell family, and, in 1999, he and his wife established the Michael & Susan Dell Foundation to provide philanthropic support to a variety of global causes.accelerate opportunity for children growing up in urban poverty in the United States, India, or South Africa. He is an honorary member of the Foundation Board of the World Economic Forum and is an executive committee member of the International Business Council. He serves as a member of the Technology CEO Council and is a member of the U.S. Business Council and the Business Roundtable. Mr. Dell is also Chairman of the Board of VMware, Inc., Non-Executive Chairman of SecureWorks, and a director of Pivotal. He also serves on the advisory board of Tsinghua University’s School of Economics and Management in Beijing, China, on the governing board of the Indian School of Business in Hyderabad, India, and isas a board member of Catalyst, Inc., a non-profit organization that promotes inclusive workplaces for women. In June 2014, Mr. Dell was named the United Nations foundation’sFoundation’s first Global Advocate for Entrepreneurship. Mr. Dell is also Chairman of the Board of Directors of VMware, Inc. and Non-Executive Chairman of SecureWorks Corp., a public majority-owned subsidiary of Dell Technologies. Mr. Dell was a board member of Pivotal Software, Inc., formerly a public majority-owned subsidiary of Dell Technologies that provides a leading cloud-native platform, from September 2016 until it was merged with VMware, Inc. in December 2019.
Jeffrey W. Clarke — Mr. Clarke serves as Co-Chief Operating Officer and Vice Chairman Products and Operations of Dell Technologies, responsible for running day-to-day business operations, shaping the Company’s strategic agenda, and setting priorities across the Dell Technologies’ global supply chain, and leads its product organizations:Technologies executive leadership team. In partnership with Mr. Whitten, Mr. Clarke directs the Infrastructure Solutions Group and the Client Solutions Group.Group and manages Global Operations, including manufacturing, procurement, and supply chain. He is also responsible for setting the long-term strategy and leads planning for emerging technology areas such as Cloud, Edge, Telecom, and as-a-Service. Mr. Clarke has served as Co-Chief Operating Officer since August 2021, Chief Operating Officer from December 2019 to August 2021 and Vice Chairman, Products and Operations since September 2017, before which he served as Vice Chairman and President, Operations and Client Solutions with Dell Technologies and, previously, Dell, since January 2009. In these roles, Mr. Clarke has been responsible for global manufacturing, procurement, and supply chain activities worldwide, as well as the engineering, design, and development of servers, storage and networking products, as well as engineering, design, development and sales of computer desktops, notebooks, workstations, cloud client computing and end-user computing software solutions. From January 2003 until January 2009, Mr. Clarke served as Senior Vice President, Business Product Group. From November 2001 to January 2003, Mr. Clarke served as Vice President and General Manager, Relationship Product Group. In 1995, Mr. Clarke became the director of desktop development. Mr. Clarke joined Dell in 1987
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as a quality engineer and has served in a variety of other engineering and management roles. Before joining Dell Technologies, Mr. Clarke served as a reliability and product engineer at Motorola, Inc.
Allison Dew — Ms. Dew serves as the Chief Marketing Officer of Dell Technologies. In this role, in which she has served since March 2018, Ms. Dew is directly responsible for Dell Technologies’the global marketing organization, and strategy, and all aspects of ourDell Technologies’ marketing efforts, including brand and creative, product marketing, communications, digital, and field and channel marketing. Since joining Dell Technologies in 2008, Ms. Dew has been instrumental in Dell Technologies’ marketing transformation, leading an emphasis on data-driven marketing, customer understanding, and integrated planning. Most recently, prior to her current position, Ms. Dew led marketing for ourthe Dell Technologies Client Solutions Group from December 2013 to March 2018. Before joining Dell Technologies, Ms. Dew served in various marketing leadership roles at Microsoft Corporation, a global technology company. Ms. Dew also worked in both a regional advertising agencyshop in Tokyo, Japan and with an independent multi-cultural advertisingmulticultural agency in New York City.York.
Howard D. Elias — Mr. Elias serves as Chief Customer Officer and President, Services and Digital ofat Dell Technologies, supporting customers across the Client SolutionsTechnologies. He leads a global organization devoted to customer advocacy and Infrastructure Solutions Groups. Mr. Elias oversees technology and deployment services, consulting services, global support, deployment, consulting, education, managed services, education services, global Centers of Excellence, the Dell DigitalIT organization, and Virtustream. He is executive sponsor for more than a dozen of Dell Technologies’ largest enterprise accounts and is responsible for setting and driving strategy to enable and accelerate the mission-critical business transformations of customers and Dell’s own global operations. Mr. Elias previously served as President and Chief Operating Officer, EMC Global Enterprise Services from January 2013 until EMC’s acquisition by Dell Technologies in September 2016, and was President and Chief Operating Officer, EMC Information Infrastructure and Cloud Services from September 2009 to January 2013. In these roles, Mr. Elias was responsible for setting the strategy, driving the execution, and creating the best practices for services that enabled the digital transformation and data center modernization of EMC’s customers. Mr. Elias also had responsibility at EMC for leading the integration of the Dell and EMC businesses, including overseeing the cross-functional teams that drove all facets of integration planning. Previously, Mr. Elias was EMC’s Executive Vice President, Global Marketing and Corporate Development, responsible for all marketing, sales enablement, technology alliances, corporate development, and new ventures. Mr. Elias was also a co-founder and served on the board of managers for the Virtual Computing Environment Company, now part of Dell Technologies’ converged platform division. Before joining EMC, Mr. Elias served in various capacities at Hewlett-Packard Company, a provider of information technology products, services, and solutions for enterprise customers, most recently as Senior Vice President of Business Management and Operations for the Enterprise Systems Group. Mr. Elias is a directorcurrently serves as chairman of TEGNA Inc., a media and digital business company.
Richard J. Rothberg — Mr. Rothberg serves as General Counsel and Secretary for Dell Technologies. In this role, in which he has served since November 2013, Mr. Rothberg oversees the global legal department and manages government affairs, compliance, and ethics. He is also responsible for global security. Mr. Rothberg joined Dell in 1999 and has served in critical leadership roles throughout the legal department. He served as Vice President of Legal, supporting Dell’s businesses in the Europe, Middle East, and Africa region before moving to Singapore in 2008 as Vice President of Legal for the Asia-Pacific and Japan region. Mr. Rothberg returned to the United States in 2010 to serve as Vice President of Legal for the North America and Latin America regions. In this role, he was lead counsel for sales and operations in the Americas and for the enterprise solutions, software, and end-user computing business units. He also led the government affairs organization worldwide. Before joining Dell, Mr. Rothberg spentserved nearly eight years in senior legal roles at Caterpillar Inc., an equipment manufacturing company, in senior legal roles in Nashville, Tennessee and Geneva, Switzerland. Mr. Rothberg was also an attorney for IBM Credit Corporation and at Rogers & Wells, a law firm.
Jennifer D. Saavedra, Ph.D. — Dr. Saavedra is Dell Technologies' Chief Human Resources Officer. In this role, Dr. Saavedra leads Dell’s Global Human Resources and Facilities function and accelerates the performance and growth of the company through its culture and its people. Dr. Saavedra previously served as Dell’s Senior Vice President, Human Resources – Sales from December 2019 to March 2021 and as Dell’s Senior Vice President, Human Resources – Talent and Culture from November 2017 to December 2019. Dr. Saavedra joined Dell in 2005 and has served in many key leadership roles throughout the Human Resources organization, including talent development and culture, business partner, strategy, and learning and development. Before joining Dell in 2005, Dr. Saavedra served as a Human Resources consultant to private and public companies.
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William F. Scannell — Mr. Scannell serves as President, Global Enterprise Sales and Customer Operations for Dell EMC, leadingTechnologies, heading the global go-to-market organization, serving enterprise customers.including Channel, OEM, Global Alliances, and Specialty Sales. In this role, in which he has served since February 2020, Mr. Scannell is responsible for go-to-market strategy and driving global growth by delivering Dell Technologies’ solutions to organizations in established new markets and in approximately 180 countries around the world. Mr. Scannell previously served as President, Global Enterprise Sales and Customer Operations for Dell Technologies from September 2017 Mr. Scannell leadsto January 2020, leading the Dell EMC sales teams to deliver innovative and practical technology solutions to large enterprises and public institutions worldwide. He is responsible for driving global growth and continued market leadership by delivering and supporting enterprise products, services, and solutionsPrior to organizations in established and new markets around the world. Previously,joining Dell Technologies, Mr. Scannell served as President, Global Sales and Customer Operations at EMC Corporation. In this role, to which he was appointed in July 2012 after overseeing customer operations in the Americas and EMEA, Mr. Scannell focused on driving coordination and teamwork among EMC’s business unit sales forces, as well as building and maintaining relationships with EMC’s largest global accounts, global alliance partners, and global channel partners. Mr. Scannell began his career as an EMC sales representative in 1986, becoming country manager of Canada in 1988. Shortly thereafter, his responsibilities expanded to include the United States and Latin America. In 1999, Mr. Scannell moved to London to oversee EMC’s business across all of Europe, Middle East, and Africa. He then managed worldwide sales in 2001 and 2002 before being appointed Executive Vice President in 2007.
Thomas W. Sweet — Mr. Sweet serves as Chief Financial Officer of Dell Technologies. In this role, in which he has served since January 2014, he is responsible for all aspects of the Company’s finance function, including accounting, financial planning and analysis, tax, treasury, and investor relations, as well as global business operations, Dell Financial Services and Dell Technologies Capital. He also leads corporate strategy.strategy, partnering closely with the office of the CEO to develop and execute a long-term growth strategy that creates value for Dell Technologies stakeholders. From May 2007 to January 2014, Mr. Sweet served in a variety of finance leadership roles for Dell, including as Vice President of Corporate Finance, Controller, and Chief Accounting Officer, with responsibility for global accounting, tax, treasury, and investor relations, as well as for global finance services. Mr. Sweet was responsible for external financial reporting for more than five years when Dell Inc. was a publicly-traded company. Before hisPrior to this service, in those roles, Mr. Sweethe served in a variety of finance leadership positions, including as Vice President responsible for overall finance activities within the corporate business, education, government, and healthcare business units of Dell. Mr. Sweet also has served as Vice Presidentthe head of internal audit and in a number of sales leadership roles in education and corporate business units since joining Dell in 1997. Prior to joining Dell, Mr. Sweet was Vice President, Accounting and Finance, for Telos Corporation, a provider of security solutions. He previously spent 13 years with Price Waterhouse, a firm specializing in accounting, assurance, tax, and consulting services, in a variety of roles primarily focused on providing audit and accounting services to the technology industry. Mr. Sweet serves on the board of directors of Trimble Inc., an industrial technology company.
Anthony Charles Whitten — Mr. Whitten is Co-Chief Operating Officer for Dell Technologies, responsible for managing day-to-day business operations, shaping the Company’s strategic agenda and setting priorities across the Dell Technologies executive leadership team. In partnership with Mr. Clarke, Mr. Whitten directs the Infrastructure Solutions Group and the Client Solutions Group and manages Global Operations, including manufacturing, procurement, and supply chain. He is also responsible for setting the long-term strategy and leads planning for emerging technology areas such as Cloud, Edge, Telecom, and as-a-Service. Mr. Whitten joined Dell Technologies in August 2021 from Bain & Company (“Bain”), a management consulting company, where he served as the managing partner of Bain Southwest and was a two-time elected member of Bain’s Board of Directors. During his 22-year tenure at Bain, Mr. Whitten supported hundreds of clients across the globe on strategy, company transformation, M&A and capital markets strategy. In the last decade of his career at Bain, he focused exclusively on the technology sector and was intimately involved in shaping the long-term strategy of Dell Technologies. Under his leadership of Bain’s Southwest region, the business more than doubled, was perennially a top Bain office in employee satisfaction, and was recognized in 2020 and 2021 by Fortune Magazine as one of the best workplaces in Texas.
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ITEM 1A — RISK FACTORS
Our business, operating results, financial condition, and prospects are subject to a variety of significant risks, many of which are beyond our control. The following is a description of some of the important risk factors that may cause our actual results in future periods to differ substantially from those Dell Technologieswe currently expect or seek. The risks described below are not the only risks facing us.we face. There are additional risks and uncertainties not currently known to us or that Dell Technologieswe currently deem to be immaterial that also may materially adversely affect our business, operating results, financial condition, or prospects.
Risks Relating to Our Business and Our Industry
Our spin-off of VMware may not achieve the intended benefits.
On November 1, 2021, VMware distributed to its stockholders, including us, a special one-time cash dividend, and we distributed all of the issued and outstanding shares of VMware common stock then owned by us to the holders of record of shares of Dell Technologies as of the distribution record date (the “VMware Spin-off”). Upon completion of the VMware Spin-off, the businesses of VMware were separated from our remaining businesses, and we and VMware entered into various agreements that will govern our future relationship. Among those agreements, a commercial framework agreement provides a framework under which we and VMware will continue our strategic relationship, particularly with respect to projects we and VMware believe have the potential to accelerate the growth of the industry, product, service, or platform that may provide one or both of our companies with a strategic market opportunity. The VMware Spin-off may not provide the benefits that we intend, including the benefits we seek from a continuation of our strategic relationship with VMware under the commercial framework and other arrangements. There is a potential for business disruption and significant separation costs. The VMware Spin-off could cause our customers to delay or defer decisions to purchase products or renew contracts, or to end their relationships. Any of these factors could have a material adverse effect on our business, financial condition, results of operations, cash flows or the price of our Class C Common Stock. In addition, the combined value of the common stock of the two companies held by our stockholders may not be equal to or greater than what the value of our common stock alone would have been had the proposed VMware Spin-off not occurred.
The COVID-19 pandemic may continue to have adverse effects on our business and result in reduced net revenue and profitability.
The ongoing COVID-19 pandemic and associated containment measures have caused economic and financial disruptions globally, affecting regions in which we sell our products and services and in which we conduct our business operations. COVID-19 disruptions continue to impact the demand environment for our ISG products and services. Further, while COVID-19 positively impacted the demand environment for our CSG products and services during Fiscal 2022, we may not experience a continuation of such increased demand at the same level, or at all, for those products and services. Any reduced demand for PC products or a significant increase in competition could cause our operating income to fluctuate and adversely impact our results of operations. Our business in Fiscal 2022 was adversely affected by supply constraints resulting from the pandemic that affected the timing of shipments of certain products in desired quantities or configurations. We also experienced increased freight costs as a result of both expedited shipments of components and rate increases in the freight network as capacity remained constrained.
Given the unpredictability, duration, novel variances of the virus, and, at times, the severity of resurgences of the pandemic, we are unable to predict the full impact the pandemic may have on our results of operations, financial condition, liquidity, and cash flows due to numerous uncertainties, including the progression of the pandemic, governmental and other responses, vaccine availability and acceptance, and the timing of economic recovery. We are also unable to predict the extent of the impact of the pandemic on our customers, suppliers, and other partners, which could continue to adversely affect demand for our products and services.
Measures taken to contain the COVID-19 pandemic globally, such as travel restrictions, quarantines, shelter-in-place, and shutdowns as applicable by jurisdiction, have affected and will likely continue to affect our workforce and operations, and those of our vendors, suppliers, and partners. Restrictions on our operations or workforce, or similar limitations for others, may affect our ability to meet customer demand. We have taken and will continue to take risk mitigation actions that we believe are in the best interests of our employees, customers, suppliers, and other partners. Work-from-home and other measures introduce additional operational risks, including heightened cybersecurity risks. These measures may not be sufficient to mitigate the risks posed by the pandemic, and illness and workforce disruptions could lead to unavailability of key personnel and impair our
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ability to perform critical functions. The COVID-19 pandemic may continue to cause disruption and volatility in the global debt and capital markets, which may increase our cost of capital and adversely affect our access to capital.
To the extent the COVID-19 pandemic adversely affects our business, results of operations, and financial condition, it also may have the effect of exacerbating the other risks discussed in this “Risk Factors” section. Developments related to the COVID-19 pandemic have been unpredictable, and additional impacts and risks may arise that we are not aware of or are not able to respond to in an effective manner.
Competitive pressures may adversely affect Dell Technologies’our industry unit share position, revenue, and profitability.
As the technology industry continues to expand, globally, there may be new and increased competition in different geographic regions. The generally low barriers to entry ininto the technology industry increase the potential for challenges from new industry competitors. ThereCompetition also may be increased competitionintensify from new types of products as the optionsan increase in alternatives for mobile and cloud computing solutions increase.solutions. In addition, companies with which Dell Technologies haswe have strategic alliances may become competitors in other product areas, or current competitors may enter into new strategic relationships with new or existing competitors, all of which may further increase the competitive pressures on Dell Technologies.pressures.
Reliance on vendors for products and components, many of which are single-source or limited-source suppliers, could harm Dell Technologies’our business by adversely affecting product availability, delivery, reliability, and cost.
We maintain several single-source or limited-source supplier relationships, including relationships with third-party software providers, either because multiple sources are not readily available or because the relationships are advantageous due to performance, quality, support, delivery, capacity, or price considerations. A delay in the supply of a critical single- or limited-source product or component may prevent the timely shipment of the related product in desired quantities or configurations. In addition, Dell Technologieswe may not be able to replace the functionality provided by third-party software currently offered with itsour products if that software becomes obsolete, defective, or incompatible with future product versions or is not adequately maintained or updated. Even where multiple sources of supply are available, qualification of the alternative suppliers and establishment of reliable supplies could result in delays and a possible loss of sales, which could harm Dell Technologies’our operating results.
We obtain many of its products and all of itsour components from third-party vendors, many of which are located outside of the United States. In addition, significant portions of Dell Technologies’our products are assembled by contract manufacturers, primarily in various locations in Asia. A significant concentration of such outsourced manufacturing currently is performed by only a few of Dell Technologies’ contract manufacturers, often in single locations. Dell Technologies sellsWe sell components to these contract manufacturers and generatesgenerate large non-trade accounts receivables, an arrangement that would present a risk of uncollectibility if the financial condition of a contract manufacturer should deteriorate.
Although these relationships generate cost efficiencies, they limit Dell Technologies’our direct control over production. The increasing reliance on vendors subjects Dell Technologiesus to a greater risk of shortages and reduced control over delivery schedules of components and products, as well as a greater risk of increases in product and component costs. We experienced some of these adverse effects in Fiscal 2022 and Fiscal 2021 as a result of COVID-19 impacts. We may experience additional supply shortages and price increases caused by changes to raw material availability, manufacturing capacity, labor shortages, public health issues, tariffs, trade disputes and protectionist measures, natural catastrophes or the effects of climate change (such as extreme weather conditions, sea level rise, drought, flooding and wildfires), and significant changes in the financial condition of our suppliers. Because Dell Technologies maintainswe maintain minimal levels of component and product inventories, a disruption in component or product availability could harm Dell Technologies’our ability to satisfy customer needs. In addition, defective parts and products from these vendors could reduce product reliability and harm Dell Technologies’our reputation.
If Dell Technologies failswe fail to achieve favorable pricing from vendors, itsour profitability could be adversely affected.
Our profitability is affected by itsour ability to achieve favorable pricing from vendors and contract manufacturers, including through negotiations for vendor rebates, marketing funds, and other vendor funding received in the normal course of business.
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Because these supplier negotiations are continuouscontinual and reflect the evolving competitive environment, the variability in timing and amount of incremental vendor discounts and rebates can affect Dell Technologies’our profitability. The vendor programs may change periodically, potentially resulting in adverse profitability trends if Dell Technologieswe cannot adjust pricing or variable costs. An inability to establish a cost and product advantage, or determine alternative means to deliver value to customers, may adversely affect Dell Technologies’our revenue and profitability.
Adverse global economic conditions and instability in financial markets may harm Dell Technologies’our business and result in reduced net revenue and profitability.
As a global company with customers operating in a broad range of businesses and industries, Dell Technologies’our performance is affected by global economic conditions.conditions and the demand for technology products and services in international markets. Adverse economic conditions may negatively affect customer demand, for Dell Technologies’ products and services. Such economic conditions could result in postponed or decreased spending amid customer concerns over unemployment, reduced asset values, volatile energy costs, geopolitical issues, the availability and cost of credit, and the stability and solvency of financial institutions, financial markets, businesses, local and state governments, and sovereign nations. Weak or unstable global economic conditions, including duethose attributable to international conflicts, such as the conflict in Ukraine, international trade protection measures and disputes, such as those between the United States and China, or public health issues, such as the outbreak of COVID-19, also could harm Dell Technologies’our business by contributing to product shortages or delays, supply chain disruptions, insolvency of key suppliers, customer and counterparty insolvencies, increased product costs and associated price increases, reduced global sales, and increased challenges in managing Dell Technologies’other adverse effects on our operations. Any such effects could have a negative impact on Dell Technologies’our net revenue and profitability.
The results of operations of our business units may be adversely affected if it failswe fail to successfully execute its growthour strategy.
Our strategy involves reaching moreenabling the digital transformation of our customers while leading in the core infrastructure markets in which we compete. Accordingly, we must continue to expand our customer base through direct sales, new distribution channels, expandingfurther development of relationships with resellers, and augmenting selectaugmentation of selected business areas through targeted acquisitions and other commercial arrangements. As we reach more customers are reached through new distribution channels and expanded reseller relationships, Dell Technologieswe may fail to effectively manage effectively the increasingly difficult tasks of inventory management and demand forecasting. TheOur ability to implement this growth strategy depends on a successfulefficiently transitioning of sales capabilities, the successful additionsuccessfully adding to the breadth of Dell Technologies’our solutions capabilities through selective acquisitions of other businesses, and the effective management of the consequences of these strategic initiatives. If Dell Technologies iswe are unable to meet these challenges, itsour results of operations could be adversely affected.
We are organized into two business units consisting of ISG and CSG that are each important components of our strategy. ISG offers a portfolio of storage, server, and networking solutions and faces risksintense competition from existing on-premises competitors and challenges in connection with its goal of becoming the leadingincreasing competitive pressures from public cloud providers. Accordingly, we could be required to make additional investments to combat such competitive pressures and essential infrastructure solutions provider and its business strategy.
CSG largely reliedrelies on PC sales.sales of desktops, workstations, and notebooks. Revenue from Client SolutionsCSG absorbs Dell Technologies’ significantour overhead costs and allows for scaled procurement. As a result, Client Solutions remains an important component in Dell Technologies’ ongoing growth strategy. Although Dell Technologies continues to rely on Client Solutions as a critical element of its business, Dell Technologies also anticipates an increasingly challenging demand environment in Client SolutionsCSG faces risk and intensifying market competition. Current challenges in Client Solutions stemuncertainties from fundamental changes in the PCpersonal computer (“PC”) market, including a decline in worldwide revenues for desktopdesktops, workstations, and laptop PCs,notebooks, and lower shipment forecasts for PCthese products due to a general lengthening of the replacement cycle for PC products and increasing interest in alternative mobile solutions. PC shipments worldwide declined during calendar year 2017, and further deterioration in the PC market may occur. Other challenges include declining margins ascycle. Any reduced demand for PC products shifts from higher-margin premiumor a significant increase in competition could cause our operating income to fluctuate and adversely impact CSG’s results of operations.
If our cost efficiency measures are not successful, we may become less competitive.
We continue to focus on minimizing operating expenses through cost improvements and simplification of our corporate structure. We may experience delays or unanticipated costs in implementing our cost efficiency plans, which could prevent the timely or full achievement of expected cost efficiencies and adversely affect our competitive position.
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Our inability to manage solutions and product and services transitions in an effective manner could reduce the demand for our solutions, products, and services, and negatively affect the profitability of our operations.
Continuing improvements in technology result in the frequent introduction of new solutions, products, and services, improvements in product performance characteristics, and short product life cycles. If we fail to effectively manage transitions to new solutions and offerings, the products and services associated with such offerings and customer demand for our solutions, products, and services could diminish, and our profitability could suffer.
We increasingly source new products and transition existing products through our contract manufacturers and manufacturing outsourcing relationships to generate cost efficiencies and better serve our customers. The success of product transitions depends on a number of factors, including the availability of sufficient quantities of components at attractive costs. Product transitions also present execution uncertainties and risks, including the risk that new or upgraded products may have quality problems or other defects.
Failure to deliver high-quality products, software, and services could lead to loss of customers and diminished profitability.
We must identify and address quality issues associated with its products, software, and services, many of which include third-party components. Although quality testing is performed regularly to detect quality problems and implement required solutions, failure to identify and correct significant product quality issues before the sale of such products to lower-costcustomers could result in lower sales, increased warranty or replacement expenses, and lower-marginreduced customer confidence, which could harm our operating results.
Cyber-attacks and other security incidents that disrupt our operations or result in the breach or other compromise of proprietary or confidential information about us or our workforce, customers, or other third parties could disrupt our business, harm our reputation, cause us to lose clients and expose us to costly regulatory enforcement and litigation.
We routinely manage, store, transmit and otherwise process large amounts of proprietary information and confidential data, including sensitive and personally identifiable information, relating to our operations, products, particularly in emerging markets,and customers. We face numerous evolving cyber threats of increasing scale, volume, severity, and complexity, making it increasingly difficult to defend against security incidents successfully or to implement adequate preventative measures.
Despite our internal controls and significant investment in security measures, criminal or other unauthorized threat actors, including nation states or state-sponsored organizations, may be able to penetrate our security measures, breach our information technology systems, misappropriate or compromise confidential and increasing competitionproprietary information of our company and our customers, cause system disruptions and shutdowns, or introduce ransomware, malware, or vulnerabilities into our products, systems, and networks or those of our customers and partners. Employees, contractors, or other insiders may introduce vulnerabilities into our environments or otherwise may seek to misappropriate our intellectual property and proprietary information. In addition, cyber-attacks are increasingly being used in geopolitical conflicts. The shift to work-from-home and flexible work arrangements resulting from efficientthe COVID-19 pandemic also may increase our vulnerability, as employees and low-cost manufacturerscontractors of our company and third-party providers are working remotely and using home networks that may pose a significant risk to network and cyber security. In the past, we have experienced security incidents, including the unauthorized activity on our network attempting to extract Dell.com customer information we disclosed in November 2018.
The costs to address cyber risks, both before and after a security incident, could be significant, regardless of whether incidents result from manufacturersan attack on us directly or on third-party vendors upon which we rely. Our third-party vendors continue to experience security incidents of innovativevarying severity, including but not limited to increased ransomware attacks, network intrusions, and higher-margin PC products.unauthorized data exfiltration, which have directly and indirectly impacted our operations in the past. Targeted cyber-attacks or those that may result from a security incident directed at a third-party vendor could compromise our internal systems and products and the systems of our customers, resulting in interruptions, delays, or cessation of service that could disrupt business operations for us and our customers. Our proactive measures and remediation efforts may not be successful or timely. In addition, breaches of our security measures and the unapproved dissemination of proprietary information or sensitive or confidential data about us, our customers, or other third parties could impair our intellectual property rights and expose us, our customers, or such other third parties to a risk of loss or misuse of such information or data. Any such incidents also could subject us to government investigations and regulatory enforcement actions, litigation, potential liability, damage our brand and reputation, or otherwise harm our business and operations.
As a global enterprise, we are subject to an increasing number of laws and regulations in the Infrastructure Solutions GroupUnited States and although Client Solutions drives pull-through revenuenumerous other countries relating to the collection, use, transfer, and cross-sellingprotection of ISG solutions,customer data and other sensitive, confidential, and proprietary information. Our ability to execute transactions and to process and use personal information and other data in the potential for further margin erosion remains due to intense competition, including emerging competitive pressure from cloud services. Improving the integrationconduct of Dell Technologies’ productour business and service offerings as well as its abilityof our customers subjects us to cross-sell remainincreased obligations to comply with applicable laws and regulations and may require us to notify regulators, customers, employees, or other individuals or entities of a work in progress, as Dell Technologies issecurity incident or data or privacy breach. We continue to incur significant expenditures to comply with mandatory privacy, security, data protection and localization requirements and controls imposed by law, regulation, industry standards and contractual obligations. Despite such expenditures, we may face regulatory and other legal actions, including potential liability, in the early stagesevent of integrating its products into solutionsa security incident or data or privacy breach or perceived or actual non-compliance with such requirements and thus far has limited overlap in the base of large customers for the Client Solutions business and the ISG business. In addition, returns from Dell Technologies’ prior acquisitions have been mixed and will require additional investments to reposition the business for growth. As a result of the foregoing challenges, Dell Technologies’ business, financial condition, and results of operations may be adversely affected.controls.
We may not successfully implement itsour acquisition strategy, which could result in unforeseen operating difficulties and increased costs.
We make strategic acquisitions of other companies as part of itsour growth strategy. Dell TechnologiesWe could experience unforeseen operating difficulties in assimilating or integrating the businesses, technologies, services, products, personnel, or operations of acquired companies, especially if Dell Technologies iswe are unable to retain the key personnel of an acquired company. Further, future acquisitions may result in a delay or reduction of sales for both Dell Technologiesus and the acquired company because of customer uncertainty about the continuity and effectiveness of solutions offered by either company and may disrupt Dell Technologies’our existing business by diverting resources and significant management attention that otherwise would be focused on development of the existing business. Acquisitions also may negatively affect Dell Technologies’our relationships with strategic partners if the acquisitions are seen as bringing Dell Technologiesus into competition with such partners.
To complete an acquisition, Dell Technologieswe may be required to use substantial amounts of cash, engage in equity or debt financings, or enter into credit agreements to secure additional funds. Such debt financings could involve restrictive covenants that might limit Dell Technologies’our capital-raising activities and operating flexibility. Further, an acquisition may negatively affect Dell Technologies’our results of operations because it may expose Dell Technologiesus to unexpected liabilities, require the incurrence of charges and substantial indebtedness or other liabilities, have adverse tax consequences, result in acquired in-process research and development expenses, or in the future require the amortization, write-down, or impairment of amounts related to deferred compensation, goodwill, and other intangible assets, or fail to generate a financial return sufficient to offset acquisition costs.
In addition, Dell Technologieswe periodically divestsdivest businesses, including businesses that are no longer a part of itsour strategic plan. These divestitures similarly require significant investment of time and resources, may disrupt Dell Technologies’our business and distract management from other responsibilities, and may result in losses on disposition or continued financial involvement in the divested business, including through indemnification or other financial arrangements, for a period following the transaction, which could adversely affect Dell Technologies’our financial results.
Sales outside the United States accounted for approximately half of Dell Technologies’our consolidated net revenue for Fiscal 2019. Dell Technologies’2022. Our future growth rates and success are substantially dependent on the continued growth of Dell Technologies’our business outside of the United States. Dell Technologies’Our international operations face many risks and uncertainties, including varied local economic and labor conditions; political instability; public health issues; changes in the U.S. and international regulatory environments; the impacts of trade protection measures, including increases in tariffs and trade barriers due to the current geopolitical climate and changes and instability in government policies and international trade arrangements, which could adversely affect Dell Technologies’our ability to conduct business in non-U.S.non-
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U.S. markets; changes in tax laws (including laws imposing U.S. taxes on foreign operations); potential theft or other compromise of our technology, data, or intellectual property; copyright levies; and foreign currency exchange rates. Dell Technologies’Our international operations could suffer as a result of the process initiated bywithdrawal of the United Kingdom to negotiate its exit from the European Union, commonly referred to as Brexit. Depending on the termsBrexit, including as a result of Brexit, Dell Technologiesmodification of trade, immigration, and commercial regulation. We could incur additional operating costs, or sustain supply chain disruption, and face new regulatory impediments as the laws and regulations in the United Kingdom diverge from those in the European Union.disruptions, due to any such changes. Any of these factors could negatively affect Dell Technologies’our international business results and prospects for growth.growth prospects.
Our profitability may be adversely affected by product, customer,changes in the mix of products and services, customers, or geographic sales, mix, and by seasonal sales trends.
Our overall profitability for any period may be adversely affected by changes in the mix of products and services, customers, andor geographic markets reflected in sales for that period, and by seasonal trends. Profit margins vary among products, services, customers, and geographic markets. For instance,example, services offerings generally have a higher profit margin than consumer products. In addition, parts of Dell Technologies’our business are subject to seasonal sales trends. Among the trends with the most significant impact on Dell Technologies’our operating results, sales to government customers (particularly the U.S. federal government) generally are typically stronger in Dell Technologies’our third fiscal quarter, sales in Europe, the Middle East and Africa are often weaker in Dell Technologies’our third fiscal quarter, and sales to consumers are typically strongest during Dell Technologies’our fourth fiscal quarter.
We may lose revenue opportunities and experience gross margin pressure if sales channel participants fail to perform as expected.
We rely on third-party value-added resellers, system integrators, distributors, and retailers and otheras sales channels to complement itsour direct sales organization in order to reach more end-users globally.end-users. Future operating results depend on the performance of sales channel participants and on Dell Technologies’our success in maintaining and developing these relationships. Revenue and gross margins could be negatively affected if the financial condition or operations of channel participants weaken as a result of adverse economic conditions or other business challenges, or if uncertainty regarding the demand for Dell Technologies’our products causes channel participants to reduce their orders for these products. Further, some channel participants may consider the expansion of Dell Technologies’our direct sales initiatives to conflict with their business interests as distributors or resellers of Dell Technologies’our products, which could lead them to reduce their investment in the distribution and sale of such products, or to cease all sales of Dell Technologies’our products.
We may access debt and capital sources to provide financing for customers and to obtain funds for general corporate purposes, including working capital, acquisitions, capital expenditures, and funding of customer receivables. In addition, Dell Technologies maintainswe maintain customer financing relationships with some companies that rely on access to the debt and capital markets to meet significant funding needs. Any inability of these companies to access such markets could compel Dell Technologiesus to self-fund transactions with such companies or to forgo customer financing opportunities, which could harm Dell Technologies’our financial performance. The debt and capital markets may experience extreme volatility and disruption from time to time in the future, which could result in higher credit spreads in such markets and higher funding costs for Dell Technologies.us. Deterioration in Dell Technologies’our business performance, a credit rating downgrade, volatility in the securitization markets, changes in financial services regulation, or adverse changes in the economy could lead to reductions in the availability of debt financing. In addition, these events could limit Dell Technologies’our ability to continue asset securitizations or other forms of financing from debt or capital sources, reduce the amount of financing receivables that Dell Technologies originates,we originate, or negatively affect the costs or terms on which Dell Technologieswe may be able to obtain capital. Any of these developments could adversely affect Dell Technologies’our net revenue, profitability, and cash flows.
If the value of goodwill or intangible assets is materially impaired, our results of operations and financial condition could be materially and adversely affected.
As of January 28, 2022, goodwill and intangible assets, net had a combined carrying value of $27.2 billion, representing approximately 29% of our total consolidated assets. We periodically evaluate goodwill and intangible assets, net to determine whether all or a portion of their carrying values may be impaired, in which case an impairment charge may be necessary. The value of goodwill may be materially and adversely affected if businesses that we acquire perform in a manner that is inconsistent with our assumptions at the time of acquisition. In addition, from time to time we divest businesses, and any such divestiture could result in significant asset impairment and disposition charges, including those related to goodwill and intangible assets, net. Any future evaluations resulting in an impairment of goodwill or intangible assets, net could materially and adversely affect our results of operations and financial condition in the period in which the impairment is recognized.
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Weak economic conditions and additional regulation could harm Dell Technologies’our financial services activities.
Our financial services activities primarily through DFS are negatively affected by adverse economic conditions that contribute to loan delinquencies and defaults. An increase in loan delinquencies and defaults would result in greater net credit losses, which may require Dell Technologiesus to increase itsour reserves for customer receivables.
In addition, the implementation of new financial services regulation,regulations, or the application of existing financial services regulation, in countries where Dell Technologies expands itswe conduct our financial services and related supporting activities, could unfavorably affect the profitability and cash flows of Dell Technologies’our consumer financing activities.
We are subject to counterparty default risks.
We have numerous arrangements with financial institutions that include cash and investment deposits, interest rate swap contracts, foreign currency option contracts, and forward contracts. As a result, Dell Technologies iswe are subject to the risk that the counterparty to one or more of these arrangements will default, either voluntarily or involuntarily, on its performance under the terms of the arrangement. In times of market distress, a counterparty may default rapidly and without notice, and Dell Technologieswe may be unable to take action to cover its exposure, either because of lack of contractual ability to do so or because market conditions make it difficult to take effective action. If one of Dell Technologies’our counterparties becomes insolvent or files for bankruptcy, Dell Technologies’our ability eventually to recover any losses suffered as a result of that counterparty’s default may be limited by the impaired liquidity of the counterparty or the applicable legal regime governing the bankruptcy proceeding. In the event of such a default, Dell Technologieswe could incur significant losses, which could harm Dell Technologies’our business and adversely affect itsour results of operations and financial condition.
Our performance and business could suffer if our contracts for ISG services and solutions fail to produce revenue at expected levels due to exercise by customers of certaincustomer rights under theirthe contracts, inaccurate estimation of costs, or customer defaults in payment.
We offer our ISG customers a range of consumption models for our services contracts with Dell Technologies,and solutions, including as-a-Service, utility, leases, or Dell Technologies’ failureimmediate pay models, designed to perform as it anticipates atmatch customers’ consumption preferences. These solutions generally are multiyear agreements that typically result in recurring revenue streams over the time it enters intoterm of the arrangement. Our financial results and growth depend, in part, on customers continuing to purchase our services contracts, could adversely affect Dell Technologies’ revenue and profitability.
Loss of government contracts could harm Dell Technologies’our business.
Contracts with U.S. federal, state, and local governments and with foreign governments are subject to future funding that may affect the extension or termination of programs and to the right of such governments to terminate contracts for convenience or non-appropriation. There is pressure on governments, both domestically and internationally, to reduce spending. Funding reductions or delays could adversely affect public sector demand for Dell Technologies’our products and services. In addition, if Dell Technologies violateswe violate legal or regulatory requirements, the applicable government could suspend or disbar Dell Technologiesus as a contractor, which would unfavorably affect Dell Technologies’our net revenue and profitability.
Our business could suffer if Dell Technologies doeswe do not develop and protect itsour proprietary intellectual property or obtain or protect licenses to intellectual property developed by others on commercially reasonable and competitive terms.
If Dell Technologieswe or itsour suppliers are unable to develop or protect desirable technology or technology licenses, Dell Technologieswe may be prevented from marketing products, may have to market products without desirable features, or may incur substantial costs to redesign products. Dell TechnologiesWe also may have to defend or enforce legal actions or pay damages if Dell Technologies iswe are found to have violated the intellectual property of other parties. Although Dell Technologies’our suppliers might be contractually obligated to obtain or protect such licenses and indemnify Dell Technologiesus against related expenses, those suppliers could be unable to meet their obligations. Although Dell Technologies investsWe invest in research and development and obtainsobtain additional intellectual property through acquisitions, but those activities do not guarantee that Dell Technologieswe will
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develop or obtain intellectual property necessary for profitable operations. Costs involved in developing and protecting rights in intellectual property may have a negative impact on Dell Technologies’our business. In addition, Dell Technologies’our operating costs could increase because of copyright levies or similar fees by rights holders and collection agencies in European and other countries.
Infrastructure disruptions could harm Dell Technologies’our business.
We depend on itsour information technology and manufacturing infrastructure to achieve itsour business objectives. Natural disasters, manufacturing failures, telecommunications system failures, or defective or improperly installed new or upgraded business management systems could lead to disruptions in this infrastructure. Portions of Dell Technologies’our IT infrastructure, including those provided by third parties, also may experience interruptions, delays, or cessations of service, or produce errors in connection with systems integration or migration work. Such disruptions may adversely affect Dell Technologies’our ability to receive or process orders, manufacture and ship products in a timely manner, or otherwise conduct business in the normal course. Further, portions of Dell Technologies’ servicesour business involve the processing, storage, and transmission of data, which also would be negatively affected by such an event. Disruptions in Dell Technologies’our infrastructure could lead to loss of customers and revenue, particularly during a period of heavy demand for Dell Technologies’our products and services. Dell TechnologiesWe also could incur significant expense in repairing system damage and taking other remedial measures.
Failure to hedge effectively Dell Technologies’our exposure to fluctuations in foreign currency exchange rates and interest rates could adversely affect Dell Technologies’our financial condition and results of operations.
We utilize derivative instruments to hedge itsour exposure to fluctuations in foreign currency exchange rates and interest rates. Some of these instruments and contracts may involve elements of market and credit risk in excess of the amounts recognized in Dell Technologies’our financial statements. Global economic events, including trade disputes, economic sanctions and emerging market volatility, and associated uncertainty may cause currencies to fluctuate, which may contribute to variations in our sales of products and services in various jurisdictions. If Dell Technologies iswe are not successful in monitoring itsour foreign exchange exposures and conducting an effective hedging program, Dell Technologies’our foreign currency hedging activities may not offset the impact of fluctuations in currency exchange rates on itsour future results of operations and financial position.
Adverse legislative or regulatory tax changes, the expiration of tax holidays or favorable tax rate structures, or unfavorable outcomes in tax audits and other tax compliance matters could result in an increase in Dell Technologies’our tax expense or itsour effective income tax rate.
Changes in tax laws (including any future U.S. Treasury notices or regulations related to the Tax Cuts and Jobs Act that was signed into law on December 22, 2017) could adversely affect Dell Technologies’our operations and profitability. In recent years, numerous legislative, judicial, and administrative changes have been made to tax laws applicable to Dell Technologiesus and companies similar to Dell Technologies.companies. The Organisation for Economic Co-operation and Development (the “OECD”), an international association of 3638 countries, including the United States, has issued guidelines that change long-standing tax principles. ThisThe OECD guidelines may introduce tax uncertainty as countries amend their tax laws to adopt certain parts of the OECD guidelines. Additional changes to tax laws are likely to occur, and such changes may adversely affect Dell Technologies’our tax liability.
Portions of Dell Technologies’our operations are subject to a reduced tax rate or are free of tax under various tax holidays that expire in whole or in part from time to time. Many of these holidays may be extended when certain conditions are met, or may be terminated if certain conditions are not met. If the tax holidays are not extended, or if Dell Technologies failswe fail to satisfy the conditions of the reduced tax rate, itsour effective tax rate would be affected. Dell Technologies’Our effective tax rate also could be impacted if Dell Technologies’our geographic sales mix changes. In addition, any actions by Dell Technologiesus to repatriate non-U.S. earnings for which it haswe have not previously provided for U.S. taxes may affect the effective tax rate.
We are continually under audit in various tax jurisdictions. Dell TechnologiesWe may not be successful in resolving potential tax claims that arise from these audits. An unfavorable outcome in certain of these matters could result in a substantial increase in Dell Technologies’our tax expense. In addition, Dell Technologies’our provision for income taxes could be adversely affected by changes in the valuation of deferred tax assets.
We invest a significant portion of its available funds in a portfolio consisting primarily of both equity and debt securities of various types and maturities pending the deployment of these funds in Dell Technologies’our business. Dell Technologies’Our equity investments consist of strategic investments in both marketable and non-marketable securities. Investments in marketable securities are measured at fair value on a
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recurring basis. We have elected to apply the measurement alternative for non-marketable securities. Under the alternative, we measure investments without readily determinable fair values at cost, less impairment, adjusted by observable price changes. Our debt securities generally are classified as held to maturity and are recorded in our financial statements at amortized cost. Our earnings performance could suffer from anydeclines in fair value or impairment of itsour investments. Dell Technologies’ portfolio securities generally are classified as available-for-sale and are recorded in Dell Technologies’ financial statements at fair value. If any such investments experience declines in market price and it is determined that such declines are other than temporary, Dell Technologies may have to recognize in earnings the decline in the fair market value of such investments below their cost or carrying value.
Unfavorable results of legal proceedings could harm Dell Technologies’our business and result in substantial costs.
We are involved in various claims, suits, investigations, and legal proceedings that arise from time to time in the ordinary course of business as well asor otherwise, including those that arosepending in connection with the Class V transaction including thoseand others described elsewhere in this report. Additional legal claims or regulatory matters affecting us and our subsidiaries may arise in the future and could involve stockholder, consumer, regulatory, compliance, intellectual property, antitrust, tax, and other issues on a global basis. Litigation is inherently unpredictable. Regardless of the merits of the claims,a claim, litigation may be both time-consuming and disruptive to Dell Technologies’our business. Dell TechnologiesWe could incur judgments or enter into settlements of claims that could adversely affect itsour operating results or cash flows in a particular period. Even if we are not named a party to a particular suit, we may be subject to indemnification obligations to the named parties that could subject us to liability for damages or other amounts payable as a result of such judgments or settlements. In addition, Dell Technologies’our business, operating results, and financial condition could be adversely affected if any infringement or other intellectual property claim made against itus by any third party is successful, or if Dell Technologies failswe fail to develop non-infringing technology or license the proprietary rights on commercially reasonable terms and conditions.
Compliance requirements of current or future environmental and safety laws, or other laws, may increase costs, expose Dell Technologiesus to potential liability and otherwise harm Dell Technologies’our business.
Our operations are subject to environmental and safety regulations in all areas in which Dell Technologies conductswe conduct business. Product design and procurement operations must comply with new and future requirements relating to climate change laws and regulations, materials composition, sourcing, energy efficiency and collection, recycling, treatment, transportation, and disposal of electronics products, including restrictions on mercury, lead, cadmium, lithium metal, lithium ion, and other substances. If Dell Technologies failswe fail to comply with applicable rules and regulations regarding the transportation, source, use, and sale of such regulated substances, Dell Technologieswe could be subject to liability. The costs and timing of costs under environmental and safety laws are difficult to predict, but could have an adverse impact on Dell Technologies’our business.
In addition, Dell Technologieswe and itsour subsidiaries are subject to various anti-corruption laws that prohibit improper payments or offers of payments to foreign governments and their officials for the purpose of obtaining or retaining business, and are also subject to export controls, customs, and economic sanctions laws, including those currently imposed on Russia, and embargoes imposed by the U.S. government. Violations of the Foreign Corrupt Practices Act or other anti-corruption laws or export control, customs, or economic sanctions laws may result in severe criminal or civil sanctions and penalties, and Dell Technologieswe and itsour subsidiaries may be subject to other liabilities which could have a material adverse effect on theirour business, results of operations, and financial condition.
We are subject to provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act intended to improve transparency and accountability concerning the supply of minerals originating from the conflict zones of the Democratic Republic of the Congo or adjoining countries. Dell Technologies willWe incur costs to comply with the disclosure requirements of this law and may realize other costs relating to the sourcing and availability of minerals used in Dell Technologies’our products. Further, Dell Technologieswe may face reputational harm if itsour customers or other Dell Technologies stakeholders conclude that Dell Technologies iswe are unable to sufficiently verify the origins of the minerals used in itsour products.
Natural disasters, terrorism, armed hostilities, terrorism, natural disasters, or public health issues could harm Dell Technologies’our business.
Natural disasters, terrorism or armed hostilities, terrorism, natural disasterssuch as the attack on Ukraine, or public health issues, such as those resulting from the COVID-19 pandemic, whether in the United States or abroad,in other countries, could cause damage or disruption to Dell Technologiesus or Dell Technologies’our suppliers and customers, or could create political or economic instability, any of which could harm Dell Technologies’our business. For example, the earthquake and tsunami in Japan and severe flooding in Thailand which occurred during fiscal year 2012 caused damage to infrastructure and factories that disrupted the supply chain for a variety of components used in Dell’s products. Any such future events could cause a decrease in demand for Dell Technologies’our products, make it difficult or impossible to deliver products or for suppliers to deliver components, and create delays and inefficiencies in Dell Technologies’our supply chain.
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Global climate change, and legal, regulatory, or market measures to address climate change, may negatively affect or business, operations, and financial results.
We are subject to risks associated with the long-term effects of climate change on the global economy and on the IT industry in particular. The physical risks associated with climate change include the adverse effects of carbon dioxide and other greenhouse gases on global temperatures, weather patterns, and the frequency and severity of natural disasters. Extreme weather and natural disasters within or outside the United States could make it more difficult and costly for us to manufacture and deliver our products to our customers, obtain production materials from our suppliers, or perform other critical corporate functions. For example, tornadoes in Tennessee, wildfires in California, and typhoons in the Philippines disrupted our operations in those areas in recent periods.
The increasing concern over climate change could also result in transition risks such as shifting customer preferences or regulatory changes.Changing customer preferences may result in increased demands regarding our solutions, products, and services, including the use of packaging materials and other components in our products and their environmental impact on sustainability.These demands may cause us to incur additional costs or make other changes to other operations to respond to such demands, which could adversely affect our financial results. If we fail to manage transition risks, including such demands, in an effective manner, customer demand for our solutions, products, and services could diminish, and our profitability could suffer.
The increasing concern over climate change could result in new domestic or international legal requirements for us to reduce greenhouse gas emissions and other environmental impacts of our operations, improve our energy efficiency, or undertake sustainability measures that exceed those we currently pursue. Any such regulatory requirements could cause disruptions in the manufacture of our products and result in increased procurement, production, and distribution costs. Our reputation and brand could be harmed if we fail, or are seen as having failed, to respond responsibly and effectively to changes in legal and regulatory measures adopted to address climate change.
We are highly dependent on the services of Michael S. Dell, itsour Chief Executive Officer, and its success depends on the abilityour loss of, or our inability to continue to attract, retain, and motivate, key employees.executive talent and other employees in this highly competitive market could harm our business.
We are highly dependent on the services of Michael S. Dell, itsour founder, Chief Executive Officer, and largest stockholder. If Dell Technologies loseswe lose the services of Mr. Dell, Dell Technologieswe may not be able to locate a suitable or qualified replacement, and Dell Technologieswe may incur additional expenses to recruit a replacement, which could severely disrupt Dell Technologies’our business and growth. Further, Dell Technologies relieswe rely on key personnel, including other members of itsour executive leadership team, to support itsour business and increasingly complex product and services offerings. Dell TechnologiesOur experienced executives are supported by employees in our U.S. and international operations who are highly skilled in product development, manufacturing, sales and other functions critical to our future growth and profitability. We face intensive competition, both within and outside of our industry, in retaining and hiring individuals with the requisite expertise. The disruption in labor markets as a result of COVID-19 has increased the competition for talent. As a result of this competition, we may not be ableunable to continue to attract, retain, and motivate suitably qualified individuals at acceptable compensation levels who have the key professional,managerial, operational, and technical marketingknowledge and staff resources needed.
We have outstanding indebtedness and may incur additional debt in the future, which could adversely affect our financial condition.
As of February 1, 2019, Dell TechnologiesJanuary 28, 2022, we and itsour subsidiaries had approximately $54.2$27.0 billion aggregate principal amount of indebtedness. As of the same date, Dell Technologieswe and itsour subsidiaries also had an additional $5.6$5.0 billion available for borrowing under itsour revolving credit facilities.
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We may be adversely affected.affected by the transition from LIBOR as a reference rate to calculate interest rates under our variable-rate indebtedness
As of February 1, 2019,January 28, 2022, approximately $17.9$0.9 billion of Dell Technologies’our debt was variable-rate debtindebtedness consisting of unhedged outstanding DFS borrowings. Our current outstanding variable-rate indebtedness uses the London Interbank Offered Rate (“LIBOR”) as a benchmark for establishing the interest rate. LIBOR is the subject of recent national and international regulatory guidance and proposals for reform. As a 100 basis point increaseresult of these reforms, the ICE Benchmark Administration Limited, the administrator of LIBOR, ceased publication for the one-week and two-month USD LIBOR settings on December 31, 2021 and is expected to begin phasing out the remaining USD LIBOR settings on July 1, 2023. Alternatives to LIBOR may perform differently than in interest rates would have resultedthe past. We are in an increasethe process of approximately $179 million in annualamending relevant agreements based on LIBOR, but we cannot predict what alternative index will be negotiated with our counterparties. As a result, our interest expense on such debt. Dell Technologies’ ability to meet its expenses, to remain in compliance with its covenants under its debt instrumentscould increase and to make future principal and interest payments in respect of its debt depends on, among other factors, Dell Technologies’ operating performance, competitive developments and financial market conditions, all of which are significantly affected by financial, business, economic, and other factors. Dell Technologies is not able to control many of these factors. Given current industry and economic conditions, Dell Technologies’our available cash flow may not be sufficient to allow Dell Technologies to pay principal and interest on its debt and meet its other obligations.
Risks Relating to Ownership of Our Class C Common Stock
Each share of Dell Technologies’our Class A Common Stock and each share of Dell Technologies’our Class B Common Stock has ten votes, while each share of Dell Technologies’our Class C Common Stock has one vote. Based on their ownership of Dell Technologies’ common stock as of February 1, 2019, becauseBecause of these disparate voting rights, the MD stockholders, the MSD Partners stockholdersMichael Dell and the SLP stockholdersSusan Lieberman Dell Separate Property Trust (the “MD stockholders”) and certain investment funds affiliated with Silver Lake Partners (the “SLP stockholders”) collectively held common stock representing approximately 96.4%94.4% of the total voting power of Dell Technologies’our outstanding common stock.stock as of January 28, 2022. The limited ability of holders of the Class C Common Stock to influence matters requiring stockholder approval may adversely affect the market price of the Class C Common Stock.
In addition, in 2017, FTSE Russell and S&P Dow Jones changed their eligibility criteria to exclude new companies with multiple classes of shares of common stock from being added to certain stock indices. FTSE Russell instituted a requirement that new and, beginning in September 2022, existing constituents of its indices have greater than 5% of their voting rights in the hands of public stockholders, as calculated by FTSE Russell, whereas S&P Dow Jones announced that companies with multiple share classes, such as ours,Dell Technologies, will not be eligible for inclusion in the S&P 500, S&P MidCap 400, and S&P SmallCap 600, which together make up the S&P Composite 1500. Other major stock indices might adopt similar requirements in the future. FTSE Russell’s determination may change at any time. Under the current criteria, Dell Technologies’at a minimum, our multi-class capital structure makes it ineligible for inclusion in any of thesespecified S&P Dow Jones indices, including those making up the S&P Composite 1500, and, as a result, mutual funds, exchange-traded funds, and other investment vehicles that track these indices will not invest in the Class C Common Stock. It is unclear what effect, if any, exclusion from theany indices will have on the valuations of the affected publicly-traded companies. It is possible that such policies may depress the valuations of public companies excluded from thesesuch indices compared to valuations of companies that are included.
Future sales, or the perception of future sales, of a substantial amount of shares of the Class C Common Stock could depress the trading price of the Class C Common Stock.
Sales of a substantial number of shares of the Class C Common Stock in the public market, or the perception that these sales may occur, could adversely affect the market price of the Class C Common Stock, which could make it more difficult for investors to sell their shares of Class C Common Stock at a time and price that they consider appropriate. These sales, or the possibility that these sales may occur, also could impair Dell Technologies’our ability to sell equity securities in the future at a time and at a price Dell Technologies deemswe deem appropriate, and Dell Technologies’our ability to use Class C Common Stock as consideration for acquisitions of other businesses, investments, or other corporate purposes. As of February 1, 2019, Dell TechnologiesJanuary 28, 2022, we had a total of approximately 172283 million shares of Class C Common Stock outstanding.
As of February 1, 2019,January 28, 2022, the 406,290,710378,224,977 outstanding shares of Class A Common Stock held by the MD stockholders and the MSD Partners stockholders, and the 136,986,85895,350,227 outstanding shares of Class B Common Stock held by the SLP stockholders wereare convertible into shares of Class C Common Stock at any time on a one-to-one basis. Although the MD stockholders, the MSD Partners stockholders, and SLP stockholders generally are subject to transfer restrictions that prevent their sale or other transfer of common stock until June 27, 2019, thereafter suchSuch shares, upon any conversion into shares of Class C Common Stock, will be eligible for resale in the public market pursuant to Rule 144 under the Securities Act of 1933 (the “Securities Act”), subject to volume, manner of sale, and other limitations under Rule 144.
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We have entered into a registration rights agreement with holders of 406,483,978378,224,977 outstanding shares of Class A Common Stock (which are convertible into number of shares of Class C Common Stock), holders of all of the 136,986,85895,350,227 outstanding shares of Class B Common Stock (which are convertible into the same number of shares of Class C Common Stock), and holders of 18,181,818approximately 6,000,000 outstanding shares of Class C Common Stock, pursuant to which Dell Technologies haswe granted such holders and their permitted transferees shelf, demand and/or piggyback registration rights with respect to such shares. Registration of those shares under the Securities Act would permit such holders to sell the shares into the public market.
Further, as of February 1, 2019, Dell TechnologiesJanuary 28, 2022, we had 45,097,15862,152,041 shares of Class C Common Stock that may be issued upon the exercise, vesting, or settlement of outstanding stock options, restricted stock units, or deferred stock units under Dell Technologies’our stock incentive plans,plan, all of which would have been, upon issuance, eligible for sale in the public market, subject where applicable to expiration or waiver of applicable contractual transfer restrictions, that, subject to certain exceptions, are scheduled to expire beginning on June 27, 2019, and to terminate on December 27, 2020, and an additional 32,050,55645,674,713 shares of Class C Common Stock that have been authorized and reserved for issuance in relationpursuant to potential future awards under the stock incentive plans. Dell Technologiesplan. We also may issue additional stock options in the future that may be exercised for additional shares of Class C Common Stock and additional restricted stock units or deferred stock units that may vest. Dell Technologies expectsWe expect that all shares of Class C Common Stock issuable with respect to such awards will be registered under one or more registration statements on Form S-8 under the Securities Act and available for sale in the open market.
By reason of their ownership of Class A Common Stock possessing a majority of the aggregate votes entitled to be cast by holders of all outstanding shares of Dell Technologies’our common stock voting together as a single class, the MD stockholders have the ability to approve any matter submitted to the vote of all of the outstanding shares of the common stock voting together as a single class.
Through their control, of Dell Technologies, the MD stockholders are able to control our actions, to be taken by Dell Technologies, including actions related to the election of our directors and directors of Dell Technologies and itsour subsidiaries, (including VMware, Inc. and its subsidiaries), amendments to Dell Technologies’our organizational documents, and the approval of significant corporate transactions, including mergers and sales of substantially all of Dell Technologies’our assets distributions of Dell Technologies’ assets, the incurrence of indebtedness, and any incurrence of liens on Dell Technologies’ assets.that our stockholders may deem advantageous. For example, although the Dell Technologiesour bylaws provide that the number of directors will be fixed by resolution of the board of directors, theour stockholders of Dell Technologies may adopt, amend, or repeal the bylaws in accordance with Section 109 of the Delaware General Corporation.Corporation Law. Through their control, of Dell Technologies, the MD stockholders therefore may therefore amend theour bylaws to change the number of directors (within the limits of the certificate of incorporation), notwithstanding any determination by the board of directors regarding board size.
Further, as of February 1, 2019,January 28, 2022, the MD stockholders, the MSD Partners stockholders and the SLP stockholders collectively beneficially owned 76.4%63.3% of Dell Technologies’our outstanding common stock. This concentration of ownership together with the disparate voting rights of Dell Technologies’our common stock may delay or deter possible changes in control of Dell Technologies, which may reduce the value of an investment in the Class C Common Stock. So long as the MD stockholders the MSD Partners stockholders, and the SLP stockholders continue to own common stock representing a significant amount of the combined voting power of Dell Technologies’our outstanding common stock, even if such amount is, individually or in the aggregate, less than 50%, such stockholders will continue to be able to strongly influence Dell Technologies’our decisions. Further,
In addition, the MD stockholders and the SLP stockholders, respectively, have the right to nominate a number of individuals for election as Group I Directors (who constitute all but one of our directors), which is equal to the percentage of the total voting power for the regular election of directors beneficially owned by the MD stockholders or by the SLP stockholders multiplied by the number of directors then on the board of directors who are not members of the audit committee, rounded up to the nearest whole number. In addition,Further, so long as the MD stockholders or the SLP stockholders each beneficially own at least 5% of all outstanding shares of the common stock entitled to vote generally in the election of directors, each of the MD stockholders or the SLP stockholders, as applicable, are entitled to nominate at least one individual for election as a Group I Director.
The MD stockholders, the MSD Partners stockholders, and the SLP stockholders and their respective affiliates may have interests that conflict with the interests of other stockholders or those of Dell Technologies.
In the ordinary course of their business activities, the MD stockholders, certain investment funds affiliated with an investment firm formed by principals of the MSDfirm that manages the capital of Michael Dell and his family (the “MSD Partners stockholders,stockholders”), and the SLP stockholders and their respective affiliates may engage in activities wherein which their interests conflict with our interests of other stockholders or those of Dell Technologies. The Dell Technologiesother stockholders. Our certificate of incorporation provides that none of the MD stockholders, MSD Partners, L.P., the MSD Partners stockholders, Silver Lake Partners III, L.P. and the SLP stockholders, nor any of their respective affiliates or any director or officer of the Company who is also a director, officer, employee, managing director, or other affiliate of MSD Partners, L.P. or Silver Lake Partners III, L.P. (other than Michael Dell) have any duty
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to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which Dell Technologies operates.we operate. The MD stockholders, the MSD Partners stockholders, and the SLP stockholders also may pursue acquisition opportunities that may be complementary to Dell Technologies’our business and, as a result, those acquisition opportunities may not be available to Dell Technologies.us. In addition, such stockholders may have an interest in pursuing acquisitions, divestitures, and other transactions that, in their judgment, could enhance the value of their investment in Dell Technologies, even though such transactions might involve risks to other stockholders.
Because Dell Technologies iswe are a “controlled company” within the meaning of NYSEthe rules of the New York Stock Exchange and, as a result, qualifiesqualify for, and reliesrely on, exemptions from certain corporate governance requirements, holders of Class C Common Stock do not have the same protections afforded to stockholders of companies that are subject to such requirements.
We are a “controlled company” within the meaning of NYSEthe rules of the New York Stock Exchange (the “NYSE”) because the MD stockholders hold common stock representing more than 50% of the voting power in the election of directors. As a controlled company, Dell Technologieswe may elect not to comply with certain corporate governance requirements under NYSE rules, including the requirements that:
Under the Dell Technologiesour certificate of incorporation, unless Dell Technologies consentswe consent in writing to the selection of an alternative forum, the sole and exclusive forum will be, to the fullest extent permitted by law, a state court located within the State of Delaware (or, if no state court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware) for:
•any derivative action or proceeding brought on behalf of Dell Technologies;our behalf;
•any action asserting a claim of breach of a fiduciary duty owed by any director or officer or stockholder of Dell Technologies to Dell Technologiesus or Dell Technologies’our stockholders;
•any action asserting a claim against Dell Technologies or any director or officer or stockholder of Dell Technologies arising pursuant to any provision of the Delaware General Corporation Law or of theour certificate of incorporation or bylaws of Dell Technologies;bylaws; or
•any action asserting a claim against Dell Technologiesus or any director or officer or stockholder of Dell Technologies governed by theour internal affairs doctrine.
These provisions of the Dell Technologiesour certificate of incorporation could limit the ability of the holders of the Class C Common Stock to obtain a favorable judicial forum for disputes with Dell Technologiesus or with our directors, officers, or the controlling stockholders, of Dell Technologies, which may discourage such lawsuits against Dell Technologiesus and itsour directors, officers, and stockholders. Alternatively, if a court were to find these provisions of itsour organizational documents inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, Dell Technologieswe may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect itsour business, financial condition, and results of operations.
The exclusivechoice of forum provisions of the certificate of incorporation are notprovision is intended to apply to the fullest extent permitted by law to the above-specified types of actions and proceedings, including, to the extent permitted by the federal securities laws, to lawsuits asserting both the above-specified claims and claims under the federal securities laws. Application of the choice of forum provision may be limited in some instances by applicable law. Section 27 of the Securities Exchange Act of 1934 (the “Exchange Act”) creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations
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thereunder. As a result, the valuechoice of forum provision will not apply to actions arising under the Exchange Act or the rules and regulations thereunder. Section 22 of the Class C Common Stock.
We may not continue to pay dividends or to pay dividends at the same rate as announced in February 2022.
Our payment of dividends, as well as the effectivenessrate at which we pay dividends, is solely at the discretion of its internal control over financial reporting. The assessment must include disclosureour board of directors. Further, dividend payments, if any, material weaknesses identified by Dell Technologies’ management in its report. Dell Technologies also is required to disclose significant changes made in its internal control over financial reporting. In addition, Dell Technologies’ independent registered public accounting firm is required to express an opinion each year as to the effectiveness of Dell Technologies’ internal control over financial reporting. The process of designing, implementing, and testing internal control over financial reporting is time-consuming, costly, and complicated.
ITEM 1B — UNRESOLVED STAFF COMMENTS
None.
ITEM 2 — PROPERTIES
Our principal executive offices and global headquarters are located at One Dell Way, Round Rock, Texas.
As of February 1, 2019,January 28, 2022, as shown in the following table, we owned or leased 31.522.6 million square feet of office, manufacturing, and warehouse space worldwide:
| Owned | Leased | Owned | Leased | |||||||||||||
| (in millions) | (in millions) | |||||||||||||||
| U.S. facilities | 10.2 | 5.5 | U.S. facilities | 8.1 | 2.1 | |||||||||||
| International facilities | 4.5 | 11.3 | International facilities | 4.4 | 8.0 | |||||||||||
| Total (a) | 14.7 | 16.8 | Total (a) | 12.5 | 10.1 | |||||||||||
____________________
(a) Includes 2.2 million square feet of subleased or vacant space.
As of February 1, 2019,January 28, 2022, our facilities consisted of business centers, which include facilities that contain operations for sales, technical support, administrative, and support functions; manufacturing operations; and research and development centers. For additional information about our facilities, including the location of certain facilities, see “Item 1 — Business — Manufacturing and Materials.”
Because of the interrelation of the products and services offered in each of our segments, we generally do not designate our properties to any segment. With limited exceptions, each property is used at least in part by allboth of our segments, and we retain the flexibility to make future use of each of the properties available to each of the segments. Of our properties as of February 1, 2019, approximately 5.0 million square feet of space that house executive and administrative offices, research and development, sales and marketing functions, and data centers were used solely by our VMware segment.
We believe that our existing properties are suitable and adequate for our current needs, and that we can readily meetwill continue to assess our facilities requirements for additional space at competitive rates by extending expiring leases or by finding alternative space.in light of a number of factors, including the increased number of employees who are adopting flexible work arrangements under our Connected Workplace programs. The shift to such arrangements may result in an overall reduction in the square footage of our facilities.
ITEM 3 — LEGAL PROCEEDINGS
The information required by this itemItem 3 is incorporated herein by reference to the information set forth under the caption “Legal Matters” in Note 1011 of the Notes to the Consolidated Financial Statements included in “Part II — Item 8 — Financial Statements and Supplementary Data.”
ITEM 4 — MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5 — MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market for Class C Common Stock
Our Class C Common Stock is listed and traded on the New York Stock Exchange under the symbol “DELL.” The Class C Common Stock began trading on the NYSE on a regular-way basis on December 28, 2018.
There is no public market for our Class A Common Stock or Class B Common Stock. No shares of the Company’sour Class D Common Stock were outstanding as of February 1, 2019.January 28, 2022.
Holders
As of March 25, 2019,22, 2022, there were 4,6384,369 holders of record of the Company’sour Class C Common Stock, 33six holders of record of the Company’sour Class A Common Stock, and 6six holders of record of the Company’sour Class B Common Stock. The number of record holders does not include individuals or entities that beneficially own shares of any class of the Company’sour common stock, but whose shares are held of record by a broker, bank, or other nominee.
Dividends
The dividend policy and the declaration and payment of each quarterly cash dividend will be subject to our board’s continuing determination that the policy and the declaration of dividends thereunder are in the best interests of our stockholders and are in compliance with applicable law. The board retains the power to modify, suspend, or cancel the dividend policy in any manner and at any time that it may deem necessary or appropriate.
Sales of Unregistered Securities
During December 2021, we issued 72,727 shares of Class C Common Stock to a stockholder upon the conversion of the same number of shares of our Class A Common Stock held by such stockholder. The issuance of the Class C Common Stock in this transaction was made in reliance on the exemption from registration under the Securities Act of 1933 afforded by Section 3(a)(9) thereof. No commission or other remuneration was paid or given directly or indirectly for soliciting the exchange of these securities.
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Purchases of Equity Securities
The following table presents information with respect to our purchases of Class C Common Stock during the fourth quarter of Fiscal 2022.
| Period | Total Number of Shares Purchased | Weighted Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Programs | |||||||||||||||||||
| Repurchases from October 30, 2021 through November 26, 2021 | 2,768,236 | $ | 55.91 | 2,768,236 | $ | 4,845,229,568 | |||||||||||||||||
| Repurchases from November 27, 2021 through December 24, 2021 | 3,065,914 | $ | 56.36 | 3,065,914 | $ | 4,672,445,598 | |||||||||||||||||
| Repurchases from December 25, 2021 through January 28, 2022 | 5,747,928 | $ | 57.62 | 5,747,928 | $ | 4,341,241,561 | |||||||||||||||||
| Total | 11,582,078 | $ | 4,341,241,561 | ||||||||||||||||||||
Effective as of September 23, 2021, our board of directors terminated our previous stock repurchase program and will depend upon its resultsapproved a new stock repurchase program with no established expiration date under which we may repurchase from time to time, through open market purchases, block trades, or accelerated or other structured share purchases, up to $5 billion of operations, financial condition and business prospects, limitations on the paymentshares of dividends under the Company’s certificateClass C Common Stock, exclusive of incorporation, the terms of its indebtedness and applicable law, andany fees, commissions, or other expenses related to such other factors as its board of directors may deem relevant.repurchases.
Stock Performance Graph
| Class V Common Stock | S&P 500 | S&P 500 Systems Software Index | |||
| Fiscal Year 2017 | |||||
| September 7, 2016 | $100.00 | $100.00 | $100.00 | ||
| October 28, 2016 | $101.81 | $97.49 | $101.28 | ||
| February 3, 2017 | $134.06 | $105.94 | $108.32 | ||
| Fiscal Year 2018 | |||||
| May 5, 2017 | $140.19 | $111.19 | $119.07 | ||
| August 4, 2017 | $134.15 | $115.39 | $126.57 | ||
| November 3, 2017 | $168.48 | $121.13 | $142.95 | ||
| February 2, 2018 | $147.71 | $129.92 | $153.56 | ||
| Fiscal Year 2019 | |||||
| May 4, 2018 | $151.98 | $125.88 | $157.59 | ||
| August 3, 2018 | $193.94 | $134.89 | $175.40 | ||
| November 2, 2018 | $189.96 | $129.92 | $174.56 | ||
| December 27, 2018 | $166.67 | $119.19 | $166.55 | ||
Class C Common Stock
The following graph compares the cumulative total return on the Company’s Class C Common Stock for the period from December 28, 2018, the date on which itsthe Class C Common Stock began trading on the NYSE, through February 1, 2019,January 28, 2022, with the total return over the same period on the S&P 500 Index and the S&P 500 Systems Software Index. The graph assumes that $100 was invested on December 28, 2018 in the Class C Common Stock and in each of the foregoing indices and assumes reinvestment of dividends, if any. The comparisons in the graph are based on historical data.
| Class C Common Stock | S&P 500 | S&P 500 Systems Software Index | |||
| Fiscal Year 2019 | |||||
| December 28, 2018 | $100.00 | $100.00 | $100.00 | ||
| February 1, 2019 | $149.65 | $108.88 | $104.07 | ||
| December 28, 2018 | February 1, 2019 | January 31, 2020 | January 29, 2021 | January 28, 2022 | ||||||||||||||||||||||||||||
| Class C Common Stock | $100.00 | $109.29 | $107.35 | $160.44 | $244.72 | |||||||||||||||||||||||||||
| S&P 500 | $100.00 | $109.06 | $132.57 | $155.44 | $188.08 | |||||||||||||||||||||||||||
| S&P 500 Systems Software Index | $100.00 | $104.13 | $164.89 | $226.05 | $300.81 | |||||||||||||||||||||||||||
The preceding stock performance graphsgraph shall not be deemed to be incorporated by reference by means of any general statement incorporating by reference this annual report on Form 10-K into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that Dell Technologies specifically incorporates such information by reference, and shall not otherwise be deemed filed under such Acts.
ITEM 6 — SELECTED FINANCIAL DATA
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| Fiscal Year Ended | |||||||||||||||||||
| February 1, 2019 | February 2, 2018 | February 3, 2017 (a) | January 29, 2016 (b) | January 30, 2015 (b) | |||||||||||||||
| (in millions, except per share data) | |||||||||||||||||||
| Results of Operations and Cash Flow Data: | |||||||||||||||||||
| Net revenue | $ | 90,621 | $ | 79,040 | $ | 62,164 | $ | 50,911 | $ | 54,142 | |||||||||
| Gross margin | $ | 25,053 | $ | 20,537 | $ | 13,649 | $ | 8,387 | $ | 8,896 | |||||||||
| Operating loss | $ | (191 | ) | $ | (2,416 | ) | $ | (2,390 | ) | $ | (514 | ) | $ | (316 | ) | ||||
| Loss from continuing operations before income taxes | $ | (2,361 | ) | $ | (4,769 | ) | $ | (4,494 | ) | $ | (1,286 | ) | $ | (1,215 | ) | ||||
| Loss from continuing operations | $ | (2,181 | ) | $ | (2,926 | ) | $ | (3,074 | ) | $ | (1,168 | ) | $ | (1,108 | ) | ||||
| Earnings (loss) per share attributable to Dell Technologies Inc.: | |||||||||||||||||||
| Continuing operations - Class V Common Stock - basic | $ | 6.01 | $ | 1.63 | $ | 1.36 | $ | — | $ | — | |||||||||
| Continuing operations - DHI Group - basic | $ | (6.02 | ) | $ | (5.61 | ) | $ | (7.19 | ) | $ | (2.88 | ) | $ | (2.74 | ) | ||||
| Continuing operations - Class V Common Stock - diluted | $ | 5.91 | $ | 1.61 | $ | 1.35 | $ | — | $ | — | |||||||||
| Continuing operations - DHI Group - diluted | $ | (6.04 | ) | $ | (5.62 | ) | $ | (7.19 | ) | $ | (2.88 | ) | $ | (2.74 | ) | ||||
| Number of weighted-average shares outstanding: | |||||||||||||||||||
| Class V Common Stock - basic | 199 | 203 | 217 | — | — | ||||||||||||||
| DHI Group - basic | 582 | 567 | 470 | 405 | 404 | ||||||||||||||
| Class V Common Stock - diluted | 199 | 203 | 217 | — | — | ||||||||||||||
| DHI Group - diluted | 582 | 567 | 470 | 405 | 404 | ||||||||||||||
| Net cash provided by operating activities | $ | 6,991 | $ | 6,843 | $ | 2,367 | $ | 2,162 | $ | 2,551 | |||||||||
| February 1, 2019 | February 2, 2018 | February 3, 2017 | January 29, 2016 (a) | January 30, 2015 (a) | |||||||||||||||
| (in millions) | |||||||||||||||||||
| Balance Sheet Data: | |||||||||||||||||||
| Cash and cash equivalents | $ | 9,676 | $ | 13,942 | $ | 9,474 | $ | 6,322 | $ | 5,398 | |||||||||
| Total assets | $ | 111,820 | $ | 124,193 | $ | 119,672 | $ | 45,122 | $ | 48,029 | |||||||||
| Short-term debt | $ | 4,320 | $ | 7,873 | $ | 6,329 | $ | 2,981 | $ | 2,920 | |||||||||
| Long-term debt | $ | 49,201 | $ | 43,998 | $ | 43,061 | $ | 10,650 | $ | 11,071 | |||||||||
| Total Dell Technologies Inc. stockholders’ equity (deficit) | $ | (5,765 | ) | $ | 11,719 | $ | 14,757 | $ | 1,466 | $ | 2,904 | ||||||||
ITEM 7 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This management’s discussion and analysis should be read in conjunction with the audited Consolidated Financial Statements and accompanying Notes included in this annual reportAnnual Report on Form 10-K. Multiple accounting standards were adopted during the three months ended May 4, 2018, which resulted in adjustment or reclassification of amounts previously reported. See Note 2 of the Notes to the Consolidated Financial Statements included in this report for further information regarding our recently adopted accounting standards.
In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs, and that are subject to numerous risks and uncertainties. Our actual results may differ materially from those expressed or implied in any forward-looking statements.
Unless otherwise indicated, all results presented are prepared in a manner that complies, in all material respects, with accounting principles generally accepted in the United States of America (“GAAP”). Additionally, unless otherwise indicated, all changes identified for the current-period results represent comparisons to results for the prior corresponding fiscal period.
Unless the context indicates otherwise, references in this report to “we,” “us,” “our,” the “Company,” and “Dell Technologies” mean Dell Technologies Inc. and its consolidated subsidiaries, references to “Dell” mean Dell Inc. and Dell Inc.’s consolidated subsidiaries, and references to “EMC” mean EMC Corporation and EMC Corporation’s consolidated subsidiaries, and references to “VMware” refer to VMware, Inc. and VMware, Inc.’s consolidated subsidiaries.
On November 1, 2021, the Company completed its previously announced spin-off of VMware. In accordance with applicable accounting guidance, the results of VMware, excluding Dell's resale of VMware offerings, are presented as discontinued operations in the Consolidated Statements of Income and, as such, have been excluded from both continuing operations and segment results for all periods presented. Further, the Company reclassified the assets and liabilities of VMware as assets and liabilities of discontinued operations in the Consolidated Statements of Financial Position as of January 29, 2021. The Consolidated Statements of Cash Flows are presented on a consolidated basis for both continuing operations and discontinued operations.
Our fiscal year is the 52- or 53-week period ending on the Friday nearest January 31. We refer to our fiscal years ended February 1, 2019, February 2, 2018,January 28, 2022, January 29, 2021, and February 3, 2017January 31, 2020 as “Fiscal 2019,2022,” “Fiscal 2018,2021,” and “Fiscal 2017,2020,” respectively. Fiscal 2019 and Fiscal 2018All fiscal years presented included 52 weeks. Fiscal 2017 included 53 weeks, with the extra week included in the fourth quarter of Fiscal 2017.
INTRODUCTION
Fiscal 2022 Significant Developments
On November 1, 2021, we completed our previously announced spin-off of VMware by means of a special stock dividend. The VMware Spin-off was effectuated pursuant to a Separation and Distribution Agreement, dated as of April 14, 2021, between Dell Technologies and VMware. As part of the transaction, VMware paid a special cash dividend, pro rata, to each holder of VMware common stock in an aggregate amount equal to $11.5 billion, of which Dell Technologies received $9.3 billion.
In connection with and upon completion of the VMware Spin-off, we entered into a Commercial Framework Agreement (the “CFA”) with VMware, which provides the framework under which we and VMware will continue our commercial relationship after the transaction.
On October 1, 2021, we completed the sale of Boomi, Inc. (“Boomi”) and certain related assets and received total cash consideration of approximately $4.0 billion. The transaction was intended to support our focus on fueling growth initiatives through targeted investments to modernize Dell Technologies’ core infrastructure and through expansion in high-priority areas, including hybrid and private cloud, edge, telecommunications solutions, and our APEX offerings.
With the proceeds from the VMware Spin-off and cash on hand, we were able to make steady progress on paying down our outstanding debt throughout Fiscal 2022. As a result of our debt reduction and our continued focus on deleveraging, we achieved an investment grade rating from three major credit rating agencies.
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During Fiscal 2022, the coronavirus disease 2019 (“COVID-19”) pandemic continued to present global challenges that directly impacted Dell Technologies, most notably in relation to supply chain dynamics and the mix of our products and services sold. As a result of the global economic recovery coupled with industry-wide constraints on the supply of limited-source components, we experienced demand which outpaced supply across many of our product offerings. Throughout Fiscal 2022, these impacts led to an increase in orders pending fulfillment and extended lead times for our customers for certain offerings as well as increases in component and logistics costs. We also experienced significant demand growth for our CSG offerings driven by the continuation of the work and learn from home environment. This led to a shift in the mix of products and services sold towards CSG, which impacted our overall profitability. In response to these pressures, we took steps to address our customers’ demands while balancing profitability and growth. We continue to closely monitor the impacts of COVID-19 and keep the health of our employees, customers, business partners, and communities as our primary focus. Although we continue to experience some uncertainty in the global market as a result of the ongoing COVID-19 pandemic, we see opportunities to create value and grow in Fiscal 2023 in the midst of resilient demand for our IT solutions driven by a technology-enabled world.
See “Recent Transactions” below and Note 3, Note 1, and Note 7 of the Notes to the Consolidated Financial Statements included in this report for additional information regarding the VMware Spin-off, the Boomi divestiture, and our outstanding debt.
Company Overview
Dell Technologies is a leading global end-to-end technology provider, with a comprehensive portfolio of IT hardware, software and service solutions spanning both traditional infrastructure and emerging, multi-cloud technologies that enable our customers tohelps organizations build their digital futurefutures and individuals transform how they work, live and live.play. We operate eight complementary businesses: our Infrastructure Solutions Groupprovide customers with one of the industry’s broadest and our Client Solutions Group, as well as VMware, Inc., Pivotal Software, Inc. (“Pivotal”), SecureWorks Corp. (“Secureworks”), RSA Security LLC (“RSA Security”), Virtustream Group Holdings, Inc. (“Virtustream”),most innovative solutions portfolio for the data era, including traditional infrastructure and Boomi, Inc. (“Boomi”). Together, our strategically aligned family of businesses collaborate across key functional areas such as technology and product development, marketing, go-to-market and global services, and are supported by Dell Financial Services.extending to multi-cloud environments. We believe this operational philosophy enables our platformcontinue to seamlessly deliver differentiated and holistic IT solutions to our customers which has driven significanthelped drive consistent revenue growth and share gains.growth.
Dell Technologies’ end-to-end portfolio is supported by a differentiatedworld-class organization that operates globally in approximately 180 countries across key functional areas, including technology and product development, marketing, sales, financial services, and services. Our go-to-market engine which includes a 40,000-person32,000-person sales force and a global network of over 200,000 channel partners,partners. Dell Financial Services and its affiliates (“DFS”) offer customers payment flexibility and enables synergies across the business. DFS funded $8.5 billion of originations in Fiscal 2022 and maintains a $11 billion global portfolio of high-quality financing receivables. We employ approximately 35,000 full-time service and support professionals and maintain more than 2,400 vendor-managed service centers. We manage a world-class supply chain that together drive revenuedrives long-term growth and operating efficiencies.efficiencies, with approximately $75 billion in annual procurement expenditures and over 750 parts distribution centers. Together, these elements provide a critical foundation for our success.
Our Vision and Strategy
Our vision is to become the most essential technology company for the data era. We seek to address our customers’ evolving needs and their broader digital transformation objectives as they embrace today’s hybrid multi-cloud environment. We intend to execute on our vision by focusing on two overarching strategic priorities:
•Grow and modernize our core offerings in the markets in which we predominantly compete
•Pursue attractive new growth opportunities such as Edge, Telecom, data management, and as-a-Service consumption models
We believe that we are uniquely positioned in the data and multi-cloud era and that our results will benefit from our durable competitive advantages. We intend to continue to execute our business model to position our company for long-term success while balancing liquidity, profitability, and growth.
We are seeing an accelerated rate of change in the IT industry and increased demand for simpler, more agile IT as companies leverage multiple clouds in their IT environments. COVID-19 has accelerated the introduction and adoption of new technologies to ensure productivity and collaboration from anywhere. To meet our customer needs, we continue to invest in research and development, sales, and other key areas of our business to deliver superior products and solutions capabilities and to drive long-term sustainable growth.
Products and Services
We design, develop, manufacture, market, sell, and support a wide range of comprehensive and integrated solutions, products, and services. We are organized into the followingtwo business units, referred to as Infrastructure Solutions Group and Client Solutions Group, which are our reportable segments: segments.
•Infrastructure Solutions Group; Client Solutions Group;Group (“ISG”) — ISG enables our customers’ digital transformation through our trusted multi-cloud and VMware. Due to our divestitures of Dell Services, DSG, and ECD, the results of these businesses, as well as the related gains or losses on sale, have been excluded from the results of continuing operationsbig data solutions, which are built upon modern data center infrastructure. ISG helps customers in the relevant periods.
Our comprehensive portfolio of advanced storage solutions includes traditional storage solutions as well as next-generation storage solutions (such as all-flash arrays, scale-out file, object platforms, and software-defined solutions). In May 2020, we released our new PowerStore offering, a differentiated midrange storage solution that we deliver the technology needed for our customers’ digital transformation. Asenables seamless updates using microservices and container-based software architecture. This offering allows us to compete more effectively within midrange storage. We continue to make enhancements to our storage solutions offerings and expect that these offerings will drive long-term improvements in the business.
Our server portfolio evolves, we will continueincludes high-performance rack, blade, tower, and hyperscale servers, optimized to run high value workloads, including artificial intelligence and machine learning. Our networking portfolio helps our business customers transform and modernize their infrastructure, mobilize and enrich end-user experiences, and accelerate business applications and processes.
Our strengths in server, storage, and virtualization software solutions enable us to offer leading converged and hyper-converged solutions, allowing our customers to accelerate their IT transformation by acquiring scalable integrated IT solutions instead of building and assembling their own IT platforms. ISG also offers attached software, peripherals and services, including support our current portfolio of storage solutions.and deployment, configuration, and extended warranty services.
Approximately half of ISG revenue is generated by sales to customers in the Americas, with the remaining portion derived from sales to customers in the Europe, Middle East, and Africa region (“EMEA”) and the Asia-Pacific and Japan region (“APJ”).
•Client Solutions Group (“CSG”) — CSG includes branded hardware (such as desktops, workstations, and notebooks) and branded peripherals (such as displays and projectors), as well as third-party software and peripherals. Our computing devices are designed with our commercial and consumer customers’ needs in mind, and we seek to optimize performance, reliability, manageability, design, and security. For our customers that are seeking to simplify client lifecycle management, Dell PC as a Service offering combines hardware, software, lifecycle services, and financing into one all-encompassing solution that provides predictable pricing per seat per month. CSG also offers attached software, peripherals, and services, including support and deployment, configuration, and extended warranty services. |
Approximately half of CSG revenue is generated by sales to customers in the Americas, with the remaining portion derived from sales to customers in EMEA and APJ.
38 Our other businesses, described below, consists of our resale of standalone VMware offerings, referred to as VMware Resale, as well as product and service offerings of Secureworks and Virtustream. These businesses are not classified as reportable segments, either individually or collectively. •VMware Resale consists of our sale of standalone VMware offerings. Under the CFA entered into as part of the VMware Spin-off, Dell Technologies continues to act as a key channel partner in this relationship, reselling VMware offerings to our customers. This partnership is intended to facilitate mutually beneficial growth for both Dell and VMware. |
VMware works with customers in the areas of hybrid cloud,and multi-cloud, modern applications, networking, and security, and digital workspaces, helping customers manage their IT resources across private clouds and complex multi-cloud, multi-device environments. VMware’s portfolio supports
•Secureworks (NASDAQ: SCWX) is a leading global provider of intelligence-driven information security solutions singularly focused on protecting its clients from cyber attacks. The solutions offered by Secureworks enable organizations of varying size and addresses the keycomplexity to fortify their cyber defenses to prevent security breaches, detect malicious activity in near real time, prioritize and respond rapidly to security incidents and predict emerging threats.
•Virtustream offers cloud software and Infrastructure-as-a-Service solutions that enable customers to migrate, run, and manage mission-critical applications in cloud-based IT priorities of customers: accelerating their cloud journey, empowering digital workspaces, and transforming networking and security. VMware solutions provide a flexible digital foundation to enable the digital transformation of VMware’s customers as they ready their applications, infrastructure, and devices for their future business needs.environments.
Our products and services portfolio isofferings are continually evolving in response to industry dynamics. As a result, reclassifications of certain products and services solutions in major product categories may be required. For further discussion regarding our current reportable segments, see “Results of Operations — Business Unit Results.”Results” and Note 19 of the Notes to the Consolidated Financial Statements included in this report.
Dell Financial Services
Recent Transactions
Spin-Off of VMware —As described in Note 1 and Note 3 of the Notes to the Consolidated Financial Statements included in this report, on November 1, 2021, the Company completed its previously announced VMware Spin-off.
Dell Technologies effectuated the VMware Spin-off by means of a special stock dividend of 30,678,605 shares of Class A common stock and 307,221,836 of Class B common stock of VMware to Dell Technologies stockholders of record on October 29, 2021. Prior to receipt of the VMware common stock by the Company’s stockholders, each share of VMware Class B common stock automatically converted into one share of VMware Class A common stock. As a result of these transactions, each holder of record of shares of Dell Technologies common stock as of the distribution record date received approximately 0.440626 of a share of VMware Class A common stock for each outstanding share of Dell Technologies common stock owned by such holder as of such date. VMware paid a special cash dividend, pro rata, to each holder of VMware common stock in an aggregate amount equal to $11.5 billion, of which Dell Technologies received $9.3 billion.
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Immediately following VMware’s payment of the special cash dividend, pursuant to the Separation and Distribution Agreement, the businesses of VMware were separated from the remaining businesses of Dell Technologies through a series of transactions that resulted in the pre-transaction stockholders of Dell Technologies owning shares in two separate public companies, consisting of (1) VMware, which continues to own the businesses of VMware, Inc. and its subsidiaries, and (2) Dell Technologies, which continues to own Dell Technologies’ other businesses and subsidiaries. In connection with and upon completion of the VMware Spin-off, Dell Technologies and VMware entered into a Commercial Framework Agreement. The CFA provides a framework under which Dell Technologies and VMware will continue their commercial relationship after the transaction. The CFA has an initial term of five years, with automatic one-year renewals occurring annually thereafter, subject to certain terms and conditions. Dell Technologies and VMware also entered into other agreements that will govern other aspects of their relationship, including, among others, a tax matters agreement and a transition services agreement.
Pursuant to the CFA, Dell Technologies will continue to act as a distributor of VMware’s standalone products and services and purchase such products and services for resale to end-user customers. Dell Technologies will also continue to integrate VMware’s products and services with Dell Technologies’ offerings and sell them to end users. The results of these transactions are classified as continuing operations within the Company’s Consolidated Statements of Income for all periods presented. See Note 3 of the Notes to the Consolidated Financial Statements for additional information on the VMware Spin-off.
The operating results of VMware, excluding Dell's resale of VMware offerings, are presented as discontinued operations in our Consolidated Statements of Income and as such, have been excluded from both continuing operations and segment results for all periods presented, except as otherwise indicated. Further, the Company reclassified the related assets and liabilities of VMware as assets and liabilities of discontinued operations in the Consolidated Statements of Financial Position as of January 29, 2021. The Consolidated Statements of Cash Flows are presented on a consolidated basis for both continuing operations and discontinued operations. See Note 3 of the Notes to the Consolidated Financial Statements included in this report for more information related to the discontinued operations.
Boomi Divestiture —On October 1, 2021, we completed the sale of Boomi and certain related assets for a total cash consideration of approximately $4.0 billion, resulting in a pre-tax gain on sale of $4.0 billion. The Company ultimately recorded a $3.0 billion gain, net of $1.0 billion in tax expense.
RSA Divestiture —On September 1, 2020, we completed the sale of RSA Security LLC (“RSA Security”) for total cash consideration of approximately $2.082 billion, resulting in a pre-tax gain on sale of $338 million. The Company ultimately recorded a $21 million loss net of taxes. The transaction was intended to further simplify our product portfolio and corporate structure.
Prior to the divestitures, the operating results of Boomi and RSA Security were included within other businesses and did not qualify for presentation as discontinued operations. See Note 1 of the Notes to the Consolidated Financial Statements included in this report for more information about these transactions.
Relationship with VMware
Effective upon the completion of the VMware Spin-off, VMware is considered to be a related party of the Company. The related party relationship is as a result of Michael Dell’s ownership interest of both Dell Technologies and VMware and Michael Dell’s continued positions as Chairman and Chief Executive Officer of Dell Technologies, and Chairman of the Board of VMware. Following the completion of the VMware Spin-off, the majority of transactions that occur between Dell Technologies and VMware consist of Dell Technologies’ purchase of VMware products and services for resale, either on a standalone basis or as a part of integrated offerings. For more information regarding related party transactions with VMware, see Note 21 of the Notes to the Consolidated Financial Statements included in this report.
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Strategic Investments and Acquisitions
As part of our strategy, we will continue to evaluate opportunities for strategic investments through our venture capital investment arm, Dell Technologies Capital, with a focus on emerging technology areas that are relevant to the Dell Technologies unique familyall segments of businessesour business and that will complement our existing portfolio of solutions. Our investment areas include storage, software-defined networking, management and orchestration, security, machine learning and artificial intelligence, Big Data and analytics, cloud, Internet of Things (“IoT”),edge computing, and software development operations. As of January 28, 2022 and January 29, 2021, Dell Technologies held strategic investments in non-marketable securities of $1.4 billion and $0.9 billion, respectively.
In addition to these investments, we also may make disciplined acquisitions targeting businesses that advance our strategic objectives. As of February 1, 2019objectives and February 2, 2018, Dell Technologies held strategic investments of $1.0 billion and $0.7 billion, respectively.accelerate our innovation agenda.
Business Trends and Challenges
Ukraine— We are seeing an unprecedented ratemonitoring and responding to the escalating conflict in Ukraine and the associated sanctions and other restrictions. As of changethe date of this report, as a result of the conflict, we are not selling, servicing or supporting products in Russia, Belarus, and the Donetsk and Luhansk regions of Ukraine. The full impact of the conflict on our business operations and financial performance remains uncertain and will depend on future developments, including the severity and duration of the conflict and its impact on regional and global economic conditions. We will continue to monitor the conflict and assess the related restrictions and other effects and pursue prudent decisions for our team members, customers, and business.
COVID-19 Pandemic and Response— We continue to monitor the COVID-19 pandemic and variants of the virus, as well as the impact it has on our employees, customers, business partners, and communities. Our crisis management team is actively engaged in evaluating changes in our environment and aligning our response to recommendations of the World Health Organization and the U.S. Centers for Disease Control and Prevention, and with governmental regulations. We are deploying return-to-site processes in certain regions based on our ongoing assessments of local conditions. We will continue to monitor regional conditions and utilize remote work practices to ensure the health and safety of our employees, customers, and business partners.
The full impact of the COVID-19 pandemic on our business operations and financial performance remains uncertain and will depend on future developments, including, the severity, duration and scope of the pandemic across different geographies; the effectiveness of actions taken to contain, mitigate or prevent the spread of variants of the virus; the further development, availability, and acceptance of effective treatments or vaccines; and governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic. We will continue to actively monitor global events and pursue prudent decisions to navigate in this uncertain and ever-changing environment. For additional information about impacts of COVID-19 on our operations, see “Results of Operations—Consolidated Results” and “—Business Unit Results.”
Supply Chain — Dell Technologies maintains limited-source supplier relationships for certain components, because the relationships are advantageous in the IT industry. Organizationsareas of all kinds are embracing digital technologyperformance, quality, support, delivery, capacity, and price considerations.
During Fiscal 2022, we were impacted by industry-wide constraints in the supply of limited-source components in certain product offerings as a result of the global impacts of COVID-19. Further, global economic recovery led to achieve their business objectives. Our vision is to begrowth in demand that outpaced supply, resulting in an essential infrastructure companyincrease in orders pending fulfillment and leader in end-user computing, data center infrastructure solutions, virtualization, IoT, and cloud software that our customers continue to trust and rely on for their IT solutions and transformations as they embrace the multi-cloud environment of today. We accelerate resultsextended lead times for our customers by enabling themfor certain products. These supply constraints coupled with increasing demand also led to be more efficient, mobile, informed,increases in component and secure. Welogistics costs, both of which increased in the aggregate during Fiscal 2022. Logistics costs increased as a result of both expedited shipments of components and rate increases in the freight network as capacity remained constrained. In response to these pressures, we continue to invest in researchtake steps to actively address our customers’ demands while balancing profitability and development, sales, and other key areas of our business to deliver superior products and solutions capabilities and to drive execution of long-term sustainable growth.
We believe that our results will benefit from an integrated go-to-market strategy, including enhanced coordination among the family of Dell Technologies companies, and from our differentiated products and solutions capabilities. We intendexpect to continue to executemanage supply constraints and increased freight costs into the first half of Fiscal 2023. Component cost trends are dependent on our business modelthe strength or weakness of actual end user demand and seeksupply dynamics, which will continue to balance liquidity, profitability,evolve and growthultimately impact the translation of the cost environment to position our company for long-term success.pricing and operating results. We expect the overall component cost environment to shift to deflationary during the first half of Fiscal 2023.
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ISG — We expect that ISG will continue to be impacted by the changing nature of the IT infrastructure market and competitive environment. Cloud-nativeDuring Fiscal 2022, ISG demand benefited from improvements in the macroeconomic environment which we expect to continue into Fiscal 2023. We expect that demand growth will continue to benefit net revenue in future periods. With our scale and strong solutions portfolio, we believe we are well-positioned to respond to ongoing competitive dynamics. Within servers and networking, we will continue to be selective in determining whether to pursue certain large hyperscale and other server transactions. We continue to focus on customer base expansion and lifetime value of customer relationships.
The unprecedented growth throughout all industries is generating continued demand for our storage solutions and services. Cloud native applications are expected to continue as a primary growth driver in the infrastructure market as IT organizations increasingly become multi-cloud environments.market. We believe the complementary cloud solutions across our business strongly position us to meet these demands for our customers who are increasingly looking to leverage cloud-based computing.customers. We also continue to be impacted bybenefit from offering solutions that address the emerging trends of enterprises deploying software-defined storage, hyper-converged infrastructure, and modular solutions based on server-centric architectures. These trends are changing the way customers are consuming our traditional storage offerings. We continue to expand our offerings and we are focused on enabling new capabilities in ourexternal storage portfolio. Offsetting such trends, however, is the unprecedented data growth throughout all industries,arrays, which is generating continued demand for our storage products and services. We have leading solutions through our ISG and VMware data center offerings. In addition, throughincorporate flexible, cloud-based functionality.
Through our research and development efforts, we expect to developare developing new solutions in this rapidly changing industry that we believe will enable us to continue to provide superior solutions to our customers.
CSG business. However, we are committed to a long-term growth strategy that we believe will benefit from the consolidation trends that are occurring in our markets. — Our CSG offerings are an important element of our strategy, generating strong cash flow and opportunities for cross-selling of complementary solutions. During Fiscal 2022, CSG demand was strong across product offerings, driven primarily by the global economic recovery coupled with customers seeking improved connectivity and productivity in both personal and professional environments.
During Fiscal 2023, we expect demand growth to be at a more moderate rate than in Fiscal 2022. Further, we expect that the CSG demand environment will continue to be subject to seasonal trends. Competitive dynamics continue to be a factor in our CSG business and will impact pricing and operating results. We remain committed to our long-term strategy for CSG and we will continue to make investments to innovate across the portfolio while benefiting from consolidation trends that are occurring in the markets in which we compete.
Recurring Revenue and Consumption Models— Our customers are seeking new and innovative models that address how they consume our solutions. We offer options including as-a-Service, utility, leases, and immediate pay models, designed to match customers’ consumption and financing preferences. We continue to evolve and build momentum across our family of as-a-Service offerings as we pursue our strategy of modernizing our core business solutions, with APEX at the forefront. We expect that our flexible consumption models and as-a-Service offerings will further strengthen our customer relationships and provide a foundation for growth in recurring revenue.
These offerings typically result in multiyear agreements which generate recurring revenue streams over the term of the arrangement. We define recurring revenue as revenue recognized primarily related to hardware and software maintenance as well as subscription, as-a-Service, and usage-based offerings, and operating leases.
Macroeconomic Risks and Uncertainties — The impacts of trade protection measures, including increases in tariffs and trade barriers, changes in government policies and international trade arrangements, and geopolitical issues may affect our ability to conduct business in some non-U.S. markets. We monitor and seek to mitigate these risks with adjustments to our manufacturing, supply chain, and distribution networks.
We manage our business on a U.S. dollar basis. However, we have a large global presence, generating approximately half of our net revenue byfrom sales to customers outside of the United States during Fiscal 2019,2022, Fiscal 2018,2021, and Fiscal 2017. Our2020. As a result, our revenue therefore, can be impacted by fluctuations in foreign currency exchange rates. We utilize a comprehensive hedging strategy intended to mitigate the impact of foreign currency volatility over time, and we adjust pricing when possible to further minimize foreign currency impacts.
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Key Performance Metrics
Our key performance metrics areinclude net revenue, operating income, adjusted EBITDA, and cash flows from operations, which are discussed elsewhere in this report.
NON-GAAP FINANCIAL MEASURES
In this management’s discussion and analysis, we use supplemental measures of our performance which are derived from our consolidated financial information but which are not presented in our consolidated financial statements prepared in accordance with GAAP. These non-GAAP financial measures include non-GAAP product net revenue; non-GAAP services net revenue; non-GAAP net revenue; non-GAAP product gross margin; non-GAAP services gross margin; non-GAAP gross margin; non-GAAP operating expenses; non-GAAP operating income; non-GAAP net income from continuing operations;income; earnings before interest and other, net, taxes, depreciation, and amortization (“EBITDA”); and adjusted EBITDA. The non-GAAP financial measures are not meant to be considered as indicators of performance in isolation from or as a substitute for net revenue, gross margin, operating expenses, operating income, or net income from continuing operations prepared in accordance with GAAP, and should be read only in conjunction with financial information presented on a GAAP basis.
We use non-GAAP financial measures to supplement financial information presented on a GAAP basis. We believe that excluding certain items fromManagement considers these non-GAAP measures in evaluating our GAAP results allows management to better understand our consolidated financial performance from period to periodoperating trends and better project our future consolidated financial performance as forecasts are developed at a level of detail different from that used to prepare GAAP-based financial measures.performance. Moreover, we believe these non-GAAP financial measures provide our stakeholders with useful and transparent information to help them evaluate our operating results by facilitating an enhanced understanding of our operating performance and enabling them to make more meaningful period to period comparisons. There are limitations to the use of the non-GAAP financial measures presented in this report. Our non-GAAP financial measures may not be comparable to similarly titled measures of other companies. Other companies, including companies in our industry, may calculate non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes.
Non-GAAP product net revenue, non-GAAP services net revenue, non-GAAP net revenue, non-GAAP product gross margin, non-GAAP services gross margin, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income, and non-GAAP net income, from continuing operations, as defined by us, exclude amortization of intangible assets, the impact of purchase accounting, transaction-related expenses, stock-based compensation expense, other corporate expenses and, for non-GAAP net income, from continuing operations, fair value adjustments on equity adjustments and an aggregate adjustment for income taxes. As the excluded items have a material impact on our financial results, our management compensates for this limitation by relying primarily on our GAAP results and using non-GAAP financial measures supplementally or for projections when comparable GAAP financial measures are not available. The non-GAAP financial measures are not meant to be considered as indicators of performance in isolation from or as a substitute for net revenue, gross margin, operating expenses, operating income, or net income prepared in accordance with GAAP, and should be read only in conjunction with financial information presented on a GAAP basis.
Reconciliations of each non-GAAP financial measure to its most directly comparable GAAP financial measure are presented below. We encourage you to review the reconciliations in conjunction with the presentation of the non-GAAP financial measures for each of the periods presented. The discussion below includes information on each of the excluded items as well as our reasons for excluding them from our non-GAAP results. In future fiscal periods, we may exclude such items and may incur income and expenses similar to these excluded items. Accordingly, the exclusion of these items and other similar items in our non-GAAP presentation should not be interpreted as implying that these items are non-recurring, infrequent, or unusual.
•Amortization of Intangible Assets—Amortization of intangible assets primarily consists of amortization of customer relationships, developed technology, and trade names. In connection with our acquisition by merger of EMC on September 7, 2016, referred to as the “EMC merger transaction,” and the acquisition of Dell Inc. by Dell Technologies Inc. on October 29, 2013, referred to as the “going-private transaction,” all of the tangible and intangible assets and liabilities of EMC and Dell, Inc. and its consolidated subsidiaries, respectively, were accounted for and recognized at fair value on the transaction dates. Accordingly, for the periods presented, amortization of intangible assets represents amortization associated with intangible assets recognized in connection with the EMC merger transaction and the going-private transaction. Amortization charges for purchased intangible assets are significantly impacted by the timing and magnitude of our acquisitions, and these charges may vary in amount from period to period. We exclude these charges for purposes of calculating the non-GAAP financial measures presented below to facilitate an enhanced understanding of our current operating performance and provide more meaningful period to period comparisons. |
•Impact of Purchase Accounting—The impact of purchase accounting includes purchase accounting adjustments related to the EMC merger transaction and, to a lesser extent, the going-private transaction, recorded under the acquisition method of accounting in accordance with the accounting guidance for business combinations. This guidance prescribes that the purchase price be allocated to assets acquired and liabilities assumed based on the estimated fair value of such assets and liabilities on the date of the transaction. Accordingly, all of the assets and liabilities acquired in the EMC merger transaction and the going-private transaction were accounted for and recognized at fair value as of the respective transaction dates, and the fair value adjustments are being amortized over the estimated useful lives in the periods following the transactions. The fair value adjustments primarily relate to deferred revenue, inventory, and property, plant, and equipment. Although purchase accounting adjustments and related amortization of those adjustments are reflected in our GAAP results, we evaluate the operating results of the underlying businesses on a non-GAAP basis, after removing such adjustments. We believe that excluding the impact of purchase accounting for purposes of calculating the non-GAAP financial measures presented below facilitates an enhanced understanding of our current operating performance and provides more meaningful period to period comparisons.
•Transaction-related (income) expenses — Transaction-related expenses typically consist of acquisition, integration, and divestiture related costs, as well as the costs incurred in the VMware Spin-off, and are expensed as incurred. These expenses primarily represent costs for legal, banking, consulting, and advisory services. During Fiscal 2022, this category includes $1.5 billion in debt extinguishment fees primarily associated with the early retirement of certain senior notes. See Note 7 of the Notes to the Consolidated Financial Statements included in this report for additional information on our debt activity. From time to time, this category also may include transaction-related income related to divestitures of businesses or asset sales. During Fiscal 2022, we recognized a pre-tax gain of $4.0 billion on the sale of Boomi and during Fiscal 2021 we recognized a pre-tax gain of $338 million on the sale of RSA Security. We exclude these items for purposes of calculating the non-GAAP financial measures presented below to facilitate an enhanced understanding of our current operating performance and provide more meaningful period to period comparisons. •Stock-based Compensation Expense— Stock-based compensation expense consists of equity awards granted based on the estimated fair value of those awards at grant date. We estimate the fair value of service-based stock options using the Black-Scholes valuation model. To estimate the fair value of performance-based awards containing a market condition, we use the Monte Carlo valuation model. For all other share-based awards, the fair value is based on the closing price of the Class C Common Stock as reported on the NYSE on the date of grant. Although stock-based compensation is an important aspect of the compensation of our employees and executives, the fair value of the stock-based awards may bear little resemblance to the actual value realized upon the vesting or future exercise of the related stock-based awards. We believe that excluding stock-based compensation expense for purposes of calculating the non-GAAP financial measures presented below facilitates an enhanced understanding of our current operating performance and provides more meaningful period to period comparisons. See Note 16 of the Notes to the Consolidated Financial Statements included in this report for additional information on equity award issuances. •Other Corporate Expenses— Other corporate expenses consist of impairment charges, incentive charges related to equity investments, severance, facility action, and other costs. Virtustream non-cash pre-tax asset impairment charges of $619 million were recognized in Fiscal 2020. Severance costs are primarily related to severance and benefits for employees terminated pursuant to cost savings initiatives. We continue to optimize our facilities footprint and may incur additional costs as we seek opportunities for operational efficiencies. Other corporate expenses vary from period to period and are significantly impacted by the timing and nature of these events. Therefore, although we may incur these types of expenses in the future, we believe that eliminating these charges for purposes of calculating the non-GAAP financial measures presented below facilitates an enhanced understanding of our current operating performance and provides more meaningful period to period comparisons. •Fair Value Adjustments on Equity Investments — Fair value adjustments on equity investments primarily consist of the gain (loss) on strategic investments, which includes the recurring fair value adjustments of investments in publicly-traded companies, as well as those in privately-held companies, which are adjusted for observable price changes, and, to a lesser extent, any potential impairments. See Note 4 of the Notes to the Consolidated Financial Statements included in this report for additional information on our strategic investment activity. Given the volatility in the ongoing adjustments to the valuation of these strategic investments, we believe that excluding these gains and losses for purposes of calculating non-GAAP net income presented below facilitates an enhanced understanding of our current operating performance and provides more meaningful period to period comparisons. |
•Aggregate Adjustment for Income Taxes — The aggregate adjustment for income taxes is the estimated combined income tax effect for the adjustments described above, as well as an adjustment for discrete tax items. Due to the variability in recognition of discrete tax items from period to period, we believe that excluding these benefits or charges for purposes of calculating non-GAAP net income facilitates an enhanced understanding of our current operating performance and provides more meaningful period to period comparisons. The tax effects are determined based on the tax jurisdictions where the above items were incurred. See Note 12 of the Notes to the Consolidated Financial Statements included in this report for additional information on our income taxes.
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The following table below presents a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP measure for each of theperiods presented:indicated:
| Fiscal Year Ended | |||||||||||||||||
| February 1, 2019 | % Change | February 2, 2018 | % Change | February 3, 2017 | |||||||||||||
| (in millions, except percentages) | |||||||||||||||||
| Product net revenue | $ | 71,287 | 16 | % | $ | 61,251 | 20 | % | $ | 51,057 | |||||||
| Non-GAAP adjustments: | |||||||||||||||||
| Impact of purchase accounting | 61 | 170 | 300 | ||||||||||||||
| Non-GAAP product net revenue | $ | 71,348 | 16 | % | $ | 61,421 | 20 | % | $ | 51,357 | |||||||
| Services net revenue | $ | 19,334 | 9 | % | $ | 17,789 | 60 | % | $ | 11,107 | |||||||
| Non-GAAP adjustments: | |||||||||||||||||
| Impact of purchase accounting | 642 | 1,099 | 852 | ||||||||||||||
| Non-GAAP services net revenue | $ | 19,976 | 6 | % | $ | 18,888 | 58 | % | $ | 11,959 | |||||||
| Net revenue | $ | 90,621 | 15 | % | $ | 79,040 | 27 | % | $ | 62,164 | |||||||
| Non-GAAP adjustments: | |||||||||||||||||
| Impact of purchase accounting | 703 | 1,269 | 1,152 | ||||||||||||||
| Non-GAAP net revenue | $ | 91,324 | 14 | % | $ | 80,309 | 27 | % | $ | 63,316 | |||||||
| Product gross margin | $ | 13,398 | 36 | % | $ | 9,818 | 28 | % | $ | 7,669 | |||||||
| Non-GAAP adjustments: | |||||||||||||||||
| Amortization of intangibles | 2,883 | 3,694 | 1,652 | ||||||||||||||
| Impact of purchase accounting | 78 | 213 | 1,104 | ||||||||||||||
| Transaction-related expenses | 210 | 11 | 24 | ||||||||||||||
| Other corporate expenses | 32 | 25 | 29 | ||||||||||||||
| Non-GAAP product gross margin | $ | 16,601 | 21 | % | $ | 13,761 | 31 | % | $ | 10,478 | |||||||
| Services gross margin | $ | 11,655 | 9 | % | $ | 10,719 | 79 | % | $ | 5,980 | |||||||
| Non-GAAP adjustments: | |||||||||||||||||
| Amortization of intangibles | — | — | 1 | ||||||||||||||
| Impact of purchase accounting | 642 | 1,099 | 875 | ||||||||||||||
| Transaction-related expenses | 3 | 13 | 19 | ||||||||||||||
| Other corporate expenses | 121 | 76 | 128 | ||||||||||||||
| Non-GAAP services gross margin | $ | 12,421 | 4 | % | $ | 11,907 | 70 | % | $ | 7,003 | |||||||
| Gross margin | $ | 25,053 | 22 | % | $ | 20,537 | 50 | % | $ | 13,649 | |||||||
| Non-GAAP adjustments: | |||||||||||||||||
| Amortization of intangibles | 2,883 | 3,694 | 1,653 | ||||||||||||||
| Impact of purchase accounting | 720 | 1,312 | 1,979 | ||||||||||||||
| Transaction-related expenses | 213 | 24 | 43 | ||||||||||||||
| Other corporate expenses | 153 | 101 | 157 | ||||||||||||||
| Non-GAAP gross margin | $ | 29,022 | 13 | % | $ | 25,668 | 47 | % | $ | 17,481 | |||||||
| Fiscal Year Ended | |||||||||||||||||||||||||||||||||||||||||||||||
| January 28, 2022 | % Change | January 29, 2021 | % Change | January 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||
| Product net revenue | $ | 79,830 | 18 | % | $ | 67,744 | — | % | $ | 67,607 | |||||||||||||||||||||||||||||||||||||
| Non-GAAP adjustments: | |||||||||||||||||||||||||||||||||||||||||||||||
| Impact of purchase accounting | — | 2 | 5 | ||||||||||||||||||||||||||||||||||||||||||||
| Non-GAAP product net revenue | $ | 79,830 | 18 | % | $ | 67,746 | — | % | $ | 67,612 | |||||||||||||||||||||||||||||||||||||
| Services net revenue | $ | 21,367 | 13 | % | $ | 18,926 | 10 | % | $ | 17,208 | |||||||||||||||||||||||||||||||||||||
| Non-GAAP adjustments: | |||||||||||||||||||||||||||||||||||||||||||||||
| Impact of purchase accounting | 32 | 104 | 224 | ||||||||||||||||||||||||||||||||||||||||||||
| Non-GAAP services net revenue | $ | 21,399 | 12 | % | $ | 19,030 | 9 | % | $ | 17,432 | |||||||||||||||||||||||||||||||||||||
| Net revenue | $ | 101,197 | 17 | % | $ | 86,670 | 2 | % | $ | 84,815 | |||||||||||||||||||||||||||||||||||||
| Non-GAAP adjustments: | |||||||||||||||||||||||||||||||||||||||||||||||
| Impact of purchase accounting | 32 | 106 | 229 | ||||||||||||||||||||||||||||||||||||||||||||
| Non-GAAP net revenue | $ | 101,229 | 17 | % | $ | 86,776 | 2 | % | $ | 85,044 | |||||||||||||||||||||||||||||||||||||
| Product gross margin | $ | 12,606 | 11 | % | $ | 11,313 | (8) | % | $ | 12,238 | |||||||||||||||||||||||||||||||||||||
| Non-GAAP adjustments: | |||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of intangibles | 598 | 853 | 1,268 | ||||||||||||||||||||||||||||||||||||||||||||
| Impact of purchase accounting | 3 | 5 | 11 | ||||||||||||||||||||||||||||||||||||||||||||
| Transaction-related (income) expenses | — | — | (2) | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | 48 | 23 | 9 | ||||||||||||||||||||||||||||||||||||||||||||
| Other corporate expenses | 6 | 17 | 16 | ||||||||||||||||||||||||||||||||||||||||||||
| Non-GAAP product gross margin | $ | 13,261 | 9 | % | $ | 12,211 | (10) | % | $ | 13,540 | |||||||||||||||||||||||||||||||||||||
| Services gross margin | $ | 9,285 | 5 | % | $ | 8,827 | 5 | % | $ | 8,401 | |||||||||||||||||||||||||||||||||||||
| Non-GAAP adjustments: | |||||||||||||||||||||||||||||||||||||||||||||||
| Impact of purchase accounting | 32 | 104 | 220 | ||||||||||||||||||||||||||||||||||||||||||||
| Transaction-related expenses | — | — | 2 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | 85 | 52 | 23 | ||||||||||||||||||||||||||||||||||||||||||||
| Other corporate expenses | 21 | 39 | 43 | ||||||||||||||||||||||||||||||||||||||||||||
| Non-GAAP services gross margin | $ | 9,423 | 4 | % | $ | 9,022 | 4 | % | $ | 8,689 | |||||||||||||||||||||||||||||||||||||
| Fiscal Year Ended | |||||||||||||||||||||||||||||||||||||||||||||||
| January 28, 2022 | % Change | January 29, 2021 | % Change | January 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||
| Gross margin | $ | 21,891 | 9 | % | $ | 20,140 | (2) | % | $ | 20,639 | |||||||||||||||||||||||||||||||||||||
| Non-GAAP adjustments: | |||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of intangibles | 598 | 853 | 1,268 | ||||||||||||||||||||||||||||||||||||||||||||
| Impact of purchase accounting | 35 | 109 | 231 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | 133 | 75 | 32 | ||||||||||||||||||||||||||||||||||||||||||||
| Other corporate expenses | 27 | 56 | 59 | ||||||||||||||||||||||||||||||||||||||||||||
| Non-GAAP gross margin | $ | 22,684 | 7 | % | $ | 21,233 | (4) | % | $ | 22,229 | |||||||||||||||||||||||||||||||||||||
| Operating expenses | $ | 17,232 | 5 | % | $ | 16,455 | (10) | % | $ | 18,273 | |||||||||||||||||||||||||||||||||||||
| Non-GAAP adjustments: | |||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of intangibles | (1,043) | (1,280) | (1,703) | ||||||||||||||||||||||||||||||||||||||||||||
| Impact of purchase accounting | (32) | (35) | (43) | ||||||||||||||||||||||||||||||||||||||||||||
| Transaction-related expenses | (273) | (124) | (116) | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | (675) | (412) | (213) | ||||||||||||||||||||||||||||||||||||||||||||
| Other corporate expenses | (310) | (320) | (785) | ||||||||||||||||||||||||||||||||||||||||||||
| Non-GAAP operating expenses | $ | 14,899 | 4 | % | $ | 14,284 | (7) | % | $ | 15,413 | |||||||||||||||||||||||||||||||||||||
| Operating income | $ | 4,659 | 26 | % | $ | 3,685 | 56 | % | $ | 2,366 | |||||||||||||||||||||||||||||||||||||
| Non-GAAP adjustments: | |||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of intangibles | 1,641 | 2,133 | 2,971 | ||||||||||||||||||||||||||||||||||||||||||||
| Impact of purchase accounting | 67 | 144 | 274 | ||||||||||||||||||||||||||||||||||||||||||||
| Transaction-related expenses | 273 | 124 | 116 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | 808 | 487 | 245 | ||||||||||||||||||||||||||||||||||||||||||||
| Other corporate expenses | 337 | 376 | 844 | ||||||||||||||||||||||||||||||||||||||||||||
| Non-GAAP operating income | $ | 7,785 | 12 | % | $ | 6,949 | 2 | % | $ | 6,816 | |||||||||||||||||||||||||||||||||||||
| Net income from continuing operations | $ | 4,942 | 120 | % | $ | 2,245 | 331 | % | $ | 521 | |||||||||||||||||||||||||||||||||||||
| Non-GAAP adjustments: | |||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of intangibles | 1,641 | 2,133 | 2,971 | ||||||||||||||||||||||||||||||||||||||||||||
| Impact of purchase accounting | 67 | 144 | 274 | ||||||||||||||||||||||||||||||||||||||||||||
| Transaction-related (income) expenses | (2,143) | (332) | 116 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | 808 | 487 | 245 | ||||||||||||||||||||||||||||||||||||||||||||
| Other corporate expenses | 337 | 268 | 844 | ||||||||||||||||||||||||||||||||||||||||||||
| Fair value adjustments on equity investments | (572) | (427) | (159) | ||||||||||||||||||||||||||||||||||||||||||||
| Aggregate adjustment for income taxes | (156) | (772) | (1,361) | ||||||||||||||||||||||||||||||||||||||||||||
| Non-GAAP net income | $ | 4,924 | 31 | % | $ | 3,746 | 9 | % | $ | 3,451 | |||||||||||||||||||||||||||||||||||||
48
| Fiscal Year Ended | |||||||||||||||||
| February 1, 2019 | % Change | February 2, 2018 | % Change | February 3, 2017 | |||||||||||||
| (in millions, except percentages) | |||||||||||||||||
| Operating expenses | $ | 25,244 | 10 | % | $ | 22,953 | 43 | % | $ | 16,039 | |||||||
| Non-GAAP adjustments: | |||||||||||||||||
| Amortization of intangibles | (3,255 | ) | (3,286 | ) | (2,028 | ) | |||||||||||
| Impact of purchase accounting | (100 | ) | (234 | ) | (287 | ) | |||||||||||
| Transaction-related expenses | (537 | ) | (478 | ) | (1,445 | ) | |||||||||||
| Other corporate expenses | (1,184 | ) | (1,059 | ) | (745 | ) | |||||||||||
| Non-GAAP operating expenses | $ | 20,168 | 13 | % | $ | 17,896 | 55 | % | $ | 11,534 | |||||||
| Operating loss | $ | (191 | ) | 92 | % | $ | (2,416 | ) | (1 | )% | $ | (2,390 | ) | ||||
| Non-GAAP adjustments: | |||||||||||||||||
| Amortization of intangibles | 6,138 | 6,980 | 3,681 | ||||||||||||||
| Impact of purchase accounting | 820 | 1,546 | 2,266 | ||||||||||||||
| Transaction-related expenses | 750 | 502 | 1,488 | ||||||||||||||
| Other corporate expenses | 1,337 | 1,160 | 902 | ||||||||||||||
| Non-GAAP operating income | $ | 8,854 | 14 | % | $ | 7,772 | 31 | % | $ | 5,947 | |||||||
| Net loss from continuing operations | $ | (2,181 | ) | 25 | % | $ | (2,926 | ) | 5 | % | $ | (3,074 | ) | ||||
| Non-GAAP adjustments: | |||||||||||||||||
| Amortization of intangibles | 6,138 | 6,980 | 3,681 | ||||||||||||||
| Impact of purchase accounting | 820 | 1,546 | 2,266 | ||||||||||||||
| Transaction-related expenses | 824 | 502 | 1,485 | ||||||||||||||
| Other corporate expenses | 1,337 | 1,160 | 902 | ||||||||||||||
| Fair value adjustments on equity investments | (342 | ) | (72 | ) | (4 | ) | |||||||||||
| Aggregate adjustment for income taxes | (1,369 | ) | (2,835 | ) | (2,158 | ) | |||||||||||
| Non-GAAP net income from continuing operations (a) | $ | 5,227 | 20 | % | $ | 4,355 | 41 | % | $ | 3,098 | |||||||
In addition to the above measures, we also use EBITDA and adjusted EBITDA to provide additional information for evaluation of our operating performance. Adjusted EBITDA excludes purchase accounting adjustments related to the EMC merger transaction and the going-private transaction, acquisition, integration, and divestiture related costs, costs incurred in the Class V transaction, goodwill impairment charges, and severance, and facility action, and other costs, and stock-based compensation expense. We believe that, due to the non-operational nature of the purchase accounting entries, it is appropriate to exclude these adjustments.
As is the case with the non-GAAP measures presented above, users should consider the limitations of using EBITDA and adjusted EBITDA, including the fact that those measures do not provide a complete measure of our operating performance. EBITDA and adjusted EBITDA do not purport to be alternatives to net income (loss) as measures of operating performance or to cash flows from operating activities as a measure of liquidity. In particular, EBITDA and adjusted EBITDA are not intended to be a measure of free cash flow available for management’s discretionary use, as these measures do not consider certain cash requirements, such as working capital needs, capital expenditures, contractual commitments, interest payments, tax payments, and other debt service requirements.
The following table below presents a reconciliation of EBITDA and adjusted EBITDA to net loss from continuing operationsincome (loss) for the periods presented:indicated:
| Fiscal Year Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fiscal Year Ended | January 28, 2022 | % Change | January 29, 2021 | % Change | January 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| February 1, 2019 | % Change | February 2, 2018 | % Change | February 3, 2017 | (in millions, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in millions, except percentages) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss from continuing operations | $ | (2,181 | ) | 25 | % | $ | (2,926 | ) | 5 | % | $ | (3,074 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income from continuing operations | Net income from continuing operations | $ | 4,942 | 120 | % | $ | 2,245 | 331 | % | $ | 521 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Adjustments: | Adjustments: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest and other, net (a) | 2,170 | 2,353 | 2,104 | Interest and other, net (a) | (1,264) | 1,339 | 2,417 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income tax benefit | (180 | ) | (1,843 | ) | (1,420 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income tax expense (benefit) (b) | Income tax expense (benefit) (b) | 981 | 101 | (572) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 7,746 | 8,634 | 4,840 | Depreciation and amortization | 3,547 | 3,867 | 4,458 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| EBITDA | $ | 7,555 | 22 | % | $ | 6,218 | 154 | % | $ | 2,450 | EBITDA | $ | 8,206 | 9 | % | $ | 7,552 | 11 | % | $ | 6,824 | |||||||||||||||||||||||||||||||||||||||||||
| EBITDA | $ | 7,555 | 22 | % | $ | 6,218 | 154 | % | $ | 2,450 | EBITDA | $ | 8,206 | 9 | % | $ | 7,552 | 11 | % | $ | 6,824 | |||||||||||||||||||||||||||||||||||||||||||
| Adjustments: | Adjustments: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | 918 | 835 | 392 | Stock-based compensation expense | 808 | 487 | 245 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Impact of purchase accounting (b) | 704 | 1,274 | 1,898 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Transaction-related expenses (c) | 722 | 502 | 1,525 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other corporate expenses (d) | 397 | 305 | 510 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Impact of purchase accounting (c) | Impact of purchase accounting (c) | 36 | 106 | 229 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Transaction-related expenses (d) | Transaction-related expenses (d) | 273 | 124 | 116 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other corporate expenses (e) | Other corporate expenses (e) | 337 | 376 | 812 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 10,296 | 13 | % | $ | 9,134 | 35 | % | $ | 6,775 | Adjusted EBITDA | $ | 9,660 | 12 | % | $ | 8,645 | 5 | % | $ | 8,226 | |||||||||||||||||||||||||||||||||||||||||||
____________________
(b)See Note 12 of the Notes to the Consolidated Financial Statements included in this report for additional information on discrete tax items.
(c)This amount includes the non-cash purchase accounting adjustments related to the EMC merger transaction and the going-private transaction.
(d)Transaction-related expenses consist of acquisition, integration, and divestiture related costs, as well as the costs incurred in the VMware Spin-off.
(e)Other corporate expenses includes impairment charges, incentive charges related to equity investments, severance, facility action, and other costs. For the fiscal year ended January 31, 2020, this category includes Virtustream pre-tax impairment charges of $619 million.
RESULTS OF OPERATIONS
Consolidated Results
The following table summarizes our consolidated results from continuing operations for each of the periods presented.indicated. Unless otherwise indicated, all changes identified for the current period results represent comparisons to results for the prior corresponding fiscal period. Multiple accounting standards were adopted during the first quarter of Fiscal 2019, which resulted in adjustment or reclassification of amounts previously reported. See Note 2 of the Notes to the Consolidated Financial Statements included in this report for further information regarding our recently adopted accounting standards.
| Fiscal Year Ended | Fiscal Year Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| February 1, 2019 | February 2, 2018 | February 3, 2017 | January 28, 2022 | January 29, 2021 | January 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dollars | % of Net Revenue | % Change | Dollars | % of Net Revenue | % Change | Dollars | % of Net Revenue | Dollars | % of Net Revenue | % Change | Dollars | % of Net Revenue | % Change | Dollars | % of Net Revenue | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in millions, except percentages) | (in millions, except percentages) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net revenue: | Net revenue: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Product | $ | 71,287 | 78.7 | % | 16 | % | $ | 61,251 | 77.5 | % | 20 | % | $ | 51,057 | 82.1 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Products | Products | $ | 79,830 | 78.9 | % | 18 | % | $ | 67,744 | 78.2 | % | — | % | $ | 67,607 | 79.7 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Services | 19,334 | 21.3 | % | 9 | % | 17,789 | 22.5 | % | 60 | % | 11,107 | 17.9 | % | Services | 21,367 | 21.1 | % | 13 | % | 18,926 | 21.8 | % | 10 | % | 17,208 | 20.3 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total net revenue | $ | 90,621 | 100.0 | % | 15 | % | $ | 79,040 | 100.0 | % | 27 | % | $ | 62,164 | 100.0 | % | Total net revenue | $ | 101,197 | 100.0 | % | 17 | % | $ | 86,670 | 100.0 | % | 2 | % | $ | 84,815 | 100.0 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross margin: | Gross margin: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Product (a) | $ | 13,398 | 18.8 | % | 36 | % | $ | 9,818 | 16.0 | % | 28 | % | $ | 7,669 | 15.0 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Products (a) | Products (a) | $ | 12,606 | 15.8 | % | 11 | % | $ | 11,313 | 16.7 | % | (8) | % | $ | 12,238 | 18.1 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Services (b) | 11,655 | 60.3 | % | 9 | % | 10,719 | 60.3 | % | 79 | % | 5,980 | 53.8 | % | Services (b) | 9,285 | 43.5 | % | 5 | % | 8,827 | 46.6 | % | 5 | % | 8,401 | 48.8 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total gross margin | $ | 25,053 | 27.6 | % | 22 | % | $ | 20,537 | 26.0 | % | 50 | % | $ | 13,649 | 22.0 | % | Total gross margin | $ | 21,891 | 21.6 | % | 9 | % | $ | 20,140 | 23.2 | % | (2) | % | $ | 20,639 | 24.3 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating expenses | $ | 25,244 | 27.8 | % | 10 | % | $ | 22,953 | 29.0 | % | 43 | % | $ | 16,039 | 25.8 | % | Operating expenses | $ | 17,232 | 17.0 | % | 5 | % | $ | 16,455 | 18.9 | % | (10) | % | $ | 18,273 | 21.5 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating loss | $ | (191 | ) | (0.2 | )% | 92 | % | $ | (2,416 | ) | (3.1 | )% | (1 | )% | $ | (2,390 | ) | (3.8 | )% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss from continuing operations | $ | (2,181 | ) | (2.4 | )% | 25 | % | $ | (2,926 | ) | (3.7 | )% | 5 | % | $ | (3,074 | ) | (4.9 | )% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss attributable to Dell Technologies Inc. | $ | (2,310 | ) | (2.5 | )% | 19 | % | $ | (2,849 | ) | (3.6 | )% | (144 | )% | $ | (1,167 | ) | (1.9 | )% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating income | Operating income | $ | 4,659 | 4.6 | % | 26 | % | $ | 3,685 | 4.3 | % | 56 | % | $ | 2,366 | 2.8 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income from continuing operations | Net income from continuing operations | $ | 4,942 | 4.9 | % | 120 | % | $ | 2,245 | 2.6 | % | 331 | % | $ | 521 | 0.6 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-GAAP Financial Information | Non-GAAP Financial Information | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fiscal Year Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| January 28, 2022 | January 29, 2021 | January 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dollars | % of Non-GAAP Net Revenue | % Change | Dollars | % of Non-GAAP Net Revenue | % Change | Dollars | % of Non-GAAP Net Revenue | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-GAAP net revenue: | Non-GAAP net revenue: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Product | $ | 71,348 | 78.1 | % | 16 | % | $ | 61,421 | 76.5 | % | 20 | % | $ | 51,357 | 81.1 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Products | Products | $ | 79,830 | 78.9 | % | 18 | % | $ | 67,746 | 78.1 | % | — | % | $ | 67,612 | 79.5 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Services | 19,976 | 21.9 | % | 6 | % | 18,888 | 23.5 | % | 58 | % | 11,959 | 18.9 | % | Services | 21,399 | 21.1 | % | 12 | % | 19,030 | 21.9 | % | 9 | % | 17,432 | 20.5 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total non-GAAP net revenue | $ | 91,324 | 100.0 | % | 14 | % | $ | 80,309 | 100.0 | % | 27 | % | $ | 63,316 | 100.0 | % | Total non-GAAP net revenue | $ | 101,229 | 100.0 | % | 17 | % | $ | 86,776 | 100.0 | % | 2 | % | $ | 85,044 | 100.0 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-GAAP gross margin: | Non-GAAP gross margin: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Product (a) | $ | 16,601 | 23.3 | % | 21 | % | $ | 13,761 | 22.4 | % | 31 | % | $ | 10,478 | 20.4 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Products (a) | Products (a) | $ | 13,261 | 16.6 | % | 9 | % | $ | 12,211 | 18.0 | % | (10) | % | $ | 13,540 | 20.0 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Services (b) | 12,421 | 62.2 | % | 4 | % | 11,907 | 63.0 | % | 70 | % | 7,003 | 58.6 | % | Services (b) | 9,423 | 44.0 | % | 4 | % | 9,022 | 47.4 | % | 4 | % | 8,689 | 49.8 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total non-GAAP gross margin | $ | 29,022 | 31.8 | % | 13 | % | $ | 25,668 | 32.0 | % | 47 | % | $ | 17,481 | 27.6 | % | Total non-GAAP gross margin | $ | 22,684 | 22.4 | % | 7 | % | $ | 21,233 | 24.5 | % | (4) | % | $ | 22,229 | 26.1 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-GAAP operating expenses | $ | 20,168 | 22.1 | % | 13 | % | $ | 17,896 | 22.3 | % | 55 | % | $ | 11,534 | 18.2 | % | Non-GAAP operating expenses | $ | 14,899 | 14.7 | % | 4 | % | $ | 14,284 | 16.5 | % | (7) | % | $ | 15,413 | 18.1 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-GAAP operating income | $ | 8,854 | 9.7 | % | 14 | % | $ | 7,772 | 9.7 | % | 31 | % | $ | 5,947 | 9.4 | % | Non-GAAP operating income | $ | 7,785 | 7.7 | % | 12 | % | $ | 6,949 | 8.0 | % | 2 | % | $ | 6,816 | 8.0 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-GAAP net income from continuing operations (c) | $ | 5,227 | 5.7 | % | 20 | % | $ | 4,355 | 5.4 | % | 41 | % | $ | 3,098 | 4.9 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-GAAP net income | Non-GAAP net income | $ | 4,924 | 4.9 | % | 31 | % | $ | 3,746 | 4.3 | % | 9 | % | $ | 3,451 | 4.1 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| EBITDA | $ | 7,555 | 8.3 | % | 22 | % | $ | 6,218 | 7.7 | % | 154 | % | $ | 2,450 | 3.9 | % | EBITDA | $ | 8,206 | 8.1 | % | 9 | % | $ | 7,552 | 8.7 | % | 11 | % | $ | 6,824 | 8.0 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 10,296 | 11.3 | % | 13 | % | $ | 9,134 | 11.4 | % | 35 | % | $ | 6,775 | 10.7 | % | Adjusted EBITDA | $ | 9,660 | 9.5 | % | 12 | % | $ | 8,645 | 10.0 | % | 5 | % | $ | 8,226 | 9.7 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
____________________
(b)Services gross margin percentages represent services gross margin as a percentage of services net revenue, and non-GAAP services gross margin percentages represent non-GAAP services gross margin as a percentage of non-GAAP services net revenue.
Non-GAAP product net revenue, non-GAAP services net revenue, non-GAAP net revenue, non-GAAP product gross margin, non-GAAP services gross margin, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income, non-GAAP net income, from continuing operations, EBITDA, and adjusted EBITDA are not measurements of financial performance prepared in accordance with GAAP. Non-GAAP financial measures as a percentage of revenue are calculated based on non-GAAP net revenue. See “Non‑“Non‑GAAP Financial Measures”Measures” for additional information about these non-GAAP financial measures, including our reasons for including these measures, material limitations with respect to the usefulness of the measures, and a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure.
Overview
During Fiscal 2022, our operating income increased 26% to $4.7 billion and our non-GAAP operating income increased 12% to $7.8 billion. The increases in net revenueboth operating income and non-GAAP net revenueoperating income were attributable to increasesprimarily driven by growth in net revenue across all three business units. The momentum in server, client, and VMware that started building last year has continued in Fiscal 2019, and we are seeing progress in the growth ofoperating income for CSG, driven principally by our storage business revenue.
Operating income as a percentage of net revenue increased 30 basis points to 4.6%, primarily due to the EMC merger transaction and anfavorable impact of a decrease in amortization of intangible assets. The increase in operating income for ISG, and,as a percentage of net revenue was mostly offset by a decline in gross margin as a percentage of net revenue, which was principally attributable to a lesser extent, VMware.
Cash provided by operating activities was $7.0$10.3 billion and $6.8$11.4 billion during Fiscal 20192022 and Fiscal 2018,2021, respectively. The increaseOur cash flow from operations in operating cash flows during Fiscal 2019 was driven by business momentum, improved profitability, and an increase in deferred revenue.2022 were primarily attributable to strong revenue growth throughout the year. See “Market Conditions, Liquidity, Capital Commitments, and Contractual Cash Obligations” for further information on our cash flow metrics.
We continue to see opportunities to create value and grow in response to resilient demand for our IT solutions driven by a technology-enabled world. We have demonstrated our ability to adjust as needed to changing market conditions with complementary solutions across all segments of our business, an agile workforce, and the strength of our global supply chain. As we continue to innovate and modernize our core offerings, we believe that Dell Technologies is well-positioned for long-term profitable growth.
Net Revenue
Fiscal 20192022 compared to Fiscal 20182021
During Fiscal 2019,2022, our net revenue and non-GAAP net revenue both increased 15% and 14%, respectively.17%. The increases in net revenue and non-GAAP net revenue were primarily attributable to increasesan increase in net revenue across all three business units.for CSG and, to a lesser extent, an increase in net revenue for ISG. See “Business Unit Results” for further information.
•Product Net Revenue — Product net revenue includes revenue from the sale of hardware products and software licenses. During Fiscal 2022, both product net revenue and non-GAAP product net revenue increased 18%, primarily due to an increase in product net revenue for CSG and, to a lesser extent, ISG product net revenue. CSG product net revenue increased primarily due to increases in units sold of both commercial and consumer product offerings as a result of continued strength in the demand environment and, to a lesser extent, an increase in average selling price principally related to our commercial offerings. ISG product net revenue increased primarily due to increased sales volumes of our server offerings. 51 •Services Net Revenue— Services net revenue includes revenue from our services offerings and support services related to hardware products and software licenses. During Fiscal 2022, services net revenue and non-GAAP services net revenue increased 13% and 12%, respectively, driven primarily by growth in CSG services net revenue and, to a lesser extent, growth in both ISG and other businesses services net revenue. Growth in CSG services net revenue was primarily due to increases in services net revenue attributable to both CSG hardware support and maintenance and CSG third-party software support and maintenance. ISG services net revenue increased primarily as a result of growth within hardware support services while other businesses services net revenue increased due to growth in software support and maintenance within VMware Resale. A substantial portion of services net revenue is derived from offerings that have been deferred over a period of time, and, as a result, reported services net revenue growth rates will be different than reported product net revenue growth rates. |
From a geographical perspective, net revenue generated by sales to customers in all regions increased induring Fiscal 2019 due2022 primarily driven by strong CSG performance and, to strong performance globally in all three business units.a lesser extent, ISG performance.
Fiscal 20182021 compared to Fiscal 20172020
During Fiscal 2018,2021, our net revenue and non-GAAP net revenue both increased 27%, primarily due to the incremental2%. The increases in net revenue from the EMC acquired businesses and non-GAAP net revenue were primarily attributable to a lesser extent, an increase in net revenue for CSG, partially offset by a decline in ISG net revenue. See “Business Unit Results” for further information.
•Product Net Revenue — During Fiscal 2021, both product net revenue and non-GAAP product net revenue remained flat, primarily due to a decrease in product net revenue for ISG, which was offset by an increase in product net revenue for CSG. •Services Net Revenue — During Fiscal 2021, services net revenue and non-GAAP services net revenue increased 10% and 9%, respectively. These increases were primarily attributable to an increase in services net revenue for CSG third-party software support and maintenance as well as an increase in VMware resale. |
From a geographical perspective, net revenue generated by sales to customers in all regionsthe Americas and EMEA both increased during Fiscal 2021 due to strong CSG performance partially offset by declines in ISG net revenue. Net revenue generated by sales to customers in APJ decreased for both CSG and ISG as a result of a weaker demand environment.
Gross Margin
Fiscal 20182022 compared to Fiscal 2021
During Fiscal 2022, our gross margin increased 9% to $21.9 billion principally driven by growth in CSG gross margin and the favorable impact of a decrease in amortization of intangible assets. This increase was partially offset by a decrease in gross margin for other businesses primarily as a result of the incrementalimpact of the divestiture of RSA Security during Fiscal 2021. Non-GAAP gross margin increased 7% to $22.7 billion and was driven by the same CSG and other businesses dynamics discussed above.
During Fiscal 2022, our gross margin percentage decreased 160 basis points to 21.6%. The decrease in gross margin percentage was principally due to a shift in mix towards CSG offerings coupled with a mix shift within ISG. Further, the decline in gross margin as a percentage of net revenue fromwas driven by the EMC acquired businesses. Our miximpacts of revenues generatedsupply chain challenges and associated increases in component and logistics costs, the Americas, EMEA,effects of which were not fully offset by pricing adjustments. These decreases were partially offset by the favorable impact of a decrease in amortization of intangible assets. Non-GAAP gross margin percentage decreased 210 basis points to 22.4% due to the same CSG and APJ did not change substantiallyISG dynamics discussed above.
•Products Gross Margin — During Fiscal 2022, product gross margin increased 11% to $12.6 billion primarily as a result of growth in CSG product gross margin coupled with the favorable impact of a decrease in amortization of intangible assets. These effects were partially offset by a decline in other businesses product gross margin as a result of the EMC merger transaction.impact of the divestiture of RSA Security. Non-GAAP product gross margin increased 9% to $13.3 billion due to the same CSG and other businesses impacts.
During Fiscal 2019, our gross margin increased 22% to $25.1 billion, and our2022, product gross margin percentage increased 160decreased 90 basis points to 27.6%. The increase15.8%, primarily due to a decline in ourproduct gross margin percentage during Fiscal 2019 was primarily attributablefor both CSG and ISG and, to a lesser extent, a shift in mix towards CSG. These impacts
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were partially offset by the favorable impact of a decrease in amortization of intangibles and purchase accounting adjustments, offset partially byintangible assets. Non-GAAP product gross margin rate pressure inpercentage decreased 140 basis points to 16.6% and was driven by the same CSG and product mix dynamics in ISG impacts discussed above.
•Services Gross Margin — During Fiscal 2022, services gross margin increased 5% to $9.3 billion and non-GAAP services gross margin increased 4% to $9.4 billion. The increases were driven primarily by CSG and ISG services gross margin, partially offset by other businesses services gross margin as a result of the impact of the divestiture of RSA Security. Both CSG and ISG services gross margin increased primarily due to growth in sales of servers, which typically have a lowerhardware support and maintenance.
Services gross margin than storage products.percentage decreased 310 basis points to 43.5% and non-GAAP services gross margin percentage decreased 340 basis points to 44.0%. The decreases were primarily driven by declines in services gross margin percentage across CSG, ISG, and other businesses and, to a lesser extent, a shift in mix towards CSG.
During Fiscal 2021, our gross margin and non-GAAP gross margin decreased 2% to $20.1 billion and 4% to $21.2 billion, respectively. The decrease in gross margin was primarily due to a decline in gross margin for Fiscal 2019ISG and Fiscal 2018 included theother businesses, mostly offset by an increase in CSG gross margin coupled with a favorable impact of a decrease in amortization of intangibles and purchase accounting adjustmentsintangible assets. The decline in gross margin for other businesses decrease was driven by the divestiture of $3.6 billion and $5.0 billion, respectively. Excluding these costs, transaction-related expenses, and other corporate expenses,RSA Security. The non-GAAP gross margin fordecrease was driven by the same ISG and other businesses dynamics discussed above.
During Fiscal 2019 increased 13% to $29.0 billion,2021, our gross margin percentage and non-GAAP gross margin percentage decreased 20110 basis points to 31.8%.23.2% and 160 basis points to 24.5%, respectively. The increase in our non-GAAP gross margin was attributable to increasesdecreases in gross margin across all three business units. The decrease in ourpercentage and non-GAAP gross margin percentage was primarilywere driven by a shift in product mix due to product mix dynamicsstrong CSG sales, as well as decreases in ISG due to growth in sales of servers and gross margin rate pressure inpercentages for ISG and CSG.
•Products Gross Margin — |
During Fiscal 2018, non-GAAP2021, product gross margin increased 31%decreased 8% to $13.8$11.3 billion and non-GAAP product gross margin decreased 10% to $12.2 billion. The decreases in product gross margin and non-GAAP product gross margin were primarily a decrease in ISG product net revenue, as well as a shift in product mix towards CSG. These unfavorable impacts to product net revenue were partially offset by a decrease in amortization of intangibles.
During Fiscal 2021, product gross margin percentage increaseddecreased 140 basis points to 16.7% and non-GAAP product gross margin percentage decreased 200 basis points to 22.4%18.0%. The increasedecreases in product gross margin percentage and non-GAAP product gross margin frompercentage were attributable to a shift in product mix towards CSG, as well as decreases in product gross margin percentages for ISG and CSG.
•Services Gross Margin — During Fiscal 2021, services gross margin and non-GAAP services gross margin increased 5% to $8.8 billion and 4% to $9.0 billion, respectively. The increases in both services gross margin and non-GAAP services gross margin were as a result of growth in CSG third-party software support and maintenance. Further, services gross margin increased due to the EMC acquired businessesfavorable impact of a decrease in purchase accounting adjustments.
Services gross margin percentage and non-GAAP services gross margin percentage decreased 220 basis points to 46.6% and 240 basis points to 47.4%, respectively. Both services gross margin percentage and non-GAAP services gross margin percentage decreased primarily due to a mix shift towards CSG coupled with a decline in CSG services gross margin percentage. Services gross margin percentage was partially offset by component cost pressuresthe favorable impact of a decrease in CSG and ISG. Gross margin strengthened throughout Fiscal 2018 as we managed our pricing in response to the cost environment during the period.purchase accounting adjustments.
Vendor Programs and Settlements
Our gross margin is affected by our ability to achieve competitive pricing with our vendors and contract manufacturers, including through our negotiation of a variety of vendor rebate programs to achieve lower net costs for the various components we include in our products. Under these programs, vendors provide us with rebates or other discounts from the list prices for the components, which are generally elements of their pricing strategy. We account for vendor rebates and other discounts as a reduction in cost of net revenue. We manage our costs on a total net cost basis, which includes supplier list prices reduced by vendor rebates and other discounts.
The terms and conditions of our vendor rebate programs are largely based on product volumes and are generally negotiated either at the beginning of the annual or quarterly period, depending on the program. The timing and amount of vendor rebates and other discounts we receive under the programs may vary from period to period, reflecting changes in the competitive environment. We monitor our component costs and seek to address the effects of any changes to terms that might arise under our vendor rebate programs. Our gross margins for Fiscal 20192022, Fiscal 2021, and Fiscal 20182020 were not materially affected by any changes to the terms of our vendor rebate programs, as the amounts we received under these programs were generally stable relative to our total net cost. We are not aware of any significant changes to vendor pricing or rebate programs that may impact our results in the near term.
Operating Expenses
The following table presents information regarding our operating expenses during each offor the periods presented:indicated:
| Fiscal Year Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| January 28, 2022 | January 29, 2021 | January 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dollars | % of Net Revenue | % Change | Dollars | % of Net Revenue | % Change | Dollars | % of Net Revenue | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Selling, general, and administrative | $ | 14,655 | 14.5 | % | 5 | % | $ | 14,000 | 16.1 | % | (11) | % | $ | 15,819 | 18.6 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Research and development | 2,577 | 2.5 | % | 5 | % | 2,455 | 2.8 | % | — | % | 2,454 | 2.9 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total operating expenses | $ | 17,232 | 17.0 | % | 5 | % | $ | 16,455 | 18.9 | % | (10) | % | $ | 18,273 | 21.5 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fiscal Year Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| January 28, 2022 | January 29, 2021 | January 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dollars | % of Non-GAAP Net Revenue | % Change | Dollars | % of Non-GAAP Net Revenue | % Change | Dollars | % of Non-GAAP Net Revenue | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-GAAP operating expenses | $ | 14,899 | 14.7 | % | 4 | % | $ | 14,284 | 16.5 | % | (7) | % | $ | 15,413 | 18.1 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fiscal Year Ended | ||||||||||||||||||||||||||
| February 1, 2019 | February 2, 2018 | February 3, 2017 | ||||||||||||||||||||||||
| Dollars | % of Net Revenue | % Change | Dollars | % of Net Revenue | % Change | Dollars | % of Net Revenue | |||||||||||||||||||
| (in millions, except percentages) | ||||||||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||
| Selling, general, and administrative | $ | 20,640 | 22.7 | % | 11 | % | $ | 18,569 | 23.6 | % | 39 | % | $ | 13,403 | 21.6 | % | ||||||||||
| Research and development | 4,604 | 5.1 | % | 5 | % | 4,384 | 5.5 | % | 66 | % | 2,636 | 4.2 | % | |||||||||||||
| Total operating expenses | $ | 25,244 | 27.8 | % | 10 | % | $ | 22,953 | 29.1 | % | 43 | % | $ | 16,039 | 25.8 | % | ||||||||||
| Other Financial Information | ||||||||||||||||||||||||||
| Non-GAAP operating expenses | $ | 20,168 | 22.1 | % | 13 | % | $ | 17,896 | 22.3 | % | 55 | % | $ | 11,534 | 18.2 | % | ||||||||||
Fiscal 20192022 compared to Fiscal 20182021
During Fiscal 2019,2022, total operating expenses increased 10%. Our operating expenses include the impact of purchase accounting, amortization of intangible assets, transaction-related expenses, and other corporate expenses. Other corporate expenses included a goodwill impairment charge of approximately $190 million recorded during Fiscal 2019. In aggregate, these items totaled $5.1 billion for both Fiscal 2019 and Fiscal 2018. Excluding these costs, total non-GAAP operating expenses for Fiscal 2019 increased 13%. The increases in operating expenses and non-GAAP operating expenses wereincreased 5% and 4%, respectively, primarily due to an increase in selling, general, and administrative expenses associatedand, to a lesser extent, an increase in research and development expenses.
•Selling, General, and Administrative — Selling, general, and administrative (“SG&A”) expenses increased 5% during Fiscal 2022. The increase was primarily due to an increase in consulting and contractor costs incurred in connection with our transformational initiatives, primarily the VMware Spin-off. Further, SG&A expenses increased as a result of employee-related compensation and benefits expense due to the reintroduction of expenses that were temporarily reduced during Fiscal 2021 in response to COVID-19, as well as an increase in advertising and promotion expense.
•Research and Development — Research and development (“R&D”) expenses are primarily composed of personnel-related expenses related to product development. R&D expenses grew 5% during Fiscal 2022. As a percentage of net revenue, R&D expenses for Fiscal 2022 and Fiscal 2021 were approximately 2.5% and 2.8%, respectively. The decrease in R&D expenses as a percentage of net revenue was attributable to revenue growth that outpaced R&D investments. We intend to continue to support R&D initiatives to innovate and sales headcount.introduce new and enhanced solutions into the market.
We continue to make selective investments designed to enable growth, particularly in our sales force, marketing, and R&D, while balancing our efforts to drive cost efficiencies in the business. We also expect to continue to make investments in support of our own digital transformation to modernize and streamline our IT operations.
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Fiscal 20182021 compared to Fiscal 20172020
During Fiscal 2018,2021, total operating expenses increased 43%. Ourdecreased 10% and total non-GAAP operating expenses decreased 7% primarily due to a decrease in selling, general, and administrative expense.
•Selling, General, and Administrative — Selling, general, and administrative (“SG&A”) expenses decreased 11% during Fiscal 20182021. The decrease in SG&A expenses was partly attributable to measures taken as a result of the COVID-19 pandemic, which included global hiring limitations, reductions in consulting and contractor costs and facilities-related costs, global travel restrictions, and suspension of the Dell 401(k) match program for U.S. employees, as well as a decrease in amortization of intangible assets. Additionally, during Fiscal 2017 included2021, SG&A expenses benefited from the absence of Virtustream pre-tax impairment charges of $619 million recognized in Fiscal 2020.
•Research and Development — R&D expenses remained flat during Fiscal 2021 when compared to Fiscal 2020. R&D expenses as a percentage of net revenue also remained essentially flat during Fiscal 2021at 2.8% compared to 2.9% during Fiscal 2020.
Operating Income
Fiscal 2022 compared to Fiscal 2021
During Fiscal 2022, our operating income and non-GAAP operating income increased 26% to $4.7 billion and 12% to $7.8 billion, respectively. The increases were primarily due to growth in operating income for CSG, driven primarily by our commercial offerings. Operating income also benefited from the favorable impact of purchase accounting associated with the EMC merger transaction and, to a lesser extent, the going-private transaction,decrease in amortization of intangible assets, transaction-related expenses, and other corporate expenses. In aggregate, these items totaled $5.1 billion and $4.5 billion for Fiscal 2018 and Fiscal 2017, respectively. Excluding these costs, total non-GAAP operating expenseswhich was partially offset by an increase in stock-based compensation expense.
Operating income as a percentage of net revenue increased 55%. The increases in operating expenses and non-GAAP operating expenses were30 basis points to 4.6%, primarily due to the incrementalfavorable impact of a decrease in amortization of intangible assets. The increase in operating income as a percentage of net revenue was mostly offset by a decline in gross margin as a percentage of net revenue principally due to a shift in mix towards CSG offerings coupled with a mix shift within ISG. Further, the decline in gross margin as a percentage of net revenue was driven by the impacts of supply chain challenges and associated increases in component and logistics costs, from the EMC acquired businesses.effects of which were not fully offset by pricing adjustments. As a result of these dynamics, non-GAAP operating income as a percentage of net revenue decreased 30 basis points to 7.7%.
Fiscal 2021 compared to Fiscal 2020 During Fiscal 2021, our operating income increased 56% to $3.7 billion, primarily driven by |
Operating income as a percentage of net revenue increased 150 basis points to 4.3% and was primarily driven by an increase in gross margin. While the EMC acquired businesses contributed higher gross margin overall, we experienced gross margin pressure in ISG related to the changing product mix within ISG as well as component cost inflation, particularly for memory components used in ISG products.
Interest and Other, Net
The following table providespresents information regarding information regarding interest and other, net for each of the periods presented:indicated:
| Fiscal Year Ended | Fiscal Year Ended | |||||||||||||||||||||||||||||||||||||||
| February 1, 2019 | February 2, 2018 | February 3, 2017 | January 28, 2022 | January 29, 2021 | January 31, 2020 | |||||||||||||||||||||||||||||||||||
| (in millions) | (in millions) | |||||||||||||||||||||||||||||||||||||||
| Interest and other, net: | Interest and other, net: | |||||||||||||||||||||||||||||||||||||||
| Investment income, primarily interest | $ | 313 | $ | 207 | $ | 102 | Investment income, primarily interest | $ | 42 | $ | 47 | $ | 99 | |||||||||||||||||||||||||||
| Gain (loss) on investments, net | 342 | 72 | 4 | |||||||||||||||||||||||||||||||||||||
| Gain on investments, net | Gain on investments, net | 569 | 425 | 158 | ||||||||||||||||||||||||||||||||||||
| Interest expense | (2,488 | ) | (2,406 | ) | (1,751 | ) | Interest expense | (1,542) | (2,052) | (2,334) | ||||||||||||||||||||||||||||||
| Foreign exchange | (206 | ) | (113 | ) | (77 | ) | Foreign exchange | (221) | (160) | (195) | ||||||||||||||||||||||||||||||
| Debt extinguishment | — | — | (337 | ) | ||||||||||||||||||||||||||||||||||||
| Gain on disposition of businesses and assets | Gain on disposition of businesses and assets | 3,968 | 458 | — | ||||||||||||||||||||||||||||||||||||
| Debt extinguishment fees | Debt extinguishment fees | (1,572) | (158) | (83) | ||||||||||||||||||||||||||||||||||||
| Other | (131 | ) | (113 | ) | (45 | ) | Other | 20 | 101 | (62) | ||||||||||||||||||||||||||||||
| Total interest and other, net | $ | (2,170 | ) | $ | (2,353 | ) | $ | (2,104 | ) | Total interest and other, net | $ | 1,264 | $ | (1,339) | $ | (2,417) | ||||||||||||||||||||||||
Fiscal 20192022 compared to Fiscal 20182021
Fiscal 20182021 compared to Fiscal 20172020
During Fiscal 2018, changes2021, the change in interest and other, net were unfavorablewas favorable by $249 million$1.1 billion, primarily due to an increasea $233 million net gain on the fair value adjustment of one of our strategic investments and a pre-tax gain of $338 million on the sale of RSA Security. Interest and other, net also benefited from a decrease in interest expense from new borrowings associated with the EMC merger transaction. This change was partially offset by other expenses incurred in Fiscal 2017, which included approximately $337 million relateddue to debt extinguishment and new borrowings that did not recur in Fiscal 2018.paydowns over the period.
Income and Other Taxes
| Fiscal Year Ended | |||||||||||||||||
| January 28, 2022 | January 29, 2021 | January 31, 2020 | |||||||||||||||
| (in millions, except percentages) | |||||||||||||||||
| Income (loss) before income taxes | $ | 5,923 | $ | 2,346 | $ | (51) | |||||||||||
| Income tax expense (benefit) | $ | 981 | $ | 101 | $ | (572) | |||||||||||
| Effective income tax rate | 16.6 | % | 4.3 | % | 1121.6 | % | |||||||||||
For Fiscal 2022, Fiscal 2021, and Fiscal 2020, our effective income tax rates were 7.6%, 38.6%, and 31.6%16.6% on pre-tax lossesincome of $2.4 billion, $4.8 billion,$5,923 million, 4.3% on pre-tax income of $2,346 million, and $4.5 billion for Fiscal 2019, Fiscal 2018, and Fiscal 2017,1121.6% on a pre-tax loss of $51 million, respectively. The changechanges in our effective income tax rate for Fiscal 20192022 as compared to Fiscal 2018 was primarily attributable to impacts of the Tax Cuts2021 and Jobs Act of 2017 (“U.S. Tax Reform”), which reduced our overall tax benefits as a percentage of pre-tax losses. These impacts were offset in part by discrete tax benefits of $154 million resulting from the effect of our adoption of the new revenue standard under ASC 606. The change in our effective income tax rate for Fiscal 20182021 as compared to Fiscal 2017 was2020, were primarily attributable todriven by discrete tax benefits from charges incurred associated with the EMC merger transaction, including purchase accounting adjustments, interest charges,items and stock-based compensation expense. Thea change in our jurisdictional mix of income.
For Fiscal 2022, the Company’s effective income tax rate was also impacted byincludes tax benefits recognized in Fiscal 2018 related to U.S. Tax Reform, as well as by $201 millionexpense of tax charges recognized in Fiscal 2017$1.0 billion on pre-tax gain of$4.0 billion related to the divestiture of Dell Services and DSG.
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to the Transition Tax. We completed our accounting for the income tax effectsdivestiture of U.S. Tax ReformRSA Security during the fourth quarterperiod. For Fiscal 2020, the Company’s effective tax rate includes tax benefits of Fiscal 2019$405 million related to an intra-entity asset transfer and determined that the adjustment$305 million related to the provisional estimate was not material. Throughout Fiscal 2019, the U.S. Department of the Treasury and the Internal Revenue Service issued preliminary regulatory guidance clarifying certain provisions of U.S. Tax Reform, and we anticipate that additional regulatory guidance and technical clarifications will be issued. When additional guidance is issued, we will recognize the related tax impact in the fiscal quarter of such issuance.an audit settlement.
Our effective income tax rate can fluctuate depending on the geographic distribution of our worldwide earnings, as our foreign earnings are generally taxed at lower rates than in the United States. The differences between our effective income tax rate and the U.S. federal statutory rate of 21% principally result from the geographical distribution of income, and differences between the book and tax treatment of certain items.items and the discrete tax items described above. In certain jurisdictions, our tax rate is significantly less than the applicable statutory rate as a result of tax holidays. The majority of our foreign income that is subject to these tax holidays and lower tax rates is attributable to Singapore China, and Malaysia. Although aChina. A significant portion of these income tax benefits relates to a tax holiday that expired during Fiscal 2019, we have negotiated new terms for the affected subsidiary. These new terms provide for a reduced income tax rate and will be effective until January 31, 2029. Our other tax holidays will expire in whole or in part during Fiscal 20222030 through Fiscal 2030.2031. 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. As of January 28, 2022, we were not aware of any matters of noncompliance related to these tax holidays.
For further discussion regarding tax matters, including the status of income tax audits, see Note 1112 of the Notes to the Consolidated Financial Statements included in this report.
Net Income/LossIncome from Continuing Operations
Fiscal 20192022 compared to Fiscal 20182021
Non-GAAP net income was $4.9 billion in Fiscal 2022, compared to $3.7 billion in Fiscal 2021. The increase in non-GAAP net income was primarily attributable to an increase in non-GAAP operating income coupled with a favorable change in interest and other, net.
Fiscal 2021 compared to Fiscal 2020
Net loss for Fiscal 2019 included amortization of intangible assets, the impact of purchase accounting, transaction-related expenses, other corporate expenses, fair value adjustments on equity investments, and discrete tax items. Excluding these costs and the related tax impacts, non-GAAP net income from continuing operations increased 20%was $2.2 billion in Fiscal 2021, compared to $5.2$0.5 billion duringin Fiscal 2019.2020. The increase in non-GAAP net income from continuing operations during Fiscal 20192021 was primarily attributable to an increase in operating income and a decreasefavorable change in interest and other, net, expense, which was partially offset by an increase in tax expense for the period.
Non-GAAP net income tax expense.
was $3.7 billion in Fiscal 20182021, compared to $3.5 billion in Fiscal 2017
Business Unit Results
Our reportable segments are based on the following business units: ISG CSG, and VMware.CSG. A description of our three business units is provided under “Introduction.” See Note 19 of the Notes to the Consolidated Financial Statements included in this report for a reconciliation of net revenue and operating income by reportable segment to consolidated net revenue and consolidated operating loss,income (loss), respectively.
Infrastructure Solutions Group:Group
The following table presents net revenue and operating income attributable to ISG for the respective periods:periods indicated:
| Fiscal Year Ended | |||||||||||||||||||||||||||||||||||||||||||||||
| January 28, 2022 | % Change | January 29, 2021 | % Change | January 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||
| Net revenue: | |||||||||||||||||||||||||||||||||||||||||||||||
| Servers and networking | $ | 17,901 | 8 | % | $ | 16,592 | (3) | % | $ | 17,193 | |||||||||||||||||||||||||||||||||||||
| Storage | 16,465 | — | % | 16,410 | (4) | % | 17,174 | ||||||||||||||||||||||||||||||||||||||||
| Total ISG net revenue | $ | 34,366 | 4 | % | $ | 33,002 | (4) | % | $ | 34,367 | |||||||||||||||||||||||||||||||||||||
| Operating income: | |||||||||||||||||||||||||||||||||||||||||||||||
| ISG operating income | $ | 3,736 | — | % | $ | 3,753 | (5) | % | $ | 3,948 | |||||||||||||||||||||||||||||||||||||
| % of segment net revenue | 10.9 | % | 11.4 | % | 11.5 | % | |||||||||||||||||||||||||||||||||||||||||
| Fiscal Year Ended | |||||||||||||||||
| February 1, 2019 | % Change | February 2, 2018 | % Change | February 3, 2017 | |||||||||||||
| (in millions, except percentages) | |||||||||||||||||
| Net revenue: | |||||||||||||||||
| Servers and networking | $ | 19,953 | 28 | % | $ | 15,533 | 20 | % | $ | 12,973 | |||||||
| Storage | 16,767 | 9 | % | 15,384 | 69 | % | 9,097 | ||||||||||
| Total ISG net revenue | $ | 36,720 | 19 | % | $ | 30,917 | 40 | % | $ | 22,070 | |||||||
| Operating income: | |||||||||||||||||
| ISG operating income | $ | 4,151 | 35 | % | $ | 3,068 | 5 | % | $ | 2,920 | |||||||
| % of segment net revenue | 11.3 | % | 9.9 | % | 13.2 | % | |||||||||||
Fiscal 20192022 compared to Fiscal 20182021
Net Revenue — During Fiscal 2019,2022, ISG net revenue increased 19%4% primarily due to an increase in sales of servers and networkingnetworking. This increase was attributable to improvements in the macroeconomic environment and a shift towards investment in IT infrastructure compared to Fiscal 2021 which was impacted by a weaker demand environment as well as an increase ina result of COVID-19.
Revenue from the sales of storage. Revenue from servers and networking increased 28%8% during Fiscal 2019,2022, primarily driven by an increase in both average selling price and units sold ofdue to continued strong demand for our PowerEdge servers. Average selling prices increased due to the sale of servers
Storage revenue remained flat during Fiscal 2022. Within storage, revenue associated with more robust compute capacity and higher memory and storage content, which was driven by customer demand for servers that enable big data analytics and software-defined storage solutions, includingour hyper-converged infrastructure as well asofferings increased component costs during the first half of Fiscal 2019. Storage revenue increased 9% during Fiscal 2019 duesame period. We continue to strongexperience growth in demand across most of our network-attached storage offerings which we expect will benefit net revenue in future periods.
ISG customers are interested in new and object storageinnovative models that address how they consume our solutions. We have been making go-to-market investmentsoffer options that include as-a-Service, utility, leases, and enhancementsimmediate pay models, designed to our storage solutions offerings,match customers’ consumption and expect that these investments will drive long-term improvements in the business. Although component costs were inflationary during the first half of Fiscal 2019, they were slightly deflationary in the aggregate for ISG during the second half of Fiscal 2019, and we continue to monitor our pricing in response to changes in the component cost environment. We expect the aggregate ISG component cost environment to continue to be slightly deflationary into the first half of Fiscal 2020.
From a geographical perspective, net revenue attributable to ISG increased acrossin all regions during Fiscal 2019.2022.
Operating Income — During Fiscal 2019,2022, ISG operating income as a percentage of net revenue increased 140decreased 50 basis points to 11.3% primarily10.9% due to a decline in ISG gross margin percentage. The decline in ISG gross margin percentage was driven by a shift in mix within ISG towards servers and networking, competitive pricing pressure, and the impacts of industry-wide supply chain challenges which were not fully offset by pricing adjustments. Supply chain challenges included component availability, increased logistics costs, and the inflationary component cost environment. The decrease in ISG operating expensesincome as a percentage of net revenue was partially offset by a decrease in ISG gross margin percentage. Revenue growth outpaced our investments in go-to-market capabilities and solutions offerings, and, as a result, operating expenses decreasedexpense as a percentage of net revenue. We experienced gross margin pressure due to a shift in product mix to servers, which typically have a lower gross margin than storage products.
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Fiscal 20182021 compared to Fiscal 20172020
Net Revenue — During Fiscal 2018,2021, ISG net revenue increased 40%decreased 4% due to decreases in sales of servers and networking and storage. ISG net revenue decreased primarily due to incremental storage net revenue associated witha weaker demand environment, as customers shifted their investments toward remote work and business continuity solutions.
Revenue from the EMC acquired storage business and, to a lesser extent, increases in servers and networking. Revenue fromsales of servers and networking increased 20%decreased 3% during Fiscal 2018,2021, primarily driven by an increasea decline in both average selling price and units solddemand of our PowerEdge server product. Average selling prices increased as we managed our pricing in response to the current component cost environment, and also reflected the sale of servers with higher memory and storage content. Storage revenue increased 69% during Fiscal 2018 due to the incrementalbroader macroeconomic environment, including the effects of COVID-19.
Storage revenue from the EMC acquireddecreased 4% during Fiscal 2021 primarily due to declines in demand for our core storage business. Although we experienced strong growth in all-flashsolutions offerings, partially offset by increased demand for converged and hyper-converged infrastructure products, we are experiencing reduced demand in ISG for certain elements ofsolutions. We continue to make enhancements to our storage portfolio,solutions offerings and expect that these offerings, including traditional high-end and midrangeour PowerStore storage offerings. We are addressing this dynamic through investmentsarray released in our go-to-market capabilities and product enhancements.May 2020, will drive long-term improvements in the business.
From a geographical perspective, during Fiscal 2018, ISG net revenue increasedattributable to ISG decreased in all regions due to the incremental revenue from the EMC acquired storage business. The EMC acquired storage business operates onduring Fiscal 2021, driven by a world-wide basis withweaker demand environment as a geographic mix similar to thatresult of the legacy Dell ISG business.pervasive global COVID-19 disruptions.
Operating Income — During Fiscal 2018,2021, ISG operating income as a percentage of net revenue decreased 33010 basis points to 9.9% primarily due11.4%. The decline in ISG operating income percentage during Fiscal 2021 was driven by a decrease in ISG gross margin percentage from higher server configuration costs, increased freight costs, and lower benefits from component cost deflation. During Fiscal 2021, ISG component costs remained deflationary in the aggregate, but to increaseda lesser degree relative to Fiscal 2020. The decline in ISG gross margin percentage in Fiscal 2021 was partially offset by a decrease in ISG operating expenses fromas a percentage of net revenue, as we realized the EMC acquired businesses and larger investments in our go-to-market capabilities and research and development. While the EMC acquired storage business contributed higher gross margin overall, we experienced gross margin pressure due to changing product mix within ISG as well as componentbenefit of cost inflation, particularly for memory components used in ISG products.reduction initiatives.
Client Solutions Group:Group
The following table presents net revenue and operating income attributable to CSG for the respective periods:periods indicated:
| Fiscal Year Ended | |||||||||||||||||||||||||||||||||||||||||||||||
| January 28, 2022 | % Change | January 29, 2021 | % Change | January 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||
| Net revenue: | |||||||||||||||||||||||||||||||||||||||||||||||
| Commercial | $ | 45,576 | 29 | % | $ | 35,423 | 3 | % | $ | 34,293 | |||||||||||||||||||||||||||||||||||||
| Consumer | 15,888 | 23 | % | 12,964 | 12 | % | 11,562 | ||||||||||||||||||||||||||||||||||||||||
| Total CSG net revenue | $ | 61,464 | 27 | % | $ | 48,387 | 6 | % | $ | 45,855 | |||||||||||||||||||||||||||||||||||||
| Operating income: | |||||||||||||||||||||||||||||||||||||||||||||||
| CSG operating income | $ | 4,365 | 31 | % | $ | 3,333 | 7 | % | $ | 3,114 | |||||||||||||||||||||||||||||||||||||
| % of segment net revenue | 7.1 | % | 6.9 | % | 6.8 | % | |||||||||||||||||||||||||||||||||||||||||
| Fiscal Year Ended | |||||||||||||||||
| February 1, 2019 | % Change | February 2, 2018 | % Change | February 3, 2017 | |||||||||||||
| (in millions, except percentages) | |||||||||||||||||
| Net revenue: | |||||||||||||||||
| Commercial | $ | 30,893 | 12 | % | $ | 27,507 | 7 | % | $ | 25,773 | |||||||
| Consumer | 12,303 | 5 | % | 11,711 | 9 | % | 10,736 | ||||||||||
| Total CSG net revenue | $ | 43,196 | 10 | % | $ | 39,218 | 7 | % | $ | 36,509 | |||||||
| Operating income: | |||||||||||||||||
| CSG operating income | $ | 1,960 | (4 | )% | $ | 2,044 | 17 | % | $ | 1,751 | |||||||
| % of segment net revenue | 4.5 | % | 5.2 | % | 4.8 | % | |||||||||||
Fiscal 20192022 compared to Fiscal 20182021
Net Revenue — During Fiscal 2019,2022, CSG net revenue increased 10%27% primarily due to continued strong demand for ourincreases in units sold of both commercial products and overall higher average selling pricesconsumer product offerings. The commercial and consumer increases were driven by strength in the demand environment as a result of the continued global economic recovery coupled with customers seeking improved connectivity and productivity.
Commercial revenue increased 29% during Fiscal 2022 primarily due to an increase in consumer. Commercial netsales across the majority of our commercial offerings. To a lesser extent, increases in average selling price also contributed to the growth in commercial revenue increased 12%, driven primarily by increased demand across all product categories. Consumer net revenue increased 5%, driven primarily by a shift in product mix to our high end notebooks. During Fiscal 2019,as we effectivelynavigated through supply chain shortages and managed our pricing in response to supply chain dynamics, geographical mix, foreign currency exchange fluctuations, and the componentinflationary cost environment. The aggregate CSG component cost environment was deflationary
Consumer revenue increased 23% during Fiscal 2022 primarily due to an increase in units sold as a result of strong demand across the second halfmajority of Fiscal 2019, and we expect deflationary conditions to continue into the first half of Fiscal 2020.our consumer product offerings.
From a geographical perspective, net revenue attributable to CSG increased across all regions during Fiscal 2019.2022.
Operating Income — During Fiscal 2019,2022, CSG operating income as a percentage of net revenue decreased 70increased 20 basis points to 4.5%. The7.1%, driven primarily by a decrease was primarily due to higher component costs during the first half of Fiscal 2019 that negatively impacted CSG gross margin and to increases in CSG operating expenseexpenses as a percentage of revenue resulting from higher performance-driven commissionrevenue. This benefit was mostly offset by a decrease in CSG gross margin percentage which was impacted by heightened supply chain challenges, logistics costs, and marketing expense related to our net revenue growth. In addition, the decline in CSG operating income as a percentagethe inflationary component cost environment, the effects of revenue during Fiscal 2019 was partially attributable to a $68 million vendor settlement benefit recorded during Fiscal 2018, which resulted in an incremental 20 basis points to our operating income percentage in the prior period that didwere not recur. Excluding the effect of this vendor settlement, CSG operating income as a percentage of revenue decreased 50 basis points during Fiscal 2019.fully offset by pricing adjustments.
Fiscal 20182021 compared to Fiscal 20172020
Net Revenue — During Fiscal 2018,2021, CSG net revenue increased 7%, driven by6% primarily due to an increase in overall average selling price in both the commercial and consumer product categories,notebook sales, partially offset by a decrease in commercial desktop sales. Much of this demand was driven by the imperative for remote work and remote learning solutions, as we managed our pricingbusiness, government, and education customers sought to maintain productivity in responsethe midst of COVID-19.
Commercial revenue increased 3% during Fiscal 2021 due to the cost environmentan increase in commercial notebooks sales, and particularly for entry-level commercial notebooks driven by customers in education and state and local government. The increases were partially offset by lower sales of commercial desktops.
Consumer revenue increased 12% during the period. During Fiscal 2018, CSG net revenue also benefited from2021 due to increases in units sold, as we experienced a general improvement in customeraverage selling prices across all consumer product offerings, coupled with continued strong demand which favored premiumfor consumer notebooks and workstations.high-end and gaming systems.
From a geographical perspective, net revenue attributable to CSG increased across all regionsin the Americas and EMEA during Fiscal 2018.2021. These increases were partially offset by a decline in net revenue attributable to CSG in APJ during the period.
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Operating Income — During Fiscal 2018,2021, CSG operating income as a percentage of net revenue increased 4010 basis points to 5.2%6.9%. This increase was primarily dueattributable to a reductiondecrease in CSG operating expenses as a percentage of net revenue, as we continued to manage ourrealized the benefit of cost position.reduction initiatives. This benefit was partiallymostly offset by increaseda decrease in CSG gross margin percentage driven by a shift in product mix to entry-level commercial notebooks and lower component costs, which we were ablecost deflation relative to mitigate in large part through pricing actions. The impact of the vendor settlements recorded in Fiscal 2018 and Fiscal 2017 did not affect comparability for these periods.pricing.
| Fiscal Year Ended | |||||||||||||||||
| February 1, 2019 | % Change | February 2, 2018 | % Change | February 3, 2017 | |||||||||||||
| (in millions, except percentages) | |||||||||||||||||
| Net revenue: | |||||||||||||||||
| VMware net revenue | $ | 9,088 | 14 | % | $ | 7,994 | 126 | % | $ | 3,543 | |||||||
| Operating income: | |||||||||||||||||
| VMware operating income | $ | 2,989 | 6 | % | $ | 2,809 | 85 | % | $ | 1,516 | |||||||
| % of segment net revenue | 32.9 | % | 35.1 | % | 42.8 | % | |||||||||||
OTHER BALANCE SHEET ITEMS
Accounts Receivable
We sell products and services directly to customers and through a variety of sales channels, including retail distribution. Our accounts receivable, net, was $12.4$12.9 billion and $11.7$10.7 billion as of February 1, 2019January 28, 2022 and February 2, 2018,January 29, 2021, respectively. We maintain an allowance for doubtful accountsexpected credit losses to cover receivables that may be deemed uncollectible. The allowance for expected credit losses is an estimate based on a provision for accounts that are collectively evaluated based onan analysis of historical bad debtloss experience, current receivables aging, and management’s assessment of current conditions and reasonable and supportable expectation of future conditions, as well as specific identifiable customer accounts that are deemed at risk. As of February 1, 2019January 28, 2022 and February 2, 2018,January 29, 2021, the allowance for doubtful accountsexpected credit losses was $85$90 million and $103$99 million, respectively. Based on our assessment, we believe that we are adequately reserved for expected credit losses. We will continue to monitor the aging of our accounts receivable and continue to take actions, where necessary, to reduce our exposure to credit losses.
Dell Financial Services and Financing Receivables
The growth in newCompany’s leases are classified as sales-type leases, direct financing originations during Fiscal 2018 was primarilyleases, or operating leases. Amounts due to increased offerings related to customer purchases of products and services from the businesses acquiredlessees under sales-type leases or direct financing leases are recorded as part of financing receivables, with interest income recognized over the EMC merger transaction.contract term. On commencement of sales-type leases, we typically qualify for up-front revenue recognition. On originations of operating leases, we record equipment under operating leases, classified as property, plant, and equipment, and recognize rental revenue and depreciation expense, classified as cost of net revenue, over the contract term. Direct financing leases are immaterial. Leases that commenced prior to the effective date of the current lease accounting standard continue to be accounted for under previous lease accounting guidance.
We maintain an allowance to cover expected financing receivable credit losses and evaluate credit loss expectations based on our total portfolio. For Fiscal 2019,2022, Fiscal 2018,2021, and Fiscal 2017,2020, the principal charge-off rate for our totalfinancing receivables portfolio was 1.2%0.6%, 1.5%0.7%, and 2.0%1.0%,respectively. The credit quality of our financing receivables has improved in recent years due to an overall improvement in the credit environment and as the mix of high-quality commercial accounts in our portfolio has continued to increase. The allowance for losses is determined based on various factors, including historical and anticipated experience, past due receivables, receivable type, and customer risk profile. As of February 1, 2019 and February 2, 2018, the allowance for financing receivable losses was $136 million and $145 million, respectively. In general, the loss rates on our financing receivables have improved over the periods presented. We expect relatively stable loss rates in future periods, with movements in these rates being primarily driven by seasonality and a continued shift in portfolio composition to lower risk commercial assets. We continue to monitor broader economic indicators and their potential impact on future credit loss performance. We have an extensive process to manage our exposure to customer credit risk, including active management of credit lines and our collection activities. We also sell selected fixed-term financing receivables without recourse to unrelated third parties on a periodic basis, primarily to manage certain concentrations of customer credit exposure. Based on our assessment of the customer financing receivables, we believe that we are adequately reserved.
We retain a residual interest in equipment leased under our lease programs. As of January 28, 2022 and January 29, 2021, the residual interest recorded as part of financing receivables was $217 million and $424 million, respectively. The decline in residual interest during Fiscal 2022 was principally attributable to a corresponding increase in originations of operating leases. 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 basis, we assess the carrying amount of our recorded residual values for impairment. Generally, expected losses as a result of residual value risk on equipment under lease are not considered to be significant primarily because of the existence of a secondary market with respect to the equipment. Further, the lease agreement clearly defines applicable return conditions and remedies for non-compliance, to ensure that the leased equipment will be in good operating condition upon return. No expected losses were recorded related to residual assets during Fiscal 2022 or Fiscal 2021.
As of January 28, 2022 and January 29, 2021, equipment under operating leases, net was $1.7 billion and $1.3 billion, respectively. We assess the carrying amount of the equipment under operating leases for impairment whenever events or circumstances may indicate that an impairment has occurred. No material impairment losses were recorded related to such equipment during Fiscal 2022, Fiscal 2021, or Fiscal 2020.
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DFS offerings are initially funded through cash on hand at the time of origination, most of which is subsequently replaced with asset-backed financing. For DFS offerings which qualify as sales-type leases, the initial funding of financing receivables is reflected as an impact to cash flows from operations, and is largely subsequently offset by cash proceeds from financing. For DFS operating leases, the initial funding is classified as a capital expenditure and reflected as an impact to cash flows used in investing activities.
See Note 5 of the Notes to the Consolidated Financial Statements included in this report for additional information about our financing receivables and the associated allowances.
Liquidity and Capital Resources
To support our ongoing business operations, we rely on operating cash flows as our primary source of liquidity. We monitor the efficiency of our balance sheet to ensure that we have adequate liquidity to support our business and strategic initiatives. In addition to internally generated cash, we have access to other capital sources to finance our strategic initiatives and fund growth in our financing operations. As of February 1, 2019, we had $9.7 billion of total cash and cash equivalents. Our strategy is to deploy capital from any potential source, whether internally generated cash or debt, depending on the adequacy and availability of that source of capital and whether it can be accessed in a cost-effective manner.
We funded a majority of the cash consideration paid in the Class V transaction from the $8.87 billion of the proceeds of the Special Dividend. The remaining amount of the cash consideration was primarily funded with $3.67 billion of proceeds from new senior secured term loans under our senior secured credit facilities and proceeds of a margin loan financing in an aggregate principal amount of $1.35 billion. See Note 6 of the Notes to the Consolidated Financial Statements included in this report for information about the debt we incurred to finance the Class V transaction.
| February 1, 2019 | February 2, 2018 | ||||||
| (in millions) | |||||||
| Cash and cash equivalents, and available borrowings: | |||||||
| Cash and cash equivalents (a) | $ | 9,676 | $ | 13,942 | |||
| Remaining available borrowings under revolving credit facilities | 5,586 | 4,875 | |||||
| Total cash, cash equivalents, and available borrowings | $ | 15,262 | $ | 18,817 | |||
The following table summarizespresents our cash and cash equivalents as well as our available borrowings as of the dates indicated:
| January 28, 2022 | January 29, 2021 | ||||||||||
| (in millions) | |||||||||||
| Cash and cash equivalents, and available borrowings: | |||||||||||
| Cash and cash equivalents | $ | 9,477 | $ | 9,508 | |||||||
| Remaining available borrowings under revolving credit facilities | 4,969 | 4,467 | |||||||||
| Total cash, cash equivalents, and available borrowings | $ | 14,446 | $ | 13,975 | |||||||
Our revolving credit facilities as of January 28, 2022 consist only of the 2021 Revolving Credit Facility which has a maximum capacity of $5.0 billion and available borrowings under this facility are reduced by draws on the facility and outstanding letters of credit. As of January 28, 2022, there were no borrowings outstanding under the facility and remaining available borrowings totaled approximately $5.0 billion. We may regularly use our available borrowings from the 2021 Revolving Credit Facility on a short-term basis for general corporate purposes. See Note 7 of the Notes to the Consolidated Financial Statements included in this report for additional information about the 2021 Revolving Credit Facility.
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Debt
The following table presents our outstanding debt as of February 1, 2019 and February 2, 2018:the dates indicated:
| January 28, 2022 | Increase (Decrease) | January 29, 2021 | |||||||||||||||
| (in millions) | |||||||||||||||||
| Core debt | |||||||||||||||||
| Senior Notes | $ | 16,300 | $ | (11,177) | $ | 27,477 | |||||||||||
| Legacy Notes and Debentures | 952 | (400) | 1,352 | ||||||||||||||
| EMC Notes | — | (1,000) | 1,000 | ||||||||||||||
| DFS allocated debt | (1,133) | (467) | (666) | ||||||||||||||
| Total core debt | 16,119 | (13,044) | 29,163 | ||||||||||||||
| DFS related debt | |||||||||||||||||
| DFS debt | 9,646 | (20) | 9,666 | ||||||||||||||
| DFS allocated debt | 1,133 | 467 | 666 | ||||||||||||||
| Total DFS related debt | 10,779 | 447 | 10,332 | ||||||||||||||
| Other | 337 | 157 | 180 | ||||||||||||||
| Total debt, principal amount | 27,235 | (12,440) | 39,675 | ||||||||||||||
| Carrying value adjustments | (281) | 172 | (453) | ||||||||||||||
| Total debt, carrying value | $ | 26,954 | $ | (12,268) | $ | 39,222 | |||||||||||
| February 1, 2019 | February 2, 2018 | ||||||
| (in millions) | |||||||
| Restricted Subsidiary Debt | |||||||
| Core debt: | |||||||
| Senior Secured Credit Facilities and First Lien Notes | $ | 32,720 | $ | 30,595 | |||
| Unsecured Notes and Debentures | 1,952 | 2,452 | |||||
| Senior Notes | 3,250 | 3,250 | |||||
| EMC Notes | 3,000 | 5,500 | |||||
| DFS allocated debt | (1,615 | ) | (1,892 | ) | |||
| Total core debt | 39,307 | 39,905 | |||||
| DFS related debt: | |||||||
| DFS debt | 5,929 | 4,796 | |||||
| DFS allocated debt | 1,615 | 1,892 | |||||
| Total DFS related debt | 7,544 | 6,688 | |||||
| Margin Loan and Other | 3,388 | 2,054 | |||||
| Unrestricted Subsidiary Debt | |||||||
| VMware Notes | 4,000 | 4,000 | |||||
| Other | — | 47 | |||||
| Total unrestricted subsidiary debt | 4,000 | 4,047 | |||||
| Total debt, principal amount | 54,239 | 52,694 | |||||
| Carrying value adjustments | (718 | ) | (823 | ) | |||
| Total debt, carrying value | $ | 53,521 | $ | 51,871 | |||
We define core debt as the total principal amount of our debt, less DFS related debt and other debt. Our core debt was $16.1 billion and unrestricted subsidiary$29.2 billion as of January 28, 2022 and January 29, 2021, respectively. The decrease in our core debt during Fiscal 2022 was driven by principal repayments which were primarily funded with the proceeds from the VMware Spin-off special dividend of $9.3 billion paid to Dell Technologies and, to a lesser extent, cash on hand. See Note 7 of the Notes to the Consolidated Financial Statements included in this report for more information about our debt.
DFS related debt primarily represents debt from our securitization and structured financing programs. The majority of DFS debt represents borrowings under securitization programs and structured financing programs, for which our risk of loss is limited to transferred lease and loan payments and associated equipment, and under which the credit holders have no recourse to Dell Technologies.
To fund expansion of the DFS business, we balance the use of the securitization and structured financing programs with other sources of liquidity. We approximate the amount of our debt used to fund the DFS business by applying a 7:1 debt to equity ratio to the sum of our financing receivables balance and equipment under our DFS operating leases, net. The debt to equity ratio is based on the underlying credit quality of the assets. See Note 5 of the Notes to the Consolidated Financial Statements included in this report for more information about our DFS debt.
We believe we will continue to be able to make our debt principal and interest payments, including the short-term maturities, from existing and expected sources of cash.cash, primarily from operating cash flows. Cash used for debt principal and interest payments may include short-term borrowings under our revolving credit facilities. We will continue to focus on paying down core debt. Despite thefacility. Under our variable-rate debt, repayments,we could experience variations in our future interest expense was $2.5 billion during both Fiscal 2019 and Fiscal 2018. We expect that continuedfrom potential fluctuations in applicable reference rates, or from possible fluctuations in the level of DFS debt required to meet future demand for customer financing as well as an increase in LIBOR will impact future interest expense onfinancing. For Fiscal 2023, there are no scheduled maturities related to our variable-rateoutstanding core debt. We or our affiliates,However, at our or their sole discretion, we may purchase, redeem, prepay, refinance, or otherwise retire any amount of our outstanding indebtedness under the terms of such indebtedness at any time and from time to time, in open market or negotiated transactions with the holders of such indebtedness or otherwise, as appropriate market conditions exist.
Cash Flows
The following table containspresents a summary of our Consolidated Statements of Cash Flows for the respective periods:periods indicated:
| Fiscal Year Ended | |||||||||||||||||
| January 28, 2022 | January 29, 2021 | January 31, 2020 | |||||||||||||||
| (in millions) | |||||||||||||||||
| Net change in cash from: | |||||||||||||||||
| Operating activities | $ | 10,307 | $ | 11,407 | $ | 9,291 | |||||||||||
| Investing activities | 1,306 | (460) | (4,686) | ||||||||||||||
| Financing activities | (16,609) | (5,950) | (4,604) | ||||||||||||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | (106) | 36 | (90) | ||||||||||||||
| Change in cash, cash equivalents, and restricted cash | $ | (5,102) | $ | 5,033 | $ | (89) | |||||||||||
| Fiscal Year Ended | |||||||||||
| February 1, 2019 | February 2, 2018 | February 3, 2017 | |||||||||
| (in millions) | |||||||||||
| Net change in cash from: | |||||||||||
| Operating activities | $ | 6,991 | $ | 6,843 | $ | 2,367 | |||||
| Investing activities | 3,389 | (2,875 | ) | (31,236 | ) | ||||||
| Financing activities | (14,329 | ) | 403 | 31,785 | |||||||
| Effect of exchange rate changes on cash and cash equivalents | (189 | ) | 175 | 24 | |||||||
| Change in cash and cash equivalents | $ | (4,138 | ) | $ | 4,546 | $ | 2,940 | ||||
Operating Activities — Fiscal 2022 includes cash provided by operating activities related to VMware through the date of the VMware Spin-off. In comparison, Fiscal 2021 and Fiscal 2020 reflect cash provided by operating activities related to VMware for the full fiscal year. Cash provided by operating activities was $7.0$10.3 billion for Fiscal 2019 compared to $6.8 billion for Fiscal 2018. The increase in operating cash flows during Fiscal 20192022 and was primarily attributable to strong revenue growth throughout the year.
Cash provided by operating activities was $11.4 billion during Fiscal 2021 which was primarily driven by strong profitability, revenue growth and working capital dynamics as the impacts of COVID-19 began to normalize. During Fiscal 2020, cash provided by operating activities was $9.3 billion which was attributable to business growth, which drove higher deferred revenue and improved profitability dueand working capital discipline.
Investing Activities — Investing activities primarily consist of cash used to product mixfund capital expenditures for property, plant, and higher average selling prices,equipment, which includes equipment under DFS operating leases. Additional activities include capitalized software development costs, strategic investments, acquisitions of businesses by VMware, and the maturities, sales, and purchases of investments. During Fiscal 2022, cash provided by investing activities was $1.3 billion and was primarily driven by net cash proceeds from the divestiture of Boomi, partially offset by an increasecapital expenditures.
Cash used in inventory.investing activities was $460 million during Fiscal 2021 and was primarily driven by capital expenditures and cash used in acquisition of businesses by VMware, largely offset by net cash proceeds from the divestiture of RSA Security. During Fiscal 2019, we experienced supply chain dynamics that temporarily increased our inventory2020, cash used in investing activities was $4.7 billion and negatively impacted working capital. We expect our inventorywas primarily driven by capital expenditures and acquisitions of businesses by VMware.
Financing Activities — Financing activities primarily consist of the associated working capital impactproceeds and repayments of debt and cash used to normalizerepurchase common stock. As a result of the VMware Spin-off, financing activities during Fiscal 2020.2022 also include the net transfer of cash, cash equivalents, and restricted cash to VMware, and dividends paid by VMware to non-controlling interests. Cash used in financing activities of $16.6 billion during Fiscal 2022 primarily consisted of debt repayments and associated debt
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extinguishment fees, as well as our financing activities related to the VMware Spin-off. The effect of these activities was partially offset by cash proceeds from the issuance of senior notes by Dell Technologies and VMware.
Cash used in financing activities of $6.0 billion during Fiscal 2021 primarily consisted of debt repayments and repurchases of common stock by our public subsidiaries, partially offset by cash proceeds from the issuances of senior notes by Dell Technologies and VMware. During Fiscal 2020, cash used in financing activities of $4.6 billion primarily consisted of net debt repayments and repurchases of common stock by our public subsidiaries, primarily related to VMware Inc.’s acquisition of Pivotal Software, Inc.
DFS Cash Flow Impacts — DFS offerings are initially funded through cash on hand at the time of origination, most of which is subsequently replaced with third-partyasset-backed financing. As a result, whileFor DFS offerings that qualify as sales-type leases, the initial funding of financing receivables is reflected as an impact to cash flows from operations this fundingand is largely subsequently offset by cash flowsproceeds from financing. For DFS new financing originations were $7.3 billion and $6.3 billion during Fiscal 2019 and Fiscal 2018, respectively. As of February 1, 2019, DFS had $8.6 billion of total net financing receivables. Additionally, as a result of our adoption of the new leasing standard on lessor accounting, we expect an increase to future originations of operating leases, which will result inhave increased under the current lease accounting standard, the initial funding is classified as a shift from financing receivables to capital expenditures. In Fiscal 2020, our cash flows provided by operating activities will benefit by the increase in capital expenditures being reportedexpenditure and reflected as cash flows used in investing activities.
Capital Commitments
Capital Expenditures — Investing activities primarily consist of cash used to fund strategic investments, the maturities, sales,— During Fiscal 2022 and purchases of investments, capital expenditures forFiscal 2021, we spent $2.8 billion and $2.1 billion, respectively, on property, plant, and equipment and capitalized software development costs. During Fiscal 2019, cash provided by investing activitiescosts, of which the funding of equipment under DFS operating leases was $3.4$1.0 billion and was primarily driven by the net sales of investments used to fund the Class V transaction, partially offset by capital expenditures and strategic investments.
Repurchases of Common Stock
Effective as of the EMC merger transaction,September 23, 2021, our board of directors authorized several programsapproved a stock repurchase program with a total authorization of $2.1 billionno established expiration date under which we are authorized to repurchase up to $5 billion of shares of ourthe Company’s Class VC Common Stock. UponDuring the completion of the Class V transaction, no Class V Common Stock remained outstanding for repurchase.
Dell Technologies Inc.
Dividend Payments
On February 24, 2022, we announced that our board of directors has authorized the repurchase ofadopted a total of $2.2 billion of VMware Inc.’s Class Adividend policy under which we intend to pay quarterly cash dividends on its common stock, beginning in the first fiscal quarter of fiscal year 2023, at an initial rate of $0.33 per share per fiscal quarter. We also announced that our board has declared the initial quarterly dividend under the policy in the amount of $0.33 per share, which $834 million remained availablewill be payable on April 29, 2022 to the holders of record of all of the issued and outstanding shares of common stock as of February 1, 2019.the close of business on April 20, 2022.
The dividend policy and the declaration and payment of each quarterly cash dividend will be subject to the board’s continuing determination that the policy and the declaration of dividends thereunder are in the best interests of our stockholders and are in compliance with applicable law. The board retains the power to modify, suspend, or cancel the dividend policy in any manner and at any time that it may deem necessary or appropriate.
Contractual Cash Obligations
The following table summarizespresents a summary of our contractual cash obligations as of February 1, 2019:January 28, 2022:
| Payments Due by Fiscal Year | |||||||||||||||||||||||||||||
| Total | 2023 | 2024-2025 | 2026-2027 | Thereafter | |||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
| Contractual cash obligations: | |||||||||||||||||||||||||||||
| Principal payments on debt: | |||||||||||||||||||||||||||||
| Core debt (a) | $ | 17,252 | $ | — | $ | 2,000 | $ | 7,250 | $ | 8,002 | |||||||||||||||||||
| DFS debt | 9,646 | 5,803 | 3,195 | 648 | — | ||||||||||||||||||||||||
| Other | 337 | 25 | 289 | 21 | 2 | ||||||||||||||||||||||||
| Total principal payments on debt | 27,235 | 5,828 | 5,484 | 7,919 | 8,004 | ||||||||||||||||||||||||
| Interest | 9,181 | 1,068 | 1,896 | 1,539 | 4,678 | ||||||||||||||||||||||||
| Purchase obligations | 6,278 | 5,623 | 433 | 160 | 62 | ||||||||||||||||||||||||
| Operating leases | 1,092 | 286 | 373 | 217 | 216 | ||||||||||||||||||||||||
| Tax obligations | 164 | 19 | 84 | 61 | — | ||||||||||||||||||||||||
| Contractual cash obligations | $ | 43,950 | $ | 12,824 | $ | 8,270 | $ | 9,896 | $ | 12,960 | |||||||||||||||||||
| Payments Due by Fiscal Year | |||||||||||||||||||
| Total | 2020 | 2021-2022 | 2023-2024 | Thereafter | |||||||||||||||
| (in millions) | |||||||||||||||||||
| Contractual cash obligations: | |||||||||||||||||||
| Principal payments on long-term debt | $ | 54,239 | $ | 10,086 | $ | 16,394 | $ | 15,931 | $ | 11,828 | |||||||||
| Operating leases | 1,856 | 371 | 554 | 288 | 643 | ||||||||||||||
| Purchase obligations | 4,605 | 3,953 | 627 | 21 | 4 | ||||||||||||||
| Interest | 15,362 | 2,236 | 3,695 | 2,374 | 7,057 | ||||||||||||||
| Tax obligations | 202 | 19 | 39 | 84 | 60 | ||||||||||||||
| Contractual cash obligations | $ | 76,264 | $ | 16,665 | $ | 21,309 | $ | 18,698 | $ | 19,592 | |||||||||
(a) Contractual cash obligations associated with core debt exclude DFS allocated debt.
Principal Payments on Long-Term Debt — Our expected principal cash payments on borrowings are exclusive of discounts and premiums. We have outstanding long-term notes with varying maturities. As of February 1, 2019, the future principal payments related to our DFS debt were expected to be $3.1 billion in Fiscal 2020, $2.7 billion in Fiscal 2021-2022, and $108 million in Fiscal 2023-2024. For additional information about our debt, see Note 65 and Note 7 of the Notes to the Consolidated Financial Statements included in this report.
Purchase Obligations — Purchase obligations are defined as contractual obligations to purchase goods or services that are enforceable and legally binding on us. These obligations specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the transaction. Purchase obligations do not include contracts that may be canceled without penalty.
We utilize several suppliers to manufacture sub-assemblies for our products. Our efficient supply chain management allows us to enter into flexible and mutually beneficial purchase arrangements with our suppliers in order to minimize inventory risk. Consistent with industry practice, we acquire raw materials or other goods and services, including product components, by issuing to suppliers authorizations to purchase based on our projected demand and manufacturing needs. These purchase orders are typically fulfilled within 30 days and are entered into during the ordinary course of business in order to establish best pricing and continuity of supply for our production. Purchase orders are not included in purchase obligations, as they typically represent our authorization to purchase rather than binding purchase obligations.
Tax Obligations — Tax obligations represent a one-time mandatory deemed repatriation tax on undistributed earnings of foreign subsidiaries, payable over eight years.subsidiaries. Excluded from the table above are $3.4$1.2 billion in additional liabilities associated with uncertain tax positions as of February 1, 2019.January 28, 2022. We are unable to reliably estimate the expected payment dates for any liabilities for uncertain tax positions. See Note 1112 of the Notes to the Consolidated Financial Statements included in this report for more information on these tax matters.
Market Conditions
We regularly monitor economic conditions and associated impacts on the financial markets and our business. We consistently evaluate the financial health of our supplier base, carefully manage customer credit, diversify counterparty risk, and monitor the concentration risk of our cash and cash equivalents balances globally. We routinely monitor our financial exposure to borrowers and counterparties.
We monitor credit risk associated with our financial counterparties using various market credit risk indicators such as credit ratings issued by nationally recognized credit rating agencies and changes in market credit default swap levels. We perform periodic evaluations of our positions with these counterparties and may limit exposure to any one counterparty in accordance with our policies. We monitor and manage these activities depending on current and expected market developments.
We use derivative instruments to hedge certain foreign currency exposures. We use forward contracts and purchased options designated as cash flow hedges to protect against the foreign currency exchange rate risks inherent in our forecasted transactions denominated in currencies other than the U.S. dollar. In addition, we primarily use forward contracts and may use purchased options to hedge monetary assets and liabilities denominated in a foreign currency. See Note 8 of the Notes to the Consolidated Financial Statements included in this report for more information about our use of derivative instruments.
We are exposed to interest rate risk related to our variable-rate debt portfolio. In the normal course of business, we follow established policies and procedures to manage this risk, including monitoring of our asset and liability mix. As a result, we do not anticipate any material losses from interest rate risk.
The impact of any credit adjustments related to our use of counterparties on our Consolidated Financial Statements included in this report has been immaterial.
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Summarized Guarantor Financial Information
As discussed in Note 7 of the Notes to the Consolidated Financial Statements included in this report, Dell International L.L.C. and EMC Corporation (the “Issuers”), both of which are wholly-owned subsidiaries of Dell Technologies, completed private offerings of multiple series of senior secured notes issued on June 1, 2016, March 20, 2019, and April 9, 2020 (the “First Lien Notes”). In June 2021, the Issuers completed an exchange offer and issued $18.4 billion aggregate principal amount of registered first lien notes under the Securities Act of 1933 in exchange for the same principal amount and substantially identical terms of the First Lien Notes. The aggregate principal amount of unregistered First Lien Notes remaining outstanding following the settlement of the exchange offer was approximately $0.1 billion. Such registered first lien notes, together with the remaining unregistered First Lien Notes, were previously referred to as “First Lien Notes.”
The First Lien Notes were previously secured on a pari passu basis with the Senior Secured Credit Facilities, on a first-priority basis by substantially all of the tangible and intangible assets of the issuers and guarantors that secured obligations under the Senior Secured Credit Facilities, including pledges of all capital stock of the issuers, Dell, Inc. (“Dell”), a wholly-owned subsidiary of Dell Technologies, and certain wholly-owned material subsidiaries of the issuers and guarantors, subject to certain exceptions.
On November 1, 2021, the Company entered into a new senior unsecured revolving credit facility to replace the previous senior secured revolving credit facility. Following the full redemption of the previously outstanding term loan facilities and replacement of the senior secured revolving credit facility, the credit agreement governing the former senior secured revolving credit facility was terminated. Subsequent to the termination of the previous credit agreement, and upon Dell Technologies receiving investment grade credit ratings, the tangible and intangible assets of the issuers and guarantors that secured obligations under the Senior Secured Credit Facilities were released as collateral. As a result, the First Lien Notes became fully unsecured and are collectively referred to as “Senior Notes.” In addition, all guarantees by Dell’s subsidiaries were released.
Guarantees — The Senior Notes are guaranteed on a joint and several unsecured basis by Dell Technologies and its wholly-owned subsidiaries, Denali Intermediate, Inc., and Dell (collectively, the “Guarantors”).
Basis of Preparation of the Summarized Financial Information — The tables below are summarized financial information provided in conformity with Rule 13-01 of the SEC’s Regulation S-X. The summarized financial information of the Issuers and Guarantors (collectively, the “Obligor Group”) is presented on a combined basis, excluding intercompany balances and transactions between entities in the Obligor Group. To the extent material, the Obligor Group’s amounts due from, amounts due to and transactions with Non-Obligor Subsidiaries and the Related Party have been presented separately. The Obligor Group’s investment balances in Non-Obligor Subsidiaries have been excluded.
The following table presents summarized results of operations information for the Obligor Group for the period indicated:
| Fiscal Year Ended | |||||
| January 28, 2022 | |||||
| (in millions) | |||||
| Net revenue (a) | $ | 9,974 | |||
| Gross margin (b) | 3,948 | ||||
| Operating income | 236 | ||||
| Interest and other, net (c) | (3,776) | ||||
| Loss before income taxes | (3,540) | ||||
| Net loss attributable to Obligor Group | $ | (2,379) | |||
____________________
(a) Includes net revenue from services provided and product sales to Non-Guarantor Subsidiaries of $1,061 million and $185 million, respectively.
(b) Includes cost of net revenue from resale of solutions purchased from Non-Guarantor Subsidiaries and the Related Party of $1,132 million and $500 million, respectively. Includes costs of net revenue from shared services provided by Non-Guarantor Subsidiaries of $793 million.
(c) Includes interest expense on inter-company loan payables of $1,030 million and other expenses from services provided by Non-Guarantor Subsidiaries of $11 million.
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The following table presents summarized balance sheet information for the Obligor Group as of the dates indicated:
| January 28, 2022 | |||||||||||
| (in millions) | |||||||||||
| ASSETS | |||||||||||
| Current assets | $ | 3,106 | |||||||||
| Intercompany receivables | 988 | ||||||||||
| Due from related party, net | 59 | ||||||||||
| Total current assets | 4,153 | ||||||||||
| Due from related party, net | 710 | ||||||||||
| Goodwill and intangible assets | 15,399 | ||||||||||
| Other non-current assets | 2,810 | ||||||||||
| Total assets | $ | 23,072 | |||||||||
| LIABILITIES | |||||||||||
| Current liabilities | $ | 4,625 | |||||||||
| Due to related party | 192 | ||||||||||
| Total current liabilities | 4,817 | ||||||||||
| Long-term debt | 17,001 | ||||||||||
| Intercompany loan payables | 37,509 | ||||||||||
| Other non-current liabilities | 3,473 | ||||||||||
| Total liabilities | $ | 62,800 | |||||||||
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Critical Accounting PoliciesEstimates
We prepare our financial statements in conformity with GAAP, which requires certain estimates, assumptions, and judgments to be made that may affect our Consolidated Statements of Financial Position and Consolidated Statements of Income. Accounting policies that have a significant impact on our Consolidated Financial Statements are described in Note 2 of the Notes to the Consolidated Financial Statements included in this report. The accounting estimates and assumptions discussed in this section are those that we consider to be the most critical. We consider an accounting policy to be critical if the nature of the estimate or assumption is subject to a material level of judgment and if changes in those estimates or assumptions are reasonably likely to materially impact our Consolidated Financial Statements. We have discussed the development, selection, and disclosure of our critical accounting policies with the Audit Committee of our boardBoard of directors.Directors.
Revenue Recognition — We sell a wide portfolio of products and services offerings to our customers. Our agreements have varying requirementsterms and conditions depending on the goods and services being sold, the rights and obligations conveyed, and the legal jurisdiction of the arrangement.
When a contract includes multiple performance obligations, the transaction price is allocated to each performance obligation in proportion to the standalone selling price (“SSP”) of each performance obligation. Judgment is required when determining the SSP of our performance obligations. If the |
Goodwill and recorded when or as control is transferred to the customer. Revenue from fixed-price support or maintenance contracts sold for both hardware and software is recognized on a straight-line basis over the period of performance because we are required to provide services at any given time. Other services revenue is recognized when we perform the services and the customer receives and consumes the benefits.
Goodwill and indefinite-lived intangible assets are tested for impairment annually during the third fiscal quarter and whenever events or circumstances may indicate that an impairment has occurred.
To determine whether goodwill is impaired, we first assess certain qualitative factors. Qualitative factors that may be assessed include but are not limited to macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, or other relevant company-specific events. Based on this assessment, if it is determined more likely than not that the fair value of a goodwill reporting unit is less than its carrying amount, we perform the quantitative analysis of the goodwill impairment test. Alternatively, we may bypass the qualitative assessment and perform a quantitative impairment test.
Significant judgment is exercised in the identification of goodwill reporting units, assignment of assets and liabilities to goodwill reporting units, assignment of goodwill to reporting units, and determination of the fair value of each goodwill reporting unit. The fair value of each of our goodwill reporting units is generally estimated using a combination of public company multiples and discounted cash flow methodologies, and then compared to the carrying value of each goodwill reporting unit.
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The fair value of the indefinite-lived intangible assets is generally include technical support, parts, and labor over a period ranging from one to three years. Factors that affect our warranty liability includeestimated using discounted cash flow methodologies. The discounted cash flow methodologies require significant judgment, including estimation of future revenue, the numberestimation of installed units currently under warranty,historical and anticipated rates of warranty claims on those units, and cost per claim to satisfy our warranty obligation. The anticipatedthe long-term revenue growth rate of warranty claims isour business, and the primary factor impacting our estimated warranty obligation. The other factors are less significant due to the fact that the average remaining aggregate warranty perioddetermination of the covered installed base is approximately 16 months, repair parts are generally alreadyweighted average cost of capital and royalty rates. Changes in stock or available at pre-determined prices,these estimates and labor rates are generally arranged at pre-established amounts with service providers. Warranty claims are reasonably predictable based on historical experience of failure rates. If actualresults differ from our estimates, we revise our estimated warranty liability to reflect such changes. Each quarter, we reevaluate our estimates to assessassumptions could materially affect the adequacyfair value of the recorded warranty liabilities and adjust the amounts as necessary.indefinite-lived intangible assets, potentially resulting in a non-cash impairment charge.
Income Taxes — We are subject to income tax in the United States and numerous foreign jurisdictions. Significant judgments are required in determining the consolidated provision for income taxes. We calculate 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. We account for the tax impact of including Global Intangible Low-Taxed Income (GILTI) in U.S. taxable income as a period cost. We provide related valuation allowances for deferred tax assets, where appropriate. Significant judgment is required in determining any valuation allowance against deferred tax assets. In assessing the need for a valuation allowance, we consider all available evidence for each jurisdiction, including past operating results, estimates of future taxable income, and the feasibility of ongoing tax planning strategies. In the event we determine that all or part of the net deferred tax assets are not realizable in the future, we will make an adjustment to the valuation allowance that would be charged to earnings in the period such determination is made.
Significant judgment is also required in evaluating our uncertain tax positions. Although we believe our tax return positions are sustainable, we recognize tax benefits from uncertain tax positions in the financial statements only when it is more likely than not that the positions 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 administrative practices and precedents. To the extent that the final tax outcome of these matters is different from the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate, as well as the related net interest and penalties. We believe we have provided adequate reserves for all uncertain tax positions.
Inventories — We state our inventory at the lower of cost or market.net realizable value. We record a write-down for inventories of components and products, including third-party products held for resale, which have become obsolete or are in excess of anticipated demand or net realizable value. We perform a detailed review of inventory each fiscal quarter that considers multiple factors, including demand forecasts, product life cycle status, product development plans, current sales levels, product pricing, and component cost trends. The industries in which we compete are subject to demand changes. If future demand or market conditions for our products are less favorable than forecasted or if unforeseen technological changes negatively impact the utility of component inventory, we may be required to record additional write-downs, which would adversely affect our gross margin.
Recently Issued Accounting Pronouncements
See Note 2 of the Notes to the Consolidated Financial Statements included in this report for a summary of recently issued accounting pronouncements that are applicable to our Consolidated Financial Statements.
ITEM 7A — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Dell Technologies is exposed to a variety of market risks, including risks associated with foreign currency exchange rate fluctuations, interest rate changes affecting its variable-rate debt, and changes in the market value of equity investments. In the normal course of business, Dell Technologies employs established policies and procedures to manage these risks.
Foreign Currency Risk
During Fiscal 20192022 and Fiscal 2018,2021, the principal foreign currencies in which Dell Technologies transacted business were the Euro, Chinese Renminbi, Japanese Yen, British Pound, Indian Rupee, and Canadian Dollar. The objective of Dell Technologies in managing its exposures to foreign currency exchange rate fluctuations is to reduce the impact of adverse fluctuations associated with foreign currency exchange rate changes on earnings and cash flows. Accordingly, Dell Technologies utilizes foreign currency option contracts and forward contracts to hedge its exposure on forecasted transactions and firm commitments for certain currencies. Dell Technologies monitors its foreign currency exchange exposures to ensure the overall effectiveness of its foreign currency hedge positions. However, there can be no assurance that the foreign currency hedging activities will continue to substantially offset the impact of fluctuations in currency exchange rates on Dell Technologies’ results of operations and financial position in the future.
Based on the outstanding foreign currency hedge instruments of Dell Technologies, which include designated and non-designated instruments, there was a maximum potential one-day loss in fair value ata 95% confidence level of approximately $29$16 million as ofFebruary 1, 2019 January 28, 2022 and $17$15 million as of February 2, 2018January 29, 2021 using a Value-at-Risk (“VAR”) model. By using market implied rates and incorporating volatility and correlation among the currencies of a portfolio, the VAR model simulates 10,000 randomly generated market prices and calculates the difference between the fifth percentile and the average as the Value-at-Risk. The VAR model is a risk estimation tool and is not intended to represent actual losses in fair value that could be incurred. Additionally, as Dell Technologies utilizes foreign currency instruments for hedging forecasted and firmly committed transactions, a loss in fair value for those instruments is generally offset by increases in the value of the underlying exposure.
Interest Rate Risk
Dell Technologies is primarily exposed to interest rate risk related to its variable-rate debt and investment portfolio.
Variable-Rate Debt — As of February 1, 2019,January 28, 2022, Dell Technologies’ variable-rate debt consisted of $12.7$0.9 billion of outstanding borrowings under its Senior Secured Credit Facilities, $3.4 billion of outstanding borrowings under its Margin Loan Facility, and $1.9 billion ofunhedged outstanding DFS borrowings. Amounts outstanding under these facilities generally bear interest at variable rates equal to applicable margins plus specified base rates or LIBOR-based rates. Accordingly, Dell Technologies is exposed to market risk based on fluctuations in interest rates on borrowings under the facilities where we do not mitigate the interest rate risk through the use of interest rate swaps. As of February 1, 2019,January 28, 2022, outstanding borrowings under the Senior Secured Credit and Margin Loan facilities accrued interest at an annual rate between 4.01% and 4.99%, whereasunhedged DFS borrowings accrued interest at an annual rate of between 0.89%1.30% and 10.15%2.05%.
Based on the variable-rate debt outstanding as of February 1, 2019,January 28, 2022, a 100 basis point increase in interest rates would have resulted in an increase of approximately $179$9 million in annual interest expense. For more information about our debt, see Note 67 of the Notes to the Consolidated Financial Statements included in this report.
By comparison, as of February 2, 2018,January 29, 2021, Dell Technologies had $10.6$6.3 billion of outstanding borrowings under its Senior Secured Credit Facilities, $2.0$4.0 billion of outstanding borrowings under its Margin Loan Facility, and $2.8$1.0 billion of outstanding DFS borrowings. Based on this variable-rate debt outstanding as of February 2, 2018,January 29, 2021, a 100 basis point increase in interest rates would have resulted in an increase of approximately $140$93 million in annual interest expense.
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Equity Price Risk
Strategic Investments — Our strategic investments include early-stage, privately-held companies that are considered to interest rate risk. The investments are classified as available-for-salebe in the start-up or development stages and are all denominatedinherently risky. The technologies or products these companies have under development are typically in U.S. dollars. These securities are recordedthe early stages and may never materialize, which could result in a loss of a substantial part of our initial investment in the companies. We record these investments at cost, less impairment, adjusted for observable price changes. The evaluation is based on the consolidated balance sheet at market value, with any unrealized gain or temporary non-credit related loss recorded in other comprehensive loss. These instrumentsinformation provided by these companies, which are not leveragedsubject to the same disclosure obligations as U.S. publicly-traded companies, and are not heldas such, the basis for trading purposes. Dell Technologies mitigatesthese evaluations is subject to the risks related to its investment portfolio by investing primarily in high-quality credit securities, limitingtiming and accuracy of the amount that can be invested in any single issuer, and investing in short-to-intermediate-term investments. As of February 1, 2019 and February 2, 2018, a 100 basis point increase or decrease in interest rates would have resulted in no impact and a $79 million impact, respectively, on the fairdata provided. The carrying value of this portfolio. See Note 4our strategic investments without readily determinable fair values was $1.4 billion and $0.9 billion as of the Notes to the Consolidated Financial Statements included in this report for more information on our investment portfolio.January 28, 2022 and January 29, 2021, respectively.
ITEM 8 — FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index
| Page | |||||
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Dell Technologies Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated statements of financial position of Dell Technologies Inc.and its subsidiaries (the “Company”) as of February 1, 2019 January 28, 2022and February 2, 2018,January 29, 2021, and the related consolidatedstatements of income, (loss),of comprehensive income, (loss),of stockholders’ equity (deficit) and of cash flows for each of the three years in the period ended February 1, 2019,January 28, 2022, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’sCompany's internal control over financial reporting as of February 1, 2019,January 28, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of February 1, 2019 January 28, 2022and February 2, 2018January 29, 2021, and the results of its operations and its cash flows for each of the three years in the period ended February 1, 2019January 28, 2022 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February 1, 2019,January 28, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting PrinciplesPrinciple
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for revenues from contracts with customers and the manner in which it accounts for the classificationleases as of certain cash receipts and payments and the classification and presentation of restricted cash on the consolidated statement of cash flows in the year ended February 1,2, 2019.
| February 1, 2019 | February 2, 2018 | ||||||
| ASSETS | |||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 9,676 | $ | 13,942 | |||
| Short-term investments | — | 2,187 | |||||
| Accounts receivable, net | 12,371 | 11,721 | |||||
| Short-term financing receivables, net | 4,398 | 3,919 | |||||
| Inventories, net | 3,649 | 2,678 | |||||
| Other current assets | 6,044 | 5,881 | |||||
| Total current assets | 36,138 | 40,328 | |||||
| Property, plant, and equipment, net | 5,259 | 5,390 | |||||
| Long-term investments | 1,005 | 4,163 | |||||
| Long-term financing receivables, net | 4,224 | 3,724 | |||||
| Goodwill | 40,089 | 39,920 | |||||
| Intangible assets, net | 22,270 | 28,265 | |||||
| Other non-current assets | 2,835 | 2,403 | |||||
| Total assets | $ | 111,820 | $ | 124,193 | |||
| LIABILITIES, REDEEMABLE SHARES, AND STOCKHOLDERS’ EQUITY (DEFICIT) | |||||||
| Current liabilities: | |||||||
| Short-term debt | $ | 4,320 | $ | 7,873 | |||
| Accounts payable | 19,213 | 18,334 | |||||
| Accrued and other | 8,495 | 8,026 | |||||
| Short-term deferred revenue | 12,944 | 11,606 | |||||
| Total current liabilities | 44,972 | 45,839 | |||||
| Long-term debt | 49,201 | 43,998 | |||||
| Long-term deferred revenue | 11,066 | 9,210 | |||||
| Other non-current liabilities | 6,327 | 7,277 | |||||
| Total liabilities | 111,566 | 106,324 | |||||
| Commitments and contingencies (Note 10) | |||||||
| Redeemable shares (Note 17) | 1,196 | 384 | |||||
| Stockholders’ equity (deficit): | |||||||
| Common stock and capital in excess of $0.01 par value (Note 14) | 16,114 | 19,889 | |||||
| Treasury stock at cost | (63 | ) | (1,440 | ) | |||
| Accumulated deficit | (21,349 | ) | (6,860 | ) | |||
| Accumulated other comprehensive income (loss) | (467 | ) | 130 | ||||
| Total Dell Technologies Inc. stockholders’ equity (deficit) | (5,765 | ) | 11,719 | ||||
| Non-controlling interests | 4,823 | 5,766 | |||||
| Total stockholders’ equity (deficit) | (942 | ) | 17,485 | ||||
| Total liabilities, redeemable shares, and stockholders’ equity (deficit) | $ | 111,820 | $ | 124,193 | |||
| Fiscal Year Ended | |||||||||||
| February 1, 2019 | February 2, 2018 | February 3, 2017 | |||||||||
| Net revenue: | |||||||||||
| Products | $ | 71,287 | $ | 61,251 | $ | 51,057 | |||||
| Services | 19,334 | 17,789 | 11,107 | ||||||||
| Total net revenue | 90,621 | 79,040 | 62,164 | ||||||||
| Cost of net revenue: | |||||||||||
| Products | 57,889 | 51,433 | 43,388 | ||||||||
| Services | 7,679 | 7,070 | 5,127 | ||||||||
| Total cost of net revenue | 65,568 | 58,503 | 48,515 | ||||||||
| Gross margin | 25,053 | 20,537 | 13,649 | ||||||||
| Operating expenses: | |||||||||||
| Selling, general, and administrative | 20,640 | 18,569 | 13,403 | ||||||||
| Research and development | 4,604 | 4,384 | 2,636 | ||||||||
| Total operating expenses | 25,244 | 22,953 | 16,039 | ||||||||
| Operating loss | (191 | ) | (2,416 | ) | (2,390 | ) | |||||
| Interest and other, net | (2,170 | ) | (2,353 | ) | (2,104 | ) | |||||
| Loss from continuing operations before income taxes | (2,361 | ) | (4,769 | ) | (4,494 | ) | |||||
| Income tax benefit | (180 | ) | (1,843 | ) | (1,420 | ) | |||||
| Net loss from continuing operations | (2,181 | ) | (2,926 | ) | (3,074 | ) | |||||
| Net income from discontinued operations | — | — | 1,916 | ||||||||
| Net loss | (2,181 | ) | (2,926 | ) | (1,158 | ) | |||||
| Less: Net income (loss) attributable to non-controlling interests | 129 | (77 | ) | 9 | |||||||
| Net loss attributable to Dell Technologies Inc. | $ | (2,310 | ) | $ | (2,849 | ) | $ | (1,167 | ) | ||
| Earnings (loss) per share attributable to Dell Technologies Inc. - basic: | |||||||||||
| Continuing operations - Class V Common Stock - basic | $ | 6.01 | $ | 1.63 | $ | 1.36 | |||||
| Continuing operations - DHI Group - basic | $ | (6.02 | ) | $ | (5.61 | ) | $ | (7.19 | ) | ||
| Discontinued operations - DHI Group - basic | $ | — | $ | — | $ | 4.08 | |||||
| Earnings (loss) per share attributable to Dell Technologies Inc. - diluted: | |||||||||||
| Continuing operations - Class V Common Stock - diluted | $ | 5.91 | $ | 1.61 | $ | 1.35 | |||||
| Continuing operations - DHI Group - diluted | $ | (6.04 | ) | $ | (5.62 | ) | $ | (7.19 | ) | ||
| Discontinued operations - DHI Group - diluted | $ | — | $ | — | $ | 4.08 | |||||
| Fiscal Year Ended | |||||||||||
| February 1, 2019 | February 2, 2018 | February 3, 2017 | |||||||||
| Net loss | $ | (2,181 | ) | $ | (2,926 | ) | $ | (1,158 | ) | ||
| Other comprehensive income (loss), net of tax | |||||||||||
| Foreign currency translation adjustments | (631 | ) | 791 | (254 | ) | ||||||
| Available-for-sale investments: | |||||||||||
| Change in unrealized gains (losses) | 2 | 31 | (17 | ) | |||||||
| Reclassification adjustment for net (gains) losses realized in net loss | 43 | 2 | 1 | ||||||||
| Net change in market value of investments | 45 | 33 | (16 | ) | |||||||
| Cash flow hedges: | |||||||||||
| Change in unrealized gains (losses) | 299 | (248 | ) | 20 | |||||||
| Reclassification adjustment for net (gains) losses included in net loss | (225 | ) | 134 | (43 | ) | ||||||
| Net change in cash flow hedges | 74 | (114 | ) | (23 | ) | ||||||
| Pension and other postretirement plans: | |||||||||||
| Recognition of actuarial net gains (losses) from pension and other postretirement plans | (21 | ) | 13 | 19 | |||||||
| Reclassification adjustments for net (gains) losses from pension and other | — | — | — | ||||||||
| Net change in actuarial net gains (losses) from pension and other postretirement plans | (21 | ) | 13 | 19 | |||||||
| Total other comprehensive income (loss), net of tax expense (benefit) of $14, $12, and $(3), respectively | (533 | ) | 723 | (274 | ) | ||||||
| Comprehensive loss, net of tax | (2,714 | ) | (2,203 | ) | (1,432 | ) | |||||
| Less: Net income (loss) attributable to non-controlling interests | 129 | (77 | ) | 9 | |||||||
| Less: Other comprehensive income (loss) attributable to non-controlling interests | 6 | (2 | ) | (3 | ) | ||||||
| Comprehensive loss attributable to Dell Technologies Inc. | $ | (2,849 | ) | $ | (2,124 | ) | $ | (1,438 | ) | ||
| Fiscal Year Ended | |||||||||||
| February 1, 2019 | February 2, 2018 | February 3, 2017 | |||||||||
| Cash flows from operating activities: | |||||||||||
| Net loss | $ | (2,181 | ) | $ | (2,926 | ) | $ | (1,158 | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 7,746 | 8,634 | 4,938 | ||||||||
| Amortization of debt issuance costs | 146 | 183 | 268 | ||||||||
| Stock-based compensation expense | 918 | 835 | 398 | ||||||||
| Deferred income taxes | (1,331 | ) | (2,605 | ) | (2,052 | ) | |||||
| Net (gain) loss on sale of businesses | (30 | ) | 16 | (2,165 | ) | ||||||
| Provision for doubtful accounts — including financing receivables | 172 | 164 | 120 | ||||||||
| Other | 468 | 391 | 173 | ||||||||
| Changes in assets and liabilities, net of effects from acquisitions and dispositions: | |||||||||||
| Accounts receivable | (1,104 | ) | (1,590 | ) | (1,935 | ) | |||||
| Financing receivables | (1,302 | ) | (1,653 | ) | (751 | ) | |||||
| Inventories | (1,445 | ) | (325 | ) | 1,076 | ||||||
| Other assets | (534 | ) | (1,395 | ) | 117 | ||||||
| Accounts payable | 952 | 3,779 | 751 | ||||||||
| Deferred revenue | 3,418 | 2,748 | 1,933 | ||||||||
| Accrued and other liabilities | 1,098 | 587 | 654 | ||||||||
| Change in cash from operating activities | 6,991 | 6,843 | 2,367 | ||||||||
| Cash flows from investing activities: | |||||||||||
| Investments: | |||||||||||
| Purchases | (925 | ) | (4,389 | ) | (778 | ) | |||||
| Maturities and sales | 6,612 | 3,878 | 1,173 | ||||||||
| Capital expenditures | (1,158 | ) | (1,212 | ) | (699 | ) | |||||
| Proceeds from sale of facilities, land, and other assets | 10 | — | 24 | ||||||||
| Capitalized software development costs | (339 | ) | (369 | ) | (207 | ) | |||||
| Collections on purchased financing receivables | 30 | 30 | 35 | ||||||||
| Acquisition of businesses, net | (912 | ) | (658 | ) | (37,609 | ) | |||||
| Divestitures of businesses, net | 142 | — | 6,873 | ||||||||
| Asset acquisitions, net | (59 | ) | (96 | ) | — | ||||||
| Asset dispositions, net | (12 | ) | (59 | ) | — | ||||||
| Other | — | — | (48 | ) | |||||||
| Change in cash from investing activities | 3,389 | (2,875 | ) | (31,236 | ) | ||||||
| Fiscal Year Ended | |||||||||||
| February 1, 2019 | February 2, 2018 | February 3, 2017 | |||||||||
| Cash flows from financing activities: | |||||||||||
| Payment of dissenting shares obligation | (76 | ) | — | (446 | ) | ||||||
| Share repurchases for tax withholdings of equity awards | (387 | ) | (385 | ) | (93 | ) | |||||
Dividends paid to VMware, Inc.’s public stockholders | (2,134 | ) | — | — | |||||||
| Proceeds from the issuance of DHI Group Common Stock | — | — | 4,422 | ||||||||
| Proceeds from the issuance of common stock of subsidiaries | 803 | 131 | 164 | ||||||||
| Repurchases of DHI Group Common Stock | (47 | ) | (6 | ) | (10 | ) | |||||
| Repurchases of Class V Common Stock | (14,000 | ) | (723 | ) | (701 | ) | |||||
| Repurchases of common stock of subsidiaries | (56 | ) | (724 | ) | (611 | ) | |||||
| Payments for debt issuance costs | (28 | ) | (48 | ) | (853 | ) | |||||
| Proceeds from debt | 13,045 | 14,415 | 46,857 | ||||||||
| Repayments of debt | (11,451 | ) | (12,258 | ) | (16,960 | ) | |||||
| Other | 2 | 1 | 16 | ||||||||
| Change in cash from financing activities | (14,329 | ) | 403 | 31,785 | |||||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | (189 | ) | 175 | 24 | |||||||
| Change in cash, cash equivalents, and restricted cash | (4,138 | ) | 4,546 | 2,940 | |||||||
| Cash, cash equivalents, and restricted cash at beginning of the period | 14,378 | 9,832 | 6,892 | ||||||||
| Cash, cash equivalents, and restricted cash at end of the period | $ | 10,240 | $ | 14,378 | $ | 9,832 | |||||
| Income tax paid | $ | 747 | $ | 924 | $ | 978 | |||||
| Interest paid | $ | 2,347 | $ | 2,192 | $ | 1,575 | |||||
| Common Stock and Capital in Excess of Par Value | Treasury Stock | ||||||||||||||||||||||||||||||||||||||||||||||
| DHI Group | Class V Common Stock | DHI Group | Class V Common Stock | ||||||||||||||||||||||||||||||||||||||||||||
| Issued Shares | Amount | Issued Shares | Amount | Shares | Amount | Shares | Amount | Accumulated Deficit | Accumulated Other Comprehensive Income/(Loss) | Dell Technologies Stockholders’ Equity (Deficit) | Non-Controlling Interests | Total Stockholders’ Equity (Deficit) | |||||||||||||||||||||||||||||||||||
| Balances as of January 29, 2016, previously reported | 405 | $ | 5,727 | — | $ | — | — | $ | — | — | $ | — | $ | (3,937 | ) | $ | (324 | ) | $ | 1,466 | — | 1,466 | |||||||||||||||||||||||||
| Adjustment for adoption of accounting standard (Note 2) | — | — | — | — | — | — | — | — | 1,009 | — | 1,009 | — | 1,009 | ||||||||||||||||||||||||||||||||||
| Balances as of January 29, 2016, recast | 405 | $ | 5,727 | — | $ | — | — | $ | — | — | $ | — | $ | (2,928 | ) | $ | (324 | ) | $ | 2,475 | — | 2,475 | |||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | — | — | — | (1,167 | ) | — | (1,167 | ) | 9 | (1,158 | ) | |||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | — | — | — | — | — | — | — | — | — | (254 | ) | (254 | ) | — | (254 | ) | |||||||||||||||||||||||||||||||
| Investments, net change | — | — | — | — | — | — | — | — | — | (13 | ) | (13 | ) | (3 | ) | (16 | ) | ||||||||||||||||||||||||||||||
| Cash flow hedges, net change | — | — | — | — | — | — | — | — | — | (23 | ) | (23 | ) | — | (23 | ) | |||||||||||||||||||||||||||||||
| Pension and other post-retirement | — | — | — | — | — | — | — | — | — | 19 | 19 | — | 19 | ||||||||||||||||||||||||||||||||||
| Fair value of non-controlling interests assumed in business combination | — | — | — | — | — | — | — | — | — | — | — | 6,048 | 6,048 | ||||||||||||||||||||||||||||||||||
| Issuance of common stock | 164 | 4,441 | 223 | 10,041 | — | — | — | — | — | — | 14,482 | — | 14,482 | ||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | 98 | — | — | — | — | — | — | — | — | 98 | 300 | 398 | ||||||||||||||||||||||||||||||||||
| Tax benefit from stock-based compensation | — | 9 | — | — | — | — | — | — | — | — | 9 | 1 | 10 | ||||||||||||||||||||||||||||||||||
| Treasury stock repurchases | — | — | — | — | — | (10 | ) | 14 | (742 | ) | — | — | (752 | ) | — | (752 | ) | ||||||||||||||||||||||||||||||
| Revaluation of redeemable shares | — | (125 | ) | — | — | — | — | — | — | — | — | (125 | ) | — | (125 | ) | |||||||||||||||||||||||||||||||
| Impact from equity transactions of non-controlling interests | — | 18 | — | — | — | — | — | — | — | — | 18 | (534 | ) | (516 | ) | ||||||||||||||||||||||||||||||||
| Other | — | (10 | ) | — | — | — | — | — | — | — | — | (10 | ) | — | (10 | ) | |||||||||||||||||||||||||||||||
| Balances as of February 3, 2017 | 569 | $ | 10,158 | 223 | $ | 10,041 | — | $ | (10 | ) | 14 | $ | (742 | ) | $ | (4,095 | ) | $ | (595 | ) | $ | 14,757 | $ | 5,821 | $ | 20,578 | |||||||||||||||||||||
| Common Stock and Capital in Excess of Par Value | Treasury Stock | ||||||||||||||||||||||||||||||||||||||||||||||
| DHI Group | Class V Common Stock | DHI Group | Class V Common Stock | ||||||||||||||||||||||||||||||||||||||||||||
| Issued Shares | Amount | Issued Shares | Amount | Shares | Amount | Shares | Amount | Accumulated Deficit | Accumulated Other Comprehensive Income/(Loss) | Dell Technologies Stockholders’ Equity (Deficit) | Non-Controlling Interests | Total Stockholders’ Equity (Deficit) | |||||||||||||||||||||||||||||||||||
| Balances as of February 3, 2017 | 569 | $ | 10,158 | 223 | $ | 10,041 | — | $ | (10 | ) | 14 | $ | (742 | ) | $ | (4,095 | ) | $ | (595 | ) | $ | 14,757 | $ | 5,821 | $ | 20,578 | |||||||||||||||||||||
| Adjustment for adoption of accounting standard (Note 2) | — | — | — | — | — | — | — | — | 84 | — | 84 | — | 84 | ||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | — | (2,849 | ) | — | (2,849 | ) | (77 | ) | (2,926 | ) | ||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | — | — | — | — | — | — | — | — | — | 791 | 791 | — | 791 | ||||||||||||||||||||||||||||||||||
| Investments, net change | — | — | — | — | — | — | — | — | — | 35 | 35 | (2 | ) | 33 | |||||||||||||||||||||||||||||||||
| Cash flow hedges, net change | — | — | — | — | — | — | — | — | — | (114 | ) | (114 | ) | — | (114 | ) | |||||||||||||||||||||||||||||||
| Pension and other post-retirement | — | — | — | — | — | — | — | — | — | 13 | 13 | — | 13 | ||||||||||||||||||||||||||||||||||
| Issuance of common stock | 2 | (31 | ) | — | — | — | — | — | — | — | — | (31 | ) | — | (31 | ) | |||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | 109 | — | — | — | — | — | — | — | — | 109 | 730 | 839 | ||||||||||||||||||||||||||||||||||
| Treasury stock repurchases | — | — | — | — | 1 | (6 | ) | 10 | (682 | ) | — | — | (688 | ) | — | (688 | ) | ||||||||||||||||||||||||||||||
| Revaluation of redeemable shares | — | (153 | ) | — | — | — | — | — | — | — | — | (153 | ) | — | (153 | ) | |||||||||||||||||||||||||||||||
| Impact from equity transactions of non-controlling interests | — | (235 | ) | — | — | — | — | — | — | — | — | (235 | ) | (706 | ) | (941 | ) | ||||||||||||||||||||||||||||||
| Balances as of February 2, 2018 | 571 | $ | 9,848 | 223 | $ | 10,041 | 1 | $ | (16 | ) | 24 | $ | (1,424 | ) | $ | (6,860 | ) | $ | 130 | $ | 11,719 | $ | 5,766 | $ | 17,485 | ||||||||||||||||||||||
| Common Stock and Capital in Excess of Par Value | Treasury Stock | ||||||||||||||||||||||||||||||||||||||||||||||
| DHI Group | Class V Common Stock | DHI Group | Class V Common Stock | ||||||||||||||||||||||||||||||||||||||||||||
| Issued Shares | Amount | Issued Shares | Amount | Shares | Amount | Shares | Amount | Accumulated Deficit | Accumulated Other Comprehensive Income/(Loss) | Dell Technologies Stockholders’ Equity (Deficit) | Non-Controlling Interests | Total Stockholders’ Equity (Deficit) | |||||||||||||||||||||||||||||||||||
| Balances as of February 2, 2018 | 571 | $ | 9,848 | 223 | $ | 10,041 | 1 | $ | (16 | ) | 24 | $ | (1,424 | ) | $ | (6,860 | ) | $ | 130 | $ | 11,719 | $ | 5,766 | $ | 17,485 | ||||||||||||||||||||||
| Adjustment for adoption of accounting standards (Note 2) | — | — | — | — | — | — | — | — | 58 | (58 | ) | — | (5 | ) | (5 | ) | |||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | — | — | — | (2,310 | ) | — | (2,310 | ) | 129 | (2,181 | ) | |||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | — | — | — | — | — | — | — | — | (631 | ) | (631 | ) | — | (631 | ) | ||||||||||||||||||||||||||||||||
| Investments, net change | — | — | — | — | — | — | — | — | — | 39 | 39 | 6 | 45 | ||||||||||||||||||||||||||||||||||
| Cash flow hedges, net change | — | — | — | — | — | — | — | — | — | 74 | 74 | — | 74 | ||||||||||||||||||||||||||||||||||
| Pension and other post-retirement | — | — | — | — | — | — | — | — | — | (21 | ) | (21 | ) | — | (21 | ) | |||||||||||||||||||||||||||||||
| Issuance of common stock | 150 | 6,845 | — | — | — | — | — | — | (6,872 | ) | — | (27 | ) | — | (27 | ) | |||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | 99 | — | — | — | — | — | — | — | — | 99 | 819 | 918 | ||||||||||||||||||||||||||||||||||
| Treasury stock repurchases | — | — | — | — | 1 | (47 | ) | — | — | — | — | (47 | ) | — | (47 | ) | |||||||||||||||||||||||||||||||
| Revaluation of redeemable shares | — | (812 | ) | — | — | — | — | — | — | — | — | (812 | ) | — | (812 | ) | |||||||||||||||||||||||||||||||
| Repurchase of Class V Common Stock | — | — | (223 | ) | (10,041 | ) | — | — | (24 | ) | 1,424 | (5,365 | ) | — | (13,982 | ) | — | (13,982 | ) | ||||||||||||||||||||||||||||
| Impact from equity transactions of non-controlling interests | — | 134 | — | — | — | — | — | — | — | — | 134 | (1,892 | ) | (1,758 | ) | ||||||||||||||||||||||||||||||||
| Balances as of February 1, 2019 | 721 | $ | 16,114 | — | $ | — | 2 | $ | (63 | ) | — | $ | — | $ | (21,349 | ) | $ | (467 | ) | $ | (5,765 | ) | $ | 4,823 | $ | (942 | ) | ||||||||||||||||||||
73
ITEM 7A — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Dell Technologies is exposed to a variety of market risks, including risks associated with foreign currency exchange rate fluctuations, interest rate changes affecting its variable-rate debt, and changes in the market value of equity investments. In the normal course of business, Dell Technologies employs established policies and procedures to manage these risks.
Foreign Currency Risk
During Fiscal 2022 and Fiscal 2021, the principal foreign currencies in which Dell Technologies transacted business were the Euro, Chinese Renminbi, Japanese Yen, British Pound, Indian Rupee, and Canadian Dollar. The objective of Dell Technologies in managing its exposures to foreign currency exchange rate fluctuations is to reduce the impact of adverse fluctuations associated with foreign currency exchange rate changes on earnings and cash flows. Accordingly, Dell Technologies utilizes foreign currency option contracts and forward contracts to hedge its exposure on forecasted transactions and firm commitments for certain currencies. Dell Technologies monitors its foreign currency exchange exposures to ensure the overall effectiveness of its foreign currency hedge positions. However, there can be no assurance that the foreign currency hedging activities will continue to substantially offset the impact of fluctuations in currency exchange rates on Dell Technologies’ results of operations and financial position in the future.
Based on the outstanding foreign currency hedge instruments of Dell Technologies, which include designated and non-designated instruments, there was a maximum potential one-day loss in fair value at a 95% confidence level of approximately $16 million as of January 28, 2022 and $15 million as of January 29, 2021 using a Value-at-Risk (“VAR”) model. By using market implied rates and incorporating volatility and correlation among the currencies of a portfolio, the VAR model simulates 10,000 randomly generated market prices and calculates the difference between the fifth percentile and the average as the Value-at-Risk. The VAR model is a risk estimation tool and is not intended to represent actual losses in fair value that could be incurred. Additionally, as Dell Technologies utilizes foreign currency instruments for hedging forecasted and firmly committed transactions, a loss in fair value for those instruments is generally offset by increases in the value of the underlying exposure.
Interest Rate Risk
Dell Technologies is primarily exposed to interest rate risk related to its variable-rate debt portfolio.
Variable-Rate Debt — As of January 28, 2022, Dell Technologies’ variable-rate debt consisted of $0.9 billion of unhedged outstanding DFS borrowings. Amounts outstanding under these facilities generally bear interest at variable rates equal to applicable margins plus specified base rates or LIBOR-based rates. Accordingly, Dell Technologies is exposed to market risk based on fluctuations in interest rates on borrowings under the facilities where we do not mitigate the interest rate risk through the use of interest rate swaps. As of January 28, 2022, outstanding unhedged DFS borrowings accrued interest at an annual rate of between 1.30% and 2.05%.
Based on the variable-rate debt outstanding as of January 28, 2022, a 100 basis point increase in interest rates would have resulted in an increase of approximately $9 million in annual interest expense. For more information about our debt, see Note 7 of the EMC merger transaction.
By comparison, as of January 29, 2021, Dell Technologies had $6.3 billion of outstanding borrowings under its Senior Secured Credit Facilities, $4.0 billion of outstanding borrowings under its Margin Loan Facility, and $1.0 billion of outstanding DFS borrowings. Based on this variable-rate debt outstanding as of January 29, 2021, a 100 basis point increase in interest rates would have resulted in an increase of approximately $93 million in annual interest expense.
Transition from LIBOR to Alternative Reference Rates — LIBOR is the subject of recent regulatory guidance and proposals for reform. As a result of these reforms, the ICE Benchmark Administration Limited, the administrator of LIBOR, ceased publication for the one-week and two-month USD LIBOR settings on December 31, 2021 and is expected to to begin phasing out the remaining USD LIBOR settings on July 1, 2023. We have completed identification of impacted financial instruments and contracts and have been preparedworking to transition such contracts linked to LIBOR to alternative reference rates.
74
Equity Price Risk
Strategic Investments — Our strategic investments include early-stage, privately-held companies that are considered to be in accordancethe start-up or development stages and are inherently risky. The technologies or products these companies have under development are typically in the early stages and may never materialize, which could result in a loss of a substantial part of our initial investment in the companies. We record these investments at cost, less impairment, adjusted for observable price changes. The evaluation is based on information provided by these companies, which are not subject to the same disclosure obligations as U.S. publicly-traded companies, and as such, the basis for these evaluations is subject to the timing and accuracy of the data provided. The carrying value of our strategic investments without readily determinable fair values was $1.4 billion and $0.9 billion as of January 28, 2022 and January 29, 2021, respectively.
75
ITEM 8 — FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index
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76
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Dell Technologies Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated statements of financial position of Dell Technologies Inc.and its subsidiaries (the “Company”) as of January 28, 2022and January 29, 2021,and the related consolidatedstatements of income, of comprehensive income, of stockholders’ equity (deficit) and of cash flows for each of the three years in the period ended January 28, 2022, including the related notes (collectively referred to as the “consolidated financial statements”).We also have audited the Company's internal control over financial reporting as of January 28, 2022, based on criteria established in Internal Control - Integrated Framework(2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of January 28, 2022and January 29, 2021, and the results of itsoperations and itscash flows for each of the three years in the period ended January 28, 2022in conformity with accounting principles generally accepted in the United States of America (“GAAP”). America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 28, 2022, based on criteria established in Internal Control - Integrated Framework(2013)issued by the COSO.
Change in Accounting Principle
As a result of the EMC merger transaction, the Company’s results of operations, comprehensive income (loss), and cash flows for the fiscal periods reflecteddiscussed in these Consolidated Financial Statements are not directly comparable as the results of the acquired businesses are only included inNote 2 to the consolidated results from September 7, 2016.
| Fiscal Year Ended February 3, 2017 | |||||||||||||||
| ECD (a) | Dell Services | DSG | Total | ||||||||||||
| (in millions) | |||||||||||||||
| Net revenue | $ | 208 | $ | 1,980 | $ | 975 | $ | 3,163 | |||||||
| Cost of net revenue | 56 | 1,563 | 250 | 1,869 | |||||||||||
| Operating expenses | 137 | 347 | 726 | 1,210 | |||||||||||
| Interest and other, net | (1 | ) | (8 | ) | (2 | ) | (11 | ) | |||||||
| Income (loss) from discontinued operations before income taxes and gain (loss) on disposal | 14 | 62 | (3 | ) | 73 | ||||||||||
| Income tax provision (benefit) | 3 | (40 | ) | (23 | ) | (60 | ) | ||||||||
| Income from discontinued operations, net of income taxes, before gain (loss) on disposal | 11 | 102 | 20 | 133 | |||||||||||
| Gain (loss) on disposal, net of tax expense (benefit) of $181, $(262), and $462, respectively | (356 | ) | 1,669 | 470 | 1,783 | ||||||||||
| Income (loss) from discontinued operations, net of income taxes | $ | (345 | ) | $ | 1,771 | $ | 490 | $ | 1,916 | ||||||
Recently Issued Accounting Pronouncements
See Note 2 of the Notes to the Consolidated Financial Statements included in this report for a summary of recently issued accounting pronouncements that are applicable to our Consolidated Financial Statements.
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ITEM 7A — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Dell Technologies is exposed to a variety of market risks, including risks associated with foreign currency exchange rate fluctuations, interest rate changes affecting its variable-rate debt, and changes in the market value of equity investments. In the normal course of business, Dell Technologies employs established policies and procedures to manage these risks.
Foreign Currency Risk
During Fiscal 2022 and Fiscal 2021, the principal foreign currencies in which Dell Technologies transacted business were the Euro, Chinese Renminbi, Japanese Yen, British Pound, Indian Rupee, and Canadian Dollar. The objective of Dell Technologies in managing its exposures to foreign currency exchange rate fluctuations is to reduce the impact of adverse fluctuations associated with foreign currency exchange rate changes on earnings and cash flows. Accordingly, Dell Technologies utilizes foreign currency option contracts and forward contracts to hedge its exposure on forecasted transactions and firm commitments for certain currencies. Dell Technologies monitors its foreign currency exchange exposures to ensure the overall effectiveness of its foreign currency hedge positions. However, there can be no assurance that the foreign currency hedging activities will continue to substantially offset the impact of fluctuations in currency exchange rates on Dell Technologies’ results of operations and financial position in the future.
Based on the outstanding foreign currency hedge instruments of Dell Technologies, which include designated and non-designated instruments, there was a maximum potential one-day loss in fair value at a 95% confidence level of approximately $16 million as of January 28, 2022 and $15 million as of January 29, 2021 using a Value-at-Risk (“VAR”) model. By using market implied rates and incorporating volatility and correlation among the currencies of a portfolio, the VAR model simulates 10,000 randomly generated market prices and calculates the difference between the fifth percentile and the average as the Value-at-Risk. The VAR model is a risk estimation tool and is not intended to represent actual losses in fair value that could be incurred. Additionally, as Dell Technologies utilizes foreign currency instruments for hedging forecasted and firmly committed transactions, a loss in fair value for those instruments is generally offset by increases in the value of the underlying exposure.
Interest Rate Risk
Dell Technologies is primarily exposed to interest rate risk related to its variable-rate debt portfolio.
Variable-Rate Debt — As of January 28, 2022, Dell Technologies’ variable-rate debt consisted of $0.9 billion of unhedged outstanding DFS borrowings. Amounts outstanding under these facilities generally bear interest at variable rates equal to applicable margins plus specified base rates or LIBOR-based rates. Accordingly, Dell Technologies is exposed to market risk based on fluctuations in interest rates on borrowings under the facilities where we do not mitigate the interest rate risk through the use of interest rate swaps. As of January 28, 2022, outstanding unhedged DFS borrowings accrued interest at an annual rate of between 1.30% and 2.05%.
Based on the variable-rate debt outstanding as of January 28, 2022, a 100 basis point increase in interest rates would have resulted in an increase of approximately $9 million in annual interest expense. For more information about our debt, see Note 7 of the Notes to the Consolidated Financial Statements included in this report.
By comparison, as of January 29, 2021, Dell Technologies had $6.3 billion of outstanding borrowings under its Senior Secured Credit Facilities, $4.0 billion of outstanding borrowings under its Margin Loan Facility, and $1.0 billion of outstanding DFS borrowings. Based on this variable-rate debt outstanding as of January 29, 2021, a 100 basis point increase in interest rates would have resulted in an increase of approximately $93 million in annual interest expense.
Transition from LIBOR to Alternative Reference Rates — LIBOR is the subject of recent regulatory guidance and proposals for reform. As a result of these reforms, the ICE Benchmark Administration Limited, the administrator of LIBOR, ceased publication for the one-week and two-month USD LIBOR settings on December 31, 2021 and is expected to to begin phasing out the remaining USD LIBOR settings on July 1, 2023. We have completed identification of impacted financial instruments and contracts and have been working to transition such contracts linked to LIBOR to alternative reference rates.
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Equity Price Risk
Strategic Investments — Our strategic investments include early-stage, privately-held companies that are considered to be in the start-up or development stages and are inherently risky. The technologies or products these companies have under development are typically in the early stages and may never materialize, which could result in a loss of a substantial part of our initial investment in the companies. We record these investments at cost, less impairment, adjusted for observable price changes. The evaluation is based on information provided by these companies, which are not subject to the same disclosure obligations as U.S. publicly-traded companies, and as such, the basis for these evaluations is subject to the timing and accuracy of the data provided. The carrying value of our strategic investments without readily determinable fair values was $1.4 billion and $0.9 billion as of January 28, 2022 and January 29, 2021, respectively.
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ITEM 8 — FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index
| Page | |||||
76
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Dell Technologies Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated statements of financial position of Dell Technologies Inc.and its subsidiaries (the “Company”) as of January 28, 2022and January 29, 2021,and the related consolidatedstatements of income, of comprehensive income, of stockholders’ equity (deficit) and of cash flows for each of the three years in the period ended January 28, 2022, including the related notes (collectively referred to as the “consolidated financial statements”).We also have audited the Company's internal control over financial reporting as of January 28, 2022, based on criteria established in Internal Control - Integrated Framework(2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of January 28, 2022and January 29, 2021, and the results of itsoperations and itscash flows for each of the three years in the period ended January 28, 2022in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 28, 2022, based on criteria established in Internal Control - Integrated Framework(2013)issued by the COSO.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases as of February 2016,2, 2019.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Annual Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidatedfinancial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. 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.
Definition and Limitations of Internal Control over Financial Reporting
A company’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’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
77
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’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.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Revenue Recognition - Identification of Performance Obligations in Revenue Contracts
As described in Notes 2 and 19 to the consolidated financial statements, the Company’s contracts with customers often include the promise to transfer multiple goods and services to a customer. Distinct promises within a contract are referred to as performance obligations and are accounted for as separate units of account. Management assesses whether each promised good or service is distinct for the purpose of identifying the performance obligations in the contract. This assessment involves subjective determinations and requires management to make judgments about the individual promised goods or services and whether such goods or services are separable from the other aspects of the contractual relationship. The Company’s performance obligations include various distinct goods and services such as hardware, software licenses, support and maintenance agreements, and other service offerings and solutions. For the year ended January 28, 2022, a significant portion of the $34.4 billion Infrastructure Solutions Group (“ISG”) reportable segment net revenues relate to contracts with multiple performance obligations.
The principal considerations for our determination that performing procedures relating to the identification of performance obligations in revenue contracts is a critical audit matter are the significant judgment by management in identifying performance obligations in revenue contracts, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures to evaluate whether performance obligations in revenue contracts were appropriately identified by management.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition process, including controls related to the proper identification of performance obligations in revenue contracts. These procedures also included, among others, testing the completeness and accuracy of management’s identification of performance obligations by examining revenue contracts on a test basis.
Tax-free Determination of the Distribution of VMware Inc.
As described in Note 3 to the consolidated financial statements, management determined that the VMware Spin-off, and related distributions, qualified as tax-free for U.S. federal income tax purposes, which required significant judgment. In making these determinations, management applied U.S. federal tax law to relevant facts and circumstances and obtained a favorable private letter ruling from the Internal Revenue Service, a tax opinion, and other external tax advice related to the concluded tax treatment. If the completed transactions were to fail to qualify for tax-free treatment, the Company could be subject to significant liabilities, and there could be material adverse impacts on the Company’s business, financial condition, results of operations and cash flows in future reporting periods.
The principal considerations for our determination that performing procedures relating to the tax-free determination of the distribution of VMware Inc. is a critical audit matter are the significant judgment by management regarding the tax technical merits of the transaction and the application of the appropriate tax laws and regulations in determining that the distribution of VMware qualifies for tax-free status. This in turn led to a high degree of auditor judgment, subjectivity and effort in
78
performing procedures and evaluating audit evidence relating to the tax-free determination of the distribution of VMware. In addition, the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the key judgments and evaluation of the tax treatment relating to management’s determination of the tax-free nature of the transaction. These procedures also included, among others (i) testing management’s process for determining the tax-free treatment of the transaction, (ii) evaluating the information used in management’s determination, including tax rulings from relevant taxing authorities and supporting information, tax opinion, and relevant tax laws, and (iii) evaluating the reasonableness of management’s position that the transaction qualifies for tax-free status. Professionals with specialized skill and knowledge were used to assist in the evaluation of the transaction, related assumptions, private letter ruling and tax opinion, and certain representations from management, as well as the application of relevant tax laws.
/s/ PricewaterhouseCoopers LLP
Austin, Texas
March 24, 2022
We have served as the Company’s auditor since 1986.
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DELL TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in millions; continued on next page)
| January 28, 2022 | January 29, 2021 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 9,477 | $ | 9,508 | |||||||
| Accounts receivable, net of allowance of $90 and $99 (Note 20) | 12,912 | 10,731 | |||||||||
| Due from related party, net | 131 | 115 | |||||||||
| Short-term financing receivables, net of allowance of $142 and $228 (Note 5) | 5,089 | 5,148 | |||||||||
| Inventories | 5,898 | 3,403 | |||||||||
| Other current assets | 11,526 | 9,810 | |||||||||
| Current assets of discontinued operations (Note 3) | — | 4,852 | |||||||||
| Total current assets | 45,033 | 43,567 | |||||||||
| Property, plant, and equipment, net | 5,415 | 4,833 | |||||||||
| Long-term investments | 1,839 | 1,334 | |||||||||
| Long-term financing receivables, net of allowance of $47 and $93 (Note 5) | 5,522 | 5,339 | |||||||||
| Goodwill | 19,770 | 20,028 | |||||||||
| Intangible assets, net | 7,461 | 9,115 | |||||||||
| Due from related party, net | 710 | 451 | |||||||||
| Other non-current assets | 6,985 | 6,733 | |||||||||
| Non-current assets of discontinued operations (Note 3) | — | 32,015 | |||||||||
| Total assets | $ | 92,735 | $ | 123,415 | |||||||
| LIABILITIES, REDEEMABLE SHARES, AND STOCKHOLDERS’ EQUITY (continued on next page) | |||||||||||
| Current liabilities: | |||||||||||
| Short-term debt | $ | 5,823 | $ | 6,357 | |||||||
| Accounts payable | 27,143 | 21,572 | |||||||||
| Due to related party | 1,414 | 1,461 | |||||||||
| Accrued and other | 7,578 | 7,166 | |||||||||
| Short-term deferred revenue | 14,261 | 13,201 | |||||||||
| Current liabilities of discontinued operations (Note 3) | — | 4,375 | |||||||||
| Total current liabilities | 56,219 | 54,132 | |||||||||
| Long-term debt | 21,131 | 32,865 | |||||||||
| Long-term deferred revenue | 13,312 | 12,391 | |||||||||
| Other non-current liabilities | 3,653 | 3,923 | |||||||||
| Non-current liabilities of discontinued operations (Note 3) | — | 12,079 | |||||||||
| Total liabilities | 94,315 | 115,390 | |||||||||
The accompanying notes are an integral part of these Consolidated Financial Statements.
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DELL TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(continued; in millions)
| January 28, 2022 | January 29, 2021 | ||||||||||
| LIABILITIES, REDEEMABLE SHARES, AND STOCKHOLDERS’ EQUITY (continued) | |||||||||||
| Commitments and contingencies (Note 11) | 0 | 0 | |||||||||
| Redeemable shares (Note 17) | — | 472 | |||||||||
| Stockholders’ equity (deficit): | |||||||||||
| Common stock and capital in excess of $0.01 par value (Note 14) | 7,898 | 16,849 | |||||||||
| Treasury stock at cost | (964) | (305) | |||||||||
| Accumulated deficit | (8,188) | (13,751) | |||||||||
| Accumulated other comprehensive loss | (431) | (314) | |||||||||
| Total Dell Technologies Inc. stockholders’ equity (deficit) | (1,685) | 2,479 | |||||||||
| Non-controlling interests | 105 | 96 | |||||||||
| Non-controlling interests of discontinued operations | — | 4,978 | |||||||||
| Total stockholders’ equity (deficit) | (1,580) | 7,553 | |||||||||
| Total liabilities, redeemable shares, and stockholders’ equity | $ | 92,735 | $ | 123,415 | |||||||
The accompanying notes are an integral part of these Consolidated Financial Statements.
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DELL TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share amounts)
| Fiscal Year Ended | |||||||||||||||||
| January 28, 2022 | January 29, 2021 | January 31, 2020 | |||||||||||||||
| Net revenue: | |||||||||||||||||
| Products | $ | 79,830 | $ | 67,744 | $ | 67,607 | |||||||||||
| Services | 21,367 | 18,926 | 17,208 | ||||||||||||||
| Total net revenue | 101,197 | 86,670 | 84,815 | ||||||||||||||
| Cost of net revenue (a): | |||||||||||||||||
| Products | 67,224 | 56,431 | 55,369 | ||||||||||||||
| Services | 12,082 | 10,099 | 8,807 | ||||||||||||||
| Total cost of net revenue | 79,306 | 66,530 | 64,176 | ||||||||||||||
| Gross margin | 21,891 | 20,140 | 20,639 | ||||||||||||||
| Operating expenses: | |||||||||||||||||
| Selling, general, and administrative | 14,655 | 14,000 | 15,819 | ||||||||||||||
| Research and development | 2,577 | 2,455 | 2,454 | ||||||||||||||
| Total operating expenses | 17,232 | 16,455 | 18,273 | ||||||||||||||
| Operating income | 4,659 | 3,685 | 2,366 | ||||||||||||||
| Interest and other, net | 1,264 | (1,339) | (2,417) | ||||||||||||||
| Income (loss) before income taxes | 5,923 | 2,346 | (51) | ||||||||||||||
| Income tax expense (benefit) | 981 | 101 | (572) | ||||||||||||||
| Net income from continuing operations | 4,942 | 2,245 | 521 | ||||||||||||||
| Income from discontinued operations, net of income taxes (Note 3) | 765 | 1,260 | 5,008 | ||||||||||||||
| Net income | 5,707 | 3,505 | 5,529 | ||||||||||||||
| Less: Net loss attributable to non-controlling interests | (6) | (4) | (4) | ||||||||||||||
| Less: Net income attributable to non-controlling interests of discontinued operations | 150 | 259 | 917 | ||||||||||||||
| Net income attributable to Dell Technologies Inc. | $ | 5,563 | $ | 3,250 | $ | 4,616 | |||||||||||
| Earnings per share attributable to Dell Technologies Inc. — basic: | |||||||||||||||||
| Continuing operations | $ | 6.49 | $ | 3.02 | $ | 0.73 | |||||||||||
| Discontinued operations | $ | 0.81 | $ | 1.35 | $ | 5.65 | |||||||||||
| Earnings per share attributable to Dell Technologies Inc. — diluted: | |||||||||||||||||
| Continuing operations | $ | 6.26 | $ | 2.93 | $ | 0.70 | |||||||||||
| Discontinued operations | $ | 0.76 | $ | 1.29 | $ | 5.33 | |||||||||||
| (a) Includes related party cost of net revenue as follows: | |||||||||||||||||
| Products | $ | 1,577 | $ | 1,493 | $ | 1,425 | |||||||||||
| Services | $ | 2,487 | $ | 1,848 | $ | 1,226 | |||||||||||
The accompanying notes are an integral part of these Consolidated Financial Statements.
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DELL TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
| Fiscal Year Ended | |||||||||||||||||
| January 28, 2022 | January 29, 2021 | January 31, 2020 | |||||||||||||||
| Net income | $ | 5,707 | $ | 3,505 | $ | 5,529 | |||||||||||
| Other comprehensive income (loss), net of tax | |||||||||||||||||
| Foreign currency translation adjustments | (385) | 528 | (226) | ||||||||||||||
| Cash flow hedges: | |||||||||||||||||
| Change in unrealized gains (losses) | 374 | (200) | 269 | ||||||||||||||
| Reclassification adjustment for net (gains) losses included in net income | (158) | 100 | (226) | ||||||||||||||
| Net change in cash flow hedges | 216 | (100) | 43 | ||||||||||||||
| Pension and other postretirement plans: | |||||||||||||||||
| Recognition of actuarial net gains (losses) from pension and other postretirement plans | 37 | (38) | (60) | ||||||||||||||
| Reclassification adjustments for net losses from pension and other postretirement plans | 7 | 5 | 1 | ||||||||||||||
| Net change in actuarial net gains (losses) from pension and other postretirement plans | 44 | (33) | (59) | ||||||||||||||
| Total other comprehensive income (loss), net of tax expense (benefit) of $30, $(18), and $(14), respectively | (125) | 395 | (242) | ||||||||||||||
| Comprehensive income, net of tax | 5,582 | 3,900 | 5,287 | ||||||||||||||
| Less: Net loss attributable to non-controlling interests | 144 | 255 | 913 | ||||||||||||||
| Comprehensive income attributable to Dell Technologies Inc. | $ | 5,438 | $ | 3,645 | $ | 4,374 | |||||||||||
The accompanying notes are an integral part of these Consolidated Financial Statements.
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DELL TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions; continued on next page)
| Fiscal Year Ended | |||||||||||||||||
| January 28, 2022 | January 29, 2021 | January 31, 2020 | |||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||
| Net income | $ | 5,707 | $ | 3,505 | $ | 5,529 | |||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||
| Depreciation and amortization | 4,551 | 5,390 | 6,143 | ||||||||||||||
| Stock-based compensation expense | 1,622 | 1,609 | 1,262 | ||||||||||||||
| Deferred income taxes | (365) | (399) | (6,339) | ||||||||||||||
| Other, net (a) | (3,130) | (88) | 938 | ||||||||||||||
| Changes in assets and liabilities, net of effects from acquisitions and dispositions: | |||||||||||||||||
| Accounts receivable | (2,193) | (396) | (286) | ||||||||||||||
| Financing receivables | (241) | (728) | (1,329) | ||||||||||||||
| Inventories | (2,514) | (243) | 311 | ||||||||||||||
| Other assets and liabilities | (1,948) | (1,656) | (1,559) | ||||||||||||||
| Due from/to related party, net | 479 | — | — | ||||||||||||||
| Accounts payable | 5,742 | 1,598 | 894 | ||||||||||||||
| Deferred revenue | 2,597 | 2,815 | 3,727 | ||||||||||||||
| Change in cash from operating activities | 10,307 | 11,407 | 9,291 | ||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||
| Purchases of investments | (414) | (338) | (181) | ||||||||||||||
| Maturities and sales of investments | 513 | 169 | 497 | ||||||||||||||
| Capital expenditures and capitalized software development costs | (2,796) | (2,082) | (2,576) | ||||||||||||||
| Acquisition of businesses and assets, net | (16) | (424) | (2,463) | ||||||||||||||
| Divestitures of businesses and assets, net | 3,957 | 2,187 | (3) | ||||||||||||||
| Other | 62 | 28 | 40 | ||||||||||||||
| Change in cash from investing activities | 1,306 | (460) | (4,686) | ||||||||||||||
| Cash flows from financing activities: | |||||||||||||||||
| Dividends paid by VMware, Inc. to non-controlling interests | (2,240) | — | — | ||||||||||||||
| Proceeds from the issuance of common stock | 334 | 452 | 658 | ||||||||||||||
| Repurchases of parent common stock | (663) | (241) | (8) | ||||||||||||||
| Repurchases of subsidiary common stock | (1,175) | (1,363) | (3,547) | ||||||||||||||
| Net transfer of cash, cash equivalents, and restricted cash to VMware, Inc. | (5,052) | — | — | ||||||||||||||
| Proceeds from debt | 20,425 | 16,391 | 20,481 | ||||||||||||||
| Repayments of debt | (26,723) | (20,919) | (22,117) | ||||||||||||||
| Debt related costs and other, net | (1,515) | (270) | (71) | ||||||||||||||
| Change in cash from financing activities | (16,609) | (5,950) | (4,604) | ||||||||||||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | (106) | 36 | (90) | ||||||||||||||
| Change in cash, cash equivalents, and restricted cash | (5,102) | 5,033 | (89) | ||||||||||||||
____________________
(a)During the fiscal year ended January 28, 2022, other, net, includes a $4.0 billion pre-tax gain on the sale of Boomi, Inc.
The accompanying notes are an integral part of these Consolidated Financial Statements.
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DELL TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued; in millions)
| Fiscal Year Ended | |||||||||||||||||
| January 28, 2022 | January 29, 2021 | January 31, 2020 | |||||||||||||||
| Change in cash, cash equivalents, and restricted cash | (5,102) | 5,033 | (89) | ||||||||||||||
| Cash, cash equivalents, and restricted cash at beginning of the period, including cash attributable to discontinued operations | 15,184 | 10,151 | 10,240 | ||||||||||||||
| Cash, cash equivalents, and restricted cash at end of the period, including cash attributable to discontinued operations | 10,082 | 15,184 | 10,151 | ||||||||||||||
| Less: Cash, cash equivalents, and restricted cash attributable to discontinued operations | — | 4,770 | 3,031 | ||||||||||||||
| Cash, cash equivalents, and restricted cash from continuing operations | $ | 10,082 | $ | 10,414 | $ | 7,120 | |||||||||||
| Income tax paid | $ | 1,257 | $ | 1,421 | $ | 1,414 | |||||||||||
| Interest paid | $ | 1,825 | $ | 2,279 | $ | 2,500 | |||||||||||
The accompanying notes are an integral part of these Consolidated Financial Statements.
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DELL TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(in millions; continued on next page)
| Common Stock and Capital in Excess of Par Value | Treasury Stock | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issued Shares | Amount | Shares | Amount | Accumulated Deficit | Accumulated Other Comprehensive Income/(Loss) | Dell Technologies Stockholders’ Equity (Deficit) | Non-Controlling Interests | Total Stockholders’ Equity (Deficit) | |||||||||||||||||||||||||||||||||||||||||||||
| Balances as of February 1, 2019 | 721 | $ | 16,114 | 2 | $ | (63) | $ | (21,349) | $ | (467) | $ | (5,765) | $ | 4,823 | $ | (942) | |||||||||||||||||||||||||||||||||||||
| Adjustment for adoption of accounting standards | — | — | — | — | 3 | — | 3 | — | 3 | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | 4,616 | — | 4,616 | 913 | 5,529 | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | — | — | — | — | — | (226) | (226) | — | (226) | ||||||||||||||||||||||||||||||||||||||||||||
| Cash flow hedges, net change | — | — | — | — | — | 43 | 43 | — | 43 | ||||||||||||||||||||||||||||||||||||||||||||
| Pension and other post-retirement | — | — | — | — | — | (59) | (59) | — | (59) | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock | 24 | 345 | — | — | — | — | 345 | — | 345 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | 225 | — | — | — | — | 225 | 1,037 | 1,262 | ||||||||||||||||||||||||||||||||||||||||||||
| Treasury stock repurchases | — | — | — | (2) | — | — | (2) | — | (2) | ||||||||||||||||||||||||||||||||||||||||||||
| Revaluation of redeemable shares | — | 567 | — | — | — | — | 567 | — | 567 | ||||||||||||||||||||||||||||||||||||||||||||
| Impact from equity transactions of non-controlling interests | — | (1,160) | — | — | (161) | — | (1,321) | (2,044) | (3,365) | ||||||||||||||||||||||||||||||||||||||||||||
| Balances as of January 31, 2020 | 745 | $ | 16,091 | 2 | $ | (65) | $ | (16,891) | $ | (709) | $ | (1,574) | $ | 4,729 | $ | 3,155 | |||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these Consolidated Financial Statements.
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DELL TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(in millions; continued on next page)
| Common Stock and Capital in Excess of Par Value | Treasury Stock | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issued Shares | Amount | Shares | Amount | Accumulated Deficit | Accumulated Other Comprehensive Income/(Loss) | Dell Technologies Stockholders’ Equity (Deficit) | Non-Controlling Interests | Total Stockholders’ Equity (Deficit) | |||||||||||||||||||||||||||||||||||||||||||||
| Balances as of January 31, 2020 | 745 | $ | 16,091 | 2 | $ | (65) | $ | (16,891) | $ | (709) | $ | (1,574) | $ | 4,729 | $ | 3,155 | |||||||||||||||||||||||||||||||||||||
| Adjustment for adoption of accounting standards | — | — | — | — | (110) | — | (110) | — | (110) | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | 3,250 | — | 3,250 | 255 | 3,505 | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | — | — | — | — | — | 528 | 528 | — | 528 | ||||||||||||||||||||||||||||||||||||||||||||
| Cash flow hedges, net change | — | — | — | — | — | (100) | (100) | — | (100) | ||||||||||||||||||||||||||||||||||||||||||||
| Pension and other post-retirement | — | — | — | — | — | (33) | (33) | — | (33) | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock | 16 | 178 | — | — | — | — | 178 | — | 178 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | 462 | — | — | — | — | 462 | 1,147 | 1,609 | ||||||||||||||||||||||||||||||||||||||||||||
| Treasury stock repurchases | — | — | 6 | (240) | — | — | (240) | — | (240) | ||||||||||||||||||||||||||||||||||||||||||||
| Revaluation of redeemable shares | — | 157 | — | — | — | — | 157 | — | 157 | ||||||||||||||||||||||||||||||||||||||||||||
| Impact from equity transactions of non-controlling interests | — | (39) | — | — | — | — | (39) | (1,057) | (1,096) | ||||||||||||||||||||||||||||||||||||||||||||
| Balances as of January 29, 2021 | 761 | $ | 16,849 | 8 | $ | (305) | $ | (13,751) | $ | (314) | $ | 2,479 | $ | 5,074 | $ | 7,553 | |||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these Consolidated Financial Statements.
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DELL TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(continued; in millions)
| Common Stock and Capital in Excess of Par Value | Treasury Stock | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issued Shares | Amount | Shares | Amount | Accumulated Deficit | Accumulated Other Comprehensive Income/(Loss) | Dell Technologies Stockholders’ Equity (Deficit) | Non-Controlling Interests | Total Stockholders’ Equity (Deficit) | |||||||||||||||||||||||||||||||||||||||||||||
| Balances as of January 29, 2021 | 761 | $ | 16,849 | 8 | $ | (305) | $ | (13,751) | $ | (314) | $ | 2,479 | $ | 5,074 | $ | 7,553 | |||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | 5,563 | — | 5,563 | 144 | 5,707 | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | — | — | — | — | — | (385) | (385) | — | (385) | ||||||||||||||||||||||||||||||||||||||||||||
| Cash flow hedges, net change | — | — | — | — | — | 216 | 216 | — | 216 | ||||||||||||||||||||||||||||||||||||||||||||
| Pension and other post-retirement | — | — | — | — | — | 44 | 44 | — | 44 | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock | 16 | 22 | — | — | — | — | 22 | — | 22 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | 777 | — | — | — | — | 777 | 845 | 1,622 | ||||||||||||||||||||||||||||||||||||||||||||
| Treasury stock repurchases | — | — | 12 | (659) | — | — | (659) | — | (659) | ||||||||||||||||||||||||||||||||||||||||||||
| Revaluation of redeemable shares | — | 472 | — | — | — | — | 472 | — | 472 | ||||||||||||||||||||||||||||||||||||||||||||
| Impact from equity transactions of non-controlling interests | — | (60) | — | — | — | — | (60) | (823) | (883) | ||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid by VMware, Inc. to non-controlling interests | — | — | — | — | — | — | — | (2,240) | (2,240) | ||||||||||||||||||||||||||||||||||||||||||||
| Spin-off of VMware, Inc. | — | (10,162) | — | — | — | 8 | (10,154) | (2,895) | (13,049) | ||||||||||||||||||||||||||||||||||||||||||||
| Balances as of January 28, 2022 | 777 | $ | 7,898 | 20 | $ | (964) | $ | (8,188) | $ | (431) | $ | (1,685) | $ | 105 | $ | (1,580) | |||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these Consolidated Financial Statements.
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NOTE 1 — OVERVIEW AND BASIS OF PRESENTATION
References in these Notes to the Consolidated Financial Statements to the “Company” or “Dell Technologies” mean Dell Technologies Inc. individually and together with its consolidated subsidiaries.
Basis of Presentation — These Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Spin-Off of VMware, Inc. — On November 1, 2021, the Company completed its previously announced spin-off of VMware, Inc. (NYSE: VMW) (individually and together with its consolidated subsidiaries, “VMware”) by means of a special stock dividend (the “VMware Spin-off”). The VMware Spin-off was effectuated pursuant to a Separation and Distribution Agreement, dated as of April 14, 2021 between Dell Technologies and VMware (the “Separation and Distribution Agreement”).
Pursuant to the Commercial Framework Agreement (the “CFA”) entered in to between Dell Technologies and VMware, Dell Technologies will continue to act as a distributor of VMware’s standalone products and services and purchase such products and services for resale to customers. Dell Technologies will also continue to integrate VMware’s products and services with Dell Technologies’ offerings and sell them to customers. The results of such operations are presented as continuing operations within the Company’s Consolidated Statements of Income. See Note 3 of the Notes to the Consolidated Financial Statements for additional information on the VMware Spin-off.
In accordance with applicable accounting guidance, the results of VMware, excluding Dell's resale of VMware offerings, are presented as discontinued operations in the Consolidated Statements of Income and, as such, have been excluded from both continuing operations and segment results for all periods presented. Further, the Company reclassified the assets and liabilities of VMware as assets and liabilities of discontinued operations in the Consolidated Statements of Financial Position as of January 29, 2021. The Consolidated Statements of Cash Flows are presented on a consolidated basis for both continuing operations and discontinued operations.
Boomi Divestiture — On October 1, 2021, Dell Technologies completed the sale of Boomi, Inc. (“Boomi”) and certain related assets to Francisco Partners and TPG Capital. At the completion of the sale, the Company received total cash consideration of approximately $4.0 billion, resulting in a pre-tax gain on sale of $4.0 billion recognized in interest and other, net on the Consolidated Statements of Income. The Company ultimately recorded a $3.0 billion gain, net of $1.0 billion in tax expense. The transaction was intended to support the Company’s focus on fueling growth initiatives through targeted investments to modernize Dell Technologies’ core infrastructure and by expanding in high-priority areas, including hybrid and private cloud, edge, telecommunications solutions, and the Company’s APEX offerings. Prior to the divestiture, Boomi’s operating results were included within other businesses and the divestiture did not qualify for presentation as a discontinued operation.
RSA Security Divestiture — On September 1, 2020, Dell Technologies completed the sale of RSA Security LLC (“RSA Security”) to a consortium led by Symphony Technology Group, Ontario Teachers’ Pension Plan Board and AlpInvest Partners for total cash consideration of approximately $2.1 billion, resulting in a pre-tax gain on sale of $338 million. The Company ultimately recorded a $21 million loss, net of $359 million in tax expense due to the relatively low tax basis for the assets sold, particularly goodwill. The transaction included the sale of RSA Archer, RSA NetWitness Platform, RSA SecurID, RSA Fraud and Risk Intelligence, and RSA Conference and was intended to further simplify Dell Technologies’ product portfolio and corporate structure. Prior to the divestiture, RSA Security’s operating results were included within other businesses and the divestiture did not qualify for presentation as a discontinued operation.
Secureworks — As of January 28, 2022 and January 29, 2021, the Company held approximately 83.9% and 85.7%, respectively, of the outstanding equity interest in SecureWorks Corp. (“Secureworks”), excluding restricted stock awards (“RSAs”), and approximately 83.1% and 84.9%, respectively, of the equity interest, including RSAs. The portion of the results of operations of Secureworks allocable to its other owners is shown as net income attributable to the non-controlling interests in the Consolidated Statements of Income, as an adjustment to net income attributable to Dell Technologies stockholders. The non-controlling interests’ share of equity in Secureworks is reflected as a component of the non-controlling interests in the Consolidated Statements of Financial Position and was $105 million and $96 million as of January 28, 2022 and January 29, 2021, respectively.
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NOTE 2 — DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business — The Company is a leading global end-to-end technology provider that offers a broad range of comprehensive and integrated solutions, which include servers and networking products, storage products, cloud solutions products, desktops, notebooks, services, software, and third-party software and peripherals.
The Company’s fiscal year is the 52- or 53-week period ending on the Friday nearest January 31. The fiscal years ended January 28, 2022, January 29, 2021, and January 31, 2020 were 52-week periods.
Principles of Consolidation — These Consolidated Financial Statements include the accounts of Dell Technologies and its wholly-owned subsidiaries, as well as the accounts of Secureworks, which, as indicated above, is majority-owned by Dell Technologies and VMware through the date of the VMware Spin-off. All intercompany transactions have been eliminated.
The Company also consolidates Variable Interest Entities ("VIEs") where it has been determined that the Company is the primary beneficiary of the applicable entities’ operations. For each VIE, the primary beneficiary is the party that has both the power to direct the activities that most significantly impact the VIE's economic performance and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to such VIE. In evaluating whether the Company is the primary beneficiary of each entity, the Company evaluates its power to direct the most significant activities of the VIE by considering the purpose and design of each entity and the risks each entity was designed to create and pass through to its respective variable interest holders. The Company also evaluates its economic interests in each of the VIEs. See Note 5 of the Notes to the Consolidated Financial Statements for more information regarding consolidated VIEs.
Use of Estimates — The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and the accompanying Notes. Management has considered the actual and potential impacts of the coronavirus disease 2019 (“COVID-19”) pandemic on the Company’s critical and significant accounting estimates. Actual results could differ materially from those estimates.
Cash and Cash Equivalents — All highly liquid investments, including credit card receivables due from banks, with original maturities of 90 days or less at date of purchase, are reported at fair value and are considered to be cash equivalents. All other investments not considered to be cash equivalents are separately categorized as investments.
Investments — The Company has strategic investments in equity securities as well as investments in fixed-income debt securities. All equity and other securities are recorded as long-term investments in the Consolidated Statements of Financial Position.
Strategic investments in marketable equity and other securities are recorded at fair value based on quoted prices in active markets. Strategic investments in non-marketable equity and other securities without readily determinable fair values are recorded at cost, less impairment, and are adjusted for observable price changes. Fair value measurements and impairments for strategic investments are recognized in interest and other, net in the Consolidated Statements of Income. In evaluating equity investments without readily determinable fair values for impairment or observable price changes, the Company uses inputs that include pre- and post-money valuations of recent financing events and the impact of those events on its fully diluted ownership percentages, as well as other available information regarding the issuer’s historical and forecasted performance.
Fixed-income debt securities are carried at amortized cost. The Company intends to hold the fixed-income debt securities to maturity.
Allowance for Expected Credit Losses — The Company recognizes an allowance for losses on accounts receivable in an amount equal to the current expected credit losses. The estimation of the allowance is based on an analysis of historical loss experience, current receivables aging, and management’s assessment of current conditions and reasonable and supportable expectation of future conditions, as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible. The Company assesses collectibility by pooling receivables where similar characteristics exist and evaluates receivables individually when specific customer balances no longer share those risk characteristics and are considered at risk or uncollectible. The expense associated with the allowance for expected credit losses is recognized in selling, general, and administrative expenses.
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The Company’s policy for estimating this allowance is based on an expected loss model and reflects the adoption of the accounting standard related to current expected credit losses in the fiscal year ended January 29, 2021. See “Recently Adopted Accounting Pronouncements” in this Note for more information. In prior periods, this allowance was estimated using an incurred loss model, which did not require the consideration of forward-looking information and conditions in the reserve calculation.
Accounting for Operating Leases as a Lessee — In its ordinary course of business, the Company enters into leases as a lessee for office buildings, warehouses, employee vehicles, and equipment. The Company determines if an arrangement is a lease or contains a lease at inception. Operating leases result in the recognition of right of use (“ROU”) assets and lease liabilities on the Consolidated Statements of Financial Position. ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease, measured on a discounted basis. At lease commencement, the lease liability is measured at the present value of the lease payments over the lease term. The operating lease ROU asset equals the lease liability adjusted for any initial direct costs, prepaid or deferred rent, and lease incentives. The Company uses the implicit rate when readily determinable. As most of the leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date to determine the present value of lease payments.
The lease term may include options to extend or to terminate the lease that the Company is reasonably certain to exercise. . The Company has elected not to record leases with an initial term of 12 months or less on the Consolidated Statements of Financial Position. Lease expense is recognized on a straight-line basis over the lease term in most instances. The Company does not generate material sublease income and has no material related party leases. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The Company’s office building agreements contain costs such as common area maintenance and other executory costs that may be either fixed or variable in nature. Variable lease costs are expensed as incurred. The Company combines lease and non-lease components, including fixed common area and other maintenance costs, in calculating the ROU assets and lease liabilities for its office buildings and employee vehicles. Under certain service agreements with third-party logistics providers, the Company directs the use of the inventory within the warehouses and, therefore, controls the assets. The warehouses and some of the equipment used are considered embedded leases. The Company accounts for the lease and non-lease components separately. The lease components consist of the warehouses and some of the equipment, such as conveyor belts. The non-lease components consist of services and other shared equipment, such as material handling and transportation. The Company allocates the consideration to the lease and non-lease components using their relative standalone values. See Note 6 of the Notes to the Consolidated Financial Statements for additional information.
Accounting for Leases as a Lessor — The Company’s wholly-owned subsidiary Dell Financial Services and its affiliates (“DFS”) act as a lessor to provide equipment financing to customers through a variety of lease arrangements (“DFS leases”). The Company’s leases are classified as sales-type leases, direct financing leases, or operating leases. Direct financing leases are immaterial. Leases that commenced prior to the adoption of the current lease standard were not reassessed or restated pursuant to the practical expedients elected and continue to be accounted for under previous lease accounting guidance.
The Company also offers alternative payment structures and “as-a-Service” offerings that are assessed to determine whether an embedded lease arrangement exists. The Company accounts for those contracts as a lease arrangement if it is determined that the contract contains an identified asset and that control of that asset has transferred to the customer.
When a contract includes lease and non-lease components, the Company allocates consideration under the contract to each component based on relative standalone selling price and subsequently assesses lease classification for each lease component within a contract. DFS provides lessees with the option to extend the lease or purchase the underlying asset at the end of the lease term, which is considered when evaluating lease classification. In general, DFS’s lease arrangements do not have variable payment terms and are typically non-cancelable.
On commencement of sales-type leases, the Company recognizes profit up-front, and amounts due from the customer under the lease contract are recognized as financing receivables on the Consolidated Statements of Financial Position. Interest income is recognized as net product revenue over the term of the lease based on the effective interest method. The Company has elected not to include sales and other taxes collected from the lessee as part of lease revenue.
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All other leases that do not meet the definition of a sales-type lease or direct financing lease are classified as operating leases. The underlying asset in an operating lease arrangement is carried at depreciated cost as “Equipment under operating leases” within Property, plant, and equipment, net on the Consolidated Statements of Financial Position. Depreciation is calculated using the straight-line method over the term of the underlying lease contract and is recognized as Cost of net revenue. The depreciable basis is the original cost of the equipment less the estimated residual value of the equipment at the end of the lease term. The residual value is 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. The Company recognizes operating lease income to product revenue generally on a straight-line basis over the lease term and expenses deferred initial direct costs on the same basis. The Company recognizes variable operating lease income to product revenue generally as earned. Impairment of equipment under operating leases is assessed on the same basis as other long-lived assets.
Financing Receivables — Financing receivables are presented net of allowance for losses and consist of customer receivables and residual interest. Gross customer receivables include amounts due from customers under revolving loans, fixed-term loans, fixed-term sales-type or direct financing leases, and accrued interest. The Company has two portfolios, consisting of (i) fixed-term leases and loans and (ii) revolving loans, and assesses risk at the portfolio level to determine the appropriate allowance levels. The portfolio segments are further segregated into classes based on products, customer type, and credit risk evaluation: (i) Revolving — Dell Preferred Account (“DPA”); (ii) Revolving — Dell Business Credit (“DBC”); and (iii) Fixed-term — Consumer and Commercial. Fixed-term leases and loans are offered to qualified small and medium-sized businesses, large commercial accounts, governmental organizations, and educational entities. Fixed-term loans are also offered to qualified individual consumers. Revolving loans are offered under private label credit financing programs. The DPA revolving loan programs are primarily offered to individual consumers and the DBC revolving loan programs are primarily offered to small and medium-sized business customers.
The Company 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.
Allowance for Financing Receivables Losses — The Company recognizes an allowance for financing receivable losses, including both the lease receivable and unguaranteed residual, in an amount equal to the probable losses net of recoveries. The allowance for financing receivable losses on the lease receivable is determined based on various factors, including lifetime expected losses determined using macroeconomic forecast assumptions and management judgments applicable to and through the expected life of the portfolios as well as past due receivables, receivable type, and customer risk profile. Both fixed and revolving financing receivable loss rates are affected by macroeconomic conditions, including the level of gross domestic product (“GDP”) growth, the level of commercial capital equipment investment, unemployment rates, and the credit quality of the borrower.
Generally, expected credit losses as a result of residual value risk on equipment under lease are not considered to be significant primarily because of the existence of a secondary market with respect to the equipment. The lease agreement also defines applicable return conditions and remedies for non-compliance to ensure that the leased equipment will be in good operating condition upon return. Model changes and updates, as well as market strength and product acceptance, are monitored and adjustments are made to residual values in accordance with the significance of any such changes.
When an account is deemed to be uncollectible, customer account principal and interest are charged off to the allowance for losses. While the Company 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, therefore, the Company is adequately reserved in the event of charge off. Recoveries on receivables previously charged off as uncollectible are recorded to the allowance for financing receivables losses. The expense associated with the allowance for financing receivables losses is recognized as cost of net revenue.
Asset Securitization — The Company transfers certain U.S. and European customer loan and lease payments and associated equipment to Special Purpose Entities (“SPEs”) that meet the definition of a Variable Interest Entity (“VIE”) and are consolidated into the Consolidated Financial Statements. These SPEs are bankruptcy-remote legal entities with separate assets and liabilities. The purpose of the SPEs is to facilitate the funding of customer loan and lease payments and associated equipment in the capital markets. Some of these SPEs have entered into financing arrangements with multi-seller conduits that, in turn, issue asset-backed debt securities in the capital markets. The asset securitizations in the SPEs are accounted for as secured borrowings.
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Inventories — Inventories are stated at the lower of cost or net realizable value, with cost being determined on a first-in, first-out basis. Adjustments to reduce the cost of inventory to its net realizable value are made, if required, for estimated excess, obsolescence, or impaired balances. At the point of the loss recognition, a new, lower cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in the newly established cost basis.
Property, Plant, and Equipment — Property, plant, and equipment are carried at depreciated cost. Depreciation is determined using the straight-line method over the shorter of the estimated useful lives of the assets or the lease term, as applicable. The estimated useful lives of the Company’s property, plant, and equipment are generally as follows:
| Estimated Useful Life | |||||
| Computer equipment | 3-5 years | ||||
| Equipment under operating leases | Term of underlying lease contract | ||||
| Buildings and building improvements | 10-30 years or term of underlying land lease | ||||
| Leasehold improvements | 5 years or contract term | ||||
| Machinery and equipment | 3-5 years | ||||
Gains or losses related to retirements or dispositions of fixed assets are recognized in the period during which the retirement or disposition occurs.
Capitalized Software Development Costs — Software development costs related to the development of new product offerings are capitalized subsequent to the establishment of technological feasibility, which is demonstrated by the completion of a detailed program design or working model, if no program design is completed. The Company amortizes capitalized costs on a straight-line basis over the estimated useful lives of the products, which generally range from two to four years.
As of January 28, 2022 and January 29, 2021, capitalized software development costs were $672 million and $610 million, respectively, and are included in other non-current assets, net in the accompanying Consolidated Statements of Financial Position. Amortization expense for the fiscal years ended January 28, 2022, January 29, 2021, and January 31, 2020 was $263 million, $315 million, and $273 million, respectively.
The Company capitalizes certain internal and external costs to acquire or create internal use software which are incurred subsequent to the completion of the preliminary project stage. Development costs are generally amortized on a straight-line basis over five years. Costs associated with maintenance and minor enhancements to the features and functionality of the Company’s internal use software, including its website, are expensed as incurred.
Impairment of Long-Lived Assets — The Company reviews long-lived assets for impairment when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. The Company assesses the recoverability of the assets based on the undiscounted future cash flows expected from the use and eventual disposition 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. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.
Intangible Assets Including Goodwill — Identifiable intangible assets with finite lives are amortized over their estimated useful lives. Indefinite-lived intangible assets are not amortized. Definite-lived intangible assets are reviewed for impairment when events and circumstances indicate the asset may be impaired. Goodwill and indefinite-lived intangible assets are tested for impairment annually during the third fiscal quarter and whenever events or circumstances indicate that an impairment may have occurred.
Foreign Currency Translation — The majority of the Company’s international sales are made by international subsidiaries, some of which have the U.S. Dollar as their functional currency. The Company’s subsidiaries that do not use the U.S. Dollar as their functional currency translate assets and liabilities at current exchange rates in effect at the balance sheet date. Revenue and expenses from these international subsidiaries are translated using either the monthly average exchange rates in effect for the period in which the activity was recognized or the specific daily exchange rate associated with the date the transactions actually occur. Foreign currency translation adjustments are included as a component of accumulated other comprehensive income (loss) (“AOCI”) in stockholders’ equity (deficit).
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Local currency transactions of international subsidiaries that have the U.S. Dollar as their functional currency are remeasured into U.S. Dollars using the current rates of exchange for monetary assets and liabilities and historical rates of exchange for nonmonetary assets and liabilities. Gains and losses from remeasurement of monetary assets and liabilities are included in interest and other, net on the Consolidated Statements of Income. See Note 20 of the Notes to the Consolidated Financial Statements for amounts recognized from remeasurement during the periods presented.
Hedging Instruments — The Company uses derivative financial instruments, primarily forward contracts, options, and swaps, to hedge certain foreign currency and interest rate exposures. The relationships between hedging instruments and hedged items, as well as the risk management objectives and strategies for undertaking hedge transactions, are formally documented. The Company does not use derivatives for speculative purposes. All derivative instruments are recognized as either assets or liabilities in the Consolidated Statements of Financial Position and are measured at fair value.
The Company’s hedge portfolio includes non-designated derivatives and derivatives designated as cash flow hedges. For derivative instruments that are designated as cash flow hedges, the Company assesses hedge effectiveness at the onset of the hedge, then performs qualitative assessments at regular intervals throughout the life of the derivative. The gain or loss on cash flow hedges is recorded in accumulated other comprehensive income (loss), as a separate component of stockholders’ equity (deficit), and reclassified into earnings in the period during which the hedged transaction is recognized in earnings. For derivatives that are not designated as hedges or do not qualify for hedge accounting treatment, the Company 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 8 of the Notes to the Consolidated Financial Statements for a description of the Company’s derivative financial instrument activities.
Revenue Recognition — The Company sells a wide portfolio of products and services to its customers. The Company’s agreements have varying requirements depending on the goods and services being sold, the rights and obligations conveyed, and the legal jurisdiction of the arrangement.
Revenue is recognized for these arrangements based on the following five steps:
(1) Identify the contract with a customer. The Company evaluates facts and circumstances regarding sales transactions in order to identify contracts with its customers. An agreement must meet all of the following criteria to qualify as a contract eligible for revenue recognition under the model: (i) the contract must be approved by all parties who are committed to perform their respective obligations; (ii) each party’s rights regarding the goods and services to be transferred to the customer can be identified; (iii) the payment terms for the goods and services can be identified; (iv) the customer has the ability and intent to pay and it is probable that the Company will collect substantially all of the consideration to which it will be entitled; and (v) the contract must have commercial substance. Judgment is used in determining the customer’s ability and intent to pay, which is based upon various factors, including the customer’s historical payment experience or customer credit and financial information.
(2) Identify the performance obligations in the contract. The Company’s contracts with customers often include the promise to transfer multiple goods and services to the customer. Distinct promises within a contract are referred to as “performance obligations” and are accounted for as separate units of account. The Company assesses whether each promised good or service is distinct for the purpose of identifying the performance obligations in the contract. This assessment involves subjective determinations and requires management to make judgments about the individual promised goods or services and whether such goods or services are separable from the other aspects of the contractual relationship. Promised goods and services are considered distinct provided that: (i) the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (that is, the good or service is capable of being distinct); and (ii) the Company’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (that is, the promise to transfer the good or service is distinct within the context of the contract). The Company’s performance obligations include various distinct goods and services such as hardware, software licenses, support and maintenance agreements, and other service offerings and solutions. Promised goods and services are explicitly identified in the Company’s contracts and may be sold on a standalone basis or bundled as part of a combined solution. In certain hardware solutions, the hardware is highly interdependent on, and interrelated with, the embedded software. In these offerings, the hardware and software licenses are accounted for as a single performance obligation.
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(3) Determine the transaction price. The transaction price reflects the amount of consideration to which the Company expects to be entitled in exchange for transferring goods or services to the customer. If the consideration promised in a contract includes a variable amount, the Company estimates the amount to which it expects to be entitled using either the expected value or most likely amount method. Generally, volume discounts, rebates, and sales returns reduce the transaction price. In determining the transaction price, the Company only includes amounts that are not subject to significant future reversal.
(4) Allocate the transaction price to performance obligations in the contract. When a contract includes multiple performance obligations, the transaction price is allocated to each performance obligation in an amount that depicts the consideration to which the Company expects to be entitled in exchange for transferring the promised goods or services. For contracts with multiple performance obligations, the transaction price is allocated in proportion to the standalone selling price (“SSP”) of each performance obligation.
The best evidence of SSP is the observable price of a good or service when the Company sells that good or service separately in similar circumstances to similar customers. If a directly observable price is available, the Company will utilize that price for the SSP. If a directly observable price is not available, the SSP must be estimated. The Company estimates SSP by considering multiple factors, including, but not limited to, pricing practices, internal costs, and profit objectives as well as overall market conditions, which include geographic or regional specific factors, competitive positioning, and competitor actions.
(5) Recognize revenue when (or as) the performance obligation is satisfied. Revenue is recognized when obligations under the terms of the contract with the Company’s customer are satisfied. Revenue is recognized either over time or at a point in time, depending on when the underlying products or services are transferred to the customer. Revenue is recognized at a point in time for products upon transfer of control. Revenue is recognized over time for support and deployment services, software support, Software-as-a-Service (“SaaS”), and Infrastructure-as-a-Service (“IaaS”). Revenue is recognized either over time or at a point in time for professional services and training depending on the nature of the offering to the customer.
The Company reports revenue net of any revenue-based taxes assessed by governmental authorities that are imposed on and concurrently with specific revenue-producing transactions.
The Company has elected the following practical expedients:
•The Company does not account for significant financing components if the period between revenue recognition and when the customer pays for the product or service will be one year or less.
•The Company recognizes revenue equal to the amount it has a right to invoice when the amount corresponds directly with the value to the customer of the Company’s performance to date.
•The Company does not account for shipping and handling activities as a separate performance obligation, but rather as an activity performed to transfer the promised good.
The following summarizes the nature of revenue recognized and the manner in which the Company accounts for sales transactions.
Products
Product revenue consists of revenue from sales of hardware products, including notebooks and desktop PCs, servers, storage hardware, and other hardware-related devices, as well as revenue from software license sales, including non-essential software applications and third-party software licenses.
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Revenue from sales of hardware products is recognized when control has transferred to the customer, which typically occurs when the hardware has been shipped to the customer, risk of loss has transferred to the customer, the Company has a present right to payment, and customer acceptance has been satisfied. Customer acceptance is satisfied if acceptance is obtained from the customer, if all acceptance provisions lapse, or if the Company has evidence that all acceptance provisions will be, or have been, satisfied. Revenue from software license sales is generally recognized when control has transferred to the customer, which is typically upon shipment, electronic delivery, or when the software is available for download by the customer. For certain software arrangements in which the customer is granted a right to additional unspecified future software licenses, the Company’s promise to the customer is considered a stand-ready obligation in which the transfer of control and revenue recognition will occur over time.
Services
Services revenue consists of revenue from sales of support services, including hardware support that extends beyond the Company’s standard warranties, software maintenance, and installation; professional services; training; SaaS; and IaaS. Revenue associated with undelivered performance obligations is deferred and recognized when or as control is transferred to the customer. Revenue from fixed-price support or maintenance contracts sold for both hardware and software is recognized on a straight-line basis over the period of performance because the Company is required to provide services at any given time. Other services revenue is recognized when the Company performs the services and the customer receives and consumes the benefits.
Other
Revenue from leasing arrangements is not subject to the revenue standard for contracts with customers and remains separately accounted for under lease accounting guidance. The Company records operating lease rental revenue as product revenue on a straight-line basis over the lease term. The Company 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 is included in product net revenue in the Consolidated Statements of Income and is recognized at effective rates of return over the lease term. The Company also offers qualified customers fixed-term loans and revolving credit lines for the purchase of products and services offered by the Company. Financing income attributable to these loans is recognized in product net revenue on an accrual basis.
Principal versus Agent — For transactions that involve a third party, the Company evaluates whether it is acting as the principal or the agent in the transaction. This determination requires significant judgement and impacts the amount and timing of revenue recognized. If the Company determines that it controls a good or service before it is transferred to the customer, the Company is acting as the principal and recognizes revenue at the gross amount of consideration it is entitled to from the customer. Conversely, if the Company determines that it does not control the good or service before it is transferred to the customer, the Company is acting as an agent in the transaction. As an agent, the Company is arranging for the good or service to be provided by another party and recognizes revenue at the net amount of consideration retained.
Disaggregation of Revenue — The Company’s revenue is presented on a disaggregated basis on the Consolidated Statements of Income and in Note 19 of the Notes to the Consolidated Financial Statements based on an evaluation of disclosures outside of the financial statements, information regularly reviewed by the chief operating decision maker for evaluating the financial performance of operating segments, and other information that is used to evaluate the Company’s financial performance or make resource allocations. This information includes revenue from products and services, revenue from reportable segments, and revenue by major product categories within the segments.
Contract Assets — Contract assets are rights to consideration in exchange for goods or services that the Company has transferred to a customer when such a right is conditional on something other than the passage of time. Such amounts have been insignificant to date.
Contract Liabilities — Contract liabilities primarily consist of deferred revenue. Deferred revenue is recorded when the Company has invoiced or payments have been received for undelivered products or services, or in situations where revenue recognition criteria have not been met. Deferred revenue primarily includes amounts received in advance for extended warranty services and software maintenance. Revenue is recognized on these items when the revenue recognition criteria are met, generally resulting in ratable recognition over the contract term. The Company also has deferred revenue related to undelivered hardware and professional services, consisting of installations and consulting engagements, which are recognized
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when the Company’s performance obligations under the contract are completed. See Note 10 of the Notes to the Consolidated Financial Statements for additional information about deferred revenue.
Costs to Obtain a Contract —The Company capitalizes incremental direct costs to obtain a contract, primarily sales commissions and employer taxes related to commission payments, if the costs are deemed to be recoverable. The Company has elected, as a practical expedient, to expense as incurred costs to obtain a contract equal to or less than one year in duration. Capitalized costs are deferred and amortized over the period of contract performance or the estimated life of the customer relationship, if renewals are expected, and are typically amortized over an average period of three to five years. Amortization expense is recognized on a straight-line basis and included in selling, general, and administrative expenses in the Consolidated Statements of Income.
The Company periodically reviews these deferred costs to determine whether events or changes in circumstances have occurred that could impact the carrying value or period of benefit of the deferred sales commissions. There were no material impairment losses for deferred costs to obtain a contract during the fiscal years ended January 28, 2022, January 29, 2021, and January 31, 2020.
Deferred costs to obtain a contract as of January 28, 2022 and January 29, 2021 were $734 million and $737 million, respectively. Deferred costs to obtain a contract are classified as current assets and other non-current assets on the Consolidated Statements of Financial Position, based on when the expense is expected to be recognized. Amortization of costs to obtain a contract during the fiscal years ended January 28, 2022, January 29, 2021, and January 31, 2020 was $380 million, $385 million, and $376 million, respectively.
Standard Warranty Liabilities — The Company records warranty liabilities for estimated costs of fulfilling its obligations under standard limited hardware and software warranties at the time of sale. The liabilities for standard warranties are included in accrued and other current and other non-current liabilities in the Consolidated Statements of Financial Position. The specific warranty terms and conditions vary depending upon the product sold and the country in which the Company does business, but generally includes technical support, parts, and labor over a period ranging from one to three years. Factors that affect the Company’s warranty liabilities 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 the Company’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 18 months, repair parts are generally already in stock or available at pre-determined prices, and labor rates are generally arranged at preestablished amounts with service providers. Warranty claims are relatively predictable based on historical experience of failure rates. If actual results differ from the estimates, the Company revises its estimated warranty liability. Each quarter, the Company reevaluates its estimates to assess the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.
Vendor Rebates and Settlements — The Company 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 the Company to sell the vendor’s products. The Company recognizes a reduction of cost of goods sold if the funds are determined to be a reduction of the price of the vendor’s products. If the consideration is a reimbursement of costs incurred by the Company to sell or develop the vendor’s products, then the consideration is classified as a reduction of such costs, most often operating expenses, in the Consolidated Statements of Income. In order to be recognized as a reduction of operating expenses, the reimbursement must be for a specific, incremental, and identifiable cost incurred by the Company in selling the vendor’s products or services.
In addition, the Company may settle commercial disputes with vendors from time to time. Claims for loss recoveries are recognized when a loss event has occurred, recovery is considered probable, the agreement is finalized, and collectibility is assured. Amounts received by the Company from vendors for loss recoveries are generally recorded as a reduction of cost of goods sold.
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Loss Contingencies — The Company is subject to the possibility of various losses arising in the ordinary course of business. The Company considers the likelihood of loss or impairment of an asset or the incurrence of a liability, as well as the Company’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. The Company regularly evaluates current information available to determine whether such accruals should be adjusted and whether new accruals are required.
Shipping Costs — The Company’s shipping and handling costs are included in cost of net revenue in the Consolidated Statements of Income.
Selling, General, and Administrative — Selling expenses include items such as sales salaries and commissions, marketing and advertising costs, contractor services, and allowance for expected credit losses. Advertising costs are expensed as incurred in selling, general, and administrative expenses in the Consolidated Statements of Income. For the fiscal years ended January 28, 2022, January 29, 2021, and January 31, 2020, advertising expenses were $1.3 billion, $1.0 billion, and $1.1 billion, respectively. General and administrative expenses include items for the Company’s administrative functions, such as finance, legal, human resources, and information technology support. These functions include costs for items such as salaries and benefits and other personnel-related costs, maintenance and supplies, outside services, intangible asset amortization, and depreciation expense.
Research and Development — Research and development (“R&D”) costs are expensed as incurred. As noted in Capitalized Software Development Costs in this Note, qualifying software development costs are capitalized and amortized over time. R&D costs include salaries and benefits and other personnel-related costs associated with product development. Also included in R&D expenses are infrastructure costs, which consist of equipment and material costs, facilities-related costs, and depreciation expense.
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. The Company 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. The Company accounts for the tax impact of including Global Intangible Low-Taxed Income (GILTI) in U.S. taxable income as a period cost. The Company provides valuation allowances for deferred tax assets, where appropriate. In assessing the need for a valuation allowance, the Company considers all available evidence for each jurisdiction, including past operating results, estimates of future taxable income, and the feasibility of ongoing tax planning strategies. In the event the Company determines that all or part of the net deferred tax assets are not realizable in the future, the Company will make an adjustment to the valuation allowance that will be charged to earnings in the period in which such a determination is made.
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. The Company 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 administrative practices and precedents.
Stock-Based Compensation — The Company measures stock-based compensation expense for all share-based awards granted based on the estimated fair value of those awards at grant date. To estimate the fair value of performance-based awards containing a market condition, the Company uses the Monte Carlo valuation model. The fair value of all other share-based awards is generally based on the closing price of the Class C Common Stock as reported on the New York Stock Exchange (“NYSE”) on the date of grant.
The compensation cost of service-based stock options, restricted stock, and restricted stock units is 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. Forfeiture rates are estimated at grant date based on historical experience and adjusted in subsequent periods for differences in actual forfeitures from those estimates.
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Recently Issued Accounting Pronouncements
Accounting for Contract Assets and Contract Liabilities from Contracts with Customers — In October 2021, the Financial Accounting Standards Board (“FASB”) issued amendedguidance which requires companies to apply Topic 606, Revenue from Contracts with Customers, to recognize and measure contract assets and contract liabilities from contracts with customers acquired in a business combination. Public entities must adopt the new guidance for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact and timing of adoption of this guidance.
Reference Rate Reform — In March 2020, the FASB issued guidance which provides temporary optional expedients and exceptions to GAAP guidance on contract modifications and certain hedging relationships to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate to alternative reference rates. The Company may elect to apply the amendments prospectively through December 31, 2022. Adoption of the new guidance is not expected to have a material impact on the Company’s financial results.
Recently Adopted Accounting Pronouncements
Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity —In August 2020, the FASB issued guidance to simplify the accounting for leasing transactions. The primary objective of this update is to increase transparencyconvertible debt instruments and comparability among organizations by requiring lessees to recognize a lease liabilityconvertible preferred stock, and the derivatives scope exception for contracts in an entity's own equity. In addition, the obligation to make lease paymentsguidance on calculating diluted earnings per share has been simplified and a right-of-use asset for the right to use the underlying asset for the lease term. The guidance also makes some changes to lessor accounting and requires additional disclosures about all leasing arrangements. Companies are required to use a modified retrospective approach, with the option of applying the requirements of the standard either (1) retrospectively to each prior comparative reporting period presented, or (2) on a modified retrospective basis at the beginning of the period of adoption.made more internally consistent. The Company will adoptearly adopted this standard on the effective date, which is the first dayas of the fiscal year ending January 31, 2020. Prior comparative periods will not be retrospectively presented in the consolidated financial statements. The Company expects the cumulative-effect adjustment to accumulated deficit upon adoption to be immaterial.
Simplifying Accounting for Income Taxes — In December 2019, the FASB issued guidance to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740, Income Taxes, and by clarifying and amending existing guidance in order to improve consistent application of GAAP for other areas of Topic 740. The Company adopted the sales-type lease test. Certain leases, which under the current guidance allow for up front revenue recognitionstandard as they qualify as sales-type capital leases, will be classified as operating leases, with the revenue and expense recognized over time. As a resultof April 30, 2021. The impact of the expected increase in future originationsadoption of operating leases,this standard was immaterial to the Company expects a shift from financing receivables to capital expenditures. As such, this is expected to result in a benefit to cash flows provided by operating activities by the amount of the increase in capital expenditures, which will be reported as cash flows used in investing activities.Consolidated Financial Statements.
Measurement of Credit Losses on Financial Instruments — In June 2016, the FASB issued amended guidance which replacesreplaced the current incurred loss impairment methodology for measurement of credit losses on financial instruments with a methodology (the “current expected credit losses model” or “CECL model”) that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Public entities must adoptUnder the new guidanceCECL model, the allowance for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted for fiscal periods beginning after December 15, 2018. The Company is currently evaluating the impact that the standard will havelosses on the Consolidated Financial Statements.
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NOTE 3 — DISCONTINUED OPERATIONS
VMware Spin-Off — As disclosed in Note 1 of the adoption as a cumulative adjustment to accumulated deficit. The impact of the adoption was immaterialNotes to the Consolidated Financial Statements.Statements, on November 1, 2021, the Company completed its previously announced spin-off of VMware by means of a special stock dividend of 30,678,605 shares of Class A common stock and 307,221,836 shares of Class B common stock of VMware to Dell Technologies stockholders of record as of October 29, 2021.
| February 2, 2018 | |||||||||||
| As Reported (a) | Revenue from Contracts with Customers | As Recast | |||||||||
| (in millions) | |||||||||||
| Assets | |||||||||||
| Accounts receivable, net | $ | 11,177 | $ | 544 | $ | 11,721 | |||||
| Other current assets | $ | 5,054 | $ | 827 | $ | 5,881 | |||||
| Other non-current assets | $ | 1,862 | $ | 541 | $ | 2,403 | |||||
Liabilities and Stockholders’ Equity | |||||||||||
| Accrued and other | $ | 7,661 | $ | 365 | $ | 8,026 | |||||
| Short-term deferred revenue | $ | 12,024 | $ | (418 | ) | $ | 11,606 | ||||
| Long-term deferred revenue | $ | 10,223 | $ | (1,013 | ) | $ | 9,210 | ||||
| Other non-current liabilities | $ | 6,797 | $ | 480 | $ | 7,277 | |||||
| Accumulated deficit | $ | (9,253 | ) | $ | 2,393 | $ | (6,860 | ) | |||
| Non-controlling interests | $ | 5,661 | $ | 105 | $ | 5,766 | |||||
VMware paid a cash dividend, pro rata, to each of the holders of VMware common stock in accruedan aggregate amount equal to $11.5 billion, of which Dell Technologies received $9.3 billion. Following the payment by VMware to its stockholders, the separation of VMware from Dell Technologies occurred, including the termination or settlement of certain intercompany accounts and intercompany contracts. Dell Technologies used the net proceeds from its pro rata share of the cash dividend to repay a portion of its outstanding debt.
Dell Technologies determined that the VMware Spin-off, and related distributions, qualified as tax-free for U.S. federal income tax purposes, which required significant judgment by management. In making these determinations, Dell Technologies applied U.S. federal tax law to relevant facts and circumstances and obtained a favorable private letter ruling from the Internal Revenue Service, a tax opinion, and other external tax advice related to the concluded tax treatment. If the completed transactions were to fail to qualify for tax-free treatment for U.S. federal income tax purposes, the Company could be subject to significant liabilities, and there could be material adverse impacts on the Company’s business, financial condition, results of operations and cash flows in future reporting periods.
In connection with and upon completion of the VMware Spin-off, Dell Technologies and VMware entered into various agreements that provide a framework for the estimated value ofrelationship between the sales amountscompanies after the transaction, including, among others, a commercial framework agreement, a tax matters agreement, and a transition services agreement.
The CFA referred to be returnedin Note 1 to the customer, and an asset is recorded in other current assets representing the recoverable cost of the inventory estimated to be returned.
Pursuant to the CFA, Dell Technologies will continue to act as a distributor of VMware’s standalone products and services and purchase such products and services for resale to end-user customers. Dell Technologies will also continue to integrate VMware’s products and services with Dell Technologies’ offerings and sell them to end users. The Company has determined that for certain hardware contractsit is generally acting as principal in such transactions. The results of such operations are classified as continuing operations within the Company’s Consolidated Statements of Income.
In accordance with applicable accounting guidance, the results of VMware, excluding Dell's resale of VMware offerings, are presented as discontinued operations in the United States, transfer of control and recognition of revenue can occur earlier. This determination resulted in an increase in accounts receivable, net and a decrease in the in-transit deferral recorded in other current assets.
Consolidated Statements of Income (Loss)and, as such, have been excluded from both continuing operations and segment results for all periods presented. Further, the Company reclassified the assets and liabilities of VMware as assets and liabilities of discontinued operations in the Consolidated Statements of Financial Position as of January 29, 2021. The Consolidated Statements of Cash Flows are presented on a consolidated basis for both continuing operations and discontinued operations.
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| Fiscal Year Ended | |||||||||||||||||||||||
| February 2, 2018 | February 3, 2017 | ||||||||||||||||||||||
| As Reported (a) | Revenue from Contracts with Customers | As Recast | As Reported (a) | Revenue from Contracts with Customers | As Recast | ||||||||||||||||||
| (in millions, except per share amounts) | |||||||||||||||||||||||
| Net revenue: | |||||||||||||||||||||||
| Products | $ | 58,801 | $ | 2,450 | $ | 61,251 | $ | 48,706 | $ | 2,351 | $ | 51,057 | |||||||||||
| Services | 19,859 | (2,070 | ) | 17,789 | 12,936 | (1,829 | ) | 11,107 | |||||||||||||||
| Total net revenue | 78,660 | 380 | 79,040 | 61,642 | 522 | 62,164 | |||||||||||||||||
| Cost of net revenue: | |||||||||||||||||||||||
| Products | 50,215 | 1,218 | 51,433 | 42,169 | 1,219 | 43,388 | |||||||||||||||||
| Services | 8,391 | (1,321 | ) | 7,070 | 6,514 | (1,387 | ) | 5,127 | |||||||||||||||
| Total cost of net revenue | 58,606 | (103 | ) | 58,503 | 48,683 | (168 | ) | 48,515 | |||||||||||||||
| Gross margin | 20,054 | 483 | 20,537 | 12,959 | 690 | 13,649 | |||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Selling, general, and administrative | 19,003 | (434 | ) | 18,569 | 13,575 | (172 | ) | 13,403 | |||||||||||||||
| Research and development | 4,384 | — | 4,384 | 2,636 | — | 2,636 | |||||||||||||||||
| Total operating expenses | 23,387 | (434 | ) | 22,953 | 16,211 | (172 | ) | 16,039 | |||||||||||||||
| Operating loss | (3,333 | ) | 917 | (2,416 | ) | (3,252 | ) | 862 | (2,390 | ) | |||||||||||||
| Interest and other, net | (2,355 | ) | 2 | (2,353 | ) | (2,104 | ) | — | (2,104 | ) | |||||||||||||
| Income (loss) before income taxes | (5,688 | ) | 919 | (4,769 | ) | (5,356 | ) | 862 | (4,494 | ) | |||||||||||||
| Income tax provision (benefit) | (1,833 | ) | (10 | ) | (1,843 | ) | (1,619 | ) | 199 | (1,420 | ) | ||||||||||||
| Net income (loss) from continuing operations | (3,855 | ) | 929 | (2,926 | ) | (3,737 | ) | 663 | (3,074 | ) | |||||||||||||
| Income (loss) from discontinued operations, net of income taxes | — | — | — | 2,019 | (103 | ) | 1,916 | ||||||||||||||||
| Net income (loss) | $ | (3,855 | ) | $ | 929 | (2,926 | ) | (1,718 | ) | $ | 560 | (1,158 | ) | ||||||||||
| Less: Net income (loss) attributable to non-controlling interests | (127 | ) | 50 | (77 | ) | (46 | ) | 55 | 9 | ||||||||||||||
| Net income (loss) attributable to Dell Technologies Inc. | $ | (3,728 | ) | $ | 879 | $ | (2,849 | ) | $ | (1,672 | ) | $ | 505 | $ | (1,167 | ) | |||||||
| Earnings (loss) per share attributable to Dell Technologies Inc. - basic: | |||||||||||||||||||||||
| Class V Common Stock - basic | $ | 1.41 | 0.22 | $ | 1.63 | $ | 1.44 | (0.08 | ) | $ | 1.36 | ||||||||||||
| DHI Group - basic | $ | (7.08 | ) | 1.47 | $ | (5.61 | ) | $ | (8.52 | ) | 1.33 | $ | (7.19 | ) | |||||||||
| Discontinued operations - DHI Group - basic | $ | — | — | $ | — | 4.30 | (0.22 | ) | $ | 4.08 | |||||||||||||
| Earnings (loss) per share attributable to Dell Technologies Inc. - diluted: | |||||||||||||||||||||||
| Class V Common Stock - diluted | $ | 1.39 | 0.22 | $ | 1.61 | $ | 1.43 | (0.08 | ) | $ | 1.35 | ||||||||||||
| DHI Group - diluted | $ | (7.08 | ) | 1.46 | $ | (5.62 | ) | $ | (8.52 | ) | 1.33 | $ | (7.19 | ) | |||||||||
| Discontinued operations - DHI Group - basic | $ | — | — | $ | — | $ | 4.30 | (0.22 | ) | $ | 4.08 | ||||||||||||
The transition services agreement between the Company and VMware governs the various administrative services which the Company will provide to VMware on an interim transitional basis. Transition services may be provided for up to one year.
Dell Technologies has continuing involvement with VMware due to the activities supported under the CFA. Cash flows between Dell and VMware primarily relate to Dell’s purchase of VMware products and services for resale. See Note 21 of the Notes to the Consolidated Financial Statements for additional information regarding transactions between Dell Technologies and VMware.
The following table presents key components of “Income from discontinued operations, net of income taxes” for the fiscal years ended January 28, 2022, January 29, 2021, and January 31, 2020:
| Fiscal Year Ended (a) | ||||||||||||||||||||
| January 28, 2022 | January 29, 2021 | January 31, 2020 | ||||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Net revenue | $ | 5,798 | $ | 7,554 | $ | 7,339 | ||||||||||||||
| Cost of net revenue | (1,632) | (1,723) | (955) | |||||||||||||||||
| Operating expenses | 6,384 | 7,818 | 8,038 | |||||||||||||||||
| Interest and other, net | 232 | 135 | 209 | |||||||||||||||||
| Income from discontinued operations before income taxes | 814 | 1,324 | 47 | |||||||||||||||||
| Income tax expense (benefit) | 49 | 64 | (4,961) | |||||||||||||||||
| Income from discontinued operations, net of income taxes | $ | 765 | $ | 1,260 | $ | 5,008 | ||||||||||||||
____________________
(a) The table above reflects the offsetting effects of historical intercompany transactions which are presented on a gross basis within continuing operations on the Consolidated Statements of Income.
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The following table presents assets and liabilities that are classified as discontinued operations on the Consolidated Statements of Financial Position as of January 29, 2021:
| January 29, 2021 (a) | ||||||||
| (in | ||||||||
| Fiscal Year Ended February 2, 2018 | |||||||||||||||
| As Reported (a) | Classification of Certain Cash Receipts and Cash Payments | Statement of Cash Flows, Restricted Cash | As Recast | ||||||||||||
| (in millions) | |||||||||||||||
| Change in cash from operating activities | $ | 6,810 | $ | 48 | $ | (15 | ) | $ | 6,843 | ||||||
| Change in cash from investing activities | $ | (2,881 | ) | $ | — | $ | 6 | $ | (2,875 | ) | |||||
| Change in cash from financing activities | $ | 364 | $ | (48 | ) | $ | 87 | $ | 403 | ||||||
| Change in cash, cash equivalents, and restricted cash | $ | 4,468 | $ | — | $ | 78 | $ | 4,546 | |||||||
| Cash, cash equivalents, and restricted cash at beginning of the period | 9,474 | — | 358 | $ | 9,832 | ||||||||||
| Cash, cash equivalents, and restricted cash at end of the period | $ | 13,942 | $ | — | $ | 436 | $ | 14,378 | |||||||
| Fiscal Year Ended February 3, 2017 | |||||||||||||||
| As Reported (a) | Classification of Certain Cash Receipts and Cash Payments | Statement of Cash Flows, Restricted Cash | As Recast | ||||||||||||
| (in millions) | |||||||||||||||
| Change in cash from operating activities | $ | 2,309 | $ | 39 | $ | 19 | $ | 2,367 | |||||||
| Change in cash from investing activities | $ | (31,256 | ) | $ | — | $ | 20 | $ | (31,236 | ) | |||||
| Change in cash from financing activities | $ | 31,821 | $ | (39 | ) | $ | 3 | $ | 31,785 | ||||||
| Change in cash, cash equivalents, and restricted cash | $ | 2,898 | $ | — | $ | 42 | $ | 2,940 | |||||||
| Cash, cash equivalents, and restricted cash at beginning of the period | 6,576 | — | 316 | $ | 6,892 | ||||||||||
| Cash, cash equivalents, and restricted cash at end of the period | $ | 9,474 | $ | — | $ | 358 | $ | 9,832 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| $ | 4,693 | |||||||
| Accounts receivable, net | 2,057 | |||||||
| Other current assets | (1,898) | |||||||
| Total current assets | 4,852 | |||||||
| Property, plant, and equipment, net | 1,598 | |||||||
| Long-term investments | 290 | |||||||
| Goodwill | 20,801 | |||||||
| Intangible assets, net | 5,314 | |||||||
| Other non-current assets | 4,012 | |||||||
| Total assets | $ | 36,867 | ||||||
| LIABILITIES | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 124 | ||||||
| Accrued and other | 927 | |||||||
| Short-term deferred revenue | 3,324 | |||||||
| Total current liabilities | 4,375 | |||||||
| Long-term debt | 8,757 | |||||||
| Long-term deferred revenue | 1,885 | |||||||
| Other non-current liabilities | 1,437 | |||||||
| Total liabilities | $ | 16,454 | ||||||
____________________
(a) The table above reflects the offsetting effects of historical intercompany transactions which are presented on a gross basis within continuing operations on the Consolidated Statements of Financial Position.
The following table presents significant cash flow items from discontinued operations for the fiscal years ended January 28, 2022, January 29, 2021, and January 31, 2020 included within the Consolidated Statements of Cash Flows:
| Fiscal Year Ended (a) | ||||||||||||||||||||
| January 28, 2022 | January 29, 2021 | January 31, 2020 | ||||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Depreciation and amortization | $ | 1,004 | $ | 1,523 | $ | 1,685 | ||||||||||||||
| Capital expenditures | $ | 263 | $ | 329 | $ | 279 | ||||||||||||||
| Stock-based compensation expense | $ | 814 | $ | 1,122 | $ | 1,017 | ||||||||||||||
NOTE 34 — FAIR VALUE MEASUREMENTS AND INVESTMENTS
The following table presents the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of February 1, 2019 and February 2, 2018:the dates indicated:
| January 28, 2022 | January 29, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||
| Level 1 | Level 2 | 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 and cash equivalents: | |||||||||||||||||||||||||||||||||||||||||||||||
| Money market funds | $ | 3,737 | $ | — | $ | — | $ | 3,737 | $ | 5,109 | $ | — | $ | — | $ | 5,109 | |||||||||||||||||||||||||||||||
| Marketable equity and other securities | 86 | — | — | 86 | 287 | — | — | 287 | |||||||||||||||||||||||||||||||||||||||
| Derivative instruments | — | 253 | — | 253 | — | 95 | — | 95 | |||||||||||||||||||||||||||||||||||||||
| Total assets | $ | 3,823 | $ | 253 | $ | — | $ | 4,076 | $ | 5,396 | $ | 95 | $ | — | $ | 5,491 | |||||||||||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||||||||||||||||||||
| Derivative instruments | $ | — | $ | 138 | $ | — | $ | 138 | $ | — | $ | 128 | $ | — | $ | 128 | |||||||||||||||||||||||||||||||
| Total liabilities | $ | — | $ | 138 | $ | — | $ | 138 | $ | — | $ | 128 | $ | — | $ | 128 | |||||||||||||||||||||||||||||||
| February 1, 2019 (a) | February 2, 2018 (a) | ||||||||||||||||||||||||||||||
| Level 1 | Level 2 | 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 and cash equivalents: | |||||||||||||||||||||||||||||||
| Money market funds | $ | 5,221 | $ | — | $ | — | $ | 5,221 | $ | 8,641 | $ | — | $ | — | $ | 8,641 | |||||||||||||||
| U.S. corporate debt securities | — | — | — | — | — | 23 | — | 23 | |||||||||||||||||||||||
| Foreign corporate debt securities | — | — | — | — | — | 65 | — | 65 | |||||||||||||||||||||||
| Debt securities: | |||||||||||||||||||||||||||||||
| U.S. government and agencies | — | — | — | — | 682 | 392 | — | 1,074 | |||||||||||||||||||||||
| U.S. corporate | — | — | — | — | — | 2,003 | — | 2,003 | |||||||||||||||||||||||
| Foreign | — | — | — | — | — | 2,547 | — | 2,547 | |||||||||||||||||||||||
| Equity and other securities | 314 | 20 | — | 334 | 236 | 5 | — | 241 | |||||||||||||||||||||||
| Derivative instruments | — | 97 | — | 97 | — | 83 | — | 83 | |||||||||||||||||||||||
| Total assets | $ | 5,535 | $ | 117 | $ | — | $ | 5,652 | $ | 9,559 | $ | 5,118 | $ | — | $ | 14,677 | |||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||||
| Derivative instruments | $ | — | $ | 60 | $ | — | $ | 60 | $ | — | $ | 184 | $ | — | $ | 184 | |||||||||||||||
| Total liabilities | $ | — | $ | 60 | $ | — | $ | 60 | $ | — | $ | 184 | $ | — | $ | 184 | |||||||||||||||
The following section describes the valuation methodologies the Company uses to measure financial instruments at fair value:
Money Market Funds — The Company’s investment in money market funds that are classified as cash equivalents hold underlying investments with a weighted average maturity of 90 days or less and are recognized at fair value. The valuations of these securities are based on quoted prices in active markets for identical assets, when available, or pricing models whereby all significant inputs are observable or can be derived from or corroborated by observable market data. The Company reviews security pricing and assesses liquidity on a quarterly basis. As of February 1, 2019, the Company’s U.S. portfolio had no material exposure to money market funds with a fluctuating net asset value.
Marketable Equity and Other Securities — The majority of the Company’s investments in equity and other securities that are measured at fair value on a recurring basis consist of strategic investments in publicly-traded companies. The valuation of these securities is based on quoted prices in active markets.
Derivative Instruments — The Company’s derivative financial instruments consist primarily of foreign currency forward and purchased option contracts and interest rate swaps. The fair value of the portfolio is determined using valuation models based on market observable inputs, including interest rate curves, forward and spot prices for currencies, and implied volatilities. Credit risk is also factored into the fair value calculation of the Company’s derivative financial instrument portfolio. See Note 78 of the Notes to the Consolidated Financial Statements for a description of the Company’s derivative financial instrument activities.
Deferred Compensation Plans —The Company offers deferred compensation plans for eligible employees, which allow participants to defer a portion of their compensation. Assets were the same as liabilities associated with the plans at approximately $192 million and $168 million as of January 28, 2022 and January 29, 2021, respectively, and are included in other assets and other liabilities on the Consolidated Statements of Financial Position. The net impact to the Consolidated Statements of Income is not material since changes in the fair value of the assets substantially offset changes in the fair value of the liabilities. As such, assets and liabilities associated with these plans have not been included in the recurring fair value table above.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis — Certain assets are measured at fair value on a nonrecurring basis and therefore are not included in the recurring fair value table above. These assets consist primarily of non-financialnon-
103
financial assets such as goodwill and intangible assets. See Note 89 of the Notes to the Consolidated Financial Statements for additional information about goodwill and intangible assets.
As of February 1, 2019January 28, 2022 and February 2, 2018,January 29, 2021, the Company held private strategic investments in non-marketable equity and other securities of $671 million$1.4 billion and $485 million,$0.9 billion, respectively. As these investments represent early-stage companies without readily determinable fair values, they are not included in the recurring fair value table above.
Carrying Value and Estimated Fair Value of Outstanding Debt — The following table summarizespresents the carrying value and estimated fair value of the Company’s outstanding debt as described in Note 67 of the Notes to the Consolidated Financial Statements, including the current portion, as of the dates indicated:
| January 28, 2022 | January 29, 2021 | ||||||||||||||||||||||
| Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||||||||||
| (in billions) | |||||||||||||||||||||||
| Senior Secured Credit Facilities | $ | — | $ | — | $ | 6.2 | $ | 6.3 | |||||||||||||||
| Senior Notes | $ | 16.1 | $ | 18.5 | $ | 20.9 | $ | 25.5 | |||||||||||||||
| Legacy Notes and Debentures | $ | 0.8 | $ | 1.1 | $ | 1.2 | $ | 1.6 | |||||||||||||||
| EMC Notes | $ | — | $ | — | $ | 1.0 | $ | 1.0 | |||||||||||||||
| February 1, 2019 | February 2, 2018 | ||||||||||||||
| Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||
| (in billions) | |||||||||||||||
| Senior Secured Credit Facilities | $ | 12.5 | $ | 12.6 | $ | 10.4 | $ | 10.6 | |||||||
| First Lien Notes | $ | 19.8 | $ | 21.0 | $ | 19.7 | $ | 21.9 | |||||||
| Unsecured Notes and Debentures | $ | 1.8 | $ | 1.9 | $ | 2.3 | $ | 2.5 | |||||||
| Senior Notes | $ | 3.1 | $ | 3.4 | $ | 3.1 | $ | 3.4 | |||||||
| EMC Notes | $ | 3.0 | $ | 2.9 | $ | 5.5 | $ | 5.4 | |||||||
| VMware Notes | $ | 4.0 | $ | 3.9 | $ | 4.0 | $ | 3.9 | |||||||
| Margin Loan Facility | $ | 3.3 | $ | 3.4 | $ | 2.0 | $ | 2.0 | |||||||
The fair values of the outstanding debt shown in the table above, as well as the DFS debt described in Note 5 of the Notes to the Consolidated Financial Statements, were determined based on observable market prices in a less active market or based on valuation methodologies using observable inputs and were categorized as Level 2 in the fair value hierarchy. The carrying value of DFS debt approximates fair value.
Investments
The Company has strategic investments in equity and other securities as well as investments in fixed-income debt securities. As of January 28, 2022 and January 29, 2021, total investments were $1.8 billion and $1.3 billion, respectively.
Equity and Other Securities
Equity and other securities include strategic investments in marketable and non-marketable securities. Investments in marketable securities are measured at fair value on a recurring basis. The Company has elected to apply the measurement alternative for non-marketable securities. Under the alternative, the Company measures investments without readily determinable fair values at cost, less impairment, adjusted by observable price changes. The Company makes a separate election to use the alternative for each eligible investment and is required to reassess at each reporting period whether an investment qualifies for the alternative. In evaluating these investments for impairment or observable price changes, the Company uses inputs including pre- and post-money valuations of recent financing events and the impact of those events on its fully diluted ownership percentages, as well as other available information regarding the issuer’s historical and forecasted performance.
The following table presents the amortized cost, cumulative unrealized gains, cumulative unrealized losses, and carrying value of the Company's strategic investments in marketable and non-marketable equity securities as of the dates indicated.
| January 28, 2022 | January 29, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||
| Cost | Unrealized Gain | Unrealized Loss | Carrying Value | Cost | Unrealized Gain | Unrealized Loss | Carrying Value | ||||||||||||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Marketable | $ | 126 | $ | 79 | $ | (119) | $ | 86 | $ | 185 | $ | 144 | $ | (42) | $ | 287 | |||||||||||||||||||||||||||||||
| Non-marketable | 593 | 900 | (52) | 1,441 | 454 | 419 | (11) | 862 | |||||||||||||||||||||||||||||||||||||||
| Total equity and other securities | $ | 719 | $ | 979 | $ | (171) | $ | 1,527 | $ | 639 | $ | 563 | $ | (53) | $ | 1,149 | |||||||||||||||||||||||||||||||
Gains and Losses on Equity and Other Securities
The following table presents unrealized gains and losses on marketable and non-marketable equity and other securities for the periods indicated:
| Fiscal Year Ended | |||||||||||||||||
| January 28, 2022 | January 29, 2021 | January 31, 2020 | |||||||||||||||
| (in millions) | |||||||||||||||||
| Marketable securities | |||||||||||||||||
| Unrealized gain | $ | 45 | $ | 288 | $ | 5 | |||||||||||
| Unrealized loss | (151) | (45) | (18) | ||||||||||||||
| Net unrealized gain (loss) | (106) | 243 | (13) | ||||||||||||||
| Non-marketable securities | |||||||||||||||||
| Unrealized gain | 604 | 190 | 75 | ||||||||||||||
| Unrealized loss | (43) | (59) | (15) | ||||||||||||||
| Net unrealized gain (a) | 561 | 131 | 60 | ||||||||||||||
| Total net gain on equity and other securities | $ | 455 | $ | 374 | $ | 47 | |||||||||||
____________________
(a) For all periods presented, net gains on non-marketable securities are due to upward adjustments for observable price changes offset by losses primarily attributable to impairments.
Fixed Income Debt Securities
The Company has fixed income debt securities carried at amortized cost which are held as collateral for borrowings. The Company intends to hold the investments to maturity.
The following table summarizes by major security type, the carrying value and amortized cost of the Company’s investments. All debt security investments with remaining effective 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.
| February 1, 2019 | February 2, 2018 | ||||||||||||||||||||||||||||||
| Cost | Unrealized Gain | Unrealized (Loss) | Carrying Value | Cost | Unrealized Gain | Unrealized (Loss) | Carrying Value | ||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||
| Investments: | |||||||||||||||||||||||||||||||
| U.S. government and agencies | $ | — | $ | — | $ | — | $ | — | $ | 485 | $ | — | $ | (2 | ) | $ | 483 | ||||||||||||||
| U.S. corporate debt securities | — | — | — | — | 660 | — | (2 | ) | 658 | ||||||||||||||||||||||
| Foreign debt securities | — | — | — | — | 1,048 | — | (2 | ) | 1,046 | ||||||||||||||||||||||
| Total short-term investments | — | — | — | — | 2,193 | — | (6 | ) | 2,187 | ||||||||||||||||||||||
| U.S. government and agencies | — | — | — | — | 600 | — | (9 | ) | 591 | ||||||||||||||||||||||
| U.S. corporate debt securities | — | — | — | — | 1,361 | — | (16 | ) | 1,345 | ||||||||||||||||||||||
| Foreign debt securities | — | — | — | — | 1,518 | — | (17 | ) | 1,501 | ||||||||||||||||||||||
| Equity and other securities (a) | 638 | 539 | (172 | ) | 1,005 | 640 | 86 | — | 726 | ||||||||||||||||||||||
| Total long-term investments | 638 | 539 | (172 | ) | 1,005 | 4,119 | 86 | (42 | ) | 4,163 | |||||||||||||||||||||
| Total investments | $ | 638 | $ | 539 | $ | (172 | ) | $ | 1,005 | $ | 6,312 | $ | 86 | $ | (48 | ) | $ | 6,350 | |||||||||||||
| January 28, 2022 | January 29, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||
| Amortized Cost | Unrealized Gains | Unrealized Loss | Carrying Value | Amortized Cost | Unrealized Gains | Unrealized Loss | Carrying Value | ||||||||||||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Fixed income debt securities | $ | 333 | $ | 26 | $ | (47) | $ | 312 | $ | 176 | $ | 12 | $ | (3) | $ | 185 | |||||||||||||||||||||||||||||||
NOTE 5 — FINANCIAL SERVICES
The Company offers or arranges various financing options and services, and alternative payment structures for its customers in North America, Europe, Australia, and New Zealand through Dell Financial Services and its affiliates (“DFS”).globally. The Company also arranges financing for some of its customers in various countries where DFS does not currently operate as a captive.captive enterprise. The Company further strengthens customer relationships through flexible consumption models, which enable the Company to offer its customers the option to pay over time and, in certain cases, based on utilization, to provide them with financial flexibility to meet their changing technological requirements. The key activities of DFS include originating, collecting, and servicing of customer financing arrangements primarily related to the purchase or usageuse of Dell Technologies products and services. In some cases, DFS also offers financing onfor the purchase of third-party technology products that complement the Dell Technologies portfolio of products and services. New financing originations were $7.3$8.5 billion, $6.3$8.9 billion, and $4.5$8.5 billion for the fiscal years ended February 1, 2019, February 2, 2018,January 28, 2022, January 29, 2021, and February 3, 2017,January 31, 2020, respectively.
The Company’s lease and loan arrangements with customers are aggregated primarily 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 Technologies. These private label credit financing programs are referred to as Dell Preferred Account (“DPA”) and Dell Business Credit (“DBC”). The DPA product is primarily offered to individual consumer customers, and the DBC product is primarily offered to small and medium-sized commercial customers. Revolving loans in the United States 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 twelve months on average. Due to the short-term nature of the revolving loan portfolio, the carrying value of the portfolio approximates fair value.
Fixed-term leases and loans — The Company enters into financing arrangements with customers who seek lease financing for equipment. DFS leases are classified as sales-type leases, direct financing leases, or operating leases. Direct financing leases are immaterial. Leases that commenced prior to the effective date of the current lease accounting standard continue to be accounted for under previous lease accounting guidance. Leases with business customers have fixed terms of generally two to four years.
The Company also offers fixed-term loans to qualified small businesses, large commercial accounts, governmental organizations, educational entities, and certain individual consumer customers. These loans are repaid in equal payments including interest and have defined terms of generally three to five years. The fair value of the fixed-term loan portfolio is determined using market observable inputs. The carrying value of these loans approximates fair value.
106
Financing Receivables
The following table summarizespresents the components of the Company’s financing receivables segregated by portfolio segment as of February 1, 2019the dates indicated:
| January 28, 2022 | January 29, 2021 | ||||||||||||||||||||||||||||||||||
| Revolving | Fixed-term | Total | Revolving | Fixed-term | Total | ||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||
| Financing receivables, net: | |||||||||||||||||||||||||||||||||||
| Customer receivables, gross (a) | $ | 750 | $ | 9,833 | $ | 10,583 | $ | 796 | $ | 9,588 | $ | 10,384 | |||||||||||||||||||||||
| Allowances for losses | (102) | (87) | (189) | (148) | (173) | (321) | |||||||||||||||||||||||||||||
| Customer receivables, net | 648 | 9,746 | 10,394 | 648 | 9,415 | 10,063 | |||||||||||||||||||||||||||||
| Residual interest | — | 217 | 217 | — | 424 | 424 | |||||||||||||||||||||||||||||
| Financing receivables, net | $ | 648 | $ | 9,963 | $ | 10,611 | $ | 648 | $ | 9,839 | $ | 10,487 | |||||||||||||||||||||||
| Short-term | $ | 648 | $ | 4,441 | $ | 5,089 | $ | 648 | $ | 4,500 | $ | 5,148 | |||||||||||||||||||||||
| Long-term | $ | — | $ | 5,522 | $ | 5,522 | $ | — | $ | 5,339 | $ | 5,339 | |||||||||||||||||||||||
____________________
(a) Customer receivables, gross include amounts due from customers under revolving loans, fixed-term loans, fixed-term sales-type or direct financing leases, and February 2, 2018:accrued interest.
| February 1, 2019 | February 2, 2018 | ||||||||||||||||||||||
| Revolving | Fixed-term | Total | Revolving | Fixed-term | Total | ||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Financing receivables, net: | |||||||||||||||||||||||
| Customer receivables, gross (a) | $ | 835 | $ | 7,249 | $ | 8,084 | $ | 900 | $ | 6,282 | $ | 7,182 | |||||||||||
| Allowances for losses | (75 | ) | (61 | ) | (136 | ) | (81 | ) | (64 | ) | (145 | ) | |||||||||||
| Customer receivables, net | 760 | 7,188 | 7,948 | 819 | 6,218 | 7,037 | |||||||||||||||||
| Residual interest | — | 674 | 674 | — | 606 | 606 | |||||||||||||||||
| Financing receivables, net | $ | 760 | $ | 7,862 | $ | 8,622 | $ | 819 | $ | 6,824 | $ | 7,643 | |||||||||||
| Short-term | $ | 760 | $ | 3,638 | $ | 4,398 | $ | 819 | $ | 3,100 | $ | 3,919 | |||||||||||
| Long-term | $ | — | $ | 4,224 | $ | 4,224 | $ | — | $ | 3,724 | $ | 3,724 | |||||||||||
The following table presents the changes in allowance for financing receivable losses for the respective periods:periods indicated:
| Revolving | Fixed-term | Total | |||||||||||||||
| (in millions) | |||||||||||||||||
| Allowance for financing receivable losses: | |||||||||||||||||
| Balances as of February 1, 2019 | $ | 75 | $ | 61 | $ | 136 | |||||||||||
| Charge-offs, net of recoveries | (71) | (23) | (94) | ||||||||||||||
| Provision charged to income statement | 66 | 41 | 107 | ||||||||||||||
| Balances as of January 31, 2020 | 70 | 79 | 149 | ||||||||||||||
| Adjustment for adoption of accounting standard (Note 2) | 40 | 71 | 111 | ||||||||||||||
| Charge-offs, net of recoveries | (62) | (29) | (91) | ||||||||||||||
| Provision charged to income statement | 100 | 52 | 152 | ||||||||||||||
| Balances as of January 29, 2021 | 148 | 173 | 321 | ||||||||||||||
| Charge-offs, net of recoveries | (43) | (29) | (72) | ||||||||||||||
| Provision charged to income statement | (3) | (57) | (60) | ||||||||||||||
| Balances as of January 28, 2022 | $ | 102 | $ | 87 | $ | 189 | |||||||||||
| Revolving | Fixed-term | Total | |||||||||
| (in millions) | |||||||||||
| Allowance for financing receivable losses: | |||||||||||
| Balances as of January 29, 2016 | $ | 118 | $ | 58 | $ | 176 | |||||
| Charge-offs, net of recoveries | (91 | ) | (17 | ) | (108 | ) | |||||
| Provision charged to income statement | 64 | 11 | 75 | ||||||||
| Balances as of February 3, 2017 | 91 | 52 | 143 | ||||||||
| Charge-offs, net of recoveries | (84 | ) | (17 | ) | (101 | ) | |||||
| Provision charged to income statement | 74 | 29 | 103 | ||||||||
| Balances as of February 2, 2018 | 81 | 64 | 145 | ||||||||
| Charge-offs, net of recoveries | (78 | ) | (26 | ) | (104 | ) | |||||
| Provision charged to income statement | 72 | 23 | 95 | ||||||||
| Balances as of February 1, 2019 | $ | 75 | $ | 61 | $ | 136 | |||||
107
Aging
The following table summarizespresents the aging of the Company’s customer financing receivables, gross, including accrued interest, segregated by class, as of February 1, 2019 and February 2, 2018, segregated by class:the dates indicated:
| January 28, 2022 | January 29, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||
| Current | Past Due 1 — 90 Days | Past Due >90 Days | Total | Current | Past Due 1 — 90 Days | Past Due >90 Days | Total | ||||||||||||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Revolving — DPA | $ | 520 | $ | 40 | $ | 11 | $ | 571 | $ | 578 | $ | 30 | $ | 13 | $ | 621 | |||||||||||||||||||||||||||||||
| Revolving — DBC | 158 | 18 | 3 | 179 | 157 | 14 | 4 | 175 | |||||||||||||||||||||||||||||||||||||||
| Fixed-term — Consumer and Commercial | 9,444 | 345 | 44 | 9,833 | 9,185 | 316 | 87 | 9,588 | |||||||||||||||||||||||||||||||||||||||
| Total customer receivables, gross | $ | 10,122 | $ | 403 | $ | 58 | $ | 10,583 | $ | 9,920 | $ | 360 | $ | 104 | $ | 10,384 | |||||||||||||||||||||||||||||||
| February 1, 2019 | February 2, 2018 | ||||||||||||||||||||||||||||||
| Current | Past Due 1 — 90 Days | Past Due >90 Days | Total | Current | Past Due 1 — 90 Days | Past Due >90 Days | Total | ||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||
| Revolving — DPA | $ | 583 | $ | 53 | $ | 21 | $ | 657 | $ | 633 | $ | 59 | $ | 23 | $ | 715 | |||||||||||||||
| Revolving — DBC | 155 | 19 | 4 | 178 | 162 | 19 | 4 | 185 | |||||||||||||||||||||||
| Fixed-term — Consumer and Commercial | 6,282 | 878 | 89 | 7,249 | 5,414 | 775 | 93 | 6,282 | |||||||||||||||||||||||
| Total customer receivables, gross | $ | 7,020 | $ | 950 | $ | 114 | $ | 8,084 | $ | 6,209 | $ | 853 | $ | 120 | $ | 7,182 | |||||||||||||||
Aging is likely to fluctuate year to year as a result of the variability in volume of large transactions entered into over the period, and the administrative processes that accompany those larger transactions. Aging is also impacted by the timing of the Dell Technologies fiscal period end date relative to calendar month-end customer payment due dates. As such,a result of these factors, fluctuations in aging from period to period do not necessarily indicate a material change in the credit qualitycollectibility of the portfolio.
Fixed-term consumer and commercial customer receivables are placed on non-accrual status if principal or interest is past due and considered delinquent, or if there is concern about collectibility of a specific customer receivable. These receivables identified as doubtful for collectibility may be classified as current for aging purposes. Aged revolving portfolio customer receivables identified as delinquent are charged off.
Credit Quality
The following table summarizestables present customer receivables, gross, including accrued interest, by credit quality indicator segregated by class, as of February 1, 2019 and February 2, 2018. the dates indicated:
| January 28, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fixed-term — Consumer and Commercial | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fiscal Year of Origination | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2020 | 2019 | 2018 | Years Prior | Revolving — DPA | Revolving — DBC | Total | |||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Higher | $ | 3,279 | $ | 1,824 | $ | 914 | $ | 221 | $ | 25 | $ | 3 | $ | 150 | $ | 46 | $ | 6,462 | |||||||||||||||||||||||||||||||||||
| Mid | 1,071 | 751 | 329 | 94 | 17 | — | 166 | 57 | 2,485 | ||||||||||||||||||||||||||||||||||||||||||||
| Lower | 599 | 450 | 208 | 42 | 6 | — | 255 | 76 | 1,636 | ||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 4,949 | $ | 3,025 | $ | 1,451 | $ | 357 | $ | 48 | $ | 3 | $ | 571 | $ | 179 | $ | 10,583 | |||||||||||||||||||||||||||||||||||
| January 29, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fixed-term — Consumer and Commercial | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fiscal Year of Origination | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2021 | 2020 | 2019 | 2018 | 2017 | Years Prior | Revolving — DPA | Revolving — DBC | Total | |||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Higher | $ | 3,119 | $ | 1,801 | $ | 661 | $ | 166 | $ | 26 | $ | — | $ | 172 | $ | 47 | $ | 5,992 | |||||||||||||||||||||||||||||||||||
| Mid | 1,121 | 671 | 287 | 73 | 9 | — | 188 | 52 | 2,401 | ||||||||||||||||||||||||||||||||||||||||||||
| Lower | 865 | 499 | 243 | 38 | 9 | — | 261 | 76 | 1,991 | ||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 5,105 | $ | 2,971 | $ | 1,191 | $ | 277 | $ | 44 | $ | — | $ | 621 | $ | 175 | $ | 10,384 | |||||||||||||||||||||||||||||||||||
The categories shown in the table belowtables above segregate customer receivables based on the relative degrees of credit risk. The credit quality indicators for DPA revolving accounts are measured primarily as of each quarter-end date, while all other indicators are generally updated on a periodic basis.
| February 1, 2019 | February 2, 2018 | ||||||||||||||||||||||||||||||
| Higher | Mid | Lower | Total | Higher | Mid | Lower | Total | ||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||
| Revolving — DPA | $ | 128 | $ | 192 | $ | 337 | $ | 657 | $ | 131 | $ | 223 | $ | 361 | $ | 715 | |||||||||||||||
| Revolving — DBC | $ | 47 | $ | 54 | $ | 77 | $ | 178 | $ | 48 | $ | 58 | $ | 79 | $ | 185 | |||||||||||||||
| Fixed-term — Consumer and Commercial | $ | 3,980 | $ | 1,984 | $ | 1,285 | $ | 7,249 | $ | 3,334 | $ | 1,828 | $ | 1,120 | $ | 6,282 | |||||||||||||||
For DPA revolving receivables shown in the table above, the Company makes credit decisions based on proprietary scorecards, which include the customer’s credit history, payment history, credit usage, and other credit agency-related elements. The higher quality category includes prime accounts generally of a higher credit quality that are comparable to U.S. customer FICO scores of 720 or above. The mid-category represents the mid-tier accounts that are comparable to U.S. customer FICO scores from 660 to 719. The lower category is generally sub-prime and represents lower credit quality accounts that are comparable to U.S. customer FICO scores below 660. For the DBC revolving receivables and fixed-term commercial receivables shown in the table above, an internal grading system is utilized that assigns a credit level score based on a number of considerations, including liquidity, operating performance, and industry outlook. The grading criteria and classifications for the fixed-term products differ from those for the revolving products as loss experience varies between these product and customer groups. The credit quality categories cannot be compared between the different classes as loss experience varies substantially between the classes.
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Leases
Interest income on sales-type lease receivables was $246 million, $270 million, and $259 million for the fiscal years ended January 28, 2022, January 29, 2021, and January 31, 2020, respectively.
The following table presents the net revenue, cost of net revenue, and gross margin recognized at the commencement date of sales-type leases for the periods indicated:
| Fiscal Year Ended | |||||||||||||||||
| January 28, 2022 | January 29, 2021 | January 31, 2020 | |||||||||||||||
| (in millions) | |||||||||||||||||
Net revenue — products | $ | 756 | $ | 824 | $ | 770 | |||||||||||
Cost of net revenue — products | 583 | 578 | 582 | ||||||||||||||
Gross margin — products | $ | 173 | $ | 246 | $ | 188 | |||||||||||
The following table presents the future maturity of the Company’s fixed-term customer leases and associated financing payments, and reconciles the undiscounted cash flows to the customer receivables, gross recognized on the Consolidated Statements of Financial Position as of the date indicated:
| January 28, 2022 | |||||
| (in millions) | |||||
| Fiscal 2023 | $ | 2,488 | |||
| Fiscal 2024 | 1,627 | ||||
| Fiscal 2025 | 938 | ||||
| Fiscal 2026 | 375 | ||||
| Fiscal 2027 and beyond | 96 | ||||
| Total undiscounted cash flows | 5,524 | ||||
| Fixed-term loans | 4,921 | ||||
| Revolving loans | 750 | ||||
| Less: unearned income | (612) | ||||
| Total customer receivables, gross | $ | 10,583 | |||
Operating Leases
The following table presents the components of the Company’s operating lease portfolio included in Property, plant, and equipment, net as of the dates indicated:
| January 28, 2022 | January 29, 2021 | ||||||||||
| (in millions) | |||||||||||
| Equipment under operating lease, gross | $ | 2,643 | $ | 1,746 | |||||||
| Less: accumulated depreciation | (935) | (432) | |||||||||
| Equipment under operating lease, net | $ | 1,708 | $ | 1,314 | |||||||
Operating lease income relating to lease payments was $717 million, $452 million, and $169 million for the fiscal years ended January 28, 2022, January 29, 2021, and January 31, 2020, respectively. Depreciation expense was $536 million, $334 million, and $115 million for the fiscal years ended January 28, 2022, January 29, 2021, and January 31, 2020, respectively.
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The following table presents the future payments to be received by the Company as lessor in operating lease contracts as of the date indicated:
| January 28, 2022 | |||||
| (in millions) | |||||
| Fiscal 2023 | $ | 809 | |||
| Fiscal 2024 | 557 | ||||
| Fiscal 2025 | 311 | ||||
| Fiscal 2026 | 82 | ||||
| Fiscal 2027 and beyond | 25 | ||||
| Total | $ | 1,784 | |||
DFS Debt
The Company maintains programs that facilitate the funding of financing receivablesleases, loans, and other alternative payment structures in the capital markets. The majority of DFS debt is non-recourse to Dell Technologies and represents borrowings under securitization programs and structured financing programs, for which the Company’s risk of loss is limited to transferred loan and lease payments and associated equipment. The following table summarizespresents DFS debt as of the periodsdates indicated. The table excludes the allocated portion of the Company’s other borrowings, which represents the additional amount considered to fund the DFS business.
| January 28, 2022 | January 29, 2021 | ||||||||||
| DFS debt | (in millions) | ||||||||||
| DFS U.S. debt: | |||||||||||
| Asset-based financing and securitization facilities | $ | 3,054 | $ | 3,311 | |||||||
| Fixed-term securitization offerings | 3,011 | 2,961 | |||||||||
| Other | 135 | 140 | |||||||||
| Total DFS U.S. debt | 6,200 | 6,412 | |||||||||
| DFS international debt: | |||||||||||
| Securitization facility | 739 | 786 | |||||||||
| Other borrowings | 785 | 1,006 | |||||||||
| Note payable | 250 | 250 | |||||||||
| Dell Bank Senior Unsecured Eurobonds | 1,672 | 1,212 | |||||||||
| Total DFS international debt | 3,446 | 3,254 | |||||||||
| Total DFS debt | $ | 9,646 | $ | 9,666 | |||||||
| Total short-term DFS debt | $ | 5,803 | $ | 4,888 | |||||||
| Total long-term DFS debt | $ | 3,843 | $ | 4,778 | |||||||
| February 1, 2019 | February 2, 2018 | ||||||
| (in millions) | |||||||
| DFS U.S. debt: | |||||||
| Securitization facilities | $ | 1,914 | $ | 1,498 | |||
| Fixed-term securitization offerings | 2,303 | 2,034 | |||||
| Other | 223 | 32 | |||||
| Total DFS U.S. debt | 4,440 | 3,564 | |||||
| DFS international debt: | |||||||
| Securitization facility | 584 | 404 | |||||
| Other borrowings | 708 | 628 | |||||
| Note payable | 197 | 200 | |||||
| Total DFS international debt | 1,489 | 1,232 | |||||
| Total DFS debt | $ | 5,929 | $ | 4,796 | |||
| Total short-term DFS debt | $ | 3,113 | $ | 3,327 | |||
| Total long-term DFS debt | $ | 2,816 | $ | 1,469 | |||
DFS U.S. Debt
Asset-Based Financing and Securitization Facilities — The Company maintains separate asset-based financing facilities and a securitization facilitiesfacility in the United States, which are revolving facilities for fixed-term leases and loans and for revolving loans.loans, respectively. This debt is collateralized solely by the U.S. financing receivablesloan and lease payments and associated equipment in the facilities. The debt has a variable interest rate and the duration of the debt is based on the terms of the underlying financing receivables.loan and lease payment streams. As of February 1, 2019,January 28, 2022, the total debt capacity related to the U.S. asset-based financing and securitization facilities was $3.5$4.5 billion. The Company enters into interest swap agreements to effectively convert a portion of its securitizationthis debt from a floating rate to a fixed rate. See Note 78 of the Notes to the Consolidated Financial Statements for additional information about interest rate swaps.
The Company’s U.S. securitization facility for revolving loans is effective through June 1, 2020.25, 2022. The Company’s two2 U.S. securitizationasset-based financing facilities for fixed-term leases and loans are effective through FebruaryJuly 10, 20202023 and February 22, 2020,July 26, 2022, respectively.
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The asset-based financing and securitization facilities contain standard structural features related to the performance of the securitizedfunded receivables, which include defined credit losses, delinquencies, average credit scores, and minimum collection requirements. In the event one or more of these criteria are not met and the Company is unable to restructure the facility, no further funding of receivables will be permitted and the timing of the Company’s expected cash flows from over-collateralization will be delayed. As of February 1, 2019,January 28, 2022, these criteria were met.
Fixed-Term Securitization Offerings — The Company periodically issues asset-backed debt securities under fixed-term securitization programs to private investors. The asset-backed debt securities are collateralized solely by the U.S. fixed-term financing receivablesleases and loans in the offerings, which are held by Special Purpose Entities (“SPEs”), as discussed below. The interest rate on these securities is fixed and ranges from 1.97%0.18% to 3.97%5.92% per annum, and the duration of these securities is based on the terms of the underlying financing receivables.lease and loan payment streams.
DFS International Debt
The Company maintains programs that facilitate the funding of leases, loans, and other alternative payment structures in the capital markets. The majority of DFS debt is non-recourse to Dell Technologies and represents borrowings under securitization programs and structured financing programs, for which the Company’s risk of loss is limited to transferred loan and lease payments and associated equipment. The following table presents DFS debt as of the dates indicated. The table excludes the allocated portion of the Company’s other borrowings, which represents the additional amount considered to fund the DFS business.
| January 28, 2022 | January 29, 2021 | ||||||||||
| DFS debt | (in millions) | ||||||||||
| DFS U.S. debt: | |||||||||||
| Asset-based financing and securitization facilities | $ | 3,054 | $ | 3,311 | |||||||
| Fixed-term securitization offerings | 3,011 | 2,961 | |||||||||
| Other | 135 | 140 | |||||||||
| Total DFS U.S. debt | 6,200 | 6,412 | |||||||||
| DFS international debt: | |||||||||||
| Securitization facility | 739 | 786 | |||||||||
| Other borrowings | 785 | 1,006 | |||||||||
| Note payable | 250 | 250 | |||||||||
| Dell Bank Senior Unsecured Eurobonds | 1,672 | 1,212 | |||||||||
| Total DFS international debt | 3,446 | 3,254 | |||||||||
| Total DFS debt | $ | 9,646 | $ | 9,666 | |||||||
| Total short-term DFS debt | $ | 5,803 | $ | 4,888 | |||||||
| Total long-term DFS debt | $ | 3,843 | $ | 4,778 | |||||||
DFS U.S. Debt
Asset-Based Financing and Securitization FacilityFacilities — The Company maintains separate asset-based financing facilities and a securitization facility in Europethe United States, which are revolving facilities for fixed-term leases and loans.loans and for revolving loans, respectively. This debt is collateralized solely by the U.S. loan and lease payments and associated equipment in the facilities. The debt has a variable interest rate and the duration of the debt is based on the terms of the underlying loan and lease payment streams. As of January 28, 2022, the total debt capacity related to the U.S. asset-based financing and securitization facilities was $4.5 billion. The Company enters into interest swap agreements to effectively convert a portion of this debt from a floating rate to a fixed rate. See Note 8 of the Notes to the Consolidated Financial Statements for additional information about interest rate swaps.
The Company’s U.S. securitization facility for revolving loans is effective through December 21, 2020June 25, 2022. The Company’s 2 U.S. asset-based financing facilities for fixed-term leases and had a total debt capacityloans are effective through July 10, 2023 and July 26, 2022, respectively.
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The asset-based financing and securitization facility containsfacilities contain standard structural features related to the performance of the securitizedfunded receivables, which include defined credit losses, delinquencies, average credit scores, and minimum collection requirements. In the event one or more of these criteria are not met and the Company is unable to restructure the program,facility, no further funding of receivables will be permitted and the timing of the Company’s expected cash flows from over-collateralization will be delayed. As of February 1, 2019,January 28, 2022, these criteria were met.
| February 1, 2019 | February 2, 2018 | ||||||
| (in millions) | |||||||
| Financing receivables held by consolidated VIEs, net: | |||||||
| Short-term, net | $ | 2,940 | $ | 2,572 | |||
| Long-term, net | 2,508 | 1,981 | |||||
| Financing receivables held by consolidated VIEs, net | $ | 5,448 | $ | 4,553 | |||
| February 1, 2019 | February 2, 2018 | ||||||
| (in millions) | |||||||
| Secured Debt | |||||||
| Senior Secured Credit Facilities: | |||||||
| 4.50% Term Loan B Facility due September 2023 | $ | 4,938 | $ | 4,988 | |||
| 4.25% Term Loan A-2 Facility due September 2021 | 4,116 | 4,394 | |||||
| Term Loan A-3 Facility due December 2018 | — | 1,213 | |||||
| 4.25% Term Loan A-4 Facility due December 2023 | 1,650 | — | |||||
| 4.25% Term Loan A-5 Facility due December 2019 | 2,016 | — | |||||
| First Lien Notes: | |||||||
| 3.48% due June 2019 | 3,750 | 3,750 | |||||
| 4.42% due June 2021 | 4,500 | 4,500 | |||||
| 5.45% due June 2023 | 3,750 | 3,750 | |||||
| 6.02% due June 2026 | 4,500 | 4,500 | |||||
| 8.10% due July 2036 | 1,500 | 1,500 | |||||
| 8.35% due July 2046 | 2,000 | 2,000 | |||||
| Unsecured Debt | |||||||
| Unsecured Notes and Debentures: | |||||||
| 5.65% due April 2018 | — | 500 | |||||
| 5.875% due June 2019 | 600 | 600 | |||||
| 4.625% due April 2021 | 400 | 400 | |||||
| 7.10% due April 2028 | 300 | 300 | |||||
| 6.50% due April 2038 | 388 | 388 | |||||
| 5.40% due September 2040 | 264 | 264 | |||||
| Senior Notes: | |||||||
| 5.875% due June 2021 | 1,625 | 1,625 | |||||
| 7.125% due June 2024 | 1,625 | 1,625 | |||||
| EMC Notes: | |||||||
| 1.875% due June 2018 | — | 2,500 | |||||
| 2.650% due June 2020 | 2,000 | 2,000 | |||||
| 3.375% due June 2023 | 1,000 | 1,000 | |||||
| VMware Notes: | |||||||
| 2.30% due August 2020 | 1,250 | 1,250 | |||||
| 2.95% due August 2022 | 1,500 | 1,500 | |||||
| 3.90% due August 2027 | 1,250 | 1,250 | |||||
| DFS Debt (Note 5) | 5,929 | 4,796 | |||||
| Other | |||||||
| 4.99% Margin Loan Facility due April 2022 | 3,350 | 2,000 | |||||
| Other | 38 | 101 | |||||
| Total debt, principal amount | $ | 54,239 | $ | 52,694 | |||
| February 1, 2019 | February 2, 2018 | ||||||
| (in millions) | |||||||
| Total debt, principal amount | $ | 54,239 | $ | 52,694 | |||
| Unamortized discount, net of unamortized premium | (271 | ) | (266 | ) | |||
| Debt issuance costs | (447 | ) | (557 | ) | |||
| Total debt, carrying value | $ | 53,521 | $ | 51,871 | |||
| Total short-term debt, carrying value | $ | 4,320 | $ | 7,873 | |||
| Total long-term debt, carrying value (a) | $ | 49,201 | $ | 43,998 | |||
DFS Debt
The Company maintains programs that facilitate the funding of leases, loans, and other alternative payment structures in the capital markets. The majority of DFS debt is non-recourse to Dell Technologies and represents borrowings under securitization programs and structured financing programs, for which the Company’s risk of loss is limited to transferred loan and lease payments and associated equipment. The following table presents DFS debt as of the dates indicated. The table excludes the allocated portion of the Company’s other borrowings, which represents the additional amount considered to fund the DFS business.
| January 28, 2022 | January 29, 2021 | ||||||||||
| DFS debt | (in millions) | ||||||||||
| DFS U.S. debt: | |||||||||||
| Asset-based financing and securitization facilities | $ | 3,054 | $ | 3,311 | |||||||
| Fixed-term securitization offerings | 3,011 | 2,961 | |||||||||
| Other | 135 | 140 | |||||||||
| Total DFS U.S. debt | 6,200 | 6,412 | |||||||||
| DFS international debt: | |||||||||||
| Securitization facility | 739 | 786 | |||||||||
| Other borrowings | 785 | 1,006 | |||||||||
| Note payable | 250 | 250 | |||||||||
| Dell Bank Senior Unsecured Eurobonds | 1,672 | 1,212 | |||||||||
| Total DFS international debt | 3,446 | 3,254 | |||||||||
| Total DFS debt | $ | 9,646 | $ | 9,666 | |||||||
| Total short-term DFS debt | $ | 5,803 | $ | 4,888 | |||||||
| Total long-term DFS debt | $ | 3,843 | $ | 4,778 | |||||||
DFS U.S. Debt
Asset-Based Financing and Securitization Facilities —The Company maintains separate asset-based financing facilities and a securitization facility in the United States, which are revolving facilities for fixed-term leases and loans and for revolving loans, respectively. This debt is collateralized solely by the U.S. loan and lease payments and associated equipment in the facilities. The debt has a variable interest rate and the duration of the debt is based on the terms of the underlying loan and lease payment streams. As of January 28, 2022, the total debt capacity related to the U.S. asset-based financing and securitization facilities was $4.5 billion. The Company enters into interest swap agreements to effectively convert a portion of this debt from a floating rate to a fixed rate. See Note 8 of the Notes to the Consolidated Financial Statements for additional information about interest rate swaps.
The Company’s U.S. securitization facility for revolving loans is effective through June 25, 2022. The Company’s 2 U.S. asset-based financing facilities for fixed-term leases and loans are effective through July 10, 2023 and July 26, 2022, respectively.
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The asset-based financing and securitization facilities contain standard structural features related to the performance of the funded receivables, which include defined credit losses, delinquencies, average credit scores, and minimum collection requirements. In the event one or more of these criteria are not met and the Company is unable to restructure the facility, no further funding of receivables will be permitted and the timing of the Company’s expected cash flows from over-collateralization will be delayed. As of January 28, 2022, these criteria were met.
Fixed-Term Securitization Offerings —The Company periodically issues asset-backed debt securities under fixed-term securitization programs to private investors. The asset-backed debt securities are collateralized solely by the U.S. fixed-term leases and loans in the offerings, which are held by Special Purpose Entities (“SPEs”), as discussed below. The interest rate on these securities is fixed and ranges from 0.18% to 5.92% per annum, and the duration of these securities is based on the terms of the underlying lease and loan payment streams.
DFS International Debt
Securitization Facility —The Company maintains a securitization facility in Europe for fixed-term leases and loans. This facility is effective through December 21, 2022 and had a total debt capacity of $892 million as of January 28, 2022.
The securitization facility contains standard structural features related to the performance of the securitized receivables, which include defined credit losses, delinquencies, average credit scores, and minimum collection requirements. In the event one or more of these criteria are not met and the Company is unable to restructure the program, no further funding of receivables will be permitted and the timing of the Company’s expected cash flows from over-collateralization will be delayed. As of January 28, 2022, these criteria were met.
Other Borrowings —In connection with the Company’s international financing operations, the Company has entered into revolving structured financing debt programs related to its fixed-term lease and loan products sold in Canada, Europe, Australia, and New Zealand. The Canadian facility, which is collateralized solely by Canadian loan and lease payments and associated equipment, had a total debt capacity of $353 millionas of January 28, 2022, and is effective through January 16, 2025. The European facility, which is collateralized solely by European loan and lease payments and associated equipment, had a total debt capacity of$669 million as of January 28, 2022, and is effective through December 14, 2023. The Australia and New Zealand facility, which is collateralized solely by Australia and New Zealand loan and lease payments and associated equipment, had a total debt capacity of $316 million as of January 28, 2022, and is effective through April 20, 2023.
Note Payable —On August 7, 2020, the Company entered into 2 new unsecured credit agreements to fund receivables in Mexico. As of January 28, 2022, the aggregate principal amount of the notes payable was $250 million. The notes bear interest at an annual rate of 3.37% and will mature on June 1, 2022.
Dell Bank Senior Unsecured Eurobonds — On October 17, 2019, Dell Bank International D.A.C. issued 500 million Euro of 0.625% senior unsecured three year eurobonds due October 2022. On June 24, 2020, Dell Bank International D.A.C. issued an additional 500 million Euro of 1.625% senior unsecured four year eurobonds due June 2024. On October 27, 2021, Dell Bank International D.A.C issued 500 million Euro of 0.5% senior unsecured five years eurobonds due October 2026. The issuance of the senior unsecured eurobonds support the expansion of the financing operations in Europe.
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Variable Interest Entities
In connection with the asset-based financing facilities, securitization facilities, and fixed-term securitization offerings discussed above, the Company transfers certain U.S. and European loan and lease payments and associated equipment to SPEs that meet the definition of a Variable Interest Entity (“VIE”) and are consolidated, along with the associated debt detailed above, into the Consolidated Financial Statements, as the Company is the primary beneficiary of the VIEs. The SPEs are bankruptcy-remote legal entities with separate assets and liabilities. The purpose of the SPEs is to facilitate the funding of customer loan and lease payments and associated equipment in the capital markets.
Some of the SPEs have entered into financing arrangements with multi-seller conduits that, in turn, issue asset-backed debt securities in the capital markets. DFS debt outstanding held by the consolidated VIEs is collateralized by the loan and lease payments and associated equipment. The Company’s risk of loss related to securitized receivables is limited to the amount by which the Company’s right to receive collections for assets securitized exceeds the amount required to pay interest, principal, and fees and expenses related to the asset-backed securities. The Company provides credit enhancement to the securitization in the form of over-collateralization.
The following table presents the assets and liabilities held by the consolidated VIEs as of the dates indicated, which are included in the Consolidated Statements of Financial Position:
| January 28, 2022 | January 29, 2021 | ||||||||||
| (in millions) | |||||||||||
| Assets held by consolidated VIEs | |||||||||||
| Other current assets | $ | 535 | $ | 838 | |||||||
| Financing receivables, net of allowance | |||||||||||
| Short-term | $ | 3,368 | $ | 3,534 | |||||||
| Long-term | $ | 3,141 | $ | 3,314 | |||||||
| Property, plant, and equipment, net | $ | 945 | $ | 792 | |||||||
| Liabilities held by consolidated VIEs | |||||||||||
| Debt, net of unamortized debt issuance costs | |||||||||||
| Short-term | $ | 4,560 | $ | 4,208 | |||||||
| Long-term | $ | 2,235 | $ | 2,841 | |||||||
Loan and lease payments and associated equipment transferred via securitization through SPEs were $5.3 billion and $6.1 billion for the fiscal years ended January 28, 2022 and January 29, 2021, respectively.
Customer Receivable Sales
To manage certain concentrations of customer credit exposure, the Company may sell selected fixed-term customer receivables to unrelated third parties on a periodic basis, without recourse. The amount of customer receivables sold for this purpose was $201 million, $648 million, and $538 million for the fiscal years ended January 28, 2022, January 29, 2021, and January 31, 2020, respectively. The Company’s continuing involvement in these customer receivables is primarily limited to servicing arrangements.
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NOTE 6 — LEASES
The Company enters into leasing transactions in which the Company is the lessee. These lease contracts are typically classified as operating leases. The Company’s lease contracts are generally for office buildings used to conduct its business, and the determination of whether such contracts contain leases generally does not require significant estimates or judgments. The Company also leases certain global logistics warehouses, employee vehicles, and equipment. As of January 28, 2022, the remaining terms of the Company’s leases range from less than two months to eleven years.
The Company also enters into leasing transactions in which the Company is the lessor, primarily through customer financing arrangements offered through DFS. DFS originates leases that are primarily classified as either sales-type leases or operating leases. See Note 5 of the Notes to the Consolidated Financial Statements for more information on the DFS lease portfolio and related lease disclosures.
Financial information associated with the Company’s leases in which the Company is the lessee is contained in this Note. As of January 28, 2022 and January 29, 2021, there were no material finance leases for which the Company was a lessee.
The following table presents components of lease costs included in the Consolidated Statements of Income for the periods indicated:
| Fiscal Year Ended | |||||||||||
| January 28, 2022 | January 29, 2021 | ||||||||||
| (in millions) | |||||||||||
| Operating lease costs | $ | 335 | $ | 348 | |||||||
| Variable costs | 96 | 132 | |||||||||
| Total lease costs | $ | 431 | $ | 480 | |||||||
During the fiscal years ended January 28, 2022 and January 29, 2021, sublease income, finance lease costs, and short-term lease costs were immaterial.
The following table presents supplemental information related to operating leases included in the Consolidated Statements of Financial Position as of the dates indicated:
| Classification | January 28, 2022 | January 29, 2021 | ||||||||||||||||||
| (in millions, except for term and discount rate) | ||||||||||||||||||||
| Operating lease Right-of-Use assets | Other non-current assets | $ | 871 | $ | 1,121 | |||||||||||||||
| Current operating lease liabilities | Accrued and other current liabilities | $ | 287 | $ | 328 | |||||||||||||||
| Non-current operating lease liabilities | Other non-current liabilities | 720 | 897 | |||||||||||||||||
| Total operating lease liabilities | $ | 1,007 | $ | 1,225 | ||||||||||||||||
| Weighted-average remaining lease term (in years) | 5.51 | 5.68 | ||||||||||||||||||
| Weighted-average discount rate | 3.01 | % | 3.23 | % | ||||||||||||||||
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The following table presents supplemental cash flow information related to leases for the periods indicated:
| Fiscal Year Ended | |||||||||||
| January 28, 2022 | January 29, 2021 | ||||||||||
| (in millions) | |||||||||||
| Cash paid for amounts included in the measurement of lease liabilities — operating cash outflows from operating leases (a) | $ | 459 | $ | 523 | |||||||
| Right-of-Use assets obtained in exchange for new operating lease liabilities | $ | 144 | $ | 548 | |||||||
____________________
(a) Cash paid for amounts included in the measurement of lease liabilities - operating cash outflows from operating leases from discontinued operations was $135 million and $174 million for the fiscal years ended January 28, 2022 and January 29, 2021 respectively.
The following table presents the future maturity of the Company’s operating lease liabilities under non-cancelable leases and reconciles the undiscounted cash flows for these leases to the lease liability recognized on the Consolidated Statements of Financial Position as of the date indicated:
| January 28, 2022 | |||||||||||
| (in millions) | |||||||||||
| Fiscal 2023 | $ | 286 | |||||||||
| Fiscal 2024 | 219 | ||||||||||
| Fiscal 2025 | 154 | ||||||||||
| Fiscal 2026 | 120 | ||||||||||
| Fiscal 2027 | 97 | ||||||||||
| Thereafter | 216 | ||||||||||
| Total lease payments | 1,092 | ||||||||||
| Less: Imputed interest | (85) | ||||||||||
| Total | $ | 1,007 | |||||||||
| Current operating lease liabilities | $ | 287 | |||||||||
| Non-current operating lease liabilities | $ | 720 | |||||||||
As of January 28, 2022, the Company’s undiscounted operating leases that had not yet commenced were immaterial.
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NOTE 7 — DEBT
The following table summarizes the Company’s outstanding debt as of the dates indicated:
| January 28, 2022 | January 29, 2021 | ||||||||||
| (in millions) | |||||||||||
| Senior Secured Credit Facilities: | |||||||||||
| 2.00% Term Loan B-1 Facility due September 2025 | $ | — | $ | 3,143 | |||||||
| 1.84% Term Loan A-6 Facility due March 2024 | — | 3,134 | |||||||||
| Senior Notes: | |||||||||||
| 5.88% due June 2021 | — | 1,075 | |||||||||
| 5.45% due June 2023 | 1,000 | 3,750 | |||||||||
| 7.13% due June 2024 | — | 1,625 | |||||||||
| 4.00% due July 2024 | 1,000 | 1,000 | |||||||||
| 5.85% due July 2025 | 1,000 | 1,000 | |||||||||
| 6.02% due June 2026 | 4,500 | 4,500 | |||||||||
| 4.90% due October 2026 | 1,750 | 1,750 | |||||||||
| 6.10% due July 2027 | 500 | 500 | |||||||||
| 5.30% due October 2029 | 1,750 | 1,750 | |||||||||
| 6.20% due July 2030 | 750 | 750 | |||||||||
| 8.10% due July 2036 | 1,000 | 1,500 | |||||||||
| 3.38% due December 2041 | 1,000 | — | |||||||||
| 8.35% due July 2046 | 800 | 2,000 | |||||||||
| 3.45% due December 2051 | 1,250 | — | |||||||||
| Legacy Notes and Debentures: | |||||||||||
| 4.63% due April 2021 | — | 400 | |||||||||
| 7.10% due April 2028 | 300 | 300 | |||||||||
| 6.50% due April 2038 | 388 | 388 | |||||||||
| 5.40% due September 2040 | 264 | 264 | |||||||||
| EMC Notes: | |||||||||||
| 3.38% due June 2023 | — | 1,000 | |||||||||
| DFS Debt (Note 5) | 9,646 | 9,666 | |||||||||
| Other | 337 | 180 | |||||||||
| Total debt, principal amount | $ | 27,235 | $ | 39,675 | |||||||
| Unamortized discount, net of unamortized premium | (134) | (178) | |||||||||
| Debt issuance costs | (147) | (275) | |||||||||
| Total debt, carrying value | $ | 26,954 | $ | 39,222 | |||||||
| Total short-term debt, carrying value | $ | 5,823 | $ | 6,357 | |||||||
| Total long-term debt, carrying value | $ | 21,131 | $ | 32,865 | |||||||
During the fiscal year ended January 28, 2022, total outstanding debt decreased by $12.3 billion primarily as a result of principal repayments funded by proceeds from the VMware Spin-off special dividend of $9.3 billion and cash on hand. The net decrease in the Company’s debt balance was attributable to repayments of $7.2 billion principal amount of Senior Notes, $6.3 billion principal amount of Senior Secured Credit Facilities, $1.0 billion principal amount of EMC Notes, and $0.4 billion principal amount of Legacy Notes and Debentures. These decreases were partially offset by the issuance of $2.3 billion in aggregate principal amount of Senior Notes.
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2021 Debt Tender Offers
On December 21, 2021, the Company completed tender offers for outstanding Senior Notes.The transaction was funded with the net proceeds received from the December 13, 2021 issuance of $1.0 billion aggregate principal amount of 3.38% Senior Notes due December 15, 2041 and $1.3 billion aggregate principal amount of 3.45% Senior Notes due December 15, 2051, as well as $0.7 billion of cash and cash equivalents.
As a result of the transaction, the Company retired $1.2 billion in aggregate principal amount of 8.35% Senior Notes due 2046 and $0.5 billion in aggregate principal amount of 8.10% Senior Notes due 2036. The Company incurred $1.2 billion in debt extinguishment fees recognized in interest and other, net in the Consolidated Statements of Income.
2021 Revolving Credit Facility
On November 1, 2021, the Company entered into a new senior unsecured Revolving Credit Facility (the “2021 Revolving Credit Facility”) to replace the previous senior secured Revolving Credit Facility (the “Revolving Credit Facility”). Following the full redemption of the outstanding term loan facilities and replacement of the Revolving Credit Facility, the credit agreement governing the Revolving Credit Facility (the “Previous Credit Agreement”) was terminated.
The 2021 Revolving Credit Facility, which matures on November 1, 2026, provides the Company with revolving commitments in an aggregate principal amount of $5.0 billion for general corporate purposes and includes a letter of credit sub-facility of up to $0.5 billion and a swing-line loan sub-facility of up to $0.5 billion. The 2021 Revolving Credit Facility also allows the Company to request incremental commitments on one or more occasions in minimum amounts of $10 million.
The Company may conduct borrowings under the 2021 Revolving Credit Facility through London Interbank Offered Rate (“LIBOR”) borrowings or Base Rate Loan borrowings. LIBOR borrowings bear interest at a rate per annum equal to the LIBOR, plus an applicable rate that varies based upon the Company’s existing debt ratings (the “applicable rate”). Base Rate Loan borrowings bear interest at a rate per annum equal to the base rate plus the applicable rate. The base rate is calculated based upon the greatest of the specified prime rate, the specified federal reserve bank rate, or LIBOR plus 1%.
The borrowers may voluntarily repay outstanding loans under the 2021 Revolving Credit Facility at any time without premium or penalty, other than customary breakage costs.
As of January 28, 2022, available borrowings under the 2021 Revolving Credit Facility totaled $5.0 billion.
Outstanding Debt
Senior Notes — The Company completed private offerings of multiple series of senior notes which were issued on June 1, 2016, June 22, 2016, March 20, 2019, April 9, 2020, and December 13, 2021 in aggregate principal amounts of $20.0 billion, $3.3 billion, $4.5 billion, $2.3 billion, and $2.3 billion respectively (the “Senior Notes”).Interest on these borrowings is payable semiannually.
In June 2021, Dell International L.L.C and EMC Corporation (the “Issuers”), wholly-owned subsidiaries of Dell Technologies, completed offers to exchange any and all outstanding Senior Notes issued on June 1,2016, March 20, 2019, and April 9, 2020 (the “First Lien Notes”) for first lien notes registered under the Securities Act of 1933 having terms substantially identical to the terms of the outstanding First Lien Notes. The Issuers issued $18.4 billion aggregate principal amount of registered first lien notes in exchange for the same aggregate principal amount of First Lien Notes. The aggregate principal amount of unregistered First Lien Notes remaining outstanding following the settlement of the exchange offers was approximately $0.1 billion.
Such registered first lien notes, together with the remaining unregistered First Lien Notes, were previously secured on a pari passu basis with the Senior Secured Credit Facilities, on a first-priority basis by substantially all of the tangible and intangible assets of the issuers and guarantors that secured obligations under the Previous Credit Agreement, including pledges of all capital stock of the issuers, Dell Inc., a wholly-owned subsidiary of Dell Technologies Inc., and certain wholly-owned material subsidiaries of the issuers and the guarantors, subject to certain exceptions.
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Following the termination of the Previous Credit Agreement, and upon Dell Technologies receiving investment grade credit ratings, the tangible and intangible assets of the issuers and guarantors that secured obligations under the Senior Secured Credit Facilities were released as collateral. As a result, the registered first lien notes and the remaining unregistered First Lien Notes are fully unsecured and are collectively referred to as “Senior Notes” in these Notes to the Consolidated Financial Statements.
Legacy Notes and Debentures — The Company has outstanding unsecured notes and debentures (collectively, the “Legacy Notes and Debentures”) that were issued by Dell prior to the acquisition of Dell Inc. by Dell Technologies Inc. in the going-private transaction that closed in October 2013. Interest on these borrowings is payable semiannually.
DFS Debt — See Note 5 and Note 78 of the Notes to the Consolidated Financial Statements, respectively, for discussion of DFS debt and the interest rate swap agreements that hedge a portion of that debt.
Covenants — On April 12, 2017,The credit agreement governing the Company entered into the Margin Loan Facility in an aggregate principal amount of $2.0 billion. In connection with the Class V transaction, on December 20, 2018, the Company amended the Margin Loan Facility to increase the aggregate principal amount of the facility to $3.4 billion. VMW Holdco LLC, a wholly-owned subsidiary of EMC, is the borrower under the Margin Loan Facility, which is secured by 60 million shares of Class B common stock of VMware, Inc. and 20 million shares of Class A common stock of VMware, Inc. Loans under the Margin Loan Facility bear interest at a rate per annum payable, at the borrower’s option, either at (a) a base rate plus 1.25% per annum or (b) a LIBOR-based rate plus 2.25% per annum. Interest under the Margin Loan Facility is payable quarterly.
| Maturities by Fiscal Year | |||||||||||||||||||||||||||
| 2020 | 2021 | 2022 | 2023 | 2024 | Thereafter | Total | |||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||
| Senior Secured Credit Facilities and First Lien Notes | $ | 6,344 | $ | 433 | $ | 7,969 | $ | 166 | $ | 9,807 | $ | 8,001 | $ | 32,720 | |||||||||||||
| Unsecured Notes and Debentures | 600 | — | 400 | — | — | 952 | 1,952 | ||||||||||||||||||||
| Senior Notes and EMC Notes | — | 2,000 | 1,625 | — | 1,000 | 1,625 | 6,250 | ||||||||||||||||||||
| VMware Notes | — | 1,250 | — | 1,500 | — | 1,250 | 4,000 | ||||||||||||||||||||
| DFS Debt | 3,113 | 2,373 | 335 | 95 | 13 | — | 5,929 | ||||||||||||||||||||
| Margin Loan Facility | — | — | — | 3,350 | — | — | 3,350 | ||||||||||||||||||||
| Other | 29 | 9 | — | — | — | 38 | |||||||||||||||||||||
| Total maturities, principal amount | 10,086 | 6,065 | 10,329 | 5,111 | 10,820 | 11,828 | 54,239 | ||||||||||||||||||||
| Associated carrying value adjustments | (40 | ) | (6 | ) | (136 | ) | (30 | ) | (163 | ) | (343 | ) | (718 | ) | |||||||||||||
| Total maturities, carrying value amount | $ | 10,046 | $ | 6,059 | $ | 10,193 | $ | 5,081 | $ | 10,657 | $ | 11,485 | $ | 53,521 | |||||||||||||
The Term Loan A-2 Facility, the Term Loan A-4 Facility, the Term Loan A-5 Facility, and the2021 Revolving Credit Facility areis also subject to a first lien leveragean interest coverage ratio covenant that is tested at the end of each fiscal quarter of Dell with respect to Dell’sthe Company’s preceding four fiscal quarters. The Company was in compliance with all financial covenants as of February 1, 2019.January 28, 2022.
Aggregate Future Maturities
The following tables presents the aggregate future maturities of the Company’s debt as of January 28, 2022 for the periods indicated:
| Maturities by Fiscal Year | |||||||||||||||||||||||||||||||||||||||||
| 2023 | 2024 | 2025 | 2026 | 2027 | Thereafter | Total | |||||||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||||||||
| Senior Notes | $ | — | $ | 1,000 | $ | 1,000 | $ | 1,000 | $ | 6,250 | $ | 7,050 | $ | 16,300 | |||||||||||||||||||||||||||
| Legacy Notes and Debentures | — | — | — | — | — | 952 | 952 | ||||||||||||||||||||||||||||||||||
| DFS Debt | 5,803 | 2,195 | 1,000 | 85 | 563 | — | 9,646 | ||||||||||||||||||||||||||||||||||
| Other | 25 | 173 | 116 | 20 | 1 | 2 | 337 | ||||||||||||||||||||||||||||||||||
| Total maturities, principal amount | 5,828 | 3,368 | 2,116 | 1,105 | 6,814 | 8,004 | 27,235 | ||||||||||||||||||||||||||||||||||
| Associated carrying value adjustments | (5) | (6) | (9) | (8) | (59) | (194) | (281) | ||||||||||||||||||||||||||||||||||
| Total maturities, carrying value amount | $ | 5,823 | $ | 3,362 | $ | 2,107 | $ | 1,097 | $ | 6,755 | $ | 7,810 | $ | 26,954 | |||||||||||||||||||||||||||
NOTE 78 — DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
As part of its risk management strategy, the Company uses derivative instruments, primarily foreign currency forward and option contracts and interest rate swaps, to hedge certain foreign currency and interest rate exposures, respectively.
The Company’s objective is to offset gains and losses resulting from these exposures with gains and losses on the derivative contracts used to hedge the exposures, thereby reducing volatility of earnings and protecting the fair values of assets and liabilities. The earnings effects of the derivative instruments are presented in the same income statement line items as the earnings effects of the hedged items. For derivatives designated as cash flow hedges, the Company assesses hedge effectiveness both at the onset of the hedge and at regular intervals throughout the life of the derivative. The Company does not have any derivatives designated as fair value hedges.
Foreign Exchange Risk
The Company uses foreign currency forward and option contracts 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.Dollar. Hedge accounting is applied based upon the criteria established by accounting guidance for derivative instruments and hedging activities. 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 twelve months or less.
During the fiscal years ended February 1, 2019, February 2, 2018,January 28, 2022, January 29, 2021, and February 3, 2017,January 31, 2020, the Company did not discontinue any cash flow hedges related to foreign exchange contracts that had a material impact on the Company’s results of operations due to the probability that the forecasted cash flows would not occur.
The Company uses forward contracts to hedge monetary assets and liabilities denominated in a foreign currency. These contracts generally expire in three months or less, are considered economic hedges, and are not designated for hedge accounting. 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.
In connection with expanded offerings of DFS in Europe, forward contracts are used to hedge financing receivables denominated in foreign currencies.currencies other than Euro. These contracts are not designated for hedge accounting and most expire within three years or less.
Interest Rate Risk
The Company 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. These contracts are not designated for hedge accounting and most expire within threefour years or less.
Interest rate swaps are utilized to manage the interest rate risk, at a portfolio level, associated with DFS operations in Europe. The interest rate swaps economically convert the fixed rate on financing receivables to a three-month Euribor floating rate basis in order to match the floating rate nature of the banks’ funding pool. These contracts are not designated for hedge accounting and most expire within five years or less.
The Company utilizes cross currencycross-currency amortizing swaps to hedge the currency and interest rate risk exposure associated with the European securitization program that was established in Europe in January 2017.program. The cross currency swaps combine a Euro-based interest rate swap with a British Pound or U.S. Dollar foreign exchange forward contract in which the Company pays a fixed British Pound or U.S. Dollar amount and receives a floating amount in Euros linked to the one-month Euribor. The notional value of the swaps amortizes in line with the expected cash flows and run-off of the securitized assets. The swaps are not designated for hedge accounting and expire within five years or less.
Derivative Instruments
Notional Amounts of Outstanding Derivative Instruments
| January 28, 2022 | January 29, 2021 | ||||||||||
| (in millions) | |||||||||||
| Foreign exchange contracts: | |||||||||||
| Designated as cash flow hedging instruments | $ | 7,879 | $ | 6,840 | |||||||
| Non-designated as hedging instruments | 8,713 | 9,890 | |||||||||
| Total (a) | $ | 16,592 | $ | 16,730 | |||||||
| Interest rate contracts: | |||||||||||
| Non-designated as hedging instruments | $ | 6,715 | $ | 5,859 | |||||||
| February 1, 2019 | February 2, 2018 | ||||||
| (in millions) | |||||||
| Foreign exchange contracts: | |||||||
| Designated as cash flow hedging instruments | $ | 7,573 | $ | 4,392 | |||
| Non-designated as hedging instruments | 6,129 | 6,223 | |||||
| Total | $ | 13,702 | $ | 10,615 | |||
| Interest rate contracts: | |||||||
| Non-designated as hedging instruments | $ | 2,674 | $ | 1,897 | |||
(a) Total foreign exchange contracts attributable to discontinued operations was $1.7 billion as of January 29, 2021.
Effect of Derivative Instruments Designated as Hedging Instruments on the Consolidated Statements of Financial Position and the Consolidated Statements of Income (Loss)
| Derivatives in Cash Flow Hedging Relationships | Gain (Loss) Recognized in Accumulated OCI, Net of Tax, on Derivatives | Location of Gain (Loss) Reclassified from Accumulated OCI into Income | Gain (Loss) Reclassified from Accumulated OCI into Income | Location of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion) | Gain (Loss) Recognized in Income on Derivative (Ineffective Portion) | Derivatives in Cash Flow Hedging Relationships | Gain (Loss) Recognized in Accumulated OCI, Net of Tax, on Derivatives | Location of Gain (Loss) Reclassified from Accumulated OCI into Income | Gain (Loss) Reclassified from Accumulated OCI into Income | |||||||||||||||||||||||||||
| (in millions) | (in millions) | (in millions) | (in millions) | (in millions) | ||||||||||||||||||||||||||||||||
| For the fiscal year ended February 1, 2019 | ||||||||||||||||||||||||||||||||||||
| For the fiscal year ended January 28, 2022 | For the fiscal year ended January 28, 2022 | |||||||||||||||||||||||||||||||||||
| Total net revenue | $ | 225 | Total net revenue | $ | 158 | |||||||||||||||||||||||||||||||
| Foreign exchange contracts | $ | 299 | Total cost of net revenue | — | Foreign exchange contracts | $ | 374 | Total cost of net revenue | (3) | |||||||||||||||||||||||||||
| Interest rate contracts | — | Interest and other, net | — | Interest and other, net | — | Interest rate contracts | — | Interest and other, net | — | |||||||||||||||||||||||||||
| Total | $ | 299 | $ | 225 | $ | — | Total | $ | 374 | Income from discontinued operations | 3 | |||||||||||||||||||||||||
| Total | $ | 158 | ||||||||||||||||||||||||||||||||||
| For the fiscal year ended February 2, 2018 | ||||||||||||||||||||||||||||||||||||
| For the fiscal year ended January 29, 2021 | For the fiscal year ended January 29, 2021 | |||||||||||||||||||||||||||||||||||
| Total net revenue | $ | (77 | ) | Total net revenue | $ | (98) | ||||||||||||||||||||||||||||||
| Foreign exchange contracts | $ | (248 | ) | Total cost of net revenue | (57 | ) | Foreign exchange contracts | $ | (200) | Total cost of net revenue | 5 | |||||||||||||||||||||||||
| Interest rate contracts | — | Interest and other, net | — | Interest and other, net | — | Interest rate contracts | — | Interest and other, net | — | |||||||||||||||||||||||||||
| Total | $ | (248 | ) | $ | (134 | ) | $ | — | Total | $ | (200) | Income from discontinued operations | (7) | |||||||||||||||||||||||
| Total | $ | (100) | ||||||||||||||||||||||||||||||||||
| For the fiscal year ended February 3, 2017 | ||||||||||||||||||||||||||||||||||||
| For the fiscal year ended January 31, 2020 | For the fiscal year ended January 31, 2020 | |||||||||||||||||||||||||||||||||||
| Total net revenue | $ | 57 | Total net revenue | $ | 217 | |||||||||||||||||||||||||||||||
| Foreign exchange contracts | $ | 20 | Total cost of net revenue | (13 | ) | Foreign exchange contracts | $ | 269 | Total cost of net revenue | — | ||||||||||||||||||||||||||
| Interest rate contracts | — | Interest and other, net | — | Interest and other, net | (1 | ) | Interest rate contracts | — | Interest and other, net | — | ||||||||||||||||||||||||||
| Total | $ | 20 | $ | 44 | $ | (1 | ) | Total | $ | 269 | Income from discontinued operations | 9 | ||||||||||||||||||||||||
| Total | $ | 226 | ||||||||||||||||||||||||||||||||||
120
Effect of Derivative Instruments Not Designated as Hedging Instruments on the Consolidated Statements of Income (Loss)
| Fiscal Year Ended | |||||||||||||||||||||||
| January 28, 2022 | January 29, 2021 | January 31, 2020 | Location of Gain (Loss) Recognized | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Foreign exchange contracts | $ | (469) | $ | 169 | $ | (206) | Interest and other, net | ||||||||||||||||
| Interest rate contracts | 10 | (45) | (28) | Interest and other, net | |||||||||||||||||||
| Foreign exchange contracts | 26 | (62) | 54 | Income from discontinued operations | |||||||||||||||||||
| Total | $ | (433) | $ | 62 | $ | (180) | |||||||||||||||||
| Fiscal Year Ended | |||||||||||||
| February 1, 2019 | February 2, 2018 | February 3, 2017 | Location of Gain (Loss) Recognized | ||||||||||
| (in millions) | |||||||||||||
| Foreign exchange contracts | $ | (67 | ) | $ | (106 | ) | $ | (9 | ) | Interest and other, net | |||
| Interest rate contracts | (8 | ) | 4 | (3 | ) | Interest and other, net | |||||||
| Total | $ | (75 | ) | $ | (102 | ) | $ | (12 | ) | ||||
Fair Value of Derivative Instruments in the Consolidated Statements of Financial Position
The Company 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 following tables present the fair value of those derivative instruments presented on a gross basis as of each date indicated below was as follows:the dates indicated:
| January 28, 2022 | |||||||||||||||||||||||||||||
| 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 | $ | 135 | $ | — | $ | 50 | $ | — | $ | 185 | |||||||||||||||||||
| Foreign exchange contracts in a liability position | (5) | — | (8) | — | (13) | ||||||||||||||||||||||||
| Net asset (liability) | 130 | — | 42 | — | 172 | ||||||||||||||||||||||||
| Derivatives not designated as hedging instruments: | |||||||||||||||||||||||||||||
| Foreign exchange contracts in an asset position | 280 | 2 | 106 | — | 388 | ||||||||||||||||||||||||
| Foreign exchange contracts in a liability position | (189) | — | (244) | (5) | (438) | ||||||||||||||||||||||||
| Interest rate contracts in an asset position | — | 30 | — | 0 | 30 | ||||||||||||||||||||||||
| Interest rate contracts in a liability position | — | — | — | (37) | (37) | ||||||||||||||||||||||||
| Net asset (liability) | 91 | 32 | (138) | (42) | (57) | ||||||||||||||||||||||||
| Total derivatives at fair value | $ | 221 | $ | 32 | $ | (96) | $ | (42) | $ | 115 | |||||||||||||||||||
| January 29, 2021 | |||||||||||||||||||||||||||||
| 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 | $ | 28 | $ | — | $ | 18 | $ | — | $ | 46 | |||||||||||||||||||
| Foreign exchange contracts in a liability position | (10) | — | (14) | — | (24) | ||||||||||||||||||||||||
| Net asset (liability) | 18 | — | 4 | — | 22 | ||||||||||||||||||||||||
| Derivatives not designated as hedging instruments: | |||||||||||||||||||||||||||||
| Foreign exchange contracts in an asset position | 175 | — | 58 | — | 233 | ||||||||||||||||||||||||
| Foreign exchange contracts in a liability position | (108) | — | (155) | (4) | (267) | ||||||||||||||||||||||||
| Interest rate contracts in an asset position | — | 10 | — | — | 10 | ||||||||||||||||||||||||
| Interest rate contracts in a liability position | — | — | — | (31) | (31) | ||||||||||||||||||||||||
| Net asset (liability) | 67 | 10 | (97) | (35) | (55) | ||||||||||||||||||||||||
| Total derivatives at fair value | $ | 85 | $ | 10 | $ | (93) | $ | (35) | $ | (33) | |||||||||||||||||||
| February 1, 2019 | |||||||||||||||||||
| 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 | $ | 45 | $ | — | $ | 29 | $ | — | $ | 74 | |||||||||
| Foreign exchange contracts in a liability position | (19 | ) | — | (20 | ) | — | (39 | ) | |||||||||||
| Net asset (liability) | 26 | — | 9 | — | 35 | ||||||||||||||
| Derivatives not designated as hedging instruments: | |||||||||||||||||||
| Foreign exchange contracts in an asset position | 178 | — | 57 | — | 235 | ||||||||||||||
| Foreign exchange contracts in a liability position | (110 | ) | — | (115 | ) | (2 | ) | (227 | ) | ||||||||||
| Interest rate contracts in an asset position | — | 3 | — | — | 3 | ||||||||||||||
| Interest rate contracts in a liability position | — | — | — | (9 | ) | (9 | ) | ||||||||||||
| Net asset (liability) | 68 | 3 | (58 | ) | (11 | ) | 2 | ||||||||||||
| Total derivatives at fair value | $ | 94 | $ | 3 | $ | (49 | ) | $ | (11 | ) | $ | 37 | |||||||
| February 2, 2018 | |||||||||||||||||||
| 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 | $ | 9 | $ | — | $ | 11 | $ | — | $ | 20 | |||||||||
| Foreign exchange contracts in a liability position | (7 | ) | — | (52 | ) | — | (59 | ) | |||||||||||
| Net asset (liability) | 2 | — | (41 | ) | — | (39 | ) | ||||||||||||
| Derivatives not designated as hedging instruments: | |||||||||||||||||||
| Foreign exchange contracts in an asset position | 194 | 3 | 141 | — | 338 | ||||||||||||||
| Foreign exchange contracts in a liability position | (127 | ) | — | (283 | ) | — | (410 | ) | |||||||||||
| Interest rate contracts in an asset position | — | 11 | — | — | 11 | ||||||||||||||
| Interest rate contracts in a liability position | — | — | — | (1 | ) | (1 | ) | ||||||||||||
| Net asset (liability) | 67 | 14 | (142 | ) | (1 | ) | (62 | ) | |||||||||||
| Total derivatives at fair value | $ | 69 | $ | 14 | $ | (183 | ) | $ | (1 | ) | $ | (101 | ) | ||||||
The following tables present the gross amounts of the Company’s derivative instruments, amounts offset due to master netting agreements with the Company’s counterparties, and the net amounts recognized in the Consolidated Statements of Financial Position:Position as of the dates indicated:
| January 28, 2022 | |||||||||||||||||||||||||||||||||||
| Gross Amounts of Recognized Assets/ (Liabilities) | Gross Amounts Offset in the Statement of Financial Position | Net Amounts of Assets/ (Liabilities) Presented in the Statement of Financial Position | Gross Amounts not Offset in the Statement of Financial Position | Net Amount of Assets/ (Liabilities) Recognized in the Statement of Financial Position | |||||||||||||||||||||||||||||||
| Financial Instruments | Cash Collateral Received or Pledged | ||||||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||
| Derivative instruments: | |||||||||||||||||||||||||||||||||||
| Financial assets | $ | 603 | $ | (350) | $ | 253 | $ | — | $ | — | $ | 253 | |||||||||||||||||||||||
| Financial liabilities | (488) | 350 | (138) | — | 24 | (114) | |||||||||||||||||||||||||||||
| Total derivative instruments | $ | 115 | $ | — | $ | 115 | $ | — | $ | 24 | $ | 139 | |||||||||||||||||||||||
| January 29, 2021 | |||||||||||||||||||||||||||||||||||
| Gross Amounts of Recognized Assets/ (Liabilities) | Gross Amounts Offset in the Statement of Financial Position | Net Amounts of Assets/ (Liabilities) Presented in the Statement of Financial Position | Gross Amounts not Offset in the Statement of Financial Position | Net Amount of Assets/ (Liabilities) Recognized in the Statement of Financial Position | |||||||||||||||||||||||||||||||
| Financial Instruments | Cash Collateral Received or Pledged | ||||||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||
| Derivative instruments: | |||||||||||||||||||||||||||||||||||
| Financial assets | $ | 289 | $ | (194) | $ | 95 | $ | — | $ | — | $ | 95 | |||||||||||||||||||||||
| Financial liabilities | (322) | 194 | (128) | — | 2 | (126) | |||||||||||||||||||||||||||||
| Total derivative instruments | $ | (33) | $ | — | $ | (33) | $ | — | $ | 2 | $ | (31) | |||||||||||||||||||||||
| February 1, 2019 | |||||||||||||||||||||||
| Gross Amounts of Recognized Assets/ (Liabilities) | Gross Amounts Offset in the Statement of Financial Position | Net Amounts of Assets/ (Liabilities) Presented in the Statement of Financial Position | Gross Amounts not Offset in the Statement of Financial Position | Net Amount | |||||||||||||||||||
| Financial Instruments | Cash Collateral Received or Pledged | ||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Derivative instruments: | |||||||||||||||||||||||
| Financial assets | $ | 312 | $ | (215 | ) | $ | 97 | $ | — | $ | — | $ | 97 | ||||||||||
| Financial liabilities | (275 | ) | 215 | (60 | ) | — | 4 | (56 | ) | ||||||||||||||
| Total derivative instruments | $ | 37 | $ | — | $ | 37 | $ | — | $ | 4 | $ | 41 | |||||||||||
| February 2, 2018 | |||||||||||||||||||||||
| Gross Amounts of Recognized Assets/ (Liabilities) | Gross Amounts Offset in the Statement of Financial Position | Net Amounts of Assets/ (Liabilities) Presented in the Statement of Financial Position | Gross Amounts not Offset in the Statement of Financial Position | Net Amount | |||||||||||||||||||
| Financial Instruments | Cash Collateral Received or Pledged | ||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Derivative instruments: | |||||||||||||||||||||||
| Financial assets | $ | 369 | $ | (286 | ) | $ | 83 | $ | — | $ | — | $ | 83 | ||||||||||
| Financial liabilities | (470 | ) | 286 | (184 | ) | — | — | (184 | ) | ||||||||||||||
| Total derivative instruments | $ | (101 | ) | $ | — | $ | (101 | ) | $ | — | $ | — | $ | (101 | ) | ||||||||
NOTE 89 —BUSINESS COMBINATIONS, GOODWILL AND INTANGIBLE ASSETS
The preliminary allocation of the purchase price was based on a preliminary valuationInfrastructure Solutions Group and assumptions and is subject to change within the measurement period. VMware, Inc. expects to finalize the allocation of the purchase price as soon as practicable and not later than one year from the acquisition date.
| Purchase Price | |||
| (in millions) | |||
| Consideration transferred: | |||
| Cash | $ | 47,694 | |
| Expense and other (a) | 968 | ||
| Class V Common Stock (b) | 10,041 | ||
| Total consideration transferred | 58,703 | ||
| Non-controlling interests (c) | 6,048 | ||
| Less: Post-merger stock compensation expense (d) | (800 | ) | |
| Total purchase price to allocate | $ | 63,951 | |
The following table summarizes,presents goodwill allocated to the Company’s reportable segments and changes in the carrying amount of goodwill as of February 2, 2018, the purchase price allocation to the assets acquired and the liabilities assumed in the EMC merger transaction (in millions):dates indicated:
| Current assets: | |||
| Cash and cash equivalents | $ | 10,080 | |
| Short-term investments | 1,765 | ||
| Accounts receivable | 2,810 | ||
| Short-term financing receivables | 64 | ||
| Inventories, net | 1,993 | ||
| Other current assets | 903 | ||
| Total current assets | 17,615 | ||
| Property, plant, and equipment | 4,490 | ||
| Long-term investments | 4,317 | ||
| Long-term financing receivables | 65 | ||
| Goodwill | 31,539 | ||
| Purchased intangibles | 31,218 | ||
| Other non-current assets | 445 | ||
| Total assets | $ | 89,689 | |
| Current liabilities: | |||
| Short-term debt | $ | 905 | |
| Accounts payable | 728 | ||
| Accrued and other | 3,259 | ||
| Short-term deferred revenue | 4,954 | ||
| Total current liabilities | 9,846 | ||
| Long-term debt | 5,474 | ||
| Long-term deferred revenue | 3,469 | ||
| Deferred tax liabilities | 6,625 | ||
| Other non-current liabilities | 324 | ||
| Total liabilities | 25,738 | ||
| Total net assets | $ | 63,951 | |
| Infrastructure Solutions Group | Client Solutions Group | Other Businesses | Total | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Balances as of January 31, 2020 | $ | 15,089 | $ | 4,237 | $ | 1,833 | $ | 21,159 | |||||||||||||||
| Goodwill acquired | — | — | 9 | 9 | |||||||||||||||||||
| Impact of foreign currency translation | 236 | — | 9 | 245 | |||||||||||||||||||
| Goodwill divested (a) | — | — | (1,385) | (1,385) | |||||||||||||||||||
| Balances as of January 29, 2021 | 15,325 | 4,237 | 466 | 20,028 | |||||||||||||||||||
| Impact of foreign currency translation | (219) | — | — | (219) | |||||||||||||||||||
| Goodwill divested (b) | — | — | (39) | (39) | |||||||||||||||||||
| Balances as of January 28, 2022 | $ | 15,106 | $ | 4,237 | $ | 427 | $ | 19,770 | |||||||||||||||
| Fiscal Year Ended | |||
| February 3, 2017 | |||
| (in millions) | |||
| Total net revenue | $ | 74,116 | |
| Net loss attributable to Dell Technologies Inc. | $ | (3,220 | ) |
| Infrastructure Solutions Group (a) | Client Solutions Group | VMware | Other Businesses (b) | Total | |||||||||||||||
| (in millions) | |||||||||||||||||||
| Balance as of February 3, 2017 | $ | 15,607 | $ | 4,237 | $ | 15,070 | $ | 3,996 | $ | 38,910 | |||||||||
| Goodwill acquired | — | — | 565 | 9 | 574 | ||||||||||||||
| Impact of foreign currency translation | 359 | — | — | 90 | 449 | ||||||||||||||
| Goodwill divested | (13 | ) | — | — | — | (13 | ) | ||||||||||||
| Balance as of February 2, 2018 | $ | 15,953 | $ | 4,237 | $ | 15,635 | $ | 4,095 | $ | 39,920 | |||||||||
| Goodwill acquired (c) | — | — | 784 | — | 784 | ||||||||||||||
| Impact of foreign currency translation | (289 | ) | — | — | (67 | ) | (356 | ) | |||||||||||
| Goodwill divested | (69 | ) | — | — | — | (69 | ) | ||||||||||||
| Other adjustments (d) | (396 | ) | — | — | 396 | — | |||||||||||||
| Goodwill impaired (e) | — | — | — | (190 | ) | (190 | ) | ||||||||||||
| Balance as of February 1, 2019 | $ | 15,199 | $ | 4,237 | $ | 16,419 | $ | 4,234 | $ | 40,089 | |||||||||
Intangible Assets
The following table presents the Company’s intangible assets as of February 1, 2019 and February 2, 2018 were as follows:the dates indicated:
| January 28, 2022 | January 29, 2021 | ||||||||||||||||||||||||||||||||||
| Gross | Accumulated Amortization | Net | Gross | Accumulated Amortization | Net | ||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||
| Customer relationships | $ | 16,956 | $ | (13,938) | $ | 3,018 | $ | 16,964 | $ | (12,929) | $ | 4,035 | |||||||||||||||||||||||
| Developed technology | 9,635 | (8,405) | 1,230 | 9,659 | (7,834) | 1,825 | |||||||||||||||||||||||||||||
| Trade names | 885 | (757) | 128 | 885 | (715) | 170 | |||||||||||||||||||||||||||||
| Definite-lived intangible assets | 27,476 | (23,100) | 4,376 | 27,508 | (21,478) | 6,030 | |||||||||||||||||||||||||||||
| Indefinite-lived trade names | 3,085 | — | 3,085 | 3,085 | — | 3,085 | |||||||||||||||||||||||||||||
| Total intangible assets | $ | 30,561 | $ | (23,100) | $ | 7,461 | $ | 30,593 | $ | (21,478) | $ | 9,115 | |||||||||||||||||||||||
| February 1, 2019 | February 2, 2018 | ||||||||||||||||||||||
| Gross | Accumulated Amortization | Net | Gross | Accumulated Amortization | Net | ||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Customer relationships | $ | 22,750 | $ | (11,703 | ) | $ | 11,047 | $ | 22,764 | $ | (8,637 | ) | $ | 14,127 | |||||||||
| Developed technology | 15,701 | (9,036 | ) | 6,665 | 15,586 | (6,196 | ) | 9,390 | |||||||||||||||
| Trade names | 1,291 | (606 | ) | 685 | 1,277 | (407 | ) | 870 | |||||||||||||||
| Leasehold assets (liabilities) | 128 | (10 | ) | 118 | 128 | (6 | ) | 122 | |||||||||||||||
| Definite-lived intangible assets | 39,870 | (21,355 | ) | 18,515 | 39,755 | (15,246 | ) | 24,509 | |||||||||||||||
| Indefinite-lived trade names | 3,755 | — | 3,755 | 3,756 | — | 3,756 | |||||||||||||||||
| Total intangible assets | $ | 43,625 | $ | (21,355 | ) | $ | 22,270 | $ | 43,511 | $ | (15,246 | ) | $ | 28,265 | |||||||||
Amortization expense related to definite-lived intangible assets was approximately $6.1$1.6 billion, $7.0$2.1 billion, and $3.7$3.0 billion for the fiscal years ended February 1, 2019, February 2, 2018,January 28, 2022, January 29, 2021, and February 3, 2017,January 31, 2020, respectively. There were no material impairment charges related to intangible assets during the fiscal years ended February 1, 2019, February 2, 2018,January 28, 2022 and February 3, 2017
124
During the fiscal year ended January 29, 2021, the Company recognized proceeds and a quantitative analysis, and no impairment was identified.gain of $120 million from the sale of certain internally developed intellectual property assets.
| January 28, 2022 | |||||
| (in millions) | |||||
| Fiscal 2023 | $ | 977 | |||
| Fiscal 2024 | 776 | ||||
| Fiscal 2025 | 607 | ||||
| Fiscal 2026 | 474 | ||||
| Fiscal 2027 | 361 | ||||
| Thereafter | 1,181 | ||||
| Total | $ | 4,376 | |||
| Fiscal Years | (in millions) | ||
| 2020 | $ | 4,391 | |
| 2021 | 3,362 | ||
| 2022 | 2,652 | ||
| 2023 | 1,767 | ||
| 2024 | 1,403 | ||
| Thereafter | 4,940 | ||
| Total | $ | 18,515 | |
Goodwill and Intangible Assets Impairment Testing
Goodwill and indefinite-lived intangible assets are tested for impairment annually during the third fiscal quarter and whenever events or circumstances may indicate that an impairment has occurred.
For the annual impairment review in the third quarter of Fiscal 2022, the Company elected to bypass the assessment of qualitative factors to determine whether it was more likely than not that the fair value of a reporting unit was less than its carrying amount, including goodwill. In electing to bypass the qualitative assessment, the Company proceeded directly to perform a quantitative goodwill impairment test to measure the fair value of each goodwill reporting unit relative to its carrying amount, and to determine the amount of goodwill impairment loss to be recognized, if any.
Management exercised significant judgment related to the above assessment, including the identification of goodwill reporting units, assignment of assets and liabilities to goodwill reporting units, assignment of goodwill to reporting units, and determination of the fair value of each goodwill reporting unit. The fair value of each goodwill reporting unit is generally estimated using a combination of public company multiples and discounted cash flow methodologies, except with respect to Secureworks, which is a publicly-traded entity, in which case the fair value is determined based primarily on the public company market valuation. The discounted cash flow and public company multiples methodologies require significant judgment, including estimation of future revenues, gross margins, and operating expenses, which are dependent on internal forecasts, current and anticipated economic conditions and trends, selection of market multiples through assessment of the reporting unit’s performance relative to peer competitors, the estimation of the long-term revenue growth rate and discount rate of the Company’s business, and the determination of the Company’s weighted average cost of capital. Changes in these estimates and assumptions could materially affect the fair value of the goodwill reporting unit, potentially resulting in a non-cash impairment charge.
The fair value of the indefinite-lived trade names is generally estimated using discounted cash flow methodologies. The discounted cash flow methodology requires significant judgment, including estimation of future revenue, the estimation of the long-term revenue growth rate of the Company’s business and the determination of the Company’s weighted average cost of capital and royalty rates. Changes in these estimates and assumptions could materially affect the fair value of the indefinite-lived intangible assets, potentially resulting in a non-cash impairment charge.
Based on the results of the annual impairment test performed during the fiscal year ended January 28, 2022, the fair values of each of the reporting units exceeded their carrying values. No impairment test was performed during the fiscal year ended January 28, 2022 other than the Company’s annual impairment review.
NOTE 10 — DEFERRED REVENUE
Deferred Revenue — Deferred revenue is recorded for support and deployment services, software maintenance, professional services, training, and SaaSSoftware-as-a-Service when the Company has a right to invoiceinvoiced or payments have been received for undelivered products or services where transfer of control has not occurred. Revenue is recognized on these items when the revenue recognition criteria are met, generally resulting in ratable recognition over the contract term. The Company also has deferred revenue related to undelivered hardware and professional services, consisting of installations and consulting engagements, which areis recognized as the Company’s performance obligations under the contract are completed.
| Fiscal Year Ended | Fiscal Year Ended | |||||||||||||||||
| February 1, 2019 | February 2, 2018 | January 28, 2022 | January 29, 2021 | |||||||||||||||
| (in millions) | (in millions) | |||||||||||||||||
| Deferred revenue: | Deferred revenue: | |||||||||||||||||
| Deferred revenue at beginning of period | $ | 20,816 | $ | 17,815 | Deferred revenue at beginning of period | $ | 25,592 | $ | 22,539 | |||||||||
| Revenue deferrals for new contracts and changes in estimates for pre-existing contracts (a) (b) | 20,580 | 18,478 | ||||||||||||||||
| Revenue recognized (b) | (17,386 | ) | (15,477 | ) | ||||||||||||||
| Revenue deferrals | Revenue deferrals | 20,968 | 20,412 | |||||||||||||||
| Revenue recognized | Revenue recognized | (18,843) | (17,098) | |||||||||||||||
| Other (a) | Other (a) | (144) | (261) | |||||||||||||||
| Deferred revenue at end of period | $ | 24,010 | 20,816 | Deferred revenue at end of period | $ | 27,573 | $ | 25,592 | ||||||||||
| Short-term deferred revenue | $ | 12,944 | $ | 11,606 | Short-term deferred revenue | $ | 14,261 | $ | 13,201 | |||||||||
| Long-term deferred revenue | $ | 11,066 | $ | 9,210 | Long-term deferred revenue | $ | 13,312 | $ | 12,391 | |||||||||
____________________
(a) For the fiscal year ended January 28, 2022, Other consists of divested deferred revenue from the sale of Boomi. For the fiscal year ended January 29, 2021, Other consists of divested deferred revenue from the sale of RSA Security. See Note 1 of the Notes to the Consolidated Financial Statements for more information about the divestitures of Boomi and RSA Security.
Remaining Performance Obligations — Remaining performance obligations represent the aggregate amount of the transaction price allocated to performance obligations not delivered, or partially undelivered, as of the end of the reporting period.
Remaining performance obligations include deferred revenue plus unbilled amounts not yet recorded in deferred revenue. The value of the transaction price allocated to remaining performance obligations as of January 28, 2022 was approximately $42 billion. The Company expects to recognize approximately 62% of remaining performance obligations as revenue in the next twelve months, and the remainder thereafter.
The aggregate amount of the transaction price allocated to remaining performance obligations does not include amounts owed under cancelable contracts where there is no substantive termination penalty.
The Company applied the practical expedient to exclude the value of remaining performance obligations for contracts for which revenue is recognized at the amount to which the Company has the right to invoice for services performed. The Company also applied the practical expedient to not disclose the amount of transaction price allocated to remaining performance obligations for the periods prior to adoption of the new revenue standard.
Remaining performance obligation estimates are subject to change and are affected by several factors, including terminations, changes in the scope of contracts, periodic revalidation, adjustments for revenue that have not materialized, and adjustments for currency.
NOTE 1011 — COMMITMENTS AND CONTINGENCIES
Purchase Obligations
The Company has contractual obligations to purchase goods or services, which specify significant terms, including(including fixed or minimum quantities to be purchased;purchased), fixed, minimum, or variable price provisions; and the approximate timing of the transaction. As of February 1, 2019,January 28, 2022, such purchase obligations were $3,953 million, $354 million,$5.6 billion, $0.3 billion, and $298 million$0.4 billion for Fiscal 2020, Fiscal 2021,fiscal 2023, fiscal 2024, and Fiscal 2022fiscal 2025 and thereafter, respectively.
Legal Matters
The Company 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. Pursuant to the Separation and Distribution Agreement referred to below, Dell Technologies shares responsibility with VMware for certain matters, as indicated below, and VMware has agreed to indemnify Dell Technologies in whole or in part with respect to certain matters.
The Company 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. The Company 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 the Company’s views on the probable outcomes of claims, suits, assessments, investigations, or legal proceedings change, changes in the Company’s accrued liabilities would beare recorded in the period in which such a determination is made. For some matters, the amount of liability is not probable or the amount cannot be reasonably estimated and therefore accruals have not been made.
The following is a discussion of the Company’s significant legal matters and other proceedings:
Class Actions Related to the Class V Transaction — FourOn December 28, 2018, the Company completed a transaction (the “Class V transaction”) in which it paid $14.0 billion in cash and issued 149,387,617 shares of its Class C Common Stock to holders of its Class V Common Stock in exchange for all outstanding shares of Class V Common Stock. As a result of the Class V transaction, the tracking stock feature of the Company’s capital structure associated with the Class V Common Stock was terminated. In November 2018, 4 purported stockholders have brought putative class action complaints arising out of the Class V transaction described in Note 14 of the Notes to the Consolidated Financial Statements.transaction. The actions arewere captioned Hallandale Beach Police and Fire Retirement Plan v. Michael Dell et al. (Civil Action No. 2018-0816-JTL), Howard Karp v. Michael Dell et al. (Civil Action No. 2019-0032-JTL), Miramar Police Officers’ Retirement Plan v. Michael Dell et al. (Civil Action No. 2019-0049-JTL), and Steamfitters Local 449 Pension Plan v. Michael Dell et al. (Civil Action No. 2019-0115-JTL). The four actions which are substantively similar and were all filedconsolidated in the Delaware Chancery Court of Chanceryinto In Re Dell Class V Litigation (Consol. C.A. No. 2018-0816-JTL). The suit currently names as defendants certain of the State of Delaware, name as defendantsdirectors serving on the Company’s board of directors andat the time of the Class V transaction, certain stockholders of the Company, consisting of Michael S. Dell and entities throughSilver Lake Group LLC and certain of its affiliated funds, and Goldman Sachs & Co. LLC (“Goldman Sachs”), which Mr. Dell allegedly holds a portion of his and/or his family’s stock. Theserved as financial advisor to the Company in connection with the Class V transaction. In an amended complaint filed in August 2019, the plaintiffs generally allegealleged that the director and stockholder defendants breached their fiduciary duties under Delaware law to the former holders of Class V Common Stock in connection with the Class V transaction by allegedly causing the Company to enter into a transaction that favored the interests of the controlling stockholders at the expense of such former stockholders. The actions have now been consolidated.
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Class Actions Related to VMware, Inc.’s Acquisition of Pivotal — NaN purported stockholders brought putative class action complaints arising out of VMware, Inc.’s acquisition of Pivotal Software, Inc. on December 30, 2019. The two actions were consolidated in the Delaware Chancery Court into In re: Pivotal Software, Inc. Stockholders Litigation (Civil Action No. 2020-0440-KSJM). The complaint names as defendants the Company, VMware, Inc., Michael S. Dell, and certain officers of Pivotal. The plaintiffs generally allege that the defendants breached their fiduciary duties to the former holders of Pivotal Class A Common Stock in connection with VMware, Inc.’s acquisition of Pivotal by allegedly causing Pivotal to enter into a transaction that favored the interests of Pivotal’s controlling stockholders at the expense of such former stockholders. The plaintiffs seek, among other remedies, a judicial declaration that the defendants breached their fiduciary duties and an award of damages, fees, and costs.
Other Litigation— The Company is involved in various proceedings and negotiations regarding Dell’s obligation to collect and remit copyright levies in certain European Union (“EU”) countries. The Company continues to collect levies in EU countries where it has determined that local laws require payment. The Company, along with other companies and/or industry associations, also continues to oppose levy schemes that do not comply with EU law. The CompanyDell does not currently anticipate that any of these mattersthe other various legal proceedings it is involved in will have a material adverse effect on its business, financial condition, results of operations, or cash flows.
employee relations considerations. As of February 1, 2019,January 28, 2022, the Company does not believe there is a reasonable possibility that a material loss exceeding the amounts already accrued for these or other proceedings or matters has been incurred. However, since the ultimate resolution of any such proceedings and matters is inherently unpredictable, the Company’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 the Company’s business, financial condition, results of operations, or cash flows will depend on a number of variables,factors, including the nature, timing, and amount of any associated expenses, amounts paid in settlement, damages, or other remedies or consequences.
Indemnifications Obligations
In the ordinary course of business, the Company enters into contractual arrangementsvarious contracts under which it may agree to indemnify the third party to such arrangements from anyother parties for losses incurred relating to the services it performs on behalf of the Company or for losses arising from certain events as defined in the particularrelevant contract, such as litigation, regulatory penalties, or claims relating to past performance. Such indemnification obligations may not be subject to maximum loss clauses. Historically, payments related to these indemnificationsindemnification obligations have not been material to the Company.
Under the Separation and Distribution Agreement described in Note 3 of the Notes to the Consolidated Financial Statements, Dell Technologies has agreed to indemnify VMware, Inc., each of its subsidiaries and each of their respective directors, officers and employees from and against all liabilities relating to, arising out of or resulting from, among other matters, the liabilities allocated to Dell Technologies as part of the separation of Dell Technologies and VMware and their respective businesses as a result of the VMware Spin-off (the “Separation”). VMware similarly has agreed to indemnify Dell Technologies, Inc., each of its subsidiaries and each of their respective directors, officers, and employees from and against all liabilities relating to, arising out of or resulting from, among other matters, the liabilities allocated to VMware as part of the Separation. Dell Technologies expects VMware to fully perform under the terms of the Separation and Distribution Agreement.
For information on the cross-indemnifications related to the tax matters agreement between the Company and VMware described in Note 3 of the Notes to the Consolidated Financial Statements effective upon the Separation on November 1, 2021, see Note 3 and Note 21 of the Notes to the Consolidated Financial Statements.
Certain Concentrations
The Company maintains cash and cash equivalents, derivatives, and certain other financial instruments with various financial institutions that potentially subject it to concentration of credit risk. As part of its risk management processes, the Company performs periodic evaluations of the relative credit standing of these financial institutions. The Company has not sustained material credit losses from instruments held at these financial institutions. Further, the Company does not anticipate nonperformance by any of the counterparties.
The Company markets and sells its products and services to large corporate clients, governments, and health care and education accounts, as well as to small and medium-sized businesses and individuals. No single customer accounted for more than 10%
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of the Company’s consolidated net revenue during the fiscal year ended February 1, 2019, February 2, 2018,January 28, 2022, January 29, 2021, or February 3, 2017.January 31, 2020.
The Company utilizes a limited number of contract manufacturers that assemble a portion of its products. The Company may purchase components from suppliers and sell those components to thesuch contract manufacturers, thereby creating receivables balances from the contract manufacturers. The agreements with the majority of the contract manufacturers allowpermit the Company a legal right to offset its payables against these receivables, thus mitigating the credit risk wholly or in part. Receivables from the Company’s four largest contract manufacturers represented the majority of the Company’s gross non-trade receivables of $3.7$5.7 billion and $3.3$4.1 billion as of February 1, 2019January 28, 2022 and February 2, 2018,January 29, 2021, respectively, of which $3.2$4.2 billion and $2.8$3.1 billion as of February 1, 2019January 28, 2022 and February 2, 2018,January 29, 2021, respectively, have been offset against the corresponding payables. The portion of receivables not offset against payables is included in other current assets in the Consolidated StatementStatements of Financial Position. The Company does not reflect the sale of the components in revenue and does not recognize any profit on the component sales until the related products are sold.
NOTE 1112 — INCOME AND OTHER TAXES
| Fiscal Year Ended | |||||||||||
| February 1, 2019 | February 2, 2018 | February 3, 2017 | |||||||||
| (in millions) | |||||||||||
| Current: | |||||||||||
| Federal | $ | 461 | $ | 52 | $ | (139 | ) | ||||
| State/local | 74 | 111 | 46 | ||||||||
| Foreign | 616 | 599 | 322 | ||||||||
| Current | 1,151 | 762 | 229 | ||||||||
| Deferred: | |||||||||||
| Federal | (1,150 | ) | (2,368 | ) | (1,510 | ) | |||||
| State/local | (85 | ) | (139 | ) | (105 | ) | |||||
| Foreign | (96 | ) | (98 | ) | (34 | ) | |||||
| Deferred | (1,331 | ) | (2,605 | ) | (1,649 | ) | |||||
| Income tax benefit | $ | (180 | ) | $ | (1,843 | ) | $ | (1,420 | ) | ||
The following table presents components of the income tax expense (benefit) for continuing operations recognized for the periods indicated:
| Fiscal Year Ended | |||||||||||||||||
| January 28, 2022 | January 29, 2021 | January 31, 2020 | |||||||||||||||
| (in millions) | |||||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | 166 | $ | (514) | $ | (144) | |||||||||||
| State/local | 76 | (22) | 41 | ||||||||||||||
| Foreign | 960 | 825 | 647 | ||||||||||||||
| Current | 1,202 | 289 | 544 | ||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | (54) | (16) | (404) | ||||||||||||||
| State/local | — | (115) | (90) | ||||||||||||||
| Foreign | (167) | (57) | (622) | ||||||||||||||
| Deferred | (221) | (188) | (1,116) | ||||||||||||||
| Income tax expense (benefit) | $ | 981 | $ | 101 | $ | (572) | |||||||||||
The Company’s provision forfollowing table presents components of income (loss) before income taxes for the fiscal periods reflected in the Consolidated Financial Statements are not directly comparable primarily due to the enactment of the Tax Cuts and Jobs Act of 2017 (“U.S. Tax Reform”) during the fiscal year ended February 2, 2018, as well as purchase accounting adjustments, interest charges, and stock-based compensation charges incurred as a result of the EMC merger transaction that was completed in the fiscal year ended February 3, 2017. For more information regarding the EMC merger transaction, see Note 1 of the Notes to the Consolidated Financial Statements.
| Fiscal Year Ended | |||||||||||||||||
| January 28, 2022 | January 29, 2021 | January 31, 2020 | |||||||||||||||
| (in millions) | |||||||||||||||||
| Domestic | $ | 1,414 | $ | (1,361) | $ | (2,894) | |||||||||||
| Foreign | 4,509 | 3,707 | 2,843 | ||||||||||||||
| Income (loss) before income taxes | $ | 5,923 | $ | 2,346 | $ | (51) | |||||||||||
The Company’s loss from continuing operations before income taxes consisted of the following for the respective periods:
| Fiscal Year Ended | |||||||||||
| February 1, 2019 | February 2, 2018 | February 3, 2017 | |||||||||
| (in millions) | |||||||||||
| Domestic | $ | (4,645 | ) | $ | (5,995 | ) | $ | (6,698 | ) | ||
| Foreign | 2,284 | 1,226 | 2,204 | ||||||||
| Loss from continuing operations before income taxes | $ | (2,361 | ) | $ | (4,769 | ) | $ | (4,494 | ) | ||
| Fiscal Year Ended | |||||||||||||||||
| January 28, 2022 | January 29, 2021 | January 31, 2020 | |||||||||||||||
| U.S. federal statutory rate | 21.0 | % | 21.0 | % | 21.0 | % | |||||||||||
| State income taxes, net of federal tax benefit | 1.7 | (3.5) | 45.1 | ||||||||||||||
| Tax impact of foreign operations | (0.3) | 8.9 | (274.5) | ||||||||||||||
| Impact of intangible property transfers | — | — | 794.1 | ||||||||||||||
| Change in valuation allowance | 0.4 | — | (233.3) | ||||||||||||||
| U.S. tax audit settlement | — | (31.8) | 598.0 | ||||||||||||||
| Non-deductible transaction-related costs | 1.2 | 1.0 | (35.3) | ||||||||||||||
| Stock-based compensation expense | (2.4) | (3.2) | 243.1 | ||||||||||||||
| U.S. R&D tax credits | (1.3) | (2.5) | 121.6 | ||||||||||||||
| Legal entity restructuring | (4.1) | — | — | ||||||||||||||
| RSA Security divestiture | — | 12.3 | — | ||||||||||||||
| Other | 0.4 | 2.1 | (158.2) | ||||||||||||||
| Total | 16.6 | % | 4.3 | % | 1121.6 | % | |||||||||||
The changes in the Company’s effective tax rates for all periods presented were primarily driven by discrete tax items and a change in the Company’s jurisdictional mix of income.
The Company’s effective tax rate for the fiscal year ended January 28, 2022 includes tax expense of $1.0 billion on a pre-tax gain of $4.0 billion related to the divestiture of Boomi during the period, as follows:well as tax benefits of $367 million on $1.6 billion of debt extinguishment fees and $244 million related to the restructuring of certain legal entities. The Company’s effective tax rate for the fiscal year ended January 29, 2021 includes tax benefits of $746 million related to an audit settlement and tax expense of $359 million on pre-tax gain of $338 million relating to the divestiture of RSA Security during the period. The Company’s effective tax rate for the fiscal year ended January 31, 2020 includes tax benefits of $405 million related to an intra-entity asset transfer and $305 million related to an audit settlement. The intra-entity asset transfer was of certain intellectual property to an Irish subsidiary.
| Fiscal Year Ended | ||||||||
| February 1, 2019 | February 2, 2018 (a) | February 3, 2017 (a) | ||||||
| U.S. federal statutory rate | 21.0 | % | 33.7 | % | 35.0 | % | ||
| State income taxes, net of federal tax benefit | 0.5 | 2.9 | 2.9 | |||||
| Tax impact of foreign operations | (19.5 | ) | (11.0 | ) | (6.2 | ) | ||
| Change in valuation allowance | (6.6 | ) | (1.8 | ) | (1.1 | ) | ||
| Indirect tax effects of adoption of new revenue standard | 6.5 | — | — | |||||
| U.S. Tax Reform | 1.5 | 11.6 | — | |||||
| IRS tax audit settlement | — | — | 6.6 | |||||
| Non-deductible transaction-related costs | (1.9 | ) | — | (1.1 | ) | |||
| Stock-based compensation | 4.1 | 1.6 | (0.2 | ) | ||||
| Other tax credits | 6.9 | 2.6 | 1.1 | |||||
| Other | (4.9 | ) | (1.0 | ) | (5.4 | ) | ||
| Total | 7.6 | % | 38.6 | % | 31.6 | % | ||
The differences between the estimatedCompany’s effective income tax rates and the U.S. federal statutory rate of 21% principally result from the Company’s geographical distribution of income, and differences between the book and tax treatment of certain items.items, and the discrete tax items discussed above. In certain jurisdictions, the Company’s tax rate is significantly less than the applicable statutory rate as a result of tax holidays. The majority of the Company’s foreign income that is subject to these tax holidays and lower tax rates is attributable to Singapore China, and Malaysia. Although aChina. A significant portion of these income tax benefits relate to a tax holiday that expired during the fiscal year ended February 1, 2019, the Company has negotiated new terms for the affected subsidiary. These new terms provide for a reduced income tax rate and will be effective until January 31, 2029. The Company’s other tax holidays will expire in whole or in part during fiscal years 20222030 through 2030.2031. 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. As of January 28, 2022, the Company was not aware of any matters of noncompliance related to these tax holidays. For the fiscal years ended February 1, 2019, February 2, 2018,January 28, 2022, January 29, 2021, and February 3, 2017,January 31, 2020, the income tax benefits attributable to the tax status of the affected subsidiaries were estimated to be approximately $313$466 million ($0.540.59 per share of DHI Group Common Stock)share), $238$359 million ($0.420.47 per share of DHI Group Common Stock)share), and $369$444 million ($0.790.59 per share of DHI Group Common Stock)share), respectively. These income tax benefits are included in tax impact of foreign operations in the table above.
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The following table presents the components of the Company’s net deferred tax assets (liabilities) were as follows as of February 1, 2019 and February 2, 2018:the dates indicated:
| February 1, 2019 | February 2, 2018 | January 28, 2022 | January 29, 2021 | |||||||||||||||
| (in millions) | (in millions) | |||||||||||||||||
| Deferred tax assets: | Deferred tax assets: | |||||||||||||||||
| Deferred revenue and warranty provisions | $ | 1,267 | $ | 1,022 | Deferred revenue and warranty provisions | $ | 1,555 | $ | 1,493 | |||||||||
| Provisions for product returns and doubtful accounts | 117 | 95 | Provisions for product returns and doubtful accounts | 95 | 132 | |||||||||||||
| Credit carryforwards | 1,927 | 540 | Credit carryforwards | 1,094 | 985 | |||||||||||||
| Loss carryforwards | 466 | 509 | Loss carryforwards | 379 | 438 | |||||||||||||
| Operating and compensation related accruals | 683 | 604 | Operating and compensation related accruals | 512 | 478 | |||||||||||||
| Other | 193 | 158 | Other | 301 | 296 | |||||||||||||
| Deferred tax assets | 4,653 | 2,928 | Deferred tax assets | 3,936 | 3,822 | |||||||||||||
| Valuation allowance | (1,704 | ) | (777 | ) | Valuation allowance | (1,423) | (1,297) | |||||||||||
| Deferred tax assets, net of valuation allowance | 2,949 | 2,151 | Deferred tax assets, net of valuation allowance | 2,513 | 2,525 | |||||||||||||
| Deferred tax liabilities: | Deferred tax liabilities: | |||||||||||||||||
| Leasing and financing | (356 | ) | (178 | ) | Leasing and financing | (382) | (375) | |||||||||||
| Property and equipment | (547 | ) | (483 | ) | Property and equipment | (452) | (351) | |||||||||||
| Acquired intangibles | (3,254 | ) | (4,004 | ) | ||||||||||||||
| Intangibles | Intangibles | (673) | (986) | |||||||||||||||
| Other | (242 | ) | (344 | ) | Other | (363) | (341) | |||||||||||
| Deferred tax liabilities | (4,399 | ) | (5,009 | ) | Deferred tax liabilities | (1,870) | (2,053) | |||||||||||
| Net deferred tax liabilities | $ | (1,450 | ) | $ | (2,858 | ) | ||||||||||||
| Net deferred tax assets | Net deferred tax assets | $ | 643 | $ | 472 | |||||||||||||
The following tables below summarizepresent the net operating loss carryforwards, tax credit carryforwards, and other deferred tax assets with related valuation allowances recognized as of February 1, 2019 and February 2, 2018:the dates indicated:
| January 28, 2022 | |||||||||||||||||||||||
| Deferred Tax Assets | Valuation Allowance | Net Deferred Tax Assets | First Year Expiring | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Credit carryforwards | $ | 1,094 | $ | (917) | $ | 177 | Fiscal 2023 | ||||||||||||||||
| Loss carryforwards | 379 | (276) | 103 | Fiscal 2023 | |||||||||||||||||||
| Other deferred tax assets | 2,463 | (230) | 2,233 | NA | |||||||||||||||||||
| Total | $ | 3,936 | $ | (1,423) | $ | 2,513 | |||||||||||||||||
| January 29, 2021 | |||||||||||||||||||||||
| Deferred Tax Assets | Valuation Allowance | Net Deferred Tax Assets | First Year Expiring | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Credit carryforwards | $ | 985 | $ | (822) | $ | 163 | Fiscal 2022 | ||||||||||||||||
| Loss carryforwards | 438 | (258) | 180 | Fiscal 2022 | |||||||||||||||||||
| Other deferred tax assets | 2,399 | (217) | 2,182 | NA | |||||||||||||||||||
| Total | $ | 3,822 | $ | (1,297) | $ | 2,525 | |||||||||||||||||
| February 1, 2019 | |||||||||||||
| Deferred Tax Assets | Valuation Allowance | Net Deferred Tax Assets | First Year Expiring | ||||||||||
| (in millions) | |||||||||||||
| Credit carryforwards | $ | 1,927 | $ | (1,152 | ) | $ | 775 | Fiscal 2020 | |||||
| Loss carryforwards | 466 | (403 | ) | 63 | Fiscal 2020 | ||||||||
| Other deferred tax assets | 2,260 | (149 | ) | 2,111 | NA | ||||||||
| Total | $ | 4,653 | $ | (1,704 | ) | $ | 2,949 | ||||||
| February 2, 2018 | |||||||||||||
| Deferred Tax Assets | Valuation Allowance | Net Deferred Tax Assets | First Year Expiring | ||||||||||
| (in millions) | |||||||||||||
| Credit carryforwards | $ | 540 | $ | (366 | ) | $ | 174 | Fiscal 2019 | |||||
| Loss carryforwards | 509 | (279 | ) | 230 | Fiscal 2019 | ||||||||
| Other deferred tax assets | 1,879 | (132 | ) | 1,747 | NA | ||||||||
| Total | $ | 2,928 | $ | (777 | ) | $ | 2,151 | ||||||
The Company’s credit carryforwards as of February 1, 2019January 28, 2022 and February 2, 2018January 29, 2021 relate primarily to U.S. tax credits and the increase in the fiscal year ended February 1, 2019 was primarily attributable toinclude state and federal tax credits associated with research and development, as well as foreign tax credits associated with the U.S. Tax Reform that will expireCuts and Jobs Act enacted in FiscalDecember 2017 (“U.S. Tax Reform”). The more significant amounts of the Company’s carryforwards begin expiring in fiscal year 2028. The Company assessed the realizability of these U.S. tax credits based on currently enacted and proposed regulations issued by the U.S. Department of the Treasury and the IRS andhas recorded a valuation allowance of $634 millionagainst the credits it does not expect to utilize. The change in the valuation allowance against these assets, whichcredits is included with other impacts of U.S. Tax Reformin change in valuation allowance in the Company’s effective tax rate reconciliation. The Company’s loss
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carryforwards as of February 1, 2019January 28, 2022 and February 2, 2018January 29, 2021 include net operating loss carryforwards from federal, state, and foreign jurisdictions. The valuation allowances for other deferred tax assets as of February 1, 2019January 28, 2022 and February 2, 2018 areJanuary 29, 2021 primarily relatedrelate to foreign jurisdictions.jurisdictions, the changes in which are included in tax impact of foreign operations in the Company’s effective tax reconciliation. The Company has determined that it will be able to realize the remainder of its deferred tax assets, based on the future reversal of deferred tax liabilities.
| Fiscal Year Ended | |||||||||||||||||
| January 28, 2022 | January 29, 2021 | January 31, 2020 | |||||||||||||||
| (in millions) | |||||||||||||||||
| Beginning Balance | $ | 1,620 | $ | 2,235 | $ | 2,842 | |||||||||||
| Increases related to tax positions of the current year | 113 | 102 | 122 | ||||||||||||||
| Increases related to tax position of prior years | 143 | 385 | 437 | ||||||||||||||
| Reductions for tax positions of prior years | (153) | (673) | (659) | ||||||||||||||
| Lapse of statute of limitations | (78) | (27) | (105) | ||||||||||||||
| Audit settlements | (50) | (402) | (402) | ||||||||||||||
| Ending Balance | $ | 1,595 | $ | 1,620 | $ | 2,235 | |||||||||||
| Fiscal Year Ended | |||||||||||
| February 1, 2019 | February 2, 2018 | February 3, 2017 | |||||||||
| (in millions) | |||||||||||
| Beginning Balance | $ | 2,867 | $ | 2,752 | $ | 2,479 | |||||
| Unrecognized tax benefits assumed through EMC merger transaction | — | — | 558 | ||||||||
| Increases related to tax positions of the current year | 116 | 155 | 116 | ||||||||
| Increases related to tax position of prior years | 288 | 98 | 227 | ||||||||
| Reductions for tax positions of prior years | (170 | ) | (90 | ) | (379 | ) | |||||
| Lapse of statute of limitations | (90 | ) | (34 | ) | (30 | ) | |||||
| Audit settlements | (22 | ) | (14 | ) | (219 | ) | |||||
| Ending Balance | $ | 2,989 | $ | 2,867 | $ | 2,752 | |||||
The unrecognized tax benefits in the table above include $0.9 billion, $0.9 billion, and $1.8 billion as of January 28, 2022, January 29, 2021, and January 31, 2020, respectively, that, if recognized, would have impacted income tax expense. Interest and penalties related to income tax liabilities are included in income tax expense. The Company recorded tax benefits for interest and penalties of $127 million, $184$14 million and $94$247 million for the fiscal years ended February 1, 2019, February 2, 2018,January 28, 2022 and February 3, 2017, respectively.
The Internal Revenue Service is currently conducting tax examinations of the Company closed the IRS audit for fiscal years 20042015 through 2006. As a result, during the fiscal year ended February 3, 2017, the Company recorded a net benefit to the provision for income taxes of $297 million.
2019. The Company is also currently under income tax audits in various state and foreign taxing jurisdictions. The Company is undergoing negotiations, and in some cases contested proceedings, relating to tax matters with the taxing authorities in these jurisdictions. The Company believes that it has provided adequate reserves related to all matters contained in tax periods open to examination. Although the Company believes it has made adequate provisions for the uncertainties surrounding these audits, should the Company experience unfavorable outcomes, such outcomes could have a material impact on its results of operations, financial position, and cash flows. With respect to major U.S. state and foreign taxing jurisdictions, the Company is generally not subject to tax examinations for years prior to the fiscal year ended February 2, 2007.January 29, 2010.
Judgment is required in evaluating the Company’s uncertain tax positions and determining the Company’s provision for income taxes. The Company does not expect a significant change to the total amount of unrecognized tax benefits within the next twelve months.
The Company takes certain non-income tax positions in the jurisdictions in which it operates and has received certain non-income tax assessments from various jurisdictions. The Company believes that a material loss in these matters is not probable and that it is not reasonably possible that a material loss exceeding amounts already accrued has been incurred. The Company believes its positions in these non-income tax litigation matters are supportable and that it ultimately will prevail in the matters. In the normal course of business, the Company’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 the Company’s views on its positions, probable outcomes of assessments, or litigation change, changes in estimates to the Company’s accrued liabilities would be recorded in the period in which such a determination is made. In the resolution process for income tax and non-income tax audits, the
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Company is required in certain situations the Company is required to provide collateral guarantees or indemnification to regulators and tax authorities until the matter is resolved.
NOTE 1213 — ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income (loss) is presented in stockholders’ equity (deficit) in the Consolidated Statements of Financial Position and consists of amounts related to foreign currency translation adjustments, unrealized net gains (losses) on investments, unrealized net gains (losses) on cash flow hedges, and actuarial net gains (losses) from pension and other postretirement plans.
The following table presents changes in accumulated other comprehensive income (loss), net of tax, by the following components foras of the periodsdates indicated:
| Foreign Currency Translation Adjustments | Cash Flow Hedges | Pension and Other Postretirement Plans | Accumulated Other Comprehensive Income (Loss) | ||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
| Balances as of February 1, 2019 | $ | (452) | $ | (29) | $ | 14 | $ | (467) | |||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | (226) | 269 | (60) | (17) | |||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | — | (226) | 1 | (225) | |||||||||||||||||||||||||
| Total change for the period | (226) | 43 | (59) | (242) | |||||||||||||||||||||||||
| Balances as of January 31, 2020 | $ | (678) | $ | 14 | $ | (45) | $ | (709) | |||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | 528 | (200) | (38) | 290 | |||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | — | 100 | 5 | 105 | |||||||||||||||||||||||||
| Total change for the period | 528 | (100) | (33) | 395 | |||||||||||||||||||||||||
| Balances as of January 29, 2021 | $ | (150) | $ | (86) | $ | (78) | $ | (314) | |||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | (385) | 374 | 37 | 26 | |||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | — | (158) | 7 | (151) | |||||||||||||||||||||||||
| Spin-off of VMware | 9 | (1) | — | 8 | |||||||||||||||||||||||||
| Total change for the period | (376) | 215 | 44 | (117) | |||||||||||||||||||||||||
| Balances as of January 28, 2022 | $ | (526) | $ | 129 | $ | (34) | $ | (431) | |||||||||||||||||||||
| Foreign Currency Translation Adjustments | Investments | Cash Flow Hedges | Pension and Other Postretirement Plans | Accumulated Other Comprehensive Income (Loss) | |||||||||||||||
| (in millions) | |||||||||||||||||||
| Balances as of January 29, 2016 | $ | (358 | ) | $ | — | $ | 34 | $ | — | (324 | ) | ||||||||
| Other comprehensive income (loss) before reclassifications | (254 | ) | (17 | ) | 20 | 19 | (232 | ) | |||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | — | 1 | (43 | ) | — | (42 | ) | ||||||||||||
| Total change for the period | (254 | ) | (16 | ) | (23 | ) | 19 | (274 | ) | ||||||||||
| Less: Change in comprehensive income (loss) attributable to non-controlling interests | — | (3 | ) | — | — | (3 | ) | ||||||||||||
| Balances as of February 3, 2017 | (612 | ) | (13 | ) | 11 | 19 | (595 | ) | |||||||||||
| Other comprehensive income (loss) before reclassifications | 791 | 31 | (248 | ) | 13 | 587 | |||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | — | 2 | 134 | — | 136 | ||||||||||||||
| Total change for the period | 791 | 33 | (114 | ) | 13 | 723 | |||||||||||||
| Less: Change in comprehensive loss attributable to non-controlling interests | — | (2 | ) | — | — | (2 | ) | ||||||||||||
| Balances as of February 2, 2018 | 179 | 22 | (103 | ) | 32 | 130 | |||||||||||||
| Adjustment for adoption of accounting standards (Note 2) | — | (61 | ) | — | 3 | (58 | ) | ||||||||||||
| Other comprehensive income (loss) before reclassifications | (631 | ) | 2 | 299 | (21 | ) | (351 | ) | |||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | — | 43 | (225 | ) | — | (182 | ) | ||||||||||||
| Total change for the period | (631 | ) | (16 | ) | 74 | (18 | ) | (591 | ) | ||||||||||
| Less: Change in comprehensive income attributable to non-controlling interests | — | 6 | — | — | 6 | ||||||||||||||
| Balances as of February 1, 2019 | $ | (452 | ) | $ | — | $ | (29 | ) | $ | 14 | $ | (467 | ) | ||||||
Amounts related to investments are reclassified to net income (loss) when gains and losses are realized. See Note 3 and Note 4 of the Notes to the Consolidated Financial Statements for more information on the Company’s investments. Amounts related to the Company’s cash flow hedges are reclassified to net income during the same period in which the items being hedged are recognized in earnings. See Note 78 of the Notes to the Consolidated Financial Statements for more information on the Company’s derivative instruments.
The following tables presenttable presents reclassifications out of accumulated other comprehensive income (loss), net of tax, to net income (loss) for the periods presented:indicated:
| Fiscal Year Ended | |||||||||||||||||||||||||||||||||||||||||||||||
| January 28, 2022 | January 29, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||
| Cash Flow Hedges | Pensions | Total | Cash Flow Hedges | Pensions | Total | ||||||||||||||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Total reclassifications, net of tax: | |||||||||||||||||||||||||||||||||||||||||||||||
| Net revenue | $ | 158 | $ | — | $ | 158 | $ | (98) | $ | — | $ | (98) | |||||||||||||||||||||||||||||||||||
| Cost of net revenue | (3) | — | (3) | 5 | — | 5 | |||||||||||||||||||||||||||||||||||||||||
| Operating expenses | — | (7) | (7) | — | (5) | (5) | |||||||||||||||||||||||||||||||||||||||||
| Income from discontinued operations | 3 | — | 3 | (7) | — | (7) | |||||||||||||||||||||||||||||||||||||||||
| Total reclassifications, net of tax | $ | 158 | $ | (7) | $ | 151 | $ | (100) | $ | (5) | $ | (105) | |||||||||||||||||||||||||||||||||||
| Fiscal Year Ended | |||||||||||||||||||||||
| February 1, 2019 | February 2, 2018 | ||||||||||||||||||||||
| Investments | Cash Flow Hedges | Total | Investments | Cash Flow Hedges | Total | ||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Total reclassifications, net of tax: | |||||||||||||||||||||||
| Net revenue | $ | — | $ | 225 | $ | 225 | $ | — | $ | (77 | ) | $ | (77 | ) | |||||||||
| Cost of net revenue | — | — | — | — | (57 | ) | (57 | ) | |||||||||||||||
| Interest and other, net | (43 | ) | — | (43 | ) | (2 | ) | — | (2 | ) | |||||||||||||
| Total reclassifications, net of tax | $ | (43 | ) | $ | 225 | $ | 182 | $ | (2 | ) | $ | (134 | ) | $ | (136 | ) | |||||||
| Fiscal Year Ended | |||
| February 1, 2019 | |||
| (in millions) | |||
| Net loss attributable to Dell Technologies Inc. | $ | (2,310 | ) |
| Transfers (to)/from the non-controlling interests: | |||
| Increase in Dell Technologies Inc. additional paid-in-capital for equity issuances and other equity activity | 954 | ||
| Decrease in Dell Technologies Inc. additional paid-in-capital for equity issuances and other equity activity | (820 | ) | |
| Net transfers from non-controlling interests | 134 | ||
| Change from net loss attributable to Dell Technologies Inc. and transfers (to)/from the non-controlling interests | $ | (2,176 | ) |
NOTE 14— CAPITALIZATION
The following table summarizespresents the Company’s authorized, issued, and outstanding common stock as of the dates indicated:
| Authorized | Issued | Outstanding | |||||||||||||||
| (in millions) | |||||||||||||||||
| Common stock as of January 28, 2022 | |||||||||||||||||
| Class A | 600 | 379 | 379 | ||||||||||||||
| Class B | 200 | 95 | 95 | ||||||||||||||
| Class C | 7,900 | 303 | 283 | ||||||||||||||
| Class D | 100 | — | — | ||||||||||||||
| Class V | 343 | — | — | ||||||||||||||
| 9,143 | 777 | 757 | |||||||||||||||
| Common stock as of January 29, 2021 | |||||||||||||||||
| Class A | 600 | 385 | 385 | ||||||||||||||
| Class B | 200 | 102 | 102 | ||||||||||||||
| Class C | 7,900 | 274 | 266 | ||||||||||||||
| Class D | 100 | — | — | ||||||||||||||
| Class V | 343 | — | — | ||||||||||||||
| 9,143 | 761 | 753 | |||||||||||||||
| Authorized | Issued | Outstanding | ||||||
| (in millions) | ||||||||
| Common stock as of February 2, 2018 | ||||||||
| Class A | 600 | 410 | 410 | |||||
| Class B | 200 | 137 | 137 | |||||
| Class C | 7,900 | 24 | 23 | |||||
| Class D | 100 | — | — | |||||
| Class V | 343 | 223 | 199 | |||||
| 9,143 | 794 | 769 | ||||||
| Common stock as of February 1, 2019 | ||||||||
| Class A | 600 | 410 | 410 | |||||
| Class B | 200 | 137 | 137 | |||||
| Class C | 7,900 | 174 | 172 | |||||
| Class D | 100 | — | — | |||||
| Class V | 343 | — | — | |||||
| 9,143 | 721 | 719 | ||||||
Under the Company’s certificate of incorporation, as amended and restated upon the completion of the Class V transaction described below, the Company is prohibited from issuing any of the authorized shares of Class V Common Stock.
Preferred Stock
The Company is authorized to issue one million1000000 shares of preferred stock, par value $0.01 per share. As of February 1, 2019January 28, 2022 and February 2, 2018,January 29, 2021, no shares of preferred stock were issued or outstanding.
Common Stock
Voting Rights — Each holder of record of:of (a) Class A Common Stock is entitled to ten10 votes per share of Class A Common Stock; (b) Class B Common Stock is entitled to ten10 votes per share of Class B Common Stock; (c) Class C Common Stock is entitled to one1 vote per share of Class C Common Stock; and (d) Class D Common Stock is not entitled to any vote on any matter except to the extent required by provisions of Delaware law (in which case such holder is entitled to one1 vote per share of Class D Common Stock).
Conversion Rights — Under the Company’s certificate of incorporation, at any time and from time to time, any holder of Class V Transaction
During the fiscal year ended January 28, 2022, the Company issued 6,334,990 shares of Class C Common Stock to stockholders upon their conversion of the same number of shares of Class B Common Stock into Class C Common Stock in accordance with the Company’s certificate of incorporation.
During the fiscal year ended January 29, 2021, the Company issued an aggregate of 72,727 shares of Class C Common Stock to stockholders upon their conversion of the same number of shares of Class A Common Stock into Class C Common Stock in accordance with the Company’s certificate of incorporation.
Repurchases of Common Stock and Treasury Stock
| Class V Common Stock | DHI Group Retained Interest | ||||||||
| Shares of Class V Common Stock | Interest in Class V Group | Retained Interest Shares | Interest in Class V Group | ||||||
| (in millions, except percentages) | |||||||||
| As of September 7, 2016 | 223 | 65% | 120 | 35% | |||||
| DHI Group Repurchase Program | (7 | ) | 7 | ||||||
| Class V Group Repurchase Program | (7 | ) | — | ||||||
| As of February 3, 2017 | 209 | 62% | 127 | 38% | |||||
| Class V Group Repurchase Program | (10 | ) | — | ||||||
| As of February 2, 2018 | 199 | 61% | 127 | 39% | |||||
| Repurchases of Class V Common Stock | (199 | ) | (127 | ) | |||||
| As of December 28, 2018 | — | —% | — | —% | |||||
During the fiscal year ended February 1, 2019,January 29, 2021, the Company repurchased approximately one6 million shares of DHI GroupClass C Common Stock for approximately $47 million. During the fiscal years ended February 2, 2018 and February 3, 2017, the Company repurchased an immaterial number of shares of DHI Group Common Stock for approximately $6 million and $10 million, respectively.
To the Company entered into a stock purchase agreement with VMware, Inc. (the “December 2016 Stock Purchase Agreement”), pursuant to which VMware, Inc. agreed to repurchase for cash $500 million of shares of VMware, Inc. Class A common stock from a subsidiary of the Company. During the fiscal year ended February 2, 2018, VMware, Inc. repurchased 1.4 million shares for $125 million pursuant to and in completion of the December 2016 Stock Purchase Agreement. VMware, Inc. repurchased a total of 6.2 million shares under this agreement, including shares repurchased during the fiscal year ended February 3, 2017. The Company applied the proceeds from the sale to the repurchase of shares of its Class V Common Stock under the Class V Group Repurchase Program described above.
NOTE 15 — EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is based on the weighted-average effect of all common shares issued and outstanding and is calculated by dividing net income (loss) by the weighted-average shares outstanding during the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted-average number of common shares used in the basic earnings (loss) per share calculation plus the number of common shares that would be issued assuming exercise or conversion of all potentially dilutive instruments. The Company excludes equity instruments from the calculation of diluted earnings (loss) per share if the effect of including such instruments is antidilutive.
| Fiscal Year Ended | |||||||||||||||||||||||||||||
| January 28, 2022 | January 29, 2021 | January 31, 2020 | |||||||||||||||||||||||||||
| Earnings per share attributable to Dell Technologies Inc. - basic | |||||||||||||||||||||||||||||
| Continuing operations | $ | 6.49 | $ | 3.02 | $ | 0.73 | |||||||||||||||||||||||
| Discontinued operations | $ | 0.81 | $ | 1.35 | $ | 5.65 | |||||||||||||||||||||||
| Earnings per share attributable to Dell Technologies Inc. — diluted | |||||||||||||||||||||||||||||
| Continuing operations | $ | 6.26 | $ | 2.93 | $ | 0.70 | |||||||||||||||||||||||
| Discontinued operations | $ | 0.76 | $ | 1.29 | $ | 5.33 | |||||||||||||||||||||||
The following table presents the computation of basic and diluted earnings per share for the periods indicated:
| Fiscal Year Ended | ||||||||||||||||||||||||||
| January 28, 2022 | January 29, 2021 | January 31, 2020 | ||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||
| Numerator: Continuing operations | ||||||||||||||||||||||||||
| Net income attributable to Dell Technologies Inc. from continuing operations - basic and diluted | $ | 4,948 | $ | 2,249 | $ | 525 | ||||||||||||||||||||
| Numerator: Discontinued operations | ||||||||||||||||||||||||||
| Income from discontinued operations, net of income taxes - basic | $ | 615 | $ | 1,001 | $ | 4,091 | ||||||||||||||||||||
| Incremental dilution from VMware (a) | (7) | (13) | (84) | |||||||||||||||||||||||
| Income from discontinued operations, net of income taxes, attributable to Dell Technologies Inc. - diluted | $ | 608 | $ | 988 | $ | 4,007 | ||||||||||||||||||||
| Denominator: Dell Technologies Common Stock weighted-average shares outstanding | ||||||||||||||||||||||||||
Weighted-average shares outstanding — basic | 762 | 744 | 724 | |||||||||||||||||||||||
| Dilutive effect of options, restricted stock units, restricted stock, and other | 29 | 23 | 27 | |||||||||||||||||||||||
Weighted-average shares outstanding — diluted | 791 | 767 | 751 | |||||||||||||||||||||||
Weighted-average shares outstanding — antidilutive | 0 | 0 | 0 | |||||||||||||||||||||||
____________________
(a) The incremental dilution from VMware represents the impact of VMware’s dilutive securities on December 28, 2018diluted earnings per share of the Class V transaction described in Note 14 of the Notes to the Consolidated Financial Statements, the Company had two groups of common stock, denoted as the DHI GroupDell Technologies Common Stock, and is calculated by multiplying the Class V Common Stock.
| Fiscal Year Ended | |||||||||||
| February 1, 2019 | February 2, 2018 | February 3, 2017 | |||||||||
| Earnings (loss) per share attributable to Dell Technologies Inc. - basic: | |||||||||||
| Continuing operations - Class V Common Stock - basic | $ | 6.01 | $ | 1.63 | $ | 1.36 | |||||
| Continuing operations - DHI Group - basic | $ | (6.02 | ) | $ | (5.61 | ) | $ | (7.19 | ) | ||
| Discontinued operations - DHI Group - basic | $ | — | $ | — | $ | 4.08 | |||||
| Earnings (loss) per share attributable to Dell Technologies Inc. - diluted: | |||||||||||
| Continuing operations - Class V Common Stock - diluted | $ | 5.91 | $ | 1.61 | $ | 1.35 | |||||
| Continuing operations - DHI Group - diluted | $ | (6.04 | ) | $ | (5.62 | ) | $ | (7.19 | ) | ||
| Discontinued operations - DHI Group - diluted | $ | — | $ | — | $ | 4.08 | |||||
| Fiscal Year Ended | |||||||||||
| February 1, 2019 | February 2, 2018 | February 3, 2017 | |||||||||
| (in millions) | |||||||||||
| Numerator: Continuing operations - Class V Common Stock | |||||||||||
| Net income from continuing operations attributable to Class V Common Stock - basic (a) | $ | 1,195 | $ | 331 | $ | 296 | |||||
| Incremental dilution from VMware, Inc. attributable to Class V Common Stock (b) | (18 | ) | (5 | ) | (3 | ) | |||||
| Net income from continuing operations attributable to Class V Common Stock - diluted | $ | 1,177 | $ | 326 | $ | 293 | |||||
| Numerator: Continuing operations - DHI Group | |||||||||||
| Net loss from continuing operations attributable to DHI Group - basic | $ | (3,505 | ) | $ | (3,180 | ) | $ | (3,379 | ) | ||
| Incremental dilution from VMware, Inc. attributable to DHI Group (b) | (13 | ) | (4 | ) | (2 | ) | |||||
| Net loss from continuing operations attributable to DHI Group - diluted | $ | (3,518 | ) | $ | (3,184 | ) | $ | (3,381 | ) | ||
| Numerator: Discontinued operations - DHI Group | |||||||||||
| Income from discontinued operations, net of income taxes - basic and diluted | $ | — | $ | — | $ | 1,916 | |||||
| Denominator: Class V Common Stock weighted-average shares outstanding | |||||||||||
| Weighted-average shares outstanding - basic (c) | 199 | 203 | 217 | ||||||||
| Dilutive effect of options, restricted stock units, restricted stock, and other (d) | — | — | — | ||||||||
| Weighted-average shares outstanding - diluted | 199 | 203 | 217 | ||||||||
| Weighted-average shares outstanding - antidilutive (d) | — | — | — | ||||||||
| Denominator: DHI Group weighted-average shares outstanding | |||||||||||
| Weighted-average shares outstanding - basic (e) | 582 | 567 | 470 | ||||||||
| Dilutive effect of options, restricted stock units, restricted stock, and other | — | — | — | ||||||||
| Weighted-average shares outstanding - diluted | 582 | 567 | 470 | ||||||||
| Weighted-average shares outstanding - antidilutive (f) | 44 | 35 | 31 | ||||||||
| Fiscal Year Ended | |||||||||||
| February 1, 2019 | February 2, 2018 | February 3, 2017 | |||||||||
| (in millions) | |||||||||||
| Net income from continuing operations attributable to Class V Common Stock | $ | 1,195 | $ | 331 | $ | 296 | |||||
| Net loss from continuing operations attributable to DHI Group | (3,505 | ) | (3,180 | ) | (3,379 | ) | |||||
| Net loss from continuing operations attributable to Dell Technologies Inc. | (2,310 | ) | (2,849 | ) | (3,083 | ) | |||||
| Income from discontinued operations, net of income taxes (Note 1) | — | — | 1,916 | ||||||||
| Net loss attributable to Dell Technologies Inc. | $ | (2,310 | ) | $ | (2,849 | ) | $ | (1,167 | ) | ||
NOTE 16 — STOCK-BASED COMPENSATION
Stock-Based Compensation Expense
| Fiscal Year Ended | ||||||||||||||||||||||||||||
| Fiscal Year Ended | January 28, 2022 | January 29, 2021 | January 31, 2020 | |||||||||||||||||||||||||
| February 1, 2019 | February 2, 2018 | February 3, 2017 | (in millions) | |||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||
| Stock-based compensation expense (a) (b): | ||||||||||||||||||||||||||||
| Stock-based compensation expense: | Stock-based compensation expense: | |||||||||||||||||||||||||||
| Cost of net revenue | $ | 76 | $ | 66 | $ | 35 | Cost of net revenue | $ | 133 | $ | 75 | $ | 32 | |||||||||||||||
| Operating expenses | 842 | 769 | 363 | Operating expenses | 675 | 412 | 213 | |||||||||||||||||||||
| Stock-based compensation expense before taxes | 918 | 835 | 398 | |||||||||||||||||||||||||
| Stock-based compensation expense from continuing operations before taxes | Stock-based compensation expense from continuing operations before taxes | 808 | 487 | 245 | ||||||||||||||||||||||||
| Stock-based compensation expense from discontinued operations before taxes (a) | Stock-based compensation expense from discontinued operations before taxes (a) | 814 | 1,122 | 1,017 | ||||||||||||||||||||||||
| Total stock-based compensation expense before taxes | Total stock-based compensation expense before taxes | 1,622 | 1,609 | 1,262 | ||||||||||||||||||||||||
| Income tax benefit | (260 | ) | (268 | ) | (122 | ) | Income tax benefit | (296) | (313) | (392) | ||||||||||||||||||
| Stock-based compensation expense, net of income taxes | $ | 658 | $ | 567 | $ | 276 | ||||||||||||||||||||||
| Total stock-based compensation expense, net of income taxes | Total stock-based compensation expense, net of income taxes | $ | 1,326 | $ | 1,296 | $ | 870 | |||||||||||||||||||||
____________________
(a) Stock-based compensation expense from discontinued operations before taxes represents VMware stock-based compensation expense and is included in Income from discontinued operations, net of taxes, on the Consolidated Statements of Income.
Dell Technologies Inc. Stock-Based Compensation PlansPlan
Dell Technologies Inc. 2013 Stock Incentive Plan— On September 7, 2016, at the effective time of the EMC merger transaction, the Denali Holding Inc. 2013 Stock Incentive Plan (the “2013 Plan”) was amended and restated as the Dell Technologies Inc. 2013 Stock Incentive Plan (the “Restated Plan”). Employees, consultants, non-employee directors, and other service providers of the Company or its affiliates are eligible to participate in the Restated Plan.Dell Technologies Inc. 2013 Stock Incentive Plan, as amended and restated as of July 9, 2019, (the “2013 Plan”). The Restated Plan authorized the issuance of an aggregate of 75 million shares of the Company’s Class C Common Stock and 500,000 shares of the Company’s Class V Common Stock, of which 61 million shares of Class C Common Stock were previously reserved for issuance under the 2013 Plan. The Restated Plan authorizes the Company to grant stock options, restricted stock units (“RSUs”), stock appreciation rights (“SARs”), RSAs,restricted stock awards, and dividend equivalents.
The 2013 Plan provides for an equitable adjustment of grant.the share pool authorized under the 2013 Plan and outstanding awards in the event of a corporate restructuring event. In connection with the VMware Spin-off, the authorized share pool under the 2013 Plan and stock awards that were outstanding at the time of the VMware Spin-off were adjusted using a conversion ratio of approximately 1.97 to 1. The conversion ratio was based on the Company’s pre-VMware Spin-off closing stock price on November 1, 2021 and post-VMware Spin-off opening stock price on November 2, 2021. The adjustment resulted in an increase of approximately 30 million restricted stock units and 2 million stock options. The exercise price of unexercised stock options was also adjusted in accordance with the terms of the 2013 Plan using the conversion ratio of approximately 1.97 to 1. The adjustment did not result in material incremental stock-based compensation expense for the fiscal year ended January 28, 2022 as the adjustment was required by the 2013 Plan.
The 2013 Plan authorizes the issuance of an aggregate of 165.5 million shares of the Company’s Class C Common Stock, including 55.0 million shares automatically added to the share pool pursuant to the equitable adjustment provisions relating to the VMware Spin-off. As of January 28, 2022, there were approximately 46 million shares of Class C Common Stock available for future grants under the 2013 Plan.
140
Stock Option Activity — The following table summarizespresents stock option activity settled in DHI GroupDell Technologies Common Stock duringfor the periods presented:indicated:
| Number of Options | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Term | Aggregate Intrinsic Value (a) | ||||||||||||||||||||||||||||||||
| Number of Options | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Term | Aggregate Intrinsic Value (a) | (in millions) | (per share) | (in years) | (in millions) | ||||||||||||||||||||||||||||
| (in millions) | (per share) | (in years) | (in millions) | ||||||||||||||||||||||||||||||||
| Options outstanding as of January 29, 2016 | 54 | $ | 14.30 | ||||||||||||||||||||||||||||||||
| Options outstanding as of February 1, 2019 | Options outstanding as of February 1, 2019 | 42 | $ | 14.76 | |||||||||||||||||||||||||||||||
| Granted | 2 | 27.09 | Granted | — | — | ||||||||||||||||||||||||||||||
| Exercised | (1 | ) | 14.12 | Exercised | (24) | 14.86 | |||||||||||||||||||||||||||||
| Forfeited | (7 | ) | 15.51 | Forfeited | — | — | |||||||||||||||||||||||||||||
| Canceled/expired | — | — | Canceled/expired | — | — | ||||||||||||||||||||||||||||||
| Options outstanding as of February 3, 2017 | 48 | 14.75 | |||||||||||||||||||||||||||||||||
| Options outstanding as of January 31, 2020 | Options outstanding as of January 31, 2020 | 18 | 14.82 | ||||||||||||||||||||||||||||||||
| Granted | — | — | Granted | — | — | ||||||||||||||||||||||||||||||
| Exercised | (4 | ) | 14.62 | Exercised | (12) | 14.32 | |||||||||||||||||||||||||||||
| Forfeited | (2 | ) | 13.75 | Forfeited | — | — | |||||||||||||||||||||||||||||
| Canceled/expired | — | — | Canceled/expired | — | — | ||||||||||||||||||||||||||||||
| Options outstanding as of February 2, 2018 | 42 | 14.80 | |||||||||||||||||||||||||||||||||
| Options outstanding as of January 29, 2021 | Options outstanding as of January 29, 2021 | 6 | 15.87 | ||||||||||||||||||||||||||||||||
| Granted | — | — | Granted | — | — | ||||||||||||||||||||||||||||||
| VMware Spin-off adjustment | VMware Spin-off adjustment | 2 | NA | ||||||||||||||||||||||||||||||||
| Exercised | — | — | Exercised | (5) | 13.36 | ||||||||||||||||||||||||||||||
| Forfeited | — | — | Forfeited | — | — | ||||||||||||||||||||||||||||||
| Canceled/expired | — | — | Canceled/expired | — | — | ||||||||||||||||||||||||||||||
| Options outstanding as of February 1, 2019 (b) | 42 | $ | 14.76 | 4.8 | $ | 1,453 | |||||||||||||||||||||||||||||
| Exercisable as of February 1, 2019 | 41 | $ | 14.64 | 4.8 | $ | 1,435 | |||||||||||||||||||||||||||||
| Vested and expected to vest (net of estimated forfeitures) as of February 1, 2019 | 42 | $ | 14.75 | 4.8 | $ | 1,452 | |||||||||||||||||||||||||||||
| Options outstanding as of January 28, 2022 (b) | Options outstanding as of January 28, 2022 (b) | 3 | $ | 9.62 | 2.8 | $ | 132 | ||||||||||||||||||||||||||||
| Exercisable as of January 28, 2022 | Exercisable as of January 28, 2022 | 3 | $ | 9.34 | 2.7 | $ | 131 | ||||||||||||||||||||||||||||
| Vested and expected to vest (net of estimated forfeitures) as of January 28, 2022 | Vested and expected to vest (net of estimated forfeitures) as of January 28, 2022 | 3 | $ | 9.62 | 2.8 | $ | 132 | ||||||||||||||||||||||||||||
____________________
(a) The aggregate intrinsic values represent the total pre-tax intrinsic values based on the closing price of $56.24 of the Company’s Class C Common Stock on January 28, 2022 as reported on the NYSE that would have been received by the option holders had all in-the-money options been exercised as of that date. |
The total fair value of options vested was $150 million, $45 million, and $50 millionnot material for the fiscal years ended February 1, 2019, February 2, 2018,January 28, 2022, January 29, 2021, and February 3, 2017, respectively. The $150 million of the total fair value of options vested for the fiscal year ended February 1, 2019 was primarily attributable to full vesting of 19 million performance-based awards upon achievement of a prescribed ROE measurement that was approved by the Company’s board of directors in connection with the Class V transaction.January 31, 2020. The pre-tax intrinsic value of the options exercised was $18$340 million, $62$591 million, and $18$835 million for the fiscal years ended February 1, 2019, February 2, 2018,January 28, 2022, January 29, 2021, and February 3, 2017,January 31, 2020, respectively. AsCash proceeds from the exercise of February 1, 2019, there was $4 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 1.6 years.was $62 million, $179 million, and $350 million for the fiscal years ended January 28, 2022, January 29, 2021, and January 31, 2020, respectively.
The tax benefit realized from the exercise of stock options was $5$76 million, $21$139 million, and $6$197 million for the fiscal years ended February 1, 2019, February 2, 2018,January 28, 2022, January 29, 2021, and February 3, 2017,January 31, 2020, respectively.
| Fiscal Year Ended | |||
| February 3, 2017 | |||
| Weighted-average grant date fair value of stock options granted per option | $ | 10.36 | |
| Expected term (in years) | 3.4 | ||
| Risk-free rate (U.S. Government Treasury Note) | 0.9 | % | |
| Expected volatility | 51 | % | |
| Expected dividend yield | — | % | |
| Fiscal Year Ended | |||
| February 3, 2017 | |||
| Weighted-average grant date fair value of stock options granted per option | $ | 8.83 | |
| Expected term (in years) | — | ||
| Risk-free rate (U.S. Government Treasury Note) | 1.7 | % | |
| Expected volatility | 44 | % | |
| Expected dividend yield | — | % | |
Restricted Stock — The Company’s restricted stock primarily consists of RSU awardsRSUs granted to employees. During the fiscal year ended January 28, 2022, January 29, 2021, and January 31, 2020, the Company granted long-term incentive awards in the form of service-based RSUs are valuedand performance-based RSUs (“PSUs”) in order to align critical talent retention programs with the interests of holders of the Class C Common Stock.
141
Service-based RSUs have a fair value based on the Company’sclosing price of the Class C Common Stock price as reported on the NYSE on the grant date or the trade day immediately preceding the grant date, if the grant date falls on a non-trading day. Most of grant. The shares underlyingsuch RSUs vest ratably over a three-year period. Each service-based RSU represents the RSU awards are not issued until the RSU vests. Upon vesting, each RSU converts intoright to acquire one share of DHI GroupClass C Common Stock.Stock upon vesting.
The Company’s restricted stock also includesPSUs granted during the periods presented are reflected as target units for performance stock unit (“PSU”) awards, which have been grantedperiods not yet complete. The actual number of units that ultimately vest will range from 0% to certain members200% of target, based on the level of achievement of the Company’s senior leadership team. The PSU awards include performance conditionsgoals and in certain cases, a time-based vesting component. For PSU awards granted under the Restated Plan,continued employment with the Company utilizedover a three-year performance period. Approximately half of the PSUs granted are subject to achievement of market-based performance goals based on relative total shareholder return and were valued utilizing a Monte Carlo valuation model to simulate the probabilities of achievementachievement. The remaining PSUs are subject to internal financial measures and have fair values based on the closing price of the market conditionClass C Common Stock as reported on the NYSE on the accounting grant date.
Prior to determine the grant date fair value.Class V transaction, the Company granted market-based PSUs to certain members of the Company’s senior leadership team, which were also valued using the Monte Carlo model. The vesting and payout of the PSU awards dependsdepended upon the return on equity achieved on various measurement dates through the five-year anniversary of the Company’s acquisition of EMC Corporation in a transaction that closed in September 2016 (the “EMC merger transaction”) or specified liquidity events.
The following table presents the assumptions utilized in the Monte Carlo valuation model for the periods indicated:
| Fiscal Year Ended | |||||||||||||||||
| January 28, 2022 | January 29, 2021 | January 31, 2020 | |||||||||||||||
| Weighted-average grant date fair value | $ | 134.01 | $ | 40.01 | $ | 87.17 | |||||||||||
| Term (in years) | 3 | 3 | 3 | ||||||||||||||
| Risk-free rate (U.S. Government Treasury Note) | 0.3 | % | 0.6 | % | 2.4 | % | |||||||||||
| Expected volatility | 43 | % | 47 | % | 45 | % | |||||||||||
| Expected dividend yield | — | % | — | % | — | % | |||||||||||
The following table summarizespresents restricted stock and restricted stock units activitysettled in DHI GroupDell Technologies Common Stock duringfor the periods presentedindicated:
| Number of Units | Weighted-Average Grant Date Fair Value | Aggregate Intrinsic Value (a) | |||||||||||||||||||||
| Number of Units | Weighted-Average Grant Date Fair Value | (in millions) | (per unit) | ||||||||||||||||||||
| (in millions) | (per unit) | ||||||||||||||||||||||
| Outstanding, January 29, 2016 | — | $ | — | ||||||||||||||||||||
| Outstanding, February 1, 2019 | Outstanding, February 1, 2019 | 5 | $ | 18.90 | |||||||||||||||||||
| Granted | 11 | 19.66 | Granted | 13 | 60.55 | ||||||||||||||||||
| Vested | — | — | Vested | (1) | 30.24 | ||||||||||||||||||
| Forfeited | (1 | ) | 19.63 | Forfeited | (1) | 46.50 | |||||||||||||||||
| Outstanding, February 3, 2017 | 10 | $ | 19.63 | ||||||||||||||||||||
| Outstanding, January 31, 2020 | Outstanding, January 31, 2020 | 16 | $ | 50.78 | |||||||||||||||||||
| Granted | 1 | 23.04 | Granted | 25 | 39.14 | ||||||||||||||||||
| Vested | (1 | ) | 27.59 | Vested | (5) | 48.15 | |||||||||||||||||
| Forfeited | (3 | ) | 19.13 | Forfeited | (3) | 41.56 | |||||||||||||||||
| Outstanding, February 2, 2018 | 7 | $ | 18.73 | ||||||||||||||||||||
| Granted (a) | — | — | |||||||||||||||||||||
| Outstanding, January 29, 2021 | Outstanding, January 29, 2021 | 33 | $ | 43.09 | |||||||||||||||||||
| Granted | Granted | 13 | 88.13 | ||||||||||||||||||||
| VMware Spin-off adjustment | VMware Spin-off adjustment | 30 | NA | ||||||||||||||||||||
| Vested | (1 | ) | 28.03 | Vested | (13) | 39.33 | |||||||||||||||||
| Forfeited | (1 | ) | 17.88 | Forfeited | (4) | 46.27 | |||||||||||||||||
| Outstanding, February 1, 2019 (b) | 5 | $ | 18.90 | ||||||||||||||||||||
| Outstanding, January 28, 2022(b) | Outstanding, January 28, 2022(b) | 59 | $ | 31.67 | $ | 3,337 | |||||||||||||||||
| Vested and expected to vest, January 28, 2022 | Vested and expected to vest, January 28, 2022 | 55 | $ | 31.30 | $ | 3,070 | |||||||||||||||||
____________________
(b) In connection with the VMware Spin-off, Dell Technologies made certain adjustments to the number of RSUs to preserve the intrinsic value of the awards prior to the VMware Spin-off. The ending weighted-average grant date fair value was calculated based on underlying RSUs outstanding as of January 28, 2022. As of February 1, 2019, restricted stock that is expected to vest was as follows:
| Number of Units | Weighted-Average Remaining Contractual Term | Aggregate Intrinsic Value (a) | ||||||
| (in millions) | (in years) | (in millions) | ||||||
| Expected to vest, February 1, 2019 | 5 | 2.3 | $ | 224 | ||||
The total fair value of restricted stock that vested during the fiscal years ended February 1, 2019January 28, 2022, January 29, 2021, and February 2, 2018January 31, 2020 was $24$493 million, $235 million, and $37$27 million, respectively, and thewith a pre-tax intrinsic value was $63$1,097 million, $226 million, and $44$47 million, respectively. As of February 1, 2019, 5 million shares of restricted stock were outstanding, with an aggregate intrinsic value of $238 million.respectively.
As of February 1, 2019,January 28, 2022, there was $33$963 million of unrecognized stock-based compensation expense, net of estimated forfeitures, related to these awards expected to be recognized over a weighted-average period of approximately 1.21.9 years.
Dell Technologies Shares Withheld for Taxes — Under certain situations, shares of Class C Common Stock are withheld from issuance to cover employee taxes for both the vesting of restricted stock units and the exercise of stock options. For the fiscal years ended February 1, 2019, February 2, 2018,January 28, 2022, January 29, 2021, and February 3, 2017,January 31, 2020, 0.4 million, 1.00.1 million, and 0.20.1 million shares, respectively, were withheld to cover $28$40 million, $35$1 million, and $6$4 million, respectively, of employees’ tax obligations.
| Fiscal Year Ended | For the Period September 7, 2016 through February 3, 2017 | ||||||||||
| February 1, 2019 | February 2, 2018 | ||||||||||
| (in millions, except per share amounts) | |||||||||||
| Cash proceeds | $ | 161 | $ | 65 | $ | 60 | |||||
| Class A common shares purchased | 1.9 | 0.9 | 1.5 | ||||||||
| Weighted-average price per share | $ | 84.95 | $ | 72.40 | $ | 40.65 | |||||
| Number of Options | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Term | Aggregate Intrinsic Value (a) | |||||||||
| (in millions) | (per share) | (in years) | (in millions) | |||||||||
| Options outstanding as of September 7, 2016 | 2 | $ | 65.01 | |||||||||
| Granted | — | — | ||||||||||
| Exercised | — | — | ||||||||||
| Forfeited | — | — | ||||||||||
| Canceled/expired | — | — | ||||||||||
| Options outstanding as of February 3, 2017 (b) | 2 | 69.38 | ||||||||||
| Granted | 1 | 13.79 | ||||||||||
| Exercised | (1 | ) | 53.50 | |||||||||
| Forfeited | — | — | ||||||||||
| Canceled/expired | — | — | ||||||||||
| Options outstanding as of February 2, 2018 | 2 | 54.63 | ||||||||||
| Granted | 1 | 16.07 | ||||||||||
| Adjustment for special cash dividend (c) | — | — | ||||||||||
| Exercised | (1 | ) | 46.73 | |||||||||
| Forfeited | — | — | ||||||||||
| Canceled/expired | — | — | ||||||||||
| Options outstanding as of February 1, 2019 (c) | 2 | $ | 36.50 | 5.6 | $ | 224 | ||||||
| Exercisable as of February 1, 2019 | 1 | $ | 55.49 | 3.2 | $ | 103 | ||||||
| Vested and expected to vest (net of estimated forfeitures) as of February 1, 2019 | 2 | $ | 36.50 | 5.6 | $ | 224 | ||||||
| Fiscal Year Ended | |||||||
| February 1, 2019 | February 2, 2018 | ||||||
| VMware, Inc. 2007 Equity and Incentive Plan | |||||||
| Weighted-average grant date fair value of stock options granted per option | $ | 143.01 | $ | 83.62 | |||
| Expected term (in years) | 3.2 | 3.3 | |||||
| Risk-free rate (U.S. Government Treasury Note) | 2.9 | % | 1.7 | % | |||
| Expected volatility | 32 | % | 29 | % | |||
| Expected dividend yield | — | % | — | % | |||
| Fiscal Year Ended | September 7, 2016 through | ||||||||||
| February 1, 2019 | February 2, 2018 | February 3, 2017 | |||||||||
| VMware, Inc. Employee Stock Purchase Plan | |||||||||||
| Weighted-average grant date fair value of stock options granted per option | $ | 34.72 | $ | 21.93 | $ | 13.57 | |||||
| Expected term (in years) | 0.8 | 0.9 | 0.8 | ||||||||
| Risk-free rate (U.S. Government Treasury Note) | 2.0 | % | 1.2 | % | 0.5 | % | |||||
| Expected volatility | 33 | % | 23 | % | 38 | % | |||||
| Expected dividend yield | — | % | — | % | — | % | |||||
| Number of Units | Weighted-Average Grant Date Fair Value | |||||
| (in millions) | (per unit) | |||||
| Outstanding, September 7, 2016 | 22 | $ | 67.01 | |||
| Granted | 2 | 79.81 | ||||
| Vested | (3 | ) | 72.94 | |||
| Forfeited | (1 | ) | 69.19 | |||
| Outstanding, February 3, 2017 | 20 | $ | 67.41 | |||
| Granted | 8 | 93.84 | ||||
| Vested | (9 | ) | 67.89 | |||
| Forfeited | (2 | ) | 72.68 | |||
| Outstanding, February 2, 2018 | 17 | $ | 78.62 | |||
| Granted | 7 | 146.61 | ||||
| Adjustment for special cash dividend | 3 | NA | ||||
| Vested | (7 | ) | 75.45 | |||
| Forfeited | (2 | ) | 86.90 | |||
| Outstanding, February 1, 2019 (a) | 18 | $ | 90.06 | |||
| Number of Units | Weighted-Average Remaining Contractual Term | Aggregate Intrinsic Value (a) | ||||||
| (in millions) | (in years) | (in millions) | ||||||
| Expected to vest, February 1, 2019 | 16 | 2.3 | $ | 2,438 | ||||
Other Plans
In addition to the plans disclosed2013 Plan described above, the Company has a consolidated subsidiaries,subsidiary, Secureworks, and Pivotal, that maintain theirmaintains its own equity plansplan and issueissues equity grants settling in classes of theirits own Class A common stock. The stock option and restricted stock unit activity under these plansthis plan was not material during the fiscal years ended February 1, 2019, February 2, 2018,January 28, 2022, January 29, 2021, and February 3, 2017.January 31, 2020.
Through June 27, 2021, awards under the Company’s stock incentive plans includeincluded certain rights that allow the holder to exercise a put feature for the underlying Class A or Class C Common Stock after a six monthsix-month holding period following the issuance of such common stock. The put feature requiresrequired the Company to purchase the stock at its fair market value. Accordingly, these awards and such common stock arewere subject to reclassification from equity to temporary equity. The put feature expired on June 27, 2021, and as a result, there were no issued and outstanding awards that were reclassified as temporary equity andas of January 28, 2022.
As of the fiscal year ended January 29, 2021, the Company determinesdetermined the award amounts to be classified as temporary equity as follows:
•For stock options to purchase Class C Common Stock subject to service requirements, the intrinsic value of the option is multiplied by the portion of the option for which services have been rendered. Upon exercise of the option, the amount in temporary equity represents the fair value of the Class C Common Stock.
•For stock appreciation rights, RSUs,restricted stock units, or RSAs,restricted stock awards, any of which stock award types are subject to service requirements, the fair value of the share is multiplied by the portion of the share for which services have been rendered.
•For share-based arrangements that are subject to the occurrence of a contingent event, thosethe amounts are not reclassified to temporary equity untilbased on a probability assessment performed by the contingency has been satisfied.Company on a periodic basis. Contingent events include the achievement of performance-based metrics.measures.
The following table sets forthpresents the amount of redeemable shares classified as temporary equity and summarizes the award type as of the dates indicated:January 29, 2021:
| January 29, 2021 | |||||||||||
| (in millions) | |||||||||||
| Redeemable shares classified as temporary equity | $ | 472 | |||||||||
| Issued and outstanding unrestricted common shares | 2 | ||||||||||
| Outstanding stock options | 6 | ||||||||||
| February 1, 2019 | February 2, 2018 | ||||||
| (in millions) | |||||||
| Redeemable shares classified as temporary equity | $ | 1,196 | $ | 384 | |||
| Issued and outstanding unrestricted common shares | 3 | 3 | |||||
| Restricted stock units | 1 | — | |||||
| Restricted stock awards | — | — | |||||
| Outstanding stock options | 31 | 15 | |||||
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NOTE 18 — RETIREMENT PLAN BENEFITS
Defined Benefit Retirement Plans
The increaseCompany sponsors retirement plans for certain employees in the valueUnited States and internationally, some of redeemable shares duringwhich meet the fiscal year ended February 1, 2019 was primarily attributable to an increase in DHI Group Common Stock fair value, as well as the reassessmentcriteria of vesting of performance-based awards.
U.S. Pension Plan — The Company sponsors a noncontributory defined benefit retirement plan in the United States (the “U.S. pension plan”) which was assumed in connection with the EMC merger transaction. As of December 1999, thisthe U.S. pension plan was frozen, so employees no longer accrue pensionretirement benefits for future services. The measurement date for the Pension PlanU.S. pension plan is the end of the Company’s fiscal year.
| Benefit Obligation | |||
| (in millions) | |||
| Benefit obligation as of September 7, 2016 | $ | 590 | |
| Interest cost | 8 | ||
| Benefits paid | (11 | ) | |
| Actuarial loss (gain) | (52 | ) | |
| Benefit obligation as of February 3, 2017 | 535 | ||
| Interest cost | 21 | ||
| Benefits paid | (24 | ) | |
| Actuarial loss (gain) | 14 | ||
| Benefit obligation as of February 2, 2018 | 546 | ||
| Interest cost | 20 | ||
| Benefits paid | (26 | ) | |
| Actuarial loss (gain) | (16 | ) | |
| Benefit obligation as of February 1, 2019 | $ | 524 | |
| Plan Assets | |||
| (in millions) | |||
| Fair value of plan assets as of September 7, 2016 | $ | 493 | |
| Actual return on plan assets | (12 | ) | |
| Benefits paid | (11 | ) | |
| Fair value of plan assets as of February 3, 2017 | 470 | ||
| Actual return on plan assets | 59 | ||
| Benefits paid | (24 | ) | |
| Fair value of plan assets as of February 2, 2018 | 505 | ||
| Actual return on plan assets | (5 | ) | |
| Benefits paid | (26 | ) | |
| Fair value of plan assets as of February 1, 2019 | $ | 474 | |
Net periodic benefit costs related to the Pension Plan in FiscalU.S. pension plan were immaterial for the fiscal years ended January 28, 2022, January 29, 2021, and January 31, 2020.
The following table presents attributes of the componentsU.S. pension plan as of net periodic benefit cost recognized for the periodsdates indicated:
| Fiscal Year Ended | For the Period September 7, 2016 through February 3, 2017 | ||||||||||
| February 1, 2019 | February 2, 2018 | ||||||||||
| (in millions) | |||||||||||
| Interest cost | $ | 20 | $ | 21 | $ | 8 | |||||
| Expected return on plan assets | (28 | ) | (30 | ) | (16 | ) | |||||
| Net periodic benefit | $ | (8 | ) | $ | (9 | ) | $ | (8 | ) | ||
| February 1, 2019 | February 2, 2018 | ||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||
| Common collective trusts (a) | $ | — | $ | 322 | $ | — | $ | 322 | $ | — | $ | 350 | $ | — | $ | 350 | |||||||||||||||
| U.S. Treasury securities | 5 | — | — | 5 | 7 | — | — | 7 | |||||||||||||||||||||||
| Corporate debt securities (b) | — | 147 | — | 147 | — | 147 | — | 147 | |||||||||||||||||||||||
| Total | $ | 5 | $ | 469 | $ | — | 474 | $ | 7 | $ | 497 | $ | — | 504 | |||||||||||||||||
| Plan payables, net of accrued interest and dividends (c) | — | 1 | |||||||||||||||||||||||||||||
| Total, net | $ | 474 | $ | 505 | |||||||||||||||||||||||||||
| January 28, 2022 | January 29, 2021 | ||||||||||
| (in millions) | |||||||||||
| Plan assets at fair value (a) | $ | 550 | $ | 572 | |||||||
| Benefit obligations | (582) | (635) | |||||||||
| Underfunded position (b) | $ | (32) | $ | (63) | |||||||
____________________
(b) The underfunded position of the U.S. pension plan is recognized in other asset classes in which the portfolio is invested, and the expectations for future returns of each asset class. The expected return for each asset class was weighted based on the target asset allocation to develop the expected long-term rate of return on assets. As market conditions permit, the Company expects to shift the asset allocation to lower the percentage of investments in equities and increase the percentage of investments in long-duration fixed-income securities. The changes could result in a reductionnon-current liabilities in the long-term rateConsolidated Statements of return onFinancial Position.
As of January 28, 2022, future benefit payments for the U.S. pension plan assetsare expected to be paid as follows: $35 million in fiscal 2023; $36 million in fiscal 2024; $37 million in fiscal 2025; $37 million in fiscal 2026; $38 million in fiscal 2027; and increase future pension expense.$184 million thereafter.
International Pension Plans— The Company also sponsors retirement plans outside of the United States which qualify as defined benefit plans. The following table presents attributes of the target allocationinternational pension plans as of the dates indicated:
| January 28, 2022 | January 29, 2021 | ||||||||||
| (in millions) | |||||||||||
| Plan assets at fair value (a) | $ | 245 | $ | 256 | |||||||
| Benefit obligations | (479) | (517) | |||||||||
| Underfunded position (b) | $ | (234) | $ | (261) | |||||||
____________________
(a) Plan assets are managed by outside investment managers. The Company’s investment strategy with respect to plan assets asis to achieve a long-term growth of February 1, 2019,capital, consistent with an appropriate level of risk. Assets are recognized at fair value and are primarily classified within Level 2 of the actual allocationfair value hierarchy.
(b) The underfunded position is recognized in other non-current liabilities in the Consolidated Statements of plan assets as of February 1, 2019 and February 2, 2018:Financial Position.
| Target Allocation | Actual Allocation | |||||||
| February 1, 2019 | February 1, 2019 | February 2, 2018 | ||||||
| U.S. large capitalization equity securities | 25 | % | 24 | % | 27 | % | ||
| U.S. small capitalization equity securities | 5 | 5 | 5 | |||||
| Foreign equity securities | 7 | 6 | 7 | |||||
| U.S. long-duration fixed income securities | 60 | 61 | 58 | |||||
| Below investment grade corporate fixed income securities | 3 | 4 | 3 | |||||
| Total | 100 | % | 100 | % | 100 | % | ||
Dell 401(k) Plan — The Company has a defined contribution retirement plan (the “Dell 401(k) Plan”) that complies with Section 401(k) of the Internal Revenue Code. Only U.S. employees and employees of certain subsidiaries, except those who are covered by a collective bargaining agreement, classified as a leased employee, a nonresident alien, or are covered under a separate plan, are eligible to participate in the Dell 401(k) plan. AsPlan. Participation in the Dell 401(k) Plan is at the election of February 1, 2019,the employee. Historically, through May 31, 2020, the Company matchesmatched 100% of each participant’s voluntary contributions (the “Dell 401(k) employer match”), subject to a maximum contribution of 6% of the participant’s eligible compensation, up to an annual limit of $7,500, and participants vest immediately in all contributions to the Dell 401(k) Plan. On June 1, 2020, the Company suspended the Dell 401(k) employer match for U.S. employees as a precautionary measure to preserve financial flexibility in light of COVID-19. Effective January 1, 2021, the Dell 401(k) employer match was reinstated, with no change to the employer match policy or participant eligibility requirements.
The Company’s matching contributions as well as participants’ voluntary contributions are invested according to each participant’s elections in the investment options provided under the Dell 401(k) Plan. The Company’s contributions during the fiscal years ended February 1, 2019, February 2, 2018,January 28, 2022, January 29, 2021, and February 3, 2017January 31, 2020 were $254$249 million, $129$154 million, and $158$267 million, respectively. Contributions increasedThe Company’s contributions decreased during the fiscal year ended February 1, 2019January 29, 2021 due to the additional participants that were transferred from the EMC 401(k) Plan, as discussed below.
NOTE 19 — SEGMENT INFORMATION
The Company has three2 reportable segments that are based on the following business units: Infrastructure Solutions Group (“ISG”); and Client Solutions Group (“CSG”); and VMware..
ISG previously included Virtustream product and service offerings. Virtustream’s cloud software and infrastructure-as-a-service solutions enable customers to migrate, run, and manage mission-critical applications in cloud-based IT environments. Duringenables the three months ended May 4, 2018, the Company made certain segment reporting changes, which included the movementdigital transformation of Virtustream’s results from ISG to Other businesses. None of these changes impacted the Company’s previously reported consolidated financial results, but the Company’s prior period segment results have been recast to reflect this change.
customers through its trusted multi-cloud and big data solutions, which are built upon a modern data center infrastructure. The ISG comprehensive portfolio of advanced storage solutions includes servers, networking, andtraditional storage solutions as well as next-generation storage solutions (such as all-flash arrays, scale-out file, object platforms, and software-defined solutions), while the Company’s server portfolio includes high-performance rack, blade, tower, and hyperscale servers. The ISG networking portfolio helps business customers transform and modernize their infrastructure, mobilize and enrich end-user experiences, and accelerate business applications and processes. ISG also offers attached software, peripherals, and services, including support and third-party softwaredeployment, configuration, and peripherals that are closely tied to the sale of ISG hardware. extended warranty services.
CSG includes sales to commercial and consumer customers of branded hardware (such as desktops, thin client products,workstations, and notebooks,notebooks) and branded peripherals (such as displays and projectors), as well as services and third-party software and peripherals. CSG also offers attached software, peripherals, that are closely tied to the sale of CSG hardware. VMware’s compute, cloud management, networking and security, storageservices, including support and availability,deployment, configuration, and other end-user computing offerings provide a flexible digital foundation to enable the digital transformation VMware’s customers need as they ready their applications, infrastructure, and devices for their future business needs.extended warranty services.
The reportable segments disclosed herein are based on information reviewed by the Company’s management to evaluate the business segment results. The Company’s measure of segment revenue and segment operating income for management reporting purposes excludes operating results of other businesses, unallocated corporate transactions, the impact of Other businesses, purchase accounting, amortization of intangible assets, unallocatedtransaction-related expenses, stock-based compensation expense, and other corporate transactions, severance and facility action costs, and transaction-related expenses.expenses, as applicable. The Company does not allocate assets to the above reportable segments for internal reporting purposes.
Pursuant to the CFA described in such Notes, Dell Technologies will continue to act as a distributor of VMware’s standalone products and services and purchase such products and services for resale to end-user customers (“VMware Resale”). Dell Technologies will also continue to integrate VMware’s products and services with Dell Technologies’ offerings and sell them to end users. The results of such operations are classified as continuing operations within the Company’s Consolidated Statements of Income. The results of standalone VMware Resale transactions are reflected in other businesses. The results of integrated offering transactions are reflected within CSG or ISG, depending upon the nature of the underlying offering sold. The Company's prior period segment results have been recast to reflect this change.
In accordance with applicable accounting guidance, the results of VMware, excluding Dell's resale of VMware offerings, are presented as discontinued operations in the Consolidated Statements of Income and, as such, have been excluded from both continuing operations and segment results for all periods presented.
The following table presents a reconciliation of net revenue by the Company’s reportable segments to the Company’s consolidated net revenue as well as a reconciliation of consolidated segment operating income to the Company’s consolidated operating loss:income (loss) for the periods indicated:
| Fiscal Year Ended | |||||||||||
| February 1, 2019 | February 2, 2018 | February 3, 2017 | |||||||||
| (in millions) | |||||||||||
| Consolidated net revenue: | |||||||||||
| Infrastructure Solutions Group | $ | 36,720 | $ | 30,917 | $ | 22,070 | |||||
| Client Solutions Group | 43,196 | 39,218 | 36,509 | ||||||||
| VMware | 9,088 | 7,994 | 3,543 | ||||||||
| Reportable segment net revenue | 89,004 | 78,129 | 62,122 | ||||||||
| Other businesses (a) | 2,329 | 2,195 | 1,153 | ||||||||
| Unallocated transactions (b) | (9 | ) | (15 | ) | 41 | ||||||
| Impact of purchase accounting (c) | (703 | ) | (1,269 | ) | (1,152 | ) | |||||
| Total consolidated net revenue | $ | 90,621 | $ | 79,040 | $ | 62,164 | |||||
| Consolidated operating income (loss): | |||||||||||
| Infrastructure Solutions Group | $ | 4,151 | $ | 3,068 | $ | 2,920 | |||||
| Client Solutions Group | 1,960 | 2,044 | 1,751 | ||||||||
| VMware | 2,989 | 2,809 | 1,516 | ||||||||
| Reportable segment operating income | 9,100 | 7,921 | 6,187 | ||||||||
| Other businesses (a) | (174 | ) | (125 | ) | (42 | ) | |||||
| Unallocated transactions (b) | (72 | ) | (24 | ) | (198 | ) | |||||
| Impact of purchase accounting (c) | (820 | ) | (1,546 | ) | (2,266 | ) | |||||
| Amortization of intangibles | (6,138 | ) | (6,980 | ) | (3,681 | ) | |||||
| Transaction-related expenses (d) | (750 | ) | (502 | ) | (1,488 | ) | |||||
| Other corporate expenses (e) | (1,337 | ) | (1,160 | ) | (902 | ) | |||||
| Total consolidated operating loss | $ | (191 | ) | $ | (2,416 | ) | $ | (2,390 | ) | ||
| Fiscal Year Ended | |||||||||||||||||||||||||||||
| January 28, 2022 | January 29, 2021 | January 31, 2020 | |||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
| Consolidated net revenue: | |||||||||||||||||||||||||||||
| Infrastructure Solutions Group | $ | 34,366 | $ | 33,002 | $ | 34,367 | |||||||||||||||||||||||
| Client Solutions Group | 61,464 | 48,387 | 45,855 | ||||||||||||||||||||||||||
| Reportable segment net revenue | 95,830 | 81,389 | 80,222 | ||||||||||||||||||||||||||
| Other businesses (a) (b) | 5,388 | 5,382 | 4,823 | ||||||||||||||||||||||||||
| Unallocated transactions (c) | 11 | 5 | (1) | ||||||||||||||||||||||||||
| Impact of purchase accounting (d) | (32) | (106) | (229) | ||||||||||||||||||||||||||
| Total consolidated net revenue | $ | 101,197 | $ | 86,670 | $ | 84,815 | |||||||||||||||||||||||
| Consolidated operating income: | |||||||||||||||||||||||||||||
| Infrastructure Solutions Group | $ | 3,736 | $ | 3,753 | $ | 3,948 | |||||||||||||||||||||||
| Client Solutions Group | 4,365 | 3,333 | 3,114 | ||||||||||||||||||||||||||
| Reportable segment operating income | 8,101 | 7,086 | 7,062 | ||||||||||||||||||||||||||
| Other businesses (a) (b) | (319) | (139) | (217) | ||||||||||||||||||||||||||
| Unallocated transactions (c) | 3 | 2 | (29) | ||||||||||||||||||||||||||
| Impact of purchase accounting (d) | (67) | (144) | (274) | ||||||||||||||||||||||||||
| Amortization of intangibles | (1,641) | (2,133) | (2,971) | ||||||||||||||||||||||||||
| Transaction-related expenses (e) | (273) | (124) | (116) | ||||||||||||||||||||||||||
| Stock-based compensation expense (f) | (808) | (487) | (245) | ||||||||||||||||||||||||||
| Other corporate expenses (g) | (337) | (376) | (844) | ||||||||||||||||||||||||||
| Total consolidated operating income | $ | 4,659 | $ | 3,685 | $ | 2,366 | |||||||||||||||||||||||
____________________
(b)The Company completed the sale of RSA Security on September 1, 2020, and the sale of Boomi on October 1, 2021. Prior to the divestitures, Boomi and RSA Security’s results were included within other businesses. See Note 1 of the Notes to the Consolidated Financial Statements for further details related to the divestitures of RSA Security and Boomi.
(c)Unallocated transactions includes other corporate items that are not allocated to Dell Technologies’ reportable segments.
(d)Impact of purchase accounting includes non-cash purchase accounting adjustments that are primarily related to the EMC merger transaction.
(e)Transaction-related expenses includes acquisition, integration, and divestiture related costs, as well as the costs incurred in the VMware Spin-off described in Note 1 of the Notes to the Consolidated Financial Statements.
(f)Stock-based compensation expense consists of equity awards granted based on the estimated fair value of those awards at grant date.
(g)Other corporate expenses includes impairment charges, incentive charges related to equity investments, severance, facility action, and other costs. For the fiscal year ended January 31, 2020 this category includes Virtustream pre-tax impairment charges of $619 million.
The following table presents the disaggregation of net revenue by reportable segment, and by major product categories within the segments:segments for the periods indicated:
| Fiscal Year Ended | |||||||||||||||||||||||||||||
| January 28, 2022 | January 29, 2021 | January 31, 2020 | |||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
| Net revenue: | |||||||||||||||||||||||||||||
| Infrastructure Solutions Group: | |||||||||||||||||||||||||||||
| Servers and networking | $ | 17,901 | $ | 16,592 | $ | 17,193 | |||||||||||||||||||||||
| Storage | 16,465 | 16,410 | 17,174 | ||||||||||||||||||||||||||
| Total ISG net revenue | $ | 34,366 | $ | 33,002 | $ | 34,367 | |||||||||||||||||||||||
| Client Solutions Group: | |||||||||||||||||||||||||||||
| Commercial | 45,576 | 35,423 | 34,293 | ||||||||||||||||||||||||||
| Consumer | 15,888 | 12,964 | 11,562 | ||||||||||||||||||||||||||
| Total CSG net revenue | $ | 61,464 | $ | 48,387 | $ | 45,855 | |||||||||||||||||||||||
| Fiscal Year Ended | |||||||||||
| February 1, 2019 | February 2, 2018 | February 3, 2017 | |||||||||
| (in millions) | |||||||||||
| Net revenue: | |||||||||||
| Infrastructure Solutions Group: | |||||||||||
| Servers and networking | $ | 19,953 | $ | 15,533 | $ | 12,973 | |||||
| Storage | 16,767 | 15,384 | 9,097 | ||||||||
| Total ISG net revenue | 36,720 | 30,917 | 22,070 | ||||||||
| Client Solutions Group: | |||||||||||
| Commercial | 30,893 | 27,507 | 25,773 | ||||||||
| Consumer | 12,303 | 11,711 | 10,736 | ||||||||
| Total CSG net revenue | 43,196 | 39,218 | 36,509 | ||||||||
| VMware: | |||||||||||
| Total VMware net revenue | 9,088 | 7,994 | 3,543 | ||||||||
| Total segment net revenue | $ | 89,004 | $ | 78,129 | $ | 62,122 | |||||
The following table presents net revenue allocated between the United States and foreign countries for the periods presented:indicated:
| Fiscal Year Ended | Fiscal Year Ended | |||||||||||||||||||||||||||
| February 1, 2019 | February 2, 2018 | February 3, 2017 | January 28, 2022 | January 29, 2021 | January 31, 2020 | |||||||||||||||||||||||
| (in millions) | (in millions) | |||||||||||||||||||||||||||
| Net revenue: | Net revenue: | |||||||||||||||||||||||||||
| United States | $ | 42,803 | $ | 38,528 | $ | 30,966 | United States | $ | 46,752 | $ | 42,009 | $ | 40,338 | |||||||||||||||
| Foreign countries | 47,818 | 40,512 | 31,198 | Foreign countries | 54,445 | 44,661 | 44,477 | |||||||||||||||||||||
| Total net revenue | $ | 90,621 | $ | 79,040 | $ | 62,164 | Total net revenue | $ | 101,197 | $ | 86,670 | $ | 84,815 | |||||||||||||||
The following table presents property, plant, and equipment, net allocated between the United States and foreign countries as of February 1, 2019 and February 2, 2018: the dates indicated:
| January 28, 2022 | January 29, 2021 | ||||||||||
| (in millions) | |||||||||||
| Property, plant, and equipment, net: | |||||||||||
| United States | $ | 3,667 | $ | 2,926 | |||||||
| Foreign countries | 1,748 | 1,907 | |||||||||
| Total property, plant, and equipment, net | $ | 5,415 | $ | 4,833 | |||||||
| February 1, 2019 | February 2, 2018 | ||||||
| (in millions) | |||||||
| Property, plant, and equipment, net: | |||||||
| United States | $ | 4,058 | $ | 4,093 | |||
| Foreign countries | 1,201 | 1,297 | |||||
| Total property, plant, and equipment, net | $ | 5,259 | $ | 5,390 | |||
The allocation between domestic and foreign net revenue is based on the location of the customers. Net revenue from any single foreign country did not constitute more than 10% of the Company’s consolidated net revenue for any of the fiscal years ended February 1, 2019, February 2, 2018, or February 3, 2017. Property, plant,January 28, 2022, January 29, 2021, and equipment, net from any single foreign country did not constitute more than 10%January 31, 2020. As of the Company’s consolidatedJanuary 28, 2022 and January 29, 2021, property, plant, and equipment, net asprimarily related to domestic ownership with the remaining ownership consisting of February 1, 2019 or February 2, 2018.individually immaterial balances in foreign countries.
NOTE 20 — SUPPLEMENTAL CONSOLIDATED FINANCIAL INFORMATION
The following table providespresents additional information on selected asset accounts included in the Consolidated Statements of Financial Position as of February 1, 2019 and February 2, 2018:the dates indicated:
| February 1, 2019 | February 2, 2018 | January 28, 2022 | January 29, 2021 | |||||||||||||||
| (in millions) | (in millions) | |||||||||||||||||
| Cash, cash equivalents, and restricted cash: | Cash, cash equivalents, and restricted cash: | |||||||||||||||||
| Cash and cash equivalents | $ | 9,676 | $ | 13,942 | Cash and cash equivalents | $ | 9,477 | $ | 9,508 | |||||||||
| Restricted cash - other current assets (a) | 522 | 423 | Restricted cash - other current assets (a) | 534 | 836 | |||||||||||||
| Restricted cash - other non-current assets (a) | 42 | 13 | Restricted cash - other non-current assets (a) | 71 | 70 | |||||||||||||
| Total cash, cash equivalents, and restricted cash | $ | 10,240 | $ | 14,378 | Total cash, cash equivalents, and restricted cash | $ | 10,082 | $ | 10,414 | |||||||||
| Accounts receivable, net: | ||||||||||||||||||
| Gross accounts receivable | $ | 12,456 | $ | 11,824 | ||||||||||||||
| Allowance for doubtful accounts | (85 | ) | (103 | ) | ||||||||||||||
| Total accounts receivable, net | $ | 12,371 | $ | 11,721 | ||||||||||||||
| Inventories, net: | Inventories, net: | |||||||||||||||||
| Production materials | $ | 1,794 | $ | 967 | Production materials | $ | 3,653 | $ | 1,718 | |||||||||
| Work-in-process | 702 | 514 | Work-in-process | 855 | 677 | |||||||||||||
| Finished goods | 1,153 | 1,197 | Finished goods | 1,390 | 1,008 | |||||||||||||
| Total inventories, net | $ | 3,649 | $ | 2,678 | Total inventories, net | $ | 5,898 | $ | 3,403 | |||||||||
| Prepaid expenses: | Prepaid expenses: | |||||||||||||||||
| Total prepaid expenses (b) | $ | 795 | $ | 1,016 | ||||||||||||||
| Total prepaid expenses (c) | Total prepaid expenses (c) | $ | 886 | $ | 721 | |||||||||||||
| Deferred Costs: | Deferred Costs: | |||||||||||||||||
| Total deferred costs, current (c) | Total deferred costs, current (c) | $ | 4,996 | $ | 4,306 | |||||||||||||
| Property, plant, and equipment, net: | Property, plant, and equipment, net: | |||||||||||||||||
| Computer equipment | $ | 5,219 | $ | 5,085 | Computer equipment | $ | 6,497 | $ | 5,622 | |||||||||
| Land and buildings | 4,559 | 4,343 | Land and buildings | 3,095 | 3,169 | |||||||||||||
| Machinery and other equipment | 3,829 | 3,845 | Machinery and other equipment | 2,714 | 3,093 | |||||||||||||
| Total property, plant, and equipment | 13,607 | 13,273 | Total property, plant, and equipment | 12,306 | 11,884 | |||||||||||||
| Accumulated depreciation and amortization (c) | (8,348 | ) | (7,883 | ) | ||||||||||||||
| Accumulated depreciation and amortization (b) | Accumulated depreciation and amortization (b) | (6,891) | (7,051) | |||||||||||||||
| Total property, plant, and equipment, net | $ | 5,259 | $ | 5,390 | Total property, plant, and equipment, net | $ | 5,415 | $ | 4,833 | |||||||||
| Accrued and other current liabilities: | ||||||||||||||||||
| Compensation | $ | 3,646 | $ | 2,948 | ||||||||||||||
| Warranty liability | 355 | 367 | ||||||||||||||||
| Income and other taxes | 1,396 | 1,229 | ||||||||||||||||
| Other | 3,098 | 3,482 | ||||||||||||||||
| Total accrued and other current liabilities | $ | 8,495 | $ | 8,026 | ||||||||||||||
| Other non-current liabilities: | ||||||||||||||||||
| Warranty liability | $ | 169 | $ | 172 | ||||||||||||||
| Deferred and other tax liabilities | 5,527 | 6,590 | ||||||||||||||||
| Other | 631 | 515 | ||||||||||||||||
| Total other non-current liabilities | $ | 6,327 | $ | 7,277 | ||||||||||||||
____________________
(a) Restricted cash includes cash required to be held in escrow pursuant to DFS securitization arrangements. (b) During the fiscal years ended January 28, 2022, January 29, 2021, and January 31, 2020, the Company recognized $1.6 billion, $1.3 billion, and $1.1 billion, respectively, in depreciation expense. (c) Deferred costs and prepaid expenses are included in other current assets in the Consolidated Statements of Financial Position. |
Valuation and Qualifying Accounts
The provisions recognized on the Consolidated Statements of Income during the fiscal years ended January 29, 2021 and January 28, 2022 are based on assessments of the impact of current and expected future economic conditions, inclusive of the effect of the COVID-19 pandemic on credit losses related to trade receivables and financing receivables. The duration and severity of COVID-19 and continued market volatility is highly uncertain and, as such, the impacts on expected credit losses for trade receivables and financing receivables are subject to significant judgment and may cause variability in the Company’s allowance for credit losses in future periods for trade receivables and financing receivables. See Note 2 of the Notes to the Consolidated Financial Statements for additional information about the new CECL standard.
The following table summarizespresents the Company’s valuation and qualifying accounts for the periods indicated:
| Fiscal Year Ended | ||||||||||||||||||||||||||||
| Fiscal Year Ended | January 28, 2022 | January 29, 2021 | January 31, 2020 | |||||||||||||||||||||||||
| February 1, 2019 | February 2, 2018 | February 3, 2017 | (in millions) | |||||||||||||||||||||||||
Trade Receivables — Allowance for expected credit losses: | Trade Receivables — Allowance for expected credit losses: | |||||||||||||||||||||||||||
| Balance at beginning of period | Balance at beginning of period | $ | 99 | $ | 88 | $ | 84 | |||||||||||||||||||||
| Adjustment for adoption of accounting standard (a) | Adjustment for adoption of accounting standard (a) | — | 27 | — | ||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||
| Trade Receivables - Allowance for doubtful accounts: | ||||||||||||||||||||||||||||
| Balance at beginning of period | $ | 103 | $ | 57 | $ | 36 | ||||||||||||||||||||||
| Provision charged to income statement | 77 | 60 | 43 | |||||||||||||||||||||||||
| Allowance charged to provision | Allowance charged to provision | 32 | 46 | 64 | ||||||||||||||||||||||||
| Bad debt write-offs | (95 | ) | (14 | ) | (22 | ) | Bad debt write-offs | (41) | (62) | (60) | ||||||||||||||||||
| Balance at end of period | $ | 85 | $ | 103 | $ | 57 | Balance at end of period | $ | 90 | $ | 99 | $ | 88 | |||||||||||||||
| Customer Financing Receivables - Allowance for financing receivable losses: | ||||||||||||||||||||||||||||
| Balance at beginning of period | $ | 145 | $ | 143 | $ | 176 | ||||||||||||||||||||||
| Customer Financing Receivables — Allowance for financing receivable losses: | Customer Financing Receivables — Allowance for financing receivable losses: | |||||||||||||||||||||||||||
| Balances at beginning of period | Balances at beginning of period | $ | 321 | $ | 149 | $ | 136 | |||||||||||||||||||||
| Adjustment for adoption of accounting standard (a) | Adjustment for adoption of accounting standard (a) | — | 111 | — | ||||||||||||||||||||||||
| Charge-offs, net of recoveries (b) | Charge-offs, net of recoveries (b) | (72) | (91) | (94) | ||||||||||||||||||||||||
| Provision charged to income statement | 95 | 103 | 75 | Provision charged to income statement | (60) | 152 | 107 | |||||||||||||||||||||
| Charge-offs, net of recoveries (a) | (104 | ) | (101 | ) | (108 | ) | ||||||||||||||||||||||
| Balance at end of period | $ | 136 | $ | 145 | $ | 143 | ||||||||||||||||||||||
| Balances at end of period | Balances at end of period | $ | 189 | $ | 321 | $ | 149 | |||||||||||||||||||||
| Tax Valuation Allowance: | Tax Valuation Allowance: | |||||||||||||||||||||||||||
| Balance at beginning of period | $ | 777 | $ | 709 | $ | 796 | Balance at beginning of period | $ | 1,297 | $ | 1,313 | $ | 1,364 | |||||||||||||||
| Charged to income tax provision | 927 | 68 | (496 | ) | Charged to income tax provision | 155 | 41 | (2) | ||||||||||||||||||||
| Allowance acquired | — | — | 409 | |||||||||||||||||||||||||
| Charged to other accounts | Charged to other accounts | (29) | (57) | (49) | ||||||||||||||||||||||||
| Balance at end of period | $ | 1,704 | $ | 777 | $ | 709 | Balance at end of period | $ | 1,423 | $ | 1,297 | $ | 1,313 | |||||||||||||||
____________________
(a) The Company adopted the current expected credit losses standard as of February 1, 2020 using the modified retrospective method, with the cumulative-effect adjustment to the opening balance of stockholders’ equity (deficit) as of the adoption date.
(b) Charge-offs for customer financing receivables includes principal and interest.
Warranty Liability
The following table presents changes in the Company’s liability for standard limited warranties for the periods indicated:
| Fiscal Year Ended | Fiscal Year Ended | |||||||||||||||||||||||||||||||||||||||
| February 1, 2019 | February 2, 2018 | February 3, 2017 | January 28, 2022 | January 29, 2021 | January 31, 2020 | |||||||||||||||||||||||||||||||||||
| (in millions) | (in millions) | |||||||||||||||||||||||||||||||||||||||
| Warranty liability: | Warranty liability: | |||||||||||||||||||||||||||||||||||||||
| Warranty liability at beginning of period | $ | 539 | $ | 604 | $ | 574 | Warranty liability at beginning of period | $ | 473 | $ | 496 | $ | 524 | |||||||||||||||||||||||||||
| Warranty liability assumed through EMC merger transaction | — | — | 125 | |||||||||||||||||||||||||||||||||||||
| Costs accrued for new warranty contracts and changes in estimates for pre-existing warranties (a) (b) | 856 | 905 | 852 | Costs accrued for new warranty contracts and changes in estimates for pre-existing warranties (a) (b) | 957 | 782 | 854 | |||||||||||||||||||||||||||||||||
| Service obligations honored | (871 | ) | (970 | ) | (947 | ) | Service obligations honored | (950) | (805) | (882) | ||||||||||||||||||||||||||||||
| Warranty liability at end of period | $ | 524 | $ | 539 | $ | 604 | Warranty liability at end of period | $ | 480 | $ | 473 | $ | 496 | |||||||||||||||||||||||||||
| Current portion | $ | 355 | $ | 367 | $ | 405 | Current portion | $ | 353 | $ | 356 | $ | 341 | |||||||||||||||||||||||||||
| Non-current portion | $ | 169 | $ | 172 | $ | 199 | Non-current portion | $ | 127 | $ | 117 | $ | 155 | |||||||||||||||||||||||||||
____________________
(a)Changes in cost estimates related to pre-existing warranties are aggregated with accruals for new standard warranty contracts. The Company’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.
Severance Charges
The Company incurs costs related to employee severance and records a liability for these costs when it is probable that employees will be entitled to termination benefits and the amounts can be reasonably estimated. The liability related to these actions is included in accrued and other current liabilities in the Consolidated Statements of Financial Position.
The following table presents the activity related to the Company’s severance liability for the periods indicated:
| Fiscal Year Ended | |||||||||||||||||||||||||||||
| January 28, 2022 | January 29, 2021 | January 31, 2020 | |||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
| Severance liability: | |||||||||||||||||||||||||||||
| Severance liability at beginning of period | $ | 109 | $ | 117 | $ | 102 | |||||||||||||||||||||||
| Severance charges | 134 | 368 | 174 | ||||||||||||||||||||||||||
| Cash paid and other | (169) | (376) | (159) | ||||||||||||||||||||||||||
| Severance liability at end of period | $ | 74 | $ | 109 | $ | 117 | |||||||||||||||||||||||
| Fiscal Year Ended | |||||||||||
| February 1, 2019 | February 2, 2018 | February 3, 2017 | |||||||||
| (in millions) | |||||||||||
| Severance liability: | |||||||||||
| Severance liability at beginning of period | $ | 175 | $ | 416 | $ | 26 | |||||
| Severance liability assumed through EMC merger transaction | — | — | 70 | ||||||||
| Severance charges to provision | 215 | 159 | 541 | ||||||||
| Cash paid and other | (244 | ) | (400 | ) | (221 | ) | |||||
| Severance liability at end of period | $ | 146 | $ | 175 | $ | 416 | |||||