Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
(Mark One)
   
(Mark One)
þ
x
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended OctoberApril 29, 2010
2011
Or
OR
o 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
 
Commission File Number:file number: 0-17017
 
Dell Inc.
(Exact name of registrant as specified in its charter)
 
 
Delaware 74-2487834
(State or other jurisdiction
of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
One Dell Way,
Round Rock, Texas 78682
(Address of principal executive offices) (Zip Code)
1-800-BUY-DELL
(Registrant’s telephone number, including area code)
 
 
Indicate by check mark whether the registrantregistrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þR  No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þR  No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þR
 
Accelerated filer o
Non-accelerated filer o  (Do not check if a smaller reporting company)
 
Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act). Yes o No þR
 
As of the close of business on November 22, 2010, 1,930,291,385May 19, 2011, 1,887,169,853 shares of common stock, par value $.01 per share, were outstanding.
 



CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report includes “forward-looking statements.” The words “may,” “will,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “aim”“aim,” “seek” and similar expressions as they relate to us or our management are intended to identify these forward-looking statements. All statements by us regarding our expected financial position, revenues, cash flows and other operating results, business strategy, legal proceedings and similar matters are forward-looking statements. Our expectations expressed or implied in these forward-looking statements may not turn out to be correct. Our results could be materially different from our expectations because of various risks, including the risks discussed in “Part I - Item 1A - Risk Factors”Factors" of our Annual Report onForm 10-K for the fiscal year ended January 29, 2010, and in our subsequently filed SEC reports.28, 2011. Any forward-looking statement speaks only as of the date onas of which such statement is made, and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances, including unanticipated events, after the date as of which such statement iswas made.


 

INDEXTable of Contents
Page
   Page
 
 
 
 
 
 
 
 
 33
 
 
    
 
48
 
    
 
48
Exhibits  
   
 
50
 
 
50
 
 
51
 
 
51
EX-12.1
EX-31.1
EX-31.2
EX-32.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT



PART I
ITEM 1 — FINANCIAL INFORMATIONSTATEMENTS
 
ITEM 1. FINANCIAL STATEMENTS
DELL INC.
(in millions)
         
  October 29,
 January 29,
  2010 2010
  (unaudited)  
         
ASSETS
Current assets:        
Cash and cash equivalents  $ 12,889   $ 10,635 
Short-term investments   492    373 
Accounts receivable, net   6,407    5,837 
Financing receivables, net   3,588    2,706 
Inventories, net   1,294    1,051 
Other current assets   3,118    3,643 
         
Total current assets   27,788    24,245 
Property, plant, and equipment, net   1,948    2,181 
Investments   662    781 
Long-term financing receivables, net   709    332 
Goodwill   4,259    4,074 
Purchased intangible assets, net   1,553    1,694 
Other non-current assets   235    345 
         
Total assets  $ 37,154   $ 33,652 
         
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:        
Short-term debt  $ 826   $ 663 
Accounts payable   11,278    11,373 
Accrued and other   3,898    3,884 
Short-term deferred services revenue   3,093    3,040 
         
Total current liabilities   19,095    18,960 
Long-term debt   5,168    3,417 
Long-term deferred services revenue   3,447    3,029 
Other non-current liabilities   2,631    2,605 
         
Total liabilities   30,341    28,011 
         
         
Commitments and contingencies (Note 12)        
         
Stockholders’ equity:        
Common stock and capital in excess of $.01 par value; shares authorized: 7,000; shares issued: 3,366 and 3,351, respectively;
shares outstanding: 1,930 and 1,957, respectively
   11,674    11,472 
Treasury stock at cost: 961 shares and 919 shares, respectively  (28,504  (27,904
Retained earnings   23,805    22,110 
Accumulated other comprehensive loss  (162  (37
         
Total stockholders’ equity   6,813    5,641 
         
Total liabilities and stockholders’ equity  $ 37,154   $ 33,652 
         
 April 29,
2011
 January 28,
2011
 (unaudited)  
ASSETS
Current assets:     
Cash and cash equivalents$14,061  $13,913 
Short-term investments418  452 
Accounts receivable, net6,196  6,493 
Short-term financing receivables, net3,205  3,643 
Inventories, net1,276  1,301 
Other current assets3,217  3,219 
Total current assets28,373  29,021 
Property, plant, and equipment, net1,987  1,953 
Investments762  704 
Long-term financing receivables, net1,123  799 
Goodwill5,406  4,365 
Purchased intangible assets, net1,941  1,495 
Other non-current assets196  262 
Total assets$39,788  $38,599 
    
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:     
Short-term debt$816  $851 
Accounts payable10,442  11,293 
Accrued and other3,590  4,181 
Short-term deferred services revenue3,282  3,158 
Total current liabilities18,130  19,483 
Long-term debt6,794  5,146 
Long-term deferred services revenue3,608  3,518 
Other non-current liabilities2,886  2,686 
Total liabilities31,418  30,833 
Commitments and contingencies (Note 11)     
Stockholders’ equity:     
Common stock and capital in excess of $.01 par value; shares authorized: 7,000; shares issued: 3,381 and 3,369, respectively; shares outstanding: 1,899 and 1,918, respectively11,900  11,797 
Treasury stock at cost: 1,007 and 976 shares, respectively(29,154) (28,704)
Retained earnings25,689  24,744 
Accumulated other comprehensive loss(65) (71)
Total stockholders’ equity8,370  7,766 
Total liabilities and stockholders’ equity$39,788  $38,599 
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

1


DELL INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share amounts; unaudited)
 Three Months Ended
 April 29,
2011
 April 30,
2010
Net revenue:     
Products$12,059  $12,086 
Services, including software related2,958  2,788 
Total net revenue15,017  14,874 
Cost of net revenue:     
Products9,436  10,385 
Services, including software related2,149  1,973 
Total cost of net revenue11,585  12,358 
Gross margin3,432  2,516 
Operating expenses:     
Selling, general, and administrative2,025  1,830 
Research, development, and engineering195  167 
Total operating expenses2,220  1,997 
Operating income1,212  519 
Interest and other, net(42) (68)
Income before income taxes1,170  451 
Income tax provision225  110 
Net income$945  $341 
Earnings per share:     
Basic$0.50  $0.17 
Diluted$0.49  $0.17 
Weighted-average shares outstanding:     
Basic1,908  1,961 
Diluted1,923  1,973 
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

2


DELL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions; unaudited)
 Three Months Ended
 April 29,
2011
 April 30,
2010
Cash flows from operating activities:     
Net income$945  $341 
Adjustments to reconcile net income to net cash provided by operating activities:     
Depreciation and amortization216  247 
Stock-based compensation99  76 
Effects of exchange rate changes on monetary assets and liabilities denominated in foreign currencies  30 
Deferred income taxes(63) (31)
Provision for doubtful accounts — including financing receivables47  122 
Other(5)  
Changes in assets and liabilities, net of effects from acquisitions:     
Accounts receivable471  (119)
Financing receivables21  (208)
Inventories38  (132)
Other assets110  69 
Accounts payable(925) 22 
Deferred services revenue191  72 
Accrued and other liabilities(680) (251)
Change in cash from operating activities465  238 
Cash flows from investing activities:     
Investments:     
Purchases(240) (350)
Maturities and sales222  169 
Capital expenditures(137) (46)
Proceeds from sale of facility and land12   
Collections on purchased financing receivables67   
Acquisitions, net of cash received(1,473) (133)
Change in cash from investing activities(1,549) (360)
Cash flows from financing activities:     
Repurchase of common stock(450) (200)
Issuance of common stock under employee plans10  7 
Issuance of commercial paper (maturity 90 days or less), net  234 
Proceeds from debt1,930  268 
Repayments of debt(323) (566)
Other3  3 
Change in cash from financing activities1,170  (254)
Effect of exchange rate changes on cash and cash equivalents62  (4)
Change in cash and cash equivalents148  (380)
Cash and cash equivalents at beginning of the period13,913  10,635 
Cash and cash equivalents at end of the period$14,061  $10,255 
 
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.


1


3


DELL INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share amounts; unaudited)
                 
  Three Months Ended Nine Months Ended
  October 29,
 October 30,
 October 29,
 October 30,
  2010 2009 2010 2009
Net revenue:                
Products  $ 12,520   $ 10,746   $ 37,251   $ 31,601 
Services, including software related   2,874    2,150    8,551    6,401 
                 
Total net revenue   15,394    12,896    45,802    38,002 
                 
                 
Cost of net revenue:                
Products   10,415    9,269    31,731    27,033 
Services, including software related   1,976    1,394    5,966    4,177 
                 
Total cost of net revenue   12,391    10,663    37,697    31,210 
                 
                 
Gross margin   3,003    2,233    8,105    6,792 
                 
                 
Operating expenses:                
Selling, general, and administrative   1,816    1,501    5,325    4,685 
Research, development, and engineering   163    155    492    445 
                 
Total operating expenses   1,979    1,656    5,817    5,130 
                 
                 
Operating income   1,024    577    2,288    1,662 
                 
Interest and other, net   52   (63  (65  (107
                 
Income before income taxes   1,076    514    2,223    1,555 
                 
Income tax provision   254    177    515    456 
                 
Net income  $ 822   $ 337   $ 1,708   $ 1,099 
                 
                 
Earnings per share:                
Basic  $ 0.42   $ 0.17   $ 0.88   $ 0.56 
                 
Diluted  $ 0.42   $ 0.17   $ 0.87   $ 0.56 
                 
                 
Weighted-average shares outstanding:                
Basic   1,939    1,956    1,950    1,953 
Diluted   1,949    1,966    1,961    1,959 
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.


2


DELL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions; unaudited)
         
  Nine Months Ended
  October 29,
 October 30,
  2010 2009
         
Cash flows from operating activities:        
Net income  $ 1,708   $ 1,099 
Adjustments to reconcile net income to net cash provided by
operating activities:
        
Depreciation and amortization   745    593 
Stock-based compensation   225    211 
Effects of exchange rate changes on monetary assets and liabilities denominated in foreign currencies   23    58 
Deferred income taxes  (35  (88
Provision for doubtful accounts - including financing receivables   299    290 
Other   4    75 
Changes in assets and liabilities, net of effects from acquisitions:        
Accounts receivable  (588  (456
Financing receivables  (459  (556
Inventories  (241  (83
Other assets   743    93 
Accounts payable  (175   1,551 
Deferred services revenue   402    34 
Accrued and other liabilities  (165  (183
         
Change in cash from operating activities   2,486    2,638 
         
Cash flows from investing activities:        
Investments:        
Purchases  (1,186  (1,182
Maturities and sales   1,184    1,307 
Capital expenditures  (284  (249
Proceeds from sale of facility and land   18    16 
Purchase of financing receivables  (430  - 
Collections on purchased financing receivables   20   - 
Acquisition of business, net of cash received  (246  (3
         
Change in cash from investing activities  (924  (111
         
         
Cash flows from financing activities:        
Repurchase of common stock  (600  - 
Issuance of common stock under employee plans   11   - 
Issuance (repayment) of commercial paper (maturity 90 days or less), net  (176   43 
Proceeds from debt   2,554    1,748 
Repayments of debt  (1,115  (62
Other   2   - 
         
Change in cash from financing activities   676    1,729 
         
         
Effect of exchange rate changes on cash and cash equivalents   16    187 
         
Change in cash and cash equivalents   2,254    4,443 
Cash and cash equivalents at beginning of period   10,635    8,352 
         
Cash and cash equivalents at end of period  $ 12,889   $ 12,795 
         
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.


3


DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 
NOTE 1 — BASIS OF PRESENTATION
Basis of Presentation —
The accompanying Condensed Consolidated Financial Statements of Dell Inc. (individually and together with its consolidated subsidiaries, “Dell”"Dell") should be read in conjunction with the Consolidated Financial Statements and accompanying Notes filed with the U.S. Securities and Exchange Commission (“SEC”("SEC") in Dell’sDell's Annual Report onForm 10-K for the fiscal year ended January 29, 2010.28, 2011 ("Fiscal 2011"). The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”("GAAP"). In the opinion of management, the accompanying Condensed Consolidated Financial Statements reflect all adjustments of a normal recurring nature considered necessary to fairly state the financial position of Dell and its consolidated subsidiaries at OctoberApril 29, 2010,2011, the results of its operations, for the three and nine months ended October 29, 2010, and October 30, 2009, and its cash flows for the ninethree months ended OctoberApril 29, 2010,2011, and OctoberApril 30, 2009.
2010.
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in Dell’sDell's Condensed Consolidated Financial Statements and the accompanying Notes. Actual results could differ materially from those estimates. The results of operations for the three and nine months ended OctoberApril 29, 2010,2011, and OctoberApril 30, 2009,2010, and the cash flows for the ninethree months ended OctoberApril 29, 2010,2011, and OctoberApril 30, 2009,2010, are not necessarily indicative of the results to be expected for the full year.fiscal year or for any other fiscal period.
Dell's fiscal year is the 52 or 53 week period ending on the Friday nearest January 31. The fiscal year ending February 3, 2012 ("Fiscal 2012") will be a 53 week period.
Recently Issued and Adopted Accounting Pronouncements
Revenue Arrangements with Multiple Deliverables —In September 2009, the Emerging Issues Task Force of the Financial Accounting Standards Board (“FASB”) reached consensus on two issues which affects the timing of revenue recognition. The first consensus changes the level of evidence of standalone selling price required to separate deliverables in a multiple deliverable revenue arrangement by allowing a company to make its best estimate of the selling price (“ESP”) of deliverables when more objective evidence of selling price is not available and eliminates the use of the residual method. The consensus applies to multiple deliverable revenue arrangements that are not accounted for under other accounting pronouncements and retains the use of vendor specific objective evidence of selling price (“VSOE”) if available and third-party evidence of selling price (“TPE”), when VSOE is unavailable. The second consensus excludes sales of tangible products that contain essential software elements, that is, software enabled devices, from the scope of revenue recognition requirements for software arrangements. Dell elected to early adopt this accounting guidance at the beginning of the first quarter of Fiscal 2011 on a prospective basis for applicable transactions originating or materially modified after January 29, 2010.
Dell’s multiple deliverable arrangements generally include hardware products that are sold with services such as extended warranty services, installation, maintenance, and other services contracts. The nature and terms of these multiple deliverable arrangements will vary based on the customized needs of Dell’s customers. Maintenance, support, and other services are generally delivered according to the terms of the arrangement after the initial sale of hardware or software. Dell’s service contracts may include a combination of services arrangements including deployment, asset recovery, recycling, IT outsourcing, consulting, applications development, applications maintenance, and business process services. These service contracts may include provisions for cancellation, termination, refunds, or service level adjustments. These contract provisions would not have a significant impact on recognized revenue as Dell generally recognizes revenue for these contracts as the services are performed.
The adoption of the new guidance on multiple deliverable arrangements did not change the manner in which Dell accounts for its multiple deliverable arrangements as Dell did not use the residual method for the majority of its offerings and its services offerings are generally sold on a standalone basis where evidence of selling price is available. Most of Dell’s products and services qualify as separate units of accounting. Prior to the first quarter of Fiscal 2011, Dell allocated revenue from multiple-element arrangements to the multiple elements based on the relative fair value of each element, which was generally based on the relative sales price of each element when sold separately. Because selling price is generally available based on standalone sales, Dell has limited application of


4


DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
TPE, as determined by comparison of pricing for products and services to the pricing of similar products and services as offered by Dell or its competitors in standalone sales to similarly situated customers. Thus, the adoption of this consensus had no impact on Dell’s consolidated financial statements as of and for the first three quarters of Fiscal 2011, or the year ended January 29, 2010.
Pursuant to the new guidance on revenue recognition for software enabled products, certain Dell storage products are no longer included in the scope of the software revenue recognition guidance. Prior to the new guidance, Dell established fair value for Post Contract Customer Support (“PCS”) for these products, based on VSOE and used the residual method to allocate revenue to the delivered elements. Under the new guidance, the revenue for what was previously deemed PCS is now considered part of a multiple element arrangement. As such, any discount is allocated to all elements based on the relative selling price of both delivered and undelivered elements. The impact of applying this consensus was not material to Dell’s consolidated financial statements as of and for the first three quarters of Fiscal 2011, or the year ended January 29, 2010.
As new products are introduced in future periods, Dell may be required to use TPE or ESP, depending on the specific facts at the time.
Variable Interest Entities and Transfers of Financial Assets and Extinguishments of Liabilities — The pronouncement on transfers of financial assets and extinguishments of liabilities removes the concept of a qualifying special-purpose entity and removes the exception from applying variable interest entity accounting to qualifying special-purpose entities. The pronouncement on variable interest entities requires an entity to perform an ongoing analysis to determine whether the entity’s variable interest or interests give it a controlling financial interest in a variable interest entity. The pronouncements were effective for fiscal years beginning after November 15, 2009. Dell adopted the pronouncements at the beginning of the first quarter of Fiscal 2011. The adoption of these two pronouncements resulted in Dell’s consolidation of its two qualifying special purpose entities. See Note 5 of Notes to Condensed Consolidated Financial Statements for additional information on the impact of the consolidation.
Recently Issued Accounting Pronouncements
Credit Quality of Financing Receivables and the Allowance for Credit Losses In July 2010, FASBthe Financial Accounting Standards Board ("FASB") issued a new pronouncement that requires enhanced disclosures regarding the nature of credit risk inherent in an entity’sentity's portfolio of financing receivables, how that risk is analyzed, and the changes and reasons for those changes in the allowance for credit losses. The new disclosures will require information for both the financing receivables and the related allowance for credit losses at more disaggregated levels. Disclosures related to information as of the end of a reporting period will becomebecame effective for Dell in the fourth quarter of Fiscal 2011. Specific disclosures regarding activities that occur during a reporting period such as the disaggregated rollforward disclosures, will beare now required for Dell beginning in the first quarter of Fiscalthe fiscal year ending February 3, 2012. As these changes relate only relate to disclosures, they willdid not have an impact on Dell’sDell's consolidated financial results. See Note 5 of Notes to Condensed Consolidated Financial Statements for more information on Dell's disclosures relating to the credit quality of its financing receivables.
 
Reclassifications
NOTE 2 — To maintain comparability among the periods presented, Dell has revised the presentationINVENTORIES
  April 29,
2011
 January 28,
2011
  (in millions)
Inventories:      
Production materials $731  $593 
Work-in-process 171  232 
Finished goods 374  476 
Total $1,276  $1,301 

4


5


DELL INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 
NOTE 2 — INVENTORIES

         
  October 29,
 January 29,
  2010 2010
  (in millions)
Inventories:
        
Production materials  $ 572   $ 487 
Work-in-process   199    168 
Finished goods   523    396 
         
Inventories  $ 1,294   $ 1,051 
         
NOTE 3 — FAIR VALUE MEASUREMENTS
The following table presents Dell’sDell's hierarchy for its assets and liabilities measured at fair value on a recurring basis as of OctoberApril 29, 2010,2011, and January 29, 2010:28, 2011:
                                 
  October 29, 2010 January 29, 2010
  Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
  Quoted
       Quoted
      
  Prices
       Prices
      
  in Active
 Significant
     in Active
 Significant
    
  Markets for
 Other
 Significant
   Markets for
 Other
 Significant
  
  Identical
 Observable
 Unobservable
   Identical
 Observable
 Unobservable
  
  Assets Inputs Inputs   Assets Inputs Inputs  
  (in millions)
                                 
Assets:
                                
Cash equivalents:
                                
Commercial paper  $ -   $ 1,391   $ -   $ 1,391   $ -   $ 197   $ -   $ 197 
U.S. government and agencies  -    73   -    73   -   -   -   - 
Debt securities:                                
U.S. government and agencies  -    96   -    96   -    66   -    66 
U.S. corporate  -    464    32    496   -    553    30    583 
International corporate  -    445   -    445   -    391   -    391 
State and municipal governments  -   -   -   -   -    2   -    2 
Equity and other securities  -    101   -    101   -    90   -    90 
Retained interest  -   -   -   -   -   -    151    151 
Derivative instruments  -    64   -    64   -    96   -    96 
                                 
Total assets  $ -   $ 2,634   $ 32   $ 2,666   $ -   $ 1,395   $ 181   $ 1,576 
                                 
Liabilities:
                                
Derivative instruments  $ -   $ 246   $ -   $ 246   $ -   $ 12   $ -   $ 12 
                                 
Total liabilities  $ -   $ 246   $ -   $ 246   $ -   $ 12   $ -   $ 12 
                                 


6


DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 April 29, 2011 January 28, 2011
 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 equivalents:               
Money market funds$9,579  $  $  $9,579  $6,261  $  $  $6,261 
Commercial paper  1,390    1,390    2,945    2,945 
U.S. government and agencies  16    16    1,699    1,699 
Debt Securities:               
U.S. government and agencies  27    27    79    79 
U.S. corporate  524  34  558    464  32  496 
International corporate  466    466    457    457 
Equity and other securities  113    113    109    109 
Derivative instruments  60    60    27    27 
Total assets$9,579  $2,596  $34  $12,209  $6,261  $5,780  $32  $12,073 
Liabilities:                       
Derivative instruments$  $159  $  $159  $  $28  $  $28 
Total liabilities$  $159  $  $159  $  $28  $  $28 
 
The following section describes the valuation methodologies Dell uses to measure financial instruments at fair value:
Cash Equivalents — - The majority of Dell’sDell's cash equivalents in the above table consists of money market funds, commercial paper, including corporate and asset-backed commercial paper, and U.S. government and agencies, all with original maturities of less than ninety90 days and are valued at fair value which approximates cost.  The valuation isvaluations of these securities are based on quoted prices in active markets for identical assets, when available, or pricing models whereby all significant inputs are observable or can be derived from or corroborated by observable market data. When quoted prices are not available, Dell utilizes a pricing service to assist in obtaining fair value pricing for the majority of this investment portfolio.pricing. Dell conducts reviews on a quarterly basis to verify pricing, assess liquidity, and determine if significant inputs have changed that would impact the fair value hierarchy disclosure.
 
Debt Securities — - The majority of Dell’sDell's debt securities consists of various fixed income securities such as U.S. government and agencies, and U.S. and international corporate, and state and municipal bonds. This portfoliocorporate. Dell utilizes a pricing service to assist management in measuring fair value pricing for the majority of investmentsthis investment portfolio. Valuation is valued based on model driven valuationspricing models whereby all significant inputs, including benchmark yields, reported trades, broker-dealer quotes, issue spreads, benchmark securities, bids, offers and other market related data,are observable or can be derived from or corroborated by observable market data for substantially the full term of the asset. Dell utilizes a pricing service to assist management in obtaining fair value pricing for the majority of this investment portfolio. Pricing for securities is based on proprietary models, and inputsInputs are documented in accordance with the fair value measurements hierarchy. Dell conducts reviews on a quarterly basis to verify pricing, assess liquidity, and determine if significant valuation inputs have changed that would impact the fair value hierarchy disclosure. The Level 3 position as of OctoberApril 29, 2010,2011, and January 29, 2010,28, 2011, represents a convertible debt security that Dell was unable to corroborate with observable market data. The investment is valued at cost plus accrued interest as this is management’smanagement's best estimate of fair value.
 
Equity and Other Securities — -The majority of Dell’sDell's investments in equity and other securities consists of various mutual funds held in Dell’sDell's Deferred Compensation Plan. The valuation of these securities is based on pricing models whereby all significant inputs are observable or can be derived from or corroborated by observable market data.

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DELL INC.
 
Retained Interest — The fair value of the retained interest at January 29, 2010 was determined using a discounted cash flow model. Significant assumptions to the model include pool credit losses, payment rates, and discount rates. These assumptions are supported by both historical experience and anticipated trends relative to the particular receivable pool. Retained interest in securitized receivables was included in financing receivables, short-term and long-term, on the Condensed Consolidated Statements of Financial Position. During the first quarter of Fiscal 2011, Dell consolidated its previously unconsolidated special purpose entities and as result, the retained interest as of January 29, 2010, was eliminated. See Note 5 of Notes to Condensed Consolidated Financial Statements for additional information about the consolidation of Dell’s previously unconsolidated special purpose entities.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 

Derivative Instruments — Dell’s - Dell's derivative financial instruments consist primarily of foreign currency forward and purchased option contracts, and interest rate swaps. The fair value of the portfolio is valueddetermined using internalvaluation models based on market observable inputs, including interest rate curves, forward and spot prices for currencies, and implied volatilities.Credit risk is factored into the fair value calculation of Dell’sDell's derivative instrument portfolio.  For interest rate derivative instruments, credit risk is determined at the contract levelwith the use of credit default spreads of either Dell, ifwhen in a net liability position, or the relevant counterparty, when in a net asset position.  For foreign exchange derivative instruments, credit risk is determined in a similar manner, except that the credit default spread is applied based on the net position of eachcounterparty with the use of the appropriate credit default spreads.


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DELL INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
The following table shows a reconciliation of the beginning and ending balances for fair value measurements using significant unobservable inputs (Level 3) for the respective periods:
                         
  Three Months Ended
  October 29, 2010 October 30, 2009
  Retained
 U.S.
   Retained
 U.S.
  
  Interest Corporate Total Interest Corporate Total
  (in millions)
Balance at beginning of the period  $ -   $ 31   $ 31   $ 119   $ 29   $ 148 
Net unrealized gains included
in earnings(a)
  -    1    1    9   -    9 
Issuances and settlements  -   -   -    6   -    6 
                         
Balance at end of period  $ -   $ 32   $ 32   $ 134   $ 29   $ 163 
                         
                         
                         
  Nine Months Ended
  October 29, 2010 October 30, 2009
  Retained
 U.S.
   Retained
 U.S.
  
  Interest Corporate Total Interest Corporate Total
  (in millions)
Balance at beginning of period  $ 151   $ 30   $ 181   $ 396   $ 27   $ 423 
Net unrealized gains included
in earnings(a)
  -    2    2    17    2    19 
Issuances and settlements  -   -   -    223   -    223 
Transfers out of Level 3(b)
  (151  -   (151  (502  -   (502
                         
Balance at end of period  $ -   $ 32   $ 32   $ 134   $ 29   $ 163 
                         
(a)The net unrealized gains and losses on U.S. corporate represent accrued interest for assets that were still held at October 29, 2010, and October 30, 2009.
(b)Represents transfers out resulting from the SPE consolidation. See Note 5 of Notes to Condensed Consolidated Financial Statements for additional information on retained interest.
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. The assets consist primarily of investments accounted for under the cost method and nonfinancialnon-financial assets such as goodwill and intangible assets. Investments accounted for under the cost method included in equity and other securities, were approximately $16approximate $16 million and $22$15 million, on OctoberApril 29, 2010,2011, and January 29, 2010,28, 2011, respectively. Goodwill and intangible assets are measured at fair value initially and subsequently when there is an indicator of impairment and the impairment is recognized. No impairment charges of goodwill and intangible assets were recorded for the three and nine months ended OctoberApril 29, 2010.2011. See Note 9 of Notes to Condensed Consolidated Financial Statements for additional information about goodwill and intangible assets.


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DELL INC.
 

6

DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 

NOTE 4 — INVESTMENTS
 
The following table summarizes, by major security type, the fair value and amortized cost of Dell’sDell's investments. All debt security investments with remaining maturities in excess of one year and substantially all equity and other securities are recorded as long-term investments in the Condensed Consolidated Statements of Financial Position.
                                 
  October 29, 2010 January 29, 2010
  Fair
   Unrealized
 Unrealized
 Fair
   Unrealized
 Unrealized
  Value Cost Gain (Loss) Value Cost Gain (Loss)
  (in millions)
Investments:
                                
U.S. government and agencies  $ 76   $ 76   $ -   $ -   $ 65   $ 65   $ -   $ - 
U.S. corporate   298    298   -   -    233    232    1   - 
International corporate   118    118   -   -    75    75   -   - 
                                 
Total short-term investments   492    492   -   -    373    372    1   - 
                                 
U.S. government and agencies   20    20   -   -    1    1   -   - 
U.S. corporate   198    198    1   (1   350    349    2   (1
International corporate   327    326    1   -    316    316    1   (1
State and municipal governments  -   -   -   -    2    2   -   - 
Equity and other securities   117    117   -   -    112    112   -   - 
                                 
Total long-term investments   662    661    2   (1   781    780    3   (2
                                 
Total investments  $ 1,154   $ 1,153   $ 2   $ (1  $ 1,154   $ 1,152   $ 4   $ (2
                                 
 April 29, 2011 January 28, 2011
 Fair Value   Cost Unrealized Gain Unrealized (Loss) Fair Value   Cost Unrealized Gain Unrealized (Loss)
 (in millions)
Investments:               
U.S. government and agencies$7  $7  $  $  $58  $58  $  $ 
U.S. corporate252  252      254  253  1   
International corporate159  159      140  140     
Total short-term investments418  418      452  451  1   
                
U.S. government and agencies20  20      21  20  1   
U.S. corporate306  306  1  (1) 242  243    (1)
International corporate307  306  1    317  317     
Equity and other securities129  129      124  124     
Total long-term investments762  761  2  (1) 704  704  1  (1)
Total investments$1,180  $1,179  $2  $(1) $1,156  $1,155  $2  $(1)
 
Dell’sDell's investments in debt securities are classified asavailable-for-sale. Equity and other securities primarily relate to investments held in Dell’sDell's Deferred Compensation Plan, which are classified as trading securities. Both of these classes of securities are reported at fair value using the specific identification method. All other investments are initially recorded at cost and reduced for any impairment losses. The fair value of Dell’sDell's portfolio is affected primarily by interest rate movements rather than credit and liquidity risks.Most of Dell's investments in debt securities have contractual maturities of less than five years.

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DELL INC.
 
At October 29, 2010, Dell had 68 debt securities that were in a loss position with total unrealized losses of $1 million and a corresponding fair value of $355 million. Dell reviews its investment portfolio quarterly to determine if any investment isother-than-temporarily impaired. Another-than-temporary impairment (“OTTI”) loss is recognized in earnings if Dell has the intent to sell the debt security, or if it is more likely than not that it will be required to sell the debt security before recovery of its amortized cost basis. However, if Dell does not expect to sell a debt security, it still evaluates expected cash flows to be received and determines if a credit loss exists. In the event of a credit loss, only the amount of impairment associated with the credit loss is recognized in earnings. Amounts relating to factors other than credit losses are recorded in other comprehensive income. As of October 29, 2010, Dell evaluated debt securities classified asavailable-for-sale for OTTI and the existence of credit losses and concluded no such losses should be recognized for the nine months ended October 29, 2010.


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DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 

NOTE 5 — FINANCIAL SERVICES
Dell Financial Services L.L.C.
Dell offers or arranges various financing options and services for its business and consumer customers in the U.S. through Dell Financial Services L.L.C. (“DFS”), a wholly-owned subsidiary of Dell. DFS’sDFS's key activities include the origination, collection, and servicing of customer receivables related to the purchase of Dell products and services. New financing originations, which represent the amounts of financing provided to customers for equipment and related software and services through DFS, were approximately $0.9 billion during both$800 million and $900 million, for the three months ended OctoberApril 29, 2010,2011, and OctoberApril 30, 2009,2010, respectively.
In April 2011, Dell announced its intent to acquire Dell Financial Services Canada Limited. from CIT Group Inc. ("CIT"), as well as CIT Vendor Finance's Dell-related assets and $2.8 billionsales and $2.6 billion duringservicing functions in Europe. Dell expects to close the nine months ended October 29, 2010,acquisition in Canada in the second quarter of Fiscal 2012 and October 30, 2009, respectively.the acquisition in Europe in Fiscal 2013 subject to customary closing conditions.
 
Dell transfers certain customer financing receivables to special purpose entities (“SPEs”). The SPEs are bankruptcy remote legal entities with separate assets and liabilities. The purpose of the SPEs is to facilitate the funding of customer receivables in the capital markets. These SPEs have entered into financing arrangements with multi-seller conduits that, in turn, issue asset-backed debt securities in the capital markets. Dell’sDell's risk of loss related to securitized receivables is limited to the amount of Dell’sDell's right to receive collections for assets securitized exceeding the amount required to pay interest, principal, and other fees and expenses.expenses related to the asset-backed securities. Dell provides credit enhancement to the securitization in the form of over-collateralization. Prior to Fiscal 2011,These SPEs meet the SPE that funds revolving loans was consolidated, and the two SPEs that fund fixed-term leases and loans were not consolidated. In accordance with the new accounting guidance ondefinition of a variable interest entities (“VIEs”),entity and transfers of financial assets and extinguishment of financial liabilities, Dell has determined that it is the primary beneficiary of these two SPEs would beand has consolidated as of the beginning of Fiscal 2011.them in Dell's condensed consolidated financial statements. The primary factors in this determination were the obligation to absorb losses due to the interest Dell retains in the assets transferred to the SPEs in the form of over-collateralization, and the power to direct activities through the servicing role performed by Dell. Dell recorded the assets and liabilities at their carrying amount as of the beginning of Fiscal 2011, with a cumulative effect adjustment of $13 million to the opening balance of retained earnings in Fiscal 2011.
 
Dell’sDell's securitization programs contain standard structural features related to the performance of the securitized receivables. These structural features include defined credit losses, delinquencies, average credit scores, and excess collections above or below specified levels. In the event one or more of these criteria are not met and Dell is unable to restructure the program, no further funding of receivables will be permitted and the timing of Dell’sDell's expected cash flows from over-collateralization will be delayed. At OctoberApril 29, 2010,2011, these criteria were met.


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DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Financing Receivables
The following table summarizes the components of Dell’sDell's financing receivables:receivables segregated by portfolio segment:
  April 29, 2011 January 28, 2011
  Revolving Fixed-term Total Revolving Fixed-term Total
  (in millions)
Financing Receivables, net:              
Customer receivables, gross $2,200  $2,031  $4,231  $2,396  $1,992  $4,388 
Allowances for losses (191) (26) (217) (214) (27) (241)
Customer receivables, net 2,009  2,005  4,014  2,182  1,965  4,147 
Residual interest   314  314    295  295 
Financing receivables, net $2,009  $2,319  $4,328  $2,182  $2,260  $4,442 
Short-term $2,009  $1,196  $3,205  $2,182  $1,461  $3,643 
Long-term   1,123  1,123    799  799 
Financing receivables, net $2,009  $2,319  $4,328  $2,182  $2,260  $4,442 

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DELL INC.
 
         
  October 29,
 January 29,
  2010 2010
  (in millions)
Financing receivables, net:
        
Customer receivables:        
Revolving loans, gross  $ 2,356   $ 2,046 
Fixed-term leases and loans, gross   1,929    824 
         
Customer receivables, gross   4,285    2,870 
Allowance for losses  (257  (237
         
Customer receivables, net   4,028    2,633 
Residual interest   269    254 
Retained interest  -    151 
         
Financing receivables, net  $ 4,297   $ 3,038 
         
         
Short-term  $ 3,588   $ 2,706 
Long-term   709    332 
         
Financing receivables, net  $ 4,297   $ 3,038 
         
Prior to the first quarter of Fiscal 2011, customer receivables were either included in the consolidated financial statements or held by nonconsolidated securitization SPEs. In prior periods, Dell had a retained interest in the customer receivables held in nonconsolidated securitization SPEs. The pro forma table below shows what customer receivables would have been if the nonconsolidated securitization SPEs were consolidated as of January 29, 2010:
         
    January 29,
  October 29,
 2010
  2010 (Pro forma)
  (in millions)
Customer receivables, gross:
        
Consolidated receivables  $ 4,285   $ 2,870 
Receivables in previously nonconsolidated SPEs  -    774 
         
Customer receivables, gross  $ 4,285   $ 3,644 
         
         
Customer receivables 60 days or more delinquent  $ 166   $ 138 


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DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 

Included in financing receivables, net, are receivables that are held by consolidated VIEsvariable interest entities ("VIEs") as shown in the table below:
        
 October 29,
 January 29,
 2010 2010 April 29,
2011
 January 28,
2011
 (in millions) (in millions)
Financing receivables held by consolidated VIEs, net:
              
Short-term, net  $ 1,096   $ 277  $936  $1,087 
Long-term, net   293   -  437  262 
    
Financing receivables held by consolidated VIEs, net  $ 1,389   $ 277  $1,373  $1,349 
    
 
The following table summarizes the changes in the allowance for financing receivable losses for the three and nine months ended October 29, 2010, and October 30, 2009:
                 
  Three Months Ended Nine Months Ended
  October 29,
 October 30,
 October 29,
 October 30,
  2010 2009 2010 2009
  (in millions)
Allowances for losses:
                
Balance at beginning of period  $ 277   $ 173   $ 237   $ 149 
Incremental allowance due to VIE consolidation  -   -    16   - 
Expense charged to income statement   52    47    202    143 
Principal charge-offs  (61  (31  (164  (91
Interest charge-offs  (11  (7  (34  (19
                 
Balance at end of period  $ 257   $ 182   $ 257   $ 182 
                 
respective periods:
 
  Three Months Ended
  April 29, 2011 April 30, 2010
  Revolving Fixed-term Total Revolving Fixed-term Total
  (in millions)
Allowance for financing receivable losses:            
Balance at the beginning of period $214  $27  $241  $224  $13  $237 
Incremental allowance due to VIE consolidation         16  16 
Principal charge-offs (58) (2) (60) (49) (6) (55)
Interest charge-offs (11)   (11) (6)   (6)
Recoveries 19  1  20  5    5 
Provision charged to income statement 27    27  82  6  88 
Balance at end of period $191  $26  $217  $256  $29  $285 

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DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

The following table summarizes the aging of Dell's customer receivables, gross, including accrued interest, as of April 29, 2011 and January 28, 2011 segregated by class:
  April 29, 2011 January 28, 2011
  Current Past Due 1 — 90 Days Past Due > 90 Days Total Current Past Due 1 — 90 Days Past Due > 90 Days Total
  (in millions)
Revolving — Consumer                  
Owned since inception $1,254  $118  $40  $1,412  $1,302  $153  $48  $1,503 
Purchased 389  58  23  470  447  88  35  570 
Revolving — SMB                
Owned since inception 253  20  5  278  246  26  5  277 
Purchased 32  6  2  40  34  9  3  46 
Fixed-term —
 Large Enterprise
                
Owned since inception 1,154  25  6  1,185  1,077  47  7  1,131 
Fixed-term — Public                
Owned since inception 423  17  2  442  463  12  1  476 
Fixed-term — SMB                
Owned since inception 395  7  2  404  371  11  3  385 
Total customer receivables, gross $3,900  $251  $80  $4,231  $3,940  $346  $102  $4,388 
The following tables summarize customer receivables, gross, including accrued interest by credit quality indicator segregated by class as of April 29, 2011 and January 28, 2011. For revolving loans to consumers, Dell makes credit decisions based on propriety scorecards which include the customer's credit history, payment history, credit usage, and other FICO-related elements. For Commercial customers, an internal grading system is utilized that assigns a credit level score based on a number of considerations including liquidity, operating performance and industry outlook. These credit level scores range from one to sixteen for Public and Large Enterprise customers, and from one to six for small and medium ("SMB") customers. The categories shown in the tables below segregate between the relative degrees of credit risk within that segment and product set. As loss experience varies substantially between financial products and customer segments, the credit quality categories cannot be compared between the different classes. The credit quality indicators for Consumer accounts are as of each quarter end date. Commercial accounts are generally updated on a periodic basis.
  April 29, 2011 January 28, 2011
  FICO 720+ FICO 660 to 719 FICO < 660 Total FICO 720+ FICO 660 to 719 FICO < 660 Total
  (in millions)
Revolving — Consumer                  
Owned since inception $229  $397  $786  $1,412  $251  $415  $837  $1,503 
Purchased $43  $108  $319  $470  $50  $127  $393  $570 
For the revolving consumer receivables in the above table, the FICO 720+ category includes prime accounts which are generally higher credit quality, FICO 660 to 719 includes near-prime accounts and represents the mid-tier accounts, and FICO scores below 660 are generally sub-prime and represent lower credit quality accounts.

10

DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

 April 29, 2011 January 28, 2011
 Investment Non-Investment Sub-Standard Total Investment Non-Investment Sub-Standard Total
 (in millions)
Fixed-term —
 Large Enterprise
                   
Owned since inception$874  $189  $122  $1,185  $806  $166  $159  $1,131 
Fixed-term — Public               
Owned since inception$402  $32  $8  $442  $438  $30  $8  $476 
For the Large Enterprise and Public commercial receivables shown above, Dell's internal credit level scoring has been aggregated to their most comparable external commercial rating agency equivalents. Investment grade accounts are generally of the highest credit quality, non-investment grade represents middle quality accounts, and sub-standard represents the lowest quality accounts.
  April 29, 2011 January 28, 2011
  Higher Mid Lower Total Higher Mid Lower Total
  (in millions)
Revolving — SMB                    
Owned since inception $105  $85  $88  $278  $108  $85  $84  $277 
Purchased $14  $21  $5  $40  $16  $24  $6  $46 
Fixed-term — SMB                
Owned since inception $40  $128  $236  $404  $62  $129  $194  $385 
For SMB receivables in the above table, the Higher category includes Dell's top two internal credit quality levels, which generally have the lowest loss experience, Mid includes credit levels three and four, and Lower includes Dell's bottom two credit levels, which experience higher loss rates. The revolving product is sold primarily to small business customers and the fixed-term products are more weighted toward medium-sized businesses. Although both fixed-term and revolving products rely on a six-level internal rating system, the grading criteria and classifications are different as the loss performance varies between these products and customer sets. Therefore, the credit levels are not comparable between the SMB fixed-term and revolving classes.
Customer Receivables
 
The following is the description of the components of Dell’sDell's customer receivables:
Revolving loans — Revolving loans offered under private label credit financing programs provide qualified customers with a revolving credit line for the purchase of products and services offered by Dell. Revolving loans bear interest at a variable annual percentage rate that is tied to the prime rate. Based on historical payment patterns, revolving loan transactions are typically repaid within 12 months on average. Revolving loans are included in short-term financing receivables. From time to time, account holders may have the opportunity to finance their Dell purchases with special programs during which, if the outstanding balance is paid in full by a specific date, no interest is charged. These special programs generally range from 6 to 12 months. At April 29, 2011, and January 28, 2011, receivables under these special programs were $340 million and $398 million, respectively.
—  Revolving loans offered under private label credit financing programs provide qualified customers with a revolving credit line for the purchase of products and services offered by Dell. Revolving loans bear interest at a variable annual percentage rate that is tied to the prime rate. Based on historical payment patterns, revolving loan transactions are typically repaid within 12 months on average. Revolving loans are included in short-term financing receivables. From time to time, account holders may have the opportunity to finance their Dell purchases with special programs during which, if the outstanding balance is paid in full by a specific date, no interest is charged. These special programs generally range from 6 to 12 months. At October 29, 2010, and January 29, 2010, receivables under these special programs were $328 million and $442 million, respectively.
—  Dell enters into sales-type lease arrangements with customers who desire lease financing. Leases with business customers have fixed terms of generally two to four years. Future maturities of minimum lease payments at October 29, 2010 for Dell are as follows: Fiscal 2011 — $272 million; Fiscal 2012 — $808 million; Fiscal 2013 — $510 million; Fiscal 2014 and beyond — $167 million. Fixed-term loans are offered to qualified small businesses, large commercial accounts, governmental organizations, and educational entities.


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DELL INC.
 
Sales-type leases — Dell enters into sales-type lease arrangements with customers who desire lease financing. Leases with business customers have fixed terms of generally two to four years. Future maturities of minimum lease payments at April 29, 2011 were as follows: Fiscal 2012 - $724 million; Fiscal 2013 - $696 million; Fiscal 2014 - $332 million; Fiscal 2015 and beyond - $61 million. Fixed-term loans are offered to qualified small businesses, large commercial accounts, governmental organizations, and educational entities.

11

DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 

Purchased Credit-Impaired Loans
 
Purchased Credit-Impaired (“PCI”) loans are acquired loans for which it is probable that Dell will not collect all contractually required principal and interest payments. During the third quarter of Fiscal 2011, Dell purchased a portfolio of revolving loan receivables from CIT Group Inc. (“CIT”) that consisted of revolving Dell customer account balances which meetthat met the definition of PCI loans as Dell does not expect to collect all contractually required principal and interest payments. These receivables were purchased for $430 million and had a principal and accrued interest balance of $570 million at the date of purchase. Dell expects to collect total cash flows of approximately $596 million over the term of the receivables, including future interest billings. At OctoberApril 29, 2010,2011, the outstanding balance of these receivables, including principal and accrued interest, was $558$489 million and the carrying amount was $410 million. Additionally, as part of the purchase of this portfolio, Dell acquired the rights to future recoveries on previously CIT-owned Dell revolving accounts that previously had been charged off as uncollectible by CIT. Dell does not expect future recoveries under these rights to be significant.$294 million.
 
The excess of cash flows expected to be collected over the carrying value of PCI loans is referred to as the accretable yield and is accreted into interest income using the effective yield method based on the expected future cash flows over the estimated lives of the PCI loans. Due to improved expectations of the amount of expected cash flows and higher recoveries, Dell increased the accretable yield associated with these PCI loans by $35 million during the first quarter of Fiscal 2012, which will be amortized over the remaining life of the loans.
The following table shows activity for the accretable yield on the PCI loans for the three months ended OctoberApril 29, 2010:2011:
 Three Months Ended
 April 29,
2011
 (in millions)
Accretable Yield: 
Balance at beginning of period$137 
Additions/ Purchases 
Accretion(21)
Prospective yield adjustment35 
Balance at end of period$151 
 
October 29,
2010
(in millions)
Accretable Yield:
Balance at beginning of period-
Additions/Purchase 166
Accretion(9
Balance at end of period $ 157
In addition, contractually required payments on the PCI loans were estimated to be approximately $928 million. The contractually required payments assume all principal and interest payments are received on all revolving accounts as if no accounts are charged off. Contractual payments include future interest that would have continued to accrue on the customer account post charge-off. Due to the nature of these accounts, both contractual and expected collections were estimated using consistent expectations of customer payment behavior that were based on Dell’s past experience with this and similar portfolios.
Residual Interest
 
Dell retains a residual interest in equipment leased under its fixed-term lease programs. The amount of the residual interest is established at the inception of the lease based upon estimates of the value of the equipment at the end of the lease term using historical studies, industry data, and futurevalue-at-risk demand valuation methods. On a quarterly basis, Dell assesses the carrying amount of its recorded residual values for impairment. Anticipated declines in specific future residual values that are considered to beother-than-temporary are recorded currently in earnings.
 
Asset Securitizations
—  The gross balance of securitized receivables reported off-balance sheet as of January 29, 2010, was $774 million, and the associated debt was $624 million. As discussed above, as of the beginning of Fiscal 2011, all previously nonconsolidated SPEs were consolidated. Upon consolidation of these customer receivables and associated debt at the beginning of Fiscal 2011, Dell’s retained interest in securitized


13


DELL INC.
 
During the first quarters of Fiscal 2012 and Fiscal 2011, $499 million and $496 million of customer receivables, respectively, were funded via securitization through SPEs. The programs are effective for 12 month periods and subject to an annual renewal process. 
The structured financing debt related to the fixed-term lease and loan, and revolving loan securitization programs was $1.2 billion and $1.0 billion as of April 29, 2011, and January 28, 2011, respectively. The debt is collateralized solely by the financing receivables in the programs. The debt has a variable interest rate and an average duration of 12 to 36 months based on the terms of the underlying financing receivables. The total debt capacity related to the securitization programs is $1.4 billion. See Note 6 of the Notes to the Condensed Consolidated Financial Statements for additional information regarding the structured financing debt.
During Fiscal 2011, Dell entered into interest rate swap agreements to effectively convert a portion of the structured financing debt from a floating rate to a fixed rate.  The interest rate swaps qualified for hedge accounting treatment as cash flow hedges.  See Note 7 of Notes to Condensed Consolidated Financial Statements for additional information about interest rate swaps.

12

DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
receivables of $151 million at January 29, 2010, was eliminated. A $13 million decrease to beginning retained earnings for Fiscal 2011 was recorded as a cumulative effect adjustment due to adoption of the new accounting guidance.
—  During the third quarters of Fiscal 2011 and Fiscal 2010, $510 million and $146 million of customer receivables, respectively, were funded via securitization through SPEs. During the nine months ended October 29, 2010, and October 30, 2009, $1.5 billion and $641 million, respectively, of customer receivables were funded via securitization through SPEs. The programs are effective for 12 month periods and subject to an annual renewal process. As part of the annual renewal program, Dell renewed one of the fixed-term securitization programs in the third quarter of Fiscal 2011, and the second fixed-term program is subject to renewal in the fourth quarter of Fiscal 2011. Additionally, in the beginning of the fourth quarter of Fiscal 2011, Dell expanded its existing revolving loan securitization program with a new program that increased debt capacity levels.
—  The structured financing debt related to the fixed-term lease and loan, and revolving loan securitization programs was $1.0 billion and $788 million as of October 29, 2010, and January 29, 2010, respectively. This debt includes $624 million at January 29, 2010, held by nonconsolidated SPEs. The debt is collateralized solely by the financing receivables in the programs. The debt has a variable interest rate and an average duration of 12 to 36 months based on the terms of the underlying financing receivables. The maximum debt capacity related to the securitization programs was increased to $1.2 billion during the third quarter of Fiscal 2011. See Note 6 of the Notes to the Condensed Consolidated Financial Statements for additional information regarding the structured financing debt.
—  During the first nine months of Fiscal 2011, Dell entered into interest rate swap agreements to effectively convert a portion of the structured financing debt from a floating rate to a fixed rate. The interest rate swaps qualified for hedge accounting treatment as cash flow hedges. See Note 7 of Notes to Condensed Consolidated Financial Statements for additional information about interest rate swaps.
Retained Interest
Prior to adopting the new accounting guidance on VIEs and transfers of financial assets and extinguishment of financial liabilities, certain transfers of financial assets to nonconsolidated qualified SPEs were accounted for as a sale. Upon the sale of the customer receivables to the SPEs, Dell recognized a gain on the sale and retained a residual beneficial interest in the pool of assets sold, referred to as retained interest. The retained interest represented Dell’s right to receive collections for securitized assets that exceed the amount required to pay interest, principal, and other fees and expenses.
Retained interest was stated at the present value of the estimated net beneficial cash flows after payment of all senior interests. Dell valued the retained interest at the time of each receivable transfer and at the end of each reporting period. The fair value of the retained interest was determined using a discounted cash flow model with various key assumptions, including payment rates, credit losses, discount rates, and the remaining life of the receivables sold. These assumptions were supported by both Dell’s historical experience and anticipated trends relative to the particular receivable pool. The key valuation assumptions for retained interest could have been affected by many factors, including repayment terms and the credit quality of receivables securitized.


14


DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 

NOTE 6 — BORROWINGS
The following table summarizes Dell's outstanding debt at the activity in retained interest for the three and nine months ended October 30, 2009:dates indicated:
  April 29,
2011
 January 28,
2011
  (in millions)
Long-Term Debt      
Notes      
$400 million issued on June 10, 2009, at 3.375% due June 2012 (“2012 Notes”) with interest payable June 15 and December 15 (includes impact of interest rate swap terminations) $400  $400 
$600 million issued on April 17, 2008, at 4.70% due April 2013 (“2013A Notes”) with interest payable April 15 and October 15 (includes impact of interest rate swap terminations) 608  609 
$500 million issued on September 7, 2010, at 1.40% due September 2013 (“2013B Notes”) with interest payable March 10 and September 10 499  499 
$500 million issued on April 1, 2009, at 5.625% due April 2014 (“2014A Notes”) with interest payable April 15 and October 15 500  500 
$300 million issued on March 28, 2011, with a floating rate due April 2014 (“2014B Notes”) with interest payable January 1, April 1, July 1 and October 1 300   
$400 million issued on March 28, 2011, at 2.10% due April 2014 (“2014C Notes”) with interest payable April 1 and October 1 400   
$700 million issued on September 7, 2010, at 2.30% due September 2015 (“2015 Notes”) with interest payable March 10 and September 10 700  700 
$400 million issued on March 28, 2011, at 3.10% due April 2016 (“2016 Notes”) with interest payable April 1 and October 1 400   
$500 million issued on April 17, 2008, at 5.65% due April 2018 (“2018 Notes”) with interest payable April 15 and October 15 499  499 
$600 million issued on June 10, 2009, at 5.875% due June 2019 (“2019 Notes”) with interest payable June 15 and December 15 600  600 
$400 million issued on March 28, 2011, at 4.625% due April 2021 (“2021 Notes”) with interest payable April 1 and October 1 398   
$400 million issued on April 17, 2008, at 6.50% due April 2038 (“2038 Notes”) with interest payable April 15 and October 15 400  400 
$300 million issued on September 7, 2010, at 5.40% due September 2040 (“2040 Notes”) with interest payable March 10 and September 10 300  300 
Senior Debentures      
$300 million issued on April 3, 1998 at 7.10% due April 2028 with interest payable April 15 and October 15 (includes the impact of interest rate swap terminations) ("Senior Debentures") 388  389 
Other      
Structured financing debt 402  250 
Total long-term debt 6,794  5,146 
Short-Term Debt      
Structured financing debt 815  850 
Other 1  1 
Total short-term debt 816  851 
Total debt $7,610  $5,997 
 
         
  Three Months
 Nine Months
  Ended Ended
  October 30,
 October 30,
  2009 2009
  (in millions)
Retained interest:
        
Retained interest at beginning of period  $ 119   $ 396 
Issuances   33    285 
Distributions from conduits  (27  (62
Net accretion   4    28 
Change in fair value for the period   5   (11
Impact of special purpose entity consolidation  -   (502
         
Retained interest at end of period  $ 134   $ 134 
         
The table below summarizes the key assumptions used to measure the fair value of the retained interest at time of transfer during the three months ended October 30, 2009:
                 
  Weighted Average Key Assumptions
  Monthly
      
  Payment
 Credit
 Discount
  
  Rates Losses Rates Life
    (lifetime) (annualized) (months)
Time of transfer valuation of retained interest   5%    1%    12%    19 
The charge-off statistics for securitized leases and loans held by nonconsolidated special purpose entities are:
—  Net principal charge-offs on securitized receivables were $2 million for the three months ended October 30, 2009, which when annualized represents 0.8% of the average outstanding securitized financing receivable balance for the period.
—  Net principal charge-offs on securitized receivables were $68 million for the nine months ended October 30, 2009, which when annualized represents 7.7% of the average outstanding securitized financing receivable balance for the period.


15


DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
NOTE 6 — BORROWINGS
The following table summarizes Dell’s outstanding debt:
         
  October 29,
 January 29,
  2010 2010
  (in millions)
Long-Term Debt
        
Notes:
        
$400 million issued on June 10, 2009, at 3.375% due June 2012
(“2012 Notes”) with interest payable June 15 and December 15 (includes hedge accounting adjustments)
  $ 403   $ 401 
         
$600 million issued on April 17, 2008, at 4.70% due April 2013 (“2013A Notes”) with interest payable April 15 and October 15 (includes hedge accounting adjustments)   615    599 
         
$500 million issued on September 7, 2010, at 1.40% due September 2013 (“2013B Notes”) with interest payable
March 10 and September 10
   499   - 
         
$500 million issued on April 1, 2009, at 5.625% due April 2014
(“2014 Notes”) with interest payable April 15 and October 15
   500    500 
         
$700 million issued on September 7, 2010, at 2.30% due September 2015 (“2015 Notes”) with interest payable
March 10 and September 10
   700   - 
         
$500 million issued on April 17, 2008, at 5.65% due April 2018
(“2018 Notes”) with interest payable April 15 and October 15
   499    499 
         
$600 million issued on June 10, 2009, at 5.875% due June 2019
(“2019 Notes”) with interest payable June 15 and December 15
   600    600 
         
$400 million issued on April 17, 2008, at 6.50% due April 2038
(“2038 Notes”) with interest payable April 15 and October 15
   400    400 
         
$300 million issued on September 7, 2010, at 5.40% due September 2040 (“2040 Notes”) with interest payable
March 10 and September 10
   300   - 
Senior Debentures
        
$300 million issued on April 3, 1998, at 7.10% due April 2028 with interest payable April 15 and October 15 (includes the impact of interest rate swap terminations)   391    394 
Other
        
India term loan: entered into on October 15, 2009, at 8.9% due October 2011 with interest payable monthly  -    24 
Structured financing debt   261   - 
         
Total long-term debt   5,168    3,417 
         
Short-Term Debt
        
Commercial paper  -    496 
Structured financing debt   826    164 
Other  -    3 
         
Total short-term debt   826    663 
         
Total debt  $ 5,994   $ 4,080 
         


16


DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
During the thirdfirst quarter of Fiscal 2011,2012, Dell issued the 2013B2014B Notes, the 20152014C Notes, the 2016 Notes and the 20402021 Notes (collectively, the “Issued Notes”) under an automatic shelf registration statement that was filed in November 2008.2008 and subsequently amended in March 2011. The net proceeds from the Issued Notes, after payment of expenses, were approximately $1.5 billion.$1.5 billion. The Issued Notes are unsecured obligations and rank equally in right of payment with Dell’sDell's existing and future unsecured senior indebtedness. The Issued Notes effectively rank junior to all indebtedness and other liabilities, including trade payables, of Dell’sDell's subsidiaries. The Issued Notes were issued pursuant to a Supplemental Indenture dated September 10, 2010, March 31, 2011,

13

DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

between Dell and a trustee, with terms and conditions substantially the same as those governing the Notes outstanding as of January 29, 2010.28, 2011 (such outstanding Notes, together with the Issued Notes, the "Notes").
 
The estimated fair value of total debt at OctoberApril 29, 2010,2011, was approximately $6.2 billion.$7.8 billion. The fair values of the structured financing debt, commercial paper, and other short-term debt approximate their carrying values as thetheir interest rates are variable and at market rates.vary with the market. The carrying value of the Senior Debenturessenior debentures, the 2012 Notes, and the 2013A Notes includes an unamortized amount related to the termination of interest rate swap agreements, in the fourth quarter of Fiscal 2009, which were previously designated as hedges of the debt.
During the first quarter of Fiscal 2011 and the fourth quarter of Fiscal 2010, Dell entered into interest rate swap agreements to effectively convert the fixed rates of the 2012 Notes and the 2013A Notes to floating rates. The floating rates are based on six-month or three-month LIBOR plus a fixed rate. See Note 7 of Notes to Condensed Consolidated Financial Statements for additional information about interest rate swaps.
Structured Financing Debt As of April 29, 2011, Dell had $1.2 billion outstanding in structured financing related debt primarily through the fixed term lease and loan, and revolving loan securitization programs. The weighted average interest rate for short-term structured financing debt for the first quarter of Fiscal 2012 was 0.4%. See Note 5 and Note 7 of the Notes to Condensed Consolidated Financial Statements for further discussion on structured financing debt and interest rate swap agreements that hedge a portion of that debt.
 
Commercial Paper Dell has $3.0 billion in senior unsecured revolving credit facilities, primarily to support a $2.0 billion commercial paper program. As of April 29, 2011 and January 28, 2011, there was no outstanding commercial paper.
On April 15, 2011, Dell replaced the five-year $1.0 billion credit facility expiring on June 1, 2011, with a four-year $2.0 billion credit facility that will expire on April 15, 2015. Dell's remaining credit facility for $1.0 billion will expire on April 2, 2013.  There were no outstanding advances under the revolving credit facilities as of April 29, 2011.
The indentures governing the Notes, the Senior Debentures,senior debentures, and the structured financing debt contain customary events of default, including failure to make required payments, failure to comply with certain agreements or covenants, and certain events of bankruptcy and insolvency. The indentures also contain covenants limiting Dell’sDell's ability to create certain liens; enter intosale-and-lease back transactions; and consolidate or merge with, or convey, transfer or lease all or substantially all of its assets to, another person. As of October 29, 2010, there were no events of default with respect to the Notes, the Senior Debentures, or the structured financing debt.
Structured Financing Debt— As of October 29, 2010, Dell had $1.1 billion outstanding in structured financing related debt primarily through the fixed term lease and loan andThe senior unsecured revolving loan securitization programs. See Note 5 and Note 7 of the Notes to Condensed Consolidated Financial Statements for further discussion on securitization-related structured financing debt and its related interest rate swap agreements.
Commercial Paper — At October 29, 2010, Dell had no outstanding commercial paper. On January 29, 2010, there was $496 million outstanding under the commercial paper program with a weighted-average interest rate of 0.24%.
Dell’s commercial paper program is $2 billion with corresponding revolving credit facilities of $2 billion. Dell’s credit facilities consist of two agreements with $1��billion expiring on June 1, 2011 and the remaining $1 billion expiring on April 2, 2013. The credit facilities require compliance with conditions that must be satisfied prior to any borrowing, as well as ongoing compliance with specified affirmative and negative covenants, including maintenance of a minimum interest coverage ratio.  As of October 29, 2010, there were no events of default and Dell was in compliance with its minimum interest coverage ratio covenant. Amounts outstanding under the credit facilities may be accelerated for events of default, including failure to pay principal or interest, breaches ofall financial covenants or non-payment of judgments or debt obligations. There were no outstanding advances under the credit facilities as of OctoberApril 29, 2010.2011.


17


DELL INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
NOTE 7 — DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Derivative Instruments
 
As part of its risk management strategy, Dell uses derivative instruments, primarily forward contracts and purchased options, to hedge certain foreign currency exposures and interest rate swaps to manage the exposure of its debt portfolio to interest rate risk, as Dell issues long-term debt based on market conditions at the time of financing. Dell’srisk. Dell's objective is to offset gains and losses resulting from these exposures with gains and losses on the derivative contracts used to hedge the exposures, thereby reducing volatility of earnings and protecting fair values of assets and liabilities. Dell applies hedge accounting based upon the criteria established by accounting guidance for derivative instruments and hedging activities, including designation of its derivatives as fair value hedges or cash flow hedges and assessment of hedge effectiveness. Dell records all derivatives in its Condensed Consolidated Statements of Financial Position at fair value. Dell assesses hedge effectiveness both at the onset of the hedge and at regular intervals throughout the life of the derivative and recognizes any ineffective portion of the hedge, as well as amounts not included in the assessment of effectiveness, in earnings as a component of interest and other, net.
Cash Flow HedgesForeign Exchange Risk
 
Dell uses a combination of forward contracts and purchased options designated as cash flow hedges to protect against the foreign currency exchange rate risks inherent in its forecasted transactions denominated in currencies other than the U.S. dollar. The risk of loss associated with purchased options is limited to premium amounts paid for the option contracts. The risk of loss associated with forward contracts is equal to the exchange rate differential from the time the contract is entered into until the time it is settled. The majority of these contracts typically expire in 12 months or less. As of October 29, 2010, and January 29, 2010, the total notional amount of foreign currency option and forward contracts designated as
Dell assessed hedge ineffectiveness for cash flow hedges for the three months ended April 29, 2011 and determined that it was $5.3 billionnot material. During the three months ended April 29, 2011, Dell did not discontinue any cash flow hedges that had a material impact on Dell's results of operations, as substantially all forecasted foreign currency transactions were realized in Dell's actual results.
In addition, Dell uses forward contracts to hedge monetary assets and $4.2 billion, respectively.liabilities, primarily receivables and payables, denominated in a foreign currency. These contracts generally expire in three months or less, are considered economic hedges and are not designated. The change in the fair value of these instruments represents a natural hedge as their gains and losses

14

DELL INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

offset the changes in the underlying fair value of the monetary assets and liabilities due to movements in currency exchange rates. Dell recognized gains of $42 million and $17 million during the three months ended April 29, 2011 and April 30, 2010, respectively, for the change in fair value of these foreign currency forward contracts.
Interest Rate Risk
Dell uses interest rate swaps to hedge the variability in cash flows related to the interest rate payments on structured financing debt. The interest rate swaps economically convert the variable rate on the structured financing debt to a fixed interest rate to match the underlying fixed rate being received on fixed term customer leases and loans. The duration of these contracts typically ranges from 30 to 42 months. Certain of these swaps are designated as cash flow hedges. As of October 29, 2010, the total notional amount ofHedge ineffectiveness for interest rate contractsswaps designated as cash flow hedges was $612 million.not material for the three months ended April 29, 2011.
The amount of change in fair value recognized in interest and other, net, for interest rate hedges was not material for the three months ended April 29, 2011 and April 30, 2010.
Periodically, Dell also uses interest rate swaps designated as fair value hedges to modify the market risk exposures in connection with long-term debt to achieve primarily LIBOR-based floating interest expense. Dell did not have any interest rate contracts designated as cash flowfair value hedges at April 29, 2011. During Fiscal 2011, Dell had interest rate swap agreements associated with its 2012 Notes and 2013A Notes, which were terminated in the fourth quarter of Fiscal 2011. Hedge ineffectiveness for interest rate swaps designated as of January 29, 2010.fair value hedges was not material for the three months ended April 30, 2010.
 
For derivative instruments that are designated and qualify as cash flow hedges, Dell records the effective portionNotional Amounts of the gain or loss on the derivative instrument in accumulated other comprehensive income (loss) as a separate component of stockholders’ equity and reclassifies these amounts into earnings in the period during which the hedged transaction is recognized in earnings. Dell reports the effective portion of cash flow hedges in the same financial statement line item within earnings as the changes in value of the hedged item.
Dell measures hedge ineffectiveness of cash flow hedges by comparing the cumulative change in the fair value of the hedge contract with the cumulative change in the fair value of the hedged item, both of which are based on forward rates. During the nine months ended October 29, 2010, Dell did not discontinue any cash flow hedges that had a material impact on Dell’s results of operations. Substantially all forecasted foreign currency transactions were realized in Dell’s actual results.Outstanding Derivative Instruments
 
The notional amounts of Dell's outstanding derivative instruments are summarized as follows:
  April 29,
2011
 January 28,
2011
  (in millions)
Foreign Exchange Contracts      
Designated as hedging instruments $5,266  $5,364 
Non-designated as hedging instruments 318  250 
Total $5,584  $5,614 
     
Interest Rate Contracts    
Designated as hedging instruments $643  $625 
Non-designated as hedging instruments 130  145 
Total $773  $770 
Derivative Instruments Additional Information
The aggregate unrealized net gain or loss for interest rate swaps and foreign currency exchange contracts, recorded as a component of comprehensive income, for the three and nine months ended OctoberApril 29, 2010, was $105 million2011 and $219 million, respectively.


18


DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Effect of Derivative Instruments Designated as Cash Flow Hedges on the Condensed Consolidated Statements of Financial Position and the Condensed Consolidated Statements of Income
                 
  Gain (Loss)
        
  Recognized
        
  in Accumulated
 Location of Gain (Loss)
 Gain (Loss)
   Gain (Loss)
Derivatives in
 OCI, Net
 Reclassified
 Reclassified
 Location of Gain (Loss)
 Recognized in
Cash Flow
 of Tax, on
 from Accumulated
 from Accumulated
 Recognized in Income
 Income on
Hedging
 Derivatives
 OCI into Income
 OCI into Income
 on Derivative
 Derivative
Relationships (Effective Portion) (Effective Portion) (Effective Portion) (Ineffective Portion) (Ineffective Portion)
(in millions)
 
For the three months ended October 29, 2010          
Foreign exchange contracts  $ (234) Total net revenue  $ (120)      
      Total cost of net revenue  (9      
Interest rate contracts  -  Interest and other, net  -  Interest and other, net  $ - 
                 
Total  $ (234)    $ (129)    $ - 
                 
           
For the three months ended October 30, 2009          
Foreign exchange contracts  $ (144) Total net revenue  $ (166)      
      Total cost of net revenue  (6 Interest and other, net  $ (1)
                 
Total  $ (144)    $ (172)    $ (1
                 
           
For the nine months ended October 29, 2010          
Foreign exchange contracts  $ (253) Total net revenue  $ 2       
      Total cost of net revenue  (37      
Interest rate contracts  (1 Interest and other, net  -  Interest and other, net  $ - 
                 
Total  $ (254)    $ (35)    $ - 
                 
           
For the nine months ended October 30, 2009          
Foreign exchange contracts  $ (557) Total net revenue  $ (92)      
      Total cost of net revenue  (16 Interest and other, net  $ (1)
                 
Total  $ (557)   $ (108)    $ (1)
                 
Fair Value Hedges
Dell uses interest rate swaps to modify the market risk exposures in connection with long-term debt to achieve primarily LIBOR-based floating interest expense. As of October 29, 2010, the interest rate swaps economically hedge all interest rate exposure on the 2012 Notes and the 2013A Notes. As of October 29, 2010, and January 29, 2010, the total notional amount of interest rate swaps designated as fair value hedges of Dell’s long-term debt was $600 million and $200 million, respectively.
Dell measures hedge ineffectiveness of fair value hedges by calculating the periodic change in the fair value of the hedge contract and the periodic change in the fair value of the hedged debt. To the extent that these fair value changes do not fully offset each other, the difference is recorded as ineffectiveness in earnings as a component of interest and other, net. During the three and nine months ended October 29, 2010, the net fair value change of the interest rate contracts, offset by the change in the fair value of the hedged debt, resulted in a gain of $4 million and $9 million, respectively. Dell did not have any fair value hedges during the nine months ended OctoberApril 30, 2009.


19


2010DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Derivatives Not Designated as Hedging Instruments
Dell uses forward contracts to hedge monetary assets and liabilities, primarily receivables and payables, denominated in a foreign currency. The change in the fair value of these instruments represents a natural hedge as their gains and losses offset the changes in the underlying fair value of the monetary assets and liabilities due to movements in currency exchange rates. These contracts generally expire in three months or less. These contracts are considered economic hedges and are not designated. Dell recognized, was a loss of $6$68 million and $64 million, for the change in fair value of these foreign currency forward contracts, during the third quarters of Fiscal 2011 and 2010, respectively, and a $52$13 million gain, and a $90 million loss during the nine months ended October 29, 2010, and October 30, 2009, respectively. As of October 29, 2010, and January 29, 2010, the total notional amount of other foreign currency forward contracts not designated as hedges was $159 million and $20 million, respectively.
Certain interest rate swap agreements associated with structured financing debt are not designated. The amount of change in fair value recognized in interest and other, net, for these interest rate hedges was not material for the three and nine months ended October 29, 2010. As of October 29, 2010, the total notional amount of other interest rate swap contracts associated with structured financing debt not designated as hedges was $172 million. Dell did not have any interest rate swap contracts associated with structured financing debt as of January 29, 2010.
As of October 29, 2010, Dell had $400 million notional amount of interest rate swaps related to the 2012 Notes that were not designated as fair value hedges. The change in the fair value of these interest rate swaps recognized in interest and other, net, was not material for the three and nine months ended October 29, 2010. Dell did not have any undesignated interest rate swaps associated with its long-term debt portfolio as of January 29, 2010.
Derivative Instruments Additional Information
Cash flows from derivative instruments are presented in the same category in the Condensed Consolidated Statements of Cash Flows as the cash flows from the intended hedged items or the economic hedges.
While Dell has foreign exchange derivative contracts in more than 20 currencies, the majority of the notional amounts are denominated in the Euro, British Pound, Japanese Yen, Canadian Dollar, and Australian Dollar.


20


DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Dell presents its foreign exchange derivative instruments on a net basis in the Condensed Consolidated Statements of Financial Position due to the right of offset by its counterparties under master netting arrangements. The fair values of foreign exchange and interest rate derivative instruments presented on a gross basis as of October 29, 2010 and January 29, 2010 are as follows:
                     
  October 29, 2010
  Other
 Other Non-
 Other
 Other Non-
  
  Current
 Current
 Current
 Current
 Total
  Assets Assets Liabilities Liabilities Fair Value
  (in millions)
Derivatives Designated as Hedging Instruments
                    
Foreign exchange contracts in an asset position  $ 30   $ 3   $ 61   $ -   $ 94 
Foreign exchange contracts in a liability position  (67  -   (330  -   (397
Interest rate contracts in an asset position  -    19   -   -    19 
Interest rate contracts in a liability position  -   -   -   (5  (5
                     
Net asset (liability)  (37   22   (269  (5  (289
                     
                     
Derivatives not Designated as Hedging Instruments
                    
Foreign exchange contracts in an asset position   85   -    78   -    163 
Foreign exchange contracts in a liability position  (15  -   (49  -   (64
Interest rate contracts in an asset position  -    9   -   -    9 
Interest rate contracts in a liability position  -   -   -   (1  (1
                     
Net asset (liability)   70    9    29   (1   107 
                     
Total derivatives at fair value  $ 33   $ 31   $ (240  $ (6  $ (182
                     
                     
                     
  January 29, 2010
  Other
 Other Non-
 Other
 Other Non-
  
  Current
 Current
 Current
 Current
 Total
  Assets Assets Liabilities Liabilities Fair Value
  (in millions)
Derivatives Designated as Hedging Instruments
                    
Foreign exchange contracts in an asset position  $ 181   $ 5   $ -   $ -   $ 186 
Foreign exchange contracts in a liability position  (80  -   (9  -   (89
Interest rate contracts in an asset position  -    1   -   -    1 
                     
Net asset (liability)   101    6   (9  -    98 
                     
                     
Derivatives not Designated as Hedging Instruments
                    
Foreign exchange contracts in an asset position   63   -    2   -    65 
Foreign exchange contracts in a liability position  (74  -   (5  -   (79
                     
Net asset (liability)  (11  -   (3  -   (14
                     
Total derivatives at fair value  $ 90   $ 6   $ (12  $ -   $ 84 
                     
Dell has reviewed the existence and nature of credit-risk-related contingent features in derivative trading agreements with its counterparties. Certain agreements contain clauses wherebyunder which if Dell’sDell's credit ratings were to fall below investment grade upon a change of control of Dell, counterparties would have the right to terminate those derivative contracts under which Dell is in a net liability position. As of OctoberApril 29, 2010,2011, there havehad been no such triggering events.


21


15

DELL INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 

Effect of Derivative Instruments on the Condensed Consolidated Statements of Financial Position and the Condensed Consolidated Statements of Income
Derivatives in
Cash Flow
Hedging Relationships
 
Gain (Loss)
Recognized
in Accumulated
OCI, Net
of Tax, on
Derivatives
(Effective Portion)
 
Location of Gain (Loss)
Reclassified
from Accumulated
OCI into Income
(Effective Portion)
 
Gain (Loss)
Reclassified
from Accumulated
OCI into Income
(Effective Portion)
 Location of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion) Gain (Loss) Recognized in Income on Derivative (Ineffective Portion)
(in millions)
For the three months ended April 29, 2011        
     Total net revenue $(156)    
Foreign exchange contracts $(242) Total cost of net revenue (18)    
Interest rate contracts   Interest and other, net   Interest and other, net $ 
Total $(242)   $(174)   $ 
           
           
For the three months ended April 30, 2010        
     Total net revenue $46     
Foreign exchange contracts $40  Total cost of net revenue (18) Interest and other, net $1 
Total $40    $28    $1 

16

DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

Fair Value of Derivative Instruments in the Condensed Consolidated Statements of Financial Position
Dell presents its foreign exchange derivative instruments on a net basis in the Condensed Consolidated Statements of Financial Position due to the right of offset by its counterparties under master netting arrangements. The fair value of those derivative instruments presented on a gross basis as of each date indicated below is as follows:
  April 29, 2011
  
Other Current
Assets
 
Other Non-
Current Assets
 
Other Current
Liabilities
 
Other Non-Current
Liabilities
 
Total
Fair Value
    (in millions)  
Derivatives Designated as Hedging Instruments
Foreign exchange contracts in an asset position $26  $1  $49  $  $76 
Foreign exchange contracts in a liability position (59)   (224)   (283)
Interest rate contracts in a liability position       (2) (2)
Net asset (liability) (33) 1  (175) (2) (209)
Derivatives not Designated as Hedging Instruments
Foreign exchange contracts in an asset position 101    59    160 
Foreign exchange contracts in a liability position (9)   (40)   (49)
Interest rate contracts in a liability position       (1) (1)
Net asset (liability) 92    19  (1) 110 
Total derivatives at fair value $59  $1  $(156) $(3) $(99)
           
  January 28, 2011
  
Other Current
Assets
 
Other Non-
Current Assets
 
Other Current
Liabilities
 
Other Non-Current
Liabilities
 
Total
Fair Value
    (in millions)  
Derivatives Designated as Hedging Instruments
Foreign exchange contracts in an asset position $81  $1  $34  $  $116 
Foreign exchange contracts in a liability position (86)   (59)   (145)
Interest rate contracts in a liability position       (2) (2)
Net asset (liability) (5) 1  (25) (2) (31)
Derivatives not Designated as Hedging Instruments
Foreign exchange contracts in an asset position 52    15    67 
Foreign exchange contracts in a liability position (21)   (15)   (36)
Interest rate contracts in a liability position       (1) (1)
Net asset (liability) 31      (1) 30 
Total derivatives at fair value $26  $1  $(25) $(3) $(1)

17

DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

NOTE 8 — ACQUISITIONS
During the three months ended April 29, 2011, Dell completed threetwo acquisitions, during the first nine months of Fiscal 2011, Kace Networks,Compellent Technologies, Inc. (“KACE”), Ocarina Networks Inc. (“Ocarina”("Compellent"), and Scalent SystemsSecureWorks Inc. (“Scalent”("SecureWorks"), for aand paid total purchase consideration of approximately $275 million$1.5 billion in cash. KACE is a systems management appliance company with solutions tailored tocash for all the requirementsoutstanding shares of mid-sized businesses. KACE is being integrated primarily into Dell’s Small and Medium Business and Public segments. Ocarinathese companies. Compellent is a provider of de-duplicationvirtual storage solutions for enterprise and content-aware compression across storage product lines. Scalentcloud computing environments, and SecureWorks is a global provider of scalableinformation security services. Both Compellent and efficient data center infrastructure software. Ocarina and ScalentSecureWorks will be integrated into Dell’sDell's Commercial segments.
Dell has recorded these acquisitions using the acquisition method of accounting and recorded their respective assets and liabilities at fair value at the respective datesdate of acquisition. The excessesexcess of the purchase prices over the estimated fair values werewas recorded as goodwill. Any changes in the estimated fair values of the net assets recorded for these acquisitions prior to the finalization of more detailed analyses, but not to exceed one year from the date of acquisition, will change the amount of the purchase prices allocable to goodwill.  Any subsequent changes to the purchase price allocations that are material to Dell’sDell's consolidated financial results will be adjusted retroactively.  Dell recorded approximately $178 million$1 billion in goodwill and $113related to these acquisitions, which primarily represents synergies associated with combining these companies with Dell to provide Dell's customers with a broader range of IT solutions. This goodwill is not deductible for tax purposes. Dell also recorded $537 million in intangible assets related to these acquisitions. The goodwill related to these acquisitions, is not deductible for tax purposes.which consist primarily of purchased technology and customer relationships. In conjunction with these acquisitions, Dell will incur $45$99 million in compensation-related expenses that will be expensed over a period of oneup to threefour years. There was no contingent consideration related to these acquisitions.
Dell has not presented pro forma results of operations for KACE, Ocarina, or Scalentthe foregoing acquisitions because these acquisitionsthey are not material to Dell’sDell's consolidated results of operations, financial position, or cash flows.flows on either an individual or an aggregate basis.
 
NOTE 9 — GOODWILL AND INTANGIBLE ASSETS
Goodwill
Goodwill allocated to Dell’sDell's business segments as of OctoberApril 29, 2010,2011, and January 29, 2010,28, 2011, and changes in the carrying amount of goodwill were as follows:
  
Large
Enterprise
 Public 
Small and
Medium
Business
 Consumer Total
  (in millions)
Balance at January 28, 2011 $1,424  $2,164  $476  $301  $4,365 
Goodwill acquired during the period 596  290  153    1,039 
Adjustments 2        2 
Balance at April 29, 2011 $2,022  $2,454  $629  $301  $5,406 
                     
      Small and
    
  Large
   Medium
    
  Enterprise Public Business Consumer Total
  (in millions)
Balance at January 29, 2010  $ 1,361   $ 2,026   $ 389   $ 298   $ 4,074 
Goodwill acquired during the period   57    69    52   -    178 
Adjustments   1    3   -    3    7 
                     
Balance at October 29, 2010  $ 1,419   $ 2,098   $ 441   $ 301   $ 4,259 
                     
Goodwill and indefinite-lived intangibles areis tested annually during the second fiscal quarter and whenever events or circumstances indicate an impairment may have occurred. If the carrying amount of goodwill exceeds its fair value, estimated based on discounted cash flow analyses, an impairment charge would be recorded. Dell evaluated goodwill and indefinite-lived intangibles for potential triggering events that could indicate impairment. Based on the results of itsthe annual impairment tests, during the first half of Fiscal 2011, Dell determined that no impairment of goodwill and indefinitely lived assets existed at July 30, 2010. Further, no triggering events have transpired since July 30, 2010, that would indicate a potential impairment of goodwill as of OctoberApril 29, 2010.2011. Dell does not have any accumulated goodwill impairment charges as of OctoberApril 29, 2010.2011. The goodwill adjustments are primarily the result of foreign currency fluctuations.

During the three months ended April 29, 2011, Dell recorded additions to intangible assets of $537 million related to Dell's Fiscal 2012 business acquisitions.

22


18

DELL INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 

NOTE 10 — WARRANTY AND DEFERRED EXTENDED WARRANTY REVENUE
Dell records liabilities for its standard limited warranties at the time of sale for the estimated costs that may be incurred. The liability for standard warranties is included in accrued and other current and other non-current liabilities on Dell’sthe Condensed Consolidated Statements of Financial Position. Revenue from the sale of extended warranties is recognized over the term of the contract or when the service is completed, and the costs associated with these contracts are recognized as incurred. Deferred extended warranty revenue is included in deferred services revenue on Dell’sthe Condensed Consolidated Statements of Financial Position. Changes in Dell’sDell's liabilities for standard limited warranties and deferred services revenue related to extended warranties are presented in the following tables:
                 
  Three Months Ended Nine Months Ended
  October 29,
 October 30,
 October 29,
 October 30,
  2010 2009 2010 2009
    (in millions)  
Warranty liability
                
Warranty liability at beginning of period  $ 976   $ 972   $ 912   $ 1,035 
Costs accrued for new warranty contracts and changes
in estimates for pre-existing warranties(a),(b)
   260    222    868    709 
Services obligations honored  (286  (295  (830  (845
                 
Warranty liability at end of period  $ 950   $ 899   $ 950   $ 899 
                 
                 
Current portion  $ 627   $ 540   $ 627   $ 540 
Non-current portion   323    359    323    359 
                 
Warranty liability at end of period  $ 950   $ 899   $ 950   $ 899 
                 
                 
                 
  Three Months Ended Nine Months Ended
  October 29,
 October 30,
 October 29,
 October 30,
  2010 2009 2010 2009
  (in millions)
Deferred extended warranty revenue:
                
Deferred extended warranty revenue at beginning of period  $ 6,109   $ 5,768   $ 5,910   $ 5,587 
Revenue deferred for new extended warranties(b)
   1,035    899    2,890    2,598 
Revenue recognized  (845  (788  (2,501  (2,306
                 
Deferred extended warranty revenue at end of period  $ 6,299   $ 5,879   $ 6,299   $ 5,879 
                 
                 
Current portion  $ 2,910   $ 2,837   $ 2,910   $ 2,837 
Non-current portion   3,389    3,042    3,389    3,042 
                 
Deferred extended warranty revenue at end of period  $ 6,299   $ 5,879   $ 6,299   $ 5,879 
                 
  Three Months Ended
  April 29,
2011
 April 30,
2010
  (in millions)
Warranty liability:      
Warranty liability at beginning of period $895  $912 
Costs accrued for new warranty contracts and changes in estimates for pre-existing warranties(a)(b)
 293  310 
Service obligations honored (257) (295)
Warranty liability at end of period $931  $927 
Current portion $620  $626 
Non-current portion 311  301 
Warranty liability at end of period $931  $927 
     
  Three Months Ended
  April 29,
2011
 April 30,
2010
  (in millions)
Deferred extended warranty revenue:      
Deferred extended warranty revenue at beginning of period $6,416  $5,910 
Revenue deferred for new extended warranties(b)
 1,068  882 
Revenue recognized (895) (821)
Deferred extended warranty revenue at end of period $6,589  $5,971 
Current portion $3,060  $2,809 
Non-current portion 3,529  3,162 
Deferred extended warranty revenue at end of period $6,589  $5,971 
____________________
(a)
Changes in cost estimates related to pre-existing warranties are aggregated with accruals for new standard warranty contracts. Dell’sDell's warranty liability process does not differentiate between estimates made for pre-existing warranties and new warranty obligations.
(b)
Includes the impact of foreign currency exchange rate fluctuations.


23


19

DELL INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
NOTE 11 — SEVERANCE AND FACILITY ACTIONS
During Fiscal 2010 and Fiscal 2009, Dell completed a series of individual cost reduction and facility exit activities designed to enhance operating efficiency and to reduce costs. Dell continued to incur costs related to these activities during Fiscal 2011. As of October 29, 2010, and January 29, 2010, the accruals related to these various cost reductions and efficiency actions were $64 million and $105 million, respectively, and are included in accrued and other liabilities in the Condensed Consolidated Statements of Financial Position.
The following table sets forth the activity related to Dell’s severance and facility actions liability:
                         
  Three Months Ended
  October 29, 2010 October 30, 2009
  Severance
 Facility
   Severance
 Facility
  
  Costs Actions Total Costs Actions Total
  (in millions)
Balance at the beginning of period  $ 26   $  27   $ 53   $ 174   $  14   $ 188 
Severance and facility charges to provision   25   -    25    22    33    55 
Cash paid  (10  (4  (14  (66  (2  (68
Other adjustments(a)
  (1   1   -    5   -    5 
                         
Balance at the end of the period  $ 40   $ 24   $ 64   $ 135   $ 45   $ 180 
                         
                         
                         
  Nine Months Ended
  October 29, 2010 October 30, 2009
  Severance
 Facility
   Severance
 Facility
  
  Costs Actions Total Costs Actions Total
  (in millions)
Balance at the beginning of period  $ 78   $ 27   $ 105   $ 88   $  10   $ 98 
Severance and facility charges to provision   57    7    64    259    37    296 
Cash paid  (90  (10  (100  (221  (3  (224
Other adjustments(a)
  (5  -   (5   9    1    10 
                         
Balance at the end of the period  $ 40   $ 24   $ 64   $ 135   $ 45   $ 180 
                         
(a)Other adjustments relate primarily to foreign currency translation adjustments.
Severance and facility action charges for the three and nine months ended October 29, 2010, and October 30, 2009 are composed of the following:
                 
  Three Months Ended Nine Months Ended
  October 29,
 October 30,
 October 29,
 October 30,
  2010 2009 2010 2009
  (in millions)
Severance and facility charges to provision  $ 25   $ 55   $ 64   $ 296 
Accelerated depreciation and other facility charges   6    68    48    99 
                 
Total severance and facility action costs  $ 31   $ 123   $ 112   $ 395 
                 


24


DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 
 
Severance and facility action charges are included in cost of net revenue, selling, general and administrative expenses, and research, development, and engineering in the Condensed Consolidated Statements of Income as follows:
                 
  Three Months Ended Nine Months Ended
  October 29,
 October 30,
 October 29,
 October 30,
  2010 2009 2010 2009
  (in millions)
Severance and facility action costs:
                
Cost of revenue  $ 4   $ 102   $ 47   $ 181 
Selling, general, and administrative   23    21    57    212 
Research, development, and engineering   4   -    8    2 
                 
Total severance and facility action costs  $ 31   $ 123   $ 112   $ 395 
                 

 
NOTE 1211 — COMMITMENTS AND CONTINGENCIES
 
Restricted Cash — As of October 29, 2010, and January 29, 2010, Dell had restricted cash in the amounts of $31 million and $147 million, respectively, included in other current assets. The balance at January 29, 2010, was primarily related to an agreement between DFS and CIT, which required Dell to maintain an escrow cash account that was held as recourse reserves for credit losses and performance fee deposits related to Dell’s private label credit card, as well as to amounts maintained in escrow accounts related to Dell’s recent acquisitions. In the third quarter of Fiscal 2011, the agreement between DFS and CIT was terminated and the restricted cash that was held on deposit was returned to CIT. The balance at October 29, 2010, primarily relates to various escrow accounts in connection with Dell’s acquisitions.
Legal Matters Dell is involved in various claims, suits, assessments, investigations, and legal proceedings that arise fromtime-to-time time to time in the ordinary course of its business, including those identified below, consisting of matters involving consumer, antitrust, tax, intellectual property, and other issues on a global basis.
Dell accrues a liability when it believes that it is both probable that a liability has been incurred and that it can reasonably estimate the amount of the loss. Dell reviews these accruals at least quarterly and adjusts them to reflect ongoing negotiations, settlements, rulings, advice of legal counsel, and other relevant information. To the extent new information is obtained and Dell's views on the probable outcomes of claims, suits, assessments, investigations, or legal proceedings change, changes in Dell's accrued liabilities would be recorded in the period in which such determination is made. For some matters, the amount of liability is not probable or the amount cannot be reasonably estimated and therefore accruals have not been made. However, where a liability is reasonably possible and material, such matters have been disclosed. The following is a discussion of Dell’sDell's significant on-going legal matters and other proceedings:
 
InvestigationsSEC Investigation and Related Litigation —Settlements - In August 2005, the SEC initiated an inquiry into certain of Dell’sDell's accounting and financial reporting matters and requested that Dell provide certain documents. The SEC expanded that inquiry in June 2006 and entered a formal order of investigation in October 2006. In August 2006, because of potential issues identified in the course of responding to the SEC’sSEC's requests for information, Dell’sDell's Audit Committee, on the recommendation of management and in consultation with PricewaterhouseCoopers LLP, Dell’sDell's independent registered public accounting firm, initiated an independent investigation into certain accounting and financial reporting matters, which was completed in the third quarter of Fiscal 2008. Dell subsequently restated its annual and interim financial statements for Fiscal 2003, Fiscal 2004, Fiscal 2005, Fiscal 2006, and the first quarter of Fiscal 2007.
On July 22, 2010, Dell reached a settlement with the SEC resolving the SEC’sSEC's investigation into Dell’sDell's disclosures and alleged omissions prior to Fiscal 2008 regarding certain aspects of its commercial relationship with Intel Corporation (“Intel”) and into separate accounting and financial reporting matters. The SEC agreed to settlements with both the company and Michael Dell, who serves as the company’scompany's Chairman and Chief Executive Officer. The company and Mr. Dell entered into the settlements without admitting or denying the allegations in the SEC’sSEC's complaint, as is consistent with standardcommon SEC practice.
Under its settlement, the company consented to a permanent injunction against future violations of antifraud provisions, non-scienter (negligence) based fraud provisions and other non-fraud based


25


DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
provisions related to reporting, the maintenance of accurate books and records, and internal accounting controls under Section 17(a) of the Securities Act of 1933 (the “Securities Act”), Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 (the “Exchange Act”) andRules 10b-5, 12b-20, 13a-1 and 13a-13 under the Exchange Act. The company also agreed to perform, and has initiated, certain undertakings, including retaining and working with an independent consultant, to enhance its disclosure processes, practices and controls. Pursuant to the timeline outlined in the settlement terms, the company expects to have completed or implemented these undertakings within 36 months after court approval of the settlement on October 13, 2010. In addition, the company paid into an escrow account a civil monetary penalty of $100$100 million and discharged the liability during the second quarter of Fiscal 2011.
The SEC’sSEC's allegations with respect to Mr. Dell and his settlement were limited to the alleged failure to provide adequate disclosures with respect to the company’scompany's commercial relationship with Intel prior to Fiscal 2008. Mr. Dell’sDell's settlement did not involve any of the separate accounting fraud charges that were settled by the company. Moreover, Mr. Dell’sDell's settlement was limited to claims in which only negligence, and not fraudulent intent, is required to establish liability, as well as secondary liability claims for other non-fraud charges.
Under his settlement, Mr. Dell consented to a permanent injunction against future violations of these negligence-based provisions and other non-fraud based provisions related to periodic reporting. Specifically, Mr. Dell consented to be enjoined from violating Sections 17(a)(2) and (3) of the Securities Act andRule 13a-14 under the Exchange Act and from aiding and abetting violations of Section 13(a) of the Exchange Act andRules 12b-20, 13a-1 and 13a-13 under the Exchange Act. In addition, Mr. Dell agreed to a civil monetary penalty of $4 million.$4 million. The settlement does not include any restrictions on Mr. Dell’sDell's continued service as an officer or director of the company.
The independent directors of the Board of Directors unanimously determined that it is in the best interests of Dell and its stockholders that Mr. Dell continue to serve as the Chairman and Chief Executive Officer of the company.

 
20

DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

The settlements with the company and Mr. Dell were approved by the U.S. District Court for the District of Columbia on October 13, 2010.
Securities Litigation — - Four putative securities class actions filed between September 13, 2006, and January 31, 2007, in the U.S. District Court for the Western District of Texas, Austin Division, against Dell and certain of its current and former directors and officers were consolidated as In re Dell Securities Litigation, and a lead plaintiff was appointed by the court. The lead plaintiff asserted claims under Sections 10(b), 20(a), and 20A of the Exchange Act based on alleged false and misleading disclosures or omissions regarding Dell’sDell's financial statements, governmental investigations, internal controls, known battery problems and business model, and based on insiders’insiders' sales of Dell securities. This action also included Dell’sDell's independent registered public accounting firm, PricewaterhouseCoopers LLP, as a defendant. On October 6, 2008, the court dismissed all of the plaintiff’splaintiff's claims with prejudice and without leave to amend. On November 3, 2008, the plaintiff appealed the dismissal of Dell and the officer defendants to the Fifth Circuit Court of Appeals. The appeal was fully briefed, and oral argument on the appeal was heard by the Fifth Circuit Court of Appeals on September 1, 2009. On November 20, 2009, the parties to the appeal entered into a written settlement agreement whereby Dell would pay $40$40 million to the proposed class and the plaintiff would dismiss the pending litigation. The settlement was preliminarily approved by the District Court on December 21, 2009. The settlement was subject to certain conditions, including opt-outs from the proposed class not exceeding a specified percentage and final approval by the District Court. During the first quarter of Fiscal 2011, the original opt-out period in the notice approved by the District Court expired without the specified percentage being exceeded. The District Court subsequently granted final approval


26


DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
for the settlement and entered a final judgment on July 20, 2010. Dell paid $40$40 million into an escrow account to satisfy this settlement and discharged the liability during the second quarter of Fiscal 2011. Certain objectors to the settlement have filed notices of appeal to the Fifth Circuit Court of Appeals with regard to approval of the settlement. While there can be no assurances with respect to litigation, we believeDell believes it is unlikely that the settlement will be overturned on appeal.
Copyright Levies — - In many European Union (“EU”) member countries, there are requirements to collect and remit levies to collecting societies based on sales of certain devices. These levies apply to Dell and others in the industry. The amount of levies areis generally based upon the number of products sold and the per-product amounts of the levies. Levies are intended to compensate copyright holders for “fair use” copying of copyrighted materials. The collecting societies then distribute the levies to copyright holders. Some EU member countries that do not yet have levies on digital devices are expected to implement similar legislation to enable them to extend existing levy schemes, while some other EU member countries are expected to limit the scope of levy schemes and their applicability in the digital hardware environment. Dell, other companies and various industry associations have opposed the extension of levies to the digital environment and have advocated alternative models of compensation to rights holders. As described below, there are multiple proceedings involving Dell or its competitors in certain EU member countries, where plaintiffs are seeking to impose or modify levies upon equipment (such as multifunction devices, phones, personal computers (“PCs”) and printers), alleging that these devices enable copying of copyrighted materials. Even if Dell is not a party to all these proceedings, however, the decisions could impact Dell’sDell's business and the amount of copyright levies Dell may be required to collect. These various proceedingproceedings also challenge whether the levy schemes in those countries comply with EU law.
There are multiple proceedings in Germany that could impact Dell’sDell's obligation to collect and remit levies in Germany. In July 2004, VG Wort, a German collecting society, filed a lawsuit against Hewlett PackardHewlett-Packard Company (“HP”) in the Stuttgart Civil Court seeking copyright levies on printers. On December 22, 2004, the court held that HP was liable for payments regarding all printers using ASCII code sold in Germany. HP appealed the decision and after an intermediary ruling upholding the trial court’scourt's decision, the German Federal Supreme Court (“GFSC”) in December 2007 issued a judgment that printers are not subject to levies under the German copyright law that was in effect until December 31, 2007. Based upon the GFSC’sGFSC's ruling, Dell concluded there was no obligation for Dell to collect or accrue levies for printers sold by it prior to December 31, 2007. VG Wort filed a claim with the German Constitutional Court (“GCC”) challenging the GFSC’sGFSC's ruling that printers are not subject to levies. On September 21, 2010, the GCC revoked the GFSC decision and referred the case back to the GFSC to determine if the ruling gave due credit to the copyright owner’sowner's property rights under the German Constitution and whether the GFSC should have referred the case to the European Court of Justice (“ECJ”). The GFSC has indicated it will issue its decision in this case in July 2011. Dell believes that the GFSC can decide to refer the case to the ECJ, confirm its prior decision, or conclude that printers are subject to levies under German law. Dell has not accrued any liability in this matter, as Dell does not believe there is a probable and estimable claim.

 
21

DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

Similarly, in September 2003, VG Wort filed a lawsuit against Fujitsu Siemens Computer GmbH ("FSC") in the Munich Civil Court in Munich, Germany seeking levies on PCs. On December 23, 2004, the Munich Civil Court held that PCs are subject to a levy and that FSC must pay €12 plus compound interest for each PC sold in Germany since March 2001. FSC appealed this decision and after an intermediary ruling upholding the decision, the GFSC in October 2008 issued a judgment that PCs were not photocopiers within the meaning of the German copyright law that was in effect until December 31, 2007 and, therefore, not subject to the levies on photocopiers established by that law. VG Wort filed a claim with the GCC challenging that ruling. In January 2011, as in the HP case above, the GCC revoked the GFSC decision and referred the case back to the GFSC to determine if the ruling gave due credit to the copyright owner's property rights under the German Constitution and whether the GFSC should have referred the case to the European Court of Justice. Dell believes that the GFSC can decide to refer the case to the ECJ, confirm its prior decision, or conclude that PCs are subject to levies under German law. Dell has not accrued any liability in this matter, as Dell does not believe there is a probable and estimable claim.
In a separate matter, on December 29, 2005, Zentralstelle Für private Überspielungrechte (“ZPÜ”), a joint association of various German collecting societies, instituted arbitration proceedings against Dell’sDell's German subsidiary before the Board of Arbitration at the German Patent and Trademark Office (“Arbitration Body”) in Munich. ZPÜ claimed an audio-video levy of €18.42 for each PC sold by Dell in Germany from January 1, 2002, through December 31, 2005. On July 31, 2007, the Arbitration Body recommended a levy of €15 on each PC sold by Dell during that period for audioMunich, and visual copying capabilities. Dell and ZPÜ rejected the recommendation, and on February 21, 2008, ZPÜsubsequently filed a lawsuit in the German Regional Court in Munich with respect toon February 21, 2008, seeking levies to be paid on each PC sold by Dell in Germany through the end of calendar year 2007. On December 23, 2009, ZPÜ and the German industry association, BCH, reached a settlement regarding audio-video copyright levy litigation. The settlement provided for payment oflitigation (with levies in the amount of €3.15 for calendar years 2002 and 2003, €6.30 for calendar years 2004 through 2007, and


27


ranging from DELL INC.
€3.15
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
to
(unaudited)
12.15 (for units excluding a burner) and €13.65 (for units including a burner) for calendar years 2008 through 2010.13.65 per unit). Dell joined this settlement on February 23, 2010 and has paid the amounts due thereunder. BecauseHowever, because the settlement agreement expiresexpired on December 31, 2010, the amount of levies payable after calendar year 2010, as well as Dell’sDell's ability to recover such amounts through increased prices, remainsremain uncertain.
 
Additionally, there are proceedings in Spain to which Dell is not a party, but that could impact Dell’sDell's obligation to collect and remit levies across the EU. In March 2006, Sociedad General de Autores y Editores de Espana (“SGAE”), a Spanish collecting society, sued Padawan SL ("Padawan"), a company unaffiliated with Dell, in the Commercial Court number four of Barcelona in Spain claiming that Padawan owed levies on the CD-Rs, CD-RWs, DVD-Rs, and MP3 players sold by Padawan. In June 2007, the trial court upheld SGAE’sSGAE's claim and ordered Padawan to pay specified levies. Padawan appealed the decision to the Audiencia Provincial de Barcelona, which stayed the proceedings in order to refer the case to the ECJ. The ECJ considered the interpretation of the term ’fair compensation’“fair compensation” under the European Copyright Directive (“Directive”). On October 21, 2010, the ECJ issued its decision and outlined how fair compensation should be considered under the Directive by the EU member states. The ECJ stated that fair compensation must be calculated based on the harm caused to the authors of protected works by private copying. The ECJ also stated that the indiscriminate application of the private copying levy to devices not made available to private users and clearly reserved for uses other than private copying is incompatible with the Directive. The matter has beenwas referred back to the Spanish court to determine whether the Spanish copyright levy scheme is compatible with the Directive based on the guidance provided by the ECJ. And in March 2011, the Appeals Court of Barcelona decided in the industry's favor, noting that the indiscriminate payment of copyright levies does not comply with EU law. The case can be appealed to the Supreme Court of Spain. It is unclear at this time what the effect of this decision will be on copyright levies in Spain and the other EU member states. Dell continues to collect and remit levies in Spain and other EU countries where it has determined that based on local law it is probable that Dell has an obligation.
The ultimate resolution of these matters and the associated financial impact to Dell, if any, including the number of units potentially impacted,affected, the amount of levies imposed, and the ability of Dell to recover such amounts remains uncertain at this time. Should the courts determine there is liability for previous units shipped beyond what Dell has collected or accrued, Dell would be liable for such incremental amounts. Recovery would only be possible on future collections related to future shipments.
Sharp Corporation v Dell Inc. - Sharp Corporation (“Sharp”) filed a suit against Dell in October 2008 for trademark infringement, unfair competition and dilution in the U.S. District Court in the State of New Jersey. Sharp alleges that it is the owner of the “SHARP” mark and that this mark and related marks are used in connection with Sharp's sale of a wide variety of electrical and consumer electronic products. Sharp alleges that Dell has infringed the “SHARP” mark by using the “UltraSharp” and “Dell UltraSharp” marks to promote, advertise and sell computer monitors and notebook computers, from 2002 to the present. Sharp alleges that Dell's use of “UltraSharp” has and will continue to

 
22

DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

cause actual consumer confusion regarding the source of “UltraSharp.” In addition, Sharp has asserted a claim for dilution of its SHARP marks on the alleged ground that Dell's use of DELL UltraSharp and UltraSharp has weakened the distinctive value of its marks. Sharp seeks damages measured by Dell's profits made from the sale of DELL UltraSharp products, treble damages, punitive damages, costs and attorneys' fees. Sharp also seeks a permanent injunction precluding the use of Dell's allegedly infringing “UltraSharp” mark. Dell disputes the claims and is vigorously defending the case. Trial in this matter is currently scheduled for June 2011. The ultimate resolution of this matter and the associated financial impact to Dell, if any, remains uncertain at this time.
Chad Brazil and Steven Seick v Dell Inc. - Chad Brazil and Steven Seick filed a class action suit against Dell in March 2007 in the U.S. District Court for the Northern District of California. The plaintiffs allege that Dell advertised discounts on its products from false “regular” prices, in violation of California law. The plaintiffs seek compensatory damages, disgorgement of profits from the alleged false advertising, injunctive relief, punitive damages and attorneys' fees. In December 2010, the District Court certified a class consisting of all California residents who had purchased certain products advertised with a former sales price on the consumer segment of Dell's website during an approximately four year period between March 2003 and June 2007. During the first quarter of Fiscal 2012, the plaintiffs and Dell reached a classwide settlement in principle regarding the dispute on terms that are not material to the company, however, the settlement is still subject to submission and approval by the District Court.
Convolve Inc. v Dell Inc. - Convolve, Inc. sued Dell, Western Digital Corporation (“Western Digital”), Hitachi Global Storage Technologies, Inc., and Hitachi Ltd. (collectively “Hitachi”) on June 18, 2008 in the Eastern District of Texas, Marshall Division, alleging that the defendants infringe United States Patent No. 4,916,635 (entitled “Shaping Command Inputs to Minimize Unwanted Dynamics”) and United States Patent No. 6,314,473 (entitled “System for Removing Selected Unwanted Frequencies in Accordance with Altered Settings in a User Interface of a Data Storage Device”). Western Digital and Hitachi are hard drive suppliers of Dell. This case is scheduled to go to trial in July 2011. Plaintiff seeks damages for each product with an allegedly infringing hard drive sold by Dell, plus exemplary damages for allegedly willful infringement. Dell disputes the plaintiff's damages calculations and also disputes the validity of the patents. Dell further disputes that it infringes the patents, and will assert all of these defenses at trial. The ultimate resolution of this matter and the associated financial impact to Dell, if any, remain uncertain at this time.
Other Litigation — - The various legal proceedings in which Dell is involved include commercial litigation and a variety of patent suits. In some of these cases, Dell is the sole defendant. More often, particularly within the patent suits, Dell is one of a number of defendants in the electronics and technology industries. Dell is actively defending a number of patent infringement suits, and several pending claims are in various stages of evaluations. While the number of patent cases has grown over time, Dell does not currently anticipate that any of these matters will have a material impactadverse effect on Dell’sDell's business, financial condition, or results of operations.
Other Matters — In the second quarter of Fiscal 2010, Dell became aware of instances in which certain peripheral product sales made to U.S. federal government customers under Dell’s General Services Administration (“GSA”) Schedule 70 Contract were not compliant with contract requirements implementing the Trade Agreements Act. Dell is currently investigating the matter and has self-reported the discovery to, and has had subsequent discussions with, GSA’s Office of the Inspector General. Non-compliance could lead to contract claims; termination for default; civiloperations, or criminal penalties; double or treble damages; and possibly debarment or suspension from sales to the U.S. federal government. The matter is still in the preliminary stages and Dell cannot currently predict the resolution of this matter. No liabilities have been recorded, as Dell is currently unable to estimate any potential liability at this time. In order to estimate a potential liability, Dell must identify all non-compliant sales, present the matter to the GSA’s Office of the Inspector General and reach resolution with that office.


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DELL INC.
cash flows.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
While Dell does not expect that the ultimate outcomes in these proceedings or matters, individually or collectively, will have a material adverse effect on its business, financial position, results of operations, or cash flows, the results and timing of the ultimate resolutions of these various proceedings and matters are inherently unpredictable. Whether the outcome of any claim, suit, assessment, investigation, or legal proceeding, individually or collectively, could have a material adverse effect on Dell’sDell's business, financial condition, results of operations, or cash flows will depend on a number of variables, including the nature, timing, and amount of any associated expenses, amounts paid in settlement, damages or other remedies or consequences. Dell accrues a liability when it believes that it is both probable that a liability has been incurred and that it can reasonably estimate the amount

23


NOTE 1312 — COMPREHENSIVE INCOME
 
The following table summarizes comprehensive income for the three and nine months ended OctoberApril 29, 2010,2011 and OctoberApril 30, 2009:
                 
  Three Months Ended Nine Months Ended
  October 29,
 October 30,
 October 29,
 October 30,
  2010 2009 2010 2009
  (in millions)
Comprehensive income
                
Net income  $ 822   $ 337   $ 1,708   $ 1,099 
Change related to hedging instruments, net  (105   29   (219  (448
Change related to marketable securities, net   1    1   (1   4 
Foreign currency translation adjustments   69   (29   95   (63
                 
Comprehensive income  $ 787   $ 338   $ 1,583   $ 592 
                 
2010:
 
 Three Months Ended
 April 29,
2011
 April 30,
2010
Comprehensive Income(in millions)
Net Income$945  $341 
Change related to hedging instruments, net(68) 13 
Change related to marketable securities, net  (1)
Foreign currency translation adjustments74  34 
Comprehensive Income$951  $387 
NOTE 1413 — INCOME AND OTHER TAXES
 
Dell’sDell's effective income tax rate was 23.6%19.2% and 34.5%24.4% for the thirdfirst quarters of Fiscal 20112012 and Fiscal 2010,2011, respectively. The year-over-year decrease in Dell’sDell's effective income tax rate for the thirdfirst quarter of Fiscal 2011, as compared to the third quarter of Fiscal 2010,2012, was primarily attributable to a cumulative catch up of tax expense in the third quarter of Fiscal 2010, due to a change in estimate related to the amount and geographical distribution of Fiscal 2010 income, and to an increase in the thirdfirst quarter of Fiscal 2011,2012, as compared to the thirdfirst quarter of Fiscal 2010,2011, in the proportion of taxable income attributable to lower tax jurisdictions. Dell’s effective income tax rate for the first nine months of Fiscal 2011 and Fiscal 2010 was 23.2% and 29.3%, respectively. The decrease in Dell’s effective income tax rate for the first nine months of Fiscal 2011 as compared to the same period in the prior year was primarily due to an increase in the proportion of taxable income attributable to lower tax jurisdictions during the first nine months of Fiscal 2011, as compared to the first nine months of Fiscal 2010, and to an increased benefit resulting from the favorable settlement of examinations in certain foreign jurisdictions. The differences between the estimated effective income tax rates and the U.S. federal statutory rate of 35%35.0% principally result from Dell’sDell's geographical distribution of taxable income and differences between the book and tax treatment of certain items. The income tax rate for the fourth quarterfuture quarters of Fiscal 20112012 will be impacted by the actual mix of jurisdictions in which income is generated.
 
Dell is currently under income tax audits in various jurisdictions, including the United States. The tax periods open to examination by the major taxing jurisdictions to which Dell is subject include fiscal years 1997 through 2010.2011. As


29


DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
a result of these audits, Dell maintains ongoing discussions and negotiations relating to tax matters with the taxing authorities in these various jurisdictions. Dell’sDell's U.S. federal income tax returns for fiscal years 2007 through 2009 are currently under examination. Theexamination by the Internal Revenue Service (“IRS”) has. The IRS issued a Revenue Agent’sAgent's Report for fiscal years 2004 through 2006 proposing certain assessments primarily related to transfer pricing matters. Dell disagrees with certain of the proposed assessments and has contested them through the IRS administrative appeals procedures. The IRS has recently remanded the audit for the tax years 2004 through 2006 back to examination for further review. Dell believes that it has provided adequate reserves related to all matters contained in tax periods open to examination. However, should Dell experience an unfavorable outcome in the IRS matter, such an outcome could have a material impact on its results of operations, financial position, and cash flows. Although the timing of income tax audit resolutions and negotiations with taxing authorities is highly uncertain, Dell does not anticipate a significant change to the total amount of unrecognized income tax benefits within the next 12 months.
 
Dell takes certain non-income tax positions in the jurisdictions in which it operates and has received certain non-income tax assessments from various jurisdictions. These jurisdictions include Brazil, where Dell has beenis in litigation with a state government over the proper application of transactional taxes to warranties and software related to the sale of computers, as well as over the appropriate use of state statutory incentives to reduce the transactional taxes.computers. Dell has also negotiated certain tax incentives with the state that can be used to offset potential tax liabilities should the courts rule against it. The incentives are based upon the number of jobs Dell maintains within the state.  Recently, Dell settled two cases related to warrantiesis currently on appeal for this case and software under a taxpayer amnesty program utilizing the incentive credits instead of cash to minimize the impact to its consolidated financial statements. The third outstanding case, in which Dell has pledged its manufacturing facility in Hortolandia, Brazil to the government, remains pending.government. Dell does not expect the outcome of this case to have a material impact to its consolidated financial statements.
 
Dell believes its positions in these non-income tax litigation matters are supportable, that a liability is not probable, and that it will ultimately prevail. In the normal course of business, Dell’sDell's positions and conclusions related to its non-income taxes could be challenged and assessments may be made. To the extent new information is obtained and Dell’sDell's views on its positions, probable outcomes of assessments, or litigation change, changes in estimates to Dell’sDell's accrued liabilities would be recorded in the period in which such determination is made.
 

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DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

NOTE 1514 — EARNINGS PER SHARE
 
Basic earnings per share is based on the weighted-average effect of all common shares issued and outstanding and is calculated by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is calculated by dividing net income by the weighted-average number of common shares used in the basic earnings per share calculation plus the number of common shares that would be issued assuming exercise or conversion of all potentially dilutive common shares outstanding. Dell excludes equity instruments from the calculation of diluted earnings per share if the effect of including such instruments is anti-dilutive. Accordingly, certain stock-based incentive awards have been excluded from the calculation of diluted earnings per share totaling 158167 million shares and 206204 million common shares for the thirdfirst quarters of Fiscal 20112012 and Fiscal 2010, respectively, and 188 million and 228 million shares for the nine months ended October 29, 2010, and October 30, 2009,2011, respectively.


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DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
The following table sets forth the computation of basic and diluted earnings per share for the three and nine months ended OctoberApril 29, 2010,2011, and OctoberApril 30, 2009:2010:
                 
  Three Months Ended Nine Months Ended
  October 29,
 October 30,
 October 29,
 October 30,
  2010 2009 2010 2009
  (in millions, except per share amounts)
Numerator:                
Net income  $ 822   $ 337   $ 1,708   $ 1,099 
                 
                 
Denominator:                
Weighted-average shares outstanding:                
Basic   1,939    1,956    1,950    1,953 
Effect of dilutive options, restricted stock units, restricted stock, and other   10    10    11    6 
                 
Diluted   1,949    1,966    1,961    1,959 
                 
                 
Earnings per share:                
Basic  $ 0.42   $ 0.17   $ 0.88   $ 0.56 
Diluted  $ 0.42   $ 0.17   $ 0.87   $ 0.56 


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DELL INC.
  Three Months Ended
  April 29,
2011
 April 30,
2010
  (in millions, except per share amounts)
Numerator:      
Net income $945  $341 
Denominator:      
Weighted-average shares outstanding:      
Basic 1,908  1,961 
Effect of dilutive options, restricted stock units, restricted stock, and other 15  12 
Diluted 1,923  1,973 
Earnings per share:      
Basic $0.50  $0.17 
Diluted $0.49  $0.17 
 

25

DELL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 

NOTE 1615 — SEGMENT INFORMATION
Dell’sDell's four global business segments are Large Enterprise, Public, Small and Medium Business (“SMB”), and Consumer. Large Enterprise includes sales of IT infrastructure and service solutions to large global and national corporate customers. Public includes sales to educational institutions, governments, health care organizations, and law enforcement agencies, among others. SMB includes sales of complete IT solutions to small and medium-sized businesses. Consumer includes sales to individual consumers and retailers around the world.
The business segments disclosed in the accompanying Condensed Consolidated Financial Statements are based on this organizational structure and information reviewed by Dell’sDell's management to evaluate the business segment results. Dell’sDell's measure of segment operating income for management reporting purposes excludes severance and facility closure expenses, broad based long-term incentives, acquisition-related charges, amortization of intangibles, acquisition-related charges, and the settlements for the SEC investigation as well as the securities litigation class action lawsuit that were incurred during the first nine monthsquarter of Fiscal 2011.
The following table presents net revenue by Dell’sDell's reportable global segments as well as a reconciliation of consolidated segment operating income to Dell’sDell's consolidated operating income:
                 
  Three Months Ended Nine Months Ended
  October 29,
 October 30,
 October 29,
 October 30,
  2010 2009 2010 2009
  (in millions)
Net revenue:
                
Large Enterprise  $ 4,326   $ 3,403   $ 13,121   $ 10,088 
Public   4,442    3,695    12,878    10,664 
Small and Medium Business   3,665    2,956    10,724    8,743 
Consumer   2,961    2,842    9,079    8,507 
                 
Net revenue  $ 15,394   $ 12,896   $ 45,802   $ 38,002 
                 
Consolidated operating income:
                
Large Enterprise  $ 400   $ 174   $ 971   $ 538 
Public   451    352    1,118    1,028 
Small and Medium Business   391    282    1,027    758 
Consumer  -    10   (4   98 
                 
Consolidated segment operating income   1,242    818    3,112    2,422 
                 
Severance and facility actions  (31  (123  (112  (395
Broad based long-term incentives(a)
  (75  (78  (249  (246
Amortization of intangible assets  (89  (40  (264  (119
Acquisition-related costs(b)
  (23  -   (59  - 
Other(c)
  -   -   (140  - 
                 
Consolidated operating income  $ 1,024   $ 577   $ 2,288   $ 1,662 
                 
  Three Months Ended
  April 29,
2011
 April 30,
2010
  (in millions)
Net revenue:      
Large Enterprise $4,477  $4,246 
Public 3,767  3,856 
Small and Medium Business 3,768  3,524 
Consumer 3,005  3,248 
Total $15,017  $14,874 
Consolidated operating income:      
Large Enterprise $504  $283 
Public 370  298 
Small and Medium Business 463  313 
Consumer 136  17 
Consolidated segment operating income 1,473  911 
Severance and facility actions (19) (57)
Broad based long-term incentives(a)
 (97) (87)
Amortization of intangible assets (92) (88)
Acquisition-related costs(a)(b)
 (53) (20)
Other(c)
   (140)
Total $1,212  $519 
____________________ 
(a)Broad based, long-term incentives includeincludes stock-based compensation, and other long-term incentives thatbut excludes stock-based compensation related to acquisitions, which are not allocated to Dell’s global segments.included in acquisition-related costs.
(b)Acquisition-related chargescosts consist primarily of retention payments, integration costs, and consulting fees.other costs.
(c)
Other includes the $100$100 million settlement for the SEC investigation and a $40$40 million settlement for a securities litigation lawsuit that were both incurred in the first quarter of Fiscal 2011.


32


 

26


ITEM 2.2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SPECIAL NOTE:  All percentage amounts and ratios were calculated using the underlying data in thousands. Our fiscal year is the 52 or 53 week period ending on the Friday nearest January 31. Unless the context indicates otherwise, references in this management’s discussion and analysis to “we,” “us,” “our” and “Dell” mean Dell Inc. and our consolidated subsidiaries. This management’s discussion and analysis should be read in conjunction with our Annual Report onForm 10-K for the fiscal year ended January 29, 2010,28, 2011, and the consolidated financial statements and related notes included in that report.
 
OVERVIEW
INTRODUCTION
We are a leading integrated technology solutions provider in the IT industry. We built our reputation through listening to customers and developing solutions that meet customer needs. We are focused on providing long-term value creation through the delivery of customized solutions that make technology more efficient, more accessible, and easyeasier to use. Customer needs are increasingly being defined by how customersthey use technology rather than where they use it, which is why our businesses are globally organized. Our four global business segments are Large Enterprise, Public, Small and Medium Business (“SMB”), and Consumer. We also refer to our Large Enterprise, Public, and SMB segments as “Commercial.” Our globally organized business units reflect the impact of globalization on our customer base.
 
We are committed to delivering efficient and flexible IT solutions for the virtual era. Our focus is on three key solutions domains:
Next generation computing solutions and intelligent data management
Services, security and cloud computing, and
End user computing
Next generation computing solutions, intelligent data management, services, security and cloud computing are all part of our enterprise solutions and services business, which has contributed to improvements in our operating margins in recent quarters. Our enterprise solutions products include servers, and networking, and storage products. Client products and our services are grouped into three categories based on similar demand, economic and delivery profiles: transactional; outsourcing; and project-based. We are also focused on end user computing by developing higher valued capabilities for our client products, which include our mobility and desktop PC products. Our services encompassWe have been focusing on improving the profitability of our client products by creating a broad rangeflexible value chain to improve execution and we will continue to focus on simplifying our product offerings. The majority of offerings, including infrastructure technology, consultingour products are now produced by contract manufacturers. We believe developing flexible and applications,efficient IT solutions will provide higher recurring revenue streams and product-related support services. Our customer engagement model groups our servicesmargin opportunities over time.
We supplement organic growth with similar demand, economic and delivery profiles into three categories: outsourcing; project-based; and transactional services.
Our recenta disciplined acquisition of Kace Networks, Inc, Scalent Systems Inc., and Ocarina Networks Inc., and our continued integration of Perot Systems Corporation (“Perot Systems”) enables us toprogram targeting businesses that will expand our portfolio of enterprise solutions and services offerings. The comparabilityWe emphasize acquisitions of companies with portfolios that we can leverage with our global customer base and distribution. During the first quarter of Fiscal 2012, we acquired Compellent Technologies, Inc. ("Compellent"), a global provider of virtual storage solutions for enterprise and cloud computing environments, and SecureWorks Inc. ("SecureWorks"), a global provider of information security services. See Note 8 - Acquisitions in Notes to Condensed Consolidated Financial Statements included in “Part I — Item 1 — Financial Statements and Supplementary Data” for additional information about our acquisitions. In addition, during the first quarter of Fiscal 2012, we announced our intent to acquire Dell Financial Services Canada Limited, a CIT Vendor Finance and Dell partnership, as well as CIT Vendor Finance's Dell-related assets and sales and servicing functions in Europe.
Presentation of Supplemental 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 accounting principles generally accepted in the United States of America (“GAAP”). These financial measures, which are considered “non-GAAP financial measures” under SEC rules, include our non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income, non-GAAP net income, and non-GAAP earnings per share. See “Results of Operations Non-GAAP Financial Measures” below for information about our use of these non-GAAP financial measures, including our reasons for including the 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.

27


RESULTS OF OPERATIONS
Consolidated Operations
The following table summarizes our consolidated results of operations for the third quarterthree months ended April 29, 2011, and first nine monthsApril 30, 2010:
  Three Months Ended
  April 29, 2011   April 30, 2010
  Dollars 
% of
Revenue
 
%
Change
 Dollars 
% of
Revenue
  (in millions, except per share amounts and percentages)
Net revenue:               
Products $12,059  80.3%  % $12,086  81.3%
Services, including software related 2,958  19.7% 6 % 2,788  18.7%
Total net revenue $15,017  100.0% 1 % $14,874  100%
Gross margin:            
Products $2,623  21.8% 54 % $1,701  14.1%
Services, including software related 809  27.3% (1)% 815  29.2%
Total gross margin $3,432  22.9% 36 % $2,516  16.9%
Operating expenses $2,220  14.8% 11 % $1,997  13.4%
Operating income $1,212  8.1% 134 % $519  3.5%
Net income $945  6.3% 177 % $341  2.3%
Earnings per share — diluted $0.49  N/A  188 % $0.17  N/A 
           
Other Financial Information (a)
          
Non-GAAP gross margin $3,511  23.4% 34 % $2,614  17.6%
Non-GAAP operating expenses $2,135  14.2% 19 % $1,790  12.0%
Non-GAAP operating income $1,376  9.2% 67 % $824  5.5%
Non-GAAP net income $1,050  7.0% 80 % $584  3.9%
Non-GAAP earnings per share - diluted $0.55  N/A  83 % $0.30  N/A 
_____________________
(a)Non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income, non-GAAP net income, and non-GAAP earnings per share are not measurements of Fiscal 2011 comparedfinancial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” below for information about these non-GAAP financial measures, including our reasons for including the same periods in Fiscal 2010 are impacted bymeasures, material limitations with respect to the acquisitions we have made sinceusefulness of the thirdmeasures, and a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure.
Overview
For the first quarter of Fiscal 2010, primarily Perot Systems. See our Services discussion under “Revenue by Product and Services Categories” below for a comparison of Dell’s services revenue for the first nine months of Fiscal 2011 to the prior year’s results of Dell services and Perot Systems.


33


CONSOLIDATED RESULTS OF OPERATIONS
The following table summarizes the results of our operations for the three and nine months ended October 29, 2010, and October 30, 2009:
                                         
  Three Months Ended Nine Months Ended
  October 29, 2010   October 30, 2009 October 29, 2010   October 30, 2009
    % of
 %
   % of
   % of
 %
   % of
  Dollars Revenue Change Dollars Revenue Dollars Revenue Change Dollars Revenue
  (in millions, except per share amounts and percentages)
Net revenue                                        
Products  $ 12,520    81.3%    17%   $ 10,746    83.3%   $ 37,251    81.3%    18%   $ 31,601    83.2% 
Services, including software related   2,874    18.7%    34%    2,150    16.7%    8,551    18.7%    34%    6,401    16.8% 
                                         
Total net revenue  $ 15,394    100.0%    19%   $ 12,896    100.0%   $ 45,802    100.0%    21%   $ 38,002    100.0% 
Gross margin                                        
Products  $ 2,105    16.8%    43%   $ 1,477    13.7%   $ 5,520    14.8%    21%   $ 4,568    14.5% 
Services, including software related   898    31.2%    19%    756    35.2%    2,585    30.2%    16%    2,224    34.7% 
                                         
Total gross margin  $ 3,003    19.5%    34%   $ 2,233    17.3%   $ 8,105    17.7%    19%   $ 6,792    17.9% 
Operating expenses  $ 1,979    12.8%    19%   $ 1,656    12.8%   $ 5,817    12.7%    13%   $ 5,130    13.5% 
Operating income  $ 1,024    6.7%    77%   $ 577    4.5%   $ 2,288    5.0%    38%   $ 1,662    4.4% 
Net income  $ 822    5.3%    144%   $ 337    2.6%   $ 1,708    3.7%    55%   $ 1,099    2.9% 
Earnings per share diluted  $ 0.42   N/A    147%   $ 0.17   N/A   $ 0.87   N/A    55%   $ 0.56   N/A 
In the third quarter of Fiscal 2011,2012, our total net revenue increased 19%1% year-over-year with slight increases across allin our Large Enterprise and SMB segments largely offset by decreases in our Public and Consumer segments. The net revenue of our Commercial segments whileincreased 3% year-over-year, and represented approximately 80% of our total net revenue for the first quarter of Fiscal 2012. The recovery in the economy during recent quarters helped maintain demand from our Large Enterprise and SMB customers as the corporate refresh cycle continued. Our Public customers continue to be challenged by budgetary constraints on public spending, particularly in the U.S. and European regions. Demand from our Consumer revenue remained relatively flat. Revenuecustomers softened in the first quarter of Fiscal 2012, though profitability improved.
Our consolidated operating income increased 134% year-over-year, and all our segments reported increases in operating income. Operating income from our Commercial segments increased 24%year-over-year, with Large Enterprise50%, while Consumer operating income increased from $17 million to $136 million. The improved profitability of our Commercial business was largely driven by significant margin improvements from our client products, which include mobility and SMB leading the increase.desktop products. Our Commercial segments generated approximately 81% ofalso saw improved margin percentages for our total net revenue during the third quarter of Fiscal 2011. As the commercial technology refresh cycle continuedenterprise solutions products, which include our servers, networking, and we strengthened our product and solutions offerings, westorage offerings. Our Consumer segment experienced demand growthimproved profitability primarily from our Commercial customers, while demand from our Consumer customers is continuing to show signs of softening. For the first nine months of Fiscal 2011, our total net revenue increased 21%, with revenue from our Commercial and Consumer segments increasing 25% and 7%, respectively,year-over-year for the same period.
During the third quarter of Fiscal 2011, we saw a significantyear-over-year improvement in overall gross margin percentage from 17.3% to 19.5%. The improvement was driven by our Commercial segments as a result of improved pricing and broad component cost declines. We expect the pricing environment to moderate in the fourth quarter of Fiscal 2011, as these component cost declines work themselves through the industry.
client products. We will continue to focusremain focused on profitability by continuing our efforts on providingto provide IT solutions to our customers in areas such as serversenterprise solutions and networking, storage,services, and services. The revenue generated from these categories ofwill continue to utilize our Commercial segments, includingflexible supply chain and pricing discipline in seeking to enhance the contributions from Perot Systems, grew a combined 33% and 39%year-over-year, during the third quarter and first nine months of Fiscal 2011, respectively. We believe these solutions are customized to the needs of users, easy to use, and affordable. We will also seek to improve our client product business by simplifying our product offerings, developing next generation capabilities, and enhancing the online buying experience for our customers. Our cost reduction activities over the past several quarters are improving our profitability and operating leverage as revenue growth returns.

 
Revenue28


of all our products. 
Revenue
Product Revenue — Product revenue increasedwas flat year-over-year by 17% and 18% for the thirdfirst quarter and the first nine months of Fiscal 2011, respectively.2012. Our product revenue performance was primarily attributable to improvedsoftening customer demand, as resultparticularly for our Public and Consumer segments. See "Revenue by Product and Services Categories" for further information regarding the average selling prices of increased global IT spending from our Commercial customers across all product categories.products.
 
Services Revenue, including software related— Services revenue, including software related increasedyear-over-year by 34%6% for both the thirdfirst quarter and first nine months of Fiscal 2011.2012. Our services


34


revenue performance was attributable to a 55%5% year-over-year increase in services revenue and an increase of 5%9% in software related services revenue duringfor the thirdfirst quarter of Fiscal 2011. For2012.
During the first nine monthsquarter of Fiscal 2011, services and software related services2012, revenue increased 55% and 4%, respectively. The increase in services revenue was primarily due to our acquisition of Perot Systems, which was integrated into our Public and Large Enterprise segments.
Revenue from the U.S. increased 18% during both the third quarterdecreased 5% to $7.4 billion and first nine monthsrepresented 49% of Fiscal 2011 over the same periods last year.total net revenue. Revenue from outside the U.S. increased 7% to $7.6 billion and represented approximately 47%51% of our total net revenue. Non-U.S. revenue for both the third quarterexcluding Western Europe, Canada and first nine monthsJapan grew 17% year-over-year to 27% of Fiscal 2011, and grew 21% and 23%year-over-year for the third quarter and first nine months of Fiscal 2011, respectively.total net revenue. Revenue from Brazil, Russia, India, and China, (“BRIC”)which we refer to as "BRIC," increased 30% and 45%18% year-over-year, on a combined basis, for the third quarter and first nine months of Fiscal 2011, respectively. Revenue from BRIC combined has been increasing sequentially since the fourth quarter of Fiscal 20092012. The increase in revenue from BRIC was driven by sales in China and represented 12.1 %India, while revenue from Russia and Brazil has softened in comparison to prior quarters. Total revenue from BRIC increased to 14% of our total net revenue for the first nine monthsquarter of Fiscal 2011 compared to 10.1% in2012 over 12% for the prior year. We are continuing to expand into these and other emerging countries that represent the vast majority of the world’sworld's population, tailor solutions to meet specific regional needs, and enhance relationships to provide customer choice and flexibility.
 
We manage our business on a U.S. dollar basis and utilize a comprehensive hedging strategy intended to mitigate the impact of foreign currency volatility over time.  As a result of our hedging programs, and pricing actions in response to the foreign currency fluctuations, the impact of currency movements was not material to our total net revenue for the thirdfirst quarter and first nine months of Fiscal 2011.2012.
 
Gross MarginJapan
 
On March 11, 2011, the northeast region of Japan sustained extensive damage from a severe earthquake and tsunami that has impacted Japan's infrastructure as well as its economy. We do not have any manufacturing facilities in Japan and our operations have not been significantly affected by the damage. Revenue from Japan represented less than 5% of our total net revenue for Fiscal 2011 and Fiscal 2010 and was not significantly impacted by the event for the first quarter of Fiscal 2012. Although certain components used in our products are produced by Japanese manufacturers, our preliminary assessment indicates that our supply chain to date has not been significantly impacted by this event. We will continue to monitor the situation.
Gross Margin
Products — During the thirdfirst quarter and first nine months of Fiscal 2011, products2012, our product gross marginmargins increased in absolute dollarsyear-over-year and in gross margin percentage. AtProduct gross margin percentage increased from 14.1% for the endfirst quarter of Fiscal 2011 to 21.8% for the first quarter of Fiscal 2012. Decreasing component costs, improved pricing discipline, better sales and supply chain execution, and a shift in mix to more differentiated products with higher margins contributed to the year-over-year increase in product gross margin percentage for all our segments.  We have created a flexible supply chain that has improved our supply chain execution and we have simplified our product offerings. Additionally, in the second quarterhalf of Fiscal 2011, we began to seebenefit from decreasing component costs, particularly for memory and displays. This trend continued throughWe expect that this favorable component cost environment will moderate in the currentsecond and third quarters of Fiscal 2012.
Services, including software related — During the first quarter contributing to an increaseof Fiscal 2012, our services gross margin decreased in our overall productsabsolute dollars and in gross margin percentage from 13.7% for the third quarter of Fiscal 2010 to 16.8% for the thirdfirst quarter of Fiscal 2011. We believe that component costs will continue to decline throughServices gross margin decreased from 29.2% for the fourthfirst quarter of Fiscal 2011 givento 27.3% for the current market environment.
Services, including software related — During the thirdfirst quarter and first nine months of Fiscal 2011, our services gross margin increased in absolute dollars compared to the prior year, although our gross margin percentage decreased. The decrease in gross margin percentage for services, including software related, was primarily due to a higher mix of stand-alone services.2012. Our gross margin rate for services, including software related, is driven by our transactional services, which consist primarily of our extended warranty sales, offset by lower margin categories such as software, consulting,outsourcing and managedproject-related services. Our extended warrantyThe year-over-year decrease in services are more profitable because we sell extended warranty offerings directlygross margin was driven by decreases in gross margin percentage from transaction and project-based services due to customers insteadtemporary cost pressures.
Total gross margin for the first quarter of selling throughFiscal 2012 increased 36% to $3.4 billion on a distribution channel. We haveGAAP basis and 34% to $3.5 billion on a service support structure that allows us to favorably manage our fixed costs.
We will continue to invest in initiatives that align our newnon-GAAP basis from the first quarter of Fiscal 2011. Gross margin on a GAAP basis for the first quarter of Fiscal 2012 and existing products and services with customers’ needs, particularly for enterprise products and solutions. As we shift our focus more to enterprise solutions and services, we believeFiscal 2011 includes the improved mixeffects of higher margin sales will positively impact our gross margins over time.
Severance and Facility Actions
Due to our continued migration towards a more variable cost manufacturing model and a comprehensive reviewamortization of our costs, we continue to incur certainintangible assets, severance and facility action costs, thoughand acquisition-related charges. As set forth in the reconciliation under "Non-GAAP Financial Measures" below, these costs have decreaseditems are excluded from the prior year. Duringcalculation of non-GAAP gross margin for the thirdfirst quarter and first nine months of Fiscal 2011,2012 and Fiscal 2011. Amortization of intangible assets included in gross margin increased 4% to $71 million for the cost of these actions was $31 million and $112 million, respectively, of which $4 million and $47 million, respectively, affected gross margin. For the thirdfirst quarter and first nine months of Fiscal 2010,2012. Amortization of intangibles is

29


primarily related to the intangible assets related to our acquisition of Perot Systems Corporation ("Perot Systems") in Fiscal 2010. Severance and facility action costs included in gross margin decreased 82% to $5 million during the first quarter of Fiscal 2012. The decrease in severance and facility action costs was due to a decrease in cost of these actions was $123 million and $395 million, respectively, of which $102 million and $181 million, respectively, affected gross margin. While wereduction activities from Fiscal 2011. We believe that we have substantially completed a significant portion of our manufacturing transformation, weand do not expect to implementincur significant additional cost reduction measures depending on a number of factors, including end-user demand for our products and services andcosts related to these activities. However, we may incur severance costs in the continued simplification of our supply and logistics chain. Additional cost reduction measures may include


35


selected headcount reductions,future as well asthey relate to other cost reduction programs. See Note 11 of the Notes to Condensed Consolidated Financial Statements included in “Part I — Item 1 — Financial Statements” for additional information on severance and facility action costs.acquisitions.
 
Vendor Rebate Programs
 
Our gross margin is affected by our ability to achieve favorablecompetitive 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. Vendor rebate programs are only one element of the costs we negotiate for our product components. We account for rebates and other discounts as a reduction in cost of net revenue. Our total net cost includes supplier list prices reduced by vendor rebates and other discounts. We manage our costs on a total net cost basis.
 
The terms and conditions of our vendor rebate programs are largely based on product volumes and are generally not long-term in nature, but instead are typically negotiated at the beginning of each quarter. Because of the fluid nature of these ongoing negotiations, which reflect changes in the competitive environment, the timing and amount of rebates and other discounts we receive under the programs may vary from period to period. Since we manage our component costs on a total net cost basis, any fluctuations in the timing and amount of rebates and other discounts we receive from vendors may not necessarily result in material changes to our gross margin. 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 the third quarterfirst quarters of Fiscal 2012 and first nine months of Fiscal 2011 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 aggregate producttotal net cost. We are not aware of any significant programmatic changes to vendor pricing and rebate programs that will impact our results forin the fourth quarternear term. These discounts and rebates are allocated to the segments based on a variety of Fiscal 2011.factors, including strategic initiatives to drive certain programs.
 
Operating Expenses
The following table summarizespresents information regarding our operating expenses for the three and nine months ended OctoberApril 29, 2010,2011, and OctoberApril 30, 2009:2010:
  Three Months Ended
  April 29, 2011   April 30, 2010
  Dollars 
% of
Revenue
 
%
Change
 Dollars 
% of
Revenue
  (in millions, except percentages)
Operating expenses:               
Selling, general, and administrative $2,025  13.5% 11% $1,830  12.3%
Research, development, and engineering 195  1.3% 17% 167  1.1%
Total operating expenses $2,220  14.8% 11% $1,997  13.4%
           
Other Financial Information          
Non-GAAP operating expenses (a)
 $2,135  14.2% 19% $1,790  12.0%
_______________________
 
                                         
  Three Months Ended Nine Months Ended
  October 29, 2010   October 30, 2009 October 29, 2010   October 30, 2009
    % of
 %
   % of
   % of
 %
   % of
  Dollars Revenue Change Dollars Revenue Dollars Revenue Change Dollars Revenue
  (in millions, except percentages)
Operating expenses
                                        
Selling, general, and administrative  $ 1,816    11.8%    21%   $ 1,501    11.6%   $ 5,325    11.6%    14%   $ 4,685    12.3% 
Research, development, and engineering   163    1.0%    5%    155    1.2%    492    1.1%    11%    445    1.2% 
                                         
Operating expenses  $ 1,979    12.8%    19%   $ 1,656    12.8%   $ 5,817    12.7%    13%   $ 5,130    13.5% 
                                         
(a)For a reconciliation of non-GAAP operating expenses to operating expenses prepared in accordance with GAAP, see “Non-GAAP Financial Measures” below.
 
•    Selling, General, and Administrative
Selling, General, and Administrative — During the third quarter of Fiscal 2011, selling, general and administrative (“SG&A”) expenses increasedyear-over-year, while SG&A expenses as a percentage of net revenue remained relatively flat. The increase in SG&A expenses was largely attributable to increases in compensation-related expenses of approximately $235 million primarily due to a significant increase in accruals for performance-based compensation expenses, which are driven by revenue and operating income growth. We also had increases in headcount resulting from our acquisitions. SG&A expenses related to severance and facility actions undertaken as part of our on-going cost optimization efforts were $23 million for the third quarter of Fiscal 2011 compared to $21 million for the same period in the prior year. SG&A expenses for the third quarter of Fiscal 2011 also included approximately $23 million of costs related to our acquisitions, which include costs incurred for recent acquisitions as well as integration costs related to Perot Systems.
During the first nine monthsquarter of Fiscal 2011, 2012, selling, general, and administrative ("SG&A&A") expenses increasedyear-over-year, while SG&A expenses as a percentage of net revenue decreased. year-over-year. The increase in SG&A expenses was primarily attributable to increases in compensation-related expenses, ofadvertising, and promotional expenses. Compensation-related expenses, excluding severance-related expenses, increased approximately $458$239 million due to an increase in performance-


36


based compensation expenseheadcount of approximately 10% and an increase in performance-based compensation expense, which is tied to revenue and operating income growth and to

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cash flow targets. Our headcount resulting fromincrease was primarily due to our acquisitions. SG&A expensesacquisitions and new hires relating to our strategic initiatives to increase the number of sales specialists for the first nine months of Fiscal 2011our enterprise solutions and services offerings. We also included approximately $57 million in acquisition-related charges and anexperienced a year-over-year increase of $50$37 million in advertising and promotional expenses. In addition, duringhigher SG&A expenses reflected increases in acquisition-related expenses, which were offset in part by decreases in severance and facility action costs discussed below.
Research, Development, and EngineeringDuring the first quarter of Fiscal 2012, research, development, and engineering (“RD&E”) expenses were 1.3% of revenue compared to 1.1% in the prior year. We manage our research, development, and engineering spending by targeting those innovations and products that we believe are most valuable to our customers and by relying upon the capabilities of our strategic relationships. We are increasing our focus on research and development and will continue to shift our investment in RD&E activities to support our initiatives to grow our enterprise solutions and services offerings.
Total operating expenses for the first quarter of Fiscal 2012 increased 11% to $2.2 billion on a GAAP basis and 19% to $2.1 billion on a non-GAAP basis from the first quarter of Fiscal 2011. Operating expenses on a GAAP basis for the first quarters of Fiscal 2012 and Fiscal 2011 includes severance and facility charges, amortization of intangible assets, and acquisition-related charges. For the first quarter of Fiscal 2011, Dell recordedoperating expenses on a GAAP basis also includes $100 million chargewe incurred for our settlement of the SEC investigation and a $40 million charge for a securities litigation class action lawsuit that was filed against Dell during Fiscal 2007. See Note 12 to"Note 11 of Notes to Condensed Consolidated Financial Statements included in “PartPart I - Item 1 —  - Financial Statements”Statements" for more information on legal matters. Offsettinga discussion of our prior year settlement of the SEC investigation. As set forth in the reconciliation under “Non-GAAP Financial Measures” below, non-GAAP operating expenses for the first quarters of Fiscal 2012 and Fiscal 2011 excludes the effects of these severance and facility action costs, amortization of intangible assets, and acquisition-related charges, and, for Fiscal 2011, the settlements referred to above. Amortization of intangibles and acquisition-related charges included in operating expenses increased 8% to $21 million and 163% to $50 million, respectively, compared to Fiscal 2011. The increases was a decrease in SG&A expensesfor amortization of intangibles and acquisition-related charges are primarily related to the business acquisitions completed in the first quarter of Fiscal 2012. Consistent with the discussion on severance and facilities actions undertaken as part of our on-going cost optimization efforts from $212facility action costs in the gross margin section above, severance and facility action costs included in operating expenses decreased year-over-year by 51% to $14 million for the first nine monthsquarter of Fiscal 2012.
Operating and Net Income
Operating Income — During the first quarter of Fiscal 2012, operating income increased 134% to $1.2 billion on a GAAP basis and 67% to $1.4 billion on a non-GAAP basis from the first quarter of Fiscal 2011. The increases were primarily attributable to the improved gross margins discussed above.
Net Income — During the first quarter of Fiscal 2012, net income increased 177% to $945 million on a GAAP basis and 80% to $1,050 million on a non-GAAP basis from Fiscal 2011. Net income was positively impacted by increases in operating income and a lower effective income tax rate. In addition, on a GAAP basis, Interest and Other, net decreased favorably by 38% for Fiscal 2012. See “Income and Other Taxes” and “Interest and Other, net” below for a discussion of our effective tax rates and interest and other, net.
Non-GAAP Financial Measures
We use non-GAAP financial measures in this report as performance measures to supplement the financial information we present on a GAAP basis. We believe that excluding certain items from our GAAP results allows our management and investors to better understand our consolidated financial performance from period to period and in relationship to the operating results of our segments, as our management does not believe that the excluded items are reflective of our underlying operating performance. We also believe that excluding certain items from our GAAP results allows our management to better project our future consolidated financial performance because our forecasts are developed at a level of detail different from that used to prepare GAAP-based financial measures. Moreover, we believe the non-GAAP financial measures provide investors with useful information to help them evaluate our operating results by facilitating an enhanced understanding of our underlying operating performance and enabling them to make more meaningful period to period comparisons.
The non-GAAP financial measures presented in this report include non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income, non-GAAP net income and non-GAAP earnings per share. These non-GAAP financial measures, as defined by us, represent the comparable GAAP financial measures adjusted to exclude primarily the following items: acquisition-related charges; amortization of purchased intangible assets related to acquisitions; severance and facility action costs; and amounts for the settlement of the SEC investigation, as well as the settlement of a securities litigation matter, which were incurred during the first quarter of Fiscal 2011. We provide below more detail regarding each of these items and our reasons for excluding the items. In future periods, we expect that we may again exclude such items and may incur income

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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 the items are non-recurring, infrequent, or unusual.
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 the non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes. In addition, items such as amortization of purchased intangible assets represent the loss in value of intangible assets over time. The expense associated with this loss in value is not included in the non-GAAP financial measures and such measures, therefore, do not reflect the full economic effect of such loss. Further, items such as severance and facility action costs and acquisition expenses that are excluded from the non-GAAP financial measures can have a material impact on earnings. Our management compensates for the foregoing limitations by relying 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 substitutes for gross margin, operating expenses, operating income, net income, and earnings per share prepared in accordance with GAAP, and should be read only in conjunction with financial information presented on a GAAP basis. We provide below reconciliations of each non-GAAP financial measure to its most directly comparable GAAP financial measure, and encourage you to review the reconciliations in conjunction with the presentation of the non-GAAP financial measures for each respective period.
The following is a summary of the costs and other items excluded from the most comparable GAAP financial measures to calculate the non-GAAP financial measures presented in this management's discussion and analysis:
Acquisition-related Costs — Acquisition-related charges are expensed as incurred and consist primarily of retention payments, integration costs, and other costs.  Retention payments include stock-based compensation and cash incentives awarded to employees, which are recognized over the vesting period.  Integration costs include incremental business costs that are primarily attributable to the acquisition of Perot Systems during the fourth quarter of Fiscal 2010 and are being incurred during the integration period.  These costs primarily include IT costs related to $57the integration of IT systems and processes, costs related to the integration of Perot Systems employees, costs related to full-time employees who are working on the integration, and consulting expenses.  Acquisition-related charges are inconsistent in amount and are significantly impacted by the timing and nature of acquisitions. Therefore, although we may incur these types of expenses in connection with future acquisitions, we believe eliminating acquisition-related charges for purposes of calculating the non-GAAP financial measures facilitates a more meaningful evaluation of our current operating performance and comparisons to our past operating performance. 
Amortization of Intangible Assets — Amortization of purchased intangible assets consists primarily of amortization of customer relationships, customer lists, acquired technology, trade names, and non-compete covenants purchased in connection with business acquisitions. We incur charges relating to the amortization of these intangibles, and those charges are included in our consolidated financial statements. Amortization charges for our purchased intangible assets are inconsistent in amount from period to period and are significantly impacted by the timing and magnitude of our acquisitions. Consequently, we exclude these charges for purposes of calculating the non-GAAP financial measures to facilitate a more meaningful evaluation of our current operating performance and comparisons to Dell's past operating performance.
Severance and Facility Actions — Severance and facility action costs primarily relate to facilities charges, including accelerated depreciation and severance and benefits for employees terminated pursuant to actions taken as part of a comprehensive review of costs, including certain employee cost synergies realized through our strategic acquisitions.  While we expect to continue to incur severance and facility costs with any new cost reduction activities, we exclude these severance and facility action costs for purposes of calculating the non-GAAP financial measures because we believe that these historical costs do not reflect expected future operating expenses and do not contribute to a meaningful evaluation of our current operating performance or comparisons to our past operating performance.
Other Fees and Settlements — We also adjust our GAAP results for certain fees and settlements. During the first quarter of Fiscal 2011, we recorded a $100 million settlement amount for the SEC investigation into certain of Dell's accounting and financial matters, which was initiated in 2005, and incurred $40 million for a securities litigation class action lawsuit that was filed against us during Fiscal 2007. We are excluding these settlements from the operating results for the first nine monthsquarter of Fiscal 2011.2011 for the purpose of calculating the non-GAAP financial measures because we believe these fees and settlements, while not unusual, are outside our ordinary course of business and do not contribute to a meaningful evaluation of our current operating performance.
 
•    Research, Development, and Engineering — During the third quarter and first nine months of Fiscal 2011, research, development and engineering (“RD&E”) expenses remained approximately at 1% of revenue, consistent with the prior year periods. We manage our research, development, and engineering spending by targeting those innovations and products that we believe are most valuable to our customers and by relying upon the capabilities of our strategic relationships. We will continue to invest in RD&E activities to support our growth and to provide for new, competitive products.

 
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Operating and NetAggregate Adjustment for Income Taxes — The aggregate adjustment for income taxes is the estimated combined income tax effect for the adjustments mentioned above. The tax effects are determined based on the jurisdictions where the adjustments were incurred.
 
•    Operating Income — During the third quarter and first nine months of Fiscal 2011, operating income increased 77% and 38%, respectively. The increases were primarily attributable to better operating leverage resulting from the increase in net revenue for both current periods and to increases in gross margin dollars of 34% and 19% for the third quarter and first nine months of Fiscal 2011, respectively. For the third quarter of Fiscal 2011, operating expenses increased 19%, while operating expense as a percentage of revenue remained flat. For the first nine months of Fiscal 2011, operating expenses increased 13% while operating expenses as a percentage of revenue decreased 80 basis points to 12.7%.
•    Net Income — For the third quarter and first nine months of Fiscal 2011, net income increasedyear-over-year by 144% and 55% to $822 million and $1,708 million, respectively. Net income was positively impacted by increases in operating income and a lower effective tax rate for the third quarter and first nine months of Fiscal 2011. In addition, Interest and Other, net increased by 181% and 39% for the third quarter and first nine months of Fiscal 2011, respectively, due primarily to a $72 million merger termination fee we received during the third quarter of Fiscal 2011. See “Income and Other Taxes” and “Interest and Other, net” sections below for discussions of our effective tax rates and interest and other, net.
The table below presents a reconciliation of our non-GAAP financial measures to the most comparable GAAP measure for the three months ended April 29, 2011, and April 30, 2010:
 
 Three Months Ended
 April 29, 2011 % Change April 30, 2010
 (in millions, except percentages)
GAAP gross margin$3,432  36% $2,516 
Non-GAAP adjustments:     
Amortization of intangibles71    68 
Severance and facility actions5    29 
Acquisition-related3    1 
Non-GAAP gross margin$3,511  34% $2,614 
      
GAAP operating expenses$2,220  11% $1,997 
Non-GAAP adjustments:     
Amortization of intangibles(21)   (20)
Severance and facility actions(14)   (28)
Acquisition-related(50)   (19)
Other fees and settlements    (140)
Non-GAAP operating expenses$2,135  19% $1,790 
        
GAAP operating income$1,212  134% $519 
Non-GAAP adjustments:     
Amortization of intangibles92    88 
Severance and facility actions19    57 
Acquisition-related53    20 
Other fees and settlements    140 
Non-GAAP operating income$1,376  67% $824 
      
GAAP net income$945  177% $341 
Non-GAAP adjustments:      
Amortization of intangibles92    88 
Severance and facility actions19    57 
Acquisition-related53    20 
Other fees and settlements    140 
Aggregate adjustment for income taxes(59)   (62)
Non-GAAP net income$1,050  80% $584 
      
GAAP earnings per share - diluted$0.49  188% $0.17 
Non-GAAP adjustments per share - diluted0.06    0.13 
Non-GAAP earnings per share - diluted$0.55  83% $0.30 

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 Three Months Ended
 April 29, 2011 April 30, 2010
Percentage of Total Net Revenue   
GAAP gross margin22.9 % 16.9 %
Non-GAAP adjustments0.5 % 0.7 %
Non-GAAP gross margin23.4 % 17.6 %
    
GAAP operating expenses14.8 % 13.4 %
Non-GAAP adjustments(0.6)% (1.4)%
Non-GAAP operating expenses14.2 % 12.0 %
    
GAAP operating income8.1 % 3.5 %
Non-GAAP adjustments1.1 % 2.0 %
Non-GAAP operating income9.2 % 5.5 %
    
GAAP net income6.3 % 2.3 %
Non-GAAP adjustments0.7 % 1.6 %
Non-GAAP net income7.0 % 3.9 %

34


Segment Discussion
Our four global business segments are Large Enterprise, Public, Small and Medium Business, and Consumer.
 
Severance and facility action expenses, broad based long-term incentive expenses, amortization of purchased intangible assets costs, acquisition-related expenses, and charges related to our settlement of the SEC investigation as well as a securities litigation class action lawsuit that were incurred during the first quarter of Fiscal 2011, are not allocated to the reporting segments as management does not believe that these items are reflective of the underlying operating performance of the reporting segments. These costs totaled $218$261 million and $824$392 million for the third quarter and first nine monthsquarters of Fiscal 2012 and Fiscal 2011, respectively. For the third quarter and first nine months of Fiscal 2010, these costs totaled $241 million and $760 million, respectively. See
See Note 1615 of Notes to Condensed Consolidated Financial Statements included in “Part I— Item 1Financial Statements” for additional informationinformation and reconciliation of segment revenue and operating income to consolidated revenue and operating income.


37


The following table summarizespresents our net revenue and operating income by our reportable global segments:
 Three Months Ended
 April 29, 2011   April 30, 2010
 Dollars 
% of
Revenue(a)
 
%
Change
 Dollars 
% of
Revenue(a)
 (in millions, except percentages)
Large Enterprise            
Net revenue$4,477  30% 5 % $4,246  28%
Operating income$504  11% 78 % $283  7%
Public         
Net revenue$3,767  25% (2)% $3,856  26%
Operating income$370  10% 24 % $298  8%
Small and Medium Business         
Net revenue$3,768  25% 7 % $3,524  24%
Operating income$463  12% 48 % $313  9%
Consumer         
Net revenue$3,005  20% (7)% $3,248  22%
Operating income$136  5% 685 % $17  1%
                                         
  Three Months Ended Nine Months Ended
  October 29, 2010   October 30, 2009 October 29, 2010   October 30, 2009
    % of
 %
   % of
   % of
 %
   % of
  Dollars Revenue(a) Change Dollars Revenue(a) Dollars Revenue(a) Change Dollars Revenue(a)
  (in millions, except percentages)
Large Enterprise                                        
Net revenue  $ 4,326    28%    27%   $ 3,403    26%   $ 13,121    29%    30%   $ 10,088    27% 
Operating income  $ 400    9%    130%   $ 174    5%   $ 971    7%    80%   $ 538    5% 
Public                                        
Net revenue  $ 4,442    29%    20%   $ 3,695    29%   $ 12,878    28%    21%   $ 10,664    28% 
Operating income  $ 451    10%    28%   $ 352    10%   $ 1,118    9%    9%   $ 1,028    10% 
Small and Medium Business                                        
Net revenue  $ 3,665    24%    24%   $ 2,956    23%   $ 10,724    23%    23%   $ 8,743    23% 
Operating income  $ 391    11%    39%   $ 282    10%   $ 1,027    10%    35%   $ 758    9% 
Consumer                                        
Net revenue  $ 2,961    19%    4%   $ 2,842    22%   $ 9,079    20%    7%   $ 8,507    22% 
Operating income  $ -    0%   (101%  $ 10    0%   $ (4   0%   (104%  $ 98    1% 
_______________________
(a)
Operating income percentage of revenue is stated in relation to the respective segment.
 
•    Large Enterprise —Theyear-over-year increase in Large Enterprise’s revenue for the third quarter of Fiscal 2011 was mainly attributable to improved demand. Many of our customers who delayed or canceled IT projects as a result of the economic slowdown have resumed IT spending. Large Enterprise experiencedyear-over-year increases in revenue across all product lines during the third quarter of Fiscal 2011 except for Storage, which was relatively flatyear-over-year. Sales of client products generated large revenue increases with mobility and desktop PCs revenue increasing 43% and 32%,year-over-year, respectively. Revenue from servers and networking and services increased 16% and 51%, respectively. The increase in services revenue was largely due to the integration of Perot Systems. During the third quarter of Fiscal 2011, Large Enterprise’s revenue increasedyear-over-year across all regions.
Large EnterpriseRevenue for Large Enterprise increased year-over-year for the first quarter of Fiscal 2012 across all product lines , except for storage and desktop revenue, which declined 30% and 1%, respectively. The decrease in storage revenue was primarily due to a decrease in the sale of third-party storage products as we shift towards more Dell-branded storage solutions. Revenue from servers and networking and services increased 6% and 7%, respectively. Mobility revenue increased 16% and software and peripherals increased 11% year-over-year for the first quarter of Fiscal 2012. During the first quarter of Fiscal 2012, Large Enterprise's revenue increased overall across non-US regions, while revenue from the U.S. decreased slightly.
 
During the first nine monthsquarter of Fiscal 2011, all product and services categories experienced increases in revenue. Revenue from servers and networking increased 42%year-over-year. Revenue from services increased 50% primarily as result of the integration of Perot Systems. Revenue from mobility and desktop PCs increased 35% and 30%year-over-year, respectively.
During the third quarter and first nine months of Fiscal 2011,2012, operating income as a percentage of net revenue increased 410 and 210460 basis pointsyear-over-year to 9.2% and 7.4%, respectively, mostly driven by11.3%. The increase was primarily attributable to improvements in gross margin due to improved component costs and pricing environment, particularly for client products, and tighter spending controls and revenue increases that resultedour products. The increase in a decreasegross margins was partially offset by an increase in operating expenses as a percentage of net revenue.revenue, primarily due to increased selling and marketing costs.
 
•    Public —
PublicDuring the third quarter of Fiscal 2011, Public experienced ayear-over-year increase in revenue across all product and service categories. Services contributed the largest increase, with a 110% increase in revenue over the prior year. The increase in services revenue was primarily a result of our integration of Perot Systems. Revenue from servers and networking and software and peripherals increased 18% and 9%year-over-year, respectively. Revenue from mobility and desktop PCs increased 9% and 7%year-over-year, respectively. Public’s revenue grew during the third quarter of Fiscal 2011 across the Americas and Asia-Pacific regions, but declined in Europe due to fiscal budget constraints.
Public’s revenue also increased for all product and service categories for the first nine monthsquarter of Fiscal 2011 as compared to the prior year.2012, Public experienced an overall decrease in revenue that was primarily driven by year-over-year decreases in revenue from mobility and desktop products of 6% and 13%, respectively. Revenue from servers and networking increased 9% year-over-year, while storage revenue decreased 6%. Revenue from services, and software and peripherals increased 116%2% and 6% year-over-year, respectively. The decline in Public's revenue was primarily driven by decreases in the U.S. and the Europe, Middle East, and African regions, which we refer to as a result"EMEA,"

35


due to continuing budgetary constraints on public spending.
 
Public’sPublic's operating income percentage increased 70210 basis points to 10.2%9.8% for the thirdfirst quarter of Fiscal 20112012 due to improved gross margin percentages for our products, which were partially offset by increases in operating expenses as a percentage of revenue, primarily due to increases in selling and marketing costs.
Small and Medium BusinessDuring the first quarter of Fiscal 2012, SMB experienced a year-over-year increase in revenue with increases across all product and services categories, although revenue increases for mobility and desktop products were slight. Servers and networking, and storage revenue increased 19% and 7% year-over-year, respectively. Revenue from mobility and desktop PCs increased 1% and 2% year-over-year, respectively, while software and peripherals revenue increased 11% year-over-year. The improved demand environment was a major contributor to the increase in revenue for all product categories. Services revenue increased 16% year-over-year. For the first quarter of Fiscal 2012, SMB revenue experienced year-over-year growth across the Americas and Asia Pacific Japan, or "APJ", while SMB revenue from EMEA remained flat.
Operating income percentage increased 340 basis points to 12.3%. The increase in operating income percentage was attributable to improved gross margin percentage,margins for our products, which was slightlywere partially offset by an increase in operating expense as a percentage of revenue. Increases in gross margin percentages for the third quarter of Fiscal 2011 were driven by improved margins from mobility and storage products, offset by a shift in our services portfolio to lower margin


38


categories due to the integration of Perot Systems. For the first nine months of Fiscal 2011, Public’s operating income percentage declined 90 basis points to 8.7% due to ayear-over-year decrease in gross margin percentage and a slight increase in operating expenses as a percentage of revenue. The decline in Public’s gross margin percentagerevenue due to higher selling and marketing costs.
ConsumerConsumer's revenue decreased 7% year-over-year during the first quarter of Fiscal 2012. Revenue from all product and services categories decreased year-over-year for the first nine monthsquarter of Fiscal 2011 was mostly driven by2012, except mobility products, which had a shift in our services portfolio mix to lower margin categories.
•    Small and Medium Business —During the third quarter of Fiscal 2011, SMB experienced ayear-over-yearslight increase in revenue with increases across all product categories. Revenue from mobility and desktop PCs increased by 22% and 32%year-over-year, respectively, while servers and networking and software and peripherals revenue increased 28% and 18%year-over-year, respectively. Storage revenue increased 24%year-over-year largely due to our Dell EqualLogictm offerings. The improved demand environment was a major contributor to the increase in revenue. SMB revenue experiencedyear-over-year growth across all regions during the third quarter of Fiscal 2011, while our SMB BRIC revenue grew 27%year-over-year.
SMB revenue also increased for all product and service categories for the first nine months of Fiscal 2011.2% year-over-year. Revenue from desktop PCs decreased by 26% due to a decline in desktop PC units of 20%. Average selling prices for Consumer mobility products and desktop PCs haddecreased 6% and 7% year-over-year, respectively, during the greatest dollar increases, with increasesfirst quarter of 24% and 27%Fiscal 2012. Consumer services decreased 6% year-over-year respectively. Revenue from servers and networking and software and peripherals increased 28% and 17%, respectively.
For the third quarter and first nine months of Fiscal 2011, operating income percentage increased 120 basis points and 90 basis points, respectively,year-over-year to 10.7% and 9.6%, respectively. The increase in operating income percentagerevenue decreased 27% for the third quarter of Fiscal 2011 was duesame period. We continue to improved gross margins assee a result ofshift in sales mix from direct to retail sales, which typically have lower component costs and an improved pricing environment. The improved operating income percentage for the first nine months of Fiscal 2011 was largely due to improved demand and tighter spending controls that resulted in operating expenses decreasing as a percentage of revenue.
•    Consumer —Consumer’s revenue increased 4%year-over-year during the third quarter of Fiscal 201l. Generally accepted accounting principles (“GAAP”) require us to defer the full amount of revenue and related costs relative to sales for which the right of return or price protection applies unless there is sufficient historical data to establish reasonable and reliable estimates of returns or price protection adjustments. We determined for one of our larger U.S. based retailers that, starting the third quarter of Fiscal 2011, we had sufficient historical data as well as a better understanding of seasonal patterns to start estimating returns and price protection adjustments. Therefore, as required by GAAP, we began recognizing revenue upon shipment for this retailer, net of appropriate reserves when all other revenue recognition criteria have been met. Without the effects of this change, Consumer’syear-over-year change in revenue for the third quarter of Fiscal 2011 would have been flat.
During the third quarter of Fiscal 2011, Consumer mobility revenue increased by 5%year-over-year and revenue from desktop PCs increased 17%. Consumer desktop PCs now represent less than 25% of our Consumer client product sales. The revenue increases from our Consumer client products were offset by decreases of 7% and 13%year-over-yearattach rates for services and software and peripheral products, respectively.peripherals. At a country level, our U.S. Consumer revenue decreased 5%21% year-over-year for the third quarter of Fiscal 2011 due to softer demand, while ournon-U.S. regions in aggregate experienced 14%6% revenue growth. Revenue from BRIC grew 27%26% year-over-year for the thirdfirst quarter of Fiscal 2011.2012.
During the first nine months of Fiscal 2011, Consumer’s revenue grew 7% largely due to an increase in mobility revenue of 13%. The increase in mobility revenue was partially offset by a decrease of 8% in software and peripherals revenue, which was largely due to a second quarter $53 million transaction in the first nine months of Fiscal 2010, in which a vendor purchased our contractual right to share in future revenues from product renewals sold by the vendor. We did not have a similar transaction during the first nine months of Fiscal 2011. At a country level, our U.S. revenue decreased 6% for the first nine months of Fiscal 2011, while our BRIC revenue grew 58%.
 
For the thirdfirst quarter and first nine months of Fiscal 2011, Consumer’s2012, Consumer's operating income percentage decreased approximately 30 and 120increased 400 basis points respectively,year-over-year to 0% for both periods.4.5%. The decreaseincrease in operating income percentage was largely attributable to decreasesan increase in gross margin percentage. Consumer gross


39


margin decreasedincreased due to a shift in salesproduct mix to higher value client products, which generate more favorable gross margins, as well as year-over-year increases in profitability from direct to indirect sales that was not entirely offset by decreases in operating expenses as a percentage of revenue.our customer financing arrangements. Operating expenses as a percentage of revenue remained relatively flatincreased slightly year-over-year during due to increased selling and marketing costs.
For the thirdsecond quarter of Fiscal 2011 and decreased during the first nine months of Fiscal 2011 as compared to the same periods in Fiscal 2010. During the first quarter of Fiscal 2011, we combined Consumer and SMB under a single leadership team to reduce overall costs, though we are continuing to manage and report the two segments separately. As we work to improve profitability, we continue to monetize aspects of the Consumer business model with arrangements with vendors and suppliers, such as revenue sharing arrangements, which we believe will continue to contribute to and improve Consumer’s operating income over time, although such impacts may not be linear.
We expect to see the broad corporate client refresh continue into the next quarter for our Commercial customers, and with an improving cost environment and the appropriate pricing strategy, we believe we will continue to have opportunities to deliver strongyear-over-year growth for our Commercial segments. For our Consumer segment,2012, we expect to see somestronger spending from our Public customers and above average seasonal growth heading intoincreases in revenue from our SMB and Consumer customers.    Our gross margins will continue to be impacted by changes in commodity prices. We expect the holiday season, though revenue growth will becurrent favorable commodity price environment to moderate over the next two quarters.  We expect to balance the effects of changes in the commodity cost environment with pricing discipline, and continue to execute our move to more mutedyear-over-year.differentiated and higher value products. 
 

36


Revenue by Product and Services Categories
We design, develop, manufacture, market, sell, and support a wide range of products that in many cases are customized to individual customer requirements. Our products are organized between enterprise and client categories. Our enterprise products include servers and networking, and storage products. Client products include mobility and desktop PC products. Our services include a broad range of configurable IT and business services, including infrastructure technology, consulting and applications, andproduct-related support services. We also offer software and peripheral products.
The following table summarizes our net revenue by product and serviceservices categories for the three and nine months ended OctoberApril 29, 2010,2011, and OctoberApril 30, 2009:2010:
                                        
 Three Months Ended Nine Months Ended
 October 29, 2010   October 30, 2009 October 29, 2010   October 30, 2009 Three Months Ended
   % of
 %
   % of
   % of
 %
   % of
 April 29, 2011   April 30, 2010
 Dollars Revenue Change Dollars Revenue Dollars Revenue Change Dollars Revenue Dollars 
% of
Revenue
 
%
Change
 Dollars 
% of
Revenue
 (in millions, except percentages) (in millions, except percentages)
Net revenue:
                                                       
Enterprise products:                                        
Enterprise solutions and services:          
Enterprise solutions:               
Servers and networking  $ 1,844    12%    20%   $ 1,539    12%   $ 5,519    12%    31%   $ 4,228    12%  $1,973  13% 11 % $1,785  12%
Storage   543    3%    7%    508    4%    1,721    4%    8%    1,593    4%  481  3% (13)% 554  4%
Services   1,924    12%    55%    1,244    10%    5,730    12%    55%    3,700    10%  1,984  13% 5 % 1,891  13%
Software and peripherals   2,579    17%    8%    2,394    19%    7,610    17%    8%    7,022    18%  2,567  17% 3 % 2,496  17%
Client products:                                        
Client:            
Mobility   4,858    32%    16%    4,191    32%    14,121    31%    18%    11,957    31%  4,716  32% 3 % 4,563  30%
Desktop PCs   3,646    24%    21%    3,020    23%    11,101    24%    17%    9,502    25%  3,296  22% (8)% 3,585  24%
                
Net revenue  $ 15,394    100%    19%   $ 12,896    100%   $ 45,802    100%    21%   $ 38,002    100% 
                
Total net revenue $15,017  100% 1 % $14,874  100%
 
Enterprise Solutions and Services
 
Enterprise Solutions:
Servers and Networking — The increasesincrease in our serverservers and networking revenue duringfor the thirdfirst quarter andof Fiscal 2012, over the first nine monthsquarter of Fiscal 2011 as comparedwas due to a shift towards more differentiated products that command higher selling prices. During the same periodsfirst quarter of Fiscal 2010 were due to demand improvements across all Commercial segments. During the third quarter and first nine months of Fiscal 2011, unit shipments increased 4% and 16%year-over-year, respectively, and2012, average selling prices increased 15% and16%, while units sold decreased 5%.
Storage — Storage revenue decreased 13%year-over-year, respectively, driven by improved product mix toward our new product lines. During for the thirdfirst quarter of Fiscal 2011, unit sales for servers and networking increased across all regions. During the third quarter of Fiscal 2011, we introduced our PowerEdge R415 and PowerEdge R515 rack servers. We also expanded our portfolio of cloud offerings with the launch of our PowerEdge C410x and C6105 and DCS 5120 and 5125 servers.


40


Storage — Storage revenue increased 7% and 8% for the third quarter and first nine months of Fiscal 2011, respectively.2012. The increasedecrease in Storage revenue was primarily driven bydue to an anticipated decline in the sale of third-party storage products as we shift towards selling more Dell-branded storage products such as our SMB segment with 24%EqualLogic, PowerVault, and 22% increasesyear-over-year during the third quarter and first nine months of Fiscal 2011, respectively. Dell EqualLogictm continues to perform strongly, withyear-over-year revenue growth of 66% and 68% for the third quarter and first nine months of Fiscal 2011, respectively.recently added Compellent products. Revenue from Dell-branded storage products increased 11% year-over-year. We have shiftedbelieve that we will generate higher margins as we shift towards more Dell-branded andco-branded storage offerings, which generally can be sold with service solutions and provide increased margin opportunity. Duringsolutions. Our acquisition of Compellent during the thirdfirst quarter of Fiscal 2011, we introduced2012 will expand our PowerVault NX200 network attachedenterprise and cloud storage tower targeted to small businesses.offerings.
Services — Services revenue increased 5% for the first quarter of Fiscal 2012, which was mostly driven by an increase in transactional revenue. Our estimated services backlog as of April 29, 2011, and April 30, 2010, was $14.1 billion and $13.9 billion, respectively. We provide information regarding services backlog because we believe it provides useful trend information regarding changes in the size of our services business over time. Services backlog, as defined by us, includes deferred services revenue and contracted services backlog. Deferred services revenue, which consists primarily of our extended warranties, was $6.9 billion and $6.1 billion as of April 29, 2011, and April 30, 2010, respectively. Estimated contracted services backlog, which is primarily related to our outsourcing services business, was $7.2 billion and $7.7 billion, as of April 29, 2011, and April 30, 2010, respectively. See "Part II — Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Revenue by Product and Services Categories — Services ” in our Annual Report on Form 10-K for the fiscal year ended January 28, 2011 for more information on our services

37


backlog calculation.
 
Services — Services revenue increased by $680 million and $2.0 billion
year-over-year during the third quarter and first nine months of Fiscal 2011, respectively with revenue from Perot Systems contributing a large proportion of the increase. Perot Systems reported revenue for the three and nine months ended September 30, 2009, of $629 million and $1.9 billion, respectively. With the ongoing integration of Perot Systems, we have simplified the way we view our services business by grouping offerings with similar demand, economic and delivery profiles into three categories: outsourcing, project-based, and transactional services. Combining the results of Perot Systems revenue for the three and nine months ended September 30, 2009, with Dell Services revenue for the three and nine months ended October 30, 2009, does not take into consideration intercompany charges, anticipated synergies, or other effects of the integration of Perot Systems. Perot Systems’ September 30, 2009, results are presented for informational purposes only and are not indicative of the results that actually would have occurred if the acquisition had been completed at the beginning of Fiscal 2010, nor are they indicative of future results.
The integration of Perot Systems primarily impacts our Public and Large Enterprise segments. We continue to view services as a strategic growth opportunity and will continue to invest in our offerings and resources focused on increasing our solutions sales. The dynamics of our services business will continue to change as we integrate Perot Systems. With Perot Systems, we have extended our services business further into infrastructure business process outsourcing, consulting, and application development as well as our overall customer base. We also anticipate expanding our existing managed and modular services businesses.
Our deferred service revenue balance increased 9%year-over-year to $6.5 billion at October 29, 2010, primarily due to an increase in the volume of up-sell service offerings.
Software and Peripherals — Revenue from sales of software and peripherals (“S&P”) is derived from sales of Dell-branded printers, monitors (not sold with systems), projectors, keyboards, mice, docking stations, and a multitude of third-party peripherals, including LCD televisions, cameras, stand-alone software sales and related support services, and other products. The 3% year-over-year increase in S&P revenue for the first quarter of Fiscal 2012 was driven by overall customer unit shipment increases due to improvements in demand in displays andrevenue from the sale of electronics and peripherals and software, which experiencedwas partially offset by a combinedyear-over-yeardecrease in revenue increase of 14% and 16%from imaging products. Revenue from displays were flat year-over-year for the third quarter and first nine months of Fiscal 2011, respectively. During the third quarter of Fiscal 2011, we introduced eight new LED and laser color printers as well as our new Studio LED monitors.2012.
 
Software revenue from our S&P line of business, which includes stand-alone sales of software license fees and related post-contract customer support, is includedreported in services revenue, including software related on theour Condensed Consolidated Statements of Income. Software and related support services revenue represented 33% for both the third quarter and first nine months of Fiscal 2011, and 42%32% of services revenue, including software related for both the third quarter and first nine monthsquarters of Fiscal 2010.2012 and Fiscal 2011, respectively.
 
Client
 
Mobility — Revenue from mobility products (which include notebook computers, mobile workstations, and smartphones) increased during the third quarter and first nine months of Fiscal 2011 across all operating segments due to demand improvements. Mobility units increased 10% and 19%Mobility — Revenue from mobility products (which include notebook computers, mobile workstations, and smartphones) increased 3% during the first quarter of Fiscal 2012, which was primarily driven by our Large Enterprise segment and partially offset by a decrease in our Public segment. Revenue from our SMB and Consumer customers was relatively flat year-over-year for the first quarter of Fiscal 2012. Mobility units increased 6%, while average selling prices decreased slightly by 2% for the first quarter of Fiscal 2012. The increase in mobility revenue is primarily driven by our Latitude and XPS notebooks. for the third quarter and first nine months of Fiscal 2011, respectively. Average selling prices increased 5% for the third quarter of Fiscal 2011 and decreased 1% for the first nine months of Fiscal 2011. The increase in average selling prices for the third quarter of Fiscal 2011 was due to a shift in product mix to higher priced units which we believe will continue as we drive to more solutions and offerings. During the third quarter and first nine months of Fiscal 2011, overall, Commercial mobility revenue increased 24%


41


and 22%year-over-year, respectively, and Consumer increased 5% and 13%, respectively. The increase in Commercial mobility is driven by increases in demand for our Latitude notebooks. We believe the on-going demand trend towards mobility products will continue, and we plan to address this demand by expanding our product platforms to cover broader feature sets and price bands. During the third quarter of Fiscal 2011, we introduced a new family of XPS laptops and the Inspiron M101z laptop.
 
Desktop PCs — During the first quarter of Fiscal 2012, revenue from desktop PCs (which include desktop computer systems and fixed workstations) decreased as units sold for desktop PCs decreased by 7%. The average selling price for our desktop computers decreased slightly by 2% year-over-year. Revenue from our Large Enterprise and SMB customers were relatively flat year-over-year, while our Public and Consumer businesses experienced 13% and 26% decreases, respectively. We are continuing to see rising end-user demand for mobility products, which moderates the demand for desktop PCs.
Desktop PCs — During the third quarter and first nine months of Fiscal 2011, revenue from desktop PCs (which include desktop computer systems and fixed workstations) increased as unit demand for desktop PCs increased by 13% and 12%, respectively. The average selling price for our desktop computers increased by 7% and 4%year-over-year for the third quarter and first nine months of Fiscal 2011, respectively due to a slight shift in product mix to higher priced units. The increase in unit demand was driven by our Large Enterprise and SMB customers, both of which generated 32% increasesyear-over-year for the third quarter of Fiscal 2011 and 30% and 27%, respectively, for the first nine months of Fiscal 2011. These increases were driven primarily by the stronger demand for our Optiplex desktop PCs and fixed work stations. In the consumer marketplace, we are continuing to see rising end-user demand for mobility products, which moderates the demand for desktop PCs.
Interest and Other, Netnet
The following table provides a detailed presentation of interest and other, net for the three and nine months ended OctoberApril 29, 2010,2011, and OctoberApril 30, 2009:2010:
                 
  Three Months Ended Nine Months Ended
  October 29,
 October 30,
 October 29,
 October 30,
  2010 2009 2010 2009
  (in millions)
Interest and other, net:
                
Investment income, primarily interest  $ 14   $ 12   $ 33   $ 48 
Gains on investments, net   1   -    4    1 
Interest expense  (50  (45  (143  (113
Foreign exchange   14   (32  (23  (58
Other   73    2    64    15 
                 
Interest and other, net  $ 52   $ (63  $ (65  $ (107
                 
  Three Months Ended
  April 29,
2011
 April 30,
2010
  (in millions)
Interest and other, net:      
Investment income, primarily interest $17  $8 
Gains (losses) on investments, net 1   
Interest expense (62) (47)
Foreign exchange   (30)
Other 2  1 
Interest and other, net $(42) $(68)
 
We continued to maintain a portfolio of instruments with shortershort maturities, which typically carry lower market yields. Investment income forFor the thirdfirst quarter of Fiscal 2011 was relatively flatyear-over-year, while market yields on short-term instruments declinedyear-over-year for2012, our investment income increased over the first nine months of Fiscal 2011, resulting in lower investment income.prior year, primarily due to higher average cash balances with higher average yields.
 
Theyear-over-year increase in interest expense for the thirdfirst quarter and first nine months of Fiscal 20112012 was due to higher debt levels, which increased to $6.0$7.6 billion as of OctoberApril 29, 2010,2011, from $3.8$4.7 billion as of OctoberApril 30, 2009.2010.
 
Theyear-over-year change decrease in foreign exchange expense for the thirdfirst quarter and first nine months of Fiscal 20112012 was primarily due to revaluation gains from revaluationunhedged currencies and a decrease in the cost of certain unhedged foreign currency balances.the hedging program.

 
Other includes a $72 million merger termination fee received during the third quarter38


Income and Other Taxes
Our effective income tax rate was 23.6%19.2% and 34.5%24.4% for the third quarterfirst quarters of Fiscal 20112012 and Fiscal 2010, respectively. The decrease in our effective income tax rate for the third quarter of Fiscal 2011, as compared to the third quarter of Fiscal 2010 was primarily attributable to a cumulative catch up of tax expense in the third quarter of Fiscal 2010, due to a change in estimate related to the amount and geographical distribution of Fiscal 2010 income, and to an increase in the third quarter of Fiscal 2011, as compared to the third quarter of Fiscal 2010, in the proportion of taxable income attributable to lower tax jurisdictions. For the first nine months of Fiscal 2011 and


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Fiscal 2010, our effective income tax rate was 23.2% and 29.3%, respectively. The decrease in our effective income tax rate for the first nine monthsquarter of Fiscal 2011, as compared to2012 from the same period in the prior year,first quarter of Fiscal 2011 was primarily due to an increase in the proportion of taxable income attributable to lower tax jurisdictions during the first nine months of Fiscal 2011, as compared to the first nine months of Fiscal 2010, and to an increased benefit resulting from the favorable settlement of examinations in certain foreign jurisdictions. For the Fiscal 2011 year, we estimate2012. The differences between our effective annual tax rate, including the effect of these favorable settlements to be approximately 25%. The difference between the estimated effective income tax rate and the U.S. federal statutory rate of 35% principally resultsresulted from our geographical distribution of taxable income and permanent differences between the book and tax treatment of certain items.  The incomeOur foreign earnings are generally taxed at lower rates than in the U.S. We continue to assess our business model and its impact in various tax rate for the fourth quarter of Fiscal 2011 will be impacted by the actual mix of jurisdictions in which income is generated.jurisdictions.
 
We take certain non-income tax positions in the jurisdictions in which we operate and have received certain non-income tax assessments from some of these jurisdictions. We are also involved in related non-income tax litigation matters in various jurisdictions. These jurisdictions include Brazil, where we have beenare in litigation with a state government over the proper application of transactional taxes to warranties and software related to the sale of computers, as well as overcomputers. See Note 13 of the appropriate useNotes to Condensed Consolidated Financial Statements included in “Part I - Item 1 - Financial Statements ” for additional information on these income tax related matters.
LEGAL MATTERS
Several of state statutory incentivesour vendors have been involved in legal actions initiated by their customers, including us, that relate to reducethese vendors' past pricing practices.  In the transactional taxes. Whilepast, we believehave received settlements relating to these legal actions and we will ultimately prevailmay receive additional settlements in the Brazilian courts, we have also negotiated certain tax incentives with the state that can be usedfuture relating to offset potential tax liabilities should the courts rule against us. The incentives are based upon the numbersuch currently unresolved actions.  See Note 11 of jobs we maintain within the state. Recently, we settled two casesNotes to Condensed Consolidated Financial Statements included in “Part I - Item 1 - Financial Statements” for additional information on other litigation related to warranties and software under a taxpayer amnesty program utilizing the incentive credits instead of cash to minimize the impact to our consolidated financial statements. The third outstanding case, for which we have pledged our manufacturing facility in Hortolandia, Brazil to the government, remains pending.matters.
 
We continue to believe our positions are supportable, a liability is not probable, that we will ultimately prevail, and that a risk of disruption to our Brazilian manufacturing operations is remote. In the normal course of business, our positions and conclusions related to our non-income taxes could be challenged and assessments may be made. To the extent new information is obtained and our views on our positions, probable outcomes of assessments, or litigation change, changes in estimates to our accrued liabilities would be recorded in the period in which the determination is made.
ACCOUNTS RECEIVABLE
We sell products and services directly to customers and through a variety of sales channels, including a retail distribution network.distribution. At OctoberApril 29, 2010,2011, our gross accounts receivable, balancenet was $6.5$6.2 billion, which represented an increase of 9.3%a 5% decrease from our balance at January 29, 2010. The increase28, 2011. This decrease in accounts receivable was primarily attributabledue to our Commerciala slight decrease in revenue growth during the first nine months of Fiscal 2011.quarter-over-quarter. We maintain an allowance for doubtful accounts to cover receivables that may be deemed uncollectible. The allowance for losses is based on specific identifiable customer accounts that are deemed at risk and a general provision based on historical bad debt experience. As of OctoberApril 29, 2010,2011 and January 29, 2010,28, 2011, the allowance for doubtful accounts was $99$95 million and $115$96 million, respectively. Our allowance has declined as a percentage of accounts receivable over the prior year due to improved aging of balances and better loss experiences. Based on our assessment, we believe that we are adequately reserved for expected credit losses. We monitor the aging of our accounts receivable and continue to take actions to reduce our exposure to credit losses.
DELL FINANCIAL SERVICES AND FINANCING RECEIVABLES
DFS offers a wide range of financial services in the U.S., including originating, collecting, and servicing customer receivables related to the purchase of Dell products. To support the financing needs of our customers internationally, we have aligned with a select number of third-party financial services companies. In April 2011, we announced our intent to acquire Dell Financial Services Canada Limited. from CIT Group Inc., as well as CIT Vendor Finance's Dell-related assets and sales and servicing functions in Europe. The acquisition of these assets will enable global expansion of Dell's direct finance model. Subject to customary closing conditions, we expect to close the acquisition in Canada in the second quarter of Fiscal 2012 and the acquisition in Europe in Fiscal 2013. CIT Vendor Finance is currently a Dell financing partner operating on behalf of Dell Financial Services in more than 25 countries and will continue to support Dell for the transition periods in Canada and Europe. CIT Vendor Finance will also continue to provide financing programs with Dell in select countries around the world beyond these transactions, including programs in Latin America.
  
FINANCING RECEIVABLESThe results of DFS are included in the business segment where the customer receivable was originated. Due to improving economic conditions and portfolio performance, DFS's contribution to operating profitability has increased for all of our business segments.
 
At OctoberApril 29, 2010,2011 and January 29, 2010,28, 2011, our net financing receivables balances were $4.3 billion and $3.0$4.4 billion, respectively. The increase was primarily the result of the consolidation of two previously nonconsolidated qualifying special purpose entities (“SPEs”) and a purchase of revolving customer receivables from CIT Group Inc. (“CIT”) as discussed below. We expect some growth in financing receivables to continue through the remainder ofthroughout Fiscal 2011.2012. To manage the expected growth in financing receivables, we will continue to balance the use of our own working capital and other sources of liquidity, including securitization programs. Starting in the first quarter of Fiscal 2011, CIT, formerly a joint venture partner of Dell Financial Services L.L.C. (“DFS”
We have securitization programs to fund revolving loans and fixed-term leases and loans through consolidated special purpose entities ("SPEs"), our wholly-owned subsidiary, is no longer funding DFS financing receivables.


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During the first nine months of Fiscal 2011,which we continued toaccount for as secured borrowings. We transfer certain customer financing receivables to these SPEs in securitization transactions. Thewhose purpose of the SPEs is to facilitate the funding of customer receivables through financing arrangements with multi-seller

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conduits that issue asset-backed debt securities in the capital markets. WeDuring the first quarters of Fiscal 2012 and Fiscal 2011, we transferred $510$499 million and $146$496 million, respectively, to these SPEs during the three months ended October 29, 2010, and October 30, 2009, and $1.5 billion and $641 million during the first nine months of Fiscal 2011 and Fiscal 2010, respectively.SPEs. Our risk of loss related to these securitized receivables is limited to the amount of our over-collateralization in the transferred pool of receivables. We have a securitization program to fund revolving loans through a consolidated SPE, which we account for as a secured borrowing. Additionally, as of January 29, 2010, the two SPEs that funded fixed-term leases and loans were not consolidated. Asrecently replaced one of the beginning of the first quarter of Fiscalfixed-term lease and loan programs in May 2011, we adopted the new accounting guidance that requires us to apply variable interest entity accounting to these special purpose entities and therefore, consolidated the two remaining nonconsolidated SPEs. The impact of the adoptionwhich resulted in a decrease to beginning retained earningsbetter pricing for Fiscalthis program. At April 29, 2011 of $13 million. There was no impact to our results of operations or our cash flows upon adoption of the new accounting guidance. Starting in the first quarter of Fiscal 2011, we account for these fixed-term securitization programs as secured borrowings. At October 29, 2010, and January 29, 2010,28, 2011, the structured financing debt related to all of our secured borrowing securitization programs was $1.0$1.2 billion and $164 million,$1.0 billion, respectively, and the carrying amount of the corresponding financing receivables was $1.4 billion and $0.3$1.3 billion, respectively.
During the third quarter, we purchased a portfolio of revolving receivables from CIT that consisted of revolving Dell customer account balances. These receivables were purchased for $430 million and had a principal and accrued interest balance of $570 million at the date of purchase. All of the receivables have been serviced by DFS since their inception. In connection with the acquisition, we ended our servicing relationship with CIT for these assets. See the “Restricted Cash” discussion below for additional information on the termination of our agreement with CIT. We believe the overall economics generated by these assets will be accretive to our results and will provide an acceptable return on capital.
We maintain an allowance to cover expected financing receivable credit losses and we evaluate credit loss expectations based on our total portfolio. For the three months ended OctoberApril 29, 2010,2011 and January 29, 2010,28, 2011, the net principal charge-off rate for our total portfolio excluding the effect of the receivables purchased from CIT in the third quarter of Fiscal 2011 was 6.2%5.3%, and 8.2%6.5%, respectively. If the receivables purchased from CIT were included in our portfolio for the entire third quarter of Fiscal 2011 the rate would be 7.3%. Principal charge-offs for the purchased receivables do not impact our allowance for losses as they were contemplated in the purchase price and are reflected in the yield recognized as interest income. The allowance for losses is determined based on various factors, including historical and anticipated experience, past due receivables, receivable type, and customer risk profile. At OctoberApril 29, 2010,2011 and January 29, 2010,28, 2011, the allowance for financing receivable losses was $257$217 million and $237$241 million, respectively. In general, we are seeing improving loss rates associated with our financing receivables as the economy has stabilized. We have an extensive process to manage our exposure to customer risk, including active management of credit lines and our collection activities. The increasecredit quality mix of our financing receivables has improved in the allowance is primarilyrecent years due to our underwriting actions and as the incremental allowance from the consolidationmix of variable interest entities.high quality commercial accounts in our portfolio has increased. Based on our assessment of the customer financing receivables, we believe that we are adequately reserved.
The Credit Card Accountability, Responsibility, and Disclosure Act of 2009 was signed into U.S. law on May 22, 2009, and has affected the consumer financing provided by DFS. Commercial credit is unaffected by the changes in law. All provisions of the law are now in effect. This Act imposed new restrictions on credit card companies in the areas of marketing, servicing, and pricing of consumer credit accounts. The changes have not substantially altered how consumer credit is offered to our customers or how their accounts are serviced. We do not believe that the impact of these changes is material to Dell’s financial results.
See Note 5 of Notes to Condensed Consolidated Financial Statements included in “Part I — Item 1 — Financial Statements” for additional information about our financing receivables.receivables and the associated allowance.
OFF-BALANCE SHEET ARRANGEMENTS
With the consolidation of our previously nonconsolidated special purpose entities, we no longerWe do not have any off-balance sheet financing arrangements.


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LIQUIDITY, AND CAPITAL COMMITMENTS, AND CONTRACTUAL CASH OBLIGATIONS
Current Market Conditions
We regularly monitor economic conditions and associated impacts on the financial markets and our business. Though there washas been improvement in the global economic environment during the first nine months of Fiscal 2011,in recent quarters, we continue to be cautious given the volatility associated with currency markets, international sovereign economies, and other economic indicators. We continue to 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. Additionally, we maintain a conservative investment portfolio with shorter duration and high quality assets.
We monitor credit risk associated with our financial counterparties using various market credit risk indicators such as credit ratings issued by nationally recognized 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.
 
See “Part IItem 1ARisk Factors” in our Annual Report onForm 10-K for the fiscal year ended January 29, 2010,28, 2011, for further discussion of risks associated with instability in the financial markets as well as our use of counterparties. We believe that no significant concentration of credit risk exists for our investments. The impact on our Condensed Consolidated Financial Statements of any credit adjustments related to these counterparties has been immaterial.
Liquidity
Liquidity
We ended the third quarter of Fiscal 2011 and Fiscal 2010 with $14.0 billion in cash, cash equivalents, and investments. Cash generated from operations is our primary source of operating liquidity and we believe that internally generated cash flows are sufficient to support day-to-day business operations. We have an activeOur working capital management team thatactively monitors the efficiency of our balance sheet by evaluating liquidity under various macroeconomic and competitive scenarios. These scenarios quantify risks to the financial statements and provide a basis for actions necessary to ensure adequate liquidity, both domestically and internationally, to support our acquisition and investment strategy, share repurchase activity and other corporate needs. We utilize external capital sources, such as long-term notes and other term debt, commercial paper, and structured financing arrangements, and short-term borrowings, consisting primarily of commercial paper, to supplement our internally generated sources of liquidity as necessary. In addition, weWe have a currently effective shelf registration statement filed with the SEC for the issuance of an indeterminate amount of debt securities. The current shelf registration will terminate during the firstsecond quarter of Fiscal 2012 and we intend to replace the shelf registration prior to its termination to allow us to continue to issue debt securities. During the thirdfirst quarter of Fiscal 2011,2012, we issued $1.5 billion in principal amount of long-term notes.notes with terms that are consistent with our recent note issuances. We intend to maintain the appropriate debt levels based upon cash flow expectations, the overall cost of capital, cash requirements for operations, and discretionary spending, including for acquisitions and share repurchases. Due to the overall strength of our financial position, we believe that we will have adequate access to capital

40


markets. Any future disruptions, uncertainty or volatility in those markets may result in higher funding costs for us and could adversely affect our ability to obtain funds.
 
At April 29, 2011, we had $15.2 billion in total cash, cash equivalents, and investments. Our cash balances are held in numerous locations throughout the world, including substantial amounts heldmost of which are outside of the U.S. While our U.S. cash balances do fluctuate, we typically operate with 10% - 20% of our cash balances held domestically. Demands on our domestic cash have increased as a result of our strategic initiatives. We fund these initiatives through a balance of internally generated cash, external sources of capital, which include our $2.0 billion commercial paper program, and, when advantageous, access to foreign cash in a tax efficient manner. Where local regulations limit an efficient intercompany transfer of amounts held outside of the U.S., we will continue to utilize these funds for local liquidity needs. Under current law, balances available to be repatriated back to the U.S. would be subject to U.S. federal income taxes, less applicable foreign tax credits. We have provided for the U.S. federal tax liability on these amounts for financial statement purposes, except for foreign earnings that are considered permanently reinvested outside of the U.S. We utilize a variety of tax planning and financing strategies with the objective of having our worldwide cash available in the locations where it is needed. Ournon-U.S. domiciled cash and investments are generally denominated in the U.S. dollar.Dollar.


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The following table contains a summary of our Condensed Consolidated Statements of Cash Flows for the respective periods:
        
 Nine Months Ended
 October 29,
 October 30,
 Three Months Ended
 2010 2009 April 29,
2011
 April 30,
2010
 (in millions) (in millions)
Net change in cash from:
              
Operating activities  $ 2,486   $ 2,638  $465  $238 
Investing activities  (924  (111 (1,549) (360)
Financing activities   676    1,729  1,170  (254)
Effect of exchange rate changes on cash and cash equivalents   16    187  62  (4)
    
Change in cash and cash equivalents  $ 2,254   $ 4,443  $148  $(380)
    
Operating Activities — Operating cash flows for the first quarter of Fiscal 2012 increased compared to the prior year. The decreaseincrease in operating cash flows was primarily leddriven by less favorable changesyear-over-year increases in working capital during the first nine months of Fiscal 2011, the effects ofnet income and deferred services revenue, which were partially offset by the increasea net unfavorable change in net income and deferred revenue.working capital. See “Key Performance Metrics” below for additional discussion of our cash conversion cycle.
Investing Activities —Investing activities consist of the net of maturities and sales and purchases of investments; net capital expenditures for property, plant, and equipment; principal cash flows related to purchased financing receivables; and net cash used to fund strategic acquisitions. DuringCash used in investing activities during the first nine monthsquarter of Fiscal 2011, net cash used for investment activities2012 was $924 million, as$1.5 billion compared to a net cash used of $111$360 million during the first nine monthsquarter of Fiscal 2010.2011. Theyear-over-year increase in cash used in investing activities for the first quarter of Fiscal 2012 was mainly due to a $430 million purchase of financing receivables from CIT and strategic acquisitions in Fiscal 2011. The purchase of these financing receivables allows us to substantially end our servicing relationship with CIT related to the previous joint venture in the U.S. Additionally, we believe that the return on capital generated by these assets will be equal to or higher than that achieved by other financing activities.acquisition spending. Cash used to fund strategic acquisitions, net of cash acquired, was approximately $246$1.5 billion during the first quarter of Fiscal 2012 compared to approximately $133 million during the first nine monthsquarter of Fiscal 2011. Our Fiscal 2012 acquisitions consisted of SecureWorks and Compellent , while our first quarter Fiscal 2011 acquisitions consisted primarily related to the acquisition of KACE and Ocarina, compared to $3 million during the first nine months of Fiscal 2010.Kace Networks, Inc.
Financing Activities — Financing activities primarily consist of proceeds and repayments from borrowings and the repurchase of our common stock. Theyear-over-year decrease increase in cash provided by financing activities for the first nine months of Fiscal 2011 was due to the repurchase of our common stock and repayment of commercial paper. We repurchased 42 million shares for $600 million during the first nine months of Fiscal 2011 and expect to repurchase shares during the fourth quarter of Fiscal 2011. We did not repurchase any shares during2012 was mainly due to the first nine months of Fiscal 2010.
During the first nine months of Fiscal 2011, net cash used for repayment of commercial paper with maturities of both greater than and less than 90 days was $496 million, which was partially offset by $305 million in net proceeds from structured financing programs. We had net proceeds of $251 million from commercial paper during the first nine months of Fiscal 2010. During both the first nine months of Fiscal 2011 and Fiscal 2010, we had net proceeds from issuance of long-term debt of $1.5 billion. We did not issue any debt during the first quarter of Fiscal 2011. During the first quarter of Fiscal 2012, net cash provided by proceeds from structured financing programs was $116 million compared to $35 million during the first quarter of Fiscal 2011. We had $4.8net repayments of $86 million from commercial paper during the first quarter of Fiscal 2011. We did not issue or repay any commercial paper during the first quarter of Fiscal 2012. We had $6.3 billion in principal amount of long-term notes and senior debentures outstanding as of OctoberApril 29, 20102011, compared to $3.3 billion at Octoberas of April 30, 2009.
During2010. Offsetting the net proceeds from debt was cash used for the repurchase of 31 million shares of common stock for $450 million during the first nine monthsquarter of Fiscal 2011, we entered into a new agreement2012 compared to expand our commercial paper program to $2 billion. $200 million used for the repurchase of 12 million shares in the first quarter of Fiscal 2011.
We have $2$3 billion of senior unsecured revolving credit facilities supporting theprimarily to support our $2 billion commercial paper program. OurWe entered into a new senior unsecured revolving credit facility during the first quarter of Fiscal 2012 for an increased amount of $2 billion, of credit facilities consist of two agreements, withwhich will expire on April 15, 2015. We terminated the $1 billion expiring on June 1, 2011, andcredit facility that was set to expire in the second quarter of Fiscal 2012. The remaining $1 billion expiringcredit facility will expire on April 2, 2013. As of April

 
During the first nine months41


29, 2011, we issued commercial paper with original maturities of less than 90 days. As of October 29, 2010, we did not have any amounts outstanding under the commercial paper program compared to $351$410 million as of OctoberApril 30, 2009. We will issue short-term borrowings to augment our liquidity as needed.2010.


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We issued structured financing-related debt to fund our financing receivables as previously discussed in the “Financing Receivables” section above. The total debt capacity of our securitization programs was $1.2is $1.4 billion, and we had $1.0$1.2 billion in outstanding structured financing securitization debt as of OctoberApril 29, 2010. During the third quarter of Fiscal 2011, we renewed one of our fixed-term securitization programs and increased the debt capacity by $100 million.
In the beginning of the fourth quarter of Fiscal 2011, we expanded our existing revolving loan securitization program with a new program that increased debt capacity levels. Additionally as part of our annual renewal process, we expect to renew our other fixed-term securitization program later in the fourth quarter of Fiscal 2011.
See Note 6 of the Notes to Condensed Consolidated Financial Statements under “Part I — Item 1 Financial Statements” for further discussion of our debt.
Key Performance Metrics — Our cash conversion cycle for the fiscal quarter ended OctoberApril 29, 2010, decreased2011 contracted from the fiscal quarter ended OctoberApril 30, 2009.2010. Our business model allows us to maintain an efficient cash conversion cycle, which compares favorably with that of others in our industry.
The following table presents the components of our cash conversion cycle at Octoberfor the three months ended April 29, 2010,2011, and OctoberApril 30, 2009:2010:
  Three Months Ended
  April 29,
2011
 April 30,
2010
Days of sales outstanding(a)
 40  38 
Days of supply in inventory(b)
 10  9 
Days in accounts payable(c)
 (81) (83)
Cash conversion cycle (31) (36)
         
  October 29,
 October 30,
  2010 2009
Days of sales outstanding(a)
   41    40 
Days of supply in inventory(b)
   9    8 
Days in accounts payable(c)
  (82  (84
         
Cash conversion cycle  (32  (36
         
_____________________
(a)
Days of sales outstanding (“DSO”) calculates the average collection period of our receivables. DSO is based on the ending net trade receivables and the most recent quarterly revenue for each period. DSO also includes the effect of product costs related to customer shipments not yet recognized as revenue that are classified in other current assets. DSO is calculated by adding accounts receivable, net of allowance for doubtful accounts, and customer shipments in transit and dividing that sum by average net revenue per day for the current quarter (90 days). At OctoberApril 29, 2010,2011, and OctoberApril 30, 2009,2010, DSO and days of customer shipments not yet recognized were 3837 and 3 days, and 3735 and 3 days, respectively.
(b)Days of supply in inventory (“DSI”) measures the average number of days from procurement to sale of our product.products. DSI is based on ending inventory and most recent quarterly cost of sales for each period. DSI is calculated by dividing inventory by average cost of goods sold per day for the current quarter (90 days).
(c)Days in accounts payable (“DPO”) calculates the average number of days our payables remain outstanding before payment. DPO is based on ending accounts payable and most recent quarterly cost of sales for each period. DPO is calculated by dividing accounts payable by average cost of goods sold per day for the current quarter (90 days).
 
Our cash conversion cycle decreased four days at October 29, 2010,The five day contraction from October 30, 2009,the prior year was driven by a two day increase in DSO, a one day increase in DSI and a two day decrease in DPO and one day increases in DSO and DSI.year-over-year. The decrease in DPO from October 30, 2009, was attributable to the timing of supplier purchases and payments, which was partially offset by our ongoing transition to contract manufacturing as compared to the same period of Fiscal 2010. The slight increase in DSO from OctoberApril 30, 2009, is2010, was due to our growth in services,our commercial business, which typically has longer payment terms. The slight increase in DSI from OctoberApril 30, 2009,2010, was primarily attributable to an increase in strategic purchases of materials purchases and finished goods inventory.
The two day decrease in DPO was due to the timing of supplier purchases and payments.
We defer the cost of revenue associated with customer shipments not yet recognized as revenue until theythese shipments are delivered. These deferred costs are included in our reported DSO because we believe this reporting results in a more accurate presentation of our DSO and cash conversion cycle. These deferred costs are recorded in other current assets in our Condensed Consolidated Statements of Financial Position and totaled $582$497 million and $469$465 million, at OctoberApril 29, 2010,2011, and OctoberApril 30, 2009,2010, respectively.
 
We believe that we can generate cash flow from operations in excess of net income over the long term and can operate our cash conversion cycle near negative mid-thirty days.


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in the mid-negative 30 day range.
Capital Commitments
Share Repurchase Program — We have a share repurchase program that authorizes us to purchase shares of our common stock through a systematic program of open market purchases in order to increase shareholder value and manage dilution resulting from shares issued under our equity compensation plans. However, we do not currently have a policy that requires the repurchase of common stock to offset share-based compensation arrangements. For more information regarding our share repurchases, during the third quarter of Fiscal 2011, see “Part II — Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds.”
Capital Expenditures — During the three monthsfirst quarters of Fiscal 2012 and nine months ended October 29, 2010,Fiscal 2011, we spent $93$137 million and $284$46 million, respectively, on property, plant, and equipment primarily in connection with our global expansion efforts and infrastructure

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investments made to support future growth. We spent $70 million and $249 million for the three and nine months ended October 30, 2009, respectively on property, plant, and equipment. Product demand, product mix, and the increased use of contract manufacturers, as well as ongoing investments in operating and information technology infrastructure, influence the level and prioritization of our capital expenditures. TotalAggregate capital expenditures for Fiscal 2011,2012, which have beenwill be primarily related to infrastructure investments and strategic initiatives, are currently expected to total approximately $350$700 million to $400$750 million. These expenditures are beingwill be primarily funded from our cash flows from operating activities.
 
Restricted Cash — As of October 29, 2010, and January 29, 2010, we had restricted cash in the amounts of $31 million and $147 million, respectively. The balance at January 29, 2010 was primarily related to an agreement between DFS and CIT which required us to maintain an escrow cash account that was held as recourse reserves for credit losses and performance fee deposits related to our private label credit card, as well as to amounts maintained in escrow accounts related to our recent acquisitions. In the third quarter of Fiscal 2011, the agreement between DFS and CIT was terminated and the restricted cash that was held on deposit was returned to CIT. The balance at October 29, 2010 is primarily related to various escrow accounts in connection with our acquisitions.
RECENTLY ISSUED AND ADOPTED ACCOUNTING PRONOUNCEMENTS
 
See Note 1 of Notes to Condensed Consolidated Financial Statements included in “Part IItem 1 —Financial Statements” for a description of recently issued and adopted accounting pronouncements, including the expected dates of adoption and estimated effects on our results of operations, financial position, and cash flows.
 
ITEM 3. 
ITEM 3.  — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a description of our market risks, see “Part II — Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Market Risk” in our Annual Report onForm 10-K for the fiscal year ended January 29, 2010.28, 2011. Our exposure to market risks has not changed materially from the description in the Annual Report onForm 10-K.

ITEM 4. CONTROLS AND PROCEDURES
 
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ITEM 4 — CONTROLS AND PROCEDURES
This Reportreport includes the certifications of our Chief Executive Officer and Chief Financial Officer required byRule 13a-14 under the Securities Exchange Act of 1934 (the “Exchange Act”"Exchange Act"). See Exhibits 31.1 and 31.2 to this report.31.2. This Item 4 includes information concerning the controls and control evaluations referred to in those certifications.
 
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures —
Disclosure controls and procedures (as defined inRules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including the chief executive officerChief Executive Officer and the chief financial officer,Chief Financial Officer, to allow timely decisions regarding required disclosures.


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In connection with the preparation of this Report,report, our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of OctoberApril 29, 2010.2011. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer havemanagement has concluded that our disclosure controls and procedures were effective as of OctoberApril 29, 2010.2011.
 
SEC Settlement Undertakings — - As part of our settlement of an SEC investigation into certain disclosure, accounting and financial reporting matters described under the caption “Legal Matters” in Note 1211 of Notes to Condensed Consolidated Financial Statements included in “Part I - Item 1 - Financial Statements,” we have consented to perform the following undertakings related to our disclosure processes, practices and controls:
 
•  For a minimum period of three years, enhance our disclosure review committee (“DRC”) processes by having qualified outside securities counsel attend all DRC meetings and review all of our SEC periodic filings prior to filing.
•  Within 30 days after court approval of the settlement, which occurred on October 13, 2010, retain an independent consultant not unacceptable to the SEC staff to review and evaluate our disclosure processes, practices and controls and to recommend changes designed to improve those processes, practices and controls, and, within 90 days after issuance of the independent consultant’s report containing such review, evaluation and recommendations, which will be due within 120 days, adopt and implement all recommendations contained in the report.
•  For a minimum period of three years, provide annual training reasonably designed to minimize the possibility of future violations of the disclosure requirements of the federal securities laws, with a focus on disclosures required in management’s discussion and analysis of financial condition and results of operations, for (1) members of the Audit Committee of our Board of Directors; (2) members of the DRC; (3) our senior officers; (4) our internal disclosure counsel; (5) personnel in our internal audit department that perform assurance services; (6) all persons required to certify in our filings with the SEC that such filings make adequate disclosure under the federal securities laws; and (7) all other persons employed by us who have responsibility for the review of our filings with the SEC.
For a minimum period of three years, enhance our disclosure review committee (“DRC”) processes by having qualified outside securities counsel attend all DRC meetings and review all of our SEC periodic filings prior to filing.
Retain an independent consultant not unacceptable to the SEC staff to review and evaluate our disclosure processes, practices and controls and to recommend changes designed to improve those processes, practices and controls, and, within 90 days after issuance of the independent consultant's report containing such review, evaluation and recommendations, which was issued in the first quarter of Fiscal 2012, adopt and implement all recommendations contained in the report.
For a minimum period of three years, provide annual training reasonably designed to minimize the possibility of future violations of the disclosure requirements of the federal securities laws, with a focus on disclosures required in management's discussion and analysis of financial condition and results of operations, for (1) members of the Audit Committee of our Board of Directors; (2) members of the DRC; (3) our senior officers; (4) our internal disclosure counsel; (5) personnel in our internal audit department that perform assurance services; (6) all persons required to certify in our filings with the SEC that such filings make adequate disclosure under the federal securities laws; and (7) all other persons employed by us who have responsibility for the review of our filings with the SEC.
 
We will be required to certify to the SEC staff that we have complied with the foregoing undertakings.
We have initiated actions to perform each of the foregoing undertakings.
 
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTINGChanges in Internal Control over Financial Reporting
 
There was no change in our internal control over financial reporting during the thirdfirst quarter of Fiscal 20112012 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


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PART II — OTHER INFORMATION
 
ITEM 1. 
ITEM 1 — LEGAL PROCEEDINGS
The information required by this item is incorporated herein by reference to the information set forth under the caption “Legal Matters” in Note 1211 of Notes to Condensed Consolidated Financial Statements included in “Part I — Item 1 — Financial Statements,”Statements” and is incorporated herein by reference into this Item 1 of Part II of this report.reference.
 
Additional information on Dell’sDell's commitments and contingencies can be found in Dell’sDell's Annual Report onForm 10-K for the fiscal year ended January 29, 2010 and in its Quarterly Reports onForm 10-Q28, 2011. for the quarterly periods ended April 30, 2010 and July 30, 2010.
ITEM 1A.1A — RISK FACTORS
 
In addition to the other information set forth in this report, the factors discussed in “Part"Part I — Item 1A — Risk Factors”Factors" in our Annual Report onForm 10-K for the fiscal year ended January 29, 2010, and in our Quarterly Report onForm 10-Q for the quarterly period ended July 30, 201028, 2011, could materially affect our business, financial condition, or operating results. The risks described in our Annual Report onForm 10-K and our subsequent SEC reports are not the only risks facing us. There are additional risks and uncertainties not currently known to us or that we currently deem to be immaterial that may also materially adversely affect our business, financial condition, or operating results.


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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 2 — UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
PURCHASES OF COMMON STOCK
Share Repurchase Program
We have a share repurchase program that authorizes us to purchase shares of common stock in order to increase shareholder value and manage dilution resulting from shares issued under our equity compensation plans. However, we do not currently have a policy that requires the repurchase of common stock in conjunction with share-based payment arrangements. The following table sets forth information regarding our repurchases or acquisitions of common stock during the thirdfirst quarter of Fiscal 20112012 and the remaining authorized amount forof future purchases under our share repurchase program:
 
                 
      Total
 Approximate
      Number of
 Dollar Value
      Shares
 of Shares That
      Purchased
 May Yet Be
  Total
   as Part of
 Purchased
  Number
 Weighted
 Publicly
 Under the
  of
 Average
 Announced
 Announced
  Shares
 Price Paid
 Plans or
 Plans or
Period Purchased(a) per Share Programs(b) Programs(b)
  (in millions, except average price paid per share)
 
July 31, 2010, through August 27, 2010  -   $ -   -   $ 4,143 
August 28, 2010, through September 24, 2010   10   $ 12.42    10   $ 4,019 
September 25, 2010, through October 29, 2010   6   $ 13.11    6   $ 3,943 
                 
                 
Total   16   $ 12.67    16     
                 
  
Total Number of Shares Purchased (a)
 Weighted Average Price Paid per Share 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (b)
 
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (b)
Period    
  (in millions, except average price paid per share)
Repurchases from January 29, 2011 through February 25, 2011 11  $14.27  11  $3,582 
Repurchases from February 26, 2011 through March 25, 2011 6  $15.36  6  $3,493 
Repurchases from March 26, 2011 through April 29, 2011 14  $14.72  14  $3,293 
Total 31  $14.68  31    
_____________________
(a) Includes 1,858 shares withheld to cover employee tax obligations for restricted stock awards vested during the quarter ended April 29, 2011 at an average price of $15.69 per share.
 
(b) On December 4, 2007, we publicly announced that our Board of Directors had authorized a share repurchase program for up to $10.0 billion of our common stock over an unspecified amount of time.
 
(a)Includes 2,734 shares withheld to cover employee tax obligations for restricted stock awards vested during the fiscal quarter ended October 29, 2010 at an average price of $12.59 per share.
 
(b)On December 4, 2007, we publicly announced that our Board of Directors had authorized a share repurchase program for up to $10 billion of our common stock over an unspecified amount of time.

ITEM 6. EXHIBITS
 
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ITEM 6. EXHIBITS
ExhibitsSee Index to Exhibits below following the signature page to this report.


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SIGNATURESIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 DELL INC.
   
Date: December 2, 2010By: /s/  THOMAS W. SWEET
  Thomas W. Sweet
  Vice President, Corporate Finance and
  Chief Accounting Officer
  (On behalf of the registrant and as
principal accounting officer)
Date: May 26, 2011


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46


INDEX TO EXHIBITS
 
       
Exhibit
    
No.   Description of Exhibit
 3.1  Restated Certificate of Incorporation, as amended (incorporated by reference to Exhibit 3.1 of Dell’s Quarterly Report on Form 10-Q for the quarterly period ended July 30, 2010, CommissionFile No. 0-17017)
 3.2  Restated Bylaws, as amended and effective as of August 16, 2010 (incorporated by reference to Exhibit 3.2 of Dell’s Quarterly Report on Form 10-Q for the quarterly period ended July 30, 2010, Commission File No. 0-17017)
 4.1  Indenture, dated as of April 27, 1998, between Dell Computer Corporation and Chase Bank of Texas, National Association (incorporated by reference to Exhibit 99.2 of Dell’s Current Report onForm 8-K filed April 28, 1998, Commission File No. 0-17017)
 4.2  Officers’ Certificate pursuant to Section 301 of the Indenture establishing the terms of Dell’s 7.10% Senior Debentures Due 2028 (incorporated by reference to Exhibit 99.4 of Dell’s Current Report on Form 8-K filed April 28, 1998, Commission File No. 0-17017)
 4.3  Form of Dell’s 7.10% Senior Debentures Due 2028 (incorporated by reference to Exhibit 99.6 of Dell’s Current Report on Form 8-K filed April 28, 1998, Commission File No. 0-17017)
 4.4  Indenture, dated as of April 17, 2008, between Dell Inc. and The Bank of New York Trust Company, N.A., as trustee (including the form of notes) (incorporated by reference to Exhibit 4.1 of Dell’s Current Report on Form 8-K filed April 17, 2008, Commission File No. 0-17017)
 4.5  Indenture, dated April 6, 2009, between Dell Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 of Dell’s Current Report on Form 8-K filed April 6, 2009, Commission File No. 0-17017)
 4.6  First Supplemental Indenture, dated April 6, 2009, between Dell Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.2 of Dell’s Current Report on Form 8-K filed April 6, 2009, Commission File No. 0-17017)
 4.7  Form of 5.625% Notes due 2014 (incorporated by reference to Exhibit 4.3 of Dell’s Current Report on Form 8-K filed April 6, 2009, Commission File No. 0-17017)
 4.8  Second Supplemental Indenture, dated as of June 15, 2009, between Dell Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 of Dell’s Current Report on Form 8-K filed June 15, 2009, Commission File No. 0-17017)
 4.9  Form of 3.375% Notes due 2012 (incorporated by reference to Exhibit 4.2 of Dell’s Current Report on Form 8-K filed June 15, 2009, Commission File No. 0-17017)
 4.10  Form of 5.875% Notes due 2019 (incorporated by reference to Exhibit 4.3 of Dell’s Current Report on Form 8-K filed June 15, 2009, Commission File No. 0-17017)
 4.11  Third Supplemental Indenture, dated September 10, 2010, between Dell Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 of Dell’s Current Report on Form 8-K filed on September 10, 2010, Commission File No. 0-17017)
 4.12  Form of 1.40% Notes due 2013 (incorporated by reference to Exhibit 4.2 of Dell’s Current Report on Form 8-K filed on September 10, 2010, Commission File No. 0-17017)
 4.13  Form of 2.30% Notes due 2015 (incorporated by reference to Exhibit 4.3 of Dell’s Current Report on Form 8-K filed on September 10, 2010, Commission File No. 0-17017)
 4.14  Form of 5.40% Notes due 2040 (incorporated by reference to Exhibit 4.4 of Dell’s Current Report on Form 8-K filed on September 10, 2010, Commission File No. 0-17017)
 12.1†  Computation of Ratio of Earnings to Fixed Charges
 31.1†  Certification of Michael S. Dell, Chairman and Chief Executive Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of theSarbanes-Oxley Act of 2002
 31.2†  Certification of Brian T. Gladden, Senior Vice President and Chief Financial Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002


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Exhibit
Exhibit No.  Description of Exhibit
3.132.1†Restated Certificate of Incorporation
3.2 Restated Bylaws, as amended and effective as of August 16, 2010 (incorporated by reference to Exhibit 3.2 of Dell's Quarterly Report on Form 10-Q for the fiscal quarter ended July 30, 2010, Commission File No. 0-17017)
4.1Indenture, dated as of April 27, 1998, between Dell Computer Corporation and Chase Bank of Texas, National Association (incorporated by reference to Exhibit 99.2 of Dell's Current Report on Form 8-K filed April 28, 1998, Commission File No. 0-17017)
4.2Officers' Certificate pursuant to Section 301 of the Indenture establishing the terms of Dell's 7.10% Senior Debentures Due 2028 (incorporated by reference to Exhibit 99.4 of Dell's Current Report on Form 8-K filed April 28, 1998, Commission File No. 0-17017)
4.3Form of Dell's 7.10% Senior Debentures Due 2028 (incorporated by reference to Exhibit 99.6 of Dell's Current Report on Form 8-K filed April 28, 1998, Commission File No. 0-17017)
4.4Indenture, dated as of April 17, 2008, between Dell Inc. and The Bank of New York Mellon Trust Company, N.A. (formerly The Bank of New York Trust Company, N.A.), as trustee (including the form of notes) (incorporated by reference to Exhibit 4.1 of Dell's Current Report on Form 8-K filed April 17, 2008, Commission File No. 0-17017)
4.5Indenture, dated as of April 6, 2009, between Dell Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 of Dell's Current Report on Form 8-K filed April 6, 2009, Commission File No. 0-17017)
4.6First Supplemental Indenture, dated April 6, 2009, between Dell Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.2 of Dell's Current Report on Form 8-K filed April 6, 2009, Commission File No. 0-17017)
4.7Form of 5.625% Notes due 2014 (incorporated by reference to Exhibit 4.3 of Dell's Current Report on Form 8-K filed April 6, 2009, Commission File No. 0‑17017)
4.8Second Supplemental Indenture, dated June 15, 2009, between Dell Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 of Dell's Current Report on Form 8-K filed June 15, 2009, Commission File No. 0-17017)
4.9Form of 3.375% Notes due 2012 (incorporated by reference to Exhibit 4.2 of Dell's Current Report on Form 8-K filed June 15, 2009, Commission File No. 0‑17017)
4.10Form of 5.875% Notes due 2019 (incorporated by reference to Exhibit 4.3 of Dell's Current Report on Form 8-K filed June 15, 2009, Commission File No. 0‑17017)
4.11Third Supplemental Indenture, dated September 10, 2010, between Dell Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 of Dell's Current Report on Form 8-K filed September 10, 2010, Commission File No. 0-17017)
4.12Form of 1.40% Notes due 2013 (incorporated by reference to Exhibit 4.2 of Dell's Current Report on Form 8-K filed September 10, 2010, Commission File No. 0-17017)
4.13Form of 2.30% Notes due 2015 (incorporated by reference to Exhibit 4.3 of Dell's Current Report on Form 8-K filed September 10, 2010, Commission File No. 0-17017)
4.14Form of 5.40% Notes due 2040 (incorporated by reference to Exhibit 4.4 of Dell's Current Report on Form 8-K filed September 10, 2010, Commission File No. 0-17017)
4.15Fourth Supplemental Indenture, dated March 31, 2011, between Dell Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 of Dell's Current Report on Form 8-K filed March 31, 2011, Commission File No. 0-17017)

47


Exhibit No.Description of Exhibit
4.16Form of Floating Rate Notes due 2014 (incorporated by reference to Exhibit 4.2 of Dell's Current Report on Form 8-K filed March 31, 2011, Commission File No. 0-17017)
4.17Form of 2.100% Notes due 2014 (incorporated by reference to Exhibit 4.3 of Dell's Current Report on Form 8-K filed March 31, 2011, Commission File No. 0-17017)
4.18Form of 3.100% Notes due 2016 (incorporated by reference to Exhibit 4.4 of Dell's Current Report on Form 8-K filed March 31, 2011, Commission File No. 0-17017)
4.19Form of 4.625% Notes due 2021 (incorporated by reference to Exhibit 4.5 of Dell's Current Report on Form 8-K filed March 31, 2011, Commission File No. 0-17017)
12.1Computation of ratio of earnings to fixed charges
31.1Certification of Michael S. Dell, Chairman and Chief Executive Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2Certification of Brian T. Gladden, Senior Vice President and Chief Financial Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1†† Certifications of Michael S. Dell, Chairman and Chief Executive Officer, and Brian T. Gladden, Senior Vice President and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101101.INS§ XBRL Instance Document
101101.SCH§ XBRL Taxonomy Extension Schema Document
101101.CAL§ XBRL Taxonomy Extension Calculation Linkbase DocumentDocument.
101101.LAB§ XBRL Taxonomy Extension Label Linkbase DocumentDocument.
101101.PRE§ XBRL Taxonomy Extension Presentation Linkbase DocumentDocument.
101101.DEF§ XBRL Taxonomy Extension Definition Linkbase DocumentDocument.
Filed with this report.
††Furnished with this report.
§Furnished with this report. In accordance with Rule 406T ofRegulation S-T, the information in these exhibits shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.


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48