| FINANCIAL SERVICES | 90 Days Total Current Past Due 1 — 90 Days Past Due > 90 Days Total (in millions) Revolving — DPA $ 613 $ 57 $ 23 $ 693 $ 715 $ 66 $ 27 $ 808 Revolving — DBC 154 19 5 178 175 22 4 201 Fixed-term — Consumer and Commercial 4,759 809 97 5,665 3,994 506 30 4,530 Total customer receivables, gross $ 5,526 $ 885 $ 125 $ 6,536 $ 4,884 $ 594 $ 61 $ 5,539 The increase in our fixed-term past due balances is primarily due to administrative processes for larger transactions, in part due to additional originations from the EMC merger transaction, and does not indicate a deterioration in the credit quality of the portfolio. Credit Quality The following table summarizes customer receivables, gross, including accrued interest, by credit quality indicator segregated by class, as of November 3, 2017 and February 3, 2017 . The categories shown in the table below segregate customer receivables based on the relative degrees of credit risk. The credit quality indicators for DPA revolving accounts are measured primarily as of each quarter-end date, while all other indicators are generally updated on a periodic basis. For DPA revolving receivables shown in the table below, the Company makes credit decisions based on proprietary scorecards, which include the customer's credit history, payment history, credit usage, and other credit agency-related elements. The higher quality category includes prime accounts generally of a higher credit quality that are comparable to U.S. customer FICO scores of 720 or above. The mid-category represents the mid-tier accounts that are comparable to U.S. customer FICO scores from 660 to 719 . The lower category is generally sub-prime and represents lower credit quality accounts that are comparable to U.S. customer FICO scores below 660 . For the DBC revolving receivables and fixed-term commercial receivables shown in the table below, an internal grading system is utilized that assigns a credit level score based on a number of considerations, including liquidity, operating performance, and industry outlook. The grading criteria and classifications for the fixed-term products differ from those for the revolving products as loss experience varies between these product and customer groups. The credit quality categories cannot be compared between the different classes as loss experience varies substantially between the classes. November 3, 2017 February 3, 2017 Higher Mid Lower Total Higher Mid Lower Total (in millions) Revolving — DPA $ 126 $ 214 $ 353 $ 693 $ 136 $ 244 $ 428 $ 808 Revolving — DBC $ 46 $ 54 $ 78 $ 178 $ 61 $ 60 $ 80 $ 201 Fixed-term — Consumer and Commercial (a) $ 2,843 $ 1,694 $ 1,128 $ 5,665 $ 2,232 $ 1,428 $ 870 $ 4,530 ____________________ (a) During the three months ended May 5, 2017, the Company modified its credit scoring methodology for fixed-term financing receivables in response to changes in its go-to-market strategy. This methodology has been modified to a single, consistent, and comparable model across all fixed-term product customers. In connection with this change, the Company has recategorized existing fixed-term customers and has recast prior period credit quality categories to align with the current period presentation. Structured Financing Debt The Company maintains programs which facilitate the funding of financing receivables in the capital markets in the United States, Canada, and Europe. The Company's total structured financing debt, which is collateralized by financing receivables, was $4.3 billion and $3.5 billion as of November 3, 2017 and February 3, 2017 , respectively, under the following programs: • Securitization Programs — The Company maintains securitization programs in the United States and Europe. The securitization programs in the United States include the fixed-term lease and loan securitization program and the revolving loan securitization program. The outstanding balance of debt under these U.S. programs was $1.0 billion and $1.5 billion as of November 3, 2017 and February 3, 2017 , respectively. This debt is collateralized solely by the U.S. financing receivables in the programs. The debt has a variable interest rate and the duration of this debt is based on the terms of the underlying financing receivables. As of November 3, 2017 , the total debt capacity related to the U.S. securitization programs was $2.1 billion . The Company enters into interest swap agreements to effectively convert this portion of its structured financing debt from a floating rate to a fixed rate. See Note 8 of the Notes to the Condensed Consolidated Financial Statements for additional information about interest rate swaps. The Company's U.S. securitization programs became effective on October 29, 2013. The revolving program, which was extended during the third quarter of Fiscal 2017, is effective through June 10, 2018. The fixed-term program, which was extended during the second quarter of Fiscal 2018, is effective through June 10, 2018. The Company established a securitization program in Europe for fixed-term leases and loans. This program is effective through January 13, 2019 . As of November 3, 2017 , the outstanding balance of debt under this program was $387 million , and the total debt capacity related to the securitization program was $699 million . The securitization programs contain standard structural features related to the performance of the securitized receivables which include defined credit losses, delinquencies, average credit scores, and minimum collection requirements. In the event one or more of these criteria are not met and the Company is unable to restructure the program, no further funding of receivables will be permitted and the timing of the Company's expected cash flows from over-collateralization will be delayed. As of November 3, 2017 , these criteria were met. • Fixed-Term Securitization Programs — The Company periodically issues asset-backed debt securities under fixed-term securitization programs to private investors. As of November 3, 2017 and February 3, 2017 , the associated debt balance of these securities was $2.5 billion and $1.4 billion , respectively. The asset-backed debt securities are collateralized solely by the U.S. fixed-term financing receivables in the offerings, which are held by SPEs, as discussed below. The interest rate on these securities is fixed and ranges from 0.42% to 3.61% , and the duration of these securities is based on the terms of the underlying financing receivables. • Other Structured Financing Programs — In connection with the Company's international financing operations, the Company has entered into revolving structured financing debt programs related to its fixed-term lease and loan products sold in Canada and Europe. The aggregate outstanding balances of the Canadian and European revolving structured loans as of November 3, 2017 and February 3, 2017 were $460 million and $382 million , respectively. As of November 3, 2017 , the Canadian program, which was extended during the fiscal year ended February 3, 2017, had a total debt capacity of $172 million . This program is effective through April 15, 2018, and is collateralized solely by the Canadian financing receivables. The European program is effective through February 14, 2018. The program is collateralized solely by the European financing receivables and had a total debt capacity of $350 million as of November 3, 2017 . Variable Interest Entities In connection with the securitization programs discussed above, the Company transfers certain U.S. and European customer financing receivables to Special Purpose Entities ("SPEs") that meet the definition of a Variable Interest Entity ("VIE") and are consolidated, along with the associated debt, into the Condensed Consolidated Financial Statements, as the Company is the primary beneficiary of those VIEs. These SPEs are bankruptcy-remote legal entities with separate assets and liabilities. The purpose of these SPEs is to facilitate the funding of customer receivables in the capital markets. The following table shows financing receivables held by the consolidated VIEs as of the respective dates: November 3, 2017 February 3, 2017 (in millions) Financing receivables held by consolidated VIEs, net: Short-term, net $ 2,552 $ 2,227 Long-term, net 1,896 1,381 Financing receivables held by consolidated VIEs, net $ 4,448 $ 3,608 Financing receivables transferred via securitization through SPEs were $1.0 billion and $0.6 billion for the three months ended November 3, 2017 and October 28, 2016 , respectively, and $2.9 billion and $2.0 billion for the nine months ended November 3, 2017 and October 28, 2016 , respectively. Some of the SPEs have entered into financing arrangements with multi-seller conduits that, in turn, issue asset-backed debt securities in the capital markets. The structured financing debt outstanding, which is collateralized by the financing receivables held by the consolidated VIEs, was $3.9 billion and $3.1 billion as of November 3, 2017 and February 3, 2017 , respectively. The Company's risk of loss related to securitized receivables is limited to the amount by which the Company's right to receive collections for assets securitized exceeds the amount required to pay interest, principal, and fees and expenses related to the asset-backed securities. The Company provides credit enhancement to the securitization in the form of over-collateralization. Financing Receivable Sales To manage certain concentrations of customer credit exposure, the Company may sell selected fixed-term financing receivables to unrelated third parties on a periodic basis. The amount of financing receivables sold was $541 million and $200 million for the nine months ended November 3, 2017 and October 28, 2016 , respectively." id="sjs-B4">FINANCIAL SERVICES The Company offers or arranges various financing options and services for its business and consumer customers in North America, Europe, Australia, and New Zealand through Dell Financial Services and its affiliates (collectively, "DFS"). The key activities of DFS include the origination, collection, and servicing of customer receivables primarily related to the purchase of Dell Technologies' products and services. New financing originations, which represent the amounts of financing provided by DFS to customers for equipment and related software and services, including originations of third-party technology products, were $1.6 billion and $1.1 billion for three months ended November 3, 2017 and October 28, 2016 , respectively, and $4.3 billion and $3.0 billion for the nine months ended November 3, 2017 and October 28, 2016 , respectively. In June 2017, as part of the global expansion of Dell Technologies' captive financing model, the Company purchased a portfolio of customer fixed-term financing receivables totaling approximately $89 million from Bank of Queensland. Bank of Queensland was previously the Company's preferred financing partner in Australia and New Zealand. The Company's financing receivables are aggregated into the following categories: • Revolving loans — Revolving loans offered under private label credit financing programs provide qualified customers with a revolving credit line for the purchase of products and services offered by Dell Technologies. These private label credit financing programs are referred to as Dell Preferred Account ("DPA") and Dell Business Credit ("DBC"). The DPA product is primarily offered to individual consumer customers, and the DBC product is primarily offered to small and medium-sized commercial customers. Revolving loans in the United States bear interest at a variable annual percentage rate that is tied to the prime rate. Based on historical payment patterns, revolving loan transactions are typically repaid within twelve months on average. • Fixed-term sales-type leases and loans — The Company enters into sales-type lease arrangements with customers who seek lease financing. Leases with business customers have fixed terms of generally two to four years . Future maturities of minimum lease payments as of November 3, 2017 were as follows: Fiscal 2018 (remaining three months) - $665 million ; Fiscal 2019 - $1,755 million ; Fiscal 2020 - $1,151 million ; Fiscal 2021 - $503 million ; Fiscal 2022 and beyond - $148 million . The Company also offers fixed-term loans to qualified small businesses, large commercial accounts, governmental organizations, educational entities, and certain individual consumer customers. These loans are repaid in equal payments including interest and have defined terms of generally three to five years . The following table summarizes the components of the Company's financing receivables segregated by portfolio segment as of November 3, 2017 and February 3, 2017 : November 3, 2017 February 3, 2017 Revolving Fixed-term Total Revolving Fixed-term Total (in millions) Financing receivables, net: Customer receivables, gross $ 871 $ 5,665 $ 6,536 $ 1,009 $ 4,530 $ 5,539 Allowances for losses (79 ) (52 ) (131 ) (91 ) (52 ) (143 ) Customer receivables, net 792 5,613 6,405 918 4,478 5,396 Residual interest — 555 555 — 477 477 Financing receivables, net $ 792 $ 6,168 $ 6,960 $ 918 $ 4,955 $ 5,873 Short-term $ 792 $ 2,851 $ 3,643 $ 918 $ 2,304 $ 3,222 Long-term $ — $ 3,317 $ 3,317 $ — $ 2,651 $ 2,651 The following tables summarize the changes in the allowance for financing receivable losses for the respective periods: Three Months Ended November 3, 2017 October 28, 2016 Revolving Fixed-term Total Revolving Fixed-term Total (in millions) Allowance for financing receivable losses: Balances at beginning of period $ 81 $ 54 $ 135 $ 100 $ 56 $ 156 Charge-offs, net of recoveries (21 ) (5 ) (26 ) (21 ) (8 ) (29 ) Provision charged to income statement 19 3 22 16 3 19 Balances at end of period $ 79 $ 52 $ 131 $ 95 $ 51 $ 146 Nine Months Ended November 3, 2017 October 28, 2016 Revolving Fixed-term Total Revolving Fixed-term Total (in millions) Allowance for financing receivable losses: Balances at beginning of period $ 91 $ 52 $ 143 $ 118 $ 58 $ 176 Charge-offs, net of recoveries (63 ) (13 ) (76 ) (69 ) (13 ) (82 ) Provision charged to income statement 51 13 64 46 6 52 Balances at end of period $ 79 $ 52 $ 131 $ 95 $ 51 $ 146 The following table summarizes the aging of the Company's customer financing receivables, gross, including accrued interest, as of November 3, 2017 and February 3, 2017 , segregated by class: November 3, 2017 February 3, 2017 Current Past Due 1 — 90 Days Past Due > 90 Days Total Current Past Due 1 — 90 Days Past Due > 90 Days Total (in millions) Revolving — DPA $ 613 $ 57 $ 23 $ 693 $ 715 $ 66 $ 27 $ 808 Revolving — DBC 154 19 5 178 175 22 4 201 Fixed-term — Consumer and Commercial 4,759 809 97 5,665 3,994 506 30 4,530 Total customer receivables, gross $ 5,526 $ 885 $ 125 $ 6,536 $ 4,884 $ 594 $ 61 $ 5,539 The increase in our fixed-term past due balances is primarily due to administrative processes for larger transactions, in part due to additional originations from the EMC merger transaction, and does not indicate a deterioration in the credit quality of the portfolio. Credit Quality The following table summarizes customer receivables, gross, including accrued interest, by credit quality indicator segregated by class, as of November 3, 2017 and February 3, 2017 . The categories shown in the table below segregate customer receivables based on the relative degrees of credit risk. The credit quality indicators for DPA revolving accounts are measured primarily as of each quarter-end date, while all other indicators are generally updated on a periodic basis. For DPA revolving receivables shown in the table below, the Company makes credit decisions based on proprietary scorecards, which include the customer's credit history, payment history, credit usage, and other credit agency-related elements. The higher quality category includes prime accounts generally of a higher credit quality that are comparable to U.S. customer FICO scores of 720 or above. The mid-category represents the mid-tier accounts that are comparable to U.S. customer FICO scores from 660 to 719 . The lower category is generally sub-prime and represents lower credit quality accounts that are comparable to U.S. customer FICO scores below 660 . For the DBC revolving receivables and fixed-term commercial receivables shown in the table below, an internal grading system is utilized that assigns a credit level score based on a number of considerations, including liquidity, operating performance, and industry outlook. The grading criteria and classifications for the fixed-term products differ from those for the revolving products as loss experience varies between these product and customer groups. The credit quality categories cannot be compared between the different classes as loss experience varies substantially between the classes. November 3, 2017 February 3, 2017 Higher Mid Lower Total Higher Mid Lower Total (in millions) Revolving — DPA $ 126 $ 214 $ 353 $ 693 $ 136 $ 244 $ 428 $ 808 Revolving — DBC $ 46 $ 54 $ 78 $ 178 $ 61 $ 60 $ 80 $ 201 Fixed-term — Consumer and Commercial (a) $ 2,843 $ 1,694 $ 1,128 $ 5,665 $ 2,232 $ 1,428 $ 870 $ 4,530 ____________________ (a) During the three months ended May 5, 2017, the Company modified its credit scoring methodology for fixed-term financing receivables in response to changes in its go-to-market strategy. This methodology has been modified to a single, consistent, and comparable model across all fixed-term product customers. In connection with this change, the Company has recategorized existing fixed-term customers and has recast prior period credit quality categories to align with the current period presentation. Structured Financing Debt The Company maintains programs which facilitate the funding of financing receivables in the capital markets in the United States, Canada, and Europe. The Company's total structured financing debt, which is collateralized by financing receivables, was $4.3 billion and $3.5 billion as of November 3, 2017 and February 3, 2017 , respectively, under the following programs: • Securitization Programs — The Company maintains securitization programs in the United States and Europe. The securitization programs in the United States include the fixed-term lease and loan securitization program and the revolving loan securitization program. The outstanding balance of debt under these U.S. programs was $1.0 billion and $1.5 billion as of November 3, 2017 and February 3, 2017 , respectively. This debt is collateralized solely by the U.S. financing receivables in the programs. The debt has a variable interest rate and the duration of this debt is based on the terms of the underlying financing receivables. As of November 3, 2017 , the total debt capacity related to the U.S. securitization programs was $2.1 billion . The Company enters into interest swap agreements to effectively convert this portion of its structured financing debt from a floating rate to a fixed rate. See Note 8 of the Notes to the Condensed Consolidated Financial Statements for additional information about interest rate swaps. The Company's U.S. securitization programs became effective on October 29, 2013. The revolving program, which was extended during the third quarter of Fiscal 2017, is effective through June 10, 2018. The fixed-term program, which was extended during the second quarter of Fiscal 2018, is effective through June 10, 2018. The Company established a securitization program in Europe for fixed-term leases and loans. This program is effective through January 13, 2019 . As of November 3, 2017 , the outstanding balance of debt under this program was $387 million , and the total debt capacity related to the securitization program was $699 million . The securitization programs contain standard structural features related to the performance of the securitized receivables which include defined credit losses, delinquencies, average credit scores, and minimum collection requirements. In the event one or more of these criteria are not met and the Company is unable to restructure the program, no further funding of receivables will be permitted and the timing of the Company's expected cash flows from over-collateralization will be delayed. As of November 3, 2017 , these criteria were met. • Fixed-Term Securitization Programs — The Company periodically issues asset-backed debt securities under fixed-term securitization programs to private investors. As of November 3, 2017 and February 3, 2017 , the associated debt balance of these securities was $2.5 billion and $1.4 billion , respectively. The asset-backed debt securities are collateralized solely by the U.S. fixed-term financing receivables in the offerings, which are held by SPEs, as discussed below. The interest rate on these securities is fixed and ranges from 0.42% to 3.61% , and the duration of these securities is based on the terms of the underlying financing receivables. • Other Structured Financing Programs — In connection with the Company's international financing operations, the Company has entered into revolving structured financing debt programs related to its fixed-term lease and loan products sold in Canada and Europe. The aggregate outstanding balances of the Canadian and European revolving structured loans as of November 3, 2017 and February 3, 2017 were $460 million and $382 million , respectively. As of November 3, 2017 , the Canadian program, which was extended during the fiscal year ended February 3, 2017, had a total debt capacity of $172 million . This program is effective through April 15, 2018, and is collateralized solely by the Canadian financing receivables. The European program is effective through February 14, 2018. The program is collateralized solely by the European financing receivables and had a total debt capacity of $350 million as of November 3, 2017 . Variable Interest Entities In connection with the securitization programs discussed above, the Company transfers certain U.S. and European customer financing receivables to Special Purpose Entities ("SPEs") that meet the definition of a Variable Interest Entity ("VIE") and are consolidated, along with the associated debt, into the Condensed Consolidated Financial Statements, as the Company is the primary beneficiary of those VIEs. These SPEs are bankruptcy-remote legal entities with separate assets and liabilities. The purpose of these SPEs is to facilitate the funding of customer receivables in the capital markets. The following table shows financing receivables held by the consolidated VIEs as of the respective dates: November 3, 2017 February 3, 2017 (in millions) Financing receivables held by consolidated VIEs, net: Short-term, net $ 2,552 $ 2,227 Long-term, net 1,896 1,381 Financing receivables held by consolidated VIEs, net $ 4,448 $ 3,608 Financing receivables transferred via securitization through SPEs were $1.0 billion and $0.6 billion for the three months ended November 3, 2017 and October 28, 2016 , respectively, and $2.9 billion and $2.0 billion for the nine months ended November 3, 2017 and October 28, 2016 , respectively. Some of the SPEs have entered into financing arrangements with multi-seller conduits that, in turn, issue asset-backed debt securities in the capital markets. The structured financing debt outstanding, which is collateralized by the financing receivables held by the consolidated VIEs, was $3.9 billion and $3.1 billion as of November 3, 2017 and February 3, 2017 , respectively. The Company's risk of loss related to securitized receivables is limited to the amount by which the Company's right to receive collections for assets securitized exceeds the amount required to pay interest, principal, and fees and expenses related to the asset-backed securities. The Company provides credit enhancement to the securitization in the form of over-collateralization. Financing Receivable Sales To manage certain concentrations of customer credit exposure, the Company may sell selected fixed-term financing receivables to unrelated third parties on a periodic basis. The amount of financing receivables sold was $541 million and $200 million for the nine months ended November 3, 2017 and October 28, 2016 , respectively. |
